Welcome again to the 37th Annual Piper Sandler Healthcare Conference. This is David Amsellem from the Piper BioPharma Research Team, and our next company, Fireside Chat, is Innoviva. We have Pavel Raifeld, CEO, and Austin Hackett, VP and Director of Business Development. I hope I got the title right. All right, that's good. So we'll just go right into questions. And by the way, thanks so much for joining us this year. Just at a high level, so Innoviva is kind of the sum of a few different parts. You have your royalty-focused respiratory assets, you have your therapeutics, primarily hospital-focused business, and then you have strategic investments. So just help us understand how these different pieces fit into a whole.
Sure, and thank you very much. It's really a pleasure to be here, so I think that we are a very well-diversified company, which I think confers a lot of advantages on us as we execute on our strategic priorities and also delivers value to our shareholders. If we look at the different parts of the business, we have a very meaningful royalty business, which delivers us about $250 million of revenue a year in a very consistent fashion. That's very durable, and it's proven to be quite resilient across a very wide range of market environments. We think that this provides us with meaningful cash flows to execute on our priorities and also a lot of downside protection.
We also have an operating business called Innoviva Specialty Therapeutics, or IST, which is a commercial-stage business delivering over $100 million of revenue a year and growing extremely rapidly, and we think that that provides our shareholders with a source of very meaningful upside and revenue growth. Last but not the least, we also have a strategic healthcare asset part of our business, which includes investments across a range of assets that are valued at approximately $500 million. We think that that portfolio has disruptive potential to create value. Overall, I think that this business model provides a lot of downside protection and upside potential and can deliver value to our shareholders across a range of business environments, which is especially important in fairly volatile times like the ones we're in right now.
Sure. So I wanted to dive more into the various pieces. I want to start with the respiratory assets and the royalties there. Just for those who are less familiar with the story, just give us an overview of your economics on Relvar/Breo and also Anoro, and also color on their exclusivity runways.
Sure. Yes. So our royalty business is at the very core of Innoviva, and it's the oldest part of Innoviva. And so we are receiving royalties on two products, Anoro Ellipta and Breo Ellipta, which we co-developed with and which are currently being commercialized by GlaxoSmithKline, that has proven to be a great partner for us. And these are some of the most broadly used and well-known treatments for asthma and COPD, which are predominantly used for maintenance. We get 15% royalties on global Breo sales and 6.5% royalties on Anoro sales, which in the last few years have been approximately $250 million a year. It's a very significant amount of money. And both of these products are protected by a very wide-ranging patent estate, which we believe to be quite strong.
We think that, and parts of it are providing exclusivity for the portfolio into the early 2030s. We feel like there is a significant amount of runway there.
Okay. So just to level set regarding the royalty streams, is Innoviva interested in acquiring more royalty interest in other products, or is this not a strategic priority?
Well, so I think that we're not sort of preferentially seeking to invest in or acquire royalties, but at the same time, we are looking to deploy capital into assets that we like, and we're willing to be very flexible in terms of structures. And so to the extent it makes sense for us to invest in a royalty of an asset that we like, we could do that.
Okay. So you're taking an opportunistic approach, essentially. Okay. So I want to spend time on Innoviva Specialty Therapeutics, or IST. So just diving into the business, you cited over 50% year-over-year growth. So just help us understand at a high level the primary growth drivers of the business.
Sure. Austin, would you like to take that?
Sure. So I can maybe speak to the primary growth drivers behind each of the products, and then we can dive in any of those further if you'd like. Starting with Giapreza, which is our largest revenue contributor, this is a critical care product for septic shock primarily. Really, there's two major growth drivers here. One was after we acquired this about three years ago, we really refreshed the commercial strategy around it, focused on account-level sales and management, and really focused on access, which has been a big boost for that. But then second, a lot of the recent growth has been driven by actually new data generation through a lot of investigator-initiated studies.
There's a lot of interest about this drug in the KOL community, and that data has unlocked a lot of new patient populations, some other areas of the hospital, other care settings where this is a first or second-line therapy. Then Xacduro is our second biggest product. This one is. It's still in its launch phase. This is probably the product that's addressing the most significant unmet need. Before the launch of Xacduro, there was nothing approved. There was nothing that worked for resistant Acinetobacter infections. So this growth is really just driven by the huge unmet need and the lack of other significant options in this space. And so the ramp has been really exceeding expectations and has been a very strong performing launch, probably one of the best anti-infective launches in the last five years or more.
