CONSOLIDATED ENTITIES

12 Months Ended

Dec. 31, 2020

CONSOLIDATED ENTITIES

CONSOLIDATED ENTITIES

4. CONSOLIDATED ENTITIES

We consolidate the financial results of TRC and Pulmoquine Therapeutics, Inc. (“Pulmoquine”), which we have determined to be VIEs. As we have the power to direct the economically significant activities of these entities and the obligation to absorb losses of, or the right to receive benefits from them, and we are the primary beneficiary of the entities. We also consolidate the financial results of ISP Fund LP (the “Partnership”), our partnership with Sarissa Capital, as we have determined that the Partnership is a VIE and we are its primary beneficiary.

Theravance Respiratory Company, LLC

The primary source of revenue for TRC is the royalties generated from the net sales of TRELEGY^® ELLIPTA^® by GSK. As of December 31, 2020, TRC held an equity investment in InCarda Therapeutics, Inc. (“InCarda”). Refer to Note 5, “Financial Instruments and Fair Value Measurements,” for more information.

The summarized financial information for TRC is presented as follows:

Balance sheets

	December 31,
(In thousands)	2020		2019
Assets
Cash and cash equivalents	$	38,081	$	22,339
Receivables from collaborative arrangements		24,946		14,388
Prepaid expenses and other current assets		—		10
Equity and other long-term investments		16,959		—
Total assets		79,986		36,737
Liabilities and LLC Members' Equity
Current liabilities		508		3,069
LLC members' equity		79,478		33,668
Total liabilities and LLC members' equity	$	79,986	$	36,737

Income statements

	Year Ended December 31,
(In thousands)	2020		2019
Royalty revenue from a related party	$	73,089	$	42,790
Revenue from collaborative arrangements		10,000		—
Total revenue		83,089		42,790
Operating expenses		2,612		3,380
Income from operations		80,477		39,410
Other income (expense), net		38		243
Changes in fair values of equity investments		1,147		—
Net Income	$	81,662	$	39,653

Pulmoquine Therapeutics, Inc.

On April 20, 2020, we entered into a securities purchase agreement with Pulmoquine to purchase 5,808,550 shares of Series A preferred stock for $5.0 million in cash. Upon consummation of the transaction, we owned approximately 90.9% of Pulmoquine's outstanding shares (excluding unvested restricted shares) and hold a majority voting interest. Pulmoquine is a biotechnology company focused on the research and development of an aerosolized formulation of hydroxychloroquine to treat respiratory infections. As of December 31, 2020, total assets attributable to Pulmoquine were $3.5 million, including $3.2 million in cash and cash equivalents and $0.3 million in current assets. Pulmoquine does not currently generate revenue. The net loss for the year ended December 31, 2020, was $2.2 million, including total operating expenses of $2.0 million.

ISP Fund LP

On December 11, 2020, we entered into a Strategic Advisory Agreement (the “Services Agreement”) with Sarissa Capital Management LP (“Sarissa Capital”), pursuant to which Sarissa Capital provides a variety of strategic services to us in order to assist us in the development and execution of our acquisition strategy. The services shall be provided free of charge to us.

Innoviva Strategic Partners LLC, our wholly owned subsidiary (“Strategic Partners”), also entered into a subscription agreement and an Amended and Restated Limited Partnership Agreement (the “Partnership Agreement”), pursuant to which Strategic Partners became a limited partner of ISP Fund LP (the “Partnership”). The general partner of the Partnership (“General Partner”) is an affiliate of Sarissa Capital and, pursuant to an investment management agreement, Sarissa Capital acts as the investment adviser to the Partnership. $300.0 million was contributed to the Partnership for investing in “long” positions in the healthcare, pharmaceutical and biotechnology sectors.

The Partnership Agreement provides for Sarissa Capital to receive a one percent management fee from the Partnership, payable quarterly in advance, measured based on the Net Asset Value of Strategic Partners’ capital account in the Partnership. In addition, General Partner is entitled to a 10% annual performance allocation based on the Net Profits of the Partnership during the annual measurement period. The Partnership Agreement includes a lock-up period of thirty-six months after which Strategic Partners is entitled to make withdrawals from the Partnership as of such lock-up expiration date and each anniversary thereafter, subject to certain limitations.

As of December 31, 2020, we held 100% of the economic interest of Partnership. Total assets of the Partnership were $299.3 million, of which all were attributable to equity and other long-term investments. During the year ended December 31, 2020, the Partnership incurred $0.4 million in net investment-related expense and recorded an unrealized loss of $0.4 million on the equity investments, which is included in changes in fair values of equity investments on the consolidated statements of income.