Roivant Sciences: Cashing In On Vants And Ventures (NASDAQ:ROIV)

Roivant Sciences: Strategic Moves and Diverse Pipeline

Roivant Sciences (NASDAQ:ROIV) is down nearly 5% since my last update in September. Back then, I highlighted the company’s strong balance sheet and opportunity in dermatology. Roivant has been quite busy recently.

Earlier this month, Roivant announced its intention to buyback $1.5 billion of common stock, reducing the number of outstanding shares. This followed the $7.1 billion Televant sale by Roivant to Roche (OTCQX:RHHBY). Front-and-center of the deal was RVT-3101, an antibody targeting big indications like ulcerative colitis and Crohn’s disease. Televant was one of the few subsidiaries (often referred to as “vants”) of Roivant. Because Roivant owned 75% of Televant, the $7.1 billion was quite a payday for the parent company. This was evident in the cash and cash equivalents Roivant reported on their balance sheet, which increased from $1.67 billion on March 31 to $6.67 billion.

The buyback was announced alongside the results of the Phase 2 NEPTUNE trial by Roivant and its subsidiary, Priovant Therapeutics. Brepocitinib was found to be effective in treating non-anterior non-infectious uveitis (NIU), an eye condition that has a high risk of blindness and few effective treatments. Brepocitinib is a JAK inhibitor, which is a class of medicine approved for conditions like rheumatoid arthritis and psoriasis. The data is preliminary, but brepocitinib may have potential in this difficult-to-treat eye condition.

All week 24 secondary efficacy endpoints, including haze grades, visual acuity, and macular thickness, were also positive and dose responsive. Of patients in the brepocitinib 45 mg arm who met the threshold for uveitic macular edema at baseline, 43% achieved resolution of macular edema by week 24. No patients in the brepocitinib 45 mg arm who entered the study without macular edema developed macular edema by week 24.

In February, another subsidiary of Roivant (who owns 49% of fully diluted shares), VantAI, revealed a $674 million collaboration with Bristol-Myers Squibb (BMY). VantAI is focused on “generative AI-enabled drug discovery.” The collaboration focuses on targeted protein degradation.

So, with the many “vants” in circulation, there’s often a lot to report with Roivant. As you can see in the image below, their pipeline is pretty diverse.

I’ve covered both Vtama and batoclimab, an intravenous anti-FcRn monoclonal antibody, in the past. Batoclimab, in my opinion, is an undifferentiated drug for autoimmune conditions like myasthenia gravis and Graves’ disease. argenx’s (ARGX) Vyvgart is the leader in this space at this moment. Batoclimab is Immunovant’s lead asset, but they are also developing a differentiated, at-home subcutaneous anti-FcRn antibody, IMVT-1402. I recently discussed this Phase 1 asset in detail.

Vtama, a once-daily, non-steroidal cream for psoriasis, delivered $20.7 million in the quarter ending December 31. Per the company, “over 300,000 Vtama prescriptions have been written by approximately 14,000 unique prescribers for psoriasis.” Moreover, Dermavant announced promising Phase 3 data for Vtama in atopic dermatitis and, in February, submitted a sNDA. However, Vtama has underwhelmed so far in the crowded psoriasis market, with analysts lowering their peak revenue estimates from blockbuster status to a humble $400 million.

Financial Health

As of December 31, Roivant had $6.67 billion in cash and cash equivalents. The company’s total liabilities are just $244.89 million, which pales in comparison to their total assets.

Net revenues (product and license) totaled $37.1 million for the quarter ending December 31. Total operating expenses (SG&A, R&D, and cost of revenues) for the same quarter were $324.6 million.

Excluding the one-off gain of the Televant sale ($5.348 billion), Roivant’s yearly expenses are ~$1.2 billion (which is also consistent with 2022 losses), with not much income to offset these figures. Their cash runway estimate, based on the above figures, extends over five years. However, this estimate is based on historical data and may be overly simplistic.

My Analysis and Recommendation

Investors are often puzzled when a biotechnology stock, like Roivant, is unmoved by major news, like a $7.1 billion subsidiary acquisition. In reality, this did not mean Roivant was suddenly worth billions more. It just means they converted Televant’s assets into cash. Remember, stocks are valued based on the net present value of expected future cash flows. For Roivant’s stock to move upward, the market wants evidence of sustainable value creation. Vtama was once seen as a drug that could move the needle, but expectations are starting to wane, and rightfully so.

Yes, Roivant’s stock has been buoyed by promising developments like the Televant acquisition and Immunovant’s advancements in autoimmune diseases, but there isn’t much meat on these bones yet. Still, I like the idea of Roivant (and its focused “vants”) and believe this is worthy of speculation in a barbell portfolio in which 10% of its allocation is focused on high-risk, alpha-generating stocks, like biotechs. The company has so far made good use of its resources and it has an enormous cash reserve to deploy. Moreover, IMVT-1402 has now replaced RVT-3101 as Roivant’s most interesting prospect (I initially reviewed 3101 upon my first “buy” recommendation of Roivant before the Televant deal was struck). 1402 is expected to begin Phase 2 trials later this year. Recall that 3101 was acquired shortly following Phase 2b results, so these drugs can see considerable upside in short periods of time.

Hence, Roivant remains a Buy, although it has been a frustrating hold. Investors should be aware of the risks involved. I can think of three idiosyncratic risks. For one, $6 billion in cash doesn’t have a tendency to last long in unprofitable biotechnology ventures. Two, any of Roivant’s drugs, like 1402, may disappoint in late-stage trials. Three, there is considerable competition in the pharmaceutical industry, as evidenced by Vtama’s slow uptake in a crowded psoriasis market. As always, investors should deploy a diverse portfolio of stocks and other asset classes to mitigate idiosyncratic risks. The goal is to expose yourself to alpha (upside) and avoid ruin.