Zymeworks Inc. (TBPH) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to Zymeworks conference call and webcast to discuss the acquisition of Theravance Biopharma. [Operator Instructions] The conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Shrinal Inamdar, Vice President of Investor Relations. Shrinal please go ahead. .

Thank you, operator. Good afternoon, everyone, and thank you for joining. During today's call, Ken Galbraith, our Chair and CEO, will provide an overview of the strategic rationale to repoint position of Theravance Biopharma by Zymeworks. As announced by our press release this morning. Scott Platshon, our Chief Business Officer, will then provide a deeper understanding of Theravance business and the value of its underlying assets and cash flows. Lastly, Kristin Stafford, our Chief Financial Officer, will provide the overview of the key terms of the noncore nonrecourse financing with owned Life Sciences, and then we'll open up the floor for Q&A at the end. As usual, I'd like to remind you that this call will contain forward-looking statements, including without limitation, those forward-looking statements identified in our sites and the accompanying oral commentary. Forward-looking statements are based on our current expectations and various assumptions and are subject to risks and uncertainties, including those associated with companies in our industry and at our stage of development. For a discussion of these risks and uncertainties, we request you to see our latest SEC filings and on our website and as filed with the SEC. I'll now hand over to Ken.

Thank you, Shrinal, and good morning or good afternoon to everyone. We're thrilled to announce our proposed acquisition of Theravance Biopharma this morning. The first concrete execution of the strategy we committed to in November 2025. We believe this transaction validates our unique business model, which combines the synergy of our operational infrastructure with a diversified portfolio of cash flows and partners. The addition of Theravance meaningfully expands our portfolio of medicines that deliver in value to patients and shareholders. YUPELRI is a highly attractive asset that aligns well with our strategy of acquiring durable cash-generative health care assets that deliver meaningful benefits to patients. The only once-daily nebulized LAMA approved for COPD maintenance in the United States, serving a distinct patient population with a differentiated clinical profile. Combined with Orange Book listed patent protection extending to October 2039. YUPELRI offers the long-duration cash flow characteristics that we look for when deploying capital. The acquisition price of $17 per share represents a total transaction value of approximately $929 million expected to close in the second half of 2026. . Zymeworks would expect to use approximately $219 million of cash from the balance sheet to acquire Theravance, of which $100 million is expected to be recouped in the first quarter of 2027 based upon projected near-term milestone payments. An important aspect of this transaction is how we finance it. A significant portion of the consideration is funded through nonrecourse financing secured solely by the acquired Gampel REIT royalty cash flows rather than Zymeworks' balance sheet. Combined with the acquired cash and expected milestone receipts, this structure substantially reduces the amount of our own corporate capital required to complete the transaction, enabling us to pursue a larger multicomponent acquisition while preserving financial flexibility for future capital allocation. We've secured a $350 million nonrecourse financing from Owners Life Sciences with repayments solely from YUPELRI's own cash flows. This note is no recourse to any of Zymeworks' cash or existing assets or cash flows. This enables us to complete the acquisition without issuing equity and without encumbering our broader asset base. Due to the profit share nature of YUPELRI's collaboration with Viatris and the co-promotion rights, these are exactly the kinds of long-duration cash flows that are typically not accessible by traditional royalty players. Zymeworks net investment in the acquired business enables us to gain access to an asset expecting to be generating around $60 million in annualized cash flows at current run rates with potential for continued growth. The durability and predictability of the YUPELRI cash flows allowed us to finance 75% of the business value with owners in the form of the nonrecourse note and an attractive cost of capital. This net investment in the business from Zymeworks utilizes approximately 50% of the proceeds from our Royalty Pharma note borrowed earlier this year, with the remaining 50% allocated to fund the current stock repurchase program. Importantly, the collaboration structure and economic split from YUPELRI provide meaningful participation in the future success of the asset. While the commercial infrastructure and day-to-day execution remain largely in the hands of an experienced operating partner, Viatris. This allows us to benefit from continued commercial performance while maintaining our disciplined operating model. While YUPELRI is the cornerstone of the transaction, it's not the only source of potential value expected to be realized by Zymeworks. The proposed acquisition also brings a potential near-term $100 million milestone payment from Royalty Pharma for 2026 TRELEGY ELLIPTA net sales expected to be received in the first quarter of 2027. 20% royalties above a threshold of up to 100 million cumulative on the data, an important injectable antibiotic. Approximately $2.5 billion of iris tax attributes and a pipeline of early-stage I&I assets that can be evaluated through future possible development spin-offs, licenses and partnerships. The multiple avenues for value creation provide potential upside opportunities for Zymeworks shareholders and are another reason this transaction is not accessible to traditional royalty buyers. This transaction combines a differentiated commercial asset, attractive financing, additional embedded value streams and strategic assets that provide the opportunity to contribute to long-term shareholder returns. Most importantly, this transaction when closed, that fits squarely within the capabilities we've built as an organization. And in a base case, we anticipate a mid-teens IRR over the long term. And we expect YUPELRI to start providing immediate returns on our investment after closing the transaction. Today's proposed transaction once closed, will meaningfully diversify and expand our partnered portfolio beyond Zahira and Pasritamig . As a reminder, we remain highly confident in the regulatory review presented data map in first-line GEA with a regulatory decision expected on or before the PDUFA date of August 25, 2026. If approval is received as expected, this will result in a milestone payment for our charter pharmaceuticals. This near-term milestone will strengthen the balance sheet and providing to continue to fund future stock purchases beyond the current approved plan as well as consider further acquisitions and other opportunities after closing of the proposed Theravance transaction. Funding of current R&D priorities at Zymeworks for 2026 are unaffected by this transaction. This transaction, therefore, aims to diversify revenue sources and increase visibility on a diversified recurring revenue base on top of our established partnerships, such as those with Jazz, D1 and J&J. We believe this proposed transaction is consistent with Zymework's disciplined and thoughtful capital allocation framework, prioritizing assets that can generate near to midterm diversified cash flows while preserving long-term opportunities for growth. Meanwhile, we've continued to deliver on our objective to further our research and development efforts in increasingly novel modalities and targets with the recent unveiling of our Pasritamig ADC platform in candidates. Our whole unit pipeline continues to provide us with additional upside opportunities from value-creating catalysts such as development milestones, data readouts, partnerships or spinouts. With that introduction, let me hand over to the team to talk through the commercial and financial details. And first, over to you, Scott.

