Roivant’s Ambitious $1.5 Billion Share Repurchase Plan – Buyback Wednesdays

Roivant Sciences Ltd. (ROIV): $10.9

Market Cap: $8.78B

EV: $2.61B

Roivant Sciences (ROIV) stands out in the pharmaceutical industry for two key reasons: its unique business approach and the fascinating background of its founder, Vivek Ramaswamy. Ramaswamy, an American entrepreneur and politician, founded Roivant Sciences in 2014. He gained attention in February 2023 when he announced his candidacy for the Republican Party nomination in the 2024 United States presidential election, though he later suspended his campaign in January 2024 after finishing fourth in Iowa’s caucuses.

A Harvard graduate in biology with a law degree from Yale Law School, Ramaswamy initially interned for hedge fund Amaranth Advisors and Goldman Sachs. He later co-managed the biotech portfolio at hedge fund QVT Financial, where he became an investment partner. Additionally, he co-founded investment firm Strive Asset Management. Interestingly, Ramaswamy served as Chairman for two pharmaceutical companies, OnCore Biopharma and Arbutus Biopharma, before founding one himself!

His journey in the biotech industry has not been any less than a roller coaster ride. At 29, he spearheaded a groundbreaking initial public offering, marking the largest in biotechnology history. However, just two years later, the Alzheimer’s drug, central to the company’s success failed, resulting in a significant loss. This was followed by his first payout in 2015 from his growing pharmaceutical empire – Roivant. Five years later, he garnered another windfall by selling Roivant’s most promising assets to the Japanese conglomerate, Sumitomo Dainippon Pharma.

As the NY Times puts it:

“The reality of Mr. Ramaswamy’s business career is more complex, the story of a financier more than a scientist, and a prospector who went bargain hunting, hyped his vision, drew investment and then cashed out in two huge payouts — totaling more than $200 million — before his 35th birthday.”

Key Insights

• Roivant Sciences is a commercial-stage biopharmaceutical company, with subsidiaries that have names that end in “vants”
• Since 2019, these “vants” have completed 10 successful Phase 3 trials and obtained six FDA approvals.
• Roivant is well-capitalized with $6.67 billion in cash and recently announced a $1.5 billion stock buyback, representing 17% of its market cap at announcement.
• The company has a differentiated drug development pipeline targeting multi-billion dollar indications.
• It recently completed a huge $7.1 billion deal with Swiss pharma giant Roche, selling its subsidiary, Televant.
• In Q1 2024, Einhorn’s Greenlight hedge fund acquired a new small long position in Roivant.

Roivant listed on the Nasdaq via a merger with the Special Purpose Acquisition Company, Montes Archimedes Acquisition Corp in May 2021. Founded in 2014, and based in London, the company focuses on drug development. Roivant is a parent company to subsidiaries that have the “vant” name, such as Dermavant, Immunovant, Priovant, Genevant, Kinevant, Hemavant, Lokavant, Datavant, Covant, Psivant, and VantAI. The “Roi” in the company’s name refers to return on investment.

Out of all these entities, Immunovant and Arbutus trade publicly.

As of December 31, 2023, the company’s minority equity interest in Datavant represented approximately 9% of the outstanding Class A units. Datavant’s capital structure includes several classes of preferred units that have liquidation preferences and conversion features. The company’s ownership interest would be diluted upon converting such preferred units into Class A units.

Business Model

Roivant has a unique business model where it creates subsidiary companies to develop specific drug candidates in different therapeutic areas. Apart from therapeutics, Roivant also nurtures early-stage companies in discovery and health technology startups that complement its biopharmaceutical endeavors.

Source: Roivant

The “vant” model has demonstrated success, with ten products achieving positive results in Phase 3 clinical trials and obtaining six FDA approvals. However, there have been instances where this strategy did not succeed, such as the collapse of its subsidiary, Axovant Sciences, which focused on Alzheimer’s drug development.  But the company has had a recent run of success, highlighted by the $7 billion sale of Televant last year. 

In February, another subsidiary of Roivant, 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.

