Innoviva Aktie

All right. Terrific. Let's go right into our next session. I am very pleased to have Pavel Raifeld, CEO of Innoviva Pharmaceuticals. Pavel, thank you so much for being with us for the afternoon session.

So maybe, Pavel, just for investors listening on the webcast and those online and maybe for those not really familiar with the story, let's just start to level set with a little bit of a brief evolution of the company, its core pillars and what in your view makes Innoviva different.

Perfect. Asad, thank you very much. It's a pleasure to be here, and I appreciate an opportunity to attend the conference. And because of that, I try to spend my time where I think it will benefit our shareholders the most. And our roots are that a number of years ago, we invented the technology that's being used in some of the most some of the most commonly used asthma and COPD treatments, which have been commercialized by GSK. And we are receiving royalties on those revenues. And so when I joined Innoviva a few years ago, we, in many ways, looked like a pure-play royalty company. And so over time, in our efforts to create value for shareholders, we have built a much more diversified business, which right now has 3 pillars, and I believe that each pillar contributes very meaningfully to the value creation opportunity for Innoviva.

The first one is royalties. And over the years, we have found those to be remarkably resilient, and we believe them to be very durable. The second pillar is our operating business Innoviva Specialty Therapeutics, which is a commercial stage hospital business focused on infectious disease and critical care that has been growing at 40% or 50% a year and we think is a wonderful platform for continued capital deployment. And then last but not least is our portfolio of strategic health care assets that was valued at over $700 million as of the end of March. And this portfolio is a collection of high potential opportunities that we believe can generate a lot of upside for our shareholders.

And so I think that the combination of these assets provides us with a unique opportunity, which has fairly meaningful downside protection through cash and royalties that we are receiving and at the same time, provides multiple opportunities for growth and value creation through our operating business and then through our strategic health care portfolio. All in, I think this is a business that is designed to do well across a range of market environments, including sort of the high volatility environment, which we're in right now.

Maybe before we get into some of the specifics of each of these, Pavel, which one of those 3 pillars are you personally right now spending more of your time on? I mean where is the sort of like whether it's from a resource allocation perspective or whether it's from -- as it relates to your own time, like maybe just give us the cadence of how those businesses are evolving, just at a high level.

Sure. So that's a great question. I think I probably spend the bulk of my time on the latter 2 businesses. I think that IST is our fastest growth business, and there is a lot of opportunity for value creation there, both organic and inorganic that we're trying to capitalize on. And then, of course, continued capital deployment is very important to us. And the portfolio of businesses within our strategic health care assets, is -- also has tremendous opportunities for value creation. And because of that, I tried to spend my time where I think it will benefit our shareholders the most.

Yes. Okay. All right. Let's start unpacking maybe each of those, Pavel, if I may. Starting with the royalty business. How are you thinking about the durability of the royalty in light of ongoing pricing and policy developments? Or maybe just high level on how these revenue streams have been holding up?

Sure. That's a great question. We've been incredibly pleased with the performance of our royalties for a number of years. And I believe them to be both resilient and durable. Over the last few years, since I joined Innoviva, we've seen their performance across a wide range of environments, including some as disruptive as COVID. And we've been continually impressed with how stable these royalties have been.

We -- I also believe the royalties to be very durable. There is a very strong patent estate against these royalties. And because they are drug device combinations, there is a lot of regulatory manufacturing complexity associated with them that I feel further builds out a moat against any potential competition. And then importantly, these are extremely well-known, well-characterized therapies, which are largely maintenance therapies. And for these disease states, patients and physicians are generally speaking, unwilling to change things if patients are well controlled or whatever therapy they are. And so I think that this embeds an extra layer of stickiness into the royalty.

And then last but not the least, right now, we're generating about 1/3 of revenue from the U.S. and then 2/3 from ex U.S. markets. And while people have spoken about policy changes and some of the pricing pressures in the U.S., dynamics in ex U.S. markets are quite different, and it's a much more diverse collection of markets. So we think that this diversification provides us with further stability across the revenue portfolio. So all in, we have high hopes for -- and if you look at consensus estimates, people generally believe that we would get about $1 billion of royalty revenues over the course of the next 5 years. And so we view that as a significant source of value for us.

And who do you see as sort of your main competitors in the field to that business specifically? And maybe talk a little bit about how like the arc of competition has been evolving to that business model for both in the U.S. as well as in Europe.

Even for these asthma and COPD treatments? So this is a market that has had a number of existing players. It's been fairly stable. And I think that the arc of competition actually hasn't changed it meaningfully for us. We are, generally speaking, addressing mild to moderate patient populations and a lot of innovation has centered on sort of much more advanced patients. So we think that in some ways, we have been insulated from some of the competitive pressures, which affected other products in the asthma or COPD.

Got it. Okay. Maybe let's move on then to the IST business. What is driving the growth algorithm across that portfolio today? And how should investors be thinking about its scaling potential?

Another great question. So we designed IST business to be a commercial-stage rollout in the hospital and infectious disease space. And so far, it has panned out in line with or a bit ahead of our expectations. We've built it over the last several years through acquisition and integration of a couple of different companies. And right now, we have a portfolio of 4 market products. We have another product that's been approved, but hasn't been launched yet. And so we think that our ability to resource the portfolio appropriately, the strength of clinical evidence for our products, and generally strong commercial execution have been the key growth drivers.

And I would also say that we've designed this platform -- I don't think of IST as a single product entity or multiple products. I think of it as a platform, and it's a platform that has been designed to commercialize products. We see multiple opportunities for inorganic growth in the space, and we would be excited to put additional products on our platform.

Anything that sort of you're scanning as you look across the horizon that sort of makes sense for that business as you think about other products?

Yes. So I mean, we've been looking at a number of products. I mean, generally speaking, it's a commercial stage platform. And so synergies are likely to maximize at that stage. But we've also been looking for development stage opportunities. And while right now, we have presence in critical care and infectious disease, hospital is a -- hospital channel has multiple other therapeutic areas there. And so we've also looked at opportunities in other areas as well. All in, we are looking for differentiated assets. We think that our capabilities would make sense.

Let's talk a little bit -- let's stay with that for a second on that business just in terms of, I guess, near term, just overall business trends. You provided 2026 U.S. revenue guidance of $150 million for the IST business. So maybe just level-set us on how you're tracking towards those targets?

So yes, we provided that guidance, and we still have significant confidence in our ability to achieve that. The business has continued performing very strongly. For reference, we generated Q1 revenue of approximately $34 million in the U.S. and which represents very meaningful growth over past year and importantly, growth over Q4, which generally speaking, tends to be the strongest quarter of the year for a hospital business such as ours. So we feel quite comfortable with both our '26 commercial performance, but importantly, the longer-term trajectory of our business.

Let's talk a little bit, Pavel, about the hospital market broadly before diving into products. Talk to us about the dynamics in the hospital space right now. What are those like?

Well, I think that the hospital space in general is fairly disciplined and selective. I think hospitals are very focused on products that can deliver meaningful clinical and perhaps economic value to key stakeholders. And I think we, in many ways, are lucky that our product portfolio delivers just that. We think despite -- I know that some people view hospital channel as a somewhat challenging space. But we think that given our growth rates of 40% to 50% in the U.S. year-on-year, we've managed to successfully sort of navigate the channel.

And I guess when you think about what the most important levers are in advancing product adoption within the hospital setting, what would those be?

That's another great question. I mean, ultimately, there are very -- there are multiple stakeholders involved. There are formularies and surgeons and, kind of, physician communications and everything else. But I think it really comes down to for me is clinical differentiation because ultimately, it's important to have products that fit in that deserve to place in the treatment paradigm from both clinical and economic perspective. We are likely to have these products. And so a lot of what we do is engage in medical education, commercial and other activities to really explain the value proposition to hospitals and in some ways, to let our products shine.

Let's talk a little bit about those products, Pavel, XACDURO and GIAPREZA. So maybe those are both significant products for you. So maybe just start by reminding the audience what the key addressable markets are for those and what the key treatment and use settings are?

