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

Good afternoon. Thanks for joining us for another session at the 42nd JPMorgan Healthcare Conference. I'm Brian Cheng. I'm one of the senior biotech analysts here at the firm. I'm joined by my associate Sean Kim, who is in the audience today. On stage, we have Roivant's CEO, Matt Gline. I'll pass the mic to Matt shortly for a presentation followed by a live audience Q&A. If you're joining us live here in the audience today, you can submit the questions for the team through our conference portal or you can hold your hands up during the Q&A session. I'll pass this to Matt. Matt, the stage is yours.

Thank you. Good afternoon. Thanks for coming today. It's good to see some familiar faces, some new ones. It's a pleasure to be here. So I'm going to go through just a brief presentation. And then as Brian said, we'll hang out and answer some questions [indiscernible]. So I'm going to be making some forward-looking statements. There's disclaimers available here, and this presentation is available on our website. So I'm going to start with a short, but important to me, victory lap for 2023, which was just a phenomenal, phenomenal year for Roivant. I was reflecting back when we came up on this conference date last year, I talked about the fact of 2023 was going to be Roivant's best year, and it was an amazing year. We -- on our commercial program on VTAMA, we obviously spent a lot of the year expanding insurance coverage. But also we had, which feels like ancient history to the extent that no one's talking about it anymore, 2 Phase III readouts in the first part of the year in atopic dermatitis, which we'll come back to because they're going to be important for 2024. Probably the main event of 2023 was the journey of our anti-TL1 antibody, which at this conference last year, we had just put out the data from our Phase IIb induction period. And over the course of last year, we put out the 52-week maintenance data and we actually ultimately sold that program to Roche, a transaction that closed just last month and netted us about a little more than $5 billion in cash. We also have put out some astonishing data for IMVT-1402, Immunovant's next-generation anti-FcRn antibody, which we've now shown to suppress IgG, we think, in a category-leading degree without an attendant impact on albumin LDL, something that we wanted to achieve. And staying within our CRM franchise for a moment, we also showed just a couple of weeks ago data from our Phase II study in Graves' disease. We haven't said a lot about it, but it's data that's cleared the bar that we set and makes us very excited about the opportunity in Graves', so we're coming there. We weren't able to have a perfect year. So we also put out data from brepocitinib, our TYK2/JAK1 pivotal trial in SLE. We knew SLE was a tough indication. We're excited our partner Pfizer generated that data set. We're excited to have put it out. But obviously, it was not successful. And so we will not be progressing brepocitinib in SLE, but overall, a tremendous year with a ton of really important clinical data, some important transactions and leaving Roivant in a transformed position with an extraordinary capital base that will be the subject of, I'm sure, some of my presentation and many of Brian's questions on how we're going to manage that capital from here. One of the things that I'm proud of, and this has been something that Roivant has been after for a long time, is just the R&D productivity underlying this output. So this is the top 15 global pharma companies plus Roivant, number of Phase II and Phase III readouts. We focus specifically on the non-oncology readouts because obviously, oncology tends to produce a larger number of readouts. Suffice to say, we're not the most of any company, but we are right there in the mix. And the number that stands out on this page is the highlighted number. Most of these other companies have R&D budgets that are much larger than ours. And so we are incredibly proud to be able to produce this level of clinical data and this amount of important clinical data in a manner that is this capital efficient. So it's something we've always prided ourselves on. It's something Roivant set out to do at our inception and something we really feel like we showed in 2023 that we can continue to execute on generating clinical data, which is what this industry is all about, in a capital-efficient manner. We are now -- and again, this will be the subject of much of today's presentation, set up in a truly unique position. We have immense financial strength, $7 billion in consolidated cash, giving rise to proceeds for [indiscernible] transaction, really not dependent on capital raises. I've been asked a couple of times. It says here, we're funded through profitability. What does that mean? And I think if I couldn't stand up on the stage and say that it was $7 billion we funded through profitability, that would be embarrassing. So I think this is enough cash to get us where we need to go and just a really powerful position. We also have married that with quite a lot of development expertise at this point. We've generated through our portfolio 6 FDA-approved products, one of which commercialized by us. Just in 2023 alone, as I mentioned, 7 Phase II and Phase III readouts. We have 5 significant readouts and one registrational filing expected this year and 4 ongoing pivotal programs with data coming in the near future, and just a ton of flexibility to fund our pipeline, to be the partner of choice for a next generation of programs, which we'll spend some time talking about later in this presentation and to be ruthlessly economic as we always have been with our deployment of capital in order to be maximally efficient. 2024 for us is really -- it's a year of expansion. It's not like last year. Last year was about harvesting the seeds that we have planted over a long period of time. This year is about growing. It's about growing into the position that we've built for ourselves. So we have a lot of clinical data coming. We have clinical data coming, in particular, in our anti-FcRn franchise, where we will deliver data in CIDP and MG and batoclimab as well as announce and cement plans for our next-generation antibody IMVT-1402. We have further clinical data coming in a range of pipeline opportunities that I think I can safely call underappreciated, including brepocitinib, our TYK2/JAK1 with data coming imminently in NIU as well as readouts coming in namilumab in sarcoidosis and RVT-2001 in transfusion-dependent anemia in low-risk MDS patients. We will file an sNDA this year for VTAMA in AD, which we hope and expect to lead to an approval later this year, and we'll continue to grow our revenues in psoriasis and to grow that commercial business. We're also -- and this is the subject of a lot of interest and a lot of questions we're getting. We're very focused on expanding our pipeline and taking our capital position and turning it into a number of programs, hopefully, programs, just as exciting as the FcRn and the TL1A franchise that we had last year. So a lot of opportunity there. And frankly, it is