•

an additional $50,000 annual retainer for service as the chairmanchairperson of our Board of Directors;



•

$10,000 annual retainer for service as a member of our Audit Committee;



•

an additional $15,000 annual retainer for service as the chairperson of our Audit Committee;

•

$10,000 annual retainer for service as a member of our Compensation Committee;



•

an additional $12,500 annual retainer for service as the chairperson of our Compensation Committee;



•

$5,000 annual retainer for service as a member of our Nominating/Corporate Governance Committee; and



•

An additional $7,500 annual retainer for service as the chairperson of our Nominating/Corporate Governance Committee.

        In October 2017, the lead independent director retainer was eliminated and the retainer paid to the chairman of our board was reduced to $25,000 per year.

The members of our Board of Directors are also eligible for reimbursement for their expenses incurred in attending Board of Directors' meetings in accordance with Company policy.

        Equity Compensation.    Prior to the October 2017 amendment of our non-employee director compensation program, ourOur non-employee directors receivedreceive the following initial equity awards upon joining our Board of Directors and annual equity awards in connection with each annual meeting of stockholders:

•

Annual Equity Awards—Upon the conclusion of each regular annual meeting of stockholders, each non-employee director who continuedcontinues to serve as a member of the Board of Directors wasis automatically granted an RSU award covering a number of shares of our Common Stock equal to $250,000$225,000 divided by the closing price of a share of our Common Stock on the date of grant, rounded down to the nearest whole share. Each annual RSU award vestedvests on the sooner of the next annual stockholder meeting or the one year anniversary of the date of grant, subject to the director's continuous service through such date.



•

Initial Equity Awards—On the date of joining our Board of Directors, each new non-employee director wasis automatically granted a one-time initial RSU award covering a number of shares of our Common Stock equal to $250,000$125,000 divided by the closing price of a share of our Common Stock on the date of grant, rounded down to the nearest whole share. This initial RSU award vestedvests in two equal annual installments over the director's first two years of service. In addition, the new non-employee director also receivedreceives the annual equity award described above (if joining on the date of our annual meeting of stockholders) or a pro-rated annual equity award (if joining on any other date) that vestedvests on the sooner of the next annual stockholder meeting or the one-year anniversary of the date of grant. The size of each pro-rated annual equity award wasis based on the number of whole months remaining until the anniversary of the prior year's stockholders' meeting.

        In October 2017, the value of the annual equity awards was reduced to $225,000 and the value of the initial equity awards was reduced to $125,000.

        All RSU awards granted to our non-employee directors pursuant to the automatic grant program will vest in full if the Company is subject to a change in control or the director dies while in service and will be settled in shares of our Common Stock on the vesting date. RSU awards granted to our non-employee directors pursuant to the automatic grant program after October 2017 will also vest in full if the director becomes disabled while in service. Additionally, all RSU awards granted to our non-employee directors pursuant to the automatic grant program carry dividend equivalent rights to be

credited with an amount equal to all cash dividends paid on the underlying shares of our Common Stock while unvested, which are paid in cash upon vesting.

        In addition to the automatic RSUs described above, directors are also eligible to receive other equity awards under our 2012 Equity Incentive Plan.

        Reductions in Non-Employee Director Compensation.    In October 2017, the following reductions were made to the cash and equity compensation payable to our non-employee directors:

•

The lead independent director retainer was eliminated;



•

The annual retainer paid to the chairman of our Board of Directors was reduced to $25,000;



•

The value of the annual equity awards described above was reduced to $225,000; and

        The value of the initial equity awards described above was reduced to $125,000.

20172018 Director Compensation Table

        The following table sets forth all of the compensation awarded to, earned by, or paid to each person who served as a director during 2017,2018, other than a director who also served as a named executive officer.

NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP GUIDELINES

        In July of 2010, the Board of Directors adopted stock ownership guidelines for non-employee directors. Pursuant to these guidelines, beginning on the later of July 20, 2015 or after five years of service, non-employee directors are expected to hold shares of our Common Stock (including RSUs, and whether or not vested) with a value equal to at least three times their annual base cash retainer. The guidelines were amended in October of 2017 to increase the number of shares our non-employee directors are expected to hold to a value equal to at least ten times their annual cash retainer. Our non-employee directors have five years from the date of the amendment to comply with the increased guideline.

        All non-employee directors with at least one year of service on our Board of Directors own sufficient shares of our Common Stock or unvested RSUs to satisfy the stock ownership guidelines, as amended.

PROPOSAL 2

ADVISORY VOTE ON EXECUTIVE COMPENSATION

        In accordance with SEC rules, stockholders are being asked to approve, on a non-binding advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement. This is commonly referred to as a "Say-On-Pay" proposal.

        This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. As described further in the "Security Ownership of Certain Beneficial Owners and Management" section of this Proxy Statement, beginning on page 26,21, including the "Compensation Discussion and Analysis" and the related tables and narrative, the primary goals of our compensation program are to fairly compensate employees, attract and retain highly qualified employees, motivate the performance of our employees towards, and reward the achievement of, clearly defined corporate goals, and align our employees' long-term interests with those of our stockholders.

        20172018 was a successful year for Innoviva, as we met orand exceeded the majorityall of the corporate goals that were set for the year. Additionally, our stock price appreciated in value from $10.70 per share at the end of 2016 to $14.19 per share at the end of 2017.2017 to $17.45 per share at the end of 2018. The year was highlighted by record revenues, operating profits and cash flow which were enabled by strong commercial performance of RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, and the initiation of sales by our partner, Glaxo Group Limited (GSK), in the U.S. market of TRELEGY® ELLIPTA®.

        Following the 2017 Say-On-Pay vote, where approval by our stockholders was lower than in prior years, our Compensation Committee implemented a number of changes in connection with 2018 compensation decisions, and which are further highlighted in the "Compensation Discussion and Analysis." It is also anticipated that following the Annual Meeting our Compensation Committee will be comprised of three members, none of whom served as directors or members of our Compensation Committee at the time that 2017 compensation decisions were made.

        In accordance with Section 14A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we are asking stockholders to vote on the following resolution:

        RESOLVED, that the Company's stockholders approve the compensation of the Company's named executive officers as disclosed in the 20172018 Summary Compensation Table and the accompanying tables and narrative, including "Compensation Discussion and Analysis."

        This Say-On-Pay vote is advisory, and therefore not binding on our Compensation Committee or Board of Directors. Our Board of Directors and our Compensation Committee value the opinions of our stockholders, however, and will carefully review and consider the voting results when evaluating our executive compensation programs.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" PROPOSAL 2.

PROPOSAL 3

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        The Audit Committee has selected Ernst & YoungGrant Thornton LLP, independent registered public accounting firm, as our independent auditors for the fiscal year ending December 31, 20182019 and has further directed that management submit the selection of independent auditors for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP has audited our financial statements since 1996. Representatives of Ernst & YoungGrant Thornton LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

        Neither our Bylaws nor other governing documents or law require stockholder ratification of the selection of Ernst & YoungGrant Thornton LLP as our independent registered public accounting firm. However, the Board of Directors is submitting the selection of Ernst & YoungGrant Thornton LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee of the Board of Directors will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee of the Board of Directors in its discretion may direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

        The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of Ernst & YoungGrant Thornton LLP. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted toward a quorum, but are not counted for any purpose in determining whether this matter has been approved.

Change in Accountants

        Ernst & Young LLP audited our consolidated financial statements since 1996. On February 22, 2019, Ernst & Young LLP was dismissed as our independent registered public accounting firm. Grant Thornton LLP has been engaged as our new independent registered public accounting firm, effective as of February 27, 2019. The Audit Committee of the Board of Directors of the Company approved the dismissal of Ernst & Young LLP and approved the engagement of Grant Thornton LLP as our independent registered public accounting firm.

        None of the reports of Ernst & Young LLP on our financial statements for the past two years contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles.

        During the Company's fiscal years ended December 31, 2018 and December 31, 2017, and the subsequent interim periods preceding their dismissal, there were no disagreements with Ernst & Young LLP, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Ernst & Young LLP, would have caused them to make reference to the subject matter of the disagreement in connection with their report on the Company's financial statements, nor was there any reportable event (as described in paragraph 304(a)(1)(v) of Regulation S-K).

        In connection with the filing of the Company's Current Report on Form 8-K dated February 27, 2019 (the "Form 8-K"), the Company provided Ernst & Young LLP with a copy of the above disclosures, and requested that Ernst & Young LLP furnish a letter addressed to the SEC stating whether or not Ernst & Young LLP agrees with the statements in the immediately preceding paragraph. The Company subsequently received the requested letter, and a copy of Ernst & Young LLP's letter, dated February 27, 2019, was filed as Exhibit 16.1 to the Form 8-K.

