Welcome to the afternoon session of the Goldman Sachs Healthcare Conference. We are very pleased to have on stage with us Innoviva, with CEO Pavel Raifeld. I'm joined by my colleague, Roger Zhu, who is here and does all the hard work for our team. On Innoviva, we will get a sense for a unique company that I think a lot of folks probably don't know that much about. I'll ask the gauzy, big picture questions, while Roger, who does a lot of work thinking about sort of the details of what's happening in the trenches with kind of the strategic changes there. Pavel, to begin with, just maybe just give us a snapshot of Innoviva. In particular, I think it's really interesting in terms of the recent history.
It's like, where did you guys come from, and what are you now? There is a subsequent afterthought in terms of follow-through, in terms of, and where are you going? Maybe start from the beginning.
Perfect. Thank you very much. I really appreciate, the opportunity to be here and, speak with you guys. I think you're right to note that we are, a bit of an unusual company. I think that our, our story is that we came, we came from our origins as a royalty asset management company.
Mm-hmm.
We've been generating sort of several hundred million dollars a year, and of course, which is fairly unusual for a biotech company. We over the past couple of years, as we've been thinking about how to deploy capital, we've done a number of things. We cleaned up our capital structure, and then we also made a few investments, and in particular, started building an operating platform in the hospital and infectious disease space. I'm sure that you are going to be asking some more questions about that.
Mm-hmm.
Especially given the recent news flow. I think in general, it's very important to note that we are very sort of thoughtful and disciplined capital allocators, who are very focused on creating value for our shareholders. I think that, we've done much, over the past, quarters and years, to do that.
Tell us a little bit about you. If we think about Innoviva, when Roger and I and my team first began to know the company, it was a very interesting inflection point. You guys had not necessarily leaned in and committed to applying the capital in the strategic direction that you have. Therefore, by default, your decision-making, how you think is really definitional to sort of what shareholders should understand in terms of the direction the story will take, communication, setting of expectations, et cetera. Let's start with a little bit of who is Pavel?
Sure. Very happy to share that. Although I would want to say that Innoviva is, of course, larger than I am. T here is a team that's, supporting and driving a lot of the things that we are doing. I've been with Innoviva for the past 3 years, and it's really been a great privilege to lead this organization and, oversee its transformation. Prior to that, I spent several years as a life sciences investor, focused primarily on public equities. Before that, I spent several years as a life sciences banker, primarily focused on , M&A, and I completed over $50 billion of deals , which is , how some bankers measure themselves.
Prior to that, I was a management consultant, also focused on the life sciences industry, and, working across a host of issues from corporate finance to commercial to other things. Through , through decades of those experiences, I've really developed an appreciation for the complexity, of, the healthcare sector.
Mm-hmm.
Of life sciences. I think that a lot of those experiences and a lot of the things I've seen at other companies , have really informed, sort of, how I think about value creation.
One thing that I don't want to let you pass over is that the element of the sort of the environment that from which you came, and everything from your consulting background, your , corporate finance, M&A, strategic, there has been a flavor to it that has had a bit of an activist bent, I think. I think that that's undeniably one aspect of the Innoviva story in terms of, including where you came from an investor standpoint, the makeup of the board.
I bring that up in the sense that there's some unique aspects to the story, and there's some unique, really tough challenges that you guys are taking on. It's maybe a little bit of a mindset thing of an active investor, as opposed to, It's just clearly it's a spectrum, and maybe I'm being unfair, but it's not like a passive, oh, we just do this and , do our study, keep our head down, the FDA will do all these things. Maybe-
Yeah.
Talk a little bit to this flavor of some of the activist heritage, so to speak, of you, the organization, the company, the genesis, the progression.
Sure. Maybe one thing to note is that activism is, from my perspective, is a tool, but the activist mindset that you mentioned is actually something very important. It's something that I think a number of companies in , life sciences and beyond, could find.
Mm-hmm.
To me, this is, this comes to a few different things. It's unrelenting focus on value creation, it's cost discipline, and it's thinking strategically about , a company's direction.
Mm-hmm.
