INVA, Innoviva Inc.

Will it survive?

• Can it pay its interest? 9.8×
  Comfortable
  Operating income $164M ÷ interest expense $17M
  What this means

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.

• How heavy is the debt, net of cash? +$276M
  Net cash
  Cash $551M + ST investments $196M − debt $471M
  What this means

  Cash and short-term investments exceed every dollar of debt by $276M, on net the company owes nothing, and can act from strength when others can't. Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

Is it a good business?

• Return on invested capital 44%
  Very high (≥25%) through the cycle
  9-yr median, range 11%–71%; 12% latest = NOPAT $136M ÷ invested capital $1.1B
  Industry peers: median -68%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 9 years (it ran 12% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 61%
  High through the cycle
  10-yr median margin, range 45%–99%; latest $196M = operating cash $197M − maintenance capex $1M
  Industry peers: median -48%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 48% of revenue this year, a 61% median across 10 years. Treating stock comp as the real expense it is (less $9M of SBC) leaves $186M.

• Are earnings backed by cash? 0.73×
  Mostly cash-backed
  Cash from ops $197M ÷ net income $271M
  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 2%
  Reinvests most of it
  Dividends + buybacks $5M ÷ Owner Earnings $196M
  What this means

  Of $196M Owner Earnings, $5M (2%) went back to shareholders, $0 dividends, $5M buybacks. But the buybacks barely exceed stock issued to employees ($9M SBC), net of dilution, little was truly returned. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 0.08×
  Harvesting
  Capex $1M ÷ depreciation $14M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

Graham’s defensive tests · 3 of 6 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Miss
  Revenue ≥ $2B · $411M
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Pass
  Current ratio ≥ 2× · 14.64×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Pass
  Debt ≤ working capital · $471M vs $678M WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Pass
  A profit every year (10-yr record) · no losses
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Miss
  Uninterrupted dividends · 4 of 10 yrs
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth Miss
  Earnings +33% over the record · −19%
  What this means

  At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $2.14/share (latest year $3.67), the averaged base the calculator's gate runs on, and book value is $15.89/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 10 of 10
  What this means

  Never lost money over the record, the earnings stability Graham insisted on.

• Return on capital ≥ 15% 8 of 10 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 86% → 41% (3-yr avg ends)

  In the filing’s words The filing attributes gains to higher prices but names price competition too — and the margin slipped, so the pressure is winning here.

  What this means

  Through the cycle the operating margin slipped — about 86% early to 41% lately, median 85% — competition or costs are biting in.

• Reinvestment, incremental ROIC −11%
  What this means

  Reinvested capital came back at a negative incremental return over this window — the invested base grew while operating profit did not. The filings show where it went.

• Owner earnings growth +7%/yr
  What this means

  Owner earnings grew about 7% a year over the record.

• Worst year 2023 · 36.7% op. margin
  What this means

  Stayed profitable even in its hardest year, the resilience that survives recessions.

• Share count −4.1%/yr
  What this means

  The share count is shrinking, buybacks are quietly growing your slice of the business.

• Dividend record paid
  What this means

  Paid a dividend in 4 of the years on record.

• How management talks about it Owner’s terms
  What this means

  The record and the register agree: capital is compounding and the filing reasons in an owner’s terms — per-share value, return on capital, the long term — not a promoter’s.