Zymeworks Inc. M&A announcement

Shrinal, please go ahead. Good morning, everyone, and thank you for joining us.

Today, we will discuss the closing of the Theravance Biopharma acquisition and what this transaction means for the next phase of Zymeworks. Scott Platshon, our Chief Business Officer, will begin with an overview of the transaction, including YUPELRI and the acquired R&D portfolio and how it advances our strategy at Zymeworks. Kristin Stafford, our Chief Financial Officer, will then discuss the financing structure, financial outlook, and capital allocation framework. At the end, Ken Galbraith, our CEO and Chair, will open the call for questions. As usual, we will be making forward-looking statements during this call, including statements regarding the Theravance Biopharma acquisition, our financial outlook, the performance and growth of YUPELRI, potential development and commercialization opportunities, future business development, and capital allocation.

These statements are based upon 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 refer you to our latest SEC filings as found on our website and as filed with the SEC. With that, I will return this call over to Scott.

Thank you, Shrinal, and good morning to everyone joining us. We are thrilled to have closed our acquisition of Theravance. This transaction brings an important new medicine under the Zymeworks umbrella in YUPELRI. This only-in-class, once-daily nebulized LAMA delivers meaningful clinical benefit to COPD patients who struggle to use handheld inhalers and is supported by a world-class commercial partner, Viatris. This acquisition also serves as a strong demonstration of the types of economics we are well-suited to acquire at attractive prices for several reasons. First, Theravance maintains responsibility for hospital promotion, which introduces operational and structural complexities that render this transaction less attractive for traditional royalty buyers. Despite having a strong partner in Viatris who manages most of the complexity associated with commercial promotion, this component is off-strategy for a pure financial buyer.

Second, we were able to provide an offer to acquire 100% of the equity of Theravance, while traditional royalty buyers prefer asset acquisitions for structural reasons. Third, we were able to finance the acquisition via a $350 million non-recourse royalty-backed note with OMERS at an attractive cost of capital. This financing is secured solely by YUPELRI cash flows and demonstrates how our differentiated model allows us to collaborate with large financial institutions, leveraging their lower cost of capital rather than competing with them for assets. Finally, YUPELRI is not the only source of value in this deal. The transaction also includes additional collaboration and royalty economics, an R&D portfolio, very significant Irish tax attributes, and an experienced commercial organization. Importantly, almost all of these other potential sources of value serve purely as upside and were not valued as contributing to returns.

Since the transaction was announced in late June, our conviction has strengthened that there are more de-risked trapped cash flows and assets that we are uniquely set up to access. The ability for Zymeworks to acquire whole organizations for access to R&D assets or cash flows makes us a differentiated acquirer with multiple avenues for value creation. Turning to the financial profile of the transaction, our base case underwriting anticipates a mid-teen IRR over the long term, driven primarily by YUPELRI with a small contribution from Vyvadyl, an important powerful antibiotic sold by Ampiclox. As mentioned, the base case does not assign any value to a number of additional opportunities. These include the potential utilization of approximately $2.5 billion of Irish tax attributes, future value from the acquired R&D portfolio, and certain potential future milestones or other business development opportunities.

The profit share from Viatris adds to our recurring cash flow foundation alongside Ziihera, while also providing an opportunity to actively manage upside opportunity. The retained hospital organization is an important part of that opportunity. Hospital sales grew approximately 25% year-over-year in the second quarter of 2026, demonstrating continued momentum in the channel. We are thrilled to be welcoming a lean, skilled, and highly experienced commercial and medical team to Zymeworks. The retained team has demonstrated strong execution and understands the market, customers, and product. We believe the hospital channel will continue to provide strong momentum to the brand over the coming years. As previously mentioned, Viatris is responsible for promoting in the community and managing most of the complexities associated with commercial promotion and reporting. As we evolve the organization, we are also investing in the experience needed to support a more diversified business.

