XML 23 R13.htm IDEA: XBRL DOCUMENT
v3.21.2

Financial Instruments and Fair Value Measurements | 9 Months Ended
--- | ---
Sep. 30, 2021
Financial Instruments and Fair Value Measurements |
Financial Instruments and Fair Value Measurements | 5. Financial Instruments and Fair Value Measurements Equity Investment in Armata During the first quarter of 2020, Innoviva acquired 8,710,800 shares of common stock and an equal number of warrants of Armata Pharmaceuticals, Inc. (“Armata”) for $25.0 million in cash. Armata is a clinical stage biotechnology company focused on precisely targeted bacteriophage therapeutics for antibiotic-resistant infections. On January 26, 2021, Innoviva Strategic Opportunities LLC (“ISO”), our wholly owned subsidiary, entered into a securities purchase agreement with Armata to acquire 6,153,847 shares of Armata common stock and warrants to purchase 6,153,847 additional shares of Armata common stock for approximately $20.0 million. The investment was closed in two tranches on January 26, 2021 and March 17, 2021. The investments support Armata’s ongoing advancement of its bacteriophage development programs. The additional investment in the first quarter of 2021 increased Innoviva and ISO’s combined ownership to 59.6% as of March 31, 2021. Armata entered into a voting agreement with the Company and ISO, pursuant to which the Company and ISO agreed not to vote or take any action by written consent with respect to any common shares held by the Company and ISO that represent, in the aggregate, more than 49.5% of the total number of shares of Armata’s common stock issued and outstanding as of the record date for voting on the matters related to election or removal of Armata’s board members. As of September 30, 2021, three o f the eight members of Armata’s board of directors are also members of the board of directors of Innoviva. As of September 30, 2021 and December 31, 2020, we owned approximately 59.5% a nd 46.6%, respectively, of Armata’s common stock. The investment in Armata provides Innoviva and ISO the ability to have significant influence, but not control over Armata’s operations. Based on our evaluation, we determined that Armata is a VIE, but Innoviva and ISO are not the primary beneficiary of the VIE. We continue to elect the fair value option to account for both Armata’s common stock and warrants. The fair value of Armata’s common stock is measured based on its closing market price. The warrants purchased in 2020 and 2021 have an exercise price of $2.87 and $3.25 per share, respectively. All warrants are exercisable immediately within five years from the issuance date of the warrants and include a cashless exercise option. We use the Black-Scholes-Merton pricing model to estimate the fair value of these warrants with the following input assumptions: Armata’s closing market price on the valuation date, the risk-free interest rate computed based on the U.S. Treasury yield, the remaining contractual term as the expected term, and the expected stock price volatility calculated based on the historical volatility of the common stock of Armata and its peer companies. As of September 30, 2021, the fair values of Armata’s common stock and warrants were estimated at $53.8 million and $35.5 million, respectively. As of December 31, 2020, the fair values of Armata’s common stock and warrants were estimated at $26.0 million and $18.0 million, respectively. The total fair value of both financial instruments in the amo unt of $89.3 million an d $44.0 million was recorded as equity and long-term investments on the consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. During the three and nine months ended September 30, 2021, we recorded $11.6 million un realized loss and $25.3 million unre alized gains, respectively, as changes in fair values of equity and long-term investments, net on the consolidated statements of income. During the three and nine months ended September 30, 2020, we recorde d $12.4 million unrealized loss and $23.0 million unrealized gains, respectively, as changes in fair values of equity and long-term i nvestments, net on the consolidated statements of income. Equity Investment in Entasis During the second quarter of 2020, we purchased 14,000,000 shares of common stock as well as warrants to purchase 14,000,000 additional shares of common stock of Entasis Therapeutics, Inc. (“Entasis”) for approximately $35.0 million in cash. Entasis is a clinical-stage biotechnology company focused on the discovery and