Okay, terrific. Welcome back from lunch, everyone, and pleasure to be up here for the next session at the Global Healthcare Conference. I'm Steve Seedhouse, and I'm joined on stage by the next participating company, Innoviva. We have with us CEO Pavel Raifeld. Really a privilege. Welcome to the conference and looking forward to the conversation. To start, Pavel, I just wanted to open up and maybe pass you the mic, ask you for some introductory comments on Innoviva, current state of affairs at the company, outlook for the back half of the year, and we'll dive into Q&A after that.
Perfect. Steve, thank you very much. It's really a pleasure to be here, and it's wonderful to have an opportunity to talk a bit more about Innoviva, which is a passion of mine. I guess maybe for those of you who are not as familiar with the story, Innoviva is a somewhat unique company. We were formed initially to manage a portfolio of royalties stemming from some respiratory asthma and COPD products that we co-developed with GSK and which they're currently commercializing, and we're receiving very meaningful royalties from those. As the royalties have grown, given the success of the two underlying products, ANORO and BREO , we were trying to determine how to best create value for shareholders, and we decided that a good way to do it would be to make thoughtful investments in areas of high unmet medical need where we could really affect health outcomes. We initially made investments in the infectious disease and critical care space and certain other areas. Right now, we effectively have three business segments. The first one is royalties. It's a segment that's still delivering us about $250 million of revenue a year, and that's remarkably resilient and we believe very durable. The second part of the business is called Innoviva Specialty Therapeutics, which is our infectious disease and critical care business. This is a business that delivered over $100 million of revenue last year and continues growing at a 50% rate. We're very excited about the growth potential there. Last but not the least, we also have a portfolio of so-called strategic healthcare assets, which are stakes in certain companies which we believe have disruptive potential and asymmetric risk-reward payoffs. This portfolio is valued at just under $500 million. We think this is a very well-diversified business that both provides significant downside protection, which is especially important in the current economic environment, but at the same time, also very significant upside. All parts of the business have experienced very meaningful momentum over the course of last quarter, and we anticipate this momentum continuing over the course of this year.
Yeah, when we looked at the business, obviously, and we recently initiated coverage, as many know, and as you know, Pavel, the royalty business is pretty easy to value because there's good precedents there, we think at least. The specialty products business and the investment portfolio, when we looked at that, we just thought sort of like one or the other explained the current valuation, and you were getting the third essentially for free. Pick your preference. It's a fascinating setup, I think. I want to focus on really all three, but maybe we start with the specialty products business, and we can hone in on that. You mentioned 50% growth last year. I guess just aspirationally, I mean, as this continues to grow off of the now $100 million-ish revenue base, what is your aspiration for the size, scope, and sustainable growth rate of that business as you continue to invest?
That's a great question. I think that our IST business has tremendous growth potential. We created this business three years ago through acquisitions of a couple of companies. A couple of years ago, we had two products in the market, and then we launched the third product. Just a couple of months ago, we launched the fourth product, and we have a PDUFA date at the end of this year for the fifth product. This is an extremely high-growth business, and we think that the launch of the fourth product called ZEVTERA and then the potential sort of revenue delivery from the fifth product could really support very fast growth rates over the coming quarters and years. I think the current portfolio would support revenues of over $500 million in the U.S., but I also think that there is a tremendous opportunity for inorganic growth. We designed this business to be a platform for differentiated assets in the infectious disease and critical care space, and we think that we are one of the premier companies given the commercial success of some of our products. I believe that inorganic growth could further accelerate revenue delivery for this business. The sky's the limit in some ways.
Yeah, I mean, somebody has to sort of take the reins and begin to aggregate these assets and use sort of power of scale because it's a hard business, I think, to operate with one asset or two. If these are $50 million assets, $100 million assets, really the power is in scaling that together. You've been focused, as you mentioned, on hospital, critical care, infectious disease spaces really so far. Is the plan to continue focusing there exclusively, or are there other areas that could fit your business model and the strengths that you have commercially down the road?
That's a great question, and I think the answer is yes and yes. We think that we have a very good commercial platform at IST , and by the way, it's not just commercial. I think we have some of the best regulatory and manufacturing capabilities out there, which could also create significant value for us and potentially for our partners as well. I would anticipate us continuing to look for additional assets to bring onto our platform. We have very stringent criteria, and sometimes these things are difficult to predict, but overall, I think that we could deliver a tremendous amount of value both to our partners, but also to patients and to the medical community at large by taking on these assets. I think that there might also be opportunities for us to make investments outside of our IST business, e.g., in the strategic healthcare assets portfolio.