Sure. That's a great question and always excited about the opportunity to talk about our products. So XACDURO is used in adults for hospital-acquired and ventilator-associated pneumonia driven by susceptible Acinetobacter infections. This is an area -- these are very serious infections and an area of very significant unmet medical need. There are about 40,000 patients of that sort in the U.S. a year and about 40% of them are carbapenem-resistant with the resistance rates rising. So this is an area of strong unmet need. And importantly, XACDURO was the first product that was specifically designed for and approved in Acinetobacter. So it has a very, very clear use case in this infection, which allows it to address some of the stewardship and other concerns that might have affected more broad use antibiotics.

GIAPREZA is a critical care product. It's used to stabilize blood pressure in septic and other distributive shocks. And it has a very important place after kind of first and second-line treatment. There are approximately 140,000 patients for whom it could be applicable. And there is significant mortality rates associated with septic shocks. And we are very happy to be able to offer this alternative to physicians.

And how have the launch has been?

So I think that for XACDURO, the launch has been one of the most successful launches in space over the last decade. And I think that has been driven by sort of the very specific use case of XACDURO, which helps navigate stewardship and other concerns and just general sort of compelling nature of the data in a situation or in a disease state where the health burden is just high.

GIAPREZA is a more established product, but in our hands following the acquisition of La Jolla Pharmaceutical, which developed the drug, we've been able to generate very significant revenue growth rates. I think that's driven by adoption and our ability to appropriately resource the drug and tell the story.

I guess where are you in terms of market penetration for both products.

So I think with XACDURO, we are in our third year. I think we're just scratching the surface of the market. Our sales more than doubled last year, and we expect very robust continued growth on a going-forward basis. It's a drug that has -- physicians have been asking us for this drug, which is somewhat unusual.

And then GIAPREZA is a more established product, but it has a very specific and important use case. fAnd we've been able to both facilitate greater adoption hospitals that use it as well to broaden its use to new hospitals, given some of the strong data that has been generated to date and our ability to continue generating data through investigator initiated and other relevant trials.

And so those are the levers that you have in terms of driving the growth for these products?

Yes, that's right. It comes down to data, medical education and strong commercial execution. And these are -- and both of them, but especially XACDURO are relatively young products, which are early in their launch phase, and we expect very meaningful sort of continued growth from them.

Maybe before we move to the next topic, any questions from the room?

[Technical Difficulty]

That's a good question. I think that the general opportunity for us is fairly broad. Ultimately, it -- and if you think about that, we have presence in the hospital channel across multiple areas. There are some physician communications, pharmacy communications, administrative communications, health system communications, et cetera.

And so depending on the specific product specific use case, our existing infrastructure might -- we might be able to rely more or less on our existing infrastructure. All in, we look at all products where we think that our capabilities lend themselves to products. But above all, we look for differentiation. One successful hospital launches is making sure that we work with products that deserve proper space in the treatment paradigm.

Maybe let's talk a little bit about the strategic health care assets. So Pavel, explain to us how those assets fit into your broader value creation and your capital deployment framework?

That's a great question. So if we go back to thinking about sort of the other 2 pillars of the business, so royalties provide us with positive cash flows and significant downside protection. Our operating business, IST provides us with meaningful growth that we hope will accelerate over time with some inorganic moves. And then strategic health care assets provide us with further opportunities to generate value for our shareholders. These are assets which we believe have asymmetric risk-reward profiles and which could really drive significant value.

We spend meaningful time thinking about these assets and providing capital to these assets. I think a good example of an asset in that space is a company called Armata, which is a very innovative company focused on -- that's a bacteriophage specialist. And over the course of the last several months, they -- and we've known the company for a few years and have been a very meaningful supporter of theirs. Over the course of the last several months, they have had a very impressive Phase II data in Staphylococcus aureus bacteremia, where they achieved 100% clinical cure rate in a very, very challenging patient population. And on the basis -- on the back of that data, they've experienced very meaningful sort of share price growth.

And to us, that's a good example of the opportunities that we are looking for, having a chance to find companies to support them through longer-term value creation and then hopefully, to see the value crystallize for the benefit of our shareholders.

Besides Armata, any other assets that you'd want to highlight?

Yes. I think -- I mean, we have a few other assets in the space. There is a neuroscience platform called Syndeio that is running Phase II trials in depression, but also has some interesting early-stage assets. And last year, we acquired a very interesting drug delivery platform called LYNX that we'll provide more color on in the coming weeks and months. But all in, we think this is a very strong collection of assets and a meaningful part of our value proposition.

Let's talk a little bit about capital allocation and overall corporate strategy. You've got a very sizable cash balance. So talk to us about how you think about capital allocation broadly speaking, and then I've got a follow-up.

Of course. So I think broadly speaking, there are probably 3 different areas of capital allocation that we think about. The first one is related to IST supporting inorganic growth there. We think that IST as a platform has proven itself and that we could create value by putting other assets onto the platform. And so we spend some time thinking about what would be great assets there as we just discussed.

The second part is supporting both our existing investments, but then looking at new investments within the strategic health care asset bucket. And we're looking for opportunities where our financial resources, but also other capabilities might help create long-term value. And then last but not the least, we're also focused on capital structure optimization. And in particular, we believe that a cash flow positive company sort of should consider returning capital to shareholders. And so we recently initiated a share repurchase program.

That's $125 million authorization. And how much of that has been completed?

So as of the end of first quarter, we completed $25 million of that -- of the $125 million authorization. And we believe -- and I think that the program is both a way for us to return capital to shareholders, but I think it also conveys our high conviction sort of in the prospects of our business. And while we don't have any specific commitments in terms of how quickly we'll execute on the program, we still believe that we are undervalued.

And I guess in terms of other capital allocation levers, what sort of BD interest you have? What kind of external opportunities you mostly pursuing?

So we've considered a wide range of things. We've continued supporting Armata over the course of this year. We also remain believers of Syndeio and their neuroscience platform. And then we've also looked at a number of opportunities in -- which included certain rare or orphan diseases in certain other areas. We try to be both strategic and opportunistic in terms of how we assess the opportunity.

And how should investors think about the scaling potential of the platform?

I think the ability to scale the platform is a significant part of the value for me. We designed the platform to provide scale. I think that over the last couple of years, we've put the right bones in place. And I think that right now, the platform is ready to continue scaling. There is very significant operating leverage embedded there. But I think that if you look at our revenues at our kind of various performance -- operational performance indicators, it's a very strong platform. And so I would anticipate that we would accelerate revenue and profitability delivery with inorganic growth over the coming quarters, but specific size and timing would depend on a host of things.

And I guess when you think about strategically over a longer period of time, Pavel, maybe 5 years, 10 years, right, what do you see as the sort of future, explain to us sort of like what the vision is, maybe in 5 years?

Sure. I think that's great. So my hope is that over the next 5 years, we'll continue generating significant revenues from our royalty portfolio. I would anticipate that we would generate significant organic growth from IST, but then we would complement that with also very significant inorganic growth. And then I would anticipate that we would get sort of significant value accretion from some of the companies in the strategic health care portfolio bucket and that perhaps we would build another vertical of Innoviva based on one of the assets in our portfolio. That I'm sure of.

What could that look like?

Well, I mean, if you think about IST, we started -- IST started with our investment in Entasis. Then over time, we took Entasis private and then we combined it with La Jolla to build out IST. But one thing to say is we tend to be very disciplined in terms of our capital allocation, and we are very mindful of correlating risks with potential rewards. Prudent capital allocation and trying to be very disciplined.

Maybe going from long term to shorter term, Pavel, what are the most important value drivers or milestones for Innoviva that investors should be paying attention to over the, call it, next 12 to 18 months?

That's a great question. So leaving aside the obvious macro, I think that continued revenue delivery, especially given XACDURO launch and GIAPREZA would be very interesting to watch. I would also anticipate the launch of NUZOLVENCE in the second half of this year. And so that would also be sort of a meaningful value driver. And then we have multiple things within our strategic health care asset portfolio.

I think that Armata anticipates initiating a Phase III trial in the second half of this year. And then we also expect readouts from Syndeio over the course of the next 12 to 18 months. And then, of course, last but not the least, there could also be updates on things strategic over the course of this time. All in, I think it's going to be sort of a very busy calendar for us with significant growth and multiple catalysts.

Okay. Any questions?

