Great. Morning, everybody. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biotech analysts here. Pleased to have Innoviva with us for this session. Just quickly before we get started, I need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. With that out of the way, we can get started. Pavel, thanks for being here. Thanks for being with us. Maybe just to kick us off, you have sort of a unique business model. Mm-hmm Compared to a lot of the other companies. Maybe just talk about how you're balancing your royalty portfolio of income with some of the recent acquisitions you've made, and how you're thinking about capital deployment more broadly. Sure. Matt, first of all, thank you very much. It's a pleasure to be here. So maybe just to get started, as I think about what we're trying to do, it's kind of a couple different things. One is to make sure that we maximize the value of our royalty portfolio. I mean, historically, it's been the most valuable part of our business. It's still extremely valuable. And secondly, you know, given that it's such a cash flow generating part of the business, and unlike most biotechs, we are actually very cash flow positive. You know, it's very important for us to know how we can best deploy capital to create value for our shareholders. We have done it in a you know since I joined the company a couple of years ago in two different ways. One, we have tried to address our capital structure and we have made some pretty meaningful changes there. For instance, last year we acquired the stake of GSK you know which had about 32% a stake in Innoviva for about $400 million in a transaction which I think was extremely strategically and economically accretive for us. Secondly, you know, we cleaned up some of the debt. You know, we just issued a convertible note for about $250,000,000 earlier this year and used some of the proceeds to refinance a note that's outstanding, kind of, you know, and due in January of this coming year. In addition, earlier this year, we monetized our stake in TRC, which houses TRELEGY Royalties, once again in a deal which we believe is extremely strategically and economically attractive for us and which provided us with more dry powder. Kind of, you know, aside from like, you know, the capital structure cleanup. Well, last but not least, I think the most important part of what we're trying to do is to acquire novel assets in attractive areas. There, you know, we're looking in areas where we think that our capital and resources can make a difference. We identified hospital and infectious diseases as one of those spaces. Over the summer, we acquired two assets in the space. One was a company called Entasis, which has a very differentiated kind of, you know, regulatory, or I guess, late clinical-stage asset that we think has very significant commercial promise. The second company which we acquired was La Jolla, a company with a couple of marketed products in the hospital space. We believe that the two assets are very complementary, and that by combining the R&D engine of Entasis with the commercial platform of La Jolla, you know, we can really create a ton of value. It also gives us an operating platform which we can further use to, you know, layer on additional assets. Okay, great. Good. I guess maybe first place to start, let's just talk about the outlook for the royalty assets. What's the outlook for BREO and ANORO at this point? How do you think about the trajectory of those products and also the durability of those royalty streams? Sure. Great question, and something that, you know, we spent quite a bit of time thinking, given that this has been, such, you know, such important sort of cash and value generators for us. I think that if you look, you know. First of all, I think it's important to recognize that both of these are extremely well known and broadly used assets. There is just a lot of inherent, kind of, comfort in the market with these assets. I think that, you know, oftentimes when I get asked about these assets, people are a little jaded by what's happening in the U.S. It's actually quite important to understand that at this point, kind of, you know, a lot of the revenue, you know, for BREO. It's most of the revenue actually comes from ex-U.S. markets. I think that we can see some growth in ex-U.S. markets. I think that in the U.S., a lot of you know, a lot of the sort of, you know, competitive pricing pressure dynamics, you know, especially as it relates to BREO, have played out. I think that the profiles of the two assets are quite good and, you know, we'll continue to see very significant cash flows from those. In terms of the asset durability, you know, we would expect these assets to be very cash flow generative for years to come. If you look at BREO, you know, the primary patent goes on until 2025, but the secondary one, which we believe is quite strong, goes until 2030. For ANORO, it's 2030 and 2033. Besides, it's really important to understand that in these drug device combinations, manufacturing complexity is pretty extreme. You know, even if when the patents are gone, it's just challenging to get products onto the market and get them approved. We think that this creates a very significant moat around our assets that's going to provide us with meaningful durability. Okay. Okay, good. Maybe just talk about the interplay between BREO, ANORO, and TRELEGY, which is obviously the product that you sold the royalties off on. Obviously it's part of a suite of products that GSK sells. What's the interplay there, and how do you think about the market share dynamics between them, if that's relevant at all? TRELEGY is a great product. You know, we've been sort of, you know, very happy to be owners of that product. I think that ultimately, it's a product and a class that has been growing pretty meaningfully. I think ultimately there is going to be space for all three classes. You know, ICS, LABA/LAMA, and then