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

Okay. Thank you, everyone. Excited to have Roivant management join us. there's a lot of directions we could go. But I'll let you kick things off, and we'll jump right into it.

Oh, thanks. Let me kick things off. Look, thanks for having us, first of all. It's really great to be here. And it's exciting to see everybody. We are feeling great about our business right now. We have an incredibly stacked 2025. We've got data at Immunovant and a bunch of important indications. We have registrational data in our JAK1 TYK2 brepocitinib and dermatomyositis kind of in the middle of the year. We have a litigation with Moderna that some people are focused on that plays out with the jury trial in September. So just a really busy year ahead, and we're spending a lot of our energy and effort right now getting ready for it.

Can you remind me just -- actually I'm going to ask you now because I want to bring it back to 2023 conference. Remind us, Richard, what's the market cap versus the cash balance versus any of the other commitments? Because I feel like we should start there because that's kind of like how the stock is getting valued.

Yes. Yes. So market cap is roughly 8%, cash balance, 8%, largely 5.5% and then we own 55% of Immunovant, which is market cap, roughly 4%, so.

Okay, wait. So, wait, wait, wait. $8 billion cap. Cash is -- I don't know why I thought you guys had closer to $8 billion to $9 billion. Okay, because the 25% was for Pfizer out of the transaction. $5.5 billion cash, and sorry...

55% of Immunovant.

55% ownership of Immunovant.

Which is near roughly $4 billion.

It's about $2 billion of -- we own about $2 billion of Immunovant stock.

Right. So it's effectively cash plus Immunovant and fairly limited credit for the rest of the portfolio.

That's right. Yes. Exactly.

Did you guys get credit for getting all that burn off? I didn't realize how much burden was on Dermavant.

I don't think we got credit for getting off.

And the debt as well.

I mean we had roughly...

I was calculating it to north of $200 million worth the burn off of that.

I agree. That's absolutely right. A year probably.

Annually, exactly the numbers .

Yes, I totally agree. Yes, look, commercializing a dermatology asset right now is [indiscernible]

And you got cash, too, which was separate.

And we got cash, too. Yes. But we'll wind it between sort of upfront and highly likely milestones will end up taking in probably $400 million, $500 million in cash.

Okay. I guess the first question, Matt, I want to get to your pipeline in the first question is for the pace of capital deployment, and I ask because a lot of the folks at the Roivant investment team are friends of ours from the buy side over the years. And so there's this general buzz that obviously team is very active, very engaged, but also there are questions around, are we sort of holding our breath for something more significant coming? Or you guys want to do a steady stream of smaller size deals? What exactly is on the -- what's the priority list?

Yes. So there's a couple different ways to triangulate that question. But in terms of like your capital deployment, we -- as of the beginning of this year, we had about $6 billion in deployable cash. And we sort of bucketed that into 3 places. We said roughly $2 billion of that was for our existing pipeline. It was for things like funding Immunovant, funding brepocitinib, funding Dermavant at the time. Roughly $2 billion of it was for new stuff, BD. So we can talk about what that means. And then roughly $2 billion of it, we viewed as kind of the excess that we started to return to shareholders via buyback program. So we've now bought back about $900 million in total. We have another, call it, $600 million authorized on this program.

Is that right? You guys are buying aggressively.

Yes. So we bought back about $650 million of that we bought back from 1 holder at $9.10 a share in April. And then since then, we've been out in the market kind of pulling stock in.

Got it. Now I see.

And so the idea there was to shrink the cash balance a bit and frankly, to own more of the company going into 2025, which, as I said, is a year we're pretty excited about. So then your question really focuses on that sort of middle 2, right? The piece that we expect to deploy on new stuff. Now I think what I've said in other forums is we'd like to do, call it 1 "big" and 1 "smaller" deal a year, is probably like the pace that we're shooting for. But what big means for us is mostly big on the capital commitment side, meaning something like the TL1A, for example, where it's not so much that we were paying a lot upfront.

That was $20 million more or less.

It's not so much that we're paying a lot up from for, but our expectation was that we were going to spend $500 million running Phase III programs in IBD. And so it was a big deal for us because it had a meaningful impact on our balance sheet, a meaningful impact on capital commitments, all of which is to say, I think -- and I think everyone understands this about us. But like I think we are a bad sort of premium buyer of public biotech companies. We're just preternaturally stingy. So even big deals for us are going to look like relatively low upfront dollar things. but where we can deploy a lot of cash from an R&D perspective to develop assets in big opportunity sets with complicated late-stage development programs.