        As of February 22, 2019, pursuant to the Audit Committee's determination, the Company engaged Grant Thornton LLP to serve as its independent registered public accounting firm for fiscal year 2019. During the two most recent fiscal years and the interim periods preceding the engagement, and through the date of this Report, neither the Company nor anyone on its behalf has previously consulted with Grant Thornton LLP regarding either (a) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report was provided nor oral advice was provided to the Company that Grant Thornton LLP concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (b) any matter that was either the subject of a disagreement (as defined in paragraph 304(a)(1)(iv) of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph 304(a)(1)(v) of Regulation S-K).

Audit and Non-Audit Fees

        The following table represents aggregate fees billed or to be billed to the Company for the fiscal years ended December 31, 20172018 and December 31, 20162017 by Ernst & Young LLP, our principal accountant.accountant during that period.

        All fees described above were pre-approved by the Audit Committee.

PRE-APPROVAL POLICIES AND PROCEDURES

        The Audit Committee's policy is to pre-approve all audit and permissible non-audit services rendered by Ernst & YoungGrant Thornton LLP, our independent registered public accounting firm. The Audit Committee pre-approves specified services in defined categories of audit services, audit-related services and tax services up to specified amounts, as part of the Audit Committee's approval of the scope of the engagement of Ernst & YoungGrant Thornton LLP or on an individual case-by-case basis before Ernst & YoungGrant Thornton LLP is engaged to provide a service. The Audit Committee has determined that the rendering of the services other than audit services by Ernst & YoungGrant Thornton LLP is compatible with maintaining the principal accountant's independence.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" PROPOSAL 3.

REPORT OF THE AUDIT COMMITTEE(1)

        The Audit Committee has reviewed and discussed with our management the audited financial statements of the Company included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 (the "10-K").

        The Audit Committee has also reviewed and discussed with Ernst & Young LLP the audited financial statements in the 10-K. In addition, the Audit Committee discussed with Ernst & Young LLP those matters required to be discussed by the auditors with the Audit Committee under Public Company Accounting Oversight Board (the "PCAOB") Audit Standard No. 1301,Communications with Audit Committees. Additionally, Ernst & Young LLP provided to the Audit Committee the written disclosures required by PCAOB Ethics and Independence Rule 3526,Communication with Audit Committees Concerning Independence and discussed with Ernst & Young LLP the independent auditors' independence.

        Based upon the review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's 10-K for filing with the SEC.

        Submitted by the following members of the Audit Committee:

(1)

The material in this report is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filing of Innoviva under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

EXECUTIVE OFFICERS

        The following table sets forth the name, age, and position of each of our executive officers as of February 28, 2019:

Geoffrey Hulme was appointed Interim Principal Executive Officer in May 2018. Prior to his hiring, Mr. Hulme served as the owner and manager of Steel Valley Capital LLC since 2016 and Steel Valley Advisors LLC, a registered investment adviser, since 2017. Previously, from 1998 to 2015, he worked at Amici Capital, LLC, serving in various roles, including as Director of Research, a portfolio manager and a director of various funds managed by Amici. Mr. Hulme earned a Bachelor of Science degree in Business Administration with a concentration in Finance, summa cum laude, from Villanova University.

Marianne Zhen was appointed Chief Accounting Officer in July 2018. Ms. Zhen joined Innoviva in October 2014 as Corporate Controller. Prior to joining Innoviva, Ms. Zhen served as the Corporate Controller at Steelwedge Software Inc. from 2012 to 2014, Intelmate from 2011 to 2012 and Model N, Inc. from 2007 to 2011. Ms. Zhen earned a Bachelor of Science degree in Business Administration with a concentration in Accounting from San Francisco State University. She is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information known to us regarding beneficial ownership of our voting securities as of March 19, 2018February 28, 2019 by:

•

each person known by us to be the beneficial owner of more than 5% of any class of our voting securities;



•

our named executive officers;



•

each of our directors; and



•

all executive officers and directors as a group.

        Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as noted by footnote, and subject to community property laws where applicable, the persons named in the table below have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. The table below is based upon information supplied by officers, directors and principal stockholders and Schedules 13G filed with the SEC.

        This table lists applicable percentage ownership based on 101,143,959101,139,713 shares of Common Stock outstanding as of March 19, 2018.February 28, 2019. Options to purchase shares of our Common Stock that are exercisable within 60 days of March 19, 2018February 28, 2019 and RSUs that may be settled on or within 60 days of March 19, 2018February 28, 2019 are deemed to be beneficially owned by the persons holding these options for the purpose of computing percentage ownership of that person, but are not treated as outstanding for the purpose of computing any other person's ownership percentage.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Exchange Act requires our directors, executive officers, and holders of more than 10% of our Common Stock to file reports regarding their ownership and changes in ownership of our securities with the SEC, and to furnish us with copies of all Section 16(a) reports that they file.

        We believe that during the fiscal year ended December 31, 2017,2018, our directors, executive officers, and greater than 10% stockholders complied with all applicable Section 16(a) filing requirements. In making these statements, we have relied upon a review of the copies of Section 16(a) reports furnished to us and written representations from certain parties that no other reports were required.

COMPENSATION DISCUSSION AND ANALYSIS

        This section discusses our executive compensation policesCompensation Discussion and decisions and the most important factors relevant toAnalysis provides an analysisoverview of these policies and decisions. It provides qualitative information regarding the manner and context in which compensation is awarded to and earned byhow our named executive officers were compensated in 2018, as well as how this compensation furthers our established compensation philosophy and offers perspective on the data presented in the tables and narrative that follow.objectives.

        For 2017,2018, our "named executive officers" include:consisted of the following individuals:

•

Geoffrey L. Hulme, our interim Principal Executive Officer;(1)



•

Marianne Zhen, our Chief Accounting Officer;(2)



•

Michael W. Aguiar, our former President and Chief Executive Officer;(3)



•

Eric d'Esparbes, our former Senior Vice President, and Chief Financial Officer and interim Principal Executive Officer;(4)



•

George B. Abercrombie, our former Senior Vice President and Chief Commercial Officer;



•

Theodore J. Witek, Jr., our Senior Vice President and Chief Scientific Officer;(5) and



•

Michael E. Faerm,Theodore J. Witek, Jr., our former Senior Vice President and Chief BusinessScientific Officer.(6)

        On February 6,Compensation Philosophy and Objectives

        During 2018, our Board of Directors and Compensation Committee performed a comprehensive review of our executive compensation practices and determined that the former executives were overcompensated, as their compensation was in line with market practices for operating businesses, as opposed to a business that is primarily managing drug-royalties received from a third-party. In connection with this review, our Board of Directors and Compensation Committee decided to overhaul the former executive team and significantly reduce the total costs associated with our executive compensation on a go-forward basis.

        The primary goal of our executive compensation program is to maintain a compensation program that fairly compensates employees, allows us to attract and retain highly qualified employees, motivates the performance of employees towards clearly defined corporate goals, rewards goal achievement and aligns employees' long-term interests with those of our stockholders.

Compensation Committee

        Our Compensation Committee is currently comprised of four independent members of our Board of Directors. The Compensation Committee's primary responsibilities are to review the performance of our named executive officers in achieving corporate objectives and to assure that our named executive officers as well as other non-executive employees are compensated effectively in a manner consistent

(1)

Mr. d'EsparbesHulme was appointed as our interim Principal Executive Officer. Officer on May 21, 2018.

(2)

Ms. Zhen was appointed as our Chief Accounting Officer effective as of July 27, 2018. In her role as the Chief Accounting Officer, Ms. Zhen is our Principal Financial Officer for reporting purposes.

(3)

Mr. Aguiar's employment was terminated on February 6, 2018.

(4)

Mr. d'Esparbes succeededserved as our interim Principal Executive Officer following Mr. Aguiar following his resignation as President and Chief Executive Officer.Aguiar's departure until the appointment of Mr. Hulme to such position. Mr. d'Esparbes has continued to servealso served as our Senior Vice President and Chief Financial Officer while actinguntil his termination on August 17, 2018.

(5)

Mr. Abercrombie's employment was terminated effective as of September 26, 2018.

(6)

Mr. Witek's employment was terminated effective as of September 26, 2018.

with our compensation philosophy and competitive practice. Our Compensation Committee has the final discretion with respect to salary increases, annual bonuses and equity awards, but it solicits recommendations from Mr. Hulme on the compensation of his direct reports and other employees generally. Mr. Hulme is not involved in any decisions with respect to his compensation.