Thanks, Ken. I'm really pleased that we've been able to move efficiently from search and evaluation efforts through to announcing such a high-quality multicomponent proposed transaction for our first acquisition, just 7 months from announcing our new strategy in November 2025. COPD is a progressive lung disease and the sixth leading cause of death in the U.S. long-acting muscarinic antagonist, or LAMA, service as foundational therapy for nearly all patients with COPD. For the millions of patients who are transitioning from hospital to home care who struggle with inhalers or have impaired inspiratory flow, who suffer from some level of cognitive decline or just not well controlled on short-acting bronchodilators, there is only 1 nebulized LAMA option, YUPELRI. The continued product growth is driven by underlying demand and persistence, which speaks to the meaningful value delivered to patients and aligns with the overwhelmingly positive feedback we received from physicians. Combined with its differentiated profile, long patent life and foundational position in the treatment of COPD patients, we believe YUPELRI has the characteristics of an asset capable of generating very durable cash flows. As Ken mentioned, the proposed acquisition of Theravance provides Zymeworks with a 35% participation in Westnet profits from YUPELRI. Viatris is responsible for a promotion in the community while Theravance manages the hospital setting. The commercial infrastructure supporting the product is already in place. Our diligence provided clear insight into 6 years of impressive execution by both the Viatris and Theravance team. In particular, it is clear the Theravance team continues to drive further growth into the hospital channel for this brand. Zymeworks intends to substantially preserve the existing hospital promotion infrastructure from Theravance's commercial organization. Taken together, this is an attractive combination of established commercial performance, long duration exclusivity, embedded milestone opportunities and ongoing participation in future growth. We believe this type of asset will fit exceptionally well into our model. It leverages the capabilities we've already built, provides attractive financial characteristics and expands the range of opportunities we can pursue as we continue to grow our business. YUPELRI generated U.S. net sales of $266.6 million in 2025, representing 12% year-over-year growth. First quarter sales of 2026 were $62.4 million, representing 7% year-over-year growth. Theravance remained eligible to receive an additional $125 million in commercial milestone payments from Viatris based upon reaching certain thresholds of U.S. net sales as well as double-digit tiered royalties and additional milestones on ex U.S. net sales. Settlements have been reached with all YUPELRI generic filers for April 2039 and subject to certain exceptions and other provisions customary for agreements of this type. The proposed acquisition also includes several additional sources of value that are independent of powering including a near-term $100 million milestone payable by Royalty Pharma based upon GSK's 2026 net sales of TRELEGY. 2025 sales of TRELEGY were approximately $3.9 billion and Consensus 2026 forecast exceed $4 billion. As a result, we view this milestone as highly visible and an attractive source of near-term value. The acquisition once closed, will include additional royalty interest that further diversify the cash flow profile of the transaction, including a 20% royalty interest in Viatris, which continues to generate commercial revenues through its marketing partner, Cumberland. Beyond the core commercial assets, the transaction, once closed, will strengthen our existing infrastructure by adding an immunology and inflammation R&D portfolio from Theravance which we will evaluate within the broader context of our established pipeline and capital allocation framework. These assets could selectively expand our internal development capacity or be externalized if the opportunity is attractive. Finally, following closing, this acquisition will bring ampreloxetine. A designee from Theravance will explore the opportunity to license, divest or otherwise monetize ampreloxetine for the period through 12 months post close with any economics shared 20:80 between Zymeworks and Theravance shareholders. The proposed acquisition also includes very significant Irish tax attributes, which following closing, we will incorporate into our broader financial and operating structure. These attributes have the potential to very meaningfully enhance the economics of future investments and improve our capital efficiency. Individually, these assets are not the primary drivers of the acquisition rationale. Collectively, however, they contribute additional diversification and optionality. We -- with that context, let me hand it over to Kristin to take you through the royalty back note and financials.