development of novel antibacterial products. During the third quarter of 2020, we purchased 4,672,897 shares of Entasis common stock as well as warrants to purchase 4,672,897 additional shares of its common stock for approximately $12.5 million in cash. Innoviva has a right to designate two members to Entasis’ board. As of September 30, 2021, no I nnoviva designees are serving on Entasis’ six-member board. On May 3, 2021, ISO entered into a securities purchase agreement with Entasis to acquire 10,000,000 shares of Entasis common stock and warrants to purchase 10,000,000 additional shares of Entasis common stock for approximately $20.0 million. The investment was closed in two tranches on May 3, 2021 and June 11, 2021. This investment supports the continued development of Entasis’ novel pipeline of pathogen-targeted antibacterial product candidates. As of September 30, 2021, we owned approximately 60.6% of Ent asis’ common stock. As of December 31, 2020, we owned approximately 51.0% of Entasis’ common stock. The investment in Entasis provides Innoviva the ability to have significant influence, but not control over Entasis’ operations. Based on our evaluation, we determined that Entasis is a VIE, but Innoviva is not the primary beneficiary of the VIE. We elected the fair value option to account for both Entasis’s common stock and warrants at fair value. The fair value of Entasis’ common stock is measured based on its closing market price at each balance sheet date. The warrants have an exercise price of $2.50 per share and $2.675 per share for those warrants acquired in the second and third quarter of 2020, respectively. The warrants acquired in the second quarter of 2021 have an exercise price of $2.00 per share. All of the warrants are exercisable immediately within five years from the issuance date of the warrants and include a cashless exercise option. We use the Black-Scholes-Merton pricing model to estimate the fair value of these warrants. As of September 30, 2021, the fair values of Entasis’s common stock and warrants were estimated at $95.8 million and $70.4 million, respectively. As of December 31, 2020, the fair values of Entasis’s common stock and warrants were estimated at $46.1 million and $31.9 million, respectively. The total fair value of both financial instruments in the am ount of $166.2 million and $78.0 million was recorded as equity and long-term investments on the consolidated b alance sheets as of September 30, 2021 and December 31, 2020, respectively. During the three and nine months ended September 30, 2021, w e recorded $34.9 million and $68.1 million unrealized gains as changes in fair values of equity and long-term investments, net on the consolidated statements of income. During the three and nine months ended September 30, 2020, we recorded $17.0 million un realized loss and $16.3 million unrealized gain, respectively, as changes in fair values of equity and long-term investments, net on the consolidated statements of income. Equity Investment in InCarda During the third quarter of 2020, TRC purchased 20,469,432 shares of Series C preferred stock and warrants to purchase 5,117,358 additional shares of Series C preferred stock of InCarda Therapeutics, Inc. (“InCarda”) for $15.0 million. $0.8 million was incurred for investment due diligence costs and recorded as part of the equity investment on the consolidated balance sheets. InCarda is a privately held biopharmaceutical company focused on developing inhaled therapies for cardiovascular diseases. As of September 30, 2021, one of InCarda’s eight board members is designated by TRC. As of September 30, 2021 and December 31, 2020, TRC held 13.0% an d 13.4%, respectively, of InCarda’s outstanding equity. The investment in InCarda does not provide TRC the ability to control or have significant influence over InCarda’s operations. Based on our evaluation, we determined that InCarda is a VIE, but TRC is not the primary beneficiary of the VIE. We account for our investment in the Series C preferred shares in InCarda using the measurement alternative. Under the measurement alternative, the equity investment is initially recorded at its allocated cost, but the carrying value may be adjusted through earnings upon an impairment or when there is an observable price change involving the same or a similar investment with the same issuer. As of September 30, 2021 and December 31, 2020, we recorded $15.8 million from our i nvestment in InCarda’s Series C preferred stock as equity and