Slide 1: Innoviva Investor Presentation
Innoviva Investor Presentation March 30, 2017
Slide 2: Special note regarding this presentation
Special note regarding this presentation ON MARCH 22, 2017, SARISSA CAPITAL MANAGEMENT LP ("SARISSA"), TOGETHER WITH THE OTHER PARTICIPANTS IN SARISSA'S PROXY SOLICITATION (THE "PARTICIPANTS"), FILED A DEFINITIVE PROXY STATEMENT AND ACCOMPANYING GOLD PROXY CARD WITH THE SECURITIES AND EXCHANGE COMMI
Slide 3: Executive Summary
Executive Summary Innoviva spun off Theravance Biopharma, LLC in June 2014 The company’s main purpose since the spin is to manage royalties In the execution of that purpose, however Shareholder value has been destroyed Management and directors appear grossly overpaid And spending appears excessive M
Slide 4: Agenda
Agenda Brief overview of Innoviva’s current business Concerns with Innoviva’s management of its business Corporate governance concerns Value of adding Sarissa nominees Responding to some of Innoviva's many misstatements
Slide 5: Innoviva's current business is focused on collecting royalties from GSK
Innoviva’s current business is focused on collecting royalties from GSK for two respiratory inhalers Innoviva 10-K (2016) As made clear in the 10-K, total net revenue for Innoviva is essentially derived from two royalties: RELVAR/BREO and ANORO
Slide 6: GSK is responsible for development and commercialization of respiratory products
GSK is responsible for the development and commercialization of the respiratory products partnered with Innoviva Innoviva 10-K (2016) GSK has successfully sold and marketed respiratory products, including Advair (peak sales >$8 Bn), without Innoviva
Slide 7: Innoviva has no control over GSK's marketing and sales efforts
Innoviva has no control over GSK’s marketing and sales efforts as company has made clear in SEC documents Innoviva 10-K (2016)
Slide 8: The company's main purpose seems to be to collect royalty checks from GSK
Therefore, the company’s main purpose seems to be to collect and endorse royalty checks from GSK We believe this is an important point to understanding Innoviva!
Slide 9: Agenda
Agenda Brief overview of Innoviva’s current business Concerns with Innoviva’s management of its business Corporate governance concerns Value of adding Sarissa nominees Responding to some of Innoviva's many misstatements
Slide 10: Shareholder value has been destroyed since the spin in June 2014
Shareholder value has been destroyed since the spin in June 2014 Data through March 6, 2017
Slide 11: Innoviva has underperformed the NBI by about 60% since the spin
Innoviva has recently compared its performance to the NBI Index. Innoviva has underperformed the NBI by about -60% since the spin NBI INVA NBI Index (NASDAQ Biotechnology Index). Chart normalized as of June 2, 2014 Data through March 6, 2017 -60% Long-term performance poor
Slide 12: The CEO is grossly overpaid for a royalty manager
For a company that manages royalties, we believe the CEO is grossly overpaid We call on the Chair of the Comp Committee to resign for permitting this egregious compensation
Slide 13: The CEO was overpaid in 2015 relative to ISS peers
The CEO was overpaid in 2015 relative to his peers (as assessed by ISS based on its 2016 report) Source: ISS 2016 report. We have not sought, nor have we received, permission to include this information ISS peer groups include: ACADIA Pharma. Inc ; Alnylam Pharma. Inc; Aralez Pharma, Inc; Arena Phar
Slide 14: A CEO of a company that only manages royalties is overpaid
And therefore most certainly for a CEO of a company that only manages royalties, he is overpaid We believe that comparing the CEO compensation at Innoviva to that at other companies of similar size is distorting The responsibilities differ greatly! Recall, Innoviva merely manages royalties Unlike ot
Slide 15: The CEO appears overpaid in the face of poor stock performance
And, of course, the CEO appears overpaid in the face of poor stock performance Innoviva has recently compared its performance to the NBI Index. Innoviva has underperformed the NBI by about -60% since the spin
Slide 16: Compensation for five senior officers and directors almost $12M per year
The CEO is not alone. Compensation expenses for the five senior officers and the Board’s directors have amounted to almost $12 M per year Year Aguiar d’Esparbes Abercrombie Faerm Witek Directors Total 2014 $4,560,128 $2,066,548 $1,899,507 $1,490,693 $2,854,668 $12,871,544 2015 $3,560,900 $1,061,380
Slide 17: Director compensation higher than at Theravance Biopharma
Remarkably, in 2015 the median compensation of directors at Innoviva was >$100K higher than Theravance Biopharma (spin-off in 2014) Non-executive director Total compensation (2015) Eran Broshy 163,641 Henrietta H. Fore 193,293 Robert V. Gunderson, Jr. 196,577 Burton G. Malkiel, Ph.D. 233,125 Dean J.