Thank you, Scott. Since joining Zymeworks I have had the opportunity to reconnect with colleagues in the royalty space as we've explored potential partnerships and financing opportunities. One consistent takeaway has been that there are attractive health care assets that don't fit neatly within the traditional royalty model, whether due to operating complexity, tax considerations, commercial participation structures or other factors, these opportunities all require iter-ownership and financing approach. These are precisely the situations where Zymeworks differentiated capabilities could create a competitive advantage. Our business model gives us the flexibility to evaluate a broader range of health care assets and structure transactions in ways that align the interest of sellers, financing partners and shareholders alike. We've stated previously that our goal is not to compete with established royalty organizations, but to broaden our opportunity set by partnering with them. This transaction demonstrates that approach. By combining our infrastructure, which allows for the acquisition and optimization of complex health care assets with 1 versus ability to provide nonreasonable flu course capital we're able to execute transactions that neither party would have pursued in the same way independently, creating value for both organizations. I'll now walk through the transaction structure and financing in more detail. As you've heard on the call today, I want to reiterate that there's no Zymeworks equity component to this deal and thus 0 shareholder dilution. A $350 million nonrecourse note from Owners Life Sciences was a coupon of 8.25% and an expected maturity date of 2036 will be used to finance the transaction. . Once the note is repaid, the residual profit share reverts to Zymeworks. I want to highlight that this financing is nonrecourse to any other part of Zymeworks' business. As you can see on the right-hand side of the slide, the recovery net sales first was through Viatris, and then Zymeworks' 35% YUPELRI profit share. is distributed. This is approximately $60 million annually at the current run rate. Upon distribution of the 35% YUPELRI reprofitshare, Zymeworks retains a 75% portion of the cash flows to service the notes first interest and then principal. Then the residual 25% cash flow goes Zymeworks, Once the note is repaid, all cash flows will be retained by Zymeworks. The financing also includes a declining call protection schedule, as shown on the slide, providing flexibility to refinance over time while offering appropriate downside protection. Financing structure enables Zymeworks to maintain a strong balance sheet with lasting capital beyond 2028 to fund continued R&D investment, future acquisitions and share repurchases. From a financing perspective, the headline purchase price materially overstates Zymeworks' actual capital at risk. The transaction value is approximately $929 million, that's funded through 3 sources; approximately $300 million of cash acquired at closing, $350 million of nonrecourse royalty financing provided by Zymeworks and approximately $29 million of Zymeworks on cash on hand. Taking into account the anticipated $100 million milestone payment from Royalty Pharma related to sales of TRELEGY by GSK, Zymeworks' effect net investment is expected to be reduced by approximately 50%. The owner's financing is self-servicing and nonrecourse to Zymeworks, meaning repayment is supported directly by only the underlying YUPELRI profit share. Our current capital structure is designed around 3 principles: isolating risk, preserving flexibility in protecting shareholder upside. The financing structure reflects each of these priorities by limiting our capital at risk, preserving balance sheet capacity and optimizing long-term value creation for shareholders. Upon closing, Zymeworks intends to complete Theravance's previously announced organizational restructuring to align its resources with its commercial focus on YUPELRI, which is expected to significantly reduce R&D expenses and general and administrative costs as well as pursue additional synergies in the cost structure of the combined entities. In addition to the proposed transaction announced today, we previously secured a $250 million nonrecourse facility from Royalty Pharma backed by Sahara royalties. This is another source of nondilutive capital that further support share repurchases, strategic acquisitions and expense or operating runway beyond 2028. As we announced in May, we have implemented a new $125 million share repurchase program for 2026. We view this as an efficient way to return capital while maintaining flexibility to continue investing for growth. and we expect to continue executing against this repurchase plan with visibility into substantial milestone payments expected related to potential near-term approvals of zanidatamab globally. As of June 29, 2026, the company has repurchased 1,437,073 million shares of common stock for $35.4 million, exclusive of commission expense and estimated excise tax, which represents an average purchase price of $24.53 per common share. Importantly, none of this comes with the expense of the pipeline. We will continue funding our clinical programs in early-stage R&D with disciplined cost management. Across every facility, our objective is the same: structure capital is in a way that limits downside exposure while preserving long-term shareholder upside. With that, I'll hand the call back over to Ken for closing remarks.