Xerava is one of our more mature hospital products. Although it's later stage, it still has some long-term tailwinds from ESBL-mediated resistance and overuse of carbapenems. Finally, we have our latest launch product, which has just recently launched, Zevtera, which is still in its very earliest stages but is addressing a large unmet need in Staph aureus bacteremia primarily. Taken as a whole, we still have a very young portfolio, and so we'd anticipate continued strong growth in next year and the years to come.
I wanted to take a step back here. So if you think about hospital-based antibiotics, there's been some, I would say, investor trauma regarding hospital anti-infectives, particularly antibiotics. So what was it that attracted you to that space and cobbling together a portfolio of assets here when you had a number of products that, for one reason or another, just did not do well commercially?
Yeah. So I think one of the, we actually saw that it happened historically and saw that as more of an opportunity for us. I think some of the big issues were, as big pharma stepped away from the space, you were left with some single-product companies that tried to launch into what is a different and challenging commercial environment as a single asset. On top of that, some of these products that were fairly high-profile weren't super differentiated.
And so we thought if we combined some differentiated assets, which when we looked into the R&D environment, we thought there were some really good assets being developed, and then you could take multiple of those, put them on a commercial platform, have some scale to be able to have the patience to get through the formulary committees and the stewardship concerns and all of that, and then give these assets a chance to grow, that we could have success. And I think that's proven to be the case.
I wanted to ask a follow-up question about hospital formulary access, P&T committees, which you're navigating with. I'm sure you're navigating right now with Zevtera, but also have been navigating with Xerava and Xacduro. Just talk generally about access and what that looks like for your various hospital antibiotic products.
Sure. I mean, on the one hand, anytime you're launching in the hospital, you kind of have to go through the logistics of this. You have to go through the stewardship committees and the P&T committees, and that can take some time. So the example of Zevtera, we've had good receptivity so far, but it's just a matter of time before you can get all those committees scheduled and get through them. But then if you have a really differentiated asset like Xerava, we haven't heard any negative pushback about access. Hospitals know this infection is a big problem. They're going to need this drug. You still have to sort of jump through the hoops and work with the logistics, which our team is now very experienced in doing.
But at the end of the day, this is a very differentiated product, and it's an unmet need, and these are fairly priced drugs. So we haven't seen access be a major hurdle in our antibiotic portfolio.
What about Zevtera? Pretty new for Staph aureus bacteremia, other indications. I know it's early days, but how are you sizing up the opportunity for Zevtera and its role in the armamentarium?
Zevtera is approved in the U.S. for three indications. The largest unmet need that we see is in Staph aureus bacteremia. There's about 120,000 cases a year. Half of those roughly are now resistant MRSA cases. And of those, even with best available care, the mortality rate is still very high. So there's still a large unmet medical need, and Zevtera is the first drug in a long time that has good clinical data for this indication. And so we see it addressing a significant need there where there is no—after the first two lines of therapy, there is no agent approved with good clinical data. And then it's approved also for skin and pneumonia infections, which we think is upside on top of that.
So I think it's addressing a sizable need, and it'll take a few quarters to really see the ramp after it gets through all the committees and such, but I think we have good expectations for it.
I mean, when I think of skin and pneumonia infections, I see a pretty crowded landscape. So I mean, should we think of Zevtera sort of just as a, for lack of a better term, a last resort option downstream of other broad-spectrum agents? How should we think about its role in practice as you think about moving away from bacteremia but looking at skin and pneumococcal infections?
Yeah. I mean, the core focus being bacteremia, it'll be definitely an early option to reach for for challenging cases there. Skin and pneumonia, it'll be more harder to predict that utilization. Some physicians will prefer, some won't. And so that's why we're seeing that more as the upside case.
Yeah. I wanted to come back to Giapreza, and I know you've talked about that as a growth driver. So just forgive my ignorance here, but you have vasopressin on the market. There's a number of generics here. So can you talk to how Giapreza has been able to gain traction? Is it mainly being used downstream of a first-line or second-line modality like vasopressin? How should we think about where Giapreza fits relative to vasopressin?
Yeah. So there's norepinephrine as your first line, and then vasopressin. But these are very rapidly decompensating patients, the high mortality. And so I mean, almost in real time, you're seeing if one drug works. If it doesn't, you reach for another. And there's good data showing, and this is becoming more and more clear with more use, that the earlier you introduce Giapreza, the better the results are and the lower mortality. So in that core use case, sort of in ICU shock, we're seeing more patients get comfortable with it. It's on more formularies, and the earlier they're using it, the better the results that they're getting. So it's kind of a positive feedback cycle.