Okay, yeah, and we'll come to that strategy. GIAPREZA has been a nice product, and I think there's maybe a tailwind coming potentially from some sepsis guidelines that could be updated. Is that relevant? I mean, what type of impact could that have? Is there an inflection possibility on the horizon for GIAPREZA? Maybe you could just, for those unfamiliar, just give a quick background on the need that that serves right now in the hospital setting.
Sure, happy to. GIAPREZA is a really interesting product. We acquired it through our acquisition of La Jolla about three years ago, and since then, we effectively relaunched the product through better commercial resourcing. As a result, the product has been experiencing very rapid revenue growth in the U.S., which we are quite proud of. We still see a very significant remaining opportunity for this product, even on the basis of how things stand right now. We also believe that the guidelines could really provide very meaningful tailwinds for this product. It's not just the guidelines. We continue generating data, typically through investigator-initiated trials, and this data is supporting users of GIAPREZA across a broader set of patient populations. As such, I believe that we could see very strong continued growth from GIAPREZA over the medium and then long run as well.
For the infectious disease portfolio, how much of the growth you would anticipate from those products be predicated on resistance rates in the spaces that you're operating and the dynamics of those, both in the U.S. and maybe ex-U.S., where it might be different? What are you modeling or baking in or anticipating in terms of drug resistance rates that would influence just the necessity and the growth really for Innoviva's products?
That's a great question. Maybe just to level set, drug resistance and growth in drug resistance rates is a worldwide phenomenon, and the U.S. is certainly not immune to that. Across all of our products, we see a rise in resistance for the standards of care, which are pretty meaningful. For instance, if you look at a product such as ZEVTERA, which is our latest launch, about 50% of strains of Staphylococcus bacteremia are methicillin resistant, which is huge. We anticipate that our products have a very significant opportunity for growth, even given the current resistance paradigm. We're also very much aware that resistance rates are growing, and we think that this is going to provide tailwinds for our business. By the way, one other thing is, as the resistance rates grow, the public and certain governments are becoming more aware of that. Increased public awareness might actually contribute to greater funding available for companies such as ours.
I see. Just on ZEVTERA, because you mentioned it, how is that launch going? Can you just describe maybe that product and any initial progress you've made getting on formularies and driving access and uptake?
I think ZEVTERA is the product which we licensed from our Swiss partner, Basilea, at the end of last year, and which we just launched in July. It's approved in the U.S. for three indications, including Staph aureus bacteremia, which might be potentially sort of the most interesting one, or at least sort of the one that we're most focused on at this point. The launch is going well. I think that the receptivity has been really great. Right now, we're just going through all the usual steps, formularies, et cetera. I think it's probably going to be a bit of time before we really see meaningful impact on our revenue performance. We think that this product could be a big contributor to our top line over the long run.
Got it. The next launch that would be upcoming is zoliflodacin. This is for uncomplicated gonorrhea. Should be approved, I think, by December, the PDUFA that's on the calendar. What is the sort of overall scope of this market? Just help us understand how it's currently treated and the unmet need that zoliflodacin would address. I have some specific questions about some of the market dynamics here as well.
Great. Gonorrhea is one of the more prevalent sexually transmitted infections. There are about 18 million cases of gonorrhea a year globally and over 1 million cases in the U.S. alone. There is a very meaningful disease burden. Right now, it's being treated by ceftriaxone, which is a somewhat painful intramuscular injection that's typically administered by a healthcare professional. We know that in some markets, in particular in Southeast Asia, about 30% of cases demonstrate resistance. There have been early indications of resistance in the U.S. as well. We think that our product, which is a once-dosed oral product, could be used in two use cases. The first one is simply for people who prefer not to have a painful intramuscular injection or for whom administration convenience is meaningful. Secondly, once the resistance hits in a more meaningful fashion, I think that there is a very good opportunity for us to become the standard of care in this disease state. We think that we're addressing a very important unmet medical need, and we're excited about the commercial opportunity for zoliflodacin.