Do you guys think there's now this expectation that you have to pull at least on TL1A look-a-like over the course of whatever next 3 big deals you do, just because that was sort of like the recent track record? And is that something that sort of raises the bar internally as well on what do you do next?

I don't know. I don't...

Clearly, you're trading on cash plus, but it doesn't look like the stock.

I don't think anyone expects us to do that. It's not [indiscernible]

Are your holders sort of holding their breath for something along those lines that you'll find something like that again?

I do think we will find something like that again. I don't know that's not a direct into like why people are holding the stock. I think it is hard for people to believe the opportunity set that we see because, look, you and your sort of -- you all collectively sort of buy side, just like play a different sport than we play. And the sport that you play is like a very specific kind of competitive where the reason that we're able to do what we do is because the sport that we play is mostly not competitive. That is like the number of people around the table for the kinds of things we are looking at is small. And I think that's like hard for people to believe until we do things. And so I think -- I don't know if we will ever get credit for like the kinds of deals that we do as much as I think we'll get credit for the assets after we do the deals. I do think some of our holders like the upside sort of skew of being able to own the stock before such a deal. And look, if you own Roivant in the fall of 2022, we were trading at $2, $3, $4 a share. And the value that's been created on top of that was, in large part, though not entirely, a function of the TL1A 8 deal.

Got it.

Even though we did the TL1A deal, the stock issue went down a bit. Let's be realistic, so.

Somebody wrote a note saying it must have meant we got something wrong about it.

Right, right, right. That makes sense. Makes sense Okay. But therapeutic areas of focus you guys are agnostic, too?

We're agnostic. Look, I think there are certain areas where there is a lot of value to concentration like oncology, and those areas have been harder for us because we don't have a big concentrated portfolio already.

Is there areas you're saying that you're not going to do? There are street buzz you guys are saying CD19 bispecifics is not for you?

We like CD19 bispecifics.

Is that right? Okay. There's buzz going around that you guys are walking around the list of 25 companies and you were saying this is not where we're going to play.

We do have a list of 25 companies or more than -- well, with the last things we like, we have a list of things that are interesting late-stage opportunities on it. But we like CD19 bispecifics. In general, my view was like that field has gotten a little bit specifically CD19/CD3 bispecifics have gotten like a little pricey lately. And I wish if we were going to pull the trigger, we pulled the trigger a while ago. But there's a whole bunch of stuff adjacent to that, that I think is pretty interesting. And then I think there are development strategies for T cell engagers that we can get excited about. But I think it's...

Got it. Okay. Until something it's hard to value.

Okay. But I'd say, it's never say never, but it's tough for us to write a $600 million, $700 million check, and that's what some people have had to do to get into that game.

Got it. One last higher level, and I want to start to get into the pipeline programs. There's a question that was on my mind, but it's less relevant now, which was Vivek's shareholding at Roivant. And in a scenario had he gotten a government job, what would that have meant? He would have had to liquidate? Like how would that dynamic have worked? I realize it's less relevant now because he doesn't technically have a government job as part of Deutsche.

Yes. I don't think Elon Musk is going to sell all of his Tesla shares. And therefore, I don't think Vivek is going to sell all his Roivant shares.

That right. That's it. For Vivek, as you could probably buy but.

Look, I think Vivek has been a committed holder of the company. He has not sold a lot of stock over time.

Okay. But as a government employee, you can still hold on to your private holdings?

So if you are appointed to a cabinet position in which there is a direct conflict of interest.

HHS.

Like HHS, for example, he might, in that situation, have to sell his stock. If he was appointed to any other cabinet positioning.

My understanding, he was in the running, but he could delay running again at some point.

That's a better question. I don't -- it would surprise me personally if he wound up as HHS Secretary. But lots of things will surprise me.

Okay. Got it.

Anyway, that kind of thing, I think, could recur.

Only in that an area where there have been this dynamic to manage. But it sounds like even in that scenario, it's manageable because you guys were able to buy close to $1 billion over the marketplace?

And the truth is like, yes, look, I think if he sold that stock into the market, there would be buyers for it, and we would be one of them.