Great. Thank you very much, Scott and Kristin. To summarize, our novel strategy is built around 2 complementary engines is starting to materialize with real progress on both sides. On the royalty portfolio, once the acquisition announced is closed, we will have secured the YUPELRI profit share of what we believe is a disciplined valuation while maintaining capacity for future opportunities. On the R&D side, we've continued to make progress on our goal of advancing assets to key clinical inflection points and expect additional clinical and regulatory milestones coming. We look forward to providing further updates on our goal of partnering or monetizing portions of our R&D pipeline and platform capabilities in ways that can create upfront value, long-term royalties and continued pipeline optionality. Together, acquisitions diversify the foundation for durable revenue growth, through recurring cash generation, while R&D raises the ceiling through innovation and future potential upside. Ultimately, success for us means helping more patients. Both those who depend on important therapies available today and those still waiting for the breakthrough medicines we're working to create. What makes this opportunity particularly meaningful is that it brings together 2 thinness to our mission. Helping patients today welcome editors to develop medicines for patients tomorrow. At the same time, the predictable cash flows generated by established medicines like YUPELRI, can help fund the next generation of innovation at Cimex. We expect this transaction to close in the second half of 2026, and we look forward to updating the market as we advance towards closing and future information becomes available. With that, I'd like to now open the line for questions. Operator?

[Operator Instructions] And the first question will come from Yigal Nochomovitz with Citigroup.

Congrats on this transaction. I was just curious with respect to the ... Can you hear me? Okay. Great. No, I was just asking with respect to the time to repay the debt. I think Kristin mentioned that maturity in 2036 and looking at the Theravance filings, it looks like about $75 million of that is the net profit. So you're paying about $55 million back to Ameris. So given your assumptions with respect to the growth in Parly, could you just talk to whether you could repay sooner than the maturity or that's the expectation?