long-term investments on the consolidated balance sheets. There was no impairment or other change to the value of InCarda’s Series C preferred stock as of September 30, 2021 and December 31, 2020. The warrants are recorded at fair value and subject to remeasurement at each balance sheet date. The warrants are exercisable immediately with an exercise price of $0.7328 per share. In September 2021, TRC and InCarda entered into an amendment to extend the expiration date of the warrants from October 6, 2021 to March 31, 2022. We use the Black-Scholes-Merton pricing model to estimate the fair value of the warrants with the following input assumptions: the exercise price of the warrants, the risk-free interest rate computed based on the U.S. Treasury yield, the remaining contractual term as the expected term, and the expected stock price volatility calculated based on the historical volatility of the common stock of its peer companies. As of September 30, 2021 and December 31, 2020, the fair value of InCarda’s warrants was estimated at $0.6 million a nd $1.1 million, respectively, and recorded as equity and long-term investments on the consolidated balance sheets. During the three and nine months ended September 30, 2021, we rec orded $0.1 million unrealized gain and $0.6 million unrealized loss, respe ctively, as changes in fair values of equity and long-term investments, net on the consolidated statements of income. Equity Investment in ImaginAb On March 18, 2021, TRC entered into a securities purchase agreement with ImaginAb, Inc. to purchase 4,051,724 shares of ImaginAb Series C preferred stock for $4.7 million. On the same day, TRC also entered into a securities purchase agreement with one of ImaginAb’s common stockholders to purchase 4,097,157 shares of ImaginAb common stock for $1.3 million. ImaginAb is a privately held biotechnology company focused on clinically managing cancer and autoimmune diseases via molecular imaging. $0.4 million was incurred for investment due diligence costs and execution and recorded as part of the equity investment on the consolidated balance sheets. As of September 30, 2021, one of ImaginAb’s five board members is designated by TRC. As of September 30, 2021, TRC hel d 12.5% of Ima ginAb equity ownership. The investment in ImaginAb does not provide TRC the ability to control or have significant influence over ImaginAb’s operations. Based on our evaluation, we determined that ImaginAb is a VIE, but TRC is not the primary beneficiary of the VIE. Because ImaginAb’s equity securities are not publicly traded and do not have a readily determinable fair value, we have accounted for our investment in ImaginAb’s Series C preferred stock and common stock using the measurement alternative. Under the measurement alternative, the equity investment is initially recorded at its allocated cost, but the carrying value may be adjusted through earnings upon an impairment or when there is an observable price change involving the same or a similar investment with the same issuer. As of September 30, 2021, $6.4 million was recorded as equity and long-term investments on the consolidated balance sheets. There was no change to the value of our investment in ImaginAB’s equity securities as of September 30, 2021. Available-for-Sale Securities The estimated fair value of available-for-sale securities is based on quoted market prices for these or similar investments that were based on prices obtained from a commercial pricing service. Available-for-sale securities are summarized below:
|  | September 30, 2021 |
|  |  |  |  | Gross |  |  | Gross |  |  |  |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Estimated |
(In thousands) |  | Cost |  |  | Gains |  |  | Losses |  |  | Fair Value |
Money market funds(1) |  | $ | 78,025 |  |  | $ | — |  |  | $ | — |  |  | $ | 78,025 |
Total |  | $ | 78,025 |  |  | $ | — |  |  | $ | — |  |  | $ | 78,025 |
(1) Money market funds are included in cash and cash equivalents on the consolidated balance sheets.
|  | December 31, 2020 |
|  |  |  |  | Gross |  |  | Gross |  |  |  |
|  | Amortized |  |  | Unrealized |  |  | Unrealized |  |  | Estimated |
(In thousands) |  | Cost |  |  | Gains |  |  | Losses |  |  | Fair Value |
Money market funds (1) |  | $ | 204,808 |  |  | $ | — |  |  | $ | — |  |  | $ | 204,808 |
Total |  | $ | 204,808 |  |  | $ | — |  |  | $ | — |  |  | $ | 204,808 |
