Roivant Sciences Ltd. (ROIV) Earnings Call Transcript & Summary

Thank you guys for being here. Pleasure to have a management team from Roivant join us. You guys have a lot of cash, what you're planning on doing?

We do -- look, post the deal close, we will have roughly $7 billion. I think, look, that's an incredibly privileged place to be. In this interest rate environment, getting over 5% interest on that is not a bad place to be. And the deal hasn't closed. We said it's going to close towards the end of this year or beginning of next year, so don't have it yet. But look, we have -- our burn is roughly, what, 200 a quarter or so. We're spending that on the VTAMA launch and a lot of multiple late-stage clinical programs, we just had fantastic data on 1402 for an Anti-FcRn asset, that can obviously go pretty broad in terms of indications and there's a lot of things out there to be done in terms of deals, right? I think, look, big pharma is going through a very unique period right now where there's a lot of EPS pressure and there's deals to be done like Telavant many, many times over. Look, we -- and even deals like we did on Anti-FcRn from a company like HanAll. So I think we're going to really think long and hard about how to deploy the capital appropriately first for internal pipeline, I would say, next to do more deals similar of the nature that we did before with low upfront to really fund late-stage clinical programs. And then I think even there, we would probably have some left over for to return back to shareholders.

Okay. Got it. So maybe just to orient then, is there -- let's start with the return to shareholders. Has there been any consideration or has there been any active shareholder feedback?

So I would say -- look, I think the feedback at this conference and from shareholders has been our price doesn't make a lot of sense. If you look at the stock price, we're pretty much trading at cash. You're not even getting -- you basically are getting Immunovant for free. We own 55% of a public entity that has a valuation of $4 billion. And so you're -- we're not getting any credit for the pipeline. And so that's a very good setup for share buybacks. And so I think that's sort of been a lot of the feedback from shareholders. I think the other piece here is we obviously have an overhang from some of the insiders who help us from the company.

Insider share sales?

So obviously, SoftBank, Sumitomo, [ QBT Viking ], they helped fund the company from the very beginning. And that's certainly something, I think, that we've been focused on trying to resolve...

Like transition them over or make -- do a formal offering to clear the air?

Look, I think everything is sort of on the table there. But that...

But presumably, where the stock is now versus a year ago, it's not -- it's actually lower than a year ago. Then why is there pressure today?

Yes. No, you obviously need -- willing sellers at the current price, right? So certainly, you can't just sort of do this on your own.

I see. Okay. Got it. So -- okay. So maybe -- and I'm trying to put together the big picture. So -- and when you said shareholder returns, like would you consider putting out a dividend to shareholders?

Look, I think everything is on the table. I would say the honest feedback has been to do a share buyback.

Got it. And that would -- so remind me what's the share count right now, for example?

So we have roughly -- I mean, it sort of depends on 800 plus depending on how you treat the options. I don't know -- look...

Let me just translate it perhaps. You're saying one-off dividend back to shareholders is this cash that disappears. I don't know if it's the best interest of everybody because it only benefits current shareholders, I guess, is what you're implying. But what you're also saying is you may be able to solve for 2 things, one being there's some insiders from over the years who may be looking for to sell some, but you don't want to create that pressure in the marketplace. So you need to buy back shares, but instead of buying back in open market, you buy it from them.

Potentially. I think that's one option. Like look, I think the main thing here is that I would focus on is we have a lot of great things already in the pipeline to invest in. So that's the number one thing I want to do. Number two, there's a lot of great deals to be done. As you're aware, there's a lot of pressure on big pharma. And so that creates a unique -- we think we're one of the few companies that are capitalized to do these types of deals. And then share buyback is like whatever is left over. So I wouldn't be too focused on that. I think the real value we can create here is by continuing to invest in the pipeline and in VTAMA and then continuing to do deals.

Got it. Okay, makes sense. Maybe -- and again, I want to get a little more asset specific as well, but maybe just as we're getting going here. Clearly, over the years, Roivant's has done a lot of deals, several approved products, et cetera. But if you really weighed on true success that investors have rewarded, it's been 2. It's not been the 5-plus FDAs because even VTAMA, there's mixed feedback on that in terms of true investor approval of that in terms of assigning a lot of credit. It's been the TL1A deal, and it's been obviously the FcRn deal. And I guess my question is, in light of what we saw in TL1A, which was one of the larger value creation in such a short amount of time frame, is there more openness at pharma to partners at programs like that? Or is there more nervousness that I don't want to get fired for like a quick flip that Roivant has been doing?

