INVA - NASDAQ

Michael Aguiar - President and Chief Executive Officer Eric d’Esparbes - Senior Vice President and Chief Financial Officer

Stephen Willey - Stifel Nicolaus Ronny Gal - Sanford Bernstein

Thank you, Eric. In summary, we had a very solid fourth quarter of 2015, with increased prescription volumes, higher market share and continued optimization of the commercial efforts for both products. As a result, we remain optimistic about the long-term potential of our product portfolio, which supports our capital return plan. Our primary focus remains the optimization of the commercial success and global rollout of BREO and ANORO. There are many exciting developments happening here at Innoviva and we remain optimistic about the future prospects for the company. I’d now like to turn the call over to the conference facilitator and open the call for questions.

[Operator Instructions] We have our first question from the line of Stephen Willey with Stifel.

Was just wondering, I think if you look at the IMS data that we have, just trying to extrapolate. I think the data relative to what was announced today, it looks like there is a meaningful improvement in gross to net. And I’m not sure if Glaxo discussed this at all on their call today, but just wondering, Mike, if you could provide some color around this and maybe how that relates to the level of couponing that might be going on right now?

We were very pleased with the results of the quarter and we’ve been looking forward to having positive net income for a while. So it was a great quarter. Regarding the question of sales, scripts and all of that, this is clearly something I think that is going to be an ongoing situation where you tend to have a fair amount of volatility in this. And if you go back and take a look at quarter-over-quarter, generally there is a disconnect either on the positive side or the negative side between scripts and sales. And that is really resulting from a variety of different factors. You have sales mix, things like that. You have inventory changes that happen at wholesalers, you have couponing, and depending on how that goes, what the impact from growth to net is, et cetera. So there have been, and will continue to be, I would say, fluctuations in the script growth versus the sales growth going forward. So my strong guess would be going forward that will continue to be the norm rather than the exception. Now, regarding this quarter in particular, GSK did advise us that there was some additional – some true-ups that were happening relative to returns and rebates accruals and that was from prior periods. So there was a piece of that that was happening here this quarter in addition to other items. And I thought I saw some mention of this in the GSK’s transcript as well. But again, I would just say, on a going forward, I think script is a pretty good proxy long-term for where we are going. But don’t be surprised if you do see a level of fluctuation that happens on a quarter-over-quarter basis.

And then maybe just lastly, with liquidity tightening across all of biotech, I’m just wondering if that’s resulted in – or if you expect that result to result in more optionality on maybe some of these royalty assets that are being made available? And second to that, how competitive do you feel the company is right now in that bidding process and maybe what you might be doing to try to further enhance that competitiveness?

On that front, I think we’ve mentioned before there is a hierarchy of our priorities here, with number one being ensuring that our existing portfolio reaches maximum potential. And that’s really the operation of the joint steering committee working with GSK. And I think we’re pleased with where we’ve come so far. Obviously, there is always more work to do on that one, but that’s clearly number one. Number two is focusing on managing our cost of capital down and that’s an area that we are definitely continuing to look at in a variety of areas. On the last piece, which is what you were referring to, in terms of new opportunities, I think it is highly dependent upon what type of opportunities you’re looking at. We have certainly seen opportunities that are, I guess I will call them fully competed, if you will. And those are things we haven’t put a lot of effort into. And there are other places where there is less competition. So again, as our third of our three priorities, I think we continue to believe there are places that we could do something. But I would really want to reemphasize the final piece, which is it’s our third of our three priorities and we are going to continue to be very fiscally thoughtful on this should we come up against an idea that warrants our attention. But again, there are definitely things that are fully competed today.

Our next question comes from the line of Ronny Gal with Bernstein.

Actually, I’ve got three questions. The first one is, the international lower numbers that you have for sales, especially for BREO, is this just a lower trend line? Should this rebound just like some of the US numbers might be a bit stronger than average? This quarter, is there an offsetting numbers on the international sales side or should we think about this is the case? Second, do you have any concrete data points that suggest to you that Salford trial, positive results from Salford trial will actually lead to better coverage? I’m thinking specifically about Europe where some of this data might be useful. The UK, do you have any indication that actually will make a difference for them? And then third, just broadening the point around other priorities beyond BREO and ANORO, 2016 looks like a quiet year for you guys in terms of risk simply because generics for ADVAIR are not there yet. If you have to think about things you have to get done before you see ADVAIR generic, are there anything that you basically sit there and go this would be a lot harder to do, come mid-2017 or early 2018 or essentially you are in no rush at this point?

With regard to international, international continues to grow. Obviously, it’s a little bit lower rate here recently than what you were seeing in the US. My guess is a big portion of that is some of those things that I talked with Steve about where you do have some level of variability in the gross to net that you see if you were just literally taking sales and dividing it by scripts. And so I think there is a piece that’s just that fluctuation. But we had in the 40% plus quarter-over-quarter growth for BREO internationally, so I’m certainly okay with that. If you follow that trend out that will result in good things happening. The second question around Salford, Salford is an important study for us. Do I have direct evidence that if we have a successful study, we will absolutely get coverage? No. That being said, I think this is one of the fundamental potential differentiators that we have out there. If it turns out that we are able to show once-a-day dosing is better in certain aspects, for example, in compliance and exacerbations and hospitalizations, things like that, all of which will be looked at in this study, I do think that could provide some pretty compelling evidence. For example, if you remember the TOY study that we’ve had in our investor deck for a while, they were looking at the various dosing regimens and they had a conclusion in there that going from twice-a-day dosing to once-a-day dosing was a net savings to the healthcare system of approximately $300,000 per thousand patient years. And that was net of hospital costs and everything else. And given that the cost focuses going on not only in Europe, but increasingly so in the US, I think our view is that any time we can demonstrate a benefit from what we are doing here that will be beneficial. Will it be sufficient? I don’t know. But it would absolutely increase our [indiscernible] of arguments around this and so we are certainly keeping our fingers crossed that we have a positive outcome on this one. I would just say and I’ve certainly mentioned this lots and lots of times, this is a very unusual study in a real-world setting and nobody has done this type of study before in respiratory. And so it has the potential to have a fair amount of noise in there and will be a pretty interesting statistical project for the statisticians when they get in there and go through it. So I would say, stay tuned. We are optimistic on it. Hopefully, our optimism results coincides with the outcome. The last question around 2016, what are our big priorities? And then specifically, you asked around generic and I think that is a pretty important question. So there has been a lot of chatter, as you know, lately about generics. None of the chatter has been outside of our expectations. And in fact, it’s still largely been in line with what we thought was a reasonably likely outcome. And with regard to generics, our biggest concern here has been building as much market share as possible prior to the entry. And that’s really where we are principally focused. So that goes back to my number one focus this year. So the single most important thing we can do before a generic entry comes in is get BREO out there and using in as many patients as possible. And that really coincides with how we think about the order of priorities for the company. Could other activities be considered out there? So for example, the topic number three, of potentially bringing additional assets in, do we think about those things? Yes. Is it the most important thing we are doing? No, but I suppose that would have a level of importance if things got fairly competitive out there. All that being said, I would just like to close on the generic comment with, right now, based upon what we know, there is nothing new or surprising happening here. This is right down the middle of our fairway of expectations regarding generics. We have historically assumed more likely timing of a generic ADVAIR in the US was in the late 2017, early 2018 time frame. Obviously, there are significant arrow bars around that. It could come a little sooner; it could come a little later. But if we are roughly right with the timing on this one, we feel pretty comfortable about where we are. So hopefully, that covered the questions. But if not, I’d be happy to follow on on any of them.