Yet Another Value Podcast - Theravance's strategic review with Andy Summers $TBPH

Episode Date: March 29, 2026

In this episode of Yet Another Value Podcast, host Andrew Walker is joined by Andy Summers, CIO of Summers Value, to discuss Theravance (TBPH; disclosure: long). Both share their perspectives as shareholders while examining the company’s setup following a failed Phase 3 trial. They break down Theravance’s remaining asset, the COPD drug Yupelri, and its long-term royalty potential. The discussion covers the company’s balance sheet strength, cost reductions, and ongoing strategic review process. Andy outlines valuation assumptions, including U.S. royalties, China opportunity, and tax attributes, while also assessing potential buyers and deal dynamics. They also explore downside scenarios if a sale does not occur and why the situation presents an asymmetric risk-reward profile.___________________________________________________[00:00:00] Podcast introduction and sponsor mention[00:02:41] Overview of Theravance business model[00:05:02] Phase three failure stock decline[00:06:56] Activist involvement and ownership concentration[00:09:01] Strategic review process and acceleration[00:09:49] Breakdown of balance sheet and cash[00:12:49] Discussion on downside protection and sizing[00:14:11] Yupelri drug positioning and growth[00:15:59] Patent protection timeline through 2039[00:17:13] Valuation of royalty stream[00:18:08] Sum-of-parts valuation discussion[00:18:49] China opportunity and royalty upside[00:24:22] Strategic buyers and acquisition dynamics[00:28:22] Concerns about limited bidding competition[00:30:57] Potential alternative buyers and synergies[00:35:08] What market may be missing[00:35:57] Ireland tax asset potential value[00:38:03] Scenario if company not sold[00:41:30] Potential management change outcomes[00:43:22] Asymmetric risk reward summary[00:44:24] Timing expectations for potential dealLinks:Yet Another Value Blog - https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimerProduction and editing by The Podcast Consultant - https://thepodcastconsultant.com/

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We'd love to talk, business. 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 actually, it's the one that's kind of unique. This is a company, full disclosure. I have a 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 device always applies. Full disclaimer at the end of the podcast. But, 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 one 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 interviews between two bysiders who are talking about stocks they like. Sometimes you get a bear and a bear. Sometimes you a bull and a bull. Sometimes you get a bull and bear. Whatever it is. It is two bysiders 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 get 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 SaaS Pocalypt 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 CIA who said there is no chance in hell that we will get off of this product. So 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 try trotra.com. That's try, T-R-Y, Trata, T-R-A-T-A-T-A-T-A dot com and go check it up. All right, hello and welcome to the yet another value podcast. I'm your host, Andrew, Andrew, 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. I'm super excited to have you on because we're going to talk about one of my, you know, I'll give a full disclaimer at the start. I am long this stock. One of my favorite setups in the market right now. We'll get there in one second, but first a reminder, despite the fact 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 of that said, Andy, the stock we're going to talk about today is Theravance. The ticker there is TBPH. And I'll just toss it over to you. What is Theravans and why are they so interesting? Of course. I think I would also like to add a similar disclaimer that I also own the shares in my fund.

So take what I say with a grain of salt. But Theravance is in a nutshell, a single product pharmaceutical company. It's been around since it was spun off from its parent company back over a decade now. But Therivans sells a drug called Upelri, which is used for COPD. Over the last decade or so, the COPD market has evolved away from monotheapies into triple therapies. the drug that Theravans sells is a monotherapy. So it's a niche drug inside of a very large market. But they sell that with their partner, Vietris.

And Beatrice is in charge of most aspects of the drug, of the selling and marketing activities, although Theravans has carved out a small portion of the market. They're in charge of marketing the drug into the hospital setting. So they are in a long-term relationship with Beatrice. 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 is 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 to be on the market there shortly. So it is a drug that is sold outside of the United States as well. That's perfect. Look, and I'm ready for, as a shareholder, I'm ready for those sweet, sweet Chinese royalties to start ticking in. But maybe we should start here. If a listener who hasn't looked at this company listens to the first two minutes of this podcast, I know what they're going to do. They're going to pull up the stock chart and they're going to see this giant cliff that happened about three weeks ago, you know, it goes from, what was it, 20 to 13 or 14, and they're going to say, oh, my God, what happened? So why don't we talk about kind of the setup for how we got to today, and then we can circle back to you, Pellariette, after

we kind of talk about that setup? Yeah, so if you go back even further to when the company was spun out, you know, 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, many years. I would say it's a management team that is, you know, broadly speaking, overpaid and has been underwhelming with results. And so, you know, there hasn't been a lot to cheer for here. I have become a shareholder recently. I bought the stock the day the news broke on the phase three trial.