I think, look, you knew me back from my old pharma days, and I was there for 10 years. When you -- look, I sat on with the Innovation Management Board of that company. And there's a lot of -- when you show up and you have a lot of success, the only way for me to get the margins that you want me to get is to actually get rid of products. So if I have a success, they -- the CFO looks at me and says, you need to manage R&D and something needs to go. And I think Roivant is one of the few companies that is capitalized to be -- actually be able to fund those products. I think we're capitalized in such a way that we can safely say that I may not have to raise capital again, and I can fund -- exist where I'm today through profitability and still do other deals. And I think we have a track record where we've had 6 FDA approvals under our belt. We've had 10 positive pivotal sort of Phase II, Phase III trials and can execute. And so I think there's very few companies that have a similar setup. At the same time, to be very honest, with like, you know, egg on your face, I actually think it was a pretty fantastic deal for Pfizer. They get $2 billion-plus back. They still have ex-U.S., ex-Japan. They have a great partner. They have the bispecific anti-TL1A. So actually, I don't think they have that much egg on their face, and they -- and it's the right thing for patients. And I get full value for the program today.

Yes. Okay. Maybe continuing to move on. While over the course of last year, you guys were sitting on the TL1A asset as well as Immunovant moving forward, one of the feedbacks -- and again, I don't cover Roivant, one of the feedbacks I was hearing a lot of was a possibility that Roivant might explore an immunology spin-out where the TL1A and FcRn both go together. And I think when the TL1A news came out as much as you guys got a great valuation, one of the questions that immediately came up was, well, why weren't they packaged together or not? And look, part of that depends on whether an acquirer for example, a former company that you -- would they even be interested in 2 things? Or do they just want TL1A? But how do you think about that? And how are you guys approaching those conversations?

Yes. Look, I think we are here to be a biopharma company. We want to make good drugs. And I think, look, sometimes people show up and give you a deal that you can't refuse. And so certainly, I think that was one of those times. I also think with the anti-FcRn asset, we have -- especially with the data that came out yesterday, we're the only company that has 2 different antibodies. You have incredible flexibility there to price differently, to think creatively across multiple different indications. And I think with the data that comes out from competitors, we continue to -- the negative Argenx data that, for example, came out yesterday, I actually thought it was a very positive thing for us. Look, if I can get IgG suppression at 80% versus the competitor at 60%, that's a pretty -- I feel like we can win here to have a best-in-class asset with 1401 and 1402 because you can run efficacy, and you can manage the LDL side effect profile fairly easily with statin. So I do think that the setup here is pretty fantastic, and we're here not to -- sometimes you can't refuse deals, but we're really here to launch drugs and to continue to do the right thing for patients.

Got it. Now as we think about capital allocation, it sounds like what you've mentioned is first priority is FcRn, which is your most advanced program and probably one of the highest conviction ones. And one, the capital -- one of the priorities, but on the lower end is the share buyback that you mentioned. But if I think about the FcRn, theoretically, given the valuation that Immunovant has, they can raise all the capital they need. They don't necessarily need capital from you. So how are you guys thinking about that dynamic?

Yes. Look, I think the dynamic is pretty -- it's a great setup because I, in the last year that they did, I participate -- 55% of the company, I show up, I want -- I think it's a great asset. Obviously, I will continue to, if they need additional capital, continue to fund them. And then I have the rest of The Street to help me fund that. I don't need to fund that on my own.

You're maintaining that 55% -- do you want to keep above 50%. Is that a goal?

We want to maintain majority ownership. I think this is a pretty incredible asset for us, and it's a great setup, where I don't have to pay for all of it myself.

Got it. So -- and because it sounds like -- and I had an extensive conversation with Immunovant yesterday. I don't want to go through the nuance of the data with you, but one of the points that stood out to me was last time I spoke to them a few months ago and I was doing a bunch of work on them, as you know, some time back, it wasn't clear to me that the broader indications like arthritis, et cetera, were a focus for them, but it sounds like that's very much on the agenda now more so than it was previously. And I couldn't tell if that's because there's more openness to spending like that from your front or not.

Look, I think it's obviously a competitive race. And so I think we are being careful about leaning too much on exactly which indications we're going into. But if you have 2 different antibodies, obviously, like RA is a much more prevalent indication. Pricing there is pretty established. In MG, pricing is pretty established also with Argenx, you don't really have an ability, I think like other companies don't have an ability to really think through that carefully. And so we are in a privileged position there to think through that. And also, I would say the data that we've seen emerge is HUMIRA-like. Again, we have better IGD suppression, so that should drive better efficacy, and I may not need to have a combination partner. So certainly something we're thinking about. I don't think we've made a decision yet.