[Technical Difficulty]

Well, so we have started to conduct activities related to potential launch prep, all the customary stuff. I think in general, the way we think about NUZOLVENCE is that there might be 2 time horizons for the product. And I think initially, right now, there is a standard of care, which is fairly efficacious. We know that resistance rates in some markets outside of the U.S. are extremely high. The market rates like 30% to 40% and perhaps more than that. And sort of all the experts believe that ultimately resistance [indiscernible] there are some early signs of that I think that initially, the market -- the use case for NUZOLVENCE is going to center around its oral availability as a replacement for like a very painful sort of intramuscular injection administered in an office.

But then I think -- and we'll -- but then I think over time, the whole market for gonorrhea is going to become -- is going to open up. And I think that based on the product profile of NUZOLVENCE, we could actually capture a very meaningful market share. And just as a reminder, the gonorrhea market in the U.S. is about 1 million to 1.5 million patients depending on sort of how you look at it. So I think that the opportunity for us will ultimately be very sizable, and we'll make sure to -- to the extent we launch it ourselves, we'll make sure to resource things commensurately with the market.

And then, Pavel, maybe just to close on the couple of minutes we have left, leave us with how should we think about how you balance downside protection from the royalty base with upside from IST and strategic assets?

That's a great question. So I think that Innoviva has a very unique business model. And in some ways, it's an all-weather business model in that we can actually -- given the diversity of our business, we can actually thrive in multiple market environments. And I think that comes in -- that's especially relevant in high volatility environments like right now. I think that in a risk-off environment, the cash flows, the downside protection, the cash on hand that we have actually allows us to perform well. But importantly, it also creates more opportunities for us to deploy capital.

And then when we have a risk-neutral environment, hopefully, some of our investments pan out, and we can actually continue generating value for our shareholders. And I think that the combination of the 3 different pieces. So the royalties, which are stable, resilient, well characterized, the high growth that's embedded within the IST business and then the disruptive potential that, I believe, is embedded within our strategic health care assets. All of these things come together to create an opportunity for growth, but at the same time, also in a way that meaningfully protects downside. I think it's a very unique opportunity, and I'm very excited about what the future might hold for us over the course of this year and then, of course, beyond.

Well, I think that's a great place to close. Pavel, thank you very much for the very candid thoughts and the conversation. I really appreciate you being with us.

Thank you very much. I really appreciate it.

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

Perfect. Thank you, Trevor, for having me at the conference and the opportunity to discuss our progress at Innoviva. And just for context, it might be helpful to briefly talk about the history of the company. Innoviva was originally formed to manage royalty revenues from products that we developed with and licensed to GSK. And as these revenues have become more meaningful, we build out other areas of the business to create and drive shareholder value. And so today, Innoviva is made up of 3 main components. The first one is our royalty business from 2 respiratory assets, Breo and Anoro, which are marketed by GSK. And this royalty portfolio provides a durable and resilient source of cash flow to the company, generating $250 million in gross royalty revenue last year. The second one is our Specialty Therapeutics business, known as Innoviva Specialty Therapeutics, or IST.

And this is a commercial stage critical care and refractory disease platform made up of highly differentiated assets. And this business delivered almost $120 million in U.S. sales last year, and we have shared that we expect it to generate at least $150 million this year, which actually would be more than 3x what it was when we first formed the business in 2023.

And then last but not the least, we have a diversified portfolio of strategic health care assets with high growth potential, which is currently valued at over $600 million. And so Innoviva is a profitable, well-capitalized company with a resilient all-weather business model and a diversified business structure that I think puts us in a very favorable and differentiated position across multiple market environments. And so actually, yesterday, we -- as you saw, we announced our Q4 earnings, which I think showcased the strengths of our business.

And in particular, all parts of our business have performed quite well and demonstrated strong momentum going into 2026. Our IST business delivered its best quarter ever with $34 million in U.S. sales, which is effectively the third year in a row of 50% annual growth. Our royalty business has continued to be resilient as these products have outperformed our expectations for the year, again, beating analyst consensus.

And finally, we've had some major advances in our strategic health care assets, highlighted by breakthrough clinical results at one of our portfolio companies, Armata, which had excellent data and then also a very significant valuation increase last quarter, which continues into this year. So overall, I think that we are as well positioned as we've ever been for growth across our business and to realize the promise of some of the investments we've made over the past few years.

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

Sure. So as we think about our capital allocation strategy, we are in a very fortunate position where we have a comfortable cash position of over $0.5 billion, and we are actually seeing a lot of attractive opportunities for value creation through capital deployment. And we think about these in terms of opportunities within our investment.

Our current portfolio, new investment opportunities and then also capital return to shareholders. And so internally, I believe that we've built a platform and a portfolio that provides a very good return on investment for incremental capital. First, our IST business is getting to profitability and growing very rapidly. And I think it still provides us with opportunities to invest in accelerating organic growth as well as through acquisitions. This platform has significant synergies for many additional assets in the hospital channel that could be added to the business, and we are actively evaluating those possibilities.

The second point is that our strategic health care assets continue to perform very well as evidenced by progress at Armata that I just mentioned as well as Syndelo and our neuroscience investment, and we expect to continue supporting these in addition to others that we will be talking more about throughout the year. And we think that this portfolio really has a pretty asymmetric upside value creation potential.

And then if we look externally, we continue evaluating new investments for long-term value creation as always with a very disciplined and strategic approach. We tend to be patient, but when we see an opportunity that's a good fit for us, we'll have the flexibility and the firepower to move very quickly. And then last but not the least, I think we've consistently demonstrated over years that capital return to shareholders is important to us. And we, again, sort of showed this at the end of last year by announcing $125 million share buyback program, which underscores both our commitment to shareholders, but also our confidence in the growth prospects of our business.

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

Of course. So we've been very consistent supporters of Armata over the past few years and are very excited about the company's potential. I think they've proven themselves to be the clear market leader in the very innovative field of bacteria-based therapeutics. Last year, they announced groundbreaking positive Phase II data in Staphylococcus aureus Bacteremia, showcasing 100% clinical cure rate in an area where best available treatments are sort of are in the 70s percent of success and still have very high mortality levels. And so this is something that if validated in a Phase III trial, could be among biggest paradigm changes in anti-infectives in the last decade.

And so in the wake of the strong clinical data, the market has started to internalize the potential of Armata, which has been reflected in their very meaningful share price appreciation. They are an independent public company.

So we're limited in terms of the guidance that we can give. But I think that their plans to initiate a Phase III study for their lead asset in the second half of this year are sensible. And we remain supportive and very excited about the recent recognition that they have been getting.

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

So I think we can break that down by each part of our business. I think that for the therapeutic business, we're in the middle of a very high growth period for our products. So really, we just want to keep doing what we've been doing and hopefully continue generating very strong growth rates from our current portfolio. Additionally, we are at a point where the business can start producing profits that can be strategically reinvested in various areas to accelerate the commercial revenue delivery. And so we're quite excited about that.

And we think that there is a lot of room left for inorganic growth. I believe that we might have the best-performing hospital-focused commercial platform in the industry. And I think that there is a very meaningful value that could be unlocked with placing new assets onto this platform. So that's also an area of very active evaluation for us. And then in the other part of our business for the strategic health care assets, we think that our portfolio here has a strong potential asymmetric payoff with very beneficial risk profile. Armata is a good example of our investments in this space, which is a very wide-ranging platform that also has a high potential lead asset.

And we've made other investments in neuroscience and other areas where we think that there has been a lot of operational progress, and we are hopeful that this is also going to translate in sort of more financial recognition for these programs.

And then as I said a couple of minutes earlier, we also see a lot of attractive de novo capital deployment opportunities. And so we will continue making disciplined investments in areas where we have a differentiated perspective and can generate strong returns. And so to me, there are multiple different opportunities for growth across all of our business.

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

Yes, of course. So we are -- we continue being excited about ZEVTERA, which, as you know, is approved to treat 3 types of bacterial infections. And as a reminder, we acquired the U.S. commercial rights for ZEVTERA from Basilea about a year ago, and then we began the U.S. launch in the third quarter of last year.

The launch process for hospital therapeutics in general and anti-infectives in particular, can be a bit slow. Since ZEVTERA has only had 2 quarters of sales, we're still in the front half of the process of getting through the committees and getting on the formularies. But to date, we've had good success in those and remain confident in the long-term potential of the product. One metric to think about is that is now that we've been on the market for 2 quarters, we still have significantly more formulary reviews on the schedule ahead of us than we've had since launch. And so this is just one of those things that we would need to be patient with because it takes time.

