Roivant Sciences (NASDAQ:ROIV) is an organization I final coated in a notice for Seeking Alpha again in December final yr – I gave the corporate a “BUY” advice, and shares have risen in worth by 28% since, to $9.2 on the time of writing. Market cap valuation is at present $7bn.
Roivant has a considerably difficult enterprise mannequin – as defined in its Q3 2022 10Q submission:
We are a various staff of skilled drug builders, scientists, physicians, firm builders, information scientists and engineers, biopharma buyers, physicists and enterprise growth professionals devoted to enhancing the lives of sufferers.
We deploy a hypothesis-driven method to establish novel or clinically-validated targets and organic pathways in areas of excessive unmet medical want. We then search to amass, in-license or uncover promising drug candidates towards these targets or pathways. Our small molecule discovery engine is powered by main computational physics and machine studying (“ML”) capabilities for in silico drug design.
We develop medication and drug candidates in subsidiary firms we name “Vants” with a definite method to sourcing expertise, aligning incentives and deploying know-how. Our Vants proceed to profit from the help of the Roivant platform and applied sciences which can be constructed to deal with inefficiencies within the drug discovery, growth and commercialization course of.
Here is an inventory of the “Vants” in full:
And, as I defined in my earlier notice:
Roivant joined the Nasdaq through a merger with the Special Purpose Acquisition Company (“SPAC”) Montes Archimedes Acquisition Corp again in May 2021.
That merger netted Roivant ~$411m in funding and with a handful of notable biotech VCs – together with SoftBank and Sumitomo Dainippon Pharma – additionally investing in a personal spherical, Roivant started its publicly traded life with $2.3bn of funds.
Much of the extra funding was created by Roivant’s sale of 5 of its subsidiary firms – Myovant, Urovant, Enzyvant, Altavant and Spirovant – to Sumitomo, the Japanese Pharma, in a $3bn deal plus a ten% equity stake in Roivant, and the chance for Sumitomo to buy 6 extra “vants” by the tip of 2024.
In its Q3 2022 10Q submission, Roivant lists a few of its key progress up to now, together with its first industrial launch – of VTAMA (tapinarof cream 1%) to deal with plaque psoriasis in adults – conducting 9 Phase 3 medical research, eight of which administration says have been profitable, the $3bn take care of Sumitomo, 6 FDA approvals for Vant developed medication (4 of which had already been transferred to Sumitomo), the event of small molecule discovery engine Roivant Discovery, and the event of a “broad and differentiated” medical pipeline.
Roivant breaks down its pipeline as follows:
Roivant medical stage pipeline (Roivant Q3 2022 10Q)
As we are able to see there are a number of late stage alternatives, in massive and profitable – albeit aggressive – markets, the place there stays a requirement for brand spanking new and higher medication. Below, we are able to see information and approval catalysts associated to every pipeline asset.
Since its itemizing, Roivant has managed to roughly preserve the worth of its shares, regardless of a dip to a low of $3 on the peak of the biotech bear market in September final yr, throughout the final yr the stock value is +140%.
The query is whether or not the present $7bn market cap pretty displays the worth Roivant could also be able to unlocking, and I’ll attempt to reply that within the the rest of this submit by analysing the worth of Roivant’s numerous alternatives, and speculating about how every one may have an effect on the general firm valuation.
Roivant – A $15bn Inflammation and Immunology Franchise In The Making? VTAMA Is A Great Start
According to a latest corporate presentation Roivant’s ambition is to construct a $15bn Inflammation and Immunology franchise
Let’s start with Roivant’s just lately authorized VTAMA, a drug for which administration are clearly enthusiastic about. The topical cream could have solely generated revenues of $9.2m in fiscal Q3 2022 (reported in Feb ’23) however that represented a doubling of revenues from the prior quarter when the product was launched, and VTAMA is now the primary branded topical, based on Roivant CEO Matthew Gline who expanded on the height gross sales alternative on the fiscal Q3 2022 earnings name:
This is actually just the start for us, proper? In probably the most just lately disclosed IMS, we did about 3,800 scripts, which is a superb quantity for this stage of our launch. But do not forget that even in psoriasis alone, there are 90,000 topical prescriptions each week, of which the overwhelming majority are topical steroids. And as soon as we get an atopic dermatitis state and have entry to that affected person inhabitants, there are a bit over 300,000 atopic dermatitis prescriptions each week, once more, the overwhelming majority of that are topical steroids. And in psoriasis, our information conclusively, in our view, establishes us as each extra efficacious with a remitted profit than topical corticosteroids, in addition to meaningfully safer and higher tolerated.
The information on an approval in atopic dermatitis seems optimistic, based mostly on the pivotal ADORING1 and ADORING2 trial information launched in March and May.
Roivant announced that ADORING2 met its major endpoint of Validated Investigator Global Assessment for Atopic Dermatitis (vIGA-ADTM) response of clear (0) or nearly clear (1) with at the least a 2-grade enchancment from baseline in March, and backed that up with its May seventeenth announcement that:
ADORING 1 met the first and all secondary endpoints, in step with the optimistic topline outcomes from the Phase 3 ADORING 2 trial reported in March, marking Roivant’s tenth consecutive optimistic Phase 3 examine since 2019.