Got it. Okay. Excellent. So maybe turning to programs, more specifically, I want to start with perhaps the LNP platform because your mind first goes some of the drugs. But on the LNP, what could the optionality look like in dollar size of a potential settlement or something along those lines?

So those questions are always obviously hard to answer in the middle of the litigation. But the simplest thing I can say is there are $150 billion roughly in global COVID vaccine sales. When we've done deals in the LNP for COVID field, those deals have had royalty rates ranging from mid-single digits to mid-teens.

Really, that high?

And so if it was anywhere in that range, it would be a big dollar number. Those deals were all preclinical deals. They're not necessarily good precedent, but that's the data points we have our hands on. That's across both Pfizer and Moderna, that's across bunch of different jurisdictions.

Got it. Okay. Got it. And we get a summary judgment in the Moderna case in second quarter?

Yes. Summary judgment -- well, sorry, the summary different phase of the trials in the quarter. What that means practically is there are a bunch of legal issues that will be decided then. And then the actual infringement case is a jury trial that is currently scheduled for September. So there will be an infringement and damages outcome in 2025.

September next year?

September next year. Summary judgment will be important, but it's not going to give the final answer.

Okay. Fantastic. Excellent. Turning to perhaps, I hosted Immunovant earlier today. So a lot of the nuance stuff actually, actually did with them as well. So maybe let me start with the TYK2 JAK1 program. First question, and I remember having a chat with my couple of years back on this as well. Should it be our base case that there would be a black box for this program?

I think, yes, that should be our case.

And he was very realistic in that. It was not in...

That's right. The answer to that question is yes.

Okay. So in that backdrop, for this specific indication that you guys are running the Phase III. And remind me, the endpoint in dermatomyositis, how established is the endpoint that you guys are running?

So Octagam was approved on total improvement score. It's the approvable FDA endpoint. It's widely understood in the doc community. It's where -- yes, so the answer is it's well established as an endpoint. It is a -- it's one of these like...

So that's the mean TIS score?

That's right. And it's -- it's one of these composites, though, really [indiscernible]

But do you not want to talk [indiscernible] -- I'm thinking [indiscernible] I'm thinking muscle weakness. So the first thing in my mind is, as a patient, you would want to see muscle restrengthening. So when I look at this TIS score and there's all these domains in it, one of the 6 domains actually hits that manual muscle testing or extramuscular activity. Wouldn't you want to hit those domains in particular, regardless of what the score looks like?

Well, just to be precise on what you said, the muscle testing is exactly what you're picturing. It's like people lifting weights. Extramuscular activity is actually the opposite of what you're -- I lift fewer weights, actually more weights. The extramuscular activity is actually the opposite of what you're thinking. That's like measures of skin and things that don't actually have to do the muscle. That's extra. That's other symptoms. Yes, that's dramatic part. That's like other things that don't have to do with the muscle. Then there's also -- you look at various enzymes that relate to muscle breakdown. That's another way of measuring activity against the muscle. Those are -- look, I think those are really important enzymes. I think -- those are endpoints. The sort of functional endpoints there like lifting and things like that are going to matter to patients. That said, remember, morbidity and mortality in DM is bad. These are sick patients. Many of them die within 5 years. It's like a tough disease. And so I think while it is...

So is there not a requirement to hit those muscle-specific domains in the context -- or as long as the mean TIS hits.

Hitting TIS is the approval endpoint.

And you have -- is there an SPA on this?

There is not an SPA on it. That's not the kind of thing that you would get an SPA on. Again, Octagam, Pfizer's IVIg was approved on this. There's also -- there has been an investigator-sponsored open-label study of tofacitinib in dermatomyositis. It's called the STIR study. That study showed meaningful improvement in TIS. It was open label, so it's hard to compare exactly to what we expect. But yes, improvement in TIS is the FDA approvable endpoint.

There's also a dermatomyositis disease activity index. Is that a secondary endpoint? How important is that?

I think it is a secondary endpoint, although I don't remember 100% for sure. And the answer is, I think commercially -- look, the honest answer is because there are so few options for these patients, I think the thing that's most important is just hitting on the primary. And I think if we hit on that...

And when is the readout?

It's middle of next year. It's a 52-week study and last patient, last visit was last patient first visit was this past summer.

Got it. And the unmet need is high enough that black box or no black box be more focused on the...