the triplets. While we might see a little bit of sort of, you know, class pressure in some of the products, I would not be sort of extremely concerned about that. Okay. When you think about ex-U.S. geographies, what's been the driver of that and the relative either stability or growth that you're seeing ex-U.S., you know, versus what you're seeing in the U.S.? I think it's fairly product specific in terms of the pockets of growth. Also, I think the last couple of years have been a little unusual given that COVID has impacted the market meaningfully. Sort of, you know, and the way that COVID has flared, you know, has obviously, you know, varied from one geography to the next. You know, generally speaking, sort of, you know, Asia and emerging markets, you know, have more growth. I would just expect to have sort of, you know, meaningful growth in ex-U.S. markets. Okay. Maybe just a last question, which isn't. It's more about strategy than these two products. Obviously the company was originally founded on royalty assets. You've made sort of the strategic decision to buy operating assets as opposed to more royalty assets. Why not deploy the capital to buy more royalty assets as opposed to operating assets? Um- Was that even part of the strategic discussion that, you know, that you considered when you thought about how to deploy the capital? You know, absolutely. That was a part of a strategic discussion. I would make the argument in two ways. Our primary focus is sort of in acquiring and getting exposure to differentiated assets. You know, royalty is one way of doing it, but in many ways, just acquiring assets outright allows for more synergies and allows one to do more things to these assets. Kind of from that sense of you know, control and being able to layer and combine assets was actually an important part of the decision making. Secondly, I would also like to note that the royalty space has become sort of fairly competitive, you know, over the past few years, and there are a number of players that are there which have sort of a very low cost of capital. You know, being good stewards of shareholder value, you know, we're also mindful of, you know, of how competitive things are. Yeah. Okay, good. Helpful. I guess the follow on to that is obviously, because you've been. You know, obviously, you have input on BREO and ANORO, but you haven't really been an operating company in terms of commercialization or driving those assets. How you think about the transition and the skills necessary, in terms of transitioning to having an operating company and the functions that you need and the people that you need to be able to do that. You know, how do you make sure you build that expertise, you know, effectively, but also in an economic way? Absolutely. That's a great question, and that's actually something that, you know, it's I kind of, you know, we sort of, you know, as Innoviva collectively have spent quite a lot of time thinking about. I think that with acquisitions, obviously, you know, being an operating company is, you know, requires sort of a separate skill set. I believe that with Entasis and La Jolla acquisitions, we actually have acquired, you know, some very good assets, but also some extremely good talent. You know, being able to leverage, you know, the people at the two companies is actually extremely important and a significant part of our strategy. We have also kind of, you know, been thinking about how to enhance some of the capabilities that we have at Innoviva level. I would like to say that, you know, we have been very cost disciplined in the past, and we will continue being sort of very cost disciplined. Okay. I guess the follow-up question to that is, your cost structure was extremely low. Mm-hmm. Prior to acquiring some of the new assets. Obviously that changes your cost structure. You know, how should we be thinking about cost structure going forward, and how are you thinking about that? Is there a, I guess the real underlying question here is, should we expect you to continue to generate positive cash flow throughout this transition, or is it possible that you're gonna have to spend more money than you're bringing in? No, I would expect us to remain cash flow positive. I think an easy, like, way to think about it is that La Jolla is sort of, you know, a near break-even company. You know, assuming some growth in sort of, you know, in GIAPREZA and XERAVA, you know, one would anticipate that the company, you know, is actually going to become fairly profitable in short order. I think that with Entasis, you know, obviously they are still a pre-commercial stage company, so there is going to be some investment. It's very important to note that Entasis product, Entasis lead product is highly complementary to La Jolla's commercial platform, you know, which was one of the reasons that we decided to pursue this acquisition. All in, I think that there is going to be a very clear path to profitability kind of for that combined business. Okay. Okay, great. Why don't we talk about them in detail. Just tell people a little bit about La Jolla, what are the assets they have and why you wanted a hospital-based sales force? Yeah, sure. La Jolla has a couple of assets. One is GIAPREZA, you know, which is a product that has been on the market for about three or four years, for shock, septic shock. It's very much a hospital-based product. It's been growing pretty meaningful over the past couple of years, and we'd expect continued growth there. It's actually a very differentiated product. The second product is XERAVA, which is a product that one would use for intra-abdominal infections, complicated intra-abdominal infections. You know, that has also been sort of a growing product. Collectively, these products, you know, have about $50 million of revenue or last year it was about $44 million of revenue. We think that that's really important both because these products have real