an unbelievable environment for us to build those partnerships right now, something we'll come back to. And finally, [ to you ], we're going to spend a lot of time and attention on our capital allocation strategy to maximize the best value creation opportunities across our existing pipeline and across our new pipeline and so on. So I'm going to talk about each of those chevrons [indiscernible] but I want to start just by -- there's actually a mirror image of a slide that we had a year ago around where we are. And I think a lot of people will say, hey, like, what's left? And I think the thing that strikes me is we still, in my opinion, have one of the most exciting -- even just focusing on I&I, one of the most exciting I&I portfolios of any biotech company. We have a commercial product in psoriasis and atopic dermatitis. We have products in 3 of the 6 biggest I&I markets, including psoriasis, soon-to-be AD and myasthenia gravis. And then we have a number of programs on the right-hand side of the screen in markets that we think of as growth markets, markets where we feel like we can pave the way and do something different and show a really big opportunity. And a number of markets like this have been the basis for very, very large drugs across the industry. So we're really excited about our development programs in those markets. So we think, across this portfolio, we should get multiple approvals as well as 6 or more Phase II or III readouts over the next several years with a wave of potential approvals coming in the latter half of this decade. And we think it's not very difficult if you look across analyst coverage, et cetera, to believe this is a portfolio with $10 billion or more in peak sales potential as we convert some of these programs into approved products. And I'll just highlight, because we've talked about on Slide 8, the sort of growth market opportunity. We think some of the markets were in like Graves' disease, like noninfectious uveitis, like dermatomyositis, these are markets that we think we will define new categories that matter in a similar way to some of the therapies listed at the bottom of this slide. Our next chapter here is truly anchored then by this pipeline. We have a pipeline that we are incredibly proud of. I've talked about a number of these drugs. And we think there's a lot to do in advancing this set of programs. We are generating a lot of clinical data this year. For a year that is about building, we nonetheless have a lot of data coming. That includes top line data from brepocitinib in noninfectious uveitis. It includes data from RVT-2001 in the first half in our trial in low-risk MDS. It includes data from batoclimab in both CIDP and our Phase III program in myasthenia gravis. It includes top line data from namilumab in sarcoidosis coming in the second half of this year. And then as mentioned, we also expect to file our sNDA for VTAMA in AD coming in the first quarter here. So I want to pivot and talk for just a minute specifically about the FcRn program. And Pete at Immunovant is presenting at this conference tomorrow, so he'll say much more. But one of the things that we're excited about is now that we have IMVT-1402 [indiscernible] position, we're excited about advancing that franchise. We think it's just an incredibly large opportunity. And at the base of it, the thing about that franchise that has us excited -- the thing about 1402 that has us excited is 1402 suppresses IgG as deeply as any other anti-FcRn antibody and more deeply than our best established competitor in argenx. And so I wanted to remind people, there's a lot of evidence across the field and a growing base of it across multiple programs that suggests that deeper IgG suppression leads to greater efficacy. And at this point, we have that data in multiple places. We have it from argenx and J&J, who have showed in various different ways that at the patient level, deeper IgG suppression has led to better improvements in MG-ADL. We have it in Immunovant's data in thyroid eye disease, probably one of the clearest data sets we've shown it multiple times before, where we show that our high dose, we delivered proptosis response rates that were in the 40s and got a majority of patients to normal autoantibody levels, whereas our low dose that is more comparable to what argenx can deliver, we showed a significantly lower proptosis response rate. We've now shown it in our own Graves' disease data. This was really just a small comment in the press release from Pete. But in the press release, we mentioned -- remember, the Graves' study had 2 pieces to it. It had a 12-week period at 680 sort of maximal IgG suppression and then a 12-week period at 340 lower IgG suppression. And we showed a real dose response. We were significantly better able to control patients' thyroid hormone levels that are high dose than our low dose. UCB has shown it in ITP, for example, where greater IgG reduction led to greater platelet responses. And J&J in their recent RA data showed that patients with deeper IgG suppression had a correlation with better autoantibody reduction, and that was a correlation with good clinical response. So a lot of evidence to suggest that we should be in a best-in-class position with IMVT-1402 across multiple indications given the depth of IgG suppression that we can deliver. And so 1402, which is now, although it's not literally the lead asset, is probably the most important asset of our FcRn franchise. It really does have potential best-in-class attributes with deep IgG lowering, a clean profile from albumin and LDL perspective, which is something we're really shooting for this year. As a reminder, convenient administration with a simple subcutaneous injection that may, should enable self-administration at home and long patent protection out to 2043. So an opportunity to build a durable, important franchise from an FcRn perspective. I'll come back to just briefly now having talked about FcRNs. There's a couple of other things in the portfolio, including notably VTAMA, which is a commercial program. You wouldn't know it from all the conversations we have. It's not top of people's minds, but it's a program we're really proud of. It's continued to do well. Script volume growing nicely, even up through the very end of last year. And that's just in psoriasis, where we've been pleased with our ability to really saturate and convert a group of high prescribing docs and have now been growing more slowly, but steadily into a group of community physicians and folks who are used to prescribing steroids, who are getting used to the new world order with nonsteroidal medicine. So we continue to be the top-selling branded topical -- in psoriasis, we have been since the eighth week of our launch, and we hope and expect that's going to continue, and we're excited to watch this grow. We're particularly excited because what 2024 is really about for us is atopic dermatitis. So -- now that we put out the great data at the beginning of last year, we'll be filing our sNDA in the first quarter of this year. And as a reminder, atopic dermatitis is truly a much, much, much larger market. There's about 100,000 