Yes. I think Yigal. I wouldn't want to comment further on some of those details. I think we feel really comfortable with the financing structure. We have negotiated with Ameris. I think they're going to be a great financial partner for us for this acquisition. And I think there -- their faith and belief also in YUPELRI growth allowed us to do this transaction as always, having flexibility in future financial structures is always something that's good. And I think we've been able to negotiate a really good financing package today allow us to this acquisition. And we have some flexibility and optionality in the future over how we might organize our capital structure. And I think we have, as we said before, like the long duration cash flows and whether that's with Zihera or YUPELRI, and we've tried to match that as we did with Royalty Pharma earlier with some longer duration obligations for payment while maintaining some protection to be able to evolve those structures earlier if the situation indicates.

And our next question will come from Eva Verdejo with Wells Fargo.

How are you thinking about dollar peak sales potential in COPD?

Yes. Thanks for the question. And again, we can't provide too many details until closing of the transaction. But I don't know, Scott, do you want to talk something about the what we've seen historically from this product, it gives us some belief that there's good growth remaining in the long duration of YUPELRI that it has left?

Yes, absolutely. Thanks, Ken, and thanks very much for the question. We're going to be limited in what we can comment on at this point until the transaction is closed. But -- the best way to comment about this is really the dramatic benefit for patients and the feedback we've received from physicians about YUPELRI being really a foundation of Triton. We've seen -- really robust growth in the hospital channel, and I've been very impressed by Theravance's execution and have expectations that we are going to continue. Beyond that, I think it will hold off providing any additional sort of long-term guidance. But eager to take over the program pending close and drive that growth further.

And our next question is going to come from Charles Zhu with LifeSci Capital.

Congrats on this acquisition. Maybe just a follow-up here. Can you talk a little bit about some of these channel dynamics between hospital and community practices, why it seems to be so heavily weighted towards the latter as of right now. As well as How much more upside is there in the hospital channel for which you Theravance will be responsible and how much investment you would need to capture the value in that segment? .

Yes. Great. Thanks for the question, Charles. Scott, do you want to address that with Charles?

Yes. Thanks, Charles. SP618393149 I appreciate the question, and we have a similar observation of being really impressed by the small commercial team at Theravance we have a high confidence that they'll be able to be retained and continue their work driving really robust growth into the hospital. I think what you're seeing there is really the dramatic value that YUPELRI offers those patients that have a need to receive their medication just with title breathing. There -- these patients that are in the hospital and at risk of observation and recovering really can benefit from the dramatic safety established efficacy profile of YUPELRI, and we have received really positive diligence about the ongoing growth in YUPELRI. We think the structure with Viatris where they do a lot of the heavy lifting around some of the commercial org make this very manageable infrastructure, and we're really pleased with that setup and you possible growth for them to continue

And our next question will come from Gregory Renza with Truth Securities.

It's Anish on for Greg. Just on YUPELRI, how are you thinking about the fit of a commercial COPD asset within Zyme longer-term identity as an oncology antibody platform company and is this the start of a broader commercial diversification strategy? And just a quick one on the deal mechanics, if I can squeeze that in, how usable are the $2.5 billion of Irish tax attributes given your current profitability profile? And how much of that did you ascribe value to in today's total deal value?

That's great. Greg, could you repeat that question? I just missed the first part of it, if you could?

Just on YUPELRI. I just wanted to know how you're thinking about the fit of a commercial COPD asset within simes longer-term identities in oncology and antibody platform company. .

No. Great. Thanks for the question. And obviously, we have been working in COPD for a little while with our verse research assets, 1528 and looking to put that in the clinic next year. So I think as a part of that, we have been ensuring we have a sufficient understanding of the commercial marketplace for COPD as we think about where 1528 might be applicable on that. in those patient settings. So I think it's an area that we felt that we have been working in from a research perspective and understanding the market. So I think from that perspective, at least in the therapeutic category, we have been working outside of oncology for some time now. So we felt we had expertise and access to other expertise to at least be able to understand this at the same time, it was a product that's been on the market since 2019. I think we take some comfort from Viatris being the main commercial partner onto the joint venture that was established some time ago with their events and Viatris. And I think we've gotten a good understanding of co-promotion capabilities, and I think we're starting to understand at least how we can integrate that into Zymeworks and still drive the type of value that we think we can on a returns basis to reset mid-teens IRR as this being an important part and an immediate source of returns post closing. And then I'll ask Scott, if you'd like to comment further on that aspect.