So what happened recently was the company had a drug in development. the only drug they were really developing that was in a pivotal phase three study for a niche indication. It was going to be a rare orphan drug, but it failed in its phase three trial. And so on the news of that failure, the stock declined by what was it 30, 35 percent that day and went from, as Andrews, the low 20s to 1325ish a share. So it was a head. It was a head. It was heavily sold on the bad news. It was also downgraded by several sell-side firms on that news. So just kind of a cleansing event, if you will, for the company on the negative phase three readout. That's perfect. And I do, before we address the value here, I think it is, you mentioned this is a trail of

tiers. Management is overpaid. I'm not going to disagree with you any there. But I do think there's one other piece of history that's worth mentioning. And that's kind of been 2022 when people can Google this, I renic plus there advance. Ironic gets involved and a lot happens there because I think the outcomes of that are really important to what's going on. So could we just talk about the activist history here real quickly?

Yeah, so 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 in R&D and spend too much money in SG&A, the financials never looked

great. They could not translate top line growth into bottom line profits. So to Andrew's point, there were two activists who got involved here, and they both have board seats today. And I think it's also worth noting that the shareholder base is extremely concentrated. So the top two shareholders own about a third of the company. And if you include the third largest shareholder, it approaches is almost 40% of the shares owned by those three parties. So very concentrated shareholder base. And I think we can talk more about this in a few minutes, but I think having those two shareholders in the boardroom

is what's really going to make this process that they're going through a success. Absolutely. You can agree, 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. and the issue is often, you know, you've got a company that's got $100 of cash and it's trading at $60. The issue, nobody doubts that that cash is there and that cash is valuable?

What everyone doubts is, hey, is management going to go light that cash on fire and how much are they going to light that cash on fire? And what I like here is, you know, the CEO, despite being quite overpaid at this point, he's accrued a lot of, he's accrued quite a bit of stock. So hopefully he's aligned. And even if he's not aligned with three or four major shareholders and two of them in the boardroom, I am hoping that. that he knows, hey, if I try to be not aligned, my feet are going to get held to the fire really quickly. So 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. So let me build off what you just said, this process. They announced the

drug failure and they say, hey, we have had a strategic review committee that's been going since the end of 2004, so about 15 months. And with our only kind of growth asset drug failed, we're accelerating that process. We're cutting a bunch of costs and we're going to accelerate the strategic review costs. I think both you and I are here for kind of strategic review. We see, hey, let's realize that asset value some of the parts. So let's talk about the strategic review, the sum of the parts, and all of that type of stuff. Sure. So I think for background, it's important that the listeners to this podcast, read the press release that was issued on the day that the phase three trial failed. This is a podcast. You're going to ask people to read instead of listen.

Sorry, I make it's a little bit of homework today. It's one of the more interesting press releases that I've seen recently. But essentially what it does is it lays out the fact that the face free trial failed, but also kind of the next steps, which in this case include a strategic review committee looking at options for the company going forward. And those options include selling the business. And so, you know, they included words in the press release like urgency. You know, they said that many times. And they're going to accelerate.

That was another word they used several times, accelerate the process. So as Andrew noted, the committee has been working now for some time. The first piece of action they took was they sold their remaining trilogy royalties last year. And then the next step that I expect them to take will be to sell the remaining what's left of the company, which is the UPelry royalty stream or economics on UPelry. I think that will be the next step. So, you know, just maybe to set the table for everyone, too, Andrew. The market cap here today is about $825 million, and I'm including all RSUs, all options,

so that's a fully baked share count of roughly 56 million shares. So about $825 million market cap. The company will end this March with roughly $400 million of cash. Now, there's another $100 million payment that's due to, their advance early in 2027. It's the final payment on Trilogy. It's a $100 million payment. And if you read the 10K, it's very clear in there that the bar is really low for them to earn that final $100 million payment. So Trilogy grew mid-teens last year. It's sold by GSK around the world. That's triple therapy for COPD. And so for them to,

earn that $100 million payment, they have to grow 2% in 2026. So it's almost inevitable that they receive the $100 million. So 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. And so if you take the 825 minus 500, the enterprise value here is $325 million. So I just wanted the listeners to understand the context. One of the reasons I like this idea so much is just 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 I like to, and we're going to talk some of the parts because once you do the cash and as you said, the Trilogy royalty, 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 like.

