Biotech Breakthrough

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Biotech company Roivant Sciences, founded by GOP presidential hopeful Vivek Ramaswamy, has been stirring attention since its October 2021 public debut through a SPAC deal. The company has made headlines for selling a drug for IBD to Roche, strengthening its balance sheet. The sale, coupled with a strong drug pipeline and revenue from royalties, suggests that the company is well-positioned to leverage significant cash reserves for mergers and acquisitions. Despite these promising developments over the last few months, markets remain skeptical about the company's future. Roivant is currently valued below its cash holdings plus the Roche deal's proceeds. Can Roivant effectively monetize its pipeline and unlock shareholder value, or does the market's doubt about its future hold merit?

Gut Feeling Pays Off

Swiss Pharmaceutical giant, Roche, has recently struck a deal with Roivant Sciences and Pfizer, agreeing to an initial payment of $7.1 billion for the rights to a novel inflammatory bowel disease (IBD) drug. IBD, which encompasses chronic gastrointestinal disorders like ulcerative colitis and Crohn's disease, affects nearly 8 million people globally, with 80% not achieving lasting remission. Following promising results in Phase 2 trials against ulcerative colitis, Roche plans to expedite the drug's Phase 3 human testing.

Roche's acquisition involves buying Telavant Holdings, a joint venture between Roivant and Pfizer. Telavant was established to develop, manufacture, and commercialize RVT-3101 in the United States and Japan. Roivant holds a 75% stake in Telavant, with Pfizer retaining the remaining 25% and the rights to RVT-3101 in other global markets. This deal marks a swift victory for Roivant, which entered into partnership with Pfizer just 11 months prior to developing RVT-3101.

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Cash-Flush But Undervalued 

Roivant Sciences was last trading at $9.13.share, giving it a market capitalization of approximately $7.34 billion. After accounting for the $900 million in net cash, the enterprise value of the company stands at a somewhat surprising $6.43 billion, especially given the recent deal with Roche. Roivant's stock initially surged after the announcement of the Roche deal, but quickly fell again, which indicated investor apprehension about the potential of Roivant's other assets and the effective deployment of the cash influx.

The company's current portfolio includes a commercialized asset, two assets in Phase 3, five to six in Phase 2, and a couple in Phase 1. However, not all these assets are fully owned by Roivant and some are held through subsidiaries like Telavant, Immunovant, and Arbutus. 

One such potential move is to acquire the remaining stake in autoimmune disease-focused immunology subsidiary Immunovant. Immunovant's shares have spiked by 50% since Roivant announced the sale to Roche, so it might be likely that Roivant will need to pay a premium for the deal. Given Roivant's successful track record in acquisitions, shareholders could benefit from the forthcoming activities. 

Skin Deep Struggle 

Roivant Sciences currently has one commercial asset through its subsidiary Dermavant and is looking to expand its coverage with a phase 3 study. The asset, called Vtama, a nonsteroidal topical treatment, has had a recent trail, which has paved the way for its potential approval for atopic dermatitis (eczema), adding to its existing indication for plaque psoriasis. However, while Vtama's clinical performance has improved, its market performance tells a different story. Despite high expectations set upon its approval in May 2022, it has struggled to establish itself as a transformative treatment for autoimmune skin conditions.

Vtama's sales in the most recent quarter were $18.4 million, only a 10% increase from the previous quarter, which does not align with the internal forecasts set out by Roivant. The sales fell 24% short of the $24 million analyst consensus, leading to a significant downward revision in the long-term sales projection for 2032, from $1.4 billion to just $407 million. Some of the recent decline in Roivant's stock is also attributed to the modest growth in sales, further questioning the long-term viability of the company's clinical pipeline. 

Analysts point out that Vtama's growth has been lackluster despite increased formulary access and direct-to-consumer advertising. The reasons for this include comfort among physicians and patients with generic topical steroids and the presence of branded competition in the market. Roivant attributes the sales stagnation to concerns voiced by prescribers about coverage, particularly in larger pharmacies, and is actively working to bridge this perception gap. 

Roivant remains optimistic about Vtama's future, particularly its potential approval for atopic dermatitis, which would significantly expand its patient population. Clinical data from two Phase 3 trials showed Vtama providing immediate and long-term relief from pruritus, a prevalent symptom of eczema. Based on these results, Roivant plans to seek approval in the United States and for this indication in the first quarter of 2024. However, time will tell if the company can commercialize the opportunity after receiving clinical approval, given the slow start to Vtama. 

Bottom Line 

Roivant Sciences, bolstered by its substantial cash reserves post the Roche deal, has significantly reduced its financial risks. The company's strong balance sheet, combined with a promising pipeline of biotech assets and ongoing royalty revenues from its products, paints a promising future for the firm. While there are concerns, particularly with regard to the stagnating sales of Dermavant's Vtama and the implications for other developing assets, Roivant's proven ability to monetize its assets and secure clinical approvals should outweigh these risks. With a solid balance sheet and several merger and acquisition prospects on the horizon, Roivant is well-placed to build on its recent successes. 

Source: Biotech Breakthrough