That's right. And this is not -- so this is -- it's about 40,000 patients in the U.S. Again, other than sort of steroids and ISTs and things like that, the only approved mechanism is IVIg, which, as you know, in addition to not working that well in DM has other liabilities, it is what it is. It's an IV infusion.

Right. And it's very onerous.

It's very onerous. So I think the answer is that the black box is not going to matter. And then, yes, look, I think yes, that's it.

Okay. Sounds good. I want to talk about their -- about the sGC program. I don't know how many questions you guys get on that on the...

It varies immensely. Some people ask us a lot of questions about it. Some people ask.

On the PA side. So maybe let's start by, can you remind us your differentiation versus the Merck sGC?

Yes. So we and Merck both have what I would call sort of second-generation sGC programs. They are both -- the main thing that is important about them is that they are inhaled sGC. In Merck's case, it's an inhaled sGC stimulator. In our case, it's an inhaled sGC activator. But the main thing about them that makes them different than Adempas, for example, is that Adempas was a systemic sGC stimulator. As far as difference from Merck, there are 2 that are particularly important. The one that is probably most important is that we have a 40-hour half-life and Merck has a 3-hour half-life. And therefore, while Merck is attempting once-daily dosing, it's not clear to us that they are going to be able to get the level of activity sustained over the dosing period, whereas we definitely can. The other difference, which is more technical and which I think holds water, but it's just like a little bit harder to judge is -- so we are what's called an sGC activator. Merck is what's called an sGC stimulator. Those are actually different ways of interacting with the target. And in particular, sGC exists within the lung in a few different species, some bound to heme, some not bound to heme. An sGC stimulator requires the heme-bound species in order to drive activity, whereas an sGC activator works across any of the different species of sGC. So in theory, you could imagine an sGC activator having more effect on things like cGMP production than an sGC stimulator. But in practice, we'll have to see how that data plays out, and it's going to be hard to disentangle from the fact that our half-life is so much longer than theirs.

Got it. As you -- and I'm sure you've looked at the Merck PH data in a fair amount of detail as well. There was a strange inverted dose response. There was a low dose that was active, higher doses were not. But as the more I heard you talk about some of the half-life differences in the heme, could that potentially explain the high variability we saw across 3 doses?

I think the main thing that drove the work data, in my opinion, was just a short half-life, to be honest. You're looking at -- that drug is effectively placebo for more than half the day. And so it's just like a little bit hard to call it other than that. So that's probably my best estimate of what happened there. And it's one of the reasons why you see a difference between they get like relatively reasonable PVR reductions. But nonetheless, didn't have a lot of disease activity benefit, and I think that's because...

On 6-minute walk.

On 6-minute walk, for example. I think that's because PVR is measured relatively shortly after dosing. And so...

If the half-life is the only difference, presumably activity on the 3 doses should be more consistent. So I was thinking more it's the heme or it doesn't matter?

The activator versus stimulator could be a difference, exactly. That's right. I don't -- but yes, anyway, yes. So I think certainly, activator versus stimulator is a possibility. But I guess I also just think the dose response data is going to be clouded by the fact that the long duration activity of the agent is going to be relatively limited because of the low half-life.

Okay. Got it. Excellent. And the readout timing on this one?

Second half of 2026 as well.

And that's a Phase II?

Phase II, yes. 120 patients, sort of a dose escalation.

And Merck just entered Phase III, correct?

Merck is in a PH-COPD study, which is a Phase II study. And if they've started a Phase III study in PH, I'm not aware, but they failed the Phase II study.

They failed the Phase II study.

They're in a Phase II study in PH-COPD.

Got it.

It's a different patient population [indiscernible].

And then PH trial, how you can control for the tariffs up usage?

So we're not studying in PH. We're studying in PH-ILD, which is a subset of Group II PH patients who have interstitial lung disease. And so sotatercept will not be -- it won't be on market. That it won't be on label. And [indiscernible] does not currently have a PH-ILD study, I don't think. And so...

They're going Group II PH.

That's right. So the other place -- the other approved agent in PH-ILD is TYVASO which in the Phase II, we exclude concurrent TYVASO use, although we allow people who have been on TYVASO in the past. But in the Phase III study, when we get there, we are very likely to allow concurrent TYVASO use. And my best guess is that PH-ILD will evolve similar to PH, that is that people will be on multiple agents.