Slide 18: Directors overpaid relative to ISS peer group
Directors also appear grossly overpaid relative to their ISS peer group and in the face of poor performance Innoviva director compensation (2015) vs peer group1 @Innoviva @ISS-selected peers (“median of medians”) $329,984 $236,220 1Calculations performed by Sarissa from SEC filings. Median taken of
Slide 19: Sarissa responds to Innoviva press release on royalty revenue growth
Innoviva’s press release March 22, 2017 – “Our strong focus on shareholder value has delivered the following results… Achieving compounded quarterly growth in royalty revenue of 32% in the last ten quarters” Sarissa Capital responds As Innoviva has admitted in its 10-K (2016), “We have no control ov
Slide 20: Calls for reduced CEO and Board compensation
As the company merely manages royalties and has been overpaying its CEO and directors… We call for CEO compensation to be reduced to below $500,000/year If the CEO refuses to reduce his pay, the Board should immediately endeavor to find a more reasonably priced replacement We call on Board compensat
Slide 21: Compensation increases tied to royalty revenue are not justified
We also do not believe that compensation increases tied to changes in royalty revenue are justified CEO acknowledges that over the last two years the growth of profits and EPS had been “driven entirely by revenue growth” 1 1CEO comments at Cowen Health Care Conference (March 2017) For a company that
Slide 22: The company spent ~$25M of Opex in 2016
Also, the company spent ~$25M of Opex in 2016! $25M! The peer group used by Innoviva, based on most recent public filings, had a median of ~20 times more employees than Innoviva, which has 14 employees. The median SG&A expenses, however, were only ~2.68x greater than that of Innoviva Peer group used
Slide 23: 2016 Opex exceeded 2015 Opex
Which is more than in 2015! 2016 Opex > 2015 Opex
Slide 24: Opex spending details are concerning, including office space
What details on Opex spending can be obtained from Innoviva’s filings are concerning In 2016 Innoviva executed a new lease agreement for 8,427 ft2 of prime South San Francisco office space for its 14 employees à approximately 600 ft2 per employee! A smaller space, a lower rent and a location closer
Slide 25: Without a detailed explanation for where the money is spent
Without a detailed explanation for where the money is spent, we fear the worst… We made a request for information under Delaware law Innoviva has given us some information but in heavily redacted form and has not let us freely share it with any other stockholders Sarissa is troubled by what was foun
Slide 26: Sarissa responds on operating expense comparison to combined company
Innoviva’s letter to shareholders March 22, 2017 – “Compared to the first quarter of 2014, our last full quarter as a combined company, operating expenses in the fourth quarter of 2016 were down over 90% to $6.0 million from $66.2 million in the first quarter of 2014.” Sarissa Capital responds Saris
Slide 27: Sarissa responds on G&A as percentage of revenue
Innoviva’s letter to shareholders March 22, 2017 – “G&A expenses as a percentage of total revenues were 17% in 2016, the most recent full year period.” Sarissa Capital responds We are not of the view that inappropriate levels of spending can be justified by a certain level of revenue Operating expen
Slide 28: Cost cutting has limited upside argument misses the point
Innoviva argues that cost cutting has limited upside but this misses the point Spending must be justified for its ability to drive shareholder value Innoviva are stewards of $147 M (and we believe growing) total annual royalty revenues to Innoviva In light of current excessive spending and with roya
Slide 29: Innoviva compares itself with Ligand and PDL Biopharma
Innoviva compares itself with far more complex Ligand Pharmaceuticals and PDL Biopharma Ligand Pharmaceuticals is a company with over 155 partnered programs, >90 different partners, ongoing R&D and history of acquisitions PDL Biopharma is a company with multiple royalty and debt deals and an investm
Slide 30: Concern about management's desire to grow the business
Given Innoviva’s history, Sarissa is concerned about management’s desire to grow the business In addition, the 2016 bonus pool was set at 120% of target for all employees in part based on the company “overachieving” and getting four assets through diligence Innoviva has expressed a desire to “build
Slide 31: Agenda
Agenda Brief overview of Innoviva’s current business Concerns with Innoviva's management of its business Corporate governance concerns Value of adding Sarissa nominees Responding to some of Innoviva's many misstatements
Slide 32: Who is guarding the henhouse?
