UPDATE 1-Irenic Capital urges Theravance to conduct review, add shareholder to board
(Adds details on stock price, updated company statement, background)
By Svea Herbst-Bayliss
NEW YORK, Feb 27 (Reuters) - Activist investor Irenic Capital Management is urging Theravance Biopharma Inc to initiate a review of strategic alternatives, including a full sale, and to add a shareholder to its board, according to a letter seen by Reuters.
Irenic owns a 4.2% stake in the biotechnology company and has criticized its lagging valuation and stock-based compensation to Chief Executive Rick Winningham, who is also board chair.
Theravance, which sells a treatment for chronic obstructive pulmonary disease, could be worth $21 a share, roughly double its $9.87 closing price last week, Irenic co-founders Adam Katz and Andy Dodge wrote in the letter. They estimate the company's assets exceed "$1.4 billion in value." The stock price climbed 5.5% in early trading on Monday to $10.41.
"Were the company to conduct a proper strategic review with independent financial advisers, we strongly believe that there are buyers for all of the company and/or individual assets at a substantial premium to Theravance's trading price," they wrote.
Theravance is reporting quarterly results later on Monday and declined to comment before they are released.
Irenic also called on Theravance to use excess cash to immediately issue a $300 million special dividend to shareholders. The company does not pay a dividend now but has been repurchasing its stock and has said it plans to continue repurchases this year.
The company in 2021 announced a strategic restructuring that included cutting 75% of staff and led to operating expense savings of $165 million in 2022. The company also eliminated its debt.
Irenic criticized Theravance's executive compensation, writing that the CEO received more than $48 million in compensation since the company's split from Innoviva in 2014. During that time "shareholders have endured substantial losses," the letter said. The stock price has dropped 57% since then.
The fund also asked the company to adopt several other changes, including having all directors stand for elections annually and splitting the CEO and chairman roles.
Irenic's founders said they want to work constructively with Theravance and said in the letter that they asked for a shareholder representative to be appointed to the eight-member board. They suggested Dodge as a director candidate but wrote that the company rejected him.
The company engaged several times with Irenic and vetted Dodge as a possible director candidate but concluded he lacked the healthcare background and other experience it wants to see on the board, a person familiar with the discussions said. The window to nominate directors at Theravance closed earlier this month.
Theravance's largest shareholders include The Baupost Group and Madison Avenue Partners.
Since launching last year, Irenic has established itself as a successful newcomer among activist investors. The fund invested in News Corp and was the first to publicly come out against a planned reunification with Fox Corp months before a deal was abandoned. It also played a role in overhauling the board of Capricorn Energy.
Irenic is the latest hedge fund to propose changes at poorly performing biotech companies. Last week, Caligan Partners urged Anika Therapeutics to consider strategic alternatives, including a full sale, and is preparing to nominate directors to the biotech company's board, according to a letter seen by Reuters.
(Reporting by Svea Herbst-Bayliss; Editing by Stephen Coates and Bill Berkrot)