To me, all of those things are, something that, that, that's going to benefit shareholders, which is why, shareholders, have, oftentimes been supporting activists. I think what you might be referring to is that, about 5 years ago, there was a proxy fight, between, sort of a prior management of, Innoviva.
Mm-hmm.
Sarissa, an investment fund.
Mm-hmm.
As a result, in the aftermath of that, Innoviva sort of had a reconstituted board that has had more of an activist mindset behind it. I think that this philosophy has served us well, as, we try to, really create value for shareholders and make sure that we leave no stone unturned.
No, I think that's interesting because people can map out strategies and have plans and sort of set timelines. In some instances, it's pushing against strings because there has to be a pull on the other end, a nd sometimes it's, pulling against things that are tethered across various resistance points, in terms of, maybe not necessarily confrontations, but challenges that go around it. I think that's valuable for investors to think about, because I think the shareholder mindset also should be one that incorporates the need for a more adaptable time frame. Many of the investors, particularly in the specialist community, depend upon it, just like, what's the quarter? What's the number? have they met their goals for the year, et cetera.
Yet the journey that you're pursuing and, the skill set you bring to bear, as well as the team, involves maybe less predictable aspects to a certain extent. What gives you confidence in the decisions that you've made then, just because of maybe all those frameworks, which maybe are not fair, but I think it's certainly the way that I'm observing?
That's a great question. To me, I mean, I and, the rest of the management team serves, so, at the pleasure of the board, who are there, because of the shareholders.
Mm-hmm.
Our ultimate focus is, shareholder value creation. In taking, shareholder value creation, in thinking about shareholder value creation, we actually take a longer term perspective, and I think that's one of our competitive advantages because it affords us potentially greater, sort of greater flexibility.
Mm-hmm.
Also, I think that using long-term value creation as a guiding light is sort of a philosophical and appropriate thing to do. Having said that, we are impatient in that, we want to get things done, and we want that shareholder value delivery to happen sooner rather than later.
Mm-hmm.
Hopefully much sooner.
Mm-hmm.
That's, that's an important component of, kind of, of, my DNA. I think that, if you look at, the three years, over which, kind of which have been with the company, we really have deployed, a lot of capital, say, to the tune of, half a billion dollars a year, which for a company of our size is very meaningful. W e've really transformed the company in a very material way. I think, that's a testament to the energy and the focus, which we apply to, the business.
I'll do one more line of sort of broader questioning before turning it over to Roger to really just sort of get into sort of the meat and the muscle of your actual business that you're directionally heading. The direction that you're heading encompasses a very important task, and that is addressing the fact that bacteria don't really care that the antibiotics that we have, are becoming increasingly resistant. Just approaching the whole realm of saying, "We're going to apply our resources, our capabilities, et cetera, towards the development of antibiotics that have become resistant," the Burroughs Wellcome Fund and Gates Foundation, all of these major entities, very, very serious entities, have been ringing the alarm bell over the need to invest.
The industry has done the exact opposite with showing with their feet, where they're going, the reduction in the levels of R&D spending. The commercial organizations have pretty much been unwound. I think it was Cubicin from Cubist was the last blockbuster antibiotic.
Mm-hmm.
That also then had a, a fairly dramatic kind of, strategic sort of story when it was acquired on that day from Merck. Again, it's just one of these things that, like, mankind needs this, but it's a really tough business case, stalked by all sorts of treachery on the regulatory front, the commercialization abilities, et cetera.
Mm-hmm.
Yeah. Wow, you guys are taking this on. How'd you get to that decision? Am I, like, making it up too dramatic, and you guys actually have some view to how to thread that needle and find a path?
Yeah, I mean, I think we're certainly trying to thread the needle and find a path. Our goal is, to do well, by, by doing good. There are, the antibiotic space and resistance in general is obviously a top public concern.
Mm-hmm.
That's stemming from a very significant unmet medical need.
Mm-hmm.
Frankly, unmet medical need is also how we think about, opportunities, because to me, unmet medical need oftentimes is correlated with commercial opportunity and value creation.
