INVA - NASDAQ

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

Tyler Van Buren - Cowen and Company Stephen Willey - Stifel

Thank you, Eric. In summary, we're pleased with the performance of Innoviva to the fourth quarter 2016, and believe that our ongoing gains in prescription volumes, market share and significantly improved commercial effectiveness for both products during 2016 bode well for our future prospects. As a result, we remain optimistic about the long-term potential of our respiratory portfolio. Our primary focus in 2017 will be the optimization of the commercial success and global rollout of BRIO and ANORO. As we believe that both products have significant future commercial potential. There are many exciting developments happening here at Innoviva and we remain confident in the future prospects for the company. Now I'd like to the conference facilitator to open the call for questions.

Thank you, sir. [Operator Instructions] We have our first question from the line of Tyler Van Buren of Cowen and Company. Your line is now open,

So - and then the second part of your question there, Tyler, with regard to inventory, we don't have a specific number we're going [indiscernible] today, what I would say is, it was described to us by GSK as very typical, very in line with what they normally do. As you're aware this happened in 2015 in Q4, and prior to that it’s a very typical pattern. So you frequently hear us talk about looking over multiple quarters when you're trying to assess trends and all of that and what we see is are these consistent trend, right, you typically have a - lower, higher prescription volumes during the winter, and cold flu season, so you'll see up-ticks and there you typically see a little bit of herein channel inventory. This is your classic management practice by a lot of wholesalers as they are anticipating a price increase next year that seems to happen every year. So I would describe all this is being very typical, but unfortunately what I can do is give you specific number. The only final thing I would say is, you know, of course, we're selling a lot more product right now, so there is probably a little bit larger absolute number than last year. But as a percentage again, GSK said, it's very similar to what we've seen in the past. So sorry, I couldn’t be much more specific than that. But hopefully you get a sense that these are just very typical traditional repeating type patterns as far as we are aware.

Okay, understood. And then on - for the more kind of strategic questions, I guess, with respect to the capital structure, perhaps any thoughts on optimizing that with respect to the royalty notes. Obviously you've got the 9% interest, but you guys are in a very different point in time now, then you were when that deal was first made. And then lastly, any thoughts on the transition of the new CEO at Glaxo and your strategic relationship with them and how that might affect it?. Thank you.

Sure. So I'll try to kind of chalk out you know, take up all of those there. With regard to the capital structure, I think our thoughts surrounded a pretty well-articulated and where we're focusing our capital returns here. There are couple of things to think about of these notes, as you look at them and think about why we may or may not be focusing on. One of course is, they are non-recourse, as we've talked about a lot and that's a nice feature in, the downside of course is today that 9% coupon is a little more expensive then perhaps you would want. Ideally it was a great deal when put the notes in place, when we had essentially no revenues. The second piece of that 9% is there is as you know a fair amount of tax uncertainty looking forward here with some of the tax discussions that are going on. One possibility that is being discussed, and I know it's been discussed pretty broadly in the conversation to watch in is the reduction of interest as a tax deduction and where in that an example, Eric and I have been thinking about these notes on an after-tax basis being much cheaper than 9% if that goes away, of course the notes will get a little more expensive. So there is kind of the top level thinking again. We're really focusing this year on those 9% notes, if there are some market dislocations that present exceptional opportunities then of course we would potentially look at other vehicle or other share or something else. But that’s really the primary focus for this year. The second part of your question was - GSK transition…

Yes.

So you know, we were probably a little more apprehensive of some of the changes that were happening two years ago to the people who were running the franchises. You know, there were some that were good, like for example, that US going away who we didn’t have terrifically high and Payne [ph] is over that that point in time, and a few others. And subsequent to that they put some terrific people in the spots. So you know, heavy US now is terrific, the marketing folks in the US are terrific, et cetera and those are really the key people that are out there, you know at the very top level, my guess there will be very, very few adverse changes at all, like I have optimism these guys are going to be pretty thoughtful. I haven't personally met him yet. I have heard terrific things about her and, I would just say that the people we're dealing with, the people who are on the ground, in the various regions are the ones who are going to make or break these product and they are terrific. The US market and you heard me say lot's the great things about them and that team really performs quite well and again, as you know prior to some of those transitions. So two and half, three years ago, you definitely didn’t hear me saying good things about that. But those teams are intact and in good shape. So my best guess is we're going to go through this with little to no, hiccups whatsoever.

That’s great to hear. Thanks for taking the questions.

Appreciate it, Tyler. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Stephen Willey of Stifel. Your line is now open.

Yes, thanks for taking the questions. And congratulations on all the progress here. I guess, so kind of [indiscernible] little bit of comments with respect to maybe price softening a little bit, I think on the conference call yesterday, do you have any gross to net data for the quarter and I guess whether or not that is kind of trending upwards with respect to just the absolute discounts that you guys are providing at this point?

Yes, thanks for the question and thanks for the congrats. Of course, we're very pleased with where things have gone and that the strategy we put in place on restructurings really has borne fruit the way we hope it would. So we're very pleased on that front. With regard to gross in that and pricing next year, and you know, Andrew made a comment not at this call, but at the last one, that he wasn’t expecting anything particularly dramatic to happen this year and that’s generally what we've been talking about as well. We haven't been specific and said it’s going up or down. So I tend to look at net rather than gross to net, gross to net very well could expand it. For example, GSK took you know, gross price increase during the period, but the net price is where we focus on and again we're not expecting anything dramatic out there. Obviously, with regard to the potential for disruptions there is a possibility this year having AB Generics coming in, that could be a catalyst one way or another, we'll have to wait and see. But right now we don't have any plans or expectations for anything dramatic happenings with prices.

Okay. And then I guess, just on the NBRx data, it’s - I guess, it’s kind of interesting to you know, when you look at BREO there is obviously a bit of a disconnect between where the community prescribers are relative to the pulmonologist. But I guess with ANORO, which I guess, that would be inclined to believe would be a product that would maybe be easier for the specialty providers or the specialty prescribers to adopt versus the community docs, it seems like there's not a disconnect there between the two? What do you think is the rationale, I guess, between kind of the same NBRx numbers for ANORO between both pulmonologist and the community docs?

Well, there are certainly stories around both of those you know, our general view and of course, we make a general view, you can immediately find 100 exceptions to it. But as a rule you're going to find more stickiness with primary care doctors and following traditional well-known therapeutic paths and categories, as a result, you know, we're not surprised that we had a little more uptake initially in the community with BREO for example. We had a little faster initial uptake among specialist with ANORO because they got the benefits of the product. As you forward it can be quite interesting to see how these continue to develop because as you're aware, there were some recent changes in the GOLD guidelines and the GOLD guidelines are putting a little more emphasis on LAMA, LABAs. It wouldn't surprise me if you saw not a lot of change that the primary care docs are going forward, but you would be more adoption by the specialist there. I think the last thing I would offer is there has been quite a bit of acceleration in the new to brand scripts you're seeing on BREO. My guess is a lot has to do with some combination of formularies and awareness out there. The product is been out for a few years. The marketing efforts around this are really no quite good. The recent materials that are out there and the recent focus of the US BREO sales force, I think has just really been clicking in. So we'll have to see how all these things continue to move going forward. I guess, the top level, we're pleased with where we are. We have higher aspirations in this and you know, want to see how this continues to rollout. But again, both products are performing well, GSK is performing well, particularly in the US and I think we're feeling pretty good.

All right. Thanks for taking the questions. And congrats again.

Thanks, Stephen, I appreciate it.