45.4% of topics receiving VTAMA achieved the first endpoint of vIGA-AD™ response of clear (0) or nearly clear (1) with at the least a 2-grade enchancment from baseline at Week 8, versus 13.9% on car (P<0.0001)
All secondary endpoints have been additionally met, and it appears as if a follow-on approval in AD may be very possible, opening up a market alternative administration believes may very well be thrice bigger than Psoriasis.
Unlike many oral or injectable therapies – Amgen’s (AMGN) Otezla, AbbVie’s (ABBV) Humira – as soon as the world’s best-selling drug – and Bristol Myers Squibb’s (BMY) just lately authorized Sotyktu – VTAMA was authorized with none security warnings, or contraindications, and in comparison with authorized topical steroids, with none period limitations or physique floor limitations (based on a Roivant presentation).
Management believes that VTAMA may very well be a “potential blockbuster (>$1bn revenues per annum) topical in both psoriasis and AD, and given the AD market is 3x larger than psoriasis, perhaps the expectation is for $1bn in peak psoriasis sales and $3bn in AD.
Such figures certainly make the case for a higher company valuation based on VTAMA alone – for context, amongst pharmaceutical companies generating revenues of between $3bn – $4bn, Jazz Pharmaceuticals (JAZZ) has a market cap of ~$9bn, Horizon Therapeutics (HZNP) of $23bn, and Incyte Corporation (INCY) $14.8bn.
Incyte’s Opzelura topical cream – approved in AD and vitiligo, and earning revenues of $129m in its first full year of sales last year – is likely Roivant’s biggest competition.
Comparison between the 2 suggest that Opzelura may have a slight edge on efficacy, but Opzelura is a member of the janus kinase inhibitor class of drugs, which has long been associated with safety risks, meaning physicians could VTAMA – a therapeutic aryl hydrocarbon receptor (“AHR”) modulating agent (“TAMA”).
VTAMA also scored highly in itch reduction, which is a key consideration of eczema patients. Finally, Roivant intends to undercut Opzelura on price, as shown below in a slide outlining Roivant’s launch ambitions.
Pfizer Partnered RVT-1301 The Next Autoimmune Cab Off The Rank?
The next major data readout after the Phase 3 triumph for VTAMA in AD – which seemingly paves the way for a full approval in that indication – is for candidate RVT-1301 in Ulcerative Colitis.
RVT-1301 targets tumor necrosis factor-like ligand 1A (“TL1A”) – a protein that inhibits B cell proliferation and helps effector B cells to maintain immune homeostasis, whose activity is linked to a variety of diseases, including Rheumatoid Arthritis, Asthma, and Systemic Lupus Erythamatosus (“SLE”), Roivant’s research shows.
Pharma giant Pfizer (PFE) is a development partner on this program, hence the creation of a new ‘Vant” or Roivant subsidiary in 2022 – as defined in a press launch:
A brand new Vant or Roivant subsidiary has been created to develop and fund these packages. The Vant shall be totally liable for funding world growth of RVT-3101 in UC and in extra inflammatory and fibrotic ailments and holds industrial rights within the US and Japan. Pfizer owns a 25% equity place within the Vant and maintains industrial rights exterior of the US and Japan in addition to illustration on the corporate’s Board of Directors.
The settlement additionally covers an possibility for the two firms to collaborate on growth of a Phase 1 stage asset, with a 50/50 price share, and co-commercialisation rights forward of an anticipated Phase 2 examine in 2025.
The consensus amongst some market watchers is that Roivant made a superb deal by securing growth rights for RVT-1301, which has demonstrated a security and efficacy profile that appears approvable in markets that provide double-digit billion revenues alternatives for a best-in-class performer – witness the gross sales efficiency of e.g. Humira – >$20bn revenues in 2022, or Sanofi (SNY) / Regeneron’s (REGN) Dupixent or Johnson & Johnson’s Stelara, >$10bn revenues every year every.
Recently, the Pharma large Merck (MRK) acquired Prometheus Biosciences (RXDX) in a deal price $10.8bn with the intention to acquire entry to its lead candidate PRA023, which has the same mechanism of motion (“MoA”) to RVT-1301. It appears unimaginable that whereas Merck is paying double digit billions to realize entry to at least one TL1A inhibitor, Pfizer is sort of giving one away to its accomplice!
Final Phase 2 TUSCANY Study information is due this quarter, administration has promised, though earlier readouts recommend endpoints shall be met. According to Roivant’s newest 10Q:
In the induction interval of the TUSCANY-2 examine, RVT-3101 demonstrated statistically vital and clinically significant efficacy at every dose examined. At the anticipated Phase 3 dose, 31% of sufferers achieved medical remission (modified Mayo) (p=0.01, 20% delta in comparison with 12% placebo) and 40% of sufferers achieved endoscopic enchancment (p=0.01, 22% delta in comparison with 19% placebo).