But we've been very encouraged by positive initial feedback from the medical community and also have had a few good commercial updates recently. For instance, we received the J-Code designation from the CMS in the fourth quarter, which helps customers with outpatient reimbursement.

And on top of that, we also received a new technology add-on payment status, which increased the reimbursement to hospitals for ZEVTERA. So I think that all of that bodes well for the long-term opportunity for ZEVTERA.

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

Sure. That's a great question. So the FDA approved Zoliflodacin or Nuzolvence in December of last year, which was a very exciting milestone for Innoviva and for patients as Nuzolvence is one of the first new treatments approved by the FDA for uncomplicated urogenital gonorrhea in nearly 2 decades. We're planning to commercialize Nuzolvence in the second half of this year, and we are currently evaluating options on whether to launch by ourselves or with a partner.

And frankly, what we're very focused on is making sure that we're going to get this product to patients in a way that's going to be most effective. It's a little different from a number of other products in the IT portfolio. While solvents has some quite strong commercial synergies with IT capabilities and products, it also has a different commercial call point in that the rest of the IT portfolio is focused on the hospital channel, whereas N solvents is more focused on outpatient providers. And it's also unique in that a very significant portion of the commercial opportunity will likely be unlocked a bit later when resistance to the current standard of care, ceftriaxone is going to grow in the U.S.

And so I think that both of these factors point to a commercial strategy that early on would be focused on a more targeted promotion to specific patient populations that have an unmet medical need and value a convenient oral option. while at the same time, preparing the platform to scale up as resistance grows, and we would be able to capture the larger opportunity that's going to come with that.

Yes. Great.

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

Sure. So as I mentioned earlier, we anticipate $150 million or more of U.S. net product sales in 2026 as compared to just under $120 million in 2025. And I think this speaks to our confidence in the growth potential of the IST platform. While we don't really -- we don't generally provide peak sales guidance on a product level basis, I'd actually be very happy to walk through recent trends and anticipated growth drivers for each of our market.

And so perhaps starting with our largest product, GIAPREZA. GIAPREZA is approved for the treatment of septic shock, and it delivered $72 million in 2025 U.S. net sales, a growth of about 34% relative to the prior year. It's maintained a very impressive trajectory since we acquired it as part of the La Jolla acquisition in 2022, driven by commercial effectiveness and also recently by expansion in new patient segments based on data generation efforts through very cost-effective investigator-initiated trials. Looking ahead, I think the big item to potentially watch for are sepsis guideline updates. And once we see how GIAPREZA is positioned there, that might actually provide sort of meaningful levels of support for access and awareness of the product. And we think there is still a very significant headroom for GIAPREZA, and it could easily be an over $100 million product in the near future. If we think about kind of our second most important product, it's XACDURO.

And XACDURO is the only therapy which was indicated specifically for resistant SNA bacterial infections. And so it's filling a large unmet need and the growth rate that we've been seeing confirms that to be the case. Right after it launched, it was included in the guidelines as the first-line option for any suspected resistant cases, which will continue to support future growth.

It's been performing ahead of expectations and brought in $33 million in U.S. net sales in 2025, which is a year-over-year increase of over 100%. And I think that anywhere where we're going to see problems with this bacteria, we would expect high utilization rates as I think we really are the only option available for these very sick patients. And so I think that there is a great deal of opportunity out there for this product, and we think it's fairly early in the growth curve. I know that analysts expect this drug to be in the range of $150 million and $200 million, and we think that those numbers will be quite achievable. XERAVA, which is another product that we acquired with La Jolla is an antibacterial for the treatment of complicated intraabdominal infections.

And it's more of a stable revenue source in our portfolio as opposed to a big growth story. And we expect to see steady lower growth rates and certain types of resistance and overuse of carbapenems create more opportunity for this profile. But perhaps there are fewer sort of major catalysts on the horizon here.

And then I think with ZEVTERA, which I've just spoken about, it's the first cephalosporin approved for SAB, including MRSA strains. It became commercially available in the U.S. midyear. And we expect it to go through formula process this year and are hoping to show a good sort of revenue launch trajectory sort of closer to the second half of the year. And then, of course, with Nuzolvence, we've just spoken about that. But to reiterate, I think that the total commercial opportunity will be dependent on the rate of resistance to existing treatments. But if these hit the levels that we expect to see, I think that the total addressable market could be as large as, say, $0.5 billion, and we think that we could be well positioned to capture much of that.

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

That's a great question. And I think I'd highlight a couple of areas which I think people might underappreciate. The first one, I think that we really are an all-weather company from my perspective in terms of our ability to succeed in multiple economic and market environments. Of course, we're likely to do well when the markets and the industry are doing well. But I think that we could also succeed in down markets because we have strong cash flows, good downside protection stemming from our royalty revenues, while risk of environments actually present us with multiple opportunities to deploy capital, like what we have done with Entasis, La Jolla, Armata and a number of our other assets.

And so to me, that's an interesting and perhaps unique feature of Innoviva and our diversified business. I think the second one -- the second area that people might not fully appreciate is the growth potential that's embedded in our strategic health care assets. I think this is playing out with Armata right now, where they had very strong share price performance on the back of truly remarkable clinical data.

But we also have other assets that we've discussed, which has significant growth potential and also multiple catalysts that might not really be getting the attention they want because they're currently individually a small part of our overall value. And I think that we're going to -- we're very excited to speak about a few of these opportunities a bit more over the course of the coming year.

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

Yes. So I think that 2026 is going to be a very exciting year for us. And I think that we'd be happy with the sort of continuation of some of the momentum from '25, which I believe was an excellent year. We're going to anticipate us having multiple catalysts across our business.

Armata is likely to start their Phase III trial, which I think a number of people in the industry are going to be watching carefully. Our neuroscience company, Syndelo, could have a Phase II readout in the next year in major depressive disorder, which could also be a meaningful value catalyst. We announced last fall that we acquired assets of the company, formerly known as Lyndra Therapeutics, which was an MIT spun out from Bob Langer Lab. And that's something that we are optimistic about and perhaps going to be talking more in the spring.

And then, of course, at IST, we have a lot of focus on making sure that we continue growing our portfolio. We look forward to the first full year of ZEVTERA sales and then, of course, to the solvents launch. So we expect to be quite busy in that business.

And also, while it's important, it's very challenging to predict these things ahead of time, we are active in [indiscernible] evaluations. And so perhaps there will be opportunities for us to further bring in some new assets into our portfolio. So all in, I think that we're very well positioned for what the future might hold, and I am very excited about the progress that I hope we're going to make over the course of this year.

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

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

Well, thanks for joining, everyone. Today with us, we have Pavel Raifeld, the CEO of Innoviva. Pavel, thank you for joining us today. My name is Jason Jun, Managing Director on the Biopharma Banking team at Citi. So here today for Innoviva's fireside chat. So Pavel, thanks for joining us.

Thank you, Jason, for hosting us.

Great. So Pavel, why don't we just get started with a quick overview of the company and I think specifically, if you wouldn't mind just walking us through the three business pillars at a high level, we can start there.

Sure. That sounds wonderful. And once again, thank you for the opportunity to present the Innoviva story. First, I think it will be helpful to start with some background information on how the company was formed. Innoviva was originally founded to manage royalty revenues for products that we developed with and licensed to GSK. And as the royalty revenues for these products, Breo and Anoro, became more meaningful over time, we decided to build out other areas of the business in an effort to create long-term value for our shareholders.

And so as a result, Innoviva right now is composed of three business areas to which you alluded earlier. The first is a steady royalty stream from two widely used and highly differentiated respiratory products marketed by GSK. The second is a fast-growing critical care and infectious disease platform that we refer to as Innoviva Specialty Therapeutics, or IST, which includes four commercial stage products that are growing at over 50% a year and also a late-stage pipeline candidate that could be approved this year. So it's a very high potential business.

And the third is a diversified portfolio of promising health care assets with high growth potential, which are currently valued at approximately $450 million.