Who is guarding the henhouse? In theory, the Board is charged with oversight But the Board is overpaid, as we previously noted And the Board suffers from poor corporate governance
Slide 33: Two new directors added though Nom-Gov committee did not meet
We are concerned that Innoviva added two new directors in 2016 although it previously disclosed that the Nom-Gov committee did not meet in either 2015 or 2016 Innoviva PREC14A filed March 7, 2017 Innoviva DEF 14A filed March 2016
Slide 34: Five new directors in three years; Nom-Gov met only once
In fact, despite adding five new directors in the past three years, Innoviva previously disclosed the Nom-Gov committee had met only once Innoviva DEF 14A filed March 2015
Slide 35: Three Nom-Gov meetings 'discovered' after Sarissa raised the issue
Notably, after we raised this issue with Innoviva, three Nom-Gov committee meetings in 2016 were “discovered” and the company no longer claims to have acted by written consent Innoviva PREC14A filed March 7, 2017 Innoviva DEFC14A filed March 22, 2017 We call on the Nom-Gov members to resign for fail
Slide 36: Innoviva appears not open to constructive dialogue
Innoviva appears not open to constructive dialogue, which led to our filing of proxy materials As we disclosed in our preliminary proxy statement, we are not seeking control of the Board but much needed stockholder representation Sarissa Capital from its first interaction with Innoviva has stressed
Slide 37: Nom-Gov committee's interactions with Sarissa raised red flags
The Nominating/Corporate Governance committee’s interactions with Sarissa have raised red flags The Nom-Gov committee did not meet with Sarissa or any of our nominees before deciding to reject them despite repeated requests for meetings by Sarissa One Nom-Gov committee member had a 15-minute phone c
Slide 38: Background of the Solicitation: interactions dominated by the CEO
Innoviva DEFA14A -- Background of the Solicitation Innoviva’s interactions with Sarissa have been driven and dominated by the non-independent CEO Yellow highlight of CEO Aguiar’s name ( ) visually illustrates how interactions driven and dominated by Aguiar
Slide 39: Sarissa had only two brief interactions with one independent director
Up until March 29, 2017, Sarissa had had only two brief interactions with one independent director, with the CEO present each time Sarissa had never had a conversation with independent members of the board alone The CEO dominated the conversation The independent director barely spoke These interacti
Slide 40: Attempts to engage independent directors were rebuffed
Attempts by Sarissa to have an active dialog with independent directors had been rebuffed March 14 – Innoviva PROPOSES an in-person meeting in NYC with a few board members on March 22 or 23 March 23 – Sarissa again ACCEPTS meeting for the following week ( PROPOSES March 29 @3pm) but RECOMMENDS call
Slide 41: Board members have breached their fiduciary duties
We believe members of the Board have breached their fiduciary duties for having perpetuated these gross injustices
Slide 42: Summary: Innoviva not run for the benefit of shareholders
In summary, Innoviva appears to not be run for the benefit of shareholders And the company is handicapped by poor governance We believe the Board is currently failing to fulfill its duty of oversight à We, therefore, seek stockholder representation for the benefit of all stockholders
Slide 43: Agenda
Agenda Brief overview of Innoviva’s current business Concerns with Innoviva's management of its business Corporate governance concerns Value of adding Sarissa nominees Responding to some of Innoviva's many misstatements
Slide 44: Recent management comments show Innoviva is not open to change
Recent comments by management1 have us concerned that Innoviva is not open to change 1CEO comments at Cowen Health Care Conference (March 2017) CEO insists that Innoviva is “a very lean company” CEO reiterates company’s interest “to build over time a recurring revenue business” CEO in perhaps a slip
Slide 45: Sarissa seeks to add shareholder representation
Sarissa seeks to add shareholder representation To provide financial discipline and oversight To require that spending be justified as a driver of shareholder value To improve corporate governance To advocate for shareholder interests
Slide 46: Sarissa Capital's minority slate of independent candidates
Sarissa Capital’s minority slate of highly qualified independent candidates for election to Innoviva’s Board of Directors consists of the following nominees: George W. Bickerstaff, III Jules Haimovitz Odysseas Kostas, MD
Slide 47: George W. Bickerstaff, III
George W. Bickerstaff, III Substantial financial experience in the healthcare and pharmaceutical industries, along with a wealth of knowledge in dealing with financial, accounting and regulatory matters in those industries and insight into the views of shareholders, investors, analysts and others in
Slide 48: George W. Bickerstaff, III Work Experience
George W. Bickerstaff, III Work Experience Currently: Managing Director, M.M. Dillon, LLC, an investment banking firm Prior, include: Various positions with Novartis International AG, including CFO of Novartis Pharma AG Various senior finance roles at IMS Healthcare, including Chief Financial Office
Slide 49: Jules Haimovitz
Jules Haimovitz Extensive management, strategic and board experience
Slide 50: Jules Haimovitz Work Experience
Jules Haimovitz Work Experience Currently: President of the Haimovitz Consulting Group, a private media consulting firm Prior, include: Multiple executive positions Vice Chairman and Managing Partner of Dick Clark Productions Inc. Various capacities at Metro Goldwyn Mayer Inc., including President o
Slide 51: Odysseas Kostas, M.D.