If RVT-1301 have been to safe approval in UC, and maybe break into different markets akin to Crohn’s Disease and IBD, and set up itself forward of PRA023, which is seemingly successful the race to market at current, the rewards may run to $5bn in annual gross sales, it has been speculated, while whilst a second or third line possibility, $2bn every year may very well be on provide. These figures are in step with at present marketed therapies, and to this point at the least Roivant’s examine information makes an honest case for a best-in-class security and efficacy profile.
Roivant might have to finish a Phase 3 examine which can possible take one other 12 months, which means Merck and PRA023 could set up a primary mover benefit, however Pfizer is a robust accomplice and will moreover comply with accomplice on the Phase 1 asset.
For context once more, Pfizer paid $6.7bn in 2020 to amass Arena Pharmaceuticals and its Phase 3 stage autoimmune asset Etrasimod, which Pfizer has guided to the purpose of approval. That is almost equal to Roivant’s present market valuation, however Roivant has 3 or 4 late stage property while Arena had a larger dependence on Etrasimod.
2 More Phase 3 Stage Assets – Breproctinib and Batoclimab
In overlaying VTAMA and RVT-1301 we could have discovered a path to maybe as a lot as $7.5bn of Roivant’s goal of $15bn+ in peak revenues. Could Breproctinib and Batoclimab present the remaining $7.5bn?
Breproctinib information from a Phase 2B examine is predicted in 4Q23 – that is one other asset licensed from Pfizer that the pharma large felt was surplus to necessities though it retains a 25% stake in Priovant, the “Vant” growing this program.
Analysts have modelled for blockbuster gross sales for this drug focusing on each TYK2 and JAK1, if authorized, and the drug has recorded “statistically significant and clinically meaningful benefit in all five-placebo controlled studies completed to date”, based on Roivant, throughout a spread of autoimmune indications. As such, this drug seems like one other obvious chance for approval and blockbuster gross sales. Lupus information and, additional down the road, dermatomyositis information appear like doubtlessly optimistic value catalysts.
Meanwhile, Batoclimab is yet one more intriguing prospect being an FcRn inhibitors – according to Neural Regeneration Research:
cRn inhibitors are anti-FcRn monoclonal antibodies with excessive affinity for FcRn at each impartial and acidic pH. Inside the cell, FcRn inhibitors compete with IgG for binding to FcRn. Because of their greater affinity, FcRn inhibitors stop IgG from binding to FcRn, and IgG is transported to the lysosome and degraded, which ends up in a lower in circulating IgG ranges.
Batoclimab is in quite a lot of late stage medical research – for Graves Disease, myasthenia gravis and thyroid eye illness, and though these key information readouts are greater than a yr away, as soon as once more the goal markets are underserved and profitable – witness the $2bn of revenues achieved by Horizon Therapeutics’ (HZNP) Thyroid Eye Disease (“TED”) remedy Tepezza final yr – while present requirements of care are prone to challenges on security and efficacy.
Concluding Thoughts – Roivant’s Pipeline & Products Suggest Blockbuster Revenues Await – & Perhaps Significantly More – A Strong, Albeit Higher Risk Investment Opportunity
Having taken a deeper dive have a look at Roivant’s enterprise mannequin, merchandise and pipeline, it is arduous to not be impressed by the corporate’s progress up to now, particularly given the disastrous failure of one of many early Vants, Axovant, which raised $315m to develop an Alzheimer’s drug, however folded shortly after burning by its money reserves.
Although administration’s goal for >$15bn in revenues from its pipeline property is a bit excessive for my liking, the corporate already has what seems a blockbuster in ready, VTAMA, on the market, and three additional property, in RVT-1301, batoclimab, and breproctinib that, based mostly on medical proof up to now, may win approval and doubtlessly thrive in multi-billion greenback autoimmune markets.
As I identified earlier on this submit, drug builders that drive blockbuster revenues from their authorized property are usually valued considerably greater than $7bn – Roivant’s present valuation. An organization with 3 authorized blockbuster promoting property would possible garner a valuation of $25bn – $50bn, supplied after all, it’s both worthwhile or on a transparent path to profitability.
Roivant made a internet lack of $(845m) in 2022, and $(809m) in 2021 – and reported a money place of $1.7bn as of September 2022, so maybe the corporate’s valuation is weighed down by its intensive money burn. This may very well be Roivant’s Achilles’ heel, and will probably be an enormous problem for administration to transition from an organization pouring billions into R&D right into a industrial stage enterprise trying to drive a revenue, however once we have a look at the pipeline alternatives in play, administration should absolutely be given a combating probability of success?
Investing in Roivant is unlikely to be for everybody, as there are a number of property to regulate, a consistently evolving and money intensive drug growth engine to take care of, and pipeline property that will exhibit best-in-class efficacy and security profiles, however should nonetheless overcome difficult information readouts and approval hurdles, in addition to fierce competitors of their goal markets.
Nevertheless, after the catastrophic failure of Axovant, Roivant’s “money-ball” type method to figuring out and pursuing alternatives in drug growth seems to be lastly paying dividends. As every alternative progresses, I’m anticipating the share value to climb till Roivant achieves a double-digit-billion valuation, or share value of ~$13 per share – and that may very well be just the start of an extended bull run.