topical prescriptions written a week in psoriasis. We're currently about 5,000 scripts a week. So plenty of room to grow in psoriasis, but there are close to 350,000 topical prescriptions written every week in atopic dermatitis, just a huge opportunity. And our clinical trial was designed to maximize the breadth of our experience. We're studying patients down to the -- we have studied patients all the way down to the age of 2. Atopic dermatitis is a heavily pediatric market. We will be one of the few novel topical agents to have a label all the way down to 2 at launch, assuming everything goes according to plan. So really excited about that opportunity and excited to deliver a nonsteroidal option to patients who need one, especially one with a clean safety profile. We don't expect anything like a black box warning, which some of our competitors have out there, so a really big opportunity. More to come on that over the course of this year as we get closer to the approval, but excited to show what we can there, and I think it should be a big addition to our portfolio once we get the AD approval. So the last thing I want to do is talk a little bit about pipeline expansion, which is something that's been on a lot of people's minds. I've gotten a lot of questions about it. I know I talk a little bit about how we think about that and what we expect it to look like this year. First of all, we have a track record. We've been doing this since literally 2014. And we believe we have become really a partner of choice for all manner of potential partners, from pharmaceutical companies to biotech companies to academic institutions. We've done a number of deals with really a 10-year track record of doing this, dating all the way back to intepirdine from GSK and Relugolix from Takeda and others, all the way through to the TL1A partnership with Pfizer just last year. The main thing for us is this has to be a win for both us and our partners, and we think we've repeatedly demonstrated an ability to execute well on these programs and deliver the clinical data that matters in ways that generate value for our partners in addition to for ourselves. And we have never been in a better position to do this as a company than we are now, both because of the execution track record we now have across multiple therapeutic areas and because our balance sheet enables us to work on all kinds of things, large and small, that very few other people can say they can work on with the same confidence. We have an execution track record that we are very proud of. 1402, who does this? We had a problem with one of our programs. And within 2.5 years, we had generated human clinical data for a replacement program that did not have the LDL and albumin impact that the first-generation program did. We were basically ready to start a Phase III study within 12 months, very close to ready within 12 months for 3101. Unfortunately, we don't get a chance to prove that because Roche bought the program, but really proud of the progress we have made there. And then on the products that have been approved, we initiated a clinical study at Myovant within 6 weeks of closing the transaction, ran multiple Phase III programs very quickly and that led to an FDA approval following the sale of that program to Sumitomo. Something similar in terms of speed with GEMTESA at Urovant. And obviously, really pleased with our execution at VTAMA as well, which has led to our own commercial franchise. What do our deals look like generally? This is mostly historical information. First of all, in general, we're stingy. Our upfronts have been low. The vast majority of our deals have been less than $30 million upfront. 70% of them have had less than $10 million upfront payments. This is still the kind of deal we like to do. We like to risk share with our partners. We like to give them back-end exposure and spend fewer of our dollars on upfront payments and more of our dollars on clinical development. Our deals tend to split about 50-50 between mid- to late-stage deals, which is still a big part of what we're focused on right now on earlier stage sort of proof-of-concept kind of opportunities where we can flip a card for fewer dollars. And I'll just say on the things we have exited, which is a small percentage of our overall portfolio, and it's never our goal to exit the things we work on. Our capital efficiency has been good, ranging from fantastic as it was last year with the Telavant transaction, which was obviously an unusual situation. It was not our goal going into that partnership, to very, very good across the Sumitomo and Immunovant situations. So really proud of our ROI and focused on doing deals that probably loosely mirror what we've done historically in terms of capital efficiency and stage of development. And the last thing I'll say is there has never been a better environment for what we do. The overall environment in pharma has led to seismic shifts in the way that pharma companies think about their portfolios. There's EPS pressure driven from a variety of sources. There's a series of looming patent expiries with billions of dollars in sales at risk across large pharma. And I think they are acutely aware of this problem and working aggressively, including through M&A, to solve it. And it's something that I'm sure they'll do an impressive job of turning over their pipelines, but it leads to an opportunity for reprioritization. And then there's the backdrop of the IRA, which has led to portfolio strategy changes, right? People who thought maybe they were going to develop 6 drugs at once, one indication at a time, are now thinking maybe they need to develop 2 drugs at once, 3 indications at a time. And that also leads to reprioritization, at least to rethinking which programs they're going to focus on. And what that means in aggregate is a bunch of promising drug candidates are going to become available, and we feel pretty uniquely positioned to take advantage of that market. There's very few people, to be honest, who can show up incredibly and say, we're going to execute on a mid-9 figure development program. We're going to do it successfully. We're going to do it quickly and we're going to share with you on the back end. And so I think when it comes to some of those really important late-stage programs that our would-be pharma partners care about, we feel like we really can be a partner of choice in a unique environment. So we feel like we're in an extraordinary position for 2024. We have the capital, as I said, to fund the business profitability. We think we have the set-up, both outside and inside to expand our pipeline and to be a partner of choice. And we have the possibility to be efficient with our capital and to think creatively about how much we need for these various purposes and to return some capital to shareholders, including potentially in a way that reduces our existing shareholder concentration, something that's been a topic of interest for many of our shareholders, including the large ones over the past 12 months. So looking forward to that as well. So with that, I'm going to wrap up. I'm going to have a seat and chat with Brian.

