Innoviva, Inc.

Fourth-quarter 2017 royalties earned were $70.5 million, up 51% from Q4 2016, with BREO at $60.8 million, ANORO at $9.5 million and TRELEGY at $0.2 million. Income from operations was $66.4 million, up 76% from $37.7 million in Q4 2016, adjusted EBITDA was $72.3 million, up 65% from $43.7 million, and net income attributable to stockholders was $58.4 million, or $0.50 basic EPS, versus $25.5 million, or $0.24 basic EPS, a 129% increase. For full-year 2017, royalties earned were more than $227.9 million, income from operations was $183.6 million, adjusted EBITDA was $207.5 million, and basic EPS was $1.25, up 131% from $0.54 in 2016. Management did not provide formal next-quarter or full-year 2018 revenue/EPS guidance on the call, but said it expects a positive impact from U.S. tax reform and remains focused on maximizing commercial success and global rollout of its products.

Eric d’Esparbes said Innoviva had a “very successful” quarter, highlighting strong prescription growth, record market shares, and TRELEGY’s launch as evidence the portfolio is gaining traction. He emphasized that the company’s partnership with GSK remains central to building BREO, ANORO and TRELEGY into leading global medicines for asthma and COPD. His tone was confident and upbeat, but he also acknowledged recent competitive pressures on new-to-brand share and said the company would keep working closely with GSK to defend and expand share.

On the financial side, he pointed to $70.5 million of Q4 royalties, $183.6 million of full-year operating income, and $207.5 million of adjusted EBITDA for 2017, which he said translated to a 91% EBITDA margin. He noted total operating expenses of $3.1 million in Q4 and $33.6 million year to date, including $8.1 million of proxy-contest and related litigation costs and $9.8 million of noncash stock compensation. He also highlighted capital actions and balance-sheet improvement: $97.5 million of stock repurchases in 2017, $85.9 million of long-term debt repaid, net debt down to $548.2 million, and $129.1 million of cash and investments at year-end. He added that the lower U.S. corporate tax rate from 35% to 21% should eventually reduce cash taxes once NOLs are used up.

Analysts focused on G&A and the proxy-contest costs, asking whether the D&O recovery covered prior-quarter litigation expenses and whether any litigation remained in G&A; management said the $2.7 million recovery was for the whole year and that legal costs were essentially finished by September. Questions also centered on TRELEGY: management said the launch strategy fits the existing ELLIPTA portfolio approach and that it was too early to judge physician response, though TRELEGY ended the quarter with over 3,000 U.S. TRxs. On couponing and sampling for BREO and ANORO, management said couponing is still an important tool in a competitive respiratory market but tends to decline as coverage improves, and that coverage for both products is already excellent.