Innoviva, Inc. (INVA) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us today. I'm Trevor Allred, an analyst on the life sciences team here at Oppenheimer. Today, I have with us Pavel Raifeld, CEO at Innoviva. Thanks for joining us, Pavel. Can you start off by giving us a quick overview of where Innoviva is and where it's been and what's going on today?

Perfect. Thank you, Trevor, for having me at the conference and the opportunity to discuss our progress at Innoviva. And just for context, it might be helpful to briefly talk about the history of the company. Innoviva was originally formed to manage royalty revenues from products that we developed with and licensed to GSK. And as these revenues have become more meaningful, we build out other areas of the business to create and drive shareholder value. And so today, Innoviva is made up of 3 main components. The first one is our royalty business from 2 respiratory assets, Breo and Anoro, which are marketed by GSK. And this royalty portfolio provides a durable and resilient source of cash flow to the company, generating $250 million in gross royalty revenue last year. The second one is our Specialty Therapeutics business, known as Innoviva Specialty Therapeutics, or IST. And this is a commercial stage critical care and refractory disease platform made up of highly differentiated assets. And this business delivered almost $120 million in U.S. sales last year, and we have shared that we expect it to generate at least $150 million this year, which actually would be more than 3x what it was when we first formed the business in 2023. And then last but not the least, we have a diversified portfolio of strategic health care assets with high growth potential, which is currently valued at over $600 million. And so Innoviva is a profitable, well-capitalized company with a resilient all-weather business model and a diversified business structure that I think puts us in a very favorable and differentiated position across multiple market environments. And so actually, yesterday, we -- as you saw, we announced our Q4 earnings, which I think showcased the strengths of our business. And in particular, all parts of our business have performed quite well and demonstrated strong momentum going into 2026. Our IST business delivered its best quarter ever with $34 million in U.S. sales, which is effectively the third year in a row of 50% annual growth. Our royalty business has continued to be resilient as these products have outperformed our expectations for the year, again, beating analyst consensus. And finally, we've had some major advances in our strategic health care assets, highlighted by breakthrough clinical results at one of our portfolio companies, Armata, which had excellent data and then also a very significant valuation increase last quarter, which continues into this year. So overall, I think that we are as well positioned as we've ever been for growth across our business and to realize the promise of some of the investments we've made over the past few years.

Great. Thanks for that overview. Can you tell us a little bit about your expectations for 2026? How do you plan to deploy capital? And then what are you looking forward to most?

Sure. So as we think about our capital allocation strategy, we are in a very fortunate position where we have a comfortable cash position of over $0.5 billion, and we are actually seeing a lot of attractive opportunities for value creation through capital deployment. And we think about these in terms of opportunities within our investment. Our current portfolio, new investment opportunities and then also capital return to shareholders. And so internally, I believe that we've built a platform and a portfolio that provides a very good return on investment for incremental capital. First, our IST business is getting to profitability and growing very rapidly. And I think it still provides us with opportunities to invest in accelerating organic growth as well as through acquisitions. This platform has significant synergies for many additional assets in the hospital channel that could be added to the business, and we are actively evaluating those possibilities. The second point is that our strategic health care assets continue to perform very well as evidenced by progress at Armata that I just mentioned as well as Syndelo and our neuroscience investment, and we expect to continue supporting these in addition to others that we will be talking more about throughout the year. And we think that this portfolio really has a pretty asymmetric upside value creation potential. And then if we look externally, we continue evaluating new investments for long-term value creation as always with a very disciplined and strategic approach. We tend to be patient, but when we see an opportunity that's a good fit for us, we'll have the flexibility and the firepower to move very quickly. And then last but not the least, I think we've consistently demonstrated over years that capital return to shareholders is important to us. And we, again, sort of showed this at the end of last year by announcing $125 million share buyback program, which underscores both our commitment to shareholders, but also our confidence in the growth prospects of our business.

Great. Yes. And you mentioned Armata there. Can you give us more of your thoughts on the direction of Armata? And what are your internal valuation.

Of course. So we've been very consistent supporters of Armata over the past few years and are very excited about the company's potential. I think they've proven themselves to be the clear market leader in the very innovative field of bacteria-based therapeutics. Last year, they announced groundbreaking positive Phase II data in Staphylococcus aureus Bacteremia, showcasing 100% clinical cure rate in an area where best available treatments are sort of are in the 70s percent of success and still have very high mortality levels. And so this is something that if validated in a Phase III trial, could be among biggest paradigm changes in anti-infectives in the last decade. And so in the wake of the strong clinical data, the market has started to internalize the potential of Armata, which has been reflected in their very meaningful share price appreciation. They are an independent public company. So we're limited in terms of the guidance that we can give. But I think that their plans to initiate a Phase III study for their lead asset in the second half of this year are sensible. And we remain supportive and very excited about the recent recognition that they have been getting.