And then in addition, as I mentioned before, there's now other patient populations that are being better understood to need rapid blood pressure management, where Giapreza is actually a better mechanism of action because you have to avoid effects on the heart and whatnot, like cardiac critical care and transplant. So those are new patient populations where we're seeing a lot of the growth.
Okay. And then just last question on the commercial portfolio. Any losses of exclusivities within IST that we should be aware of over, say, the next several years?
No. All of our patents or all of our products are protected with some good remaining life into the 2030s and nothing impending.
Okay. So you've got Zoliflodacin or ceftriaxone-resistant gonorrhea. I know you got a PDUFA coming up, but maybe just talk to the value proposition of the product here.
Yeah. So zoliflodacin is a great and innovative new product that really has two primary value drivers. So the first is that this is being, if approved, it will be an orally available drug on the market, which is currently treated by injectable ceftriaxone. And so all else being equal, an oral in many cases is preferred. You don't have to go back into the doctor to get a shot, which can be painful, and you can serve other patient populations like in telemedicine and expedited partner therapy and such. But really, the large opportunity here is being driven by growing resistance to ceftriaxone. And so around the world, there are some countries where over 30% of cases are now resistant to ceftriaxone. We actually just recently saw a new epidemiology report that reported alarming rates of growth in many countries around the world.
And so it's not a question of if, but when that becomes a major problem in the U.S. with approximately a million patients a year here in the U.S., then there's going to be a huge need for sort of these next innovative therapies.
Yeah. So with the PDUFA and I guess to the extent that zoliflodacin gets approved, can you talk to commercialization here? This is not a hospital-based product, so it's a different target audience, obviously an anti-infective, but it's a different commercialization strategy here, different audience. So do you commercialize it on your own? Do you seek out a partner? How are you thinking about that?
Yeah. So, I mean, we'll be very thoughtful about resourcing initially both internally and then through potential partnerships as well to make sure that patients have access to this drug after approval, and then we can scale that investment as resistance grows.
Yeah. How can promotion and, I guess, headcount sensitive is a product like this? I mean, if you were to commercialize it, I mean, what kind of sales force would you have to stand up for it?
One nice thing about this area is it's very guidelines-driven. So we would anticipate the guidelines to be supportive of this, and you could have a leaner commercial model that is a little more dependent on education and relying on the guidelines versus going and knocking on every door.
Right. Okay. So looking more broadly at IST, just talk through your appetite for additional assets. Are you prioritizing anti-infectives? Are you looking more broadly at adjacencies? Just how are you thinking about that?
Sure. That's a great question. So I guess maybe one thing to note is we think that our current product portfolio has a ton of organic growth embedded there. It's a very young portfolio. It's been growing at a very fast rate, and we would anticipate strong growth to continue into the future. Having said that, we designed the IST platform to potentially be an anchor for other products, and we think that our commercial platform could really enable access for a lot of patients, a lot of great products. So we are definitely looking at organic growth to accelerate revenue delivery and all that good stuff. While we're certainly open to sort of products in the anti-infective space, we think of ourselves as having presence in the broader hospital channel.
We would also be looking at assets that are going to be synergistic with our existing infrastructure or that can help sort of expand our presence in the channel.
Yeah. So I mean, critical care is sort of an obvious synergy thinking beyond anti-infective. So what are other adjacencies within the hospital? Just not to say to tip your hand in terms of what you're prioritizing, but critical care obviously makes sense. But as you think about other adjacencies, what makes sense or what do you consider other appropriate adjacencies in the hospital setting? I mean, I would imagine, say, oncology, probably not in the cards. Critical care makes a lot of sense. Does the post-operative setting make sense? Maybe, but I'm sort of spitballing here. How do you think about it?
Yeah. So I mean, hospital is a pretty big play, as you said. So there's synergies both with call points, but then also with sort of different channels within the hospital. And I think if you look at the ICU and then sort of expand that out to the other kinds of ICUs, you have neuro ICU, you have cardiac ICU, you have other things that are very similar care models. But then if you look at the anti-infectives as well, a lot of our products are used in kind of the peri-hospital space and sort of transition of care and infusion centers, kind of the inpatient to outpatient kind of middle area. So there's another sort of world of products that live in those spaces.