How does the prescribing work here? Because in this, I would imagine, first of all, for something like gonorrhea and STD, there'd be stigma of going into a clinic, the intramuscular injection, suboptimal. Could an oral option here be prescribed through like a virtual doctor visit and through a mail order pharmacy? Are there advantages like that that can be captured, but it's unavailable to something like ceftriaxone?
Yes, I mean, I think that there is definitely an opportunity to deploy some of the new channels, such as telehealth, to try to advance this product. It's a very interesting option both for patients and physicians, and we think it's going to be very relevant.
The 30% resistance ex-U.S., I guess, is it sort of very early in the U.S. in terms of on that resistance curve? Only a couple of cases? What's the level of resistance to that standard of care in the U.S., and how rapidly do you think that could change?
There have been a few cases in the United States over the course of the past year or two. I mean, we know that resistance is going to go up. The pace of growth is a little difficult to predict. All the KOLs that we have been talking to are quite concerned about the potential for resistance and are very excited about an opportunity, about an addition to their toolkit for addressing gonorrhea and potentially resisting gonorrhea.
This is a high-volume market, obviously. You mentioned just how prevalent this is in the U.S. What is the sort of cost, reimbursement, access dynamics in this market? Maybe for an oral, is it going to be any different?
The current standard of care is available quite inexpensively. I think that the price point for the branded version is likely to be higher. Having said that, for patients with insurance, for instance, some of them might be willing to pay the co-pay, whatever that might be, to take advantage of all the benefits offered by an oral solution.
Got it. Just the marketing strategy in this indication, how do you plan on making this available to as many people as possible and raising awareness?
I think that there are ways to, and we're still refining our approach. I think that there are ways to launch this product potentially in a fairly low-cost fashion by deploying various digital tools such as telehealth, but also trying to focus on some of the larger customers. For instance, disease states like this are quite important to some parts of the government. I think that we can be very focused in terms of low-cost commercial tactics and certain channels to get to good outcomes with a relatively low investment.
Okay, great. Maybe pivoting to the royalty business, I guess just to ask, there's a history here that maybe would be worth recapping with economic stake in Trilogy that was then divested and these current royalties, as you mentioned, annualizing some $250 million in revenue, and you've been redeploying that. Is this existing royalty business that you have, and that's a cash flow engine for Innoviva, is that for sale for the right price? Is there interest from Strategix in acquiring that, or do you just plan on sort of riding that out, taking the cash flow and redeploying it towards some of the specialty products business, and we'll get to the strategic investment business?
Sure. Thank you. That's a good question. One thing I would say is that we're very happy with the performance of our royalty business. Both ANORO and BREO have been very resilient, and we anticipate very significant durability from this asset portfolio. I run the company with shareholder maximization in mind. To the extent there is an offer that's economically appealing to us, of course, we're going to look at that. As you mentioned, a couple of years ago, we sold our stake in Trilogy Royalties, which we very much enjoyed having, but at the same time, we thought that was a good opportunity to create value for shareholders. Having said that, we're also very happy benefiting from the present royalty portfolio, and we also think that it provides a lot of stability for the company as well.
Okay. We've been trying to assess, and I'm curious your take as you've been trying to assess just if there are any risks to the tail of that royalty portfolio and pressures that could be put on it. There's been some new approvals in COPD, but the one I think that maybe would be most relevant in theory, but it doesn't seem like in practice it matters much, is Ohtuvayre, and it's because of a broad label. To my understanding, it's really only being used on top of the legacy mono, dual, and triple therapies even. It should not be in practice a headwind to market share of /BREO® ELLIPTA or ANORO , which is where you're driving your royalties from. Is that your understanding as well, or do you think about should we be pricing in some risk of competitive pressures in this market on your royalty business?
I would probably agree with your assessment, and maybe I would also say one thing. This is a very competitive space in general. There are multiple options which are available to patients, and I think that ANORO and BREO have been so resilient because they are just such excellent products. They are maintenance therapies, and for a patient that's well controlled on one of these therapies, there is really very little incentive to make any changes. The same is true for physicians. I would anticipate that the resilience of these therapies will continue into the future.
Okay. On the strategic investment side, one recent event that's worth covering is Innoviva did extend another line of credit to Armata. That's been an investment that you've continued to fund several times. They've made some recent clinical progress. Can you just talk about the outlook for Armata's bacteriophage program, what you see there, what you've liked over the years, and really with this new line of credit, what are the deliverables that you expect will create value in the coming quarters or years?