Odysseas Kostas, M.D. Significant experience in medicine, investments, strategy, business development and finance. Currently on board of company that manages royalties with a lean cost structure
Slide 52: Odysseas Kostas, M.D. Work Experience
Odysseas Kostas, M.D. Work Experience Currently: Senior Analyst at Sarissa Capital Prior, include: Director at Evercore ISI (formerly ISI) covering biotechnology and pharmaceutical industries Practiced internal medicine as part of Yale New Haven Health System Consultant to various biotechnology comp
Slide 53: Sarissa Capital opposes three Innoviva nominees
Sarissa Capital opposes the nomination of three Innoviva nominees: William H. Waltrip Chairman of Board and member of Nom-Gov Committee Michael W. Aguiar CEO Paul A. Pepe Chair of Audit Committee Chair of Nom-Gov Committee until replaced on the committee on March 3, 2017
Slide 54: Sarissa opposes Chairman William H. Waltrip
Sarissa opposes Chairman of the Board William H. Waltrip During his tenure, Waltrip has overseen the following: Destruction of shareholder value Excessive compensation of management and directors Excessive spending Poor governance Chairman has been notably absent from the nomination process As the C
Slide 55: Sarissa opposes CEO Michael W. Aguiar
Sarissa opposes CEO Michael W. Aguiar Sarissa believes that Innoviva is being run for the benefit of management instead of shareholders The CEO, as much as the Chairman of the Board, bears responsibility for the company’s poor performance and mismanagement In addition, the company’s poor governance
Slide 56: Sarissa opposes former Nom-Gov Chair Paul A. Pepe
Sarissa opposes former Nom-Gov Chair Paul A. Pepe The Nom-Gov Committee is arguably a critical committee on the Board Sarissa is concerned by the poor governance and flawed nominating process at Innoviva Pepe was notably absent during the nomination process and ultimately replaced on the Nom-Gov com
Slide 57: Agenda
Agenda Brief overview of Innoviva’s current business Concerns with Innoviva's management of its business Corporate governance concerns Value of adding Sarissa nominees Responding to some of Innoviva's many misstatements
Slide 58: Sarissa responds to Innoviva's untrue and misleading claims
Sarissa feels the need to respond to a few of Innoviva’s untrue and misleading claims in its proxy materials
Slide 59: Claim that Sarissa has not engaged constructively is not true
Innoviva’s claim that Sarissa has not made a serious attempt to engage constructively with Innoviva’s Board and management team is not true – in fact, the opposite is true Sarissa has been rebuffed in its attempts to have an active dialogue with independent directors at Innoviva. In fact, in the mid
Slide 60: Claim that Sarissa wants to take control of the Board is not true
Innoviva’s claim that Sarissa wants to take effective control of the Board is also not true As we disclosed in our preliminary proxy statement, we are not seeking control of the Board but much needed stockholder representation with a minority slate of three nominees. The Board is set at seven direct
Slide 61: Claim that leadership plays a critical role in revenue growth is not believable
Innoviva’s claim that its “marketing and executive leadership play a critical role” in the growth of revenue for the respiratory products commercialized by GSK is not believable to Sarisssa As Innoviva has admitted in its 10-K (2016), “We have no control over GSK’s marketing and sales efforts…” We a
Slide 62: Section 220 records provided were partial and heavily redacted
Innoviva correctly reports that it provided Sarissa with some records that Sarissa requested in its demand letter pursuant to Section 220 but neglects to share that what it provided is only a portion of what we requested and was heavily redacted and that the company has not let us freely share what
Slide 63: Innoviva's characterization of Enzon's history is misleading
Innoviva’s characterization of the history at Enzon Pharmaceuticals, Inc. (“Enzon”) is misleading Revenue and expenses declined due to the sale of assets, including research assets, and the suspension of clinical development activities. Enzon was then left with royalty revenues, much as Innoviva is
Slide 64: Innoviva just collects royalty payments; time to optimize for shareholders
INNOVIVA DOES NOT MARKET OR SELL ANY DRUGS. IT JUST COLLECTS ROYALTY PAYMENTS. SO WHY IS IT SPENDING SO MUCH MONEY AND WHY ARE MANAGEMENT AND DIRECTORS BEING PAID SO MUCH? IT IS TIME FOR INNOVIVA TO BE OPTIMIZED FOR SHAREHOLDERS
Slide 65: We urge you to VOTE THE GOLD PROXY CARD
We urge you to VOTE THE GOLD PROXY CARD Time is of the essence. We urge you to VOTE THE GOLD PROXY CARD to help us deliver the necessary change to Innoviva. It is important that you submit your GOLD proxy card AS SOON AS POSSIBLE. Importantly, if you receive a white card from Innoviva, DO NOT return
Slide 66: To be continued...
To be continued... SARISSA CAPITAL