growth embedded in them, and we think that with appropriate resourcing, we can sort of, you know, enhance and accelerate the revenue trajectory for the products. Secondly, if you think about how you would want to commercialize SUL-DUR, it's actually going to be through the hospital channel. I think that being able to leverage La Jolla's commercial platform is actually going to be sort of, you know, very meaningful and de-risking for being able to get, you know, Entasis lead asset SUL-DUR to market and be able to generate meaningful revenues from that. Okay, you know, broadly the outlook on the La Jolla products. Just, I don't know, talk to us about growth trajectory, how far, you know, they're penetrated, what the competitive dynamics are for each of those products. Sure. I think that with GIAPREZA, you know, it's effectively currently used primarily as a third line, you know, almost like a salvage therapy for you know, septic and other distributive shock. We think that there is actually an opportunity to move them a little bit early in the line, but obviously these things kind of, you know, would need to be determined. You know, we've only owned La Jolla for, you know, less than a month now. You know, we're conducting a full send business review to make sure that we can better sort of, you know, appreciate the commercial opportunity there. It seems, you know, fairly clear that there could be, you know, that there's an opportunity to meaningfully accelerate it with appropriate resourcing. I think with XERAVA, it's, I mean, XERAVA in many ways, Well, XERAVA is a fourth generation tetracycline, and it has some non-inferiority data that's, you know, pretty good, and it also has a more benign safety profile than third generation tetracyclines. We think that it's, you know, it's being used as a replacement for some of those treatments. Okay. You know, antibiotic treatment paradigms are sort of, you know, very complex, and so it's difficult to kind of, you know, pinpoint exactly, you know, market share in each segment. Sure, sure. Just in terms of where they are in access and reimbursement, are both through sort of all of the formulary and hospital P&T issues and you feel like you have broad access, and so now it's about just driving demand, or is there still an access component that you need to work through? I think that they are sort of in a pretty good place, but at the same time, you know, there's going to be more work to be done for us on all fronts, which we think is actually going to improve the revenue profile. Okay. La Jolla, you talked about sort of being close to break even and hopefully turning profitable. Are there investments you're gonna make there? Which, I guess, all I'm asking is how should we think about investments or, you know, any synergies you expect from that business? Well, I think that there will be two kinds of synergies. One is going to be kind of, you know, the G&A synergies, 'cause, you know, obviously, you know, we're effectively combining three companies, you know, in Innoviva, La Jolla, and Entasis. There are certain synergies that one would expect. Secondly, and I think importantly, there are going to be commercial sort of, you know, non-recurring expenses, which one could count as synergies. Because in order to commercialize SUL-DUR, you know, one would need to develop a pretty meaningful, you know, hospital and commercial presence for Entasis, and La Jolla gives us that. I think that all in, kind of, you know, we're still going to remain a compact organization. We might make some adjustments to the resourcing and also to a little bit of the commercial structure to make sure that, kind of, you know, we transition from a two-product company to a three-product company, kind of, you know, once SUL-DUR is approved. We're not going to dramatically increase expenses. Okay, good. So why don't we talk about SUL-DUR and just remind people what its clinical profile is, why you're excited about that asset and where it plays sort of in the paradigm. Sure. So it's a very differentiated asset. It's an asset. It's a drug that could be used for carbapenem-resistant Acinetobacter patients. These patients don't really have a lot of options available to them. There is really nothing on label for these patients. This is a disease that has very high mortality. It's potential in the order of 40%-50%, you know. It's a really very deadly disease. There are a couple different things that are used for it. You know, one of them is colistin, which, you know, for anybody who kind of studied, you know, antibacterial, it appears to be just a very poorly tolerated and not particularly effective drug. SUL-DUR in their clinical trial proved a couple things. They were running a non-inferiority trial, and they were able to get to numeric but not statistical superiority, which is actually very important, and I think that will be seen as compelling in the eyes of, you know, physicians and hospitals. Also, they have very clear data, you know, with regard to a better safety profile. That, I think, is also going to be quite important, you know, for anybody who has been using, you know, colistin. We're very excited about it. It's a fairly targeted market. It's a market where there is very significant mortality and very few good treatment options. Well, pretty much no treatment options. This is a drug, which could actually play very well in the market. Okay. Path to approval here, what does that look like? We completed phase III clinical trial at the end of last year. We are going to file with the FDA later this year, you know, with, you know, depending on sort of, you know, the priority status and all that. It will be the potential approval kind of, you know, mid next year. Okay. Just, I guess, just remind everybody, CMC manufacturing, supply, all of those sort of factors that you need to prepare for, you feel good about sort of where you are in terms of those? Yes. Yes. Okay. The