That's an excellent question. Yes, Armata is a company that we have supported for a while and we view it as the premier bacteriophage company, which is a very important modality that has been used extensively in Eastern Europe and Latin America, but not so much in the U.S. Recently, they had a readout of a phase II clinical trial in Staph aureus bacteremia, which had excellent results, frankly quite unbelievable results. They got a 100% clinical response rate in a very difficult-to-treat population. We think that's a testament to the strengths of their platform, and obviously, this sort of paves the way for them to potentially do a pivotal trial in Staph aureus bacteremia, which is an area of high unmet medical need. We continue supporting them. We think that the funds that we extended to them recently are going to help them continue regular interactions and potentially prepare for a pivotal trial. We have high hopes for Armata.
Do you have a sense of what a pivotal trial would entail in terms of costs, and are you interested in supporting that wholly, or is there a sort of line of sight to Armata aggregating some capital from various sources, including Innoviva?
I mean, I wouldn't want to speak for Armata. I think that we remain supportive of that company, and I think that their progress has been very strong over the past quarters, but it's just difficult for me to talk for them.
Okay. Another one of your investments is quite interesting, and they've had a name change, so maybe it would be worth going over the history there. Now Syndeio is in clinical development. They're advancing towards some upcoming data catalysts next year, which should be really sort of traditional biotech binary event type catalysts, interim and full data from an ongoing phase II MDD study. There's an Alzheimer's/dementia study, I think, in 2026 as well, which could have data messages based off public comments that that company has made. Maybe just briefly review your stake and investment in Syndeio and the history with that.
Yes, Syndeio is another investment in our strategic healthcare assets portfolio that we are quite excited about from the risk-reward perspective. It's a company that's a neuroscience company with a focus on depression and certain related indications, and they are leveraging a platform on synaptic health that was created by a Nobel Prize-winning scientist out of Stanford. We think that it's a very differentiated asset. Right now, they're running a phase two trial in depression, which is going to have a readout next year. We think that it's de-risked relative to other assets in a similar therapeutic area and similar stage. To the extent they are successful, I think that this is going to be a very important value creation event. This company could be worth $500 million or perhaps more. We are hopeful.
The role of the ISP Fund, which has been part of this segment of the business, what has that been historically? Maybe just bring everyone up to speed, and then is there a role for that going forward?
That's an excellent question. Yes, so ISP Fund is an investment that we made in a third-party platform primarily focused on public equities in the life sciences space. We made that about three or four years ago when we were still formulating our standalone capital deployment strategy, and we wanted to take advantage of enhanced yield that would be available through an investment. In October of last year, we decided to wind that investment down, so we have been getting cash back in line with the terms of our agreement. I would expect us to wind down to receive all the funds back over the course of the next 12 months.
Okay. As you think about sort of next moves in this part of the business, the strategic investment portfolio, what opportunities do you see in the market today, and how would you articulate sort of the going forward strategy, and has it evolved or changed at all?
Yes, so I think right now is a very interesting time for all of us. The volatility in the market is very high, and I think that in some ways, because we are a net beneficiary of that, or at least we're able to weather that much better than a lot of other biotech companies. We are very well capitalized. We have approximately $400 million of cash on our balance sheet, and we're also cash flow generating. We see a number of really interesting opportunities to deploy capital in the current markets, and we'll remain very thoughtful and disciplined. At the same time, I think that there is a real opportunity for us to create value for our shareholders through targeted thoughtful capital deployment. I would expect our strategy to be consistent with how we have done things in the past.
This has been an interesting story for us to cover so far, and we're looking forward to continuing following it in the future. One of the reasons is, a lot of these critical care hospital products, infectious disease products, are just very hard for small biotech companies to monetize. You've been able to obviously grow that segment of the business, backstopped by, as you mentioned, a cash flow generating engine, continue to invest and grow it. We're looking forward to seeing that continued progress and following the story. I just want to thank you for joining us at the Cantor Conference this year. Thank everyone in the room and on the webcast for listening in.
Yeah, Steve, thank you very much. It's really a pleasure to be here, and I appreciate your hospitality.
You bet.
Thank you.
Take care.