Mm-hmm.
Not always, but, but fairly frequently. As we're thinking about this space... By the way, I think our presence is larger. It's more of a hospital focus as opposed to the specific, anti, infective focus.
Mm-hmm.
As we have been thinking about it, so it occurred to me that a number of, companies that have had challenges in the space were facing 2 issues. 1, potential lack of asset differentiation, and the second one was sort of on scale and capabilities. The lack of asset differentiation is, is that it's actually fairly tough to be able to successfully commercialize a sort of potential undifferentiated commercial asset.
Mm-hmm
As a broad empiric therapy, against the backdrop of, the presence of, relatively inexpensive generics and also, antimicrobial stewardship concerns.
Right.
Our products are very different. Like, we are the products, and I'd be very happy to talk about that, but they are differentiated, and we pursue a slightly different approach, which we think would bode well for adoption. The second part relates to scale. given some of the, challenges in the space, it's difficult for a company to be a single product on transactions, company.
Right.
The capital, the cost platform is, just so, sizable.
Mm-hmm.
Relative to at least the initial revenue. Our solution to that is to bring scale. Right now, we have, we have a commercial platform in this space, which has two products. With the XACDURO approval, which is our sort of, newest and, and a very exciting asset, we are likely to have, three products on the market by the end of the year.
Mm-hmm.
Also in, which is similar to scale but somewhat different, a lot of the companies have tried to transition from an R&D organization to commercial organization.
Mm-hmm.
That it can be a challenge from the capabilities perspective.
Mm-hmm.
Through some of the acquisitions that we have made, we are, we already have had a commercial footprint, and we're able to leverage this footprint to commercialize our new launch. I think that we've been thoughtful about the pitfalls that some of the other companies have fallen into and have devised ways and strategies.
Mm-hmm.
to address those, that would maximize our ability to succeed in the space
Mm-hmm.
get to profitability.
You've outlined finding a path, something that I don't want to underestimate here for investors who are gonna listen or pay attention to the transcript, is that stewardship dynamic, which is particularly kind of meddlesome and essential in the infectious disease space, particularly for serious infections in the hospital, where essentially your decision maker is incentivized to really limit the utilization of your, powerful product, et cetera. That's always kind of a dilemma here. Intended as a segue, hopefully I haven't stolen too much of your thunder, Roger, why don't you take it from here and go through some of the assets and think about the, the Innoviva company to come in terms of the assets that they have?
Sure, sure. Thank you. You mentioned XACDURO, your drug to treat hospital-acquired Acinetobacter infections, that was recently approved by the FDA. It'd be really helpful if you'd introduce that product for us, and then maybe touch a little bit on, segueing from your comment earlier, why is it important that it's a broad spectrum versus targeted antibiotic?
Sure. That's an excellent question, and, certainly happy to talk about it. We first, so XACDURO is an asset which we acquired from Entasis, and we first introduced Entasis and invested into the company a couple of years ago. Then following successful phase three clinical, clinical trial readout for XACDURO, we actually acquired Entasis. I think what's really interesting about XACDURO is that, it's the first, pathogen-specific antibiotic approved by the FDA, following a unanimous, advisory committee vote. What I think, what I think, differentiates, XACDURO is a couple different things.
One , it's a pathogen-specific antibiotic, and unlike some of the broader spectrum antibiotics, which face all of these stewardship concerns, et cetera, I think that physicians and hospitals would find it much, much easier to prescribe XACDURO. Because it's a product that was specifically made for Acinetobacter, and as a result, I think using it with appropriate patient populations can actually help address resistance concerns, as opposed to, multiple resistance concerns. Secondly, and this speaks to the differentiation of the asset, we're talking about a space where really there are, there is very high mortality and overall, health burden and where there are not enough treatment options.
As a result, the cheap generics are not really as much of a concern as they could be for some of the other, new launches in the space.
Okay, got it. I guess just to kind of touch on that point, then, there's some language in the label regarding the use of, maybe you have to use a certain generic before you ultimately prescribe XACDURO. Could you kind of talk about that and where you think it'll be used in the treatment paradigm? Would it be first line, or how would physicians go about, prescribing XACDURO to patients?