        Our Compensation Committee has the authority under its charter to engage the services of outside advisors, experts and others to assist the Compensation Committee. In accordance with this authority, the Compensation Committee confers from time to time with its independent executive compensation consultant, FW Cook. FW Cook is consulted by and reports directly to the Compensation Committee and its role is to assist and advise the Compensation Committee on matters related to compensation for executive officers, other key employees and non-employee directors. FW Cook does not work on projects for management except as an agent of the Compensation Committee and with the advance knowledge and approval of the Chairman of the Compensation Committee. The Compensation Committee has the sole authority to retain and dismiss its outside compensation consultants.

        Our Compensation Committee has not set any formal benchmarks or engaged in a comprehensive review of any peer group in determining the compensation of our named executive officers and instead has relied on the general experience of its members and expertise of its outside compensation consultants for determining the appropriate amount of compensation to each of our named executive officers after taking into account the stated goal of reducing our overall executive compensation costs.

2018 Vote on Executive Compensation

        At our 2018 annual meeting of stockholders, approximately 98.7% of our stockholders who cast a vote (disregarding those who abstained and broker non-votes) voted "For" a non-binding advisory resolution approving the compensation of our named executive officers, as disclosed in the proxy statement for that meeting. Our Compensation Committee reviewed these results and determined that the vast majority of our stockholders are supportive of the Compensation Committee's efforts to control executive compensation costs.

Principal Elements of Compensation

Base Salaries

        Base salaries are set to reflect compensation commensurate with the individual's current position. The salaries for our named executive officers were established based on the underlying scope of their respective responsibilities. The initial compensation for Mr. Hulme was negotiated as part of his appointment as our interim Principal Executive Officer.Officer and was included in his offer letter. For 2018, Mr. Hulme recommended, and our Compensation Committee approved, an increase in Ms. Zhen's base salary from $220,000 to $275,000 in connection with her appointment to Chief Accounting Officer effective July 2018 and the increased responsibilities associated with her appointment.

Annual Cash Incentive Compensation

        Mr. Hulme's target bonus percentage for 2018 was set at 60% upon his appointment as our interim Principal Executive Officer on May 21, 2018. In connection with her promotion to Chief Accounting Officer effective July 2018, Ms. Zhen's target bonus percentage was increased from 20% to 45%. Due to the changes resulting from our executive overhaul in 2018, the Compensation Committee determined that it would be necessary to maintain flexibility in paying 2018 bonuses and decided to retain the discretion to set the amount of 2018 bonuses actually paid to the remaining executives. On a go-forward basis, our Compensation Committee intends to tie annual bonuses to the achievement of clearly defined objectives that align the incentives of our employees with the interests of our stockholders.

        In recognition of Mr. Hulme's and Ms. Zhen's strong performance in 2018 and value added by them to the Company, the Compensation Committee determined that Mr. Hulme and Ms. Zhen should be paid 2018 bonuses equal to 100% of their target bonus opportunity. Mr. Hulme's bonus was prorated based on the number of days of his employment with the Company during 2018. With respect to Ms. Zhen, for the period prior to her promotion to Chief Accounting Officer effective as of July 27, 2018, Ms. Zhen's 2018 bonus was prorated based on the base salary and target bonus opportunity in effect for such period (i.e., $220,000 and 20%), and for the period after her promotion her 2018 bonus was prorated based on the base salary and target annual bonus opportunity in effect for that period (i.e., $275,000 and 45%).

Equity Incentive Compensation

        The types of equity compensation that may comprise the mix of officer compensation consist of restricted stock units ("RSUs") and restricted stock awards ("RSAs"), each of which may be subject to time- and/or performance-based vesting conditions. We do not use a targeted cash/equity split to set officer compensation.

        The 2018 annual equity awards were made in the first quarter of 2018, prior to the 2018 vote of our stockholders on the compensation of our named executive officers. The 2018 awards for Messrs. d'Esparbes, Abercrombie and Witek were designed with two-thirds of the target award subject to performance-based vesting (the "Performance Awards") and the remaining one-third of the award with standard time-based vesting. Such awards reflected an increase in the proportion of performance-based vesting compared to 2017, in which one-third of the annual awards were performance-based, in order to more closely align the officers' pay with the performance of the Company.

        Mr. Hulme did not receive an annual award for 2018 since his employment with the Company commenced after the Company had granted its 2018 awards. The offer letter we entered into with Mr. Hulme in connection with the commencement of his employment with us provides for the grant of a nonstatutory stock option to purchase a number of shares of the Company's Common Stock to be determined by our Board of Directors or Compensation Committee, subject to the approval of our Board of Directors or our Compensation Committee. In satisfaction of this provision, the Compensation Committee approved the grant of 9,000 fully vested shares to Mr. Hulme on February 19, 2019. Although this grant was made in 2019 and therefore is not included in the Summary Compensation Table herein, the Compensation Committee made such grant in part as consideration for services performed in 2018 by Mr. Hulme.

        Ms. Zhen was not an executive officer at the time of the 2018 awards, and her 2018 annual equity award was subject to standard time-based vesting only, consistent with the annual 2018 awards granted to other non-executives.

        Mr. Aguiar's employment was terminated prior to the date of the 2018 annual equity grants, and so he did not receive any annual equity awards for 2018.

        Messrs. Abercrombie and Witek each received his 2018 annual equity award (both the time-based and, if applicable, performance-based portions) in the form of RSAs, whereas Mr. Witek received RSUs due to Canadian tax considerations.

        For each of Ms. Zhen and Messrs. d'Esparbes and Abercrombie, the time-based portion of the 2018 annual equity award as originally granted was scheduled to vest over a period of four years (with the first 25% scheduled to vest on February 20, 2019 and the remainder in equal quarterly installments over the next three years thereafter), subject to the officer's continued service through each vesting date. Due to Canadian tax considerations, the time-based portion of Mr. Witek's 2018 annual equity award was scheduled to vest over a three-year period as follows: 25% on February 20, 2019, 6.25% on each of May 20, 2019, August 20, 2019, November 20, 2019, February 20, 2020, May 20, 2020 and

August 20, 2020, and the remaining 37.5% vests on November 20, 2020, provided Mr. Witek remains in continuous service through each vesting date.

        The 2018 Performance Awards, which were granted to Messrs. d'Esparbes, Abercrombie and Witek, were eligible to vest based on the cumulative growth in the total shareholder return ("TSR") of our common stock during the three-year performance period from March 2, 2018 through March 2, 2021 (or, in the case of Mr. Witek, through September 30, 2020). After the end of the performance period, the number of shares for which the performance-based vesting conditions have been satisfied will be calculated by multiplying the "payout percentage" by the target number of shares granted, rounded down to the nearest whole share.

        For the 2018 Performance Awards, the payout percentage is calculated as follows:

        Messrs. d'Esparbes, Abercrombie and Witek forfeited their 2018 annual equity awards in their entirety in connection with their separation from the Company in 2018.

        In addition to the 2018 annual awards, the Company granted an award of 1,779 RSAs to Ms. Zhen in September 2018 in connection with her promotion to Chief Accounting Officer in order to align her equity compensation level with her enhanced duties and responsibilities. Such award is subject to the same time-based vesting schedule as Ms. Zhen's 2018 annual award, with the first 25% vesting on February 7,20, 2019 and the remainder in equal quarterly installments over the next three years thereafter, subject to her continuous service through each vesting date.

Retention Bonus

        The Compensation Committee determined that Ms. Zhen would play an important role in the continued operation of the business and felt it necessary to grant a retention bonus to Ms. Zhen in order to incentivize her to remain with the Company through the restructuring of the management team. The terms of Ms. Zhen's retention agreement are incorporated into her letter agreement and described in more detail below.

Perquisites

        The Company does not provide a non-qualified deferred compensation program or a supplemental executive retirement plan. Generally, the Company does not provide perquisites or other personal benefits to named executive officers, and during 2018 we did not provide any perquisites to executive officers that were not provided to all employees other than the reimbursement of expenses incurred by

Mr. Faerm resignedWitek in the preparation of his personal income taxes, which we provided due to his residency outside of the United States.

New Employment Arrangements

        We entered into an offer letter with Mr. Hulme in connection with his appointment as our Senior Vice Presidentinterim Principal Executive Officer, which our Compensation Committee concluded was necessary to convince Mr. Hulme to accept the position and afford him reasonable protection in the event that his employment is terminated without "cause." The Compensation Committee determined that the compensation package offered to Mr. Hulme was reasonable given his role and the current needs of the Company. The terms of Mr. Hulme's offer letter are described in more detail below.

        Additionally, we entered into a letter agreement with Ms. Zhen in connection with her promotion to Chief Business Officer.Accounting Officer pursuant to which she was granted a new equity award and provided with severance protection, each of which our Compensation Committee determined was necessary to retain the services of Ms. Zhen going forward. The terms of Ms. Zhen's agreement are described in more detail below.