Great. Well, thanks so much. Why don't we just talk about the company strategy for a second because these are pretty 3 unique parts of the business that typically you don't see belong to a biotech company, right? So if you can just share a little bit about how you think about each of those from a -- how do they complement each other from a business perspective? And how do you think about optimizing risk reward for the company and ultimately value creation for shareholders?

Thank you. This is a terrific question that speaks directly to how we appreciate the unique value proposition to the business. We believe that Innoviva is a uniquely positioned company in the biopharma space to unlock value without the typical binary risk. If you think about us, first of all, we're profitable and well capitalized. Given the durability and stability of our royalty stream, we have very significant downside protection across all market conditions, and we can also be in charge of our own destiny, unlike some of our peers.

Secondly, we also have a very differentiated and complementary specialty therapeutics business that I spoke about. And this business offers very high growth potential and multiple shots on goal with each product addressing an area of high unmet medical need. And third, our strategic health care portfolio could really unlock some very meaningful and disruptive value creation with minimal financial commitments. And so if you think about it, it's almost a layered business with stable and growing revenue streams and very significant upside opportunity, yet very significant downside protection as well. I think it's a very unique proposition.

Great. Super helpful. Why don't we just go tick through each of the business pillars, right? And let's start with the GSK royalties. Obviously, this has been a core part of your business. If you want to just share with us some of the recent trends, some of the business drivers behind the underlying products for your two sort of royalty streams, specifically, if you can speak to the durability of that franchise, let's start there, and I have a couple of follow-ups.

Sounds great. So we received royalties from two of the most commonly used asthma and COPD products, Breo and Anoro, which are commercialized by our partner, GSK. These products are considered to be maintenance therapies. And so we think it will be less likely for patients to go off treatment and disrupt current therapy should a generic or competitive threat appear on the market. And these products are marketed very broadly outside of the United States and are still growing in many of these countries, providing additional diversification and durability as the competitive pressures seen in the United States are significantly greater than those in many other regions.

So overall, we feel quite good about the stability and the status of these revenues. And if you look at the performance of Breo and Anoro over the past 3 or 5 years, they have been remarkably stable. It's also very important to note to your question that Breo and Anoro are protected by an IP estate with meaningful remaining exclusivity across a very broad range of primary and secondary patents. And I think it's also very important to note that because these are drug device combinations, there are both drug patents and device patents that are sort of -- that are creating the moat around these two assets.

Per our agreement with GSK, we expect to receive royalties until the expiration of the last relevant patent in each country where these products are marketed, which could be in the early 2030s for a lot of the major markets. And I think it's, generally speaking, worth noting that IP protection in international markets typically tends to be longer dated than in the U.S. And just to give you a sense of how some of the Wall Street analysts think about us, Wall Street consensus generally implies about $1 billion of royalty revenues accruing to Innoviva over the course of the next 5 years.

Great. Very helpful. And I guess, ultimately, how do the GSK royalties fuel the rest of the business, right? It is a great cash flow generating part of Innoviva story. You have these other two businesses that we'll get along to in a second. But how do you frame the cash flows that you get from GSK going into other parts of the business as well as from a capital allocation perspective?

Sure. Thank you. That's an excellent question and something that we think about quite a lot. We I mean, we're very focused on deploying capital in a way that maximizes value creation for our shareholders. And that has, generally speaking, sort of come in two veins. The first one has been capital structure optimization. And for instance, we have been quite active historically in terms of doing share repurchases and things of that sort, making sure -- when the circumstances are right, making sure that we are able to generate meaningful value.

Secondly, we have also made a number of strategic investments, which right now forms our -- which right now are our IST business and also our strategic health care asset portfolio. We see many very interesting opportunities to continue deploying capital productively in these two areas. And so obviously, strategic activities are a little different -- difficult to predict and markets have been volatile recently, which, by the way, we think bodes well for our capital allocation strategy. So -- but overall, we think that we're in a very good position to sort of to continue deploying capital well and continue generating value for our shareholders.

Great. And I'll come on to capital allocation towards the end because I think that is an important question that I think investors have regarding the company. But just going back to the second business pillar, which is IST, right? If you can just sort of help outline for us what is the overall strategy for the IST business? You have many marketed products, you have pipeline products. Obviously, you're very focused on the commercial execution, the ramp and the growth. And then also you have a pipeline behind it as well. So if you can just share with us a little bit about how you think about the business we'll start there?

Sure. It's a great question. And it's a business that we are both very proud of and also expect great things from. So our overall goal has been to build a best-in-class sustainable business in the infectious disease and critical care space, creating shareholder value while at the same time, meeting the needs of patients that we serve. And so IST has been rapidly growing organically. As I mentioned, we have had 50% plus revenue increases year-on-year. And so of course, commercial execution is key to its success and we anticipate continued strong commercial execution.

Having said that, we continue making targeted investments in R&D. And for instance, Zoliflodacin, sort of our regulatory stage product candidate with a PDUFA date towards the end of this year. And at the same time, we have also made some thoughtful inorganic investments like our most sort of our latest product, Zevtera, which we in-licensed last December and launched very recently. And so we anticipate, given the high productivity of this platform that we can -- that we're going to continue sort of building it out. And there's a ton of organic growth still embedded there. And we think that we can accelerate revenue delivery even further with thoughtful inorganic growth.

And maybe just on Zevtera. Obviously, that's early stages in the launch, but thoughts on how that launch has been going so far, some of the progress made and ultimately, how you -- how we should think about the size of that opportunity?

That's a great question. So far, the launch, we have been pleased with the market receptivity and how the launch has been progressing. And obviously, it's early days, but we feel good about sort of all the operational metrics related to the launch. Secondly and importantly, we think that Zevtera address -- well, no second. We think that's because Zevtera addresses a very meaningful market. There are approximately 120,000 Staph aureus bacteremia patients with infections in the U.S. on an annual basis. And almost 50% of those come from medicinal resistance strains.

Zevtera addresses a very serious unmet medical need where second and third-line treatments are needed in light of growing global resistance to vancomycin and daptomycin. And so from -- so this is a very sizable market. And from a commercial perspective, we think that sort of the needs of Zevtera from the commercial platform perspective are very similar to the platform that we have right now. And overall, we think -- and by the way, Zevtera is approved for three different indications. The bacteremia one is probably sort of is probably the most -- you could call it the most -- the lowest hanging fruit, but other indications might provide sort of incremental opportunities for growth for years to come.

Yes. And then just moving on to Zoliflodacin. Obviously, you've got the PDUFA date coming up in December. If you can share a little bit about the size of the opportunity, the unmet need and how excited you are about that PDUFA date?

Sure.The short answer is we're very excited, and we're making a ton of preparations in advance of the potential approval. So maybe to just frame the opportunity there. Gonorrhea is one of the most commonly diagnosed sexual transmitted infections, and it has over 80 million cases a year globally, including over 1 million of cases in the U.S. alone. And currently, patients are generally speaking, treated by standard of care, which involves a fairly painful intramuscular injection.

What's interesting there is that there is growing resistance in the space. And there are markets in Asia where resistance reaches levels of 30-plus percent. And I think that there are nascent signs of early resistance in the United States. To the effect that resistance becomes sort of more prevalent, we think this creates -- this creates a very meaningful commercial opportunity for our product, even aside from the commercial opportunity created by the fact that Zoliflodacin is an orally administered product that's simply more convenient and user-friendly. And so we think that, that bodes well, that this product profile bodes well for the overall commercial opportunity.

And then maybe we talked about the two products. But if you take together the 2 plus the established portfolio across Giapreza, Xacduro, Xerava and others, right? I guess the question is, how would you frame the -- as one of the very few commercial stage established IST businesses out there, what are the benefits of being in the business as one of the very few companies out there in terms of access, in terms of scale? Are there some natural synergies between the different products? And I think the related question is, I think, from your perspective, how big ultimately do you think the IST business can become if you take together the potential across those products?

That's an excellent question. And this actually speaks to the original thesis behind creating IST. Historically, when we looked at companies in the infectious disease space, we saw that there were a number of companies and products that were addressing significant unmet medical needs. And yet at the same time, some of them have not been sort of as successful as the unmet need would indicate. And that came down typically to forcing R&D stage companies to build commercial capabilities, but also companies trying to operate as single product entities and frankly, not having enough scale.