Yes, that's a good question, and, the XACDURO just, got approved in about 2 weeks ago, which we are very pleased with. We are happy with the final label. The XACDURO was approved for all susceptible strains of, Acinetobacter, for certain patient populations, which means that, physicians have significant flexibility in terms of, how to prescribe it and might not necessarily be beholden to, multidrug-resistant or carbapenem-resistant, patients.
Mm-hmm.
To me, that's very important and differentiated, and, I'm sure that physicians will be able to prescribe it appropriately. Another interesting thing, and I think, about the label, is that, there is no background therapy that's been mandated.
Mm-hmm.
We think that that would also enhance physicians' optionality, in how they could use XACDURO. We think this is going to be a very important tool with significant flexibility for physicians.
Got it. How are some of those, maybe those conversations progressing? I imagine, with approval on hand, you're out in the forest, and you're talking to doctors about this. What is like the messaging that you're presenting to them, such that they would use XACDURO before some generic antibiotics?
From my perspective, there really is not a whole lot that, that could be easily used. This, once again, speaks to the differentiation of XACDURO. So far, the response from the medical community has been very positive. There is a lot of enthusiasm for the product because, people understand that it really addresses a very significant unmet medical need. I think that the unanimous, 12-0 advisory committee vote, speaks to that.
Mm-hmm.
The medical community understands that this is an extremely important tool, that can be added in their in their quest to save patient lives.
Got it. You mentioned the FDA unanimous, the advisory committee's vote. There was, some discussion around, where the data could be improved. In other words, what kind of post-marketing studies you would want to see? Could you talk a little bit about those? I think, in the latest FDA guidelines, there's some discussion around the seven post-marketing studies that they need, that ultimately, Innoviva would have to perform.
Mm-hmm.
Could you talk about those? In your view, do you find them challenging? Will they be expensive, or are they overall very, complementary to the launch of XACDURO?
I think the post-marketing requirements are fairly typical, for newly approved FDA products. T here, I don't think there is anything particularly unique about, the post-marketing requirements associated with XACDURO. They are generally in line with our expectations, and we don't view them as being particularly onerous and burdensome.
Okay.
Yeah, it's all good.
Okay, that's good to hear. I guess a little bit on pricing, which I'm sure , everyone wants to know a little bit more about. Before that, maybe you could talk about, the CMS's new technology add-on payment. I think, this is very interesting for the antibiotic space. Maybe it's a potential path to, realizing greater returns in an area that has traditionally seen lower ROI. Maybe could you overview the NTAP program, any notable recent developments you've seen, and then, how that's applicable to XACDURO?
Sure. As I think many of the people here know, reimbursement in hospital is driven by so-called DRG s, which effectively, provide a certain level of funding, for a given condition. As a result, and, this has the potential to exacerbate, some of the pricing pressures, for new services within the hospital.
Mm-hmm.
NTAP is a program, which is called to address that and, facilitate the use of new technologies. Effectively, it provides or service, and effectively, it provides for additional payment on top of DRG for, for using such novel therapies. We think that this could be an important component of, encouraging adoption of XACDURO in the hospital setting, as, physicians certainly get more comfortable with the product. To address the first part of the question about the pricing, we haven't really disclosed price.
we're planning on launching XACDURO in the fall, and, we are going to announce our price at shortly before the launch. One thing I would say is that, we aim to price all of our products, sort of appropriately, corresponding to the value that they're delivering, to, patients and other stakeholders. W e're also going to be responsible with XACDURO as well.
Okay. Just a little bit more on the pricing and the launch. What kind of sales force do you anticipate putting behind XACDURO as you look forward to launch? Y ou mentioned fall. Do you have any more, like, specific timelines? Are we anticipating more like end of Q3 as far as when you would see XACDURO on the market? Also, it'd be great to kind of hear about some of the conversations you've been having with payers and, other constituents in the overall paradigm.