Great. So yes, I guess you've given a lot of discussions around what's going on and what we're seeing. But what areas do you see as the greatest opportunities for growth for Innoviva?

So I think we can break that down by each part of our business. I think that for the therapeutic business, we're in the middle of a very high growth period for our products. So really, we just want to keep doing what we've been doing and hopefully continue generating very strong growth rates from our current portfolio. Additionally, we are at a point where the business can start producing profits that can be strategically reinvested in various areas to accelerate the commercial revenue delivery. And so we're quite excited about that. And we think that there is a lot of room left for inorganic growth. I believe that we might have the best-performing hospital-focused commercial platform in the industry. And I think that there is a very meaningful value that could be unlocked with placing new assets onto this platform. So that's also an area of very active evaluation for us. And then in the other part of our business for the strategic health care assets, we think that our portfolio here has a strong potential asymmetric payoff with very beneficial risk profile. Armata is a good example of our investments in this space, which is a very wide-ranging platform that also has a high potential lead asset. And we've made other investments in neuroscience and other areas where we think that there has been a lot of operational progress, and we are hopeful that this is also going to translate in sort of more financial recognition for these programs. And then as I said a couple of minutes earlier, we also see a lot of attractive de novo capital deployment opportunities. And so we will continue making disciplined investments in areas where we have a differentiated perspective and can generate strong returns. And so to me, there are multiple different opportunities for growth across all of our business.

Yes, absolutely. So let's talk a little bit about some of the recent updates across the pipeline. So we know getting through hospital P&T committees can be a bit of a slow process. Can you update us on the progress there for ZEVTERA? Do you have any expectation for when revenues might begin to inflect for that product?

Yes, of course. So we are -- we continue being excited about ZEVTERA, which, as you know, is approved to treat 3 types of bacterial infections. And as a reminder, we acquired the U.S. commercial rights for ZEVTERA from Basilea about a year ago, and then we began the U.S. launch in the third quarter of last year. The launch process for hospital therapeutics in general and anti-infectives in particular, can be a bit slow. Since ZEVTERA has only had 2 quarters of sales, we're still in the front half of the process of getting through the committees and getting on the formularies. But to date, we've had good success in those and remain confident in the long-term potential of the product. One metric to think about is that is now that we've been on the market for 2 quarters, we still have significantly more formulary reviews on the schedule ahead of us than we've had since launch. And so this is just one of those things that we would need to be patient with because it takes time. But we've been very encouraged by positive initial feedback from the medical community and also have had a few good commercial updates recently. For instance, we received the J-Code designation from the CMS in the fourth quarter, which helps customers with outpatient reimbursement. And on top of that, we also received a new technology add-on payment status, which increased the reimbursement to hospitals for ZEVTERA. So I think that all of that bodes well for the long-term opportunity for ZEVTERA.

Yes. Great. So also, we have Zoliflodacin now approved. Can you provide any expectations for that launch? And how is this product different from those within the other IST portfolio?

Sure. That's a great question. So the FDA approved Zoliflodacin or Nuzolvence in December of last year, which was a very exciting milestone for Innoviva and for patients as Nuzolvence is one of the first new treatments approved by the FDA for uncomplicated urogenital gonorrhea in nearly 2 decades. We're planning to commercialize Nuzolvence in the second half of this year, and we are currently evaluating options on whether to launch by ourselves or with a partner. And frankly, what we're very focused on is making sure that we're going to get this product to patients in a way that's going to be most effective. It's a little different from a number of other products in the IT portfolio. While solvents has some quite strong commercial synergies with IT capabilities and products, it also has a different commercial call point in that the rest of the IT portfolio is focused on the hospital channel, whereas N solvents is more focused on outpatient providers. And it's also unique in that a very significant portion of the commercial opportunity will likely be unlocked a bit later when resistance to the current standard of care, ceftriaxone is going to grow in the U.S. And so I think that both of these factors point to a commercial strategy that early on would be focused on a more targeted promotion to specific patient populations that have an unmet medical need and value a convenient oral option. while at the same time, preparing the platform to scale up as resistance grows, and we would be able to capture the larger opportunity that's going to come with that.

Yes. Great. Yes. And in terms of the IST, the broader IST portfolio, can you speak to some of the peak sales expectations for each of those products? What sort of expectations are baked into those peak sales expectations?