Got it. My last question. I know you guys have a fair amount of exposure to Immunovant, and there are certain indications where Immunovant has a certain angle, for example, they can do continuous dosing, which not only makes the case for lack of bounce back in myasthenia gravis, but it also makes the case for a price point, which is half of the competitors because competitors are priced at a certain point with 4 weeks on, 4 weeks off. So when you dose it continuously, their price is technically double. So there's all those angles at Immunovant, and I totally understand that. However, from your perspective and you guys are sort of at the one level up as a capital allocator and thinking longer term, even beyond just the FcRn approaches, do you think a CD19 or a CD3 engager in general and its utility in B-cell depleters and their utility in myasthenia gravis and some of those indications, you would want to have exposure to that broadly just so you cover it from the FcRn side and from a different side as well?

Look, I'll say, first of all, like I don't -- I think that CD19 T cell engagers or other target T cell engagers are going to work. And I think they're going to work well, and I think they're going to be an important part of the treatment paradigm for patients with MG and for other sort of Ig-driven diseases. I think they will not be -- look, frankly, the thing -- in some ways, the thing that is most remarkable about FcRn as a target is how safe these drugs have been, like they're incredibly well tolerated. And it's very hard for me to imagine B-cell depletion being any kind of like first line or like these patients are going to walk around with like the idea of a CD19 T cell engager is like very, very low B cell counts for a while. You're going to have cases of CRS. These patients are going to be, in some cases, on like IVIg and things like that in order to like manage like immune system risk during the first periods here. I think these are going to be like later line therapies that are going to work and be important. And have -- in some cases, like I think you're going to see, as we've seen in some other cases with the CAR-Ts and things like that, you're going to see patients with like late-stage, very severe RA who like literally are getting up out of their wheelchair and walking, like these are going to be amazing therapies. I think in terms of like our exposure. First of all, I don't foresee a massive impact on the FcRn class because I think FcRns are necessarily going to be sort of earlier line therapy. Second of all, if I'm wrong and CD19s eat our lunch, they're going to eat our lunch whether we own one or not. And so like the thing we should do is we should want to own other programs that are really valuable. CD19s could be really valuable. And if there's a good way for us to play in CD19, great. The problem that I have fundamentally with CD19 T cell engagers as like an investment strategy, and maybe this is a little bit what we were talking about earlier, is everybody has already got one. So like you go into the CD19 T-cell engager space, you are competing now with like Merck and GSK and Roche and Amgen, like you're competing with like a whole bunch of really, really big powerful institutions that are like able to throw a ton of money, both from an R&D perspective and from a commercial perspective, we would really have to believe we had an angle in order for us to decide that that's going to be the highest ROI investment for us. And again, in a world where we're wrong about CD19 and they either launched on the FcRn side, which I don't expect, then we just need to make sure the other things we're investing in are valuable. We would probably invest in T cell engagers. But my view is the things that I am most excited about in that space either are if you added targets or involve targets beyond CD19 where maybe there's like a possibility, at least you're making a bet on being differentiated from that like massive scrum of CD19 T-cell engagers or to do something in that space, like we've done with brepocitinib and to find an indication space that doesn't overlap with the others like whatever everybody is going to study in MG and lupus and things like that, like maybe there are indications or places we can play that are like different from that sort of heart of the field. Because otherwise, I think it's just like a pretty scary competitive dynamic and very different from the competitive dynamics in FcRn. In part, frankly, FcRn has proven to be a relatively difficult target to drug. And so the truth is like how many really good anti-FcRn antibodies are there in the world, 3, 4, 5, like not very many. CD19 bispecifics turned out to be shocking was easy to make. And the way that I know that is there are probably 25 companies with CD19 T-cell engagers like at this conference. There are just so many of these things, and it just feels like it's a complicated competitive situation.

Excellent. Anything we missed we should have touched up on?

I think great year for 2025, super excited. I think we're a great position in.

Phase III data in the summer on dermatomyositis and then also Phase II data next fall. So you have 2 big clinical readouts as well outside of everything else.

We have faced -- I don't know.

And all the immuno readouts?

All the immuno readouts. We've got Phase III data. We have Moderna trial.

That's right. That's right.

5 more INDs on the Immunovant side. That's true.

Outstanding. Well, thank you guys for making time.

Great. Thank you.

Thanks for having us.

Thank you. Good to see you.