INVA - NASDAQ

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

Prakhar Verma - ‎Stifel Financial Corp. Tyler Van Buren - Cowen and Company Peter Stapor - Bank of America Merrill Lynch

Thank you, Eric. In summary, I remain pleased with the performance in Innoviva through the third quarter of 2016, and believe that our ongoing gains of prescription volumes and market share and significantly improved commercial effectiveness for both products bodes well for our future prospects. As a result, we remain optimistic about the long-term potential of our product portfolio. Our primary focus in 2016 and leading into 2017, remains the optimization of the commercial success and global rollout of BREO and ANORO. And we believe that both products have significant untapped commercial potential. There are many exciting developments happening here at Innoviva. We remain optimistic about the future prospects for the company. I’d now like to turn the call over to conference facilitator and open the call for questions.

Thank you, sir. [Operator Instructions] Our first question comes from Stephen Willey with Stifel. Your line is now open.

Hi, this is Prakhar Verma on for Steve today. Thank you for taking my questions. So I wanted to ask you the question on the level of couponing going on. And if GSK is still aggressively couponing or given the improving sales trajectory for BREO, are they slowing down the couponing?

Great. Thanks for the question. So yes, we are still aggressively couponing with the programs. We started this program over a year ago now, and it has been very successful. As you recall, when we entered into the program one of the big issues we were trying to address was a perception, not a reality, but a perception of relatively limited coverage for both products. And this program was quite successful in terms of resolving that and has been big key part of what we are doing here in terms of increasing volumes. So as of today, we remain pretty aggressive with the program. I’m not aware of any plans currently to stop that and we certainly support the ongoing efforts on that one.

Okay. Second question, I would love to get your views on the recent citizen petition filing by Sandoz. Your thoughts on Advair, generic Advair and the timing of it, when do you expect generic Advair to the hit the market?

Sure, with regard to Sandoz’ petition, obviously, we had nothing to do with it, GSK had nothing to do with it, and are not sure, whether it is in dialogue between Sandoz and the FDA or anything like that. So I don’t have any particular comments I can give related to that other than we have believed that this is a complex generic. It’s not going to be simple to bring a new product on market. You have to deal with not only active pharmaceutical ingredients, but formulations and device and the interaction between all of that. So generally, we have been guiding folks to likely timeframe for a new generic to be coming into the market of somewhere between late 2017 and early 2018. Clearly, it could be the case if somebody gets a little bit earlier, if for example Mylan had an approval with their GDUFA, on their first GDUFA date, which is in March of next year. Again generally, we have viewed that as a lower probability rather than higher probability, but it’s certainly is possible. It’s certainly possible. Also it could slip out on the other side and go beyond those dates that I gave you. So we’ll give you our best guess, when a reasonable timeframe might be and generally we’ve been sticking to the view that it’s either late next year or early next year. But again, it could come earlier or later. It’s all going to sit in the FDA’s discretion at this point. And also on the quality of the package that Mylan put together, which - and there is a significant amount of data that needs to be included in that.

Okay. Thanks for taking my questions.

Thank you so much.

Our next question comes from Tyler Van Buren with Cowen and Company. Your line is now open.

Hi, there, thanks for taking my questions, and congratulations on the continued progress with the launches. My first question was related RAR rates or the rebates that changed in the U.S. Is it possible for you to quantify the impact on that change in the rebates for both BREO and ANORO, perhaps describe it a little more? And is there a potential for this to reverse in Q4 or is it completely random and unpredictable? If I recall correctly, in Q4 last year or either Q1 there was a positive impact due to rebate adjustment, so just hoping to get some more clarity there.