Let's start off with the Q&A. For those of you who are in the audience, if you have any questions, you can raise your hand. There are runners on the floor. For those joining us on virtually, you can submit questions on the conference portal. I'll kick off with a question that I always get, and I think you always get the same question as well. But what is the latest on your search for assets? Given where the market is today, do you feel the urgency to execute on something? And are you also looking for -- I mean on the slide, you said that half of it is going to be proof of concept, half of it is mid to late stage. What exactly are you leaning on when you try to identify an asset?

That's a great question. I'm looking out in the middle of the audience at my colleague, our present Chief Investment Officer, Mayukh, is principally responsible within Roivant for that activity. And I do think he feels a sense of urgency. But look, I think -- so I laid out some of the ways in which this environment is unique. And I think -- when I think about why I feel a sense of urgency, on the one hand, we're in a tremendous position. We have the capital we need to run our business and that's a rare thing. Very few businesses wind up with this kind of capital opportunity. So I think we're intent and we've said this in multiple different ways in multiple different forms to take our time and to invest in the right things and to find the right opportunities to go deep and to work with our existing relationships and to find things that will really benefit from our hand and will really benefit us and our shareholders and patients when we take them on. And so I think we're intent on getting it right. And in that sense, I think we're acting with urgency, but that doesn't mean it's going to be tomorrow. It doesn't mean it's going to be next month. It's going to be when the right opportunities when the stars align in the right way. I think where I do feel a sense of urgency is the unique features that I described about the current moment. I don't know exactly how long those features are going to last in the marketplace. I don't know exactly how long large pharma companies are going to be exactly in this position. We don't know what the biotech capital markets are going to do in the next months and years that may erode some of the advantages that are unique to us right now. So I think we feel urgency to act because we want to capitalize on this moment in time where the need is there and the internal opportunity and the capabilities come together. And so I think that creates some real urgency. In terms of what it's going to look like, I showed the historical statistics. I showed that about half our deals historically have been earlier stage, half have been later stage. To be honest, I think what the Street is most focused on right now is some of those later-stage [indiscernible] opportunities, we're going to do both. In fact, if you read our 10-Q closely in November, we've already done one program that you can imagine to be earlier stage that we have not talked much about publicly or at all about publicly yet. So we're going to continue to do things in both categories. But what I think we're most focused on is finding the next sort of diamond-in-the-rough TL1A kind of opportunity, and we see a bunch of things we like that meet that broad description out there. So it's just a function of finding the right one for us and getting our hands on it.