Sure. So as I mentioned earlier, we anticipate $150 million or more of U.S. net product sales in 2026 as compared to just under $120 million in 2025. And I think this speaks to our confidence in the growth potential of the IST platform. While we don't really -- we don't generally provide peak sales guidance on a product level basis, I'd actually be very happy to walk through recent trends and anticipated growth drivers for each of our market. And so perhaps starting with our largest product, GIAPREZA. GIAPREZA is approved for the treatment of septic shock, and it delivered $72 million in 2025 U.S. net sales, a growth of about 34% relative to the prior year. It's maintained a very impressive trajectory since we acquired it as part of the La Jolla acquisition in 2022, driven by commercial effectiveness and also recently by expansion in new patient segments based on data generation efforts through very cost-effective investigator-initiated trials. Looking ahead, I think the big item to potentially watch for are sepsis guideline updates. And once we see how GIAPREZA is positioned there, that might actually provide sort of meaningful levels of support for access and awareness of the product. And we think there is still a very significant headroom for GIAPREZA, and it could easily be an over $100 million product in the near future. If we think about kind of our second most important product, it's XACDURO. And XACDURO is the only therapy which was indicated specifically for resistant SNA bacterial infections. And so it's filling a large unmet need and the growth rate that we've been seeing confirms that to be the case. Right after it launched, it was included in the guidelines as the first-line option for any suspected resistant cases, which will continue to support future growth. It's been performing ahead of expectations and brought in $33 million in U.S. net sales in 2025, which is a year-over-year increase of over 100%. And I think that anywhere where we're going to see problems with this bacteria, we would expect high utilization rates as I think we really are the only option available for these very sick patients. And so I think that there is a great deal of opportunity out there for this product, and we think it's fairly early in the growth curve. I know that analysts expect this drug to be in the range of $150 million and $200 million, and we think that those numbers will be quite achievable. XERAVA, which is another product that we acquired with La Jolla is an antibacterial for the treatment of complicated intraabdominal infections. And it's more of a stable revenue source in our portfolio as opposed to a big growth story. And we expect to see steady lower growth rates and certain types of resistance and overuse of carbapenems create more opportunity for this profile. But perhaps there are fewer sort of major catalysts on the horizon here. And then I think with ZEVTERA, which I've just spoken about, it's the first cephalosporin approved for SAB, including MRSA strains. It became commercially available in the U.S. midyear. And we expect it to go through formula process this year and are hoping to show a good sort of revenue launch trajectory sort of closer to the second half of the year. And then, of course, with Nuzolvence, we've just spoken about that. But to reiterate, I think that the total commercial opportunity will be dependent on the rate of resistance to existing treatments. But if these hit the levels that we expect to see, I think that the total addressable market could be as large as, say, $0.5 billion, and we think that we could be well positioned to capture much of that.

Yes. Great. Thanks for that overview. Okay. And so with all of that, what do you see as the most underappreciated aspect of Innoviva? And what do you think investors should be paying more attention to?

That's a great question. And I think I'd highlight a couple of areas which I think people might underappreciate. The first one, I think that we really are an all-weather company from my perspective in terms of our ability to succeed in multiple economic and market environments. Of course, we're likely to do well when the markets and the industry are doing well. But I think that we could also succeed in down markets because we have strong cash flows, good downside protection stemming from our royalty revenues, while risk of environments actually present us with multiple opportunities to deploy capital, like what we have done with Entasis, La Jolla, Armata and a number of our other assets. And so to me, that's an interesting and perhaps unique feature of Innoviva and our diversified business. I think the second one -- the second area that people might not fully appreciate is the growth potential that's embedded in our strategic health care assets. I think this is playing out with Armata right now, where they had very strong share price performance on the back of truly remarkable clinical data. But we also have other assets that we've discussed, which has significant growth potential and also multiple catalysts that might not really be getting the attention they want because they're currently individually a small part of our overall value. And I think that we're going to -- we're very excited to speak about a few of these opportunities a bit more over the course of the coming year.

Great. Yes. Is there anything else you think investors should be paying attention to into the year ahead as Innoviva heads into 2026?

Yes. So I think that 2026 is going to be a very exciting year for us. And I think that we'd be happy with the sort of continuation of some of the momentum from '25, which I believe was an excellent year. We're going to anticipate us having multiple catalysts across our business. Armata is likely to start their Phase III trial, which I think a number of people in the industry are going to be watching carefully. Our neuroscience company, Syndelo, could have a Phase II readout in the next year in major depressive disorder, which could also be a meaningful value catalyst. We announced last fall that we acquired assets of the company, formerly known as Lyndra Therapeutics, which was an MIT spun out from Bob Langer Lab. And that's something that we are optimistic about and perhaps going to be talking more in the spring. And then, of course, at IST, we have a lot of focus on making sure that we continue growing our portfolio. We look forward to the first full year of ZEVTERA sales and then, of course, to the solvents launch. So we expect to be quite busy in that business. And also, while it's important, it's very challenging to predict these things ahead of time, we are active in [indiscernible] evaluations. And so perhaps there will be opportunities for us to further bring in some new assets into our portfolio. So all in, I think that we're very well positioned for what the future might hold, and I am very excited about the progress that I hope we're going to make over the course of this year.

Yes, absolutely. Looking forward to it. All right. And we're coming up on time now. So thank you all for joining us, and thank you, Pavel, for joining us for that great presentation.

Perfect. Thank you very much, Trevor. Really appreciate it.