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The Summers Value Fund LP (“the Fund”) returned -2.7% net 1 in the first quarter of 2026, underperforming the Russell 2000 Index ETF (IWM), which returned .9%, and the Russell 2000 Value Index ETF (IWN), which returned 4.9%. Since inception, the Fund has generated an annualized return of 11.2% net 1 compared to 6.8% for the Russell 2000 Index ETF and 6.8% for the Russell 2000 Value Index ETF.
Trailing Period Returns Summers Russell 2000 Russell 2000 Value Fund LP 1 Small-Cap Index 2 Value Index 3 YTD -2.7% 0.9% 4.9% 1 Year 16.9% 25.6% 27.8% 3 Years 56.0% 43.9% 46.3% 5 Years 57.7% 19.6% 31.1% Cumulative Since Inception 4 130.0% 67.0% 67.1% Annualized Since Inception 4 11.2% 6.8% 6.8%
The largest contributors to the Fund’s performance in the first quarter included Liquidia (LQDA), Avanos Medical (AVNS) and Consensus Cloud Solutions (CCSI). Liquidia’s launch of Yutrepia continues to outpace investor expectations, a trend we expect will continue. Consensus reported strong fourth quarter results, beating on revenue, profits and cash flow. Positive operating results were weighed down by negative investor sentiment towards the software industry. The largest detractors were Electromed (ELMD) and Embecta (EMBC). Electromed declined despite a strong financial update in February - an unexpected reaction. Embecta sold off after narrowing its fiscal 2026 guidance to the low end of the range. We added to our position on this weakness.
The Fund ended the quarter with nine long positions and no short positions. During the quarter, we initiated a new position in Theravance (TBPH) and exited ADMA Biologics (AMDA), as it fell short of our expectations, and we identified more attractive opportunities for our capital. We also covered our lone short position for a modest gain.
Our top five holdings at quarter-end were Liquidia, Electromed, Consensus Cloud Solutions, Avanos Medical and Embecta. We finished the quarter with approximately 5% in cash.
Avanos was formerly the healthcare division of Kimberly-Clark before being spun off as a separate company in 2014. I first met the management team on the spin-off roadshow while at a prior firm. The company has been a tale of two businesses: a high-quality enteral feeding segment with a dominant global market position featuring mid-single-digit revenue growth and a double-digit operating margin, and a structurally challenged hospital pain segment with stagnant revenue and breakeven profitability. The lack of strategic fit between the two segments created a persistent overhang. Combined with years of operational missteps and poor capital allocation, the stock traded well below its spin price, reaching a valuation we rarely see in the medical device industry - less than 1x EV/Sales and ~7x normalized earnings.
Despite following the company for over a decade, we only initiated a position in July of last year. Our interest was driven by a leadership change announced earlier in the year. Dave Picitti, formerly head of Siemens Healthineers' U.S. business, was appointed CEO in March. Beyond his strong pedigree, his compensation package included performance-based shares that only vested at meaningfully higher share prices, creating clear alignment with shareholders. At the same time, the stock was trading at an all-time low with minimal investor expectations after years of disappointment - an ideal setup for our value-focused strategy.
On April 14, Avanos agreed to be acquired by American Industrial Partners for $25 per share in an all-cash transaction, representing a 72% premium. The deal is expected to close in the second half of 2026. Our cost basis is $12.15, which represents a gain of 106% at the takeout price. We plan to hold a small residual position through closing to qualify for long-term capital gains treatment. Avanos is the seventh portfolio company to be acquired since inception. We expect M&A to remain an important contributor to the Fund's returns going forward.
We recently joined the Yet Another Value Investor podcast to discuss our views on Theravance, a company we have followed for over a decade. Theravance markets Yupelri for COPD in partnership with Viatris. We initiated our position on March 3, after the company announced that its lead development program, ampreloxetine, had failed its pivotal phase 3 clinical trial. The same press release also outlined a major corporate restructuring, including a complete exit from R&D and a 50% reduction in G&A headcount. In total, management expected these actions to reduce annual operating expenses by $70 million. Beginning in the third quarter of 2026, Yupelri royalties, combined with interest income, are expected to generate $60-70 million of annual cash flow. With patent protection extending through April of 2039, Yupelri represents a long-duration and growing cash flow stream. Viatris reported 12% sales growth for Yupelri in 2025, and we expect continued growth driven by increased U.S. hospital adoption and the forthcoming launch in China.