company has, you know, the company has been working, the company has a very strong manufacturing and CMC team, and they have been working sort of, you know, furiously over the past couple of years on making sure that, you know, all of these things are lined up. Okay. Part of the reason I ask obviously is some of the API, especially for antibiotics, comes from China and there were issues for supply chain there. I assume there are no issues related to supply chain that you're aware of. Yes. That's true. Okay. Great. Good. I guess then the follow-up to that is, you know, there have been a handful of novel antibiotics that companies have tried to launch. It's been a pretty tough area to launch new drugs. Yeah, I guess what are you doing to try and overcome some of those obstacles? You know, just how are you thinking about the marketplace? Sure. It has been a fairly challenging marketplace and obviously, you know, we're aware of that and we have, you know, we have spent quite a bit of time thinking about, you know, how are we different. I think to me, it comes to two things. One is products and another one is capabilities. I think that a lot of products that have been launched recently, and especially those that, you know, have faced lackluster launches, were fairly undifferentiated products, where it was difficult to pinpoint kind of, you know, how or why, you know, they would be, you know, they should replace existing therapies. Mm-hmm. I think that in the case of SUL-DUR, the product profile is very differentiated, and so the case we use is actually pretty, sort of pretty compelling and simple. Secondly, I think it comes down to capabilities. If you look at kind of, you know, at a number of launches over the past couple of years, you know, these were single product sort of, you know, small biotech companies trying to launch products by themselves. That's relatively difficult to do because you have to build kind of, you know, new capabilities and, you know, do it in a fairly resource-constrained environment. By the way, you know, do it in an environment where COVID might be limiting market access. I think that with the La Jolla acquisition and their commercial platform and, you know, with our kind of, you know, long-term vision and resources, you know, we are likely to have a much more much better launch. Okay. I guess the last question here on this topic is just more broadly in terms of access, as you think about some of the access challenges that people had and some of the pricing challenges that people had. I get, you know, and the market, you know, I'm not asking you to give sort of guidance on what sales could be, but how do you think about this? 'Cause I think context is important here, right? You know, some people look at this and they say, unmet need, you can look at the number of patients and you can get the pretty big numbers. You know, is your expectation more modest than that? You know, I guess maybe I should just be more simple in the question. How are you defining success with this product? How are you gonna think about success with this product? What's your goal in terms of what you can be able to achieve with this product? We expect the product to be meaningful kind of, you know, in the context of our revenue profile. If you think about the number of patients, it's, you know, a pretty targeted market. I think that, you know, Entasis in the past, you know, has been talking about 20,000-40,000 CRAB patients in the U.S. and, you know, let's say, you know, 50,000-60,000 CRAB patients in the EU and GCC States. It's a pretty targeted market. We think that we have a premium product that could, sort of, you know, warrant, you know, premium pricing. We haven't really disclosed anything to that effect yet. Okay. Maybe in the last couple minutes, just talk about further areas you're thinking about investment. Obviously you've acquired these two companies. Should we expect to see you to acquire more companies? Are they gonna be focused on hospital-based products? Are you gonna think about other kinds of products? Just what's the strategy and how you're thinking about further capital deployment? Sure. That's a great question. I mean, as always, we try to be very diligent and deliberate about capital deployment and really try to think through everything. In terms of asset acquisitions, you know, with La Jolla and Entasis as a combined entity, you know, we have a very strong operating platform. We're going to be looking at, you know, at assets that we might potentially layer onto that platform and because, you know, we'd like to take advantage of synergies, you know, when we see them. Having said that, you know, I think right now is a period of very strong market dislocation and, you know, but then, you know, in terms of assets where assets trade versus kind of, you know, their fundamental value. We'll also try to be thoughtful about what other assets, you know, outside of, let's say, the infectious disease space, you know, might be accessible to us. Okay. From that perspective, you know, we'll continue what we have been doing, you know, for the past, you know, couple of years. Is the focus gonna remain on hospital-based products only? Or would you consider expanding outside of hospital-based products? We could potentially expand outside of hospital-based products. I mean, to us, ultimately, it comes down to product differentiation, you know, being able to acquire, you know, really promising assets at attractive valuations. You know, the synergies that I think, you know, could result from like, you know, from acquiring or, you know, a hospital-based infectious disease product are meaningful and so kind of they would, you know, so it would be important for us to look at assets in that space, but we could also do other things as well. Okay. Great. Well, perfect. Pavel, thanks for being here. Appreciate the time. Thanks for answering the questions. Matt, thank you very much.