And so when we were architecting IST, we wanted to build a business that would have sufficient commercial scale to execute well. And I think that right now, IST is at a point where it's almost the perfect balance between, on one hand, being a very nimble and on the other hand, having sufficient scale to be sort of to be structurally profitable. Our current product portfolio is very synergistic with each other, which is why kind of we built it this way. And we think that there is a tremendous opportunity to build a sustainable business even on the basis of the portfolio that we have right now.

For instance, I think that based on our current products, our peak revenues at IST could be over $0.5 billion, but also because we are one of the, I believe, premier consolidators in the space, I think there is a tremendous opportunity for us to grow inorganically as well, which can create further shareholder value and get these medicines to patients who really need them.

And what is the strategy for continuing to add products via BD and M&A? I guess what is the criteria that you use to evaluate assets? Is there a lot of competition when you look at assets? If you can share a little bit more color on that.

That's a great question. I mean, in general, when we look for assets that would be a good fit for IST, we're focused on the product profile and differentiation, the overall market size and resulting commercial opportunity and synergies and fit with the rest of our business. I think given the success of the Xacduro launch to date, and I believe it's one of the most successful launches in its space in the last several years, we are seen as a premier sort of commercial partner for a number of companies who are great developers, but who might not have specific commercial expertise or capabilities. And I think that as such, we see a fair amount of flow of various opportunities, and we try to be very thoughtful about products that we take on. And we see a ton of opportunity to create value this way.

And is there a -- in terms of stage of development for assets that you look at, is there a preference for commercial/immediately accretive assets? Or are you willing to take on some clinical risk looking at late-stage assets in the clinic?

Yes and yes. So I think that synergies, generally speaking, are maximized by commercial and pre-commercial assets. And by the way, we think that aside from commercial capabilities, we have excellent regulatory manufacturing capabilities, which are particularly applicable to pre-commercial assets. And we are also willing to take on some clinical risk as well. And overall, we see a number of opportunities. And for us, frankly, it's more about product differentiation because we think it's differentiation that ultimately is able to satisfy an unmet need and then drive potential revenue opportunity.

Very helpful. If we pivot a little bit to strategic health care assets, we would love to hear a little bit more about strategy around these investments. How did you first come across these opportunities? How do you decide to invest in them? Is this a big focus area for the company? Is this a broad effort? And ultimately, how you landed on a couple of these investments?

Sure. This is a great question and also one area where we ask ourselves all the time. So are we thinking about sort of the opportunities the right way. In general, we are looking for opportunities or assets which address significant unmet medical need, have very significant commercial opportunity and where we think there is a meaningful dislocation from sort of the fundamental value of these assets. And when we make investments in the assets, we try to aside from capital, which oftentimes and especially in these markets can be quite valuable. We also bring to the table other things, including sort of strategic operational and other expertise.

Yes. Very helpful. And then maybe I'll just pick on one of the strategic health care assets, which is Armata, which actually had some pretty exciting data recently. Can you comment -- and that's, I think, a company that you own 60% plus of the company from a public disclosure perspective. Can you comment a little bit about next steps for the company post its recent Phase II data?

Sure. So -- and maybe I'll first begin with a little bit of information on Armata. Armata is a bacteria phage company, and they are advancing new therapeutic modalities in the phage space. They -- as you noted, they recently had some very exciting clinical data in Staph aureus bacteremia, where they were able to show a 100% clinical response rate in a very difficult-to-treat population. This is breakthrough and fairly extraordinary. They are and we are very happy with this result. And so they continue to advance this program toward a pivotal trial. And if successful, they could -- they might potentially be the first phage to be approved in the U.S. market.

And then just maybe one more. I think recently, Gate or now known as Syndeio also recently closed a financing round. Can you talk us a little bit more through about that company and its programs and why you're excited about that investment?

Yes. Syndeio is definitely an investment that's very important to us. And it's -- they have a portfolio of significantly derisked CNS assets in development for depression and other related indications. They have a very differentiated platform to understand synaptic health that's backed by a Nobel prize-winning scientists and his proprietary insights. We think that the data generated sort of in this platform fairly meaningfully derisks their assets relative to other similar CNS drug candidates. And right now, Syndeio is running a Phase II trial and I believe that if successful, they might get sort of a ton of value recognition from the outside world.

Yes. Great. And then perhaps one of the -- going back to capital allocation that we briefly touched on earlier. Obviously, this is a big focus area for the company, right? I guess as the business continues to generate cash, you're generating revenues from IST, right? This I'd assume would continue to be a real -- one of the highest focus areas for the company, right? How do you see yourself deploying more capital -- more or less capital in one business area than the other, right? And how do you think about potentially expanding outside of the three pillars? Or do you intend to focus on the three and look for opportunities within? How do you just broadly think about capital allocation going forward?

That's a great question. We -- so as you noted, we are quite well capitalized with about $400 million of cash on our balance sheet, which I think positions us well to make thoughtful capital allocation decisions. When we think about capital allocation, we we're looking both for opportunities to expand our specialty therapeutics business as well as to provide more capital to assets within our strategic health care portfolio that we think are productive uses of capital. We -- so far, we think that our IST platform has been a very productive use of capital. And we think that there are a number of assets in our strategic health care portfolio that are also very productive.

For instance, Syndeio, as you noted, I think provides a very asymmetric sort of risk-reward opportunity for us, and we have taken advantage of that. Overall, I think it's difficult to be prescriptive here. But overall, I think as opportunities present themselves, we'll try to be nimble and opportunistic and channel capital to where the biggest opportunity is. And by the way, as I noted previously, historically, we've been sort of fairly active on the share repurchase front, and that continues to be an option for us.

Understood. Okay. Great. I think that just about rounds up the questions for today. So Pavel, thanks again for joining us today.

Jason, thank you so much. It's really a pleasure.

Okay. Great. Thank you.

Thank you.

All right. Great. We're just about at time, so let's get started. Our next presentation is with Innoviva. I'm very pleased to welcome Pavel Raifeld, CEO. And my name is Asad Haider. I'm the U.S. pharma analyst here at Goldman Sachs. So Pavel, welcome. Thanks for being with us.

Yes. Thank you very much. It's really a pleasure to be here.

Great to have you.

So maybe, Pavel, just to start off, we could -- you could provide us with a bit of a brief evolution of the company and the 3 core pillars that you talk about. Any high-level framing comments that you want to introduce with?

Sure. Thank you. We're very excited about Innoviva, and so always happy to share the story. So originally, we were formed to manage royalties on some respiratory products that we codeveloped with and then licensed out to GSK, and they're currently being commercialized by GSK.

And as these products have become very successful over time, right now, these are some of the most widely used therapies for asthma and COPD. So as these products have become very successful, the royalty revenues that we have been receiving started being quite meaningful. And so we decided to deploy the cash flows in order to build out other areas and create some shareholder value sort of through intelligent capital allocation.

And so right now, fast forward a few years, we have 3 business segments. The first one is the royalty business segment. We're still getting royalties from our 2 products called BREO and ANORO that historically have amounted to approximately $0.25 billion a year. And we expect that to continue on sort of going forward for a fairly extended period of time.

Secondly, we -- over the last couple of years, we also built out an infectious disease and critical care franchise that has delivered over $100 million of revenue last year and is growing at 50-plus percent per year. And also, we expect a very significant growth from this business on a going-forward basis.

And last but not the least, we have a strategic health care asset portfolio valued at approximately $0.5 billion. And this is a portfolio of stakes in companies where we think there is very asymmetric risk-reward payoff and promise both in terms of addressing significant unmet medical needs, but also generating sort of meaningful revenues.

So the way you're describing it, Pavel, your business is part financial asset oriented and also part product oriented. So maybe just talk through why you like having this kind of a balance.

So to me, it comes down to two things. The first one is, I think, the downside protection and the upside opportunity that's embedded in the business. I think that the royalty portfolio is a portfolio of well-known, well-characterized products that both provide us with very significant downside protection, but also through recurring cash flows makes us masters of our own destiny.

And then I think that the other two parts of the business are the operating platform and the strategic asset portfolio provide us with very meaningful sources of growth and upside. And so to me, it's just a very comfortable situation to be in across a range of market environments, including an environment as perhaps unusual and disruptive as the current one.

