Consolidated Entities

6 Months Ended

Jun. 30, 2021

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, 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 Management LP (“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 June 30, 2021, TRC held equity investments in InCarda Therapeutics, Inc. (“InCarda”) and ImaginAb, Inc. (“ImaginAb”). 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

	June 30,		December 31,
(In thousands)	2021		2020
Assets
Cash and cash equivalents	$	26,128	$	38,081
Receivables from collaborative arrangements		26,386		24,946
Prepaid expenses and other current assets		1		—
Equity and long-term investments		22,594		16,959
Total assets		75,109		79,986
Liabilities and LLC Members’ Equity
Current liabilities		274		508
LLC members’ equity		74,835		79,478
Total liabilities and LLC members’ equity	$	75,109	$	79,986

Income statements

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2021		2020		2021		2020
Royalty revenue from a related party	$	26,386	$	15,633	$	48,470	$	31,768
Strategic alliance - MABA program		—		10,000		—		10,000
Total net revenue		26,386		25,633		48,470		41,768
Operating expenses		336		480		3,617		751
Income from operations		26,050		25,153		44,853		41,017
Other income, net		—		1		—		37
Changes in fair values of equity and long-term investments		(254)		—		(737)		—
Net income	$	25,796	$	25,154	$	44,116	$	41,054

Pulmoquine Therapeutics, Inc.

In April 2020, we purchased 5,808,550 shares of Series A preferred stock of Pulmoquine for $5.0 million in cash and held 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 June 30, 2021 and December 31, 2020, Pulmoquine’s total assets, mainly attributable to cash and cash equivalents, were $3.2 million and $3.5 million, respectively. Pulmoquine does not currently generate revenue. Total operating expense was de minimis and $0.2 million for the three months and six months ended June 30, 2021, respectively. Total operating expense was $0.6 million for the three and six months ended June 30, 2020.

ISP Fund LP

In December 2020, Innoviva Strategic Partners LLC, our wholly owned subsidiary (“Strategic Partners”), contributed $300.0 million to ISP Fund LP (the “Partnership”) for investing in “long” positions in the healthcare, pharmaceutical and biotechnology sectors and became a limited partner. The general partner of the Partnership (“General Partner”) is an affiliate of Sarissa Capital.

In May 2021, Strategic Partners received a distribution of $110.0 million from the Partnership to provide funding to Innoviva for a strategic repurchase of shares held by GSK. Pursuant to the letter agreement entered into between Strategic Partners, the Partnership and Sarissa Capital Fund GP LP on May 20, 2021, Strategic Partners is obligated to make additional capital contributions to the Partnership in an aggregate amount equal to the amount of the distribution ($110.0 million) prior to March 31, 2022. The capital contributions will then be subject to a 36-month lock up period from the contribution date.

As of June 30, 2021, we continued to hold 100% of the economic interest of the Partnership. As of June 30, 2021 and December 31, 2020, total assets of the Partnership were $219.0 million and $299.3 million, respectively, of which all were attributable to equity and long-term investments. During the three and six months ended June 30, 2021, the Partnership incurred $0.9 million and $1.3 million, respectively, of investment-related expenses, net of investment-related income. During the three and six months ended June 30, 2021, the Partnership recorded net unrealized and realized gains of $25.2 million and $31.0 million, respectively, as changes in fair values of equity and long-term investments, net on the consolidated statements of income.