The U.S. commercial business is the primary driver of value. Viatris and Theravance split Yupelri economics 65/35, with Theravance supporting a modest hospital-focused sales effort. We value the U.S. business at $520 million, assuming 2.5% revenue growth per year through 2038, and a 10% discount rate. In China, Yupelri was approved in June 2025, with launch expected by year-end 2026. Theravance will receive a 14-20% royalty, plus up to $37.5 million in milestones. Viatris' scale with over 4,000 sales reps should support a successful launch. We value the China opportunity at $200 million, assuming $350 million in peak sales by 2038, inclusive of $7.5 million of milestone payments. Theravance also holds $2.6 billion of Irish tax assets, which we value at $75 million. The company should have at least $500 million of cash by early 2027, including a final $100 million Trelegy milestone payment from GSK, which requires only 2% sales growth versus 2024 - a low hurdle.
The board formed a strategic review committee in November 2024, led former Royalty Pharma CFO Susannah Grey. The committee has already monetized the remaining Trelegy economic interest for $225 million and is now evaluating strategic alternatives, including a sale of the company. Viatris is the natural acquirer, though royalty-focused buyers may also be interested.
We estimate intrinsic value at $23 per share, or more than 60% upside from our cost basis of $13.80.
I would like to express my sincere appreciation to those investors who added to their accounts this year. One of our greatest competitive advantages is our patient and long-term oriented investor base. The market environment is currently providing us with attractive investment opportunities. We believe the M&A theme in healthcare will be a tailwind that could benefit our portfolio for many years. Our strategy has ample capacity, and we welcome like-minded individuals to join the partnership. Interested parties may contact Alison Tomlinson at atomlinson@summersvalue.com .
Sincerely,
Andrew Summers, CFA
Managing Partner
1 Summers Value Fund LP current year net return is unaudited. Net returns are based on the management fee and incentive allocation applicable to Class B Interests (1.25% management fee; 20% incentive fee above a 6% annual cumulative hurdle rate). Net return is not necessarily indicative of any single investor's performance. An investor's return may vary from the results shown based on different fee structures and fund-level expenses. Performance reflects the reinvestment of dividends and income. The performance information given is historic and should not be considered as an indication of future performance. 4 June 4, 2018 Indexes: The performance of market indexes is provided for the purpose of making general market data available as a point of reference only. These indexes are widely recognized by investors, followed by the investment industry and readily available to the investing public. The indexes are unmanaged and do not reflect fees and expenses associated with the active management of portfolios. The performance returns of the indexes were obtained from recognized statistical sources and include the reinvestment of dividends and income. Although Summers Value Partners LLC believes these sources to be reliable, it is not responsible for errors or omissions from these sources. 2 iShares Russell 2000 Index ETF (IWM): The Russell 2000 Index measures the performance of approximately two thousand small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the largest U.S. company stocks. This unmanaged index serves as a benchmark for U.S. small-cap stocks in the United States. 3 iShares Russell 2000 Value ETF (IWN): The Russell 2000 Value Index measures the performance of companies from the broadly diversified Russell 2000 universe that reflect value characteristics. This unmanaged index serves as a benchmark for U.S. small-cap value stocks in the United States. The information and statistical data contained herein have been obtained from sources, which we believe to be reliable, but in no way are warranted by us to accuracy or completeness. We do not undertake to advise you as to any change in figures or our views. Past performance results are not a guarantee of future performance results. This report includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions, or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact. Summers Value Partners LLC is committed to communicating with our investment partners as candidly as possible because we believe our investors benefit from understanding our investment philosophy, investment process, stock selection methodology and investor temperament. Our views and opinions include "forward-looking statements" which may or may not be accurate over the long term. You should not place undue reliance on forward-looking statements, which are current as of the date this report was written. We disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate. The information provided in this material should not be considered a recommendation to buy, sell or hold any particular security.
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