So I mean, speaking to that point, the environment is indeed unusual and disruptive, and it's been a theme throughout this health care conferences, as you can imagine. So maybe before we dive into each of the segments, how is the external environment and particularly policy topics, pricing, tariffs regulatory impacting your business?

That's a great question. And as all of our peers, we also spend a lot of time trying to think through the implications of both things that are being discussed and things that might be discussed on a going-forward basis.

In general, I think we're actually very well positioned and through sort of the nature of our business, largely insulated from a lot of the pressures. We don't think that there is major regulatory risk to what we are doing sort of given the stage at which most of our products are. And we actually feel that under a fairly wide range of tariff scenarios, we are going to have gross margins, which are going to be supportive of significant value creation for our shareholders.

So all in, we feel like this is -- we can operate robustly in this environment. And in fact, we think that this environment creates a lot of dislocations that we might take advantage of because in some ways, we are an operating company. And so arguably, those assets should increase in value in sort of risk-on environments. But I think that in risk-off -- but we also are deploying capital. And so in risk-off environment, there are more opportunities for us to deploy capital at attractive price points. So that's a lot of what we're seeing right now.

All right. So let's move on and let's start double-clicking on some of the business segments. So I want to start with your royalty assets, BREO and ANORO. Maybe just characterize the underlying products, the difference between the 2 and the markets that they serve.

Sure. That's a great question. These products are very dear and near to my heart. So BREO is the first ICS/LABA product that's extremely well known, very widely used. And it has delivered about $1.4 billion of revenue last year. ANORO is a best-in-class LAMA/LABA product, also extremely well known, extremely widely used, and that delivered about $0.7 billion of net revenue last year.

And in general, we think that these products have a lot of durability to them. We don't anticipate sort of meaningful new competitors emerging. And also, these are maintenance therapies. And so in many ways, once a patient is on one of these products, to the extent they're well controlled, there really is almost no incentive for the patient or for the physician to make any changes. And so in that way, the products are quite sticky. And we've seen that through our numbers over the last years.

And what about differences between U.S. and OUS markets for those products?

So that's actually a great point. These are also very well diversified products. About 2/3 of revenue is delivered in ex U.S. markets and 1/3 of revenue in the U.S. market.

2/3, 1/3?

Yes. What I like about ex U.S. markets is -- I mean, first of all, it's a large amalgamation of markets. And so there is significant embedded diversification there. But secondly, we actually see pretty meaningful pockets of growth in those markets. And also typically, you don't have -- you don't see some of the pricing or access challenges that have affected the U.S. market over several years. I think having this global royalty revenue base is very attractive. And this is what enables sort of the stability of the portfolio.

And I guess GSK is the marketer for both, is it right? So I guess how do they prioritize -- like how important are these products to them in the context -- I mean, obviously, in the context of the broader portfolio, I can tell, but just generally, how do they view these products?

So I think these are pretty important products for them. If you think about it, respiratory is one of their core areas of expertise. And so GSK has been quite focused there. And these 2 products, in particular, have been delivering to GSK over $2 billion of revenue a year. Clearly, they're paying a lot of attention to these products. And in our engagement with GSK, they tend to be sort of constructive and quite focused.

But also, what I think is quite important is because these are maintenance therapies, sort of active or active commercial involvement is actually less important for these products than for certain other commercial products. So I believe that even if GSK priorities were to change over at some point in the coming years, we would still -- these products would still enjoy very meaningful durability.

And I guess just in terms of where are these products in their life cycle? Like maybe talk to us about the IP protection and competitive barriers. And then I guess, how long can Innoviva expect the royalty revenues on these to last?

All great questions, and we spent a lot of -- given the importance of these assets for our portfolio, we spent quite a bit of time thinking about that. So there is a pretty broad collection of primary and secondary patents sort of covering these products, which would point you to sort of an exclusivity in the 2030s in the U.S. And actually, ex U.S., I mean, obviously, each market has its separate LOE dates. But overall, kind of you probably could get sort of another couple of years of exclusivity. So these are fairly long-dated products.

And what I think is also quite important is that these are drug device combinations that are very difficult sort of -- there are very meaningful hurdles to replicating. And these are both regulatory hurdles and manufacturing. And we know that for similar products in the past, it has been very challenging for generics to enter. So we feel that across the IP, manufacturing and regulatory challenges, like there is actually a very strong moat around these products.

Got it. All right. Maybe we can move on to specialty therapeutics and critical care and the infectious disease platform. Maybe just start by giving us a brief introduction to the product portfolio and the pipeline in that segment.

Yes. Happy to. So we formed our hospital business, we call it Innoviva Specialty Therapeutics or IST, a couple of years ago through acquisition of a couple of companies in the infectious disease and critical care space. And our underlying thesis there was that there is a tremendous unmet medical need in the space. But unfortunately, in many instances, that did not translate into commercial opportunity, partially because large pharmas were not as enthused about the space. And so smaller sort of biotechs actually had to take these products to market themselves, which can be challenging.

And so we thought that if you were to select a differentiated products and build a scalable commercial platform, you could actually deliver very significant revenue and profitability kind of from that particular portfolio. And this is exactly sort of what we have tried to do with IST. And I believe we've been quite successful in that.

So right now, we have 4 products in the market. Three of them are infectious disease products and one of them, which we actually just made -- and one of them is a critical care product. And there is very significant growth embedded in this portfolio. We've -- as I mentioned, in the U.S., we've been delivering over 50% growth over the last couple of years per year. And I think that there is a tremendous opportunity for more.

So for instance, just a couple of weeks ago, we made our latest infectious disease product called ZEVTERA, commercially available in the United States. And so we expect that with the launch that, that will further accelerate our revenue trajectory.

Got it. I guess maybe digging into that a little bit further, like what are the dynamics of the critical care and infectious disease market that you think make this a particularly attractive opportunity for you?

So it's -- I think it's a couple of different things. We -- so what we -- so I think that there is very significant unmet medical need in the space, and yet there are relatively few credible commercial platforms in the space as I think some of the larger players have decided to focus on other areas. And so I think that we're -- for a good commercial platform, and I believe that we managed to build a best-in-class commercial platform in the hospital space.

There's just tremendous opportunity to both advance and grow revenue in existing assets as well as attract or in-license other assets. And so to me, we are getting sort of the tailwinds from this sort of relatively low degree of competition and strong commercial execution, [ although ] resistance is also increasingly becoming a concern. And we think that they can also meaningfully drive the revenue opportunity for us. And last but not the least, I think that public funding might ultimately become sort of available.

I think that in the governments across the world, and including the one in the U.S., are becoming increasingly concerned about the resistance. And I think to the effect -- to the extent there are any programs or any funding available sort of to the space, we are probably going to be sort of one of the most logical potential beneficiaries.

So let's put some numbers around that and quantify what you see as the scale of the revenue today and where that evolves to. So can you give us a sense of sort of like peak sales opportunities here?

That's a great question. So last year, we generated around $170 million of revenues, including product sales and certain milestones from this portfolio. This is a young portfolio, and we think that there is a very sizable opportunity across the business. So I think that the peak revenue opportunity for the portfolio is probably well in excess of $0.5 billion. And this is -- does not include a potential for inorganic growth. And we think that the potential for inorganic growth is exceptional simply because there are so many companies which are developing interesting products in the space, and there are relatively few sort of companies with strong commercial expertise, and we're one of them.

And I guess on that $500 million, have you sort of talked through your $170 million today, you said? Like have you high-level framing on time frame of that? And when you think that could get captured?

We could probably capture a lot of that. I mean these are peak sales. We haven't publicly spoken about those numbers. But I think we could potentially get there sort of early in 2030.

And do you -- how much of that is dependent on your point of organic versus inorganic growth?

I think this would be largely organic.

Largely organic, so...

Yes.

So anything on top, anything inorganic could be incremental to that opportunity? Okay.

Yes. And we have been quite active...

[ Do you have any ], you have?

Yes, in terms of exploring inorganic opportunities. So as I mentioned, just at the end of last year, we in-licensed a product called ZEVTERA from a Swiss company called Basilea, which is used for Staph aureus bacteremia as well as certain other indications. And we think that, that's a wonderful product. We just made it commercially available in the United States, and we think that it could be a meaningful growth driver for us. And equally, I think that we're also exploring some other opportunities, which might be a good fit with our commercial platform.

