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Consolidated Entities | 9 Months Ended
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Sep. 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”), which is 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 September 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
|  | September 30, |  |  | December 31, |
(In thousands) |  | 2021 |  |  | 2020 |
Assets |  |  |  |  |  |
Cash and cash equivalents |  | $ | 46,505 |  |  | $ | 38,081 |
Receivables from collaborative arrangements |  |  | 35,535 |  |  |  | 24,946 |
Prepaid expenses and other current assets |  |  | 1 |  |  |  | — |
Equity and long-term investments |  |  | 22,743 |  |  |  | 16,959 |
Total assets |  | $ | 104,784 |  |  | $ | 79,986 |
Liabilities and LLC Members’ Equity |  |  |  |  |  |
Current liabilities |  | $ | 189 |  |  | $ | 508 |
LLC members’ equity |  |  | 104,595 |  |  |  | 79,478 |
Total liabilities and LLC members’ equity |  | $ | 104,784 |  |  | $ | 79,986 |
Income statements
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(In thousands) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Royalty revenue from a related party |  | $ | 35,585 |  |  | $ | 16,375 |  |  | $ | 84,055 |  |  | $ | 48,143 |
Strategic alliance - MABA program |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,000 |
Total net revenue |  |  | 35,585 |  |  |  | 16,375 |  |  |  | 84,055 |  |  |  | 58,143 |
Operating expenses |  |  | 194 |  |  |  | 607 |  |  |  | 3,811 |  |  |  | 1,358 |
Income from operations |  |  | 35,391 |  |  |  | 15,768 |  |  |  | 80,244 |  |  |  | 56,785 |
Other income, net |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 37 |
Changes in fair values of equity and long-term investments |  |  | 148 |  |  |  | — |  |  |  | (589 | ) |  |  | — |
Net income |  | $ | 35,539 |  |  | $ | 15,768 |  |  | $ | 79,655 |  |  | $ | 56,822 |
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. These shares represent a majority voting interest in Pulmoquine. Pulmoquine is a biotechnology company focused on the research and development of an aerosolized formulation of hydroxychloroquine to treat respiratory infections. In August 2021, the directors and stockholders of Pulmoquine voted to cease and terminate all operations and activities of Pulmoquine as soon as practicable. In September 2021, we received a net distribution of $2.3 million in cash related to the voluntary dissolution of Pulmoquine. The dissolution will be finalized in the fourth quarter of 2021. As of September 30, 2021 and December 31, 2020, Pulmoquine’s total assets, mainly attributable to cash and cash equivalents, were $0.2 million and $3.5 million, respectively. Pulmoquine does not generate revenue. Total operating expense was $0.5 million and $0.7 million for the three and nine months ended September 30, 2021 respectively. Total operating expense was $1.1 million and $1.7 million for the three and nine months ended September 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 September 30, 2021, we continued to h old 100% of t he economic interest of the Partnership. As of September 30, 2021 and December 31, 2020, total assets of the Partnership were $228.9 million and $299.3 million, respectively, of which all were attributable to equity and long-term investments. During the three and nine months ended September 30, 2021, the Partnership incurred $0.2 million and $1.5 million, respectively, of investment-related expenses, net of investment-related income. During the three and nine months ended September 30, 2021, the Partnership recorded net unrealized gains of $10.1 million and $30.6 million, respectively, and net realized gains of $10.5 million during the nine months ended September 30, 2021 as changes in fair values of equity and long-term investments, net on the consolidated statements of income.

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