Executive SummarySeverance Arrangements

        2017We entered into separation agreements with each of our departing named executive officers, including Messrs. Aguiar, d'Esparbes, Abercrombie and Witek, pursuant to which we paid severance in accordance with the terms of their existing arrangements with the Company (each as described in more detail below) and, for Messrs. Aguiar and d'Esparbes, provided accelerated vesting of certain shares of restricted stock. Mr. Aguiar's separation agreement provided for the accelerated vesting of 164,045 restricted shares of Common Stock, which was provided to ensure a successful yearsmooth and amicable separation. In addition, Mr. d'Esparbes' separation agreement provided for Innoviva, as we metthe accelerated vesting of 16,501 restricted shares of Common Stock. We provided such accelerated vesting to Mr. d'Esparbes because his termination date occurred on August 17, 2018, three days before such shares would have vested had he remained employed through such date, and in recognition of his efforts in effectuating a smooth transition for our executive overhaul. For more information regarding the separation agreements with our former named executive officers, please see the section titled "Potential Payments Upon Termination or exceeded the majorityChange in Control" beginning on page 35.

Tax Deductibility of Pay

        Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that we may deduct in any one year with respect to each of its CEO and certain other executive officers. Prior to enactment of the Tax Cuts and Jobs Act on December 22, 2017 (the "Tax Act"), there was an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. Historically some of our named executive officer compensation arrangements were intended to qualify for this exception. However, the Tax Act eliminated the Section 162(m) performance-based compensation exemption prospectively and expanded the group of employees covered by the $1,000,000 limitation, effective for taxable years beginning after December 31, 2017. Accordingly, we are not be able to structure 2018 compensation paid to certain executive officers in excess of $1,000,000 to qualify as performance-based compensation under Section 162(m) to preserve the tax deductibility of that compensation. Rather, beginning in 2018, compensation paid to certain executive officers in excess of $1,000,000 will generally not be deductible. However, to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, that were set for the year. The year was highlighted by record revenues, operating profits and cash flow which were enabled by strong commercial performance of RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA®, and the initiation of sales by our partner, Glaxo Group Limited (GSK), in the U.S. market of TRELEGY® ELLIPTA®. Specific highlights included the following:

•

Our stock price appreciated in value from $10.70 per share at market close on December 30, 2016 (the last trading day of 2016)Compensation Committee has not adopted a policy requiring all compensation to $14.19 per share at market close on December 29, 2017 (the last trading day of 2017).be deductible.





•

Royalties earned in 2017 reached $227.9 million, up 56% from 2016.



•

Net royalty revenues in 2017 were $214.1 million, compared to $132.7 million in 2016, an increase of 61% during the period.



•

Net income attributable to Innoviva stockholders in 2017 was up 125% compared to 2016, reaching $134.1 million (or $1.25 per basic share), compared to $59.5 million in 2016 (or $0.54 per basic share).

Corporate Governance PoliciesPrincipal Elements of Compensation

Base Salaries

        We haveBase salaries are set to reflect compensation commensurate with the following corporate governance policies that complementindividual's current position. The salaries for our named executive officers were established based on the underlying scope of their respective responsibilities. The initial compensation for Mr. Hulme was negotiated as part of his appointment as our interim Principal Executive Officer and was included in his offer letter. For 2018, Mr. Hulme recommended, and our Compensation Committee approved, an increase in Ms. Zhen's base salary from $220,000 to $275,000 in connection with her appointment to Chief Accounting Officer effective July 2018 and the increased responsibilities associated with her appointment.

Annual Cash Incentive Compensation

        Mr. Hulme's target bonus percentage for 2018 was set at 60% upon his appointment as our interim Principal Executive Officer on May 21, 2018. In connection with her promotion to Chief Accounting Officer effective July 2018, Ms. Zhen's target bonus percentage was increased from 20% to 45%. Due to the changes resulting from our executive compensation program:

        Our Stock Ownership Guidelinesoverhaul in 2018, the Compensation Committee determined that were adoptedit would be necessary to maintain flexibility in February 2012 require eachpaying 2018 bonuses and decided to retain the discretion to set the amount of 2018 bonuses actually paid to the remaining executives. On a go-forward basis, our Compensation Committee intends to tie annual bonuses to the achievement of clearly defined objectives that align the incentives of our executive officers to own shares and share equivalents equal in value to a multipleemployees with the interests of base salary, specifically six times salary for the CEO and two times salary for the other executive officers. Officers are required to be in compliance with these guidelines by the five year anniversary of the adoption of the guidelines, or, if later, by the five year anniversary of their commencement of service as an executive officer. Thereafter, compliance will be measured annually. If, at the compliance measurement date, the executive officer does not meet the guideline, then until such officer is in compliance, he orour stockholders.

she will be expected        In recognition of Mr. Hulme's and Ms. Zhen's strong performance in 2018 and value added by them to hold 50% of the after-tax Innoviva shares acquired thereafter, whether by option exercise, vesting or settlement of equity awards, or an open-market purchase.

        Our Recoupment Policy, or clawback policy, permits the Company, the Compensation Committee determined that Mr. Hulme and Ms. Zhen should be paid 2018 bonuses equal to recoup a portion100% of executive officers' cash bonuses intheir target bonus opportunity. Mr. Hulme's bonus was prorated based on the eventnumber of days of his employment with the Company is requiredduring 2018. With respect to prepare an accounting restatement dueMs. Zhen, for the period prior to material noncompliance with financial reporting requirements,her promotion to the extent that theChief Accounting Officer effective as of July 27, 2018, Ms. Zhen's 2018 bonus is earnedwas prorated based on financial metricsthe base salary and target bonus opportunity in effect for such period (i.e., $220,000 and 20%), and for the period after her promotion her 2018 bonus was prorated based on the base salary and target annual bonus opportunity in effect for that are the subject of the restatement.period (i.e., $275,000 and 45%).

Equity Incentive Compensation Philosophy and Objectives

        The primary goaltypes of our executiveequity compensation program isthat may comprise the mix of officer compensation consist of restricted stock units ("RSUs") and restricted stock awards ("RSAs"), each of which may be subject to maintaintime- and/or performance-based vesting conditions. We do not use a compensation program that fairly compensates employees, allows ustargeted cash/equity split to attract and retain highly qualified employees, motivatesset officer compensation.

        The 2018 annual equity awards were made in the performancefirst quarter of employees towards clearly defined corporate goals, rewards goal achievement and aligns employees' long-term interests with those of our stockholders.

        In June 2014, we successfully separated our drug discovery and development business into a separate publicly traded company, following which we transformed our business from a drug discovery company to a company focused on royalty management. In connection with such transformation, our philosophy has been to transition from a pay model that emphasized the drug pipeline-driven business of a research and development company to a compensation program that is better suited to a company that manages the royalties of its biopharmaceutical portfolio.

        We believe the skills and experience required to be successful managing the drug portfolio include not only those of a biopharmaceutical executive, including both commercial and development functions, but also experience in maximizing the value of long-lived financial assets. Our Compensation Committee continues to evaluate our executive compensation practices in light of our new business model and the needs of our business. Our Compensation Committee has reviewed peer group data for context when making compensation decisions, but the Company does not target a particular level of relative compensation. Instead our Compensation Committee applies its discretion and business judgment to make individual compensation decisions.

Compensation Committee

        Following the Annual Meeting, the Compensation Committee is expected to be comprised of three members, none of whom served as directors or members of the Compensation Committee at the time that 2017 compensation decisions were made. During 2017, the Compensation Committee was comprised of three independent members of the Board of Directors. The Compensation Committee's primary responsibilities are to review the performance of our management in achieving corporate objectives and to assure that the named executive officers as well as other members of senior management are compensated effectively in a manner consistent with our compensation philosophy and competitive practice. Historically and in connection with 2017 compensation decisions, our CEO has assessed the contributions of senior management relative2018, prior to the corporate goals and made a recommendation to the Compensation Committee with respect to any merit increase in salary, cash bonus (based on the fiscal year's cash bonus pool for all employees determined by the Compensation Committee) and annual equity award for each member of the executive team, other than himself. In addition, the Compensation Committee met with the CEO to evaluate, discuss and modify or approve these recommendations. The Compensation Committee also conducted a similar evaluation of the CEO's contributions when the CEO was not present, and determined any increase in salary, cash bonus and annual equity award for the CEO.

2017 Vote on Executive Compensation

        At our 2017 annual meeting of stockholders, approximately 53%2018 vote of our stockholders voted "For" a non-binding advisory resolution approvingon the compensation of our named executive officers, as

disclosedofficers. The 2018 awards for Messrs. d'Esparbes, Abercrombie and Witek were designed with two-thirds of the target award subject to performance-based vesting (the "Performance Awards") and the remaining one-third of the award with standard time-based vesting. Such awards reflected an increase in the proxy statement for that meeting. However, this followed a 2016 voteproportion of performance-based vesting compared to 2017, in which 91%one-third of the annual awards were performance-based, in order to more closely align the officers' pay with the performance of the Company.

        Mr. Hulme did not receive an annual award for 2018 since his employment with the Company commenced after the Company had granted its 2018 awards. The offer letter we entered into with Mr. Hulme in connection with the commencement of his employment with us provides for the grant of a nonstatutory stock option to purchase a number of shares of the Company's Common Stock to be determined by our Board of Directors or Compensation Committee, subject to the approval of our stockholders voted "For"Board of Directors or our executive compensation program. The Compensation Committee makes the majorityCommittee. In satisfaction of its executive officer pay decisions in the first quarter of each year, so most 2017 compensation decisions were made prior to the 2017 stockholder vote. After the 2017 vote and following discussions with stockholders and the Compensation Committee's independent executive compensation consultant,this provision, the Compensation Committee implemented a numberapproved the grant of changes9,000 fully vested shares to Mr. Hulme on February 19, 2019. Although this grant was made in connection with its2019 and therefore is not included in the Summary Compensation Table herein, the Compensation Committee made such grant in part as consideration for services performed in 2018 compensation decisions. These changes areby Mr. Hulme.

        Ms. Zhen was not reflected in our namedan executive officer's 2017 compensation as our 2017 compensation programs were already in placeofficer at the time of the advisory vote. The changes that2018 awards, and her 2018 annual equity award was subject to standard time-based vesting only, consistent with the Compensation Committee made forannual 2018 included:awards granted to other non-executives.

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Freezing base salaries

        Mr. Aguiar's employment was terminated prior to the date of the 2018 annual equity grants, and target bonuses for our named executive officers.



•

Setting fewer goals for ourso he did not receive any annual bonus plan with weightings determined in advance.



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Increasing the proportion of performance-based to time-based equity awards that arefor 2018.

        Messrs. Abercrombie and Witek each received his 2018 annual equity award (both the time-based and, if applicable, performance-based portions) in the form of RSAs, whereas Mr. Witek received RSUs due to Canadian tax considerations.

        For each of Ms. Zhen and Messrs. d'Esparbes and Abercrombie, the time-based portion of the 2018 annual equity award as originally granted annuallywas scheduled to vest over a period of four years (with the first 25% scheduled to vest on February 20, 2019 and the remainder in equal quarterly installments over the next three years thereafter), subject to the officer's continued service through each vesting date. Due to Canadian tax considerations, the time-based portion of Mr. Witek's 2018 annual equity award was scheduled to vest over a three-year period as follows: 25% on February 20, 2019, 6.25% on each of May 20, 2019, August 20, 2019, November 20, 2019, February 20, 2020, May 20, 2020 and




August 20, 2020, and the remaining 37.5% vests on November 20, 2020, provided Mr. Witek remains in continuous service through each vesting date.

        The 2018 Performance Awards, which were granted to Messrs. d'Esparbes, Abercrombie and Witek, were eligible to vest based on the cumulative growth in the total shareholder return ("TSR") of our common stock during the three-year performance period from 33%March 2, 2018 through March 2, 2021 (or, in the case of Mr. Witek, through September 30, 2020). After the end of the performance period, the number of shares for which the performance-based vesting conditions have been satisfied will be calculated by multiplying the "payout percentage" by the target number of shares granted, rounded down to at least 50%.



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the nearest whole share.

For the 2018 performance-based equity awards: (i) measuring performance after three years only, rather than after two and three years; and (ii) cappingPerformance Awards, the payout at 75%percentage is calculated as follows:

​	​	​	​	​	​	​	​	​	​
			Cumulative TSR Growth(1)				Payout Percentage(2)
​	​	​	​	​	​	​	​	​	​
			20%				200% (maximum)
​	​	​	​	​	​	​	​	​	​
			10%				150%
​	​	​	​	​	​	​	​	​	​
			5%				100% (target)
​	​	​	​	​	​	​	​	​	​
			0%				75%
​	​	​	​	​	​	​	​	​	​
			–5%				50%
​	​	​	​	​	​	​	​	​	​
			–10%				25% (threshold)
​	​	​	​	​	​	​	​	​	​
			–20%				0%
​	​	​	​	​	​	​	​	​	​

⁽¹⁾

Calculated by dividing (i) the increase in the share price of target if absolute total shareholder return overthe Company's Common Stock during the performance period is negative.plus the reinvested dividends by (ii) the share price at the start of the performance period.



⁽²⁾

Straight line interpolation will be used for TSR growth in between the threshold, target and maximum amounts.

        Messrs. d'Esparbes, Abercrombie and Witek forfeited their 2018 annual equity awards in their entirety in connection with their separation from the Company in 2018.

        In addition to the 2018 annual awards, the Company granted an award of 1,779 RSAs to Ms. Zhen in September 2018 in connection with suchher promotion to Chief Accounting Officer in order to align her equity compensation changes forlevel with her enhanced duties and responsibilities. Such award is subject to the same time-based vesting schedule as Ms. Zhen's 2018 our Compensation Committee also determined that funding for our 2017 annual bonuses would not exceed actual EBITDA achievement versusaward, with the pre-established 2017 EBITDA goal. As further discussed below, actual 2017 annual bonuses were only paid at target despite overachievement offirst 25% vesting on February 20, 2019 and the 2017 EBITDA goal.remainder in equal quarterly installments over the next three years thereafter, subject to her continuous service through each vesting date.

Compensation ConsultantRetention Bonus

        The Compensation Committee hasdetermined that Ms. Zhen would play an important role in the authority under its chartercontinued operation of the business and felt it necessary to engagegrant a retention bonus to Ms. Zhen in order to incentivize her to remain with the Company through the restructuring of the management team. The terms of Ms. Zhen's retention agreement are incorporated into her letter agreement and described in more detail below.

Perquisites

        The Company does not provide a non-qualified deferred compensation program or a supplemental executive retirement plan. Generally, the Company does not provide perquisites or other personal benefits to named executive officers, and during 2018 we did not provide any perquisites to executive officers that were not provided to all employees other than the reimbursement of expenses incurred by

Mr. Witek in the preparation of his personal income taxes, which we provided due to his residency outside of the United States.

New Employment Arrangements

        We entered into an offer letter with Mr. Hulme in connection with his appointment as our interim Principal Executive Officer, which our Compensation Committee concluded was necessary to convince Mr. Hulme to accept the position and afford him reasonable protection in the event that his employment is terminated without "cause." The Compensation Committee determined that the compensation package offered to Mr. Hulme was reasonable given his role and the current needs of the Company. The terms of Mr. Hulme's offer letter are described in more detail below.

        Additionally, we entered into a letter agreement with Ms. Zhen in connection with her promotion to Chief Accounting Officer pursuant to which she was granted a new equity award and provided with severance protection, each of which our Compensation Committee determined was necessary to retain the services of outside advisors, expertsMs. Zhen going forward. The terms of Ms. Zhen's agreement are described in more detail below.

Severance Arrangements

        We entered into separation agreements with each of our departing named executive officers, including Messrs. Aguiar, d'Esparbes, Abercrombie and othersWitek, pursuant to assist the Compensation Committee. Inwhich we paid severance in accordance with this authority andthe terms of their existing arrangements with the Company (each as described in more detail below) and, for Messrs. Aguiar and d'Esparbes, provided accelerated vesting of certain shares of restricted stock. Mr. Aguiar's separation agreement provided for the "Compensation Committee"accelerated vesting of 164,045 restricted shares of Common Stock, which was provided to ensure a smooth and amicable separation. In addition, Mr. d'Esparbes' separation agreement provided for the accelerated vesting of 16,501 restricted shares of Common Stock. We provided such accelerated vesting to Mr. d'Esparbes because his termination date occurred on August 17, 2018, three days before such shares would have vested had he remained employed through such date, and in recognition of his efforts in effectuating a smooth transition for our executive overhaul. For more information regarding the separation agreements with our former named executive officers, please see the section titled "Potential Payments Upon Termination or Change in Control" beginning on page 15,35.

Tax Deductibility of Pay

        Section 162(m) of the Compensation Committee confers from timeInternal Revenue Code places a limit of $1,000,000 on the amount of compensation that we may deduct in any one year with respect to time witheach of its independentCEO and certain other executive compensation consultant, FW Cook. FW Cook is retained byofficers. Prior to enactment of the Tax Cuts and reports directlyJobs Act on December 22, 2017 (the "Tax Act"), there was an exception to the Compensation Committee and its role is to assist and advise the Compensation Committee on matters related to$1,000,000 limitation for performance-based compensation for executive officers, other key employees and non-employee directors. FW Cook does not work on projects for management except as an agent of the Compensation Committee and with the advance knowledge and approval of the Chairman of the Compensation Committee. The Compensation Committee has the sole authority to retain and dismiss its outside compensation consultants.

Peer Group

        In making compensation decisions, our Compensation Committee refers to comparative compensation data from a group of peer companies. The peer group utilized for compensation decisions in 2017 was established in July 2015. The peer group was focused on other biopharmaceutical companies that were of similar size, were primarily focused on commercial activities (as opposed to drug discovery activities), and relied on other organizations for direct product promotion and sales. The criteria utilized in selecting the peer group was focused on companies with a commercial drug, market capitalizations between 0.5 - 2.5 times our market capitalization at the time the peers were chosen (range of about $600 million to $5 billion in light of our $2.1 billion market capitalization at the time), limited or no internal sales force and an emphasis on companies without compounds in phase 3 of research and development. In selecting peer companies, market capitalization was emphasized since it directly affects equity compensation values and is the relevant metric in terms of stockholder value managed by the executive team on behalf of stockholders. Our market capitalization at the time the

peer group was selected was $2.1 billion compared to a peer group median of $2 billion. Our peer group established in July 2015 consists of the following companies:

        Our Compensation Committee typically revisits our peer group every two years. Accordingly, in October 2017, a revised peer group was established for use in evaluating 2018 compensation decisions. The goal of the review was to reduce the size range utilized for market capitalization while focusing on drug development companies with at least one commercial drug, a small employee population and no internal sales force. Our Compensation Committee believes that these criteria reflect our labor market as well as the key characteristics of our business. The peer group established in October 2017 had a market capitalization (at median, utilizing 2016 data points) of approximately $850 million compared to our market capitalization of roughly $1.3 billion at the time. This placed us at above the 75^th percentile in relative size for both revenue and market capitalization. The peer group consists of the following companies, which are mostly smaller companies but viewed by the Compensation Committee as a sample without size bias:

        When making compensation decisions, the Compensation Committee does not target a particular percentile of the peer group data. The actual 2017 compensationmeeting certain requirements. Historically some of our named executive officer compensation arrangements were intended to qualify for this exception. However, the Tax Act eliminated the Section 162(m) performance-based compensation exemption prospectively and expanded the group of employees covered by the $1,000,000 limitation, effective for taxable years beginning after December 31, 2017. Accordingly, we are not be able to structure 2018 compensation paid to certain executive officers varied, in some cases it was aboveexcess of $1,000,000 to qualify as performance-based compensation under Section 162(m) to preserve the mediantax deductibility of that compensation. Rather, beginning in 2018, compensation paid to certain executive officers in excess of $1,000,000 will generally not be deductible. However, to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, our peer group, and in other cases it was below the median. For Mr. Aguiar, our former CEO, his totalCompensation Committee has not adopted a policy requiring all compensation for 2017 as reported in the 2017 Summary Compensation Table was below the median of other CEOs in the Company's peer group.to be deductible.

Principal Elements of Compensation

Base Salaries

        Base salaries are set to reflect compensation commensurate with the individual's current position and work experience. Our goal in this regard is to attract and retain high caliber talent for the position and to provide a base wage that is not subject to performance risk. Salaryposition. The salaries for our named executive officers iswere established based on the underlying scope of their respective responsibilities, taking into account competitive market compensation. In making base salary decisionsresponsibilities. The initial compensation for Mr. Hulme was negotiated as part of his appointment as our interim Principal Executive Officer and was included in his offer letter. For 2018, Mr. Hulme recommended, and our Compensation Committee reviews market data, however that data provides only a reference point for the Compensation Committee.

        Our Compensation Committee reviews base salaries for our named executive officers annually, generally in the first quarter of each year. Historically, the CEO had proposed salary adjustments (in target percentages) to the Compensation Committee (other than for himself) based on any changes in

market salaries, individual performance and/or changes in job duties and responsibilities. The Compensation Committee would then determine any salary adjustment applicable to each of the named executive officers. For 2017, our former CEO recommended a merit increase of 3.5% for Messrs. d'Esparbes, Faerm, Abercrombie and Witek, which following discussion by the Compensation Committee were approved. Our Compensation Committee also approved, a 3.5% meritan increase in Mr. Aguiar'sMs. Zhen's base salary from $749,858$220,000 to $776,103.$275,000 in connection with her appointment to Chief Accounting Officer effective July 2018 and the increased responsibilities associated with her appointment.

Annual Cash Incentive Compensation

        Our namedMr. Hulme's target bonus percentage for 2018 was set at 60% upon his appointment as our interim Principal Executive Officer on May 21, 2018. In connection with her promotion to Chief Accounting Officer effective July 2018, Ms. Zhen's target bonus percentage was increased from 20% to 45%. Due to the changes resulting from our executive officers are eligible foroverhaul in 2018, the Compensation Committee determined that it would be necessary to maintain flexibility in paying 2018 bonuses and decided to retain the discretion to set the amount of 2018 bonuses actually paid to the remaining executives. On a go-forward basis, our Compensation Committee intends to tie annual cash incentives under a Company-wide bonus program. Annual cash incentives for our named executive officers are designedbonuses to reward the achievement of key corporate goals forclearly defined objectives that align the year, which we believe in turn should increase stockholder value over time. The annual cash incentive awards for our named executive officers are based on our achievement of specific performance goals over which we have direct control or significant influence and that are established at the beginning of the fiscal year.

        At the end of the year, our Compensation Committee reviews the Company's performance against the goals and determines the overall level of achievement, which determines the size of the Company's bonus pool for all employees. Shortly thereafter, the Compensation Committee determines individual bonus amounts for the named executive officers. In making both of these determinations, the Compensation Committee typically considers a briefing from the Company's former CEO on Company-wide performance against goals and the individual contributions of the named executive officers (other than himself) toward achievement of the goals.

        Eachincentives of our named executive officers has a target bonus stated in terms of a percentage ofemployees with the officer's base salary. No changes were made to the target bonus percentagesinterests of our named executive officers in 2017 and they remained at 75% for our former CEO and at 50% for each of our other named executive officers. In 2017, similar to recent years, each of our named executive officers was eligible to earn up to two times their target bonus percentage.

2017 Bonus Goals

        In the first quarter of 2017, our Compensation Committee established the goals applicable to our Company-wide bonus program for 2017. The table below sets forth our 2017 goals that applied to our bonus program for all employees, including our named executive officers, the determination of our Compensation Committee on whether or not each goal was achieved and, to the extent a goal was achieved, whether it was determined to be overachieved. These goals (other than with respect to one supplemental goal) did not include any sales targets for BREO® and ANORO®, our partnered respiratory programs, since we do not have direct control over sales and marketing activities. Specific weightings are not assigned to the goals, in order to provide our Compensation Committee with flexibility to determine each goal's relative weight and importance on the basis of actual results. The Compensation Committee focused on EBITDA from our partnered programs as the most important measure since it requires both revenue and management of controllable costs to create EBITDA. Additionally, in connection with the compensation changes discussed above for 2018, our Compensation Committee also determined that funding for our 2017 annual bonuses would not exceed actual EBITDA achievement versus the pre-established 2017 EBITDA goal.stockholders.

        In additionrecognition of Mr. Hulme's and Ms. Zhen's strong performance in 2018 and value added by them to the Company-wide goals set forth below, our Compensation Committee also established an individual goal for our former CEO, focused on successful investor relations.

        The majority of the goals listed above were achieved and in certain cases overachieved, which the Compensation Committee viewed as a significant accomplishment. Despite overachievement of the EBITDA goal and achievement of a majority of our goals for 2017, our Compensation Committee determined that the 2017 bonus pool wouldMr. Hulme and Ms. Zhen should be set atpaid 2018 bonuses equal to 100% of their target for all employees, includingbonus opportunity. Mr. Hulme's bonus was prorated based on the Company's named executive officers other than Messrs. Aguiar and Faerm.

        The bonuses for 2017 performance are shown in the table below and reflected in the Non-Equity Incentive Compensation columnnumber of the "Summary Compensation Table" on page 42:

Equity Incentive Compensation

        The types of equity compensation that may comprise the mix of officer compensation consist of: (i) stock options with time-based vesting, which require the market value of our Common Stock to increase before they are valuable; (ii) performance-contingent restricted stock units ("RSUs") and restricted stock awards ("RSAs"), the righteach of which may be subject to which is dependent upon successful completion of corporate performance goals; and (iii) RSUs time- and/or RSAs with time-based vesting. In 2017, we granted RSUs and RSAs to our named executive officers (with both time-based and performance-based vesting), which we believed were more appropriate than stock options for our 2017 business model as RSUs and RSAs can provide reduced dilution compared to stock options, RSUs and RSAs are designed to capture dividends paid to stockholders, and reward growth as well as value maintenance.vesting conditions. We do not use a targeted cash/equity split to set officer compensation.

        In order to align the officer's interests with those of our stockholders, a significant equity award is made to a named executive officer at the first regularly scheduled meeting of the Compensation Committee after the officer commences employment. These initial new hire awards are generally within a guideline range recommended by FW Cook, normally around 1.5 to 2.5 times theThe 2018 annual equity awards described below, and adjusted to reflect considerations individual to a specific candidate as well as arms-length negotiations as part of the hiring process.

        Annual equity awards are generally considered during the first quarter of each year, following annual performance reviews and based on recommendations to the Compensation Committee from the

CEO (other than with respect to himself). One-third of our named executive officers' 2017 target annual equity awards was subject to performance-based vesting and the remaining two-thirds was subject to time-based vesting, as further described below. Additional equity awards may be made in connection with an officer earning a promotion or taking on additional duties or for retention purposes in certain circumstances. Annual equity awards generally vest over a four-year period for time-based awards, while the performance period (and any accompanying time-based vesting component) varies for performance-based awards. The Company believes that the resulting overlapping vesting schedule from awards made in prior years, together with the number of shares subject to each award, helps ensure a meaningful incentive to remain in the Company's employ and to enhance stockholder value over time.

        Our annual equity grant guidelines are stated as a dollar amount, which we believe matches the approximate cost incurred by the Company and is most relevant for a company with our business model, market capitalization, and type of equity award being granted.

2017 Annual Equity Awards

        Annual equity awards were made in the first quarter of 2017 and were set at 110% of guideline, as a result of the Company's overachievement of its 2016 performance goals. The 2017 equity awards were made in the first quarter of 2017,2018, prior to the 20172018 vote of our stockholders on the compensation of our named executive officers. As with the 2016 annual equityThe 2018 awards the 2017 awardsfor Messrs. d'Esparbes, Abercrombie and Witek were designed with one-thirdtwo-thirds of the target award subject to performance-based vesting (the "Performance Awards") and the remaining two-thirdsone-third of the award with standard time-based vesting. AllSuch awards reflected an increase in the proportion of performance-based vesting compared to 2017, in which one-third of the annual awards were performance-based, in order to more closely align the officers' pay with the performance of the Company.

        Mr. Hulme did not receive an annual award for 2018 since his employment with the Company commenced after the Company had granted its 2018 awards. The offer letter we entered into with Mr. Hulme in connection with the commencement of his employment with us provides for the grant of a nonstatutory stock option to purchase a number of shares of the Company's Common Stock to be determined by our Board of Directors or Compensation Committee, subject to the approval of our namedBoard of Directors or our Compensation Committee. In satisfaction of this provision, the Compensation Committee approved the grant of 9,000 fully vested shares to Mr. Hulme on February 19, 2019. Although this grant was made in 2019 and therefore is not included in the Summary Compensation Table herein, the Compensation Committee made such grant in part as consideration for services performed in 2018 by Mr. Hulme.

        Ms. Zhen was not an executive officersofficer at the time of the 2018 awards, and her 2018 annual equity award was subject to standard time-based vesting only, consistent with the annual 2018 awards granted to other non-executives.

        Mr. Aguiar's employment was terminated prior to the date of the 2018 annual equity grants, and so he did not receive any annual equity awards for 2018.

        Messrs. Abercrombie and Witek each received their 2017his 2018 annual equity award (both the time-based and, if applicable, performance-based portions) in the form of RSAs, other thanwhereas Mr. Witek who received RSUs due to Canadian tax considerations.

        The following table shows forFor each of our named executive officers the annual equity award guideline, the total annual equity award at 110% of the guideline based on the 15-day average trading price ending three full trading days prior to the date the awards were granted (which was $10.9947), the portion of the 2017 annual equity award subject to time-based vestingMs. Zhen and the portion of the 2017

annual equity award subject to performance-based vesting (at target). The guideline grant values were generally near the median of our peer group, with our CEO set below the median.

        For all of our named executive officers other than Mr. Witek,Abercrombie, the time-based portion of the 20172018 annual equity award as originally granted was scheduled to vest over a period of four years (with the first 25% scheduled to vest on February 20, 20182019 and the remainder in equal quarterly installments over the next three years thereafter), subject to the named executive officer's continued service through each vesting date. Pursuant to the terms of the separation agreements entered into with Messrs. Aguiar and Faerm in connection with their termination of employment with us, we accelerated the vesting of 41,687 shares and 16,675 shares, respectively, that were subject to the time-based portion of their 2017 annual equity awards and were scheduled to vest on February 20, 2018. The remainder of such awards were forfeited upon their termination of employment with us.

Due to Canadian tax considerations, the time-based portion of Mr. Witek's 20172018 annual equity award vestswas scheduled to vest over a three-year period as follows: 25% on February 20, 2018,2019, 6.25% on each of May 20, 2018,2019, August 20, 2018,2019, November 20, 2018,2019, February 20, 2019,2020, May 20, 20192020 and

August 20, 2019,2020, and the remaining 37.5% vests on November 20, 2019,2020, provided Mr. Witek remains in continuous service through each vesting date.

        The 20172018 Performance Awards, arewhich were granted to Messrs. d'Esparbes, Abercrombie and Witek, were eligible to vest based on the relative performancecumulative growth in the total shareholder return ("TSR") of our common stock compared to the NASDAQ Biotechnology Index during the following twothree-year performance periods: January 1, 2017period from March 2, 2018 through December 31, 2018; and January 1, 2017 through December 31, 2019March 2, 2021 (or, in the case of Mr. Witek, through September 30, 2019)2020). After the end of eachthe performance period, the number of shares for which the performance-based vesting conditions have been satisfied will be calculated by multiplying the "payout percentage" by the target number of shares granted, rounded down to the nearest whole share.

        For the 20172018 Performance Awards, the payout percentage is calculated as follows:

        Messrs. d'Esparbes, Abercrombie and Witek forfeited their 2018 annual equity awards in their entirety in connection with their separation from the Company in 2018.

        In addition to the 2018 annual awards, the Company granted an award of less than a full percentage point1,779 RSAs to Ms. Zhen in September 2018 in connection with her promotion to Chief Accounting Officer in order to align her equity compensation level with her enhanced duties and forresponsibilities. Such award is subject to the corresponding payout percentage.

        To the extent the performance-based25% vesting conditions applicable to the 2017 Performance Awards are satisfied during the first performance period, two-thirds of the related shares will vest on February 20, 2019 and the remaining one-third of such shares will vest on February 20, 2020,remainder in equal quarterly installments over the next three years thereafter, subject to the named executive officer's continued service through the applicable vesting date. If the performance-based vesting conditions are satisfied during the second performance period, all of the related shares will vest on February 20, 2020, subject to the named executive officer's continued service through such date. Due to Canadian tax considerations, any RSUs granted to Mr. Witek for which the performance-based vesting conditions have been satisfied will vest no later than November 20, 2019, subject to Mr. Witek's continued service through such date.

        In the event we are acquired prior to the end of the second performance period, the performance period then in progress will terminate and the performance-based vesting conditions will be deemed vested as to the greater of (i) the target number of shares and (ii) the number of shares that would vest based on the TRSP as calculated on the closing date of such acquisition. The service-based conditions applicable to the 2017 Performance Awards will be deemed satisfied if the named executive officer remains inher continuous service through each vesting date.

Retention Bonus

        The Compensation Committee determined that Ms. Zhen would play an important role in the datecontinued operation of the acquisition. Any 2017 Performance Awards for which the performance metric is not satisfied as of the closing of the acquisition will be forfeited. See the section entitled "Potential Payments Upon Termination or Changebusiness and felt it necessary to grant a retention bonus to Ms. Zhen in Control" below for further details on the treatment of the 2017 Performance Awards in the event we are acquired.

        The 2017 Performance Awards also provide that in the event of the named executive officer's death or disability priororder to the end of the second performance period that the awards will vest at target, less any amounts previously vested, if applicable.

Post-Termination Protection

        We believe that the possibility of a change in control creates uncertainty for our officers regarding their continued employment by the Company because such transactions frequently result in senior management changes. We provide change in control protections to our officers to alleviate concerns regarding the possible occurrence of such a transaction, allowing them to focus their attention on the business of the Company. In addition, these protections encourage executivesincentivize her to remain with the Company duringthrough the threat or negotiation of a change in control transaction, which preserves the valuerestructuring of the Company and the potential benefit to be received by our stockholders in the transaction.

management team. The change in control severance benefitsterms of Ms. Zhen's retention agreement are structured under a Company plan, which was initially adopted in 2004, instead of using individual employment agreements. With this change in control severance plan, we sought uniformity of results among the officers based on their positions at the Company. For officers who were eligible to participate in the plan prior to December 16, 2009, Innoviva provides gross-ups for excise taxes potentially due in connection with a change in control. Mr. Aguiar was our only named executive officer who was eligible for this benefit.

        Prior to his termination, Mr. Aguiar was also eligible for severance benefits outside of the change in control context pursuant to theincorporated into her letter agreement we entered into with him at the time he became our Chief Executive Officer in 2014. Pursuant to such letter agreement, if Mr. Aguiar's service was terminated without cause and he was not eligible for severance benefits under our original change in control severance plan, he would receive a lump-sum severance payment of 24 months of his then-current salary plus two times his then-current target bonus. As our interim Principal Executive Officer, Mr. d'Esparbes is now eligible for similar severance benefits pursuant to a letter agreement entered into with him in February 2018. In the event his employment is terminated without cause, provided he executes a general release of claims, he will receive a lump-sum severance payment of 24 months of his then-current base salary plus his current target bonus, a pro-rata bonus for the year in which his termination occurs, and continuation of his health and welfare benefits for the shorter of 12 months, the expiration of his coverage under COBRA or the date when he obtains new employment offering comparable health insurance coverage.

        In 2009, our Board of Directors adopted a new change in control severance plan which applies to any officers hired, or non-officers promoted to officer level, after December 16, 2009 (the "2009 plan") that was essentially identical to the original change in control severance plan except that it does not provide for excise tax gross-ups. All of our named executive officers other than our former CEO participate in the 2009 plan. Since 2015, the 2009 plan also provides our named executive officers who are senior vice presidents with cash severance benefits in the event of a termination without cause. We believe this is consistent with practices within our peer groups and should help reduce the likelihood of employee disputes in the event of a termination of employment.

        Our severance and change-in-control arrangements generally do not affect the Compensation Committee's decisions regarding other elements of compensation. Those arrangements serve specific purposes that we believe are not related to the determination of an officer's current compensation. The specific terms of our severance and change in control arrangements are described in more detail in "Potential Payments Upon Termination or Change in Control" on page 48.below.

Perquisites

        The Company does not provide a non-qualified deferred compensation program or a supplemental executive retirement plan. Generally, the Company does not provide perquisites or other personal benefits to named executive officers, and during 20172018 we did not provide any perquisites to executive officers that were not provided to all employees other than the reimbursement of expenses incurred by

Mr. Witek in the preparation of his personal income taxes, (duewhich we provided due to his residency outside of the United States).States.

Former CEO CompensationNew Employment Arrangements

        As CEO,We entered into an offer letter with Mr. Aguiar's levelHulme in connection with his appointment as our interim Principal Executive Officer, which our Compensation Committee concluded was necessary to convince Mr. Hulme to accept the position and afford him reasonable protection in the event that his employment is terminated without "cause." The Compensation Committee determined that the compensation package offered to Mr. Hulme was reasonable given his role and the current needs of responsibilitythe Company. The terms of Mr. Hulme's offer letter are described in more detail below.

        Additionally, we entered into a letter agreement with Ms. Zhen in connection with her promotion to Chief Accounting Officer pursuant to which she was much greater than thosegranted a new equity award and provided with severance protection, each of which our Compensation Committee determined was necessary to retain the services of Ms. Zhen going forward. The terms of Ms. Zhen's agreement are described in more detail below.

Severance Arrangements

        We entered into separation agreements with each of our otherdeparting named executive officers, including Messrs. Aguiar, d'Esparbes, Abercrombie and therefore his compensation was higher than thatWitek, pursuant to which we paid severance in accordance with the terms of our other named executive officers. Notwithstanding this fact,their existing arrangements with the Company (each as described in more detail below) and, for Messrs. Aguiar and d'Esparbes, provided accelerated vesting of certain shares of restricted stock. Mr. Aguiar's total compensationseparation agreement provided for 2017, as reported in the 2017 Summary Compensation Table,accelerated vesting of 164,045 restricted shares of Common Stock, which was below the median of other CEOs in our peer group.

        Mr. Aguiar's compensation generally consisted of the same elements provided to ensure a smooth and amicable separation. In addition, Mr. d'Esparbes' separation agreement provided for the accelerated vesting of 16,501 restricted shares of Common Stock. We provided such accelerated vesting to Mr. d'Esparbes because his termination date occurred on August 17, 2018, three days before such shares would have vested had he remained employed through such date, and in recognition of his efforts in effectuating a smooth transition for our other named executive officers.overhaul. For 2017, Mr. Aguiar's merit salary increase was 3.5%, consistentmore information regarding the separation agreements with our other named executive officers. As with our otherformer named executive officers, Mr. Aguiar's 2017 annual equity award consisted of both time-based RSAs and performance-based RSAs and was set at 110% of guideline due toplease see the Company's overachievement of its 2016 goals.

        On February 6, 2018, Mr. Aguiar resigned as our CEO and member of our Board at the request of the Board. Mr. Aguiar's resignation was treated as a termination "without cause" under the letter agreement we entered into with him at the time he became our CEOsection titled "Potential Payments Upon Termination or Change in 2014. As a result, pursuant to the separation agreement that was entered into between the company and Mr. AguiarControl" beginning on February 6, 2018, in exchange for a mutual release of claims we paid Mr. Aguiar a lump sum equal to 24 months of his former base salary plus two times his target bonus (at the time of his termination). In addition, we agreed to (i) pay Mr. Aguiar $250,000 in lieu of his 2017 performance bonus and (ii) accelerate the vesting of an aggregate of 164,045 shares of our common stock underlying restricted stock awards previously awarded to him, and which would have vested on February 20, 2018, if he had remained with the company through such date.page 35.

Tax Deductibility of Pay

        Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that Innovivawe may deduct in any one year with respect to each of its CEO and certain other executive officers. Prior to changes in tax law taking effect in 2018,enactment of the Tax Cuts and Jobs Act on December 22, 2017 (the "Tax Act"), there was an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. Historically some of our named executive officer compensation arrangements were intended to qualify for this exception. However, the Tax Act eliminated the Section 162(m) performance-based compensation exemption prospectively and expanded the group of employees covered by the $1,000,000 limitation, effective for taxable years beginning after December 31, 2017. Accordingly, we are not be able to structure 2018 compensation paid to certain executive officers in excess of $1,000,000 to qualify as performance-based compensation under Section 162(m) to preserve the tax deductibility of that compensation. Rather, beginning in 2018, compensation paid to certain executive officers in excess of $1,000,000 will generally not be deductible. However, to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, theour Compensation Committee has not adopted a policy requiring all compensation to be deductible. Although deduction

Corporate Governance Policies

        We have the following corporate governance policies that complement our executive compensation program:

        Our Stock Ownership Guidelines that were adopted in February 2012 require each of some amounts paidour executive officers to own shares and share equivalents equal in value to a multiple of base salary, specifically six times salary for the CEO and two times salary for the other executive officers. Officers are required to be in compliance with these guidelines by the five year anniversary of the adoption of the guidelines, or, if later, by the five year anniversary of their commencement of service as compensationan executive officer. Thereafter, compliance will be measured annually. If, at the compliance measurement date, the executive officer does not meet the guideline, then until such officer is in compliance, he or she will be expected to hold 50% of the after-tax Innoviva shares acquired thereafter, whether by Innovivaoption exercise, vesting or settlement of equity awards, or an open-market purchase.

        Our Recoupment Policy, or clawback policy, permits the Company to certain executives may be limited by Section 162(m), that limitation has not resultedrecoup a portion of executive officers' cash bonuses in the current payment of increased federal income taxes by Innovivaevent the Company is required to prepare an accounting restatement due to its significant net operating loss carry forwards. The Compensation Committee may approve compensation or changesmaterial noncompliance with financial reporting requirements, to plans, programs or awardsthe extent that may cause the compensation or awards not to comply with Section 162(m) if it determinesbonus is earned based on financial metrics that such action is appropriate and in our best interests. The exemption from Section 162(m)'s deduction limitation for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our CEO and certain other executive officers in excessare the subject of $1,000,000 will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.the restatement.

COMPENSATION COMMITTEE REPORT(1)

        The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management and, based on such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

        Submitted by the following members of the Compensation Committee:

George Bickerstaff, III
Mark DiPaolo, Esq.
Jules Haimovitz
Sarah Schlesinger, M.D.

(1)

The material in this report is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filing of Innoviva under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

(2)

Dr. Kostas joined the Compensation Committee on January 4, 2018.

Summary Compensation Table

        The following table sets forth all of the compensation awarded to, earned by, or paid to our "principalnamed executive officer," our "principal financial officer," and our three other executive officers (our "named executive officers") for fiscal years 2018, 2017 2016 and 2015.2016.