So maybe just go deeper into that point. Like do you envision going deeper into that area or building out in other therapeutic areas in this segment?

So I think it's both. I think that we have -- like we have a lot of expertise in the hospital channel. We certainly know infectious disease and critical care space especially well. And so those are very much our sweet spot. But having said that, there are also adjacencies, other therapeutic areas where commercialization will still rely on sort of our existing call points. And we would be very interested in products in those areas as well.

Got it. And then maybe then we can -- and thank you for that comprehensive overview. Maybe finally, just moving to the strategic health care assets part of the business. Again, same question, just describe the key investments in your portfolio and how do these investments come about? And how do they differ from one another?

Excellent. So the thinking behind our strategic health care assets portfolio is we're looking for opportunities where we can address for companies which have significant commercial promise and sort of -- and which can deliver us strong, superior risk-adjusted returns.

And I would probably point you to a couple of companies that are quite prominent in their portfolio. One is a company called Syndeio. And Syndeio is a neuroscience company, which is based off sort of a platform focused on synaptic health that was founded by a Nobel Prize-winning scientist and leverages a lot of his proprietary insights.

And right now -- and they also have a couple of products in the clinic. And the lead product is in Phase II trials right now in depression, which is going to read out next year. And so I think that this is sort of a really interesting opportunity for us because if the product succeeds, this is going to be a very meaningful value inflection point both for Syndeio but also for Innoviva at large.

Depression is quite a crowded area though, like what's the mechanism? I don't know, I'm not familiar with this product.

Yes, it's NMDAR receptor, positive allosteric modulator. It's a part of this family of compounds called stinels.

Got it. Keep going, yes.

Yes, sorry. And then they also have some other sort of [indiscernible] compounds, which could actually be quite interesting. And then the second product that -- or the second company that we have pretty meaningful economic exposure to is a company called Armata, which is a publicly traded company which is a bacteriophage specialist. And they just a couple of weeks ago announced a Phase II clinical data in Staph aureus bacteremia that is groundbreaking and just very compelling.

And so we think that, that both are sort of validates the opportunity in this specific indication, but it's also a good confirmation of the overall platform that they have. And so to me, that's also a very interesting company sort of in our portfolio.

So I guess what's the longer-term strategy for realizing the value from these investments? I mean how is Innoviva and its shareholders, how are they positioned to benefit from these?

Well, I think in two ways. So we have very meaningful economic exposure to these assets. And so I think to the extent they are successful and they create shareholder value, we're going to be a very strong beneficiary of that. And then there also might be some strategic overlays in the future. But all in, we think that if there is value to be created, we are going to be a significant beneficiary.

And maybe just then going back to the earlier question on the external environment, how is the macro environment? How has that impacted the outlook for operations in here? And what are the kinds of risks that you're monitoring when you make these investments?

So we always look -- we have a very sort of detailed approach to reviewing investments, and we always think about sort of system-wide risks, so to speak. Overall, I don't think that macroeconomic environment has really affected these companies that much, except that fundraising environment might have tightened a little bit kind of for early-stage companies. But I think that given that we are fairly well capitalized, that this actually creates opportunities for us from a capital deployment perspective.

So overall, we have been -- we feel that the current environment, while we would certainly hope for a stronger and better environment, we're quite comfortable operating in the current one.

And I guess of these assets, Pavel, which is the most material for the growth potential of the company?

Of the strategic health care assets?

Yes.

They have somewhat different risk profiles. I would say that both are equally important. I'm quite excited about the neuroscience platform, which is probably our more recent investment because I think that it has potential sort of for blockbuster products coming out of it. But both of these, I think, present very interesting and somewhat different opportunities.

And are there synergies with these assets and other parts of the business?

Well, so right now, these companies are run as stand-alone companies. But having said that, there is a fair amount of sort of expertise and network sharing going on. So we think that we can deliver sort of some incremental value to these companies.

Okay. Let's maybe move on to the balance sheet and just sort of your overall financial position. So how are you thinking about capital structure and future allocation and deployment?

That's a great question. Given my background as an investor and a banker, I spent -- I and also our CFO, Steve Basso, spent a lot of time thinking about these matters. When we think about capital allocation, we think about sort of two general uses of capital. One is capital structure debt, which is debt, share, et cetera, and the second one is strategic investment. In general, we try to be fairly sort of conservative and disciplined with our capital structure. And we -- in general, we believe that a cash flow company -- a cash flow-positive company may return capital to shareholders. We completed $100 million share buyback program in the past. And we've been very -- sort of we've been very pleased with how that went.

And then the other part of our business or our capital allocation approach is strategic investments. And in the current market environment, we see a ton of really interesting opportunities, both across our operating hospital business as well as the strategic health care asset portfolio. And so we are also quite focused on exploring opportunities in those areas because we think that we can really sort of accelerate growth and profitability of our business and also create some shareholder value.

And as you think through the forward strategy, which parts of the business are you most focused on building out?

It's sort of like which of your kids do you like the most?

Yes, that's the right question. It is. Yes.

I think it's both. No, no, but in a slightly different fashion. So I think that for the hospital business, it's an operating business. It has a fantastic...

I have 3 kids, by the way, so I have a harder job. Keep going, sorry to interrupt.

Yes. No. So I think that this business -- like I think that our IST business has tremendous growth profile on a stand-alone basis. It's -- a couple of years ago, we had 2 products in the market. Then about 1.5 years ago, we launched the third product. We're just launching the fourth product. And with any luck, we could get another product approval sort of around year-end.

So I think that this is a wonderful business by itself. But having said that, we think that it's -- there are a lot of really differentiated products that can be commercialized using our platform. And in many ways, we feel like it would be very good both for our shareholders, but importantly, for the patients to make these products available and to enhance access.

So I would anticipate us continuing to commit capital to that business because it's such a productive platform. But equally, the strategic health care asset portfolio also has some really interesting and unique opportunities for us to put more capital to work. And so we also look forward to that.

Do you think -- is there anything else with respect to your BD efforts that we should be talking about?

I mean I think that those are sort of the 2 prongs of our BD assets. I think in general, and maybe going back, in general, sort of a lot of these like strategic things, strategic processes are very difficult to predict in general. And we also try to be very disciplined in terms of how and when we invest. So we don't really have -- so that's why it's difficult for me to say that like we're going to do more acquisitions on this for that side of the house because there is so much uncertainty involved. But right now is a fairly good environment to deploy capital. And I would expect us to be both active, but at the same time, remain disciplined and thoughtful about what we are doing and how much risk we're taking on.

Maybe -- we just have a few minutes left. Maybe we can touch on, Pavel, some of the key events coming up, whatever time frame that you are most focused on or shareholders would be most focused on. So I guess what are the important catalysts that we should be tracking from here?

That's a great question. So aside from things strategic, I think that we just made our fourth commercial product, ZEVTERA, commercially available in the United States. So I think that the product's launch is going to be sort of interesting to watch. I would anticipate continued strong commercial delivery from the rest of our product portfolio. And then the last product in sort of that bucket, zoliflodacin, has been on track from a regulatory perspective. And so we look forward to continued sort of progress there and potential approval sort of around year-end.

Okay. Any last-minute thoughts? And actually, are there any questions from the audience? [ Nick ]?

[indiscernible].

And the question, just to repeat it, was on pricing dynamics in the hospital market.

So in our experience, pricing dynamics are actually quite constructive. I know that historically, people have been very concerned about those. But in our experience, if you have a differentiated product sort of that's well recognized by hospitals.

All right. Any parting words?

Yes. So I think this is as exciting a time as any for Innoviva. I think that our business is sort of firing across a lot of cylinders. And I think that in a couple of areas like IST, our [ breaking ] business, like some of our strategic health care assets, we are actually approaching or at an inflection point. And so we're quite excited about what the future might hold. And we also think that we present sort of a very unique opportunity given some of the downside protection that we think is embedded in our business and yet a tremendous amount of upside that we're also seeing there. So I'm very excited.

Great. But definitely is a very unique business model. Thank you, Pavel, for your time. Thank you for coming. We're just about out of time, so I appreciate your participation. Thank you.

Thank you so much. It's really a pleasure to be here. Thank you.

Thank you.