Okay. If you have to allocate your $7 billion cash today...

I would put it in U.S. government money market funds, earning just over 5%.

That's not an option. Unfortunately, that's not an option.

That's what we've done.

So if you have to -- I mean, we talked about this many times, right? I think the last time we -- I think every time...

You don't think the people at JPMorgan who market those money market funds would be disappointed with you saying it's not an option. But anyway. The real question you're asking is how are these dollars going to go? Look, I think like we talked a little bit in the presentation. We have three categories of things to spend money on broadly. We have the existing pipeline. Obviously, some of those programs, the FcRN in particular, are thirsty programs, right, competing there with some very well-funded competition in J&J and argenx and maintaining our potential best-in-class and achieving first-in-class and indications that matter is going to take capital. So that's obviously a piece of the dollars that are spoken for. In terms of how much we're going to spend on new business development, look, I think it is relatively unlikely given our history that we're going to go out and like pay big premiums to acquire expensive [indiscernible] biotech companies and things like that. Never say never. We could find something we really love at a price that we like, but that's just not been how we've historically connected with opportunities. So I think the dollars in the "business development bucket" probably, in my mind, mostly go to development. They go to running clinical studies through the completion across multiple programs, which will be spent over a period of time, but when we're going in to work on a program, we want to feel confident that we're able to tell our partner we're going to fund this thing the whole way through. And to me, like the third bucket, the sort of capital return bucket is a product of how the other 2 shake out. It's a product of what we see in the world, how we feel about it, how it comes together. And as a function of opportunistic -- when there are specific opportunities to bring back shares at prices that we think are attractive, obviously, we'll look at them. So I don't know, I think like very rough numbers, if you thought of the capital is divided in thirds across those 3 buckets, it would be reasonable. But I think there's a lot of…

Variables depending on…

Lots between them, and it depends on how things play out.

Okay. So one more before I open the floor for some questions. On your last slide, your last sentence was you're prioritizing reducing shareholder concentration. That has always been one of the questions that we get. What is the option here to execute on this goal?

Look, that's a hard question to answer in the abstract. I guess like the first thing is when I say that part of what I mean is, it would be a shame if we did all of this, return capital to shareholders, transformed the business into the next era of Roivant's growth and didn't insofar as -- accessing liquidity has been an important goal of our existing pre-IPO shareholders. And so far as the pathway through which they've accessed that liquidity has been complicated for us in our public market experience. I think it would be a shame if we didn't at least take a shot at cleaning that up as a part of this sort of transition of eras for us. And look, I think some of our shareholders have publicly indicated an intention to hold the stock for a really long time, and we're excited about that. We welcome it. We're pleased to have them for the long run. And some of our shareholders have indicated that they are not in a position to do that. And I think we'd like to take this moment to work with them and to figure out how to get them the liquidity that they need as a part of whatever we're doing here.