Theravance 的战略审查：与 Andy Summers 对谈 $TBPH

You're about to listen to the Yet Another Value Podcast with your host, me, Andrew Walker. Got a great one today, I think. I say that about all of them, but I actually it's one that's kind of unique. This is a company, full disclosure, I have a pretty pretty big position in. So, well, you can hear about why I have a position in why Andy Summers, the CIO of Summers Value, why he has a position in it. You can hear all that. You've got that disclosure out the way. The disclaimer that nothing on this podcast is investing advice always applies. Full disclaimer at the end of the podcast, but uh you know, I think it's a fascinating idea and I think it's particularly fascinating because the risk reward, the downside is very very well protected in my opinion, but you're going to hear all of that in the podcast. So, we'll get there in 1 second, but first, a word from our sponsors. This podcast is sponsored by Trada. Look, I've been meant You've heard me talking about Trada for months on this podcast. There's a reason. It is a really really good fit for you if you like this podcast. Trada is a interviews between two buysiders who are talking about stocks they like. Sometimes you get a bear and a bear, sometimes you get a bull and a bull, sometimes you get a bull and a bear. Whatever it is, it is two buysiders who are interested enough in a stock that they've done research and they want to go on and talk to someone else about the stock and you kind of be going to be a fly on the wall and listen and learn. I'll tell you what, I am recording this in the middle of February. It has been the SAS-pocalypse and Trada has been so so good. So many different companies are covered and you know, in real time you're seeing people talk about, "Hey, is the AI risk real here? Hey, I talked to a CIO of a company who, you know, they were looking into this and they don't need this anymore. Hey, I talked to a CIO who said there is no chance in hell that we will get off of this product. So, I I just think Trada, if you have not tried it, you should try it. The most frequent feedback I get from people who try it through this podcast, they come to me and say, "Hey, I really like it. I wish there was more of it. I wish there were more coverage. I love it." So, look, if you haven't tried it, you should go to trytrada.com. That's try t r y trada t r a t a dot com and go check it out. All right, hello and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have on another Andrew, Andy Summers from Summers Value. Andy, how's it going?

It's going well. Thanks for having me on the show today.

Uh I'm super excited to have you on because we're going to talk about one of my uh you know, I'll give a full disclaimer at the start. I am long the stock. One of my favorite setups in the market right now. We'll get there in 1 second, but first, a reminder, despite the fact that I'm long the stock, you know, everyone should remember do your own do your own research. Nothing on this podcast is investing advice. There's a full disclaimer at the end of the podcast and there's always a link to the disclaimer in the show notes. All that said, Andy, the stock we're going to talk about today is Theravance. The ticker there is TBPH. I'll toss it over to you: What is Theravance, and why are they so interesting?

Of course. I think I would also like to add a similar disclaimer: I also own the shares in my funds, so take what I say with a grain of salt.

Theravance is, in a nutshell, a single-product pharmaceutical company. It's been around since it was spun off from its parent company over a decade ago. Theravance sells a drug called Yupelri, which is used for COPD.

Over the last decade or so, the COPD market has evolved away from monotherapies into triple therapies. The drug that Theravance sells is a monotherapy, so it's a niche drug inside of a very large market.

They sell that with their partner, Viatris. Viatris is in charge of most aspects of the selling and marketing activities, although Theravance has carved out a small portion of the market: It's in charge of marketing the drug into the hospital setting.

They are in a long-term relationship with Viatris. They share the economics on the drug 70/30, and the drug has grown nicely over the years. I think it grew 12% last year, to roughly $260 million, so it is a growth drug.

It's approved in the U.S. and in other markets around the world. For example, it was just approved in China last year. It's going through pricing negotiations now, and it'll be on the market there shortly. It is a drug that's sold outside of the United States as well.

That's perfect. Look, as a shareholder, I'm ready for those sweet, sweet Chinese royalties to start kicking in, but maybe we should start here. If a listener who hasn't looked at this company listens to the first 2 minutes of this podcast, I know what they're going to do: They're going to pull up the stock chart and see this giant cliff that happened about 3 weeks ago. It goes from, what was it, $20 to $13 or $14, and they're going to say, "Oh, my God, what happened?"

