Innoviva Stock

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.