And so we could see things that could either fit right within our core. Other sort of hospital critical care anti-infective products could make sense. I think we've discussed the antifungals before. Those are an example that could fit in there. But then there's certainly ways that we could get some synergies, but also expand within the hospital in something like, say, the neuro ICU.
Yeah. I wanted to pick your brain on antifungals because it's a space that's not nearly as crowded as hospital-based antibiotics, and it seems like there are real gaps in terms of therapeutic options. So how do you think about that? I mean, is that generally how you see the antifungal space, and are there assets out there? I mean, I know there are assets out there, but are there assets out there that broadly speaking, you're looking at?
Yeah. No, that's a great question. I mean, it's something that we've kept an eye on very close because we agree with you that it's a space that has a lot of unmet need. It's not as crowded. I think there's maybe a smoother commercial opportunity there. And we think there are a number of pretty compelling assets in development right now that we're obviously keeping a close eye on. I think in the next few years, we'll see some good launches in that space that should be addressing some pretty significant needs.
Yeah. So that's definitely something to watch for. You recently acquired a long-acting oral drug delivery platform, Lyndra, relatively small upfront payment. But this is very different compared to your assets and compared to IST. So just help us generally understand what the thought process was here.
Sure. I think that as a part of our strategic healthcare assets portfolio, we make investments in differentiated assets in areas of high-to-mid need where we think that we could make a difference. I think with Lyndra in particular, it's been an asset that we have been familiar with for a variety of idiosyncratic reasons. It has become available to us at what we consider to be a very attractive price point. We thought that it was a good opportunity for us to create some value for our shareholders. We're going to talk more about Lyndra in the new year and about what the business model looks like and sort of what the specific opportunity is there.
But we're quite excited about it, and we think that it has a very asymmetric risk-reward profile, which is very positively skewed in the same way that a lot of other assets in the strategic healthcare portfolio.
I know you're going to talk about it down the road, but I have to ask a follow-up question, which is just - and there's a lot of white space here - but where could you take drug development here? I mean, there's certainly a lot of therapeutic areas that can benefit from long-acting oral drug delivery. So is it anti-infective? Is it cardiometabolic? Is it psychiatry? I mean, and maybe you can't answer the question, and maybe that's to be announced, but wanted to get your thoughts.
I think one of the beauties of the platform is how broadly applicable it can be. And there's certain therapeutic areas where it has an advantage of being a more consistent dosing. You don't get the peaks and troughs and some of the side effects associated with that. You also just get convenience. Any drug that you needed to take once a day, you can take it once a week or once a month. You just look at the history of some of the programs that Lyndra has explored in the past. There's been cardiometabolic, there's been oral contraceptives, there's been psychiatry, there's been a whole range of things. And the flexibility of that platform is really one of the key value drivers. It's pretty agnostic. As long as the drug fits in the system, you can get benefits from it.
Sure. Another strategic investment is Armata. Can you just talk about that real quick? And it seems like the assets there could be a good fit for IST. So how are you thinking about that?
Sure. Yeah. So Armata is a company that we have known that we have been supporting for the last three or four years. And for those who are not familiar with that, it's a bacterial phage platform, which means that it has viruses that can treat a bacterial infection. We think that it has one of the best manufacturing platforms out there, and they had extremely strong data in Staphylococcus aureus bacteremia setting, a phase II trial a few months ago. And this is a very exciting time for Armata because I think that they could potentially get a pivotal trial started and then ultimately have the first approved phage on the market. We are - I mean, it's an independent company, and so it needs to make sort of value-maximizing decisions for the benefit of its shareholders. But as a major shareholder of Armata, we are very excited about what the future can hold for them.
Okay. And then lastly, very quick question, just what's your M&A bandwidth? In other words, how large of a deal could you contemplate given the cap structure?
Sure. So we think that we have a fair amount of dry powder. Currently, we have approximately $500 million on our balance sheet, and we think that this affords us multiple opportunities to create value for shareholders ranging from doing sort of tuck-ins or acquisitions that would further enhance our operating platform in the hospital space to making sort of additional investments in the strategic healthcare assets to also potentially returning capital to shareholders. As you know, we also announced a $125 million buyback program a few weeks ago.
Okay. I'll leave it there. We're out of time. Thanks, Pavel. Thanks, Austin, and thanks, everyone in the audience.
Thanks for having us.
All right.