Well, I think you said it well Ken. We really see the ability to access royalty-like economics with a very small commercial sales force while Viatris is doing a lot of the heavy lifting, managing the day-to-day operations of the community part long duration and predictability of that cash flow is in an area that we know well given our presence with 1528, lets us create more comparable inflow for the company, that can be allocated to our innovative R&D, additional share repurchases and to looking at future M&A once closed.

Yes. Thank you. And just to add to that too, I just -- I think from a royalty performance or a partner and royalty portfolio to asset segment, we do like the eventually, since we're holding longer the diversity of cash flow on a mention to the source of those cash flows from the partner, the therapeutic category, the product modality. And so I think if our royalty portfolio is going to be meaningful over the long term. I can't come from Gonore or just from bispecific antibodies we've created for the energy market, probably a having some diversity provide us with some additional thought of value that, that set might provide. We're probably not straight too far with this from a therapeutic area standpoint. I think we feel comfortable that in COPD, we can understand how to value this asset. Generally, our other products in this portfolio are royalties and we're not participating in the commercial piece. We do like the fact that this is a world like but not royalty. So there could be some upside from participation in the commercial performance that's driven by having a 35% profit share versus royalty. And we also won that have some co-promotion ability to drive investments is a reinvestment of some of that gross margin back into building the top line. And so it might get a little bit more thought there may be some more upside for us in actively participating along with Viatris as a part of this, I think as long as the term to drive the same guide as the sales force has driven for Trane then I think there might be something more interesting an upside than a royalty where we can't impact the top line aspect or the growth of that. So I think there are some of this that are actually positive, although they might be a little bit more diverse from where we have been just our own sources of royalties we created with our own partner products.

Thank you and our next question is going to come from Mayank Mamtani with B. Riley Secure.

Congrats sorry if I missed this earlier, specifically valuing the Irish tax attributes and maybe just how that you need to the Zymeworks operating model relative to any other variety focused company, if you could maybe just give insight so we understand what sort of future deals you might be looking for? And then just on the math here, you're shelling out net $119 million from your balance sheet to have what seems like $60 million of our cash flow, but net after the, it would be about $15 million. Are we thinking about this right? And lastly, on the abloxydine CVR, you just give us a little bit more color on what the postmortem has been after the suppress results and if there's any rough cost and time line for refiling or anything that's been factored in as part of this transaction?

Yes, you always managed to get multiple questions in 1 question limit. So we'll try to address them if we can. No, no, we get used to it. If you're good at it. No, I think from our perspective, at least first point, I think you're getting this right. I mean, we've allocated about half of the financing from Royalty Pharma to allow us to do this deal and obviously required other financing inside their events to be able to do this. But we think we get a -- and we like multicomponent deals. So we think we get a multitude of assets in this transaction, which provides near-term return, but lots of optionality for us and how we utilize those assets moving forward, obviously, in acquiring the entire company as opposed to the product. We're entitled to other assets that might come along with that. And obviously, in Theravance they have a pretty substantial level of Irish tax attributes, which may have the potential of being utilized in the context of us running the combined businesses going forward. I wouldn't make -- I wouldn't talk more about that at this point, until closing, we think the base business of your power RE is enough to drive the that we talked about and any other optionality around other assets, be it R&D or financial strategic assets would be a boost to that IRR. So I think we'll leave that until later. But it's an important attribute of why buying the company and reorganizing our sorting through the different components might be more beneficial than just accessing the product itself, but we think we get a lot for that allocation that we've made to this acquisition. There's a lot to work with. And I think it's an immediate return, as you said, I think we do have to finance the piece with Almers is entitled to 75% of the gross margin to service their debt, but there still is a near immediate cash return and some long-term optionality for an investment that was we had the ability to fund and felt we got we're disciplined about price to ensure we could get the type of returns that have to go along with the cost of capital from both the royalty pharma financing and from the Almer's financing. But I think you're right, we think we've got a lot for what we were able to spend to make this acquisition and we can generate those types of returns from there. I think 1 of the items that we discussed with their events was their belief that with Almer, although it had failed in a Phase III trial recently that there was something they still saw that might provide a benefit to patients that was an unmet need, and they wanted the ability to see if there was a pathway for that to be continued, not in our capital, but in some other way. So we've provided for that opportunity for their events' current thinking that there might be a pathway forward for this medicine for patients. So we've allowed for that in the transaction. We obviously have consent and approval rights of any transactions. So we'll look at that, but we're quite happy to give them the ability to see if there is a pathway to patients for that medicine. It's obviously not counted in our IRR at all, and we haven't assigned any value to that aspect. If they are successful to go ahead and find a pathway, then we're happy to keep that value for our shareholders. So with that, I'm not sure if Kristin do you want to add anything to anything we talked about there?

I think you had mentioned the cash out for the inflows that we were getting. And I just want to clarify that we're referring to the $219 million of signed cash, right, to acquire these the $60 million, the $60 million run rate of cash flows, right? But that $219 million is reduced by the near-term TRELEGY milestone that's coming in. So that cash that we're using is really effectively reduced to really more of a 50% level. So I just want to clarify that it's a much smaller net investment going out to acquire that Theravance piece on the other side.

Thank you,. Appreciate the color.

Okay. Hopefully, we answered your multiple questions.

You did it.

And our next question is going to come from Reni Benjamin with Citizens .

Congratulations on this very nice deal. Can you maybe help quantify the expected impact on the expense side, right? And so the operating expenses once this takes place, -- how much do you think it might increase? Are there certain synergies that we should be thinking about again on the expense side? And just kind of related to this, why didn't -- why wouldn't this acquisition be something that Viatris the partner would consider? What is it that -- that was unique that you brought to the table that they couldn't.

Yes. Let me try and answer your second question and the first one, I'll provide a summary and then ask Kristin to follow along. I think from our standpoint, not specific to Viatris, but just overall, I think Theravance's strategic committee had been understood here for some time frame looking for different options for the company further. I think we've provided them with what we think is a really excellent opportunity for an outright acquisition of the company. And we think that's a very attractive proposition for their shareholders, and that's why we're both pursuing that. Right now, it may be that we were quite comfortable with the multiple components that would come with an outbreak company acquisition and sorting through those to understand the value that can be derived from that, whereas traditional players or others may have been interested in aspects but not everything. And so we certainly see an ability for us to go and extract value from everything that's available to us. from this acquisition for the capital that we've invested in it alongside our partners from the perspective that go forward, we can talk too much and until we get to close. I mean, obviously, we've seen some prior disclosures from the events publicly about the reorganization of their company following the Phase III study outcome earlier this year and their belief that they could modify the company's cost structure to a situation where they could start driving annualized cash flows from our triad other things that would be substantial. Obviously, there will be other synergies in that if that was done within 1 entity postposing as opposed to separately and we'll obviously take advantage of those. But I think they were doing organizational and spec changes that were things that we would have done to get to the value of the underlying assets within Theravance. And so we'll continue that work and obviously add some things of our own. But we would expect that YUPELRI would make a positive contribution from day 1, and that would be overall as well. And I don't know if you want to say anything more question about that. I mean a little bit limited what I could say, all close. Anything you want to add, Kristin?

Yes. I would just say regarding the operating expenses, we are going to continue to remain focused on cost discipline and as Ken said, with the integration planning, including restructuring initiatives designed to reduce RNA and G&A, we will think about providing updated guidance for the combined business once the transaction is closed. .

And our next question will come from Yaron Werber with TD Cowen.

Great. Congrats on your first meaningful deal. I have 1 question, maybe I'll take it in 2 parts. I guess the first 1 because they're interrelated. Is this going to be -- well, let's say about $60 million, $75 million in profit, $75 million obviously being taken from -- you are bringing in a whole company. Is this going to be accretive to you immediately? I know you're not profitable, but net-net, -- is this going to be -- you're going to be each year on an annual basis operationally is going to be accretive or not immediately. And then secondly, you do have an 8.25% coupon. I assume is that coupon going to be literally net interest annually of about $28 million, $29 million? Or is that going to be sort of capitalized as part of the royalty? The way you do with the rest of the deals? Because there's no -- this deal is sort of open-ended, right? It's 2036. I don't see an upper cap of like 2x the 350 or so, right? So that's an open-ended 10-year deal.

Yes. I'll let Kristin walk through the mechanics of the repayments with Ameris. I think on the first part, I think we can't say too much. But obviously, Theravance has had started a process of reorganizing themselves to be in a position where they could be generating positive annualized cash flow from the overall business driven by YUPELRI and other mechanics. So we think that's the right direction. And obviously, we're supportive and we'll continue that. So we do believe that this investment that we're making can be accretive, and we'll provide some updated guidance on that. overall. At the same time, in our own business, we know that we're expecting because we're confident that come at FDA with a PDUFA date for Zyme to get a $250 million milestone payment this year. with a positive outcome for the PDUFA date. So we will need because of that and the closing of this transaction update, our own guidance around the combined P&L of those organizations. But we do expect, as I said in our remarks, that we'll begin to get a return on our investment after closing immediately from YUPELRI and the reorganization is already going on inside. Theravance. And I'll let Kristin answer the second part of that.

Sure. What I would just say is if you look back on the slide in the presentation, the way that the cash flows come in, it's when Ameris get their 75% and then the residual flows to us. That first part goes to repay interest and principal. So although it's not cash, it should be very easy to forecast because there the principle is paying down over time with their interest. So I don't know if that will help clarify. .

; Yes. Got it. So it's principal and interest, right? And you're essentially at this point, you're inheriting the whole company and then you're going to make some decision as to the pipeline, right? I mean, it sounds like you're going to keep the commercial organization, but you'll figure out whether you want to continue to downsize company or taken -- is that fair? .

Yes, yes. I mean, they've obviously -- we can't say much more until closing, but obviously, they have any public statements about reorganizing the research group, your G&A, reducing their cost structure in such a way as to get to a positive annualized cash flow by -- and obviously, we agree with that, and they'll continue to make those changes between now and closing and at closing, we will talk about what other changes we might want to make for this. Obviously, the cash flow that can we generate from your power is an important part of the return for us from this arrangement and the co-promotion arrangement with their own sales force in the U.S. with Viatris seems to be still continuing to drive some good growth and providing some meaningful profit share from that 35% profit share. That's an important element. And then we'll evaluate the other opportunities for other financial milestones, the early-stage R&D assets that they have, we'll evaluate that and make some commentary when we close. But we believe YUPELRI is based business is significant enough on the trajectory that we have that can drive that mid-teens IRR. And we have optionality on other assets, which could drive returns further depending upon what we plan to do with the other assets, whether they're financial strategic or R&D.

[Operator Instructions]And the next question comes from Stephen Willey with Stifel.

Congrats on the transaction pretty creative. I guess now that you have an operational acute care sales force in place, does that now inherently incentivize additional transactions there just as a way to further leverage the carrying cost of that commercial infrastructure.

Good question. Again, we'll have more to say after closing the transaction. But I think it's fair to say that, that hospital-based coke promotion for us at their events on a PLR does a good job with just that product and the amount of investment that's made and its impact on sales and how that flows through to their profit share. So I think that is just a sustainable investment as a group if it continues to be that productive as it has been over the past few years. So there's no need to think about leveraging the cost of that. It's a pretty small and efficient group that has an impact on sales and their profit share in a meaningful way. And as long as that can continue, then I think we're happy to allow that to continue. So I don't think it means any other strategy for us to leverage that group or what that means for our own COPD asset that we were putting in the clinic next year. I think as a stand-alone, it's certainly a high-performing group that drives a good return. If there were ways to leverage that, we would always evaluate that, but it's not going to drive the next transaction around that set of commercial force that exists in the U.S.

Thank you. Thank you. And I am showing no further questions at this time. I will now turn the call back over to Ken for closing remarks.

That's great. Thank you, operator, for moderating the Q&A. And thank you for the questions. We certainly really appreciate your time today to understand the rationale for our proposed acquisition of Theravance Biopharma. We think it's a really interesting transaction. And hopefully, we've been creative around the way that we were able to finance. And we do believe that we can drive good returns out of this transaction. Look forward to reporting progress against closing the transaction, and we'll obviously provide much more guidance post closing of how we intend to integrate and drive value out of the combined operations and look forward to being able to do that. And thank you very much for your time today.

Thank you. This does conclude today's conference call. Thank you for your participation, and you may now disconnect.