Theravance Biopharma (TBPH) ($700MM market cap) announced earlier this week their Phase 3 trial evaluating ampreloxetine for the treatment of a rare disease did not meet its primary endpoint and the company was winding down R&D efforts. The press release has a lot of good nuggets in it that'll be referencing. Back in November 2024, the company began a strategic review with the hiring of Lazard as their financial advisor. The review on the surface would appear to be stale, but it reads as if a decision tree is in place dependent on the results of the ampreloxetine clinical trial.
In connection with this announcement, the Strategic Review Committee of the Theravance Biopharma Board of Directors (the “Committee”) is accelerating its ongoing review of alternatives to maximize value for shareholders. Since its formation in 2024, the Committee has been working on an ongoing basis with Lazard, its independent financial advisor, to evaluate opportunities available to the Company, including under multiple potential outcomes for the CYPRESS study. Building upon this work, the Committee will act with urgency to evaluate a broad range of value maximizing and tax efficient alternatives, including but not limited to a sale of the company.
If the trial failure was already fully contemplated and the strategic process isn't starting from a standstill, things could move pretty quickly from here. In the press release, TBPH gives us all the components we need to come up with a back of envelope estimate of its fair value. Unlike other busted biotech, TBPH has a number of valuable assets, this isn't a typical melting ice cube, post restructuring, it will be cash generative.
Cash of $326.5 million at Q4 2025 (no debt); approximately $400 million expected at end of Q1 2026 including receipt of 2025 milestones; Theravance highly confident in achieving $100 million 2026 TRELEGY milestone
Trelegy is a blockbuster COPD and asthma treatment (partnered w/GSK) TBPH monetized by selling their interest to Royalty Pharma (RPRX) in 2022 for $1.1B in upfront cash plus some contingent milestone payments (they further monetized Trelegy last year by selling some farther dated royalty payments to GSK for $225MM, but that's in the cash balance number above). The remaining milestone payment TBPH is entitled to receive from Royalty Pharma is outlined in the 10-Q, which they describe as "highly confident in achieving":
With respect to 2026 TRELEGY global net sales, we are eligible to receive either (i) $50.0 million if Royalty Pharma receives $270.0 million or more in royalty payments from GSK, which we would expect to occur in the event TRELEGY global net sales are approximately $3.16 billion or (ii) $100.0 million if Royalty Pharma receives $305.0 million or more in royalty payments from GSK, which we would expect to occur in the event TRELEGY global net sales exceed approximately $3.51 billion. To achieve the higher $100.0 million milestone in 2026, TRELEGY global net sales would require less than a 2% increase over its 2024 global net sales.
Total 2024 TRELEGY global net sales represented a 26% increase compared to 2023, and TRELEGY is currently expected to generate global peak sales of approximately $4.0 billion in 2026 according to consensus estimates. TRELEGY global net sales for the three and nine months ended September 30, 2025 were $979 million and $2.92 billion, respectively, which represented 24% and 13% year-over-year growth, respectively.
In addition, TBPH also has a 35% interest in another FDA approved COPD treatment, Yupelri with partner Viatris (VTRS). It launched in 2019 and sales continue to grow, although at a slowing pace.
Together, the cost savings from the restructuring and continued sales from YUPELRI® are expected to result in the Company generating approximately $60 to $70 million of annualized cash flow, starting in Q3 2026. This cash flow projection is comprised of an estimated $45 to $55 million of Income from Operations (excluding non-cash share-based compensation) and projected Interest and Other Income, and does not include potential income from the $100 million TRELEGY milestone.
Following the decision to wind down the ampreloxetine program, the Company's sources of value include approximately $400 million of expected cash at the end of Q1 2026, a 35% interest in YUPELRI® that generates durable cash flow, and the potential TRELEGY milestone payment, as well as Irish tax attributes.
The Irish tax attributes are described as following in their 10-K:
As of December 31, 2024, the Company had Irish net operating loss carryforwards of $1.17 billion and capital loss carryforwards of $60.9 million, both of which can be carried forward indefinitely. The Company has additional Irish tax attributes of $1.19 billion which primarily consist of unused capital allowances. Net operating losses and capital allowances can be used to offset future income from Irish entities and income related to intellectual property.
I'm just going to assign no value to the tax attributes, but certainly to the right buyer they'd be worth something. The key variable is how much the Yupelri 35% stake is worth, it does have patent protection out to 2039 but that has faced some legal challenges. The obvious buyer would be VTRS, they could realize cost synergies, but for a finger in the air valuation, I'm going to toss an 8x multiple at the mid-point of their income from operations guidance which includes their corporate overhead costs. I think is reasonably conversative, but feel free to pushback if you disagree.
Disclosure: I own shares of TBPH
It's an interesting idea and I own a tiny starter position. That said, I'm a bit more pessimistic. Some thoughts:
ReplyDelete1. There's a ~$79m unrecognized tax benefit liability on the balance sheet. I think there is some hair here. The company is suspiciously quiet about this tax liability in both calls and filings. Probably has to do with the company being based in Ireland and doing some creative stuff with transfer pricing (?) Tax issues can take ages to get solved. I still own PDLI which has a significant cash reserve for some disputed taxes even though they delisted in 2020). A buyer of the whole company probably doesn't like this aspect and in case of a liquidation there could be a significant holdback. Some sort of haircut is probably justified.
2. The past 12 months Theravance received ~$73m from Viatris but they do have to maintain their own salesforce for the hospital copromotion. So it's not a clean 'royalty sale' for the Wall Street finance bros. On top of that TBPH only owns a minority stake and are desperate to wind down. The only logical buyer would be Viatris and they can probably play hardball in negotiations. I don't expect a top price to be paid.
And something I've been pondering: per the PR the company is aiming for a 60% cost reduction compared to $110m in 2025. So new costs would be $44m p.a. - the big question is what costs are attributable to the holdco and what costs are attributable to maintaining the sales force? My guess is the sales force probably costs $10m p.a.? Dunno, any thoughts would be appreciated. I think to get to a $400m valuation you'd have to be pretty aggressive regarding multiple paid for a minority stake, sales costs and the chance of Mankind entering the market in 2031.
On the other hand there's some value in the Yupelri China stake and some (very unlikely) milestone payments if Yupelri sales go through the roof.
Overall I'm a bit lower for Yupelri and include a liability for the tax situation. And with 3.7m RSU's outstanding I also use a higher share count. Overall that gets me closer to ~$14.50 / share. Happy to be proven wrong though!
Writser - good points all. I came out a little different.
ReplyDeleteIf you haircut the ~$79m unrecognized tax benefit liability, to be balanced about it, you should also give them some value for $2.6bn in Irish tax attributes. $2.3bn are Irish NOLs and $300m are US Federal NOLs. This asset should be worth something to someone.
The flip side of the hospital co-promotion is that hospital revenues tend to be more sticky even after a generic is introduced in the market. The long tail from 2031 to 2039 and beyond are worth more because these are hospital revenues. Also, Yupleri in China should drive a little increase.
Re: holdco costs and sales force costs, you should create a pro-forma cash flow statement adjusted for cost saves an acquiror could achieve. At the end of it all, any acquiror will be a financially incented animal discounting cash-flows.
~ $14.50 is a reasonably conservative floor without any optionality baked in. If that's your floor - and unlike many other biotech strategic alternatives, you're generating cash, not burning it, the risk/reward here skews to the upside. The alignment of the Board with shareholders and the experience on this board (the Independent Director is the ex-CFO of Royalty Pharma and a former banker) suggests potential for optionality even if they keep the Yupelri cash for themselves and dividend out $1.00/sh per year.