With this in mind, we are adding new senior leaders from Theravance across technology, data science, and AI, as well as intellectual property. Stuart Knight will become Executive Vice President and Chief Information Officer of Zymeworks, where Stuart will guide the company's future technology strategy, including continued investment in the company's existing AI, data science, and machine learning capabilities. Stuart brings substantial experience in biotech and pharmaceutical companies operating in both the U.S. and Europe. Stuart will also be joined by Jesse Fecker as Vice President of Intellectual Property. We plan to hire a seasoned pharmaceutical executive with experience building and leading commercial pharmaceutical organizations to lead the commercial operations of Theravance. We will continue to evaluate the combined organization and provide updates on any future changes. For now, these additions strengthen the infrastructure we need to execute the next phase of our strategy.

Beyond the commercial assets, Theravance Biopharma also adds an R&D portfolio to Zymeworks. This expands our existing pipeline of wholly owned and partnered programs and gives us additional opportunities to create value through development, partnering, and other strategic alternatives. I would like to reiterate, we do not assign any value to these programs in our base case IRR. We will only allocate capital to programs that have a clear, attractive, risk-adjusted value creation potential. We will also evaluate partnering, licensing, or other alternatives when those opportunities make sense. As a reminder, R&D expenses in 2Q 2026 were 20% lower than in 2Q 2025, which is consistent with our planned reduction in R&D expenses. This approach allows us to preserve the upside associated with R&D while operating from a more diversified financial foundation. With that, I will hand over to Kristin to talk through the financial updates.

Thanks, Scott. As Scott mentioned earlier, another component of the transaction is approximately $2.5 billion of Irish tax attributes that we acquired. We have assigned no value to the utilization of these attributes in our base case IRR and expect to assign no value to the attributes of purchase accounting as well. It is important to note that the tax attributes exist because of the depth and breadth of the R&D in the business, as we have just reviewed. We will evaluate potential opportunities to utilize these attributes in connection with future Irish revenues, IP structuring, and potential acquisitions or investments involving our Irish legal entities. Our existing Irish R&D operations provide an important foundation for that evaluation. The actual utilization, timing, and value of these attributes will depend on applicable tax laws, regulations, and the facts and circumstances of any future transactions.

Similar to the R&D portfolio, we view the tax attributes as additional optionality rather than an assumption underlying the transaction. On this slide, I wanted to return to the financing structure and remind everyone that a significant portion of the transaction was financed through a non-recourse note with OMERS Life Sciences, secured by the YUPELRI cash flows at a very attractive cost of capital in relation to the mid-teens IRR we expect the transaction to provide. The structure is designed so that the note is serviced by the underlying YUPELRI economics and is non-recourse to the broader Zymeworks business, subject to the terms of the financing arrangements. YUPELRI is currently generating approximately $60 million of annualized cash flows at current run rates, providing the durability and predictability that allows us to structure this financing.

During the note period, OMERS received 75% of the YUPELRI profit share cash flows to service interest and principal, with the residual economics retained by Zymeworks. Once the note is repaid, the remaining cash flows revert to Zymeworks. This financing structure allows us to access a high-quality commercial asset while preserving capital for other opportunities across our business. The transaction is expected to be accounted for as a business combination, and the purchase price will be allocated to the fair value of the net assets acquired and primarily includes rights related to YUPELRI, with any remaining amount recorded as goodwill. YUPELRI is expected to represent the principal identifiable intangible asset and will be amortized over its estimated useful life, generally through the expected loss of exclusivity period.

We also expect to recognize a tax liability due to an uncertain tax position as part of the accounting for the business combination. Upon expiration of the applicable audit period in October 2026, the liability may be reversed, resulting in the recognition of a non-cash income tax benefit in the fourth quarter of 2026. When looking at the Viatris collaboration agreement, it's important to remember that Theravance does not record product sales. Viatris records 100% of YUPELRI's net sales, while Theravance reports a single line item in its financials, which is called Viatris collaboration agreement revenue. This number is a net figure that includes Theravance's 35% share of profits and losses and adjustments for shared costs. To model the quarterly cash flow from YUPELRI, you must apply the 35/65 split across three distinct buckets. For net sales, you need to take 35% of the total U.S. net sales.