Like, when you have something that's undervalued with a lot of cash, you know, you start getting into, hey, I have to have a really big position to justify that risk reward, or to kind of move the needle on a risk reward basis, if that makes sense, right? Like, if you could just strip the cash out, you could have a 3% position here and you have a lot of upside. With all that cash, like, it's kind of like, well, if 60% of my purchase price is cash, should that 3% position actually be a 8 to 9% position in order to

to kind of 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. Let's talk. Okay. So you did a nice job. We've got the trilogy milestones coming.

We've got $400 million in cash. We can talk about how they've cut costs and everything to get there. But let's just dive into you, Pellree. Because this is the swing, right? This is the drug that they're co-promoting. They get 35% of the economics. They do a hospital.

they'll get some international. But it is the swing. They're partnered with Viatris on this. And I'll just ask you for how you think about the value here. And then I've got I've got some thoughts. Obviously, I've got some thoughts that I'd love to discuss with you. Sure. So, yeah, I think I said 30% earlier.

You were correct. It's 3565 with their advance receiving 35% of the economics in the U.S. So, yeah, as we discussed earlier, UPELRI is a growth asset, grew 12%. last year, that it looks to me like that should continue into 20, 27, or six and beyond. They're having a lot of success, actually, in the hospital setting where Theravance is responsible for the marketing activities.

Like I said, Upelry 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 the market has moved over time to triple therapy. And the triple therapy is a dry powder inhaler. So it takes a lot of pulmonary effort to activate the DPI. And one of the unique attributes of Theravans's drug

is it's in a nebulizer and it's just really easy for the patient to take a few breaths and deliver the medicine deep into the lungs. So it's a much more kind of patient-friendly therapy for those who have trouble with breathing. And so that's the role they play in the market. I'm laughing because Liquidio was and is a huge topic of, has been a huge topic of conversation on the podcast in the past.

And people are very familiar with the nail nebulizers from liquidity. So I disagree with that. Let's just, patent protection. Let's start there. How long, you know, this is a branded drug. Branded drugs eventually go generic and the economics of them basically go to zero. What's the patent protection here look like? Yeah, so it looks to me like they're going to have patent protection until 2039.

And the reason I say that is because there have been, I believe, eight generic filers so far, and seven of the eight have settled for launch dates in 2039. The remaining generic company, I believe it's mankind, has not settled yet. So there's a risk that I'm wrong about the 239 date. But I think at this point, it's pretty minimal, and it looks very likely that the drug will be protected until 2039. And then you're going to see a flood of generics come into the market at that point. So you've kind of got, we're in 2026, hopefully, and obviously there is some risk of mankind kind of winning that. But I think it's low when you've got seven or the eight settling.

Hopefully you've got about 13 years of pad protection here, and then kind of the drug goes to kind of zero overnight. It's never quite overnight, but it's pretty close to that when you're talking about 13 years. So what is this worth? You've got a brand of drug with a little bit over of a decade of patent protection, growing nicely, as you mentioned, kind of a niche drug growing nicely. How do you think about, before we talk about acquisitions and everything, just how do you think about the value of this drug? Yeah, I think the value of the U.S. business, the royalty stream until 2039, is roughly $525 million. And, you know, one of the key points in the press release that we talked about a few minutes ago that was issued on the day the phase three trial bill was that the company is going to cut the R&D spend here to zero. They are fully winding up their R&D activities.

And then they'll be cutting their SG&A head count in half. So their annual spending on OPEX is going to go from roughly $110 million to roughly $40 million to roughly $40 million, starting in the third. quarter of this year. So with that in mind, and then kind of knowing the trajectory that the drug is on, you can kind of run a pretty simple, straightforward DCF calculation, and I land at around $525 million. So $525 million. You mentioned earlier all in about 56 million shares outstanding. So we're talking about just shy of $10 per share, a little over $9 per share, a value from E. calorie. And then, you know, combine that with the about 500 million of cash after they get the trilogy miles cents that we talked about there, which again is about $9 per share. So put them

together. And I've got you at roughly $18 per share of value to TPPH. Stocks under 15. And obviously, that's not enormous upside. It is nice upside, but not an enormous upside. But the really nice thing is it's good upside with a lot of downside protection. And why don't we just talk timing? And then I'll come back in with some other questions. Well, maybe I can layer in a few other things, Andrew, if that's okay, before we I've got tons of questions. Absolutely, please. Okay.

So that is what I said. But I do think there's a couple of elements here that are also worth including in the valuation discussion. So first and foremost, we talked about this early when we started, but they are about to launch the drug in China. And I would say one of the things that U.S. investors, tend to struggle with is market opportunities in foreign countries. And what's interesting about China that I think could be a reason to add some value in the equation for China is, Vietris is marketing it there on their own.

So Theravans will only receive, not only, they 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. So, Beatrice is the eighth largest multinational pharmaceutical company in China. Remember, Vietris was a combination of Mylan and Pfizer's legacy pharmaceutical business. They combined to create Vietris. So they have a long history of operating in China.

So they have, you know, a pretty large selling and marketing organization there that will be in charge of, you know, this asset in China. But, you know, this will be the first. One-time Daily Lama product launched in China. They are going through pricing discussions right now. And so I'm just thinking about the average here. But the average drug that's launched in China relative to the U.S. on price is roughly 60% discount. It could be a little more, it could be a little less. But let's just say it's in line with the average, so 60%.

But, you know, Vietras has over 4,000 sales reps in China. It's a pretty substantial selling and marketing effort there. And I'd also say that for Vietris, China is one of the few markets that is growing for that company. And so it's a very important market for them. And I think that this launch will get a lot of focus. But 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 that. than 2x that in the United States. So that's created a pretty large market opportunity of over

100 million patients in China relative to, you know, 20 million patients in the U.S. And so I think that's important because, you know, this could be, you know, 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. And they have similar patent protection in China as they do in the U.S. So I just think that this could be a piece of the puzzle that's overlooked. And I do think it could add a couple hundred million dollars of value to the equation. No, 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 like kind of a cherry on top. I was putting basically no value in here. And I'll tell you why. It's because

the royalty is obviously going to be hugely valuable. But when I looked and I saw, hey, they got a $7.5 million milestone payment from Vitris for approval in China. I was kind of doing that math and said, well, you know, it's only worth $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. When I was just kind of looking at those, I was like, oh, well, you know, it seems to me like $100 million seems like a good number for them. and that's cumulative, they get 14%, that's 14 million plus two and a half, that's 16 million that's under a buck per share. But it sounds to me like I was being just much too conservative with the possibility here,

because if you're talking 100 million plus drug, I mean, it's going to be worth multiple bucks per share for a Theravans. Yeah, so again, I think U.S. investors can struggle with these kinds of market analyses in markets where they don't really understand the dynamics. This patient pop, this is one of the most prevalent chronic diseases in China today. I'll tell you, I remember I was in China. Last time I was in China was in 2012, and I spent a week in Shanghai and Beijing. And I'm sure other people who traveled there at the same time had a similar experience.

But after being there for a couple of days, Andrew, the back of my throat was raw. the pollution was so intense in those cities at that time. And think about it. There are a whole generation of Chinese people grew up in that environment of pollution. And again, that's another direct precursor to COPD is pollution, smoking, these respiratory conditions that can later in life lead to COPD. So there's a huge patient population in that country today. And again, let's be the first once Daily Lama product launched there by a sales and marketing organization that's well entrenched, that is well represented.

And I think we'll do an excellent job over there. I think that royalty stream has at least a couple hundred million dollars of value. Perfect, which is quite meaningful. So, look, I laid out some of the parts to 18. You even talked about how it goes higher. 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 incentives here, the board members, the linemen, a bunch of big shareholders who probably don't want to hold a new growth asset. I'd love to talk about you laid out $525 million of UPelry value excluding the China royalties, right?

Well, it does kind of take two to tango, the running strategic process. There's one really natural buyer here. How do you think that strategic process plays out and how do you think it kind of gets valued as, they look to sell this thing because I will come in with some commentary at the end, but I'd love to just toss that question over to you. Yeah, I think as you could appreciate, Andrew, pattern recognition is one of the most important tools in our toolbox. And if I apply pattern recognition to what we're looking at here with their events,

I think there's a very strong likelihood that Beatrice does acquire this asset. So some of the, my fund launched in 2018 and, A couple of the companies that we owned over the course of our history included two royalty companies similar to Theravans. Now, they didn't have any sort of commercial elements to their business model like Theravans does. They were just pure royalty streams, but I owned biospecifics, which received a royalty on a drug called Xiaflex, which was sold by Endo. And Endo ended up paying, I believe it was an 88% premium. to where the stock was trading in the public market at the time. And then I also owned a company called Emisphere,

which received a royalty on oral semi-glutide. If you've been paying attention to Novanortis, they're launching Oral Waygovi now in higher doses. They used to be called Ribelsus when it was first launched. They changed the name to Oral Waygovi. But the MSPier received a royalty on that drug of 2 or 3%. And that company was acquired by Noven Nord. So, and then I would say even more recently, this goes to February of this year.

So last month, Gilead acquired their partner. They had an oncology program with our CELICs, and they bought our CELICs for almost $8 billion. Again, it was like a 70% premium. And what they did was they essentially bought out the royalty stream. The drug's not launched yet, but they bought out the future royalty stream on that drug for almost $8 billion. So this is a transaction profile that I've seen many times over the course of my career. And so I think one of the hesitations that people have is, well, if there's only one bidder, why would the premium be, you know, attractive to shareholders?

And it's just not really what I've seen. I've seen these companies pay pretty fair prices for these assets. And the opportunity for Vietris is to consolidate the economics of this drug onto their own P&L. and Beatrice has not been a growth company really historically. So I think for them, this is one of their few growth assets. They can consolidate all the economics on their P&L. I think it's a very low-risk capital deployment opportunity for them. Beatrice just had their analyst day last week.

And at that analyst day, they talked a lot about business development. They talked a lot about capital deployment. They will generate north of $2 billion in pre-capital. flow this year. And so, you know, this would be probably a five or six hundred million dollar check for Vietris, but within the context of more than two billion dollars of free cash flow, it's something that they could easily take on. And I think they have all the motivation in the world to do it, just knowing the product profile better than anybody else. So I largely agree with you, but let me push back in one area. You mentioned and you clearly knew

where I was going with the pushback and incorporated. But you know, you've got this product. And Viatriceone's 65% of it. And I keep saying Bytrus, you're almost certainly correct that it's VHRS. I just read this and I'm very bad at pronunciation. But Viterosone's 65% of it. Their advantage is 35% of it. You know, the worry here is you go and you sell and you know, you want to run a fair

process and say, hey, anyone can come buy it. And every buyer who comes and looks at it says, and Viaturus runs this math their head, every buyer who comes and looks at it says, hey, 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 Inviatris. And if they submitted a bit underneath me, then they knew something I didn't. And I've got a real winner's curse to your issue, right? And I would point to, I would point to Sage Pharmaceutical, which I was very involved in last year. You know, they have a drug that they're partnered with. Supernis ends up buying them. And Supernus buys them for a song. I mean, they buy them

for like basically net cash, and now they've got this blockbusters or Zubei drug that's growing double digits year over year. And I still can't understand why Biogen didn't turn around and buy them. And, you know, the other, yeah, so I guess I would just worry like, I totally get what you're saying. But if I'm biotress, I say, hey, 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. So because of that, I can, you know, 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 crash. So how would you, oh, and then the last thing I would say is, I completely agree with you.

Like, in the market, the royalty companies that have royalty streams, the big blockbuster products, go for huge premiums when they sell. But often that's two things, right? Like here, Theravans has already announced the strategic alternative process. Our sellics had not announced the strategic alternative's process, right? So people were very surprised by the announcement. and in B, a lot of those, which Theravans already had, a lot of these companies that have big royalty streams, they 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 billion dollar product and they're just going to take all that cash and say, hey, let's buy some lottery tickets and let's go invest in R&D.

Their advance doesn't really have that risk associated with it right now because I think people think they're aligned. So those would be my two pushbacks and the things that, you know, as someone who owns it, personally keep me. keep me up at night a little bit about the stock. So I'll toss all that over to you. Yeah, I think those are all fair points. I guess a couple of things I would say is, one, 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. So I think that's more of a theoretical risk than anything else. But I do think, so if you think about the universe of buyers here, obviously Beatrice would be at the top of the list. It's the most natural buyer for this asset. Could one of the royalty pharma buyers step in here? I think they maybe could.

It's not right down the fairway for them because there is 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 a fairway? but they could also be in the bidding for this.

And then 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, and that's something we haven't talked about yet, but yes, Darabance is cutting expenses, but could a buyer cut them even further? Of course, there's corporate overhead

that can be cut day one, and that's not an insignificant number with this company, but there could be even more synergy opportunity if a company has a hospital-based sales force. So a company with that profile could also be in the bidding for something like this. So I don't think it's necessarily Beatrice 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 in, you know, more of the zone of what intrinsic value is here. Yeah, because my dream is kind of you run a process and, well, Beatrice pays full price, right? But your second dream is Vietraus comes in with a lot of swagger and thinks they can pay, you know, pay this for, buy this for a song. And then the bankers kind of 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 in Vieter?

Oh, my God, you know, like this is worth 525 plus. So here's 500. And one other thing, you mentioned royalty companies. You know, there's this little royalty company that's bought a lot of my net cash bios, Zoma royalty, the ticker there is XOMA. I don't know them super well, though. And when I read their conference calls and transcripts, and I'm kind of impressed by what they're doing. And it's not lost on me that in their most recent conference call, they said,

hey, if you review the 14D9 of a lot of these companies that are selling that have royalties, that have commercial assets, you'll see a small royalty companies in their bidding. that's us. We're ready to take the next step. And if we think we can buy commercial assets for an attractive price, so I think there are companies kind of stepping out there who might be interested in this. I'll pause there. Anything else you want to say on the kind of sale process and buyers and everything? Well, I think in the buyer universe, it would be one of the larger farmer-roar-roarity companies like healthcare royalty. I don't know that a Zoma or a Ligand and has the balance sheet to take on something like this.

But I do think the two big guys definitely could try. But, yeah, no, I think that there will be enough participation here that Beatrice will have to stay honest in their bidding. And look, 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 that 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. So I think 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. Let me ask, I love to ask every guest,

what are we seen, what are you seeing that the market's missing? And I will ask that here, because you do have a company where you can go back to the ironic press release when they were running activists two and a half years ago. They laid out there some of the parts. Now, two and a half years later, some of the parts have changed. A lot of it is kind of looks similar. And the company comes out with the press release that says, hey, we're cutting expenses. Here's what our cash flow is going to look like kind of in Q3 and going forward once we've cut all these expenses.

Here's our balance sheet. We're running a process. I mean, it's not a long leap for investors to do this math and figure out what the company's worth. So the market is a very competitive place, particularly when you've got something kind of this clear where the pluck is going. What do you think you, and I'll throw myself in there. I am seeing that the market is missing here. But I think the first piece is the China opportunity, which I just don't think U.S. investors probably handicapped correctly. Which I was not seeing for sure.

We'll see if I'm right or not. And then the second thing is there is another asset on the balance sheet. it's sort of an NOL. It's an Irish tax attribute, they call it. We would call it NOL in the West. But the Irish tax attribute is about $2.6 billion. And so the math there is you would take the $2.6 billion. You'd multiply it by the tax rate in Ireland, which is 12.5%.

And then, of course, you have to present value that to today. And then the greater piece is, can the company even use it? Do they have operations in Ireland? are they a pharma company that can use it the way that their advance good, those things are important. But I do think that there's, you know, in the case of Beatrice, they have a big operation in Ireland. Myland 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, you know, we haven't talked about yet. But I think that's another piece that's probably nebulous to invest. It's confusing. It's hard to understand. Can they use it? Can they not? If they can, what is it worth? So, you know, just knowing who the potential buyer could be that that's another source of value that might be hard for people to ascribe value to. And I just think, and I'm not trying to do that here. I don't know what the answer is. But if it's Vietris, I think that they definitely have the potential to use that NOL in Ireland in ways that other potential buyers might not be. So again, those things, I just think they 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. I have seen people, you know, I and I believe you, I don't want to put words in your mouth, think this is a clear sale candidate. You know, you've got an aligned board, hopefully, strategic process that's gone for, 18 months, it seems clear they were waiting on the results of the Cyprus trial before they kind of decided where it's to go. You mentioned a few months to resolution. I kind of think that's right when you've got an asset, this clean, everything. But I do want to ask, if they do not sell,

you know, we hit May or June and the company says, hey, we've decided the best course of plan is X, and X is not selling to a company for, you know, 18, 20, 16, whatever the number is. What happens here? Well, I think the stock probably goes down in the short term. I think that would be a negative news event for the market. I think there's 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. But what I would say is, you know, if you look at what the profile of the company is going forward,

they've said publicly now that they expect to generate between 60 and 60. 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 capax. They expect to generate 60 to 70 million of free cash flow going forward. So you'd have a $500 million kind of cash balance. You'd have 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. That also doesn't include the interest income they're going to earn on the $100 million trilogy payment that they're going to earn in early 27. So it would be. It would be a a growing cash flow stream over time. So I think the downside would 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 four or five years 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 that were to occur. I would not like to live in that world for sure, but I have, you know, people have brought up, there are, the person who's leading the strategic review committee has a background at Royalty Pharma and you could, if someone, if just for some reason, you know, my worry comes to

play and Viatris just does not play ball and says, hey, that 500 million plus Uppelry share you have, we're going to bid 200 million on it, right? And we're not coming up and no one else plays because everyone else says if Viatrice doesn't up, we don't want it. I could imagine world where they say, hey, we've got 500 million of cash, we have a hospital sales force, we've got growing upelry, 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 tax payer. So is that a world I want to live in?

No. But, you know, I don't think, I don't think it's going to be a nice. nice mark day one, but 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, you know, then the NLs do start taking into place. So if you've got any thoughts on that, or if I'm just talking myself into the answer to the downside isn't that bad. You can also tell me that. I think in that scenario, you'd probably see a regime change on the management team. I don't think the 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. And I don't know what that would look like. But yeah, look, I don't think that's a world that anybody, you know, would prefer. But at the same time, we have to prepare for that, right, as investors. It is in the range of outcomes. But I just think that given the, again, the balance sheet strength, the cash flow stream

that we're going to be looking at going forward, the downside would be relatively protected. This company has bought back a significant amount of its shares over time. And I think you might see like 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 that they would be deploying capital into reducing the share account in that scenario. I completely agree.

I could see you waking up to a pressurice that says, $250 million return of capital, whether that's through a tender, probably a tender, because I think with four shareholders owning almost 50%, I bet they'd be telling the company like, hey, we want to get some liquidity, though, you know, a dividend gets you to a liquidity as well. So maybe I'm crazy. But a $250 million return of capital, new management team, we're going after royalties to maximize use of this NOL, and we're just going to cash a little off you, Pellery going forward. I think that would probably be the downside. But I also think, given the everything we've talked about here. I think, and 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 Theravans situation that you think we should be talking about or that listeners should be thinking about or anything? Well, look, I think in closing, I would just say, I think that this is an asymmetric setup. I think your downside is relatively protected. I think in the upside case is probably, you know, north of 20, between 20 and 20. could be a fair range of value here. So we're talking maybe 40 to 50% upside,

I think limited downside. And I think the likelihood of something happening is very high for the reasons we discussed. And so I think for all those reasons, this is a position that I have in my fund. Ditto, ditto, ditto, ditto. Let me, I'll end with the, I'll put you on the spot. I believe the company is scheduled to report earnings May 7th.

or May 8th, I think it's clear. I mean, I'd be shocked if we didn't have results then. But if I said the over under for, if I said gave you the options up, they announced the deal before earnings happen, at earnings release or after earnings, which of those three options would you take? I would say 90% chances before. Okay, so even into April, you think it could be that fast? So I'm on two corporate boards. Andrew, and I know how heavily scrutinized these press releases are before they get sent out. And for them to craft that press release the way they did, I just believe that something is going to happen very soon.

It's funny. I mean, I'm on zero corporate board, so I'm just a guy sitting in a closet-sized office recording a podcast. But I kind of agree with you. I mean, all I do is read these press releases filings every day. When you say, hey, they've been working for 15 months and they're speeding up. I think it happens fast, but at the same time, earnings is, I mean, it's seven 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? And so that could certainly slow things down. It wouldn't be unusual for a management team to pause, given the uncertainty in the world. But I would say, you know, absent that happening, there's no reason why this should. shouldn't be announced before the earnings date? I hear you, but one of the things I, I mean, biotech trades with enormous, enormous volatility to the markets for some reason, even though it should be allegedly one of the most economically resistant, you know, insensitive sectors.

They did announce this deal on March 3rd, which we were not at war with Iran during them, but it just, when you've got a partnered product that is growing and has kind of, you know, about a decade of life left, it's pretty easy to. model, it would just be shocking to me with this board, with this company, it would just be shocking me if they pause it 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. So now I can follow all of yourself. I was actually kind of trolling it for some other

stocks you've been tweeting about and kind of looking around poking for value then. 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. And 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 an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.