(1) Money market funds are included in cash and cash equivalents on the consolidated balance sheets. There was no credit loss to o ur available-for-sale securities as of September 30, 2021 and December 31, 2020. Fair Value Measurements Our available-for-sale securities and equity investments are measured at fair value on a recurring basis and our debt is carried at amortized cost basis. The estimated fair values were as follows:
|  | Estimated Fair Value Measurements as of September 30, 2021 Using: |
|  | Quoted Price in Active Markets for |  |  | Significant Other |  |  | Significant |  |  |  |
|  | Identical |  |  | Observable |  |  | Unobservable |  |  |  |
Types of Instruments |  | Assets |  |  | Inputs |  |  | Inputs |  |  |  |
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 78,025 |  |  | $ | — |  |  | $ | — |  |  | $ | 78,025 |
Investments held by ISP Fund LP (1) |  |  | 226,848 |  |  |  | — |  |  |  | 2,098 |  |  |  | 228,946 |
Equity investment - Armata Common Stock |  |  | 53,810 |  |  |  | — |  |  |  | — |  |  |  | 53,810 |
Equity investment - Armata Warrants |  |  | — |  |  |  | 35,470 |  |  |  | — |  |  |  | 35,470 |
Equity investment - Entasis Common Stock |  |  | 95,767 |  |  |  | — |  |  |  | — |  |  |  | 95,767 |
Equity investment - Entasis Warrants |  |  | — |  |  |  | 70,380 |  |  |  | — |  |  |  | 70,380 |
Equity investment - InCarda Warrants |  |  | — |  |  |  | — |  |  |  | 558 |  |  |  | 558 |
Total assets measured at estimated fair value |  | $ | 454,450 |  |  | $ | 105,850 |  |  | $ | 2,656 |  |  | $ | 562,956 |
Debt |  |  |  |  |  |  |  |  |  |  |  |
2023 Notes |  | $ | — |  |  | $ | 259,142 |  |  | $ | — |  |  | $ | 259,142 |
2025 Notes |  |  | — |  |  |  | 231,418 |  |  |  | — |  |  |  | 231,418 |
Total fair value of debt |  | $ | — |  |  | $ | 490,560 |  |  | $ | — |  |  | $ | 490,560 |
(1) The investments held by ISP Fund LP consisted of equity investments and money market funds, which are subject to a 36-month lock-up period from our initial contribution date, December 11, 2020.
|  | Estimated Fair Value Measurements as of December 31, 2020 Using: |
|  | Quoted Price |  |  |  |  |  |  |  |  |  |
|  | in Active |  |  | Significant |  |  |  |  |  |  |
|  | Markets for |  |  | Other |  |  | Significant |  |  |  |
|  | Identical |  |  | Observable |  |  | Unobservable |  |  |  |
Types of Instruments |  | Assets |  |  | Inputs |  |  | Inputs |  |  |  |
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 204,808 |  |  | $ | — |  |  | $ | — |  |  | $ | 204,808 |
Investments held by ISP Fund LP (1) |  |  | 299,288 |  |  |  | — |  |  |  | — |  |  |  | 299,288 |
Equity investment - Armata Common Stock |  |  | 25,958 |  |  |  | — |  |  |  | — |  |  |  | 25,958 |
Equity investment - Armata Warrants |  |  | — |  |  |  | 18,049 |  |  |  | — |  |  |  | 18,049 |
Equity investment - Entasis Common Stock |  |  | 46,122 |  |  |  | — |  |  |  | — |  |  |  | 46,122 |
Equity investment - Entasis Warrants |  |  | — |  |  |  | 31,882 |  |  |  | — |  |  |  | 31,882 |
Equity investment - InCarda Warrants |  |  | — |  |  |  | — |  |  |  | 1,147 |  |  |  | 1,147 |
Total assets measured at estimated fair value |  | $ | 576,176 |  |  | $ | 49,931 |  |  | $ | 1,147 |  |  | $ | 627,254 |
Debt |  |  |  |  |  |  |  |  |  |  |  |
2023 Notes |  | $ | — |  |  | $ | 239,779 |  |  | $ | — |  |  | $ | 239,779 |
2025 Notes |  |  | — |  |  |  | 206,135 |  |  |  | — |  |  |  | 206,135 |
Total fair value of debt |  | $ | — |  |  | $ | 445,914 |  |  | $ | — |  |  | $ | 445,914 |
(1) The investments held by ISP Fund LP consisted of equity investments and money market funds, which are subject to a 36-month lock-up period from our initial contribution date, December 11, 2020. The fair values of our equity investments in Armata and Entasis’s common stock and publicly traded investments held by ISP Fund LP are based on the quoted prices in active markets and are classified as Level 1 financial instruments. The fair values of the warrants of Armata and Entasis classified within Level 2 are based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. InCarda’s warrants and private placement positions held by the ISP Fund LP and are classified as Level 3 financial instruments as these securities are not publicly traded and the assumptions used in the valuation model for valuing these securities are based on significant unobservable and observable inputs including those of publicly traded peer companies. The fair values of our 2023 Notes and our 2025 Notes are based on recent trading prices of the respective instruments.

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration