Why Innoviva Inc. Stock Jumped Tuesday

What happened

Shares of biopharmaceutical company Innoviva (NASDAQ: INVA), which is primarily in the business of managing drug royalties it receives from major stakeholder and pharmaceutical company GlaxoSmithKline (NYSE: GSK), jumped as much as 11.2% on Tuesday.

The stock's gain follows an announcement that activist hedge fund Sarissa Capital has reached an agreement with Innoviva that will reconstitute its board of directors, including the addition of Jules Haimovitz and Sarah Schlesinger to its board. This is in addition to recently added Sarissa designees George Bickerstaff III and Odysseas Kostas to Innoviva's board.

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Image source: Getty Images.

So what

Haimovitz and Schlesinger served together on ARIAD Pharmaceuticals' board and "were instrumental in the turnaround efforts at ARIAD which culminated in the sale of the company for over $5 billion last year," Sarissa Capital said in a Tuesday press release.

Sarissa had previously "accused the company of spending too much money on executive pay and board compensation," Reuters said. Sarissa Capital has a history of "shaking up boards in the pharmaceutical industry," Reuters also noted.

Now what

With a replaced board, Sarissa "now plans to push for changes on how Innoviva spends money and consider moves such as share buybacks and dividend hikes," sources told Reuters.

In Innoviva's recently reported fourth quarter, net income attributable to shareholders was $58.4 million, up 129% year over year. In addition, it had just completed its capital return program, which included repurchasing $80 million worth of Innoviva common stock.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.