Sure. Those are excellent questions. so, we currently have, commercial force of, say, 30-40 FTEs. We think that. This comes primarily from the legacy La Jolla operations. In general, we think that, given the very significant, sort of, footprint synergies, between GIAPREZA and XERAVA, our two market products, and XACDURO, so sort of the potential new launch, we think that, the, increase in, the commercial footprint is going to be relatively limited.
Mm-hmm.
Yeah, I think that the conversations we've been having, certainly with hospitals so far, have been, have been very supportive. As I mentioned, I think that people do realize that this is a new and very important treatment.
Okay, got it. I think just one last question on XACDURO from me. I f you look at the epidemiology of ABC infections, it's a lot more prevalent outside the United States.
Mm-hmm.
Any thoughts around partnering, this asset with, different companies abroad? Or have you already been in conversations? Any kind of color would be very interesting, just noting the significant potential market opportunity outside the U.S.
Yeah, that's that's a great question, I think that the vector is, even more discouraged outside of the United States relative to the US. We are already partnered in China with a company called Zai Lab, which, which, is, is taking the product to market there. In general, it's, we think that we have a great product, it's important for us that, we make it accessible to patients and, therefore, save some lives. We've been engaged in, in dialogue with, certain counterparties outside of the United States.
Okay. Can you remind us, where are they in the regulatory process for bringing XACDURO to China?
They submitted their NDA to the Chinese regulator and are waiting the results.
Okay, got it. Before I move on from, or before I cover other assets, happy to, happy to incorporate some other commentary, but, let's talk a little bit more about your other pipeline asset.
Mm-hmm.
Currently in Phase III, zoliflodacin. could you introduce that product for us, and then maybe talk about, what is it, what indications are you addressing with this product and what the overall epidemiology looks like in the U.S.?
Sure. That's a great question. Zoliflodacin is the second asset that, that we got as a part of the Entasis acquisition. It's a gonorrhea asset. One of, gonorrhea is one of the kind of, more prominent STDs in the United States and globally. About 1 million cases here. C urrently it's being treated by, a, quite a good standard of care. The issue is that this standard of care is an injection, which is relatively painful. Also, there is emerging resistance. Resistance is, quite prevalent outside of the United States, and there were initial cases in the United States.
Our, candidate, zoliflodacin, is an oral, which would also address resistance concerns. so, it can potentially be a very powerful addition, you, in the fight against gonorrhea. and, right now, it's in Phase III clinical trials, and we would expect, those trials are being sponsored by our partner, GARDP, which is a nonprofit organization, and we would expect those trials to read out by the end of this year.
By the end of this year. Okay, very interesting. How does that phase III study de-design? Can you maybe talk about, how you're structuring it? Is it powered for superiority or non-inferiority? Overall, maybe what are some expectations you hope to accomplish with that study, relative to standard of care, of course?
Yeah, look, the study, it's a non-inferiority study.
Mm-hmm.
Enrolling about 600 patients, comparing zoliflodacin to the standard of care.
Mm-hmm.
We think that if the study, reads out successfully, we, we are going to have a powerful tool with significant administration benefits, oral versus, painful injection.
Mm-hmm.
Potential resistance benefits, which are going to become increasingly important over time, given that one would anticipate, resistance to the standard of care to develop. I think that, this could become quite an attractive product, over the coming years.
Okay. How are you maybe, internally, what are your expectations for, commercial trajectory for this product? Do you anticipate, rapid market share penetration, or is it more of a, kind of a slow progress up?
That's a great question. I think that there are a couple different scenarios. Partially, they're going to be driven by resistance concerns. I think that, one could expect meaningful uptake, and then, a lot of these STDs are driven by guidelines. A potential change in guidelines could actually drive a stepwise change in, in adoption of this product. Obviously, we'd need to see the data connected before we, finalize the commercial projections. In general, we're quite excited about the product.
Okay. Let's turn to your other commercial products, GIAPREZA and XERAVA. Maybe for the audience, you could briefly introduce these two products, I'll have some follow-ups on that after.