Yes, great, Tyler. I appreciate the question. So with regard to is this ever going to happen again, I wouldn’t be surprised if it does. We had a couple of adjustment that have happened in the past. On the call yesterday morning Simon Dingemans mentioned that they are seeing more volatility in the rates of return and reserve changes that have happened on their side. And I think it’s important to note that this has nothing to do with us. We have no input into this. This is a 100% GSK-driven decision. There was also some commentary yesterday on GSK’s call about how they had multiple products with adjustments. So clearly something was going on over there that we’re not completely plugged into. As you just kind of step back, unfortunately, I can’t give you an exact number just because of our agreements with GSK on that one. But the volume growth in the quarter in the U.S. was around 14%, while sales growth was around 1%. So between some of the factors we talked about in the past, whether it is reserve true-ups like we were just talking about or changes in wholesaler inventory, somewhere in the areas around a 13% delta versus the underlying demand on that. So I can’t give you unfortunately the perfect breakout at this point of what all those various pieces are. But I would reiterate the thing we focus on here at Innoviva in terms of measuring whether we are on track or not on track is not a quarter or two quarters type of number, but rather the underlying market share. Again, as you correctly pointed out we have in quarters, typically - the couple of years it’s been fourth quarter a year, where you had a surprise on the upside, where either there is a little bit of additional inventory that went into the overall channels at that point in time or there were some positive adjustments. So you might have at times where you’re a little better than you expect it to be and at time it will be a little worse than you expect it to be. But it’s really all very typical inter-quarter variability that goes on there. So my best guesses I can have and we’ve been saying this for a couple years now is expect quarter over quarter variability in terms of reported net sales. As a result, we focus just on market shares and split growth.

Great. That makes a lot of sense. And so Glaxo also noted that, they expect coverage in 2017 to be even better. Just hoping to get perhaps some additional thoughts there, could we potentially see an acceleration in the launches, like we did starting I guess around this time last year?

Well, what we’ve been hearing from GSK is we’re in a good position next year. So we have good coverage this year as well. So I would say it’s unlikely you’re going to see the sort of step improvement we saw a couple years ago, where we’re going from a much, much lower price to a much, much better. So I would say we’re going from a very good to a better coverage. And I would put this more in the category from what we’re hearing, slight improvements on a very good position. So we’re pleased with what we are hearing from them. I haven’t seen the final-final numbers for everything. But overall we’re not hearing of any significant changes in pricing or any significant adverse development that would be a concern at this particular juncture. So what I would expect as opposed to step function would be the continued finding out of a very effective sales-and-marketing organization and taking up market share over the time as opposed to having a step function related to coverage changes between the years.

Thanks again.

[Operator Instructions] Our next question comes from Tazeen Ahmad with Bank of America. Your line is now open.

Hi, guys, this is Peter Stapor on for Tazeen. Thanks for taking my question. You commented a little bit on volume growth in terms prescriptions. Could you comment on your expectations for how closely IMS will track the actual BREO/ANORO given the disconnect that also mentioned between the actual sales and volume growth? Thanks.

Yes, thanks for the question. We use IMS to track scripts over here as well, so the data that I’m recording is not different from what IMS would be providing. There’s clearly going to be some difference in actual number of units shipped every single quarter, relative to the number of scripts that are written, because IMS doesn’t capture 100%. I’m sure they captured a very, very close number to that. But it did not capture every last thing that’s happening out there. And of course, far importantly, is you have changes going to wholesaler inventories as shipments are more than one month or less than one month or there are more at particular days of the week to get shipped in or something like that. And that will always be the case, in terms of how that works. So IMS is really our database for tracking what’s happening. We use the same numbers, same source every single quarter for reporting them. So I would say that’s about as good of a source we’re going to be able to get. And since we’re using that same one each quarter, there is really no inconsistency in terms of how we are reporting the numbers across from there. But again, I would really strongly reiterate what I said a couple of times. The actual shipment in a quarter is almost never going to mirror that, because you can have whole variety of factors, whether it’s just simply something like number of shipping days in a particular quarter more or less than a previous time or whether it’s something like a wholesaler making a conscious decision to bring inventories up by little bit or down a little bit or something like that. So there will always be some level of disconnect between recorded net sales and the actual script volumes you see. As a result, the last thing I would just say is, we tend to look at four quarters worth of data as opposed to one in a row as we’re trying to evaluate how that the products are doing.

Great. Thanks for the color. I appreciate it.

Very good. Thank you so much.