On Monday, Zymeworks announced it will buy Theravance Biopharma for about $929 million, or $17 per share in cash. Investors in both companies reacted with skepticism. Theravance shares dropped 2.7% to $17.14 in premarket trading, and Zymeworks fell 5.6%. Here’s a look at what each company gains from the deal and why investors are not enthusiastic.
The $17 per share offer is 3.6% lower than Theravance’s closing price of $17.63 last Friday, but it is 22% higher than where the stock traded on March 3, before Theravance announced a late-stage trial failure for its drug ampreloxetine. After that setback, Theravance sped up its search for strategic options and cut its workforce by half. This acquisition brings that process to an end.
Theravance’s only commercial product is Yupelri, a treatment for chronic obstructive pulmonary disease. Yupelri brings in about $60 million a year through U.S. profit sharing and global royalties. Zymeworks says the deal will boost its earnings and cash flow right away, with Yupelri’s revenue being the main reason for the purchase.
Theravance shareholders will also get contingent value rights. These give them 80% of any net proceeds from future licensing, sale, or monetization of ampreloxetine over the next ten years. This means they could still benefit if the failed drug finds a use elsewhere.
The deal should close in the second half of the year. Investors do not seem convinced that Zymeworks is getting a good deal on a troubled asset. The 5.6% drop in Zymeworks’ stock suggests the market sees this as a risky use of capital, not a clear strategic win.