Sure. Absolutely. GIAPREZA and XERAVA were the two products that we received, that we acquired as a part of our La Jolla acquisition. Both of them have been on the market for a few years, and , they are, GIAPREZA is a septic shock product, and XERAVA is a complicated intra-abdominal infection product. Both are sort of, both are very interesting products that are used in hospitals. We think that there is significant opportunity to re-energize their sales.
Mm-hmm.
Partially driven by the fact that, we believe. Well, they were launched during the COVID or right before the COVID times, and so COVID has impacted some of the, sales dynamics there. Secondly, we believe that with better resourcing, we can actually achieve meaningful improvement to the revenue trajectory. We already identified some of the low-hanging fruit and are working on some of the kind of on some of the other potential opportunities for improvement. I think we're starting to see results. Q1 was kind of last Q1 was the best Q1 in the history of the franchise.
Okay. Yep, that's right. Just on that commercialization front, so you noted that you anticipate using the 30 to 40 sales force that you already have today to supplement the sales of XACDURO. As you look to further build out sales of GIAPREZA, XERAVA, how do you think about the sales force going forward? Will you look to, increase the capacity over the near term, or is that more of a long-term view before you want to add more reps?
Well, I mean, so we're going to drive, I mean, we think that the existing sales force, potentially with, certain, limited expansion, should be sufficient to support the existing products, as well as the zoliflodacin launch. Of course, over time, kind of, we can refine our strategy as appropriate.
Okay, got it. Just being mindful of time here, just jumping to some other topics. Maybe you can talk about some of your other earlier stage assets in your pipeline, and you can introduce where that is right now and, potential indications that you're looking to explore these.
We've been, kind of thoughtful about, where we commit our capital. I think right now, most of our R&D resources are focused on fenofibric acid, as well as supporting, some of the, post-marketing and other requirements for the market products.
Mm-hmm.
We're making targeted investments in certain early stage assets. I think that, GIAPREZA, XERAVA and XACDURO and zoliflodacin are going to be key value drivers for our, hospital, and infection disease business.
Okay. Just to segue into that. Y our business model incorporates a lot of minority investments. Maybe you could talk a little bit about that, maybe some of the investments you've done in the past. I guess, what's the overall strategy with these minority investments? Is that like a target that you're looking to maybe acquire one day? Ultimately, how do you think about those investments you've made?
Yeah. The minority investments were made in conjunction with a legacy asset, which, was housing Trelegy royalties. Trelegy was one of the other products which we developed and then partnered with GSK.
Mm-hmm.
Last year, we divested this asset, at, 17 times revenue, which we thought was at a very economically advantageous deal.
Mm-hmm.
As a part of the transaction, we received the rights to these assets. We think that as a group, these assets, and they're fairly diverse. F or instance, there is a depression asset there, there is a microscope asset there, and a couple of other things. We expect that these assets, as a group, are going to perform well, because, they have high, high, revenue potential and valuation potential.
Okay. Let's just squeeze one last question in.
Sure.
It's on the topic of, the respiratory product that you just mentioned. T hat's primarily where Innoviva derives most of its revenue today. Do you consider your company to pursue more of these royalty acquisitions? Or is the focus now more on just focusing on commercial operations and maybe even transitioning to a commercial-stage biopharmaceutical company?
I don't think that we're necessarily beholden to the royalty structure. I think that if we'd like to get an exposure to a particular asset, we'll figure out, what's most appropriate. Royalty can be one way, but it doesn't have to be, but it doesn't have to be the way.
Mm-hmm.
I think that we have a very balanced, well-diversified business across, three major, value streams. One is the historical royalty assets, which are very well diversified. The second one is our critical care and infection disease business that we've discussed at length, which we think, can also be very valuable, given the good growth profile, operating leverage and resulting path to profitability. The third one is some of these other assets, which also can be meaningful sources of value.
Okay, great. Well, thank you so much, Pavel.
Perfect. We're glad we can get this overview. Pavel, thank you for joining us this year, and really appreciate your thoughtful responses. Nice work from my associate, Roger Zhu, who's the natural at doing this between two frames.
Great. Well, thank you very much.
Thank you.
It's a pleasure. Thank you.