Got it. So Immunovant is spending about $250 million a year, and maybe that ramps up because they do a bunch of more trial, let's say, they do $500 million a year for the next 3, 4 years. But even that, in aggregate, it is about $2 billion spend. If you're doing half of that, that's $1 billion. So you got $6 billion more then.

Yes.

So are you guys exploring commercial stage stuff? Is there an interest in heading towards being a profitable company relatively fast? Is there interest in like a commercial stage or a near-commercial stage company?

Look, I think the sweet spot for us is big pharma, right? There are -- there's a lot of pressure. There's, I would say, we are still in a really tough funding environment. And there's few companies that can execute and fund good programs. And the way we've always done these deals is we -- typically, there's a fairly minimal, under $100 million spend, sort of fairly low upfront. We flip the data card and then we say, do we go into a bigger pivotal program? And I would say there's never been a better environment than right now to continue to do those deals and the pressure continues on these companies. So that would be the -- I think that should be the key focus of what we're looking at. Are there -- I think there's probably companies out there that have commercial programs that have maybe not done as well or -- like relaunches can be difficult. And so look, I want to be conscious of that. And I would say a lot of these companies as well, probably their boards and senior management are holding on to their old 52-week highs versus the reality of their 52-week lows. And so I'm not sure how much there is to unlock there and look, we have our own VTAMA launch program, which we still think could be a potential blockbuster.

Got it. Maybe -- and I know there's a couple of minutes remaining, but can we talk about some of the programs you guys have in-house, perhaps beyond. Where is the expectations on the demo into next year? And how do you think about the gross to net evolution?

Yes. So we were at 20% last quarter. We have -- but there's probably, what, 80,000 topical scripts per week in psoriasis. There's another 320,000 in AD. We had, I would say, some of the most exciting data I've seen in -- with the 2 Phase III studies in AD, that went down to the age of 2.

What's your share of the 80,000 scripts?

So roughly -- a little bit over 5% at this point. So we have, what, 4,500 or so scripts per week. And look, if I get 6% share of 400,000 at 50% growth today, you're a blockbuster. So there is -- the AD market really, I think, is an interesting opportunity for us. If you look at the competing products that are out there, they are in the mild to moderate population. They're not down to the same age level and the labels are difficult, right? I mean...

The run rate right now, is sub-$100 million, correct?

Yes.

Okay. Got it. Okay. Excellent. What about the sarcoidosis opportunity and when that readout is.

So that's -- look, that's a Phase IIb 100-patient study that is -- we have -- we don't have data yet for this mechanism. GM-CSF is -- I think there's a pretty good proof of concept here that it's related to the granulomas that are formed in pulmonary sarcoidosis. I would say -- and there's a big need with not a lot of competition.

Got it. So maybe as we start to wrap it up, and I know you have some visibility on the [ M&A ] that team at Roivant. Is there inbound or ongoing diligence -- live diligence efforts, has that amplified year-over-year? Or is it about the same just -- or is there more -- are they under more of a gun to get something done or some annual target now?

I mean, I would say we're incredibly active. We were incredibly active before we did the deal, and we're very proactive. And so we have the team doesn't sit still and very similar levels of activity. I think we're also being very careful to make sure that we're doing a couple of these types of deals. These are big programs typically reimbursement takes some time. And we -- just because we have -- we're going to have $7 billion, we want to be careful about how that is spent.

Excellent. So just as we wrap it up, I want to be clear. What I didn't hear from you is an interest in going out and looking for an asset like a multibillion dollars, mid-biotech, which is commercial state. It doesn't sound like that's a high priority. You're not saying no, but that's not a high priority. The other thing you also didn't say which kind of surprised me, and I thought that might have been something of interest, given the balance sheet, $7 billion, you may have explored a 50-50 on a Phase III trial with a pharma on something you guys are interested. It sounds like that's not an interest either. You're still looking at $20 million upfront to get like a TL1A of sorts...

I think we're pretty creative on the deal side. So if a big pharma wanted to do some indication -- I mean, indications spending deals, typically, I haven't seen a lot of them work and they can be difficult. But certainly, I think, look, we're very open, creative. And so we look at everything pretty thoughtfully, but the wheelhouse would really be similar to the deals we've done before.

Excellent. Well, thank you so much.