Why don't we talk about the setup for how we got to today, and then we can circle back to Yupelri after we talk about that setup?

If you go back even further, to when the company was spun out, the long-term stock chart here looks like a trail of tears for shareholders. It's been a company that has destroyed value for many years.

I would say it's a management team that is, broadly speaking, overpaid and has been underwhelming with results. There hasn't been a lot to cheer for here.

I became a shareholder recently. I bought the stock the day the news broke on the Phase 3 trial.

What happened recently was that the company had a drug in development. It was the only drug they were really developing that was in a pivotal Phase 3 study for a niche indication. It was going to be a rare orphan drug, but it failed in its Phase 3 trial.

On the news of that failure, the stock declined by 30% to 35% that day. It went from, as Andrew said, the low $20s to $25-ish a share. It was heavily sold on the bad news and was also downgraded by several sell-side firms on that news.

It was a cleansing event, if you will, for the company following the negative Phase 3 readout.

That's perfect. Before we address the value here, I think it is—you mentioned this is a trail of tears, and management is overpaid. I'm not going to disagree with you there, but I do think there's one other piece of history that's worth mentioning. That's around 2022, when people can Google "Irenic plus Theravance." Irenic gets involved, and a lot happens there, because I think the outcomes of that are really important to what's going on.

Could we just talk about that activist history here real quickly?

Because of the challenges that the company has gone through over the years, it always looked like there was value here. But because they were continuing to spend money on R&D and spend too much money on SG&A, the financials never looked great. They could not translate top-line growth into bottom-line profits.

To Andrew's point, there were 2 activists who got involved here, and they both have board seats today.

I think it's also worth noting that the shareholder base is extremely concentrated. The top 2 shareholders own about a third of the company, and if you include the third-largest shareholder, it approaches almost 40% of the shares owned by those 3 parties.

It's a very concentrated shareholder base. I think we can talk more about this in a few minutes, but I think having those 2 shareholders in the boardroom is what's really going to make this process that they're going through a success.

Absolutely. You can agree or disagree with whatever you want, but if I just back up, people who listen to this podcast know I've spent a lot of time in busted biotech land. The issue is often that you've got a company with $100 of cash trading at $60.

Nobody doubts that the cash is there and that it's valuable. What everyone doubts is, "Is management going to go light that cash on fire, and how much are they going to light that cash on fire?"

What I like here is that the CEO, despite being quite overpaid at this point, has accrued quite a bit of stock, so hopefully he's aligned. Even if he's not aligned, with 3 or 4 major shareholders—and 2 of them in the boardroom—I'm hoping that he knows, "If I try to be not aligned, my feet are going to get held to the fire really quickly."

I'll pause there if you want to add anything to that.

No, I think that's spot on. That is the problem here, and I guess that also becomes the opportunity for this process to yield a positive outcome.

Perfect. Let me build off what you just said: this process. They announced the drug failure and said, "We've had a strategic review committee that's been going since the end of 2024, so about 15 months. With our only growth asset, the drug, having failed, we're accelerating that process. We're cutting a bunch of costs, and we're going to accelerate the strategic review process."

I think both you and I are here for a strategic review. We see, "Hey, let's realize that asset value—sum of the parts." So let's talk about the strategic review, the sum of the parts, and all of that type of stuff.

Sure. For background, I think it's important that listeners to this podcast read the press release that was issued on the day that the Phase 3 trial failed.

This is a podcast. You're going to ask people to read instead of listen?

Sorry, everybody gets a little bit of homework today.

It’s one of the more interesting press releases that I’ve seen recently. Essentially, what it does is lay out the fact that the Phase 3 trial failed, but also the next steps, which in this case include a strategic review committee looking at options for the company going forward. Those options include selling the business.

They included words in the press release such as “urgency.” They said that many times, and they’re going to accelerate—that was another word they used several times—the process. As Andrew noted, the committee has been working now for some time. The first piece of action they took was selling their remaining Trelegy royalties last year.

The next step that I expect them to take will be to sell what’s left of the company, which is the Yupelri royalty stream, or the economics on Yupelri. I think that’ll be the next step. To set the table for everyone, Andrew, the market cap here today is about $825 million. I’m including all RSUs and all options, so that’s a fully diluted share count of roughly 56 million shares.

The company will end this month, March, with roughly $400 million of cash. There’s another $100 million payment due to Theravance early in 2027. It’s the final payment on Trelegy. If you read the 10-K, it’s very clear in there that the bar is really low for them to earn that final $100 million payment.

Trelegy grew 15% last year. It’s sold by GSK around the world, and it’s triple therapy for COPD. For them to earn that $100 million payment, they have to grow 2% in 2026. It’s almost inevitable that they receive the $100 million.

I’m going to say, on a pro forma basis, the company will have $500 million of cash early in 2027. It’s almost a foregone conclusion. If you take the $825 million minus $500 million, the enterprise value here is $325 million. I just wanted the listeners to understand the context.

One of the reasons I like this idea so much is the asymmetry here and the fact that our downside is protected by this enormous cash balance on the balance sheet. I think that makes this idea even more attractive.

It’s one of the things that I like, too. We’re going to talk about the sum of the parts, because once you do the cash and, as you said, the Trelegy royalties, it’s like, “Hey, my downside’s really protected.”

It’s also one of the things I least like, because I’ve had this discussion on the podcast before, in this debate with people: when you have something that’s undervalued with a lot of cash, you start getting into, “Hey, I have to have a really big position to justify that risk-reward,” or to move the needle on a risk-reward basis, if that makes sense.

If you could just strip the cash out, you could have a 3% position here and have a lot of upside. With all that cash, it’s kind of like, “Well, if 60% of my purchase price is cash, should that 3% position actually be an 8% to 9% position in order to get the same economic exposure?” If that makes sense.

Yeah, I think that’s an important portfolio-management decision. It’s one of the things I hate.

Okay. You did a nice job. We’ve got the Trelegy milestones coming, we’ve got $400 million in cash, and we can talk about how they’ve cut costs and everything to get there. But let’s just dive into Yupelri, because this is the swing, right? This is the drug that they’re co-promoting. They get 35% of the economics. They do hospital, and they’ll get some international. But it is the swing.

They’re partnered with Viatris on this. I’ll ask you how you think about the value here, and then I’ve got some thoughts. Obviously, I’ve got some thoughts on that I’d love to discuss with you.

I think I said 30% earlier. You’re correct: it’s 35/65, with Theravance receiving 35% of the economics in the US.

As we discussed earlier, Yupelri is a growth asset. It grew 12% last year, and it looks to me like that should continue into 2026 and beyond. They’re having a lot of success in the hospital setting, where Theravance is responsible for the marketing activities.

Yupelri is a niche product inside of the COPD market. It’s the only once-daily nebulized LAMA therapy on the market, so it’s more for moderate and severe patients. What I referenced earlier is that the market has moved over time to triple therapy, and the triple therapy is a dry-powder inhaler. It takes a lot of pulmonary effort to activate the DPI.

One of the unique attributes of Theravance’s drug is that it’s in a nebulizer, and it’s really easy for the patient to take a few breaths and deliver the medicine deep into the lungs. It’s a much more patient-friendly therapy for those who have trouble breathing. That’s the role they play in the market.

I’m laughing because Liquidia was and is a huge topic of conversation on the podcast. It has been a huge topic of conversation in the past, and people are very familiar with inhaler nebulizers from Liquidia. I just wanted to agree with that.

Let’s talk about patent protection. How long? This is a branded drug. Branded drugs eventually go generic, and the economics of them basically go to zero. What does the patent protection here look like?

It looks to me like they’re going to have patent protection until 2039. The reason I say that is because there have been, I believe, 8 generic filers so far, and 7 of the 8 have settled for launch dates in 2039.

The remaining generic company, I believe, is Mankind, and it has not settled yet. There is a risk that I’m wrong about the 2039 date, but I think at this point it’s pretty minimal. It looks very likely that the drug will be protected until 2039. Then you’re going to see a flood of generics come into the market.

You’ve got—we’re in 2026, hopefully—and there is some risk of Mankind winning that. But I think it’s low when you’ve got 7 of the 8 settling. Hopefully, you’ve got about 13 years of patent protection here. Then the drug goes to zero overnight. It’s never quite overnight, but it’s pretty close to that when you’re talking about 13 years.

What is this worth? You’ve got a branded drug with a little over a decade of patent protection, growing nicely, as you mentioned—a niche drug growing nicely. Before we talk about acquisitions and everything, how do you think about the value of this drug?

I think the value of the US business, the royalty stream until 2039, is roughly $525 million. One of the key points in the press release we talked about a few minutes ago, which was issued on the day the phase 3 trial failed, was that the company is going to cut R&D spending to zero. They are fully winding up their R&D activities. Then they’ll be cutting their SG&A head count in half.

Their annual spending on OpEx is going to go from roughly $110 million to roughly $40 million starting in the third quarter of this year. With that in mind, and knowing the trajectory that the drug is on, you can run a straightforward DCF calculation. I landed around $525 million.

$525 million. You mentioned earlier that there are roughly 56 million shares outstanding, all in. We’re talking about just shy of $10 per share, a little over $9 per share, of value from Yupelri.

Combine that with the roughly $500 million of cash after they get the Trelegy milestones we talked about, which again is about $9 per share, and I’ve got you at roughly $18 per share of value to TBPH. The stock’s under $15. Obviously, that’s not enormous upside. It is nice upside, but not enormous upside.

The really nice thing here is that it’s good upside with a lot of downside protection. Why don’t we talk about timing? Then I’ll come back with some other questions.

Maybe I can layer in a few other things, Andrew, if that’s okay, before we move on.

I’ve got tons of questions. I’m ready. Absolutely, please.

Okay. That is what I said, but I do think there are a couple of elements here that are also worth including in the valuation discussion.

First and foremost, we talked about this earlier when we started, but they’re about to launch the drug in China. One of the things that US investors tend to struggle with is market opportunities in foreign countries.

What’s interesting about China, and what I think could be a reason to add some value to the equation for China, is that Viatris is marketing it there on its own. Theravance will receive a straight royalty rate in China, which is extremely valuable. They’re going to have no expenses in China. Their partner will pay for everything.

Viatris is the 8th-largest multinational pharmaceutical company in China. Remember, Viatris was a combination of Mylan and Pfizer’s legacy pharmaceutical business. They combined to create Viatris, so they have a long history of operating in China.

They have a pretty large selling and marketing organization there that will be in charge of this asset in China. This will be the first once-daily LAMA product launched in China.

They’re going through pricing discussions right now. I’m thinking about the average here, but the average drug launched in China is priced at roughly a 60% discount relative to the US. It could be a little more or a little less, but let’s say it’s in line with the average: 60%.

But Viatris has over 4,000 sales reps in China. It's a pretty substantial sales and marketing effort there. I would also say that, for Viatris, China is one of the few markets that is growing for the company. It's a very important market for them, and I think this launch will get a lot of focus. In China, if you think about it, one of the precursors to COPD is smoking, and the incidence of smoking in China is more than 2× that in the United States.

That's created a pretty large market opportunity of over 100 million patients in China, relative to 20 million patients in the United States. I think that's important because, if you look at other surrogates—other drugs that have launched in China—this could definitely be a multi-hundred-million-dollar drug over time. They have similar patent protection in China as they do in the United States. I think this could be a piece of the puzzle that's overlooked. I do think it could add a couple hundred million dollars of value to the equation.

I'm glad you pointed that out because, again, I've done a lot of work here, and I will just tell you, I had China as kind of a cherry on top. I was putting basically no value in here, and I'll tell you why. The royalty is obviously going to be hugely valuable, but when I looked and saw, “Hey, they got a $7.5 million milestone payment from Viatris for approval in China,” I was doing that math and said, “Well, if it's only worth a $7.5 million milestone up front, they get a couple more milestones like they've got—if cumulative China-region net sales are $100 million, they get $2.5 million.”

When I was looking at those, I thought, “Well, it seemed to me like $100 million seems like a good number for them, and that's cumulative. They get 14%, that's $14 million, plus $2.5 million. That's $16 million, which is under $1 per share.” It sounds to me like I was being much too conservative with the possibility here, because if you're talking about a $100 million-plus drug, it's going to be worth multiple dollars per share for Theravance.

Perfect, which he is quite meaningful. So, look, we I laid out a some of the parts to 18, you even talked about it how it goes higher. Let's talk about the Let's talk about the running the strategic process. Everyone knows this is code for sale and you can see that through, you know, the the incentives here, the board members, the the alignment, a bunch of big shareholders who probably don't want to hold a a no-growth asset. Uh, I'd love to talk about you laid out a 525 million, uh, you call revalue excluding the China royalties, right? Well, it it does kind of take two to tango, the running strategic process. There's one really natural buyer here. How do you think the strategic process plays out, and how do you think it gets valued as they look to sell this thing? I have some commentary at the end, but I'd love to toss that question over to you.

I think, as you can appreciate, Andrew, pattern recognition is one of the most important tools in our toolbox. If I apply pattern recognition to what we're looking at here with Theravance, I think there's a very strong likelihood that Viatris does acquire this asset.

My fund launched in 2018, and a couple of the companies we owned over the course of our history included 2 royalty companies similar to Theravance. They didn't have any commercial elements to their business models like Theravance does; they were just pure royalty streams.

I owned BioSpecifics, which received a royalty on a drug called XIAFLEX, which was sold by Endo. Endo ended up paying, I believe, an 88% premium to where the stock was trading in the public market at the time. I also owned a company called Emisphere, which received a royalty on oral semaglutide. If you've been paying attention to Novo Nordisk, they're launching oral Wegovy now in higher doses. It used to be called Rybelsus when it was first launched; they changed the name to oral Wegovy, but Emisphere received a royalty on that drug of 2% or 3%.

That company was acquired by Novo Nordisk. More recently—this goes to February of this year, so last month—Gilead acquired its partner. They had an oncology program with Arcellx, and they bought Arcellx for almost $8 billion. It was, again, like a 70% premium. What they did was essentially buy out the royalty stream. The drug has not launched yet, but they bought out the future royalty stream on that drug for almost $8 billion.

This is a transaction profile that I've seen many times over the course of my career. One of the hesitations that people have is, “Well, if there's only 1 bidder, why would the premium be attractive to shareholders?” That's just not really what I've seen. I've seen these companies pay pretty fair prices for these assets, and the opportunity for Viatris is to consolidate the economics of this drug onto its own P&L.

Viatris has not been a growth company historically, so I think this is one of its few growth assets. It can consolidate all the economics onto its P&L. I think it's a very low-risk capital deployment opportunity for them.

Viatris just had its analyst day last week. At that analyst day, it talked a lot about business development and capital deployment. It will generate north of $2 billion in free cash flow this year. This would probably be a $500 million or $600 million check for Viatris, but within the context of more than $2 billion of free cash flow, it's something the company could easily take on. I think it has all the motivation in the world to do it, just knowing the product profile better than anybody else.

I largely agree with you, but let me push back in 1 area. You mentioned—and you clearly knew where I was going with the pushback and incorporated it—but you've got this product, and Viatris owns 65% of it; Theravance owns 35% of it. I keep saying Viatris. You're almost certainly correct that it's Viatris. I just read this, and I'm very bad at pronunciation. But Viatris owns 65% of it, Theravance owns 35% of it.

The worry here is that you go and sell it, and you want to run a fair process and say, “Hey, anyone can come buy it.” Every buyer who comes and looks at it says—and Viatris runs this math in its head—“What if I submit the high bid? If I submit the high bid, I'm going to be very sad because there's a very natural buyer over at Viatris. If they submitted a bid underneath me, then they knew something I didn't, and I've got a real winner's-curse issue here.”

I would point to Sage Pharmaceutical, which I was very involved with last year. They have a drug that they're partnered on with Biogen, and Supernus ends up buying them. Supernus buys them for a song—basically net cash—and now it has this blockbuster Zerzuvae drug that's growing double digits year over year. I still can't understand why Biogen didn't turn around and buy them.

I guess I would just worry: I totally get what you're saying, but if I'm Viatris, I say, “No bidder is going to want to come in and put in a full price for this because they're going to wonder what I know that they don't. Because of that, I can bid kind of low, and no one else is even going to compete with me until you get to the real bottom-feeders who are just going to say, ‘I bid this for cash.’”

The last thing I would say is I completely agree with you: in the market, royalty companies that have royalty streams from big blockbuster products go for huge premiums when they sell. But often that's because of 2 things, right? Here, Theravance has already announced the strategic alternatives process. Arcellx had not announced the strategic alternatives process, so people were very surprised by the announcement.

And then, B, a lot of these companies that have big royalty streams get applied huge corporate governance discounts because people are worried about what I said when we were leading into this: “Oh my God, they’ve got literally a royalty on a $1 billion product, and they’re just going to take all that cash and say, ‘Hey, let’s buy some lottery tickets and go invest in R&D.’” Theravance doesn’t really have that risk associated with it right now because I think people think they’re aligned.

So, those would be my 2 pushbacks and the things that, as someone who owns it, personally keep me up at night a little bit about the stock. I’ll toss all that over to you.

Yeah, I think those are all fair points. I think there are a couple of things I would say. First, when you’re in a bidding process, you don’t know where the other bidders are, right? So, you don’t know if you’re overbidding or underbidding, and you won’t even know that in hindsight. I think that’s more of a theoretical risk than anything else.

If you think about the universe of buyers here, obviously Viatris would be at the top of the list. It’s the most natural buyer for this asset. Could one of the royalty or pharma buyers step in here? I think they maybe could. It’s not right down the fairway for them because there’s an operational component with the hospital sales force in the U.S., but it’s a relatively small sales force, and I don’t think it’s a very complex organization to manage.

So, could they do it? Yes. Is it in the fairway? No. But they could also be in the bidding for this. If you’re another drug company that has a hospital sales force, you could obviously layer this in very easily and cut a lot of expenses potentially in the process. That’s something we haven’t talked about yet.

Yes, Theravance is cutting expenses, but could a buyer cut them even further? Of course. There’s corporate overhead that can be cut on day 1, and that’s not an insignificant number with this company. There could be even more synergy opportunity if a company has a hospital-based sales force. A company with that profile could also be in the bidding for something like this.

I don’t think it’s necessarily Viatris or bust in this situation. I think there could be other parties around the hoop who could keep them honest and force a sale price that is more in the zone of what intrinsic value is here.

Yeah, because my dream is that you run a process and Viatris pays full price, right? But your second dream is that Viatris comes in with a lot of swagger and thinks they can buy this for a song. Then the bankers go to them at the end and say, “Hey, you guys are not the high bidder. Do you want to give us your best and final before we go and sell this to a suboptimal bidder?” And Viatris says, “Oh my God, this is worth $525 million-plus to us. Here’s $500 million.”

One other thing: You mentioned royalty companies. There’s this little royalty company that’s bought a lot of my net-cash biotechs, XOMA Royalty. The ticker there is XOMA. I don’t know them super well, though I’ve read their conference calls and transcripts, and I’m kind of impressed by what they’re doing.

It’s not lost on me that in their most recent conference call, they said, “Hey, if you review the 14D-9s of a lot of these companies that are selling, that have royalties and commercial assets, you’ll see a small royalty company in their bidding. That’s us. We’re ready to take the next step if we think we can buy commercial assets for an attractive price.” So, I think there are some companies stepping out there who might be interested in this. I’ll pause there. Anything else you want to say on the sale process and buyers?

Well, I think in the buyer universe, it would be one of the larger pharma companies, like Royalty Pharma or HealthCare Royalty. I don’t know that XOMA or Lagan has the balance sheet to take on something like this, but I do think the 2 big guys definitely could try.

I think there will be enough participation here that Viatris will have to stay honest in its bidding. I’ll go back to what I said before: In the press release that they put out, they said they have urgency. They said they’ve accelerated the process multiple times.

Let’s say I’m wrong. Let’s say we only get a 25% premium, but it happens in the next couple of months. I think on a time-weighted basis, we could both live with that outcome. If I’m wrong and the price is lower, but the duration is pretty short, I think we’re all going to end up in a pretty good place.

I love to ask every guest: What are you seeing that the market’s missing? I’ll ask that here because you do have a company where you can go back to the Irenic press release, when they were running an activist campaign 2½ years ago. They laid out their sum of the parts. Now, 2½ years later, some of the parts have changed, but a lot of it looks similar.

The company comes out with a press release that says, “Hey, we’re cutting expenses. Here’s what our cash flow is going to look like in Q3 and going forward once we’ve cut all these expenses. Here’s our balance sheet. We’re running a process.” It’s not a long leap for investors to do this math and figure out what the company’s worth.

The market is a very competitive place, particularly when you’ve got something this clear, where you can see where the puck is going. What do you think you—and I’ll throw myself in there—are seeing that the market is missing here?

I think the first piece is the China opportunity, which I just don’t think U.S. investors probably handicap correctly.

That’s something I was not seeing for sure. We’ll see if I’m right or not.

The second thing is that there’s another asset on the balance sheet. It’s sort of an NOL. It’s an Irish tax attribute, as they call it. We would call it an NOL in the U.S. The Irish tax attribute is about $2.6 billion.

The math there is that you would take the $2.6 billion, multiply it by the tax rate in Ireland, which is 12.5%, and then, of course, you have to present-value that to today. The greater question is whether the company can even use it. Do they have operations in Ireland? Are they a pharma company that can use it the way Theravance could? Those things are important.

In the case of Viatris, they have a big operation in Ireland. Mylan was an Irish company, if I remember correctly. So, they could be in a position to use those Irish tax attributes, and those could represent another $100 million-plus of value that we haven’t talked about yet.

I think that’s another piece that’s probably nebulous to investors. It’s confusing and hard to understand. Can they use it? Can they not? If they can, what’s it worth? Just knowing who the potential buyer could be, that’s another source of value that might be hard for people to ascribe value to.

I’m not trying to do that here. I don’t know what the answer is. But if it’s Viatris, I think they definitely have the potential to use that NOL in Ireland in ways that other potential buyers might not. Again, I just think those things might be difficult for people to wrap their minds around.

It’s not as straightforward as just running a simple DCF on a cash-flow stream between now and 2039. I think anybody can do that with some pretty simple assumptions. So, I think those are the things that might be misunderstood here.

That’s great. I have seen people—and I believe you; I don’t want to put words in your mouth—think this is a clear sale candidate. You’ve got an aligned board, hopefully, and a strategic process that’s gone on for 18 months. It seems clear they were waiting on the results of the Cybers trial before they decided where to go. You mentioned a few months to resolution, and I kind of think that’s right when you’ve got an asset this clean.

But I do want to ask: If they do not sell, and we hit May or June and the company says, “Hey, we’ve decided the best course of action is X,” and X is not selling to a company for $18, $20, $16—whatever the number is—what happens here?

I think the stock probably goes down in the short term. I think that would be a negative news event for the market. There are a lot of event-driven investors who are probably buying the stock here, or who have bought the stock already, who would be moving on at that point.

What I would say is, if you look at the profile of the company going forward, they’ve said publicly now that they expect to generate between $60 million and $70 million of free cash flow—I guess operating cash flow, which would be free cash flow in this case. They don’t have any capex. They expect to generate $60 million to $70 million of free cash flow going forward.

You’d have a $500 million cash balance and a really attractive and growing cash-flow stream over time. Of course, that doesn’t include China yet. That’s going to kick in later this year. It also doesn’t include the interest income they’re going to earn on the $100 million Trelegy payment that they’re going to receive in early 2027.

So, it would be growing cash over time. I think the downside will be relatively limited.

If you think about it this way, with an $825 million market cap and a $500 million EV, you would earn back the entire market cap in 4 or 5 years; it would be in cash if they didn't do anything with it. So I think you're relatively protected, even though the stock would probably go down in the short term. I don't think it goes down a lot, but that would be a negative event if it were to occur.

I would not like to live in that world, for sure, but people have brought up that the person who's leading the strategic review committee has a background at Royalty Pharma. You could imagine a scenario where, if for some reason my worry comes to pass and biotech just does not play ball and says, “Hey, that $500 million-plus you probably have, we're going to bid $200 million on it,” no one else plays because everyone else says, “If biotech doesn't want it, we don't want it.”

I could imagine a world where they say, “Hey, we've got $500 million of cash. We have a hospital sales force. We've got growing Yupelri. We are going to become a royalty play. And the nice thing is, we can help monetize things through our hospital sales force if we need to. And we've got the $2.6 billion of NOLs that you mentioned, where if we buy and structure the IP creatively, we're not going to be a taxpayer.”

Is that a world I want to live in? No. But I don't think it's going to be a nice mark on day 1. On day 181, I don't think there's that much downside from the current share price. In fact, I still think we could realize the full value, and then the NOLs do start taking their place. So if you have any thoughts on that, or if I'm just talking myself into thinking the downside isn't that bad, Andrew, you can tell me that, too.

I think in that scenario you'd probably see a regime change on the management team as well. I don't think CEO Rick Winningham would be long in the tooth for this business. He would not be the right guy for that.

Absolutely. Exactly. So I think you would see some change in management alongside that. I don't know what that would look like, but I don't think that's a world that anybody would prefer. At the same time, we have to prepare for that, right? As investors, it is in the range of outcomes.

I just think that, given the balance sheet strength and the cash flow stream that we're going to be looking at going forward, the downside would be relatively protected. You know, this company has bought back a significant amount of its shares over time. I think you might see a big tender at that point for shares, or something very material happening on the buyback front in that scenario as well.

So I don't think they would be sitting on their hands. I think they would be deploying capital into reducing the share count in that scenario.

I completely agree. I could see you waking up to a press release that says, “A $250 million return of capital.” Whether that's through a tender—probably a tender, because I think with 4 shareholders owning almost 50%, I bet they'd be telling the company, “Hey, we want to get some liquidity.” Though a dividend gets you liquidity as well, so maybe I'm crazy.

A $250 million return of capital, a new management team, going after royalties to maximize use of the NOLs, and just cash flowing off Yupelri going forward—I think that would probably be the downside. But given everything we've talked about here, I hope we're not waking up to that scenario.

Andy, we've covered most of the stuff I wanted to talk about, I think. Is there anything else on the Theravance situation that you think we should be talking about, or that listeners should be thinking about?

Well, look, I think in closing I would just say that this is an asymmetric setup. I think your downside is relatively protected. I think the upside case is probably north of $20; between $20 and $22 could be a fair range of value here. So we're talking maybe 40% to 50% upside, with limited downside.

I think the likelihood of something happening is very high for the reasons we discussed. So I think, for all those reasons, this is a position that I have in my fund.

Ditto, ditto, ditto, ditto. Let me end by putting you on the spot. I believe the company is scheduled to report earnings on May 7 or May 8. I think it's clear—I’d be shocked if we didn't have results then.

But if I set the over-under and gave you the options of announcing a deal before earnings, at the earnings release, or after earnings, which of those 3 options would you take?

I would say there's a 90% chance that it's before.

Okay, so even into April, you think it could be that fast?

It's funny. I'm on 2 corporate boards, Andrew, and I know how heavily scrutinized these press releases are before they get sent out. For them to craft that press release the way they did, I just believe that something is going to happen soon—very soon.

I'm on 0 corporate boards, so I'm just a guy sitting in a closet-size office recording a podcast, but I kind of agree with you. All I do is read these press release filings every day. When you say, “Hey, they've been working for 15 months and they're speeding up,” I think it happens fast.

At the same time, earnings is 7 weeks away at this point, right? So saying something happens before then is really damn fast, but I think I agree with you.

Well, look, we live in a world where there's a lot of geopolitical chaos, right? That could certainly slow things down. It wouldn't be unusual for a management team to pause given the uncertainty in the world.

But absent that happening, there's no reason why this shouldn't be announced before the earnings date.

I hear you, but one of the things—I mean, biotech trades with enormous volatility relative to the markets for some reason, even though it should allegedly be one of the most economically resistant, economically insensitive sectors. They did announce this deal on March 3, when we were not at war with Iran.

But when you've got a partnered product that is growing and has about a decade of life left, it's pretty easy to model. It would just be shocking to me, with this board and this company, if they paused for any reason. It just doesn't seem like anything should be changing here.

I agree, but we live in a chaotic world, so who knows?

Well, Andy Summers, look, I'm going to include a link to Andy's Twitter account, which I just found. Now I can follow all of your stuff. I was actually trolling it for some other stocks you'd been tweeting about and looking around, poking for value there.

This has been great. The next time you find a big royalty company that you're interested in, you're going to have to, at minimum, send me a message and let me know, because I love these things, too. At maximum, we'll have you back on to talk about this or something else.

But Andy Summers—link to his Twitter in the profile, and we'll go from there.

Thanks, Andrew.

A quick disclaimer: Nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.