Roche Deal

In 2023, significant acquisitions reshaped the pharmaceutical landscape. Merck’s (MRK) purchase of Prometheus Biosciences for $10.8 billion was a standout, followed by Roche’s acquisition of Televant Holdings from Roivant for $7.1 billion, with an additional $150 million milestone payment. Televant, initially a joint venture between Roivant (75%) and Pfizer (PFE) (25%), focused on developing RVT-3101 for Inflammatory Bowel Diseases (IBD). In December 2023, Roche acquired rights to RVT-3101’s further development and manufacturing. 

Strong Pipeline

Roivant’s pipeline, shown below, has several assets that have the potential to generate significant revenues in future.

Source: Roivant (Investor Presentation)

Management

Roivant’s founder, Vivek Ramaswamy, switched from drug development to politics. In January 2021, Vivek transitioned out of his day-to-day role as CEO of the company. He served as Roivant’s Chairman until February 20, 2023. Ramaswamy remains the sixth-largest shareholder of Roivant, retaining a 7.17% stake. 

Following his departure, Matt Gline serves as the current CEO of Roivant. Mr. Gline joined Roivant in March 2016 and previously served as the company’s Chief Financial Officer. Before joining Roivant, he was a Vice President at Goldman Sachs for two years, where he focused on technology and data strategy. Mr. Gline earned his A.B. in Physics from Harvard College.

Mr. Gline played a key role in completing the Roche deal. It will be interesting to see how he utilizes the proceeds to expand Roivant’s clinical pipeline. It is crucial to note that Roivant’s top leadership position is held by financiers rather than scientists.

Valuation

Roivant’s stock appears cheap considering its current metrics. The company’s P/B ratio of 1.46, lower than the sector’s median of 2.25, suggests undervaluation. Its market capitalization is $8.78 billion, while its enterprise value, factoring in net cash from the Televant acquisition, is $2.6 billion.

Additionally, Roivant’s public entities, Immunovant and Arbutus, in which it holds stakes of 49% ($1.95 billion) and 23% ($115 million) respectively, account for a majority of its current enterprise value. That leaves $545 million of value attributed to the rest of the subsidiaries. 

Financials

As of December 31, 2023, Roivant had $6.67 billion in cash and cash equivalents, dwarfing its total liabilities of $244.89 million in comparison to its vast total assets. The company’s balance sheet looks very strong with a net cash position of $6.16 billion. Recent quarter’s net revenues amounted to $37.1 million, inclusive of $20.7 million from VTAMA product revenue. Net income was $5.1 billion, attributed to the closure of the Roche deal. Total operating expenses (SG&A, R&D, and cost of revenues) for the same quarter were $324.6 million.

The CEO commented:

“One of the things that I think frankly differentiates us from many biotech companies is that our capital base allows us to do larger studies for broader populations. And so I think we will potentially take advantage of that both because those can be big opportunities and because there are opportunities that will sort of necessarily get passed over by smaller folks who don’t have the capital position of the development experience take them on. So I think that is a competitive opportunity for us that we will be taking advantage of.”

David Einhorn’s firm, Greenlight Capital, in its Q1 letter to investors, said it had established a “small long position” in Roivant, adding that “in addition to an exciting pipeline, ROIV has a strong track record of positive trial results and successful monetization of pharmaceutical assets.”

Share Repurchase

On April 2, 2024, Roivant unveiled a $1.5 billion share repurchase program including acquiring $648 million worth of stock held by Sumitomo Pharma. The Japanese drugmaker has invested in, or acquired, multiple Roivant subsidiaries in recent years. This authorization represents approximately 17% of its market capitalization at the time of announcement. The company has experienced share dilution over recent years, increasing from 630 million shares outstanding in December 2020 to 845 million in December 2023, indicating a 34% rise in outstanding shares. This rise in dilution may be attributed to capital raising for the company’s operational needs.

Source: InsideArbitrage

Q3 2023 Results

This was a productive quarter for the company and included the closing of the Telavant transaction with Roche in December. Roivant continued progress in clinical development, with another positive result generated by the Immunovant team in Graves’ disease. The fiscal year for the company ends in March.

• Revenue for the period was $37.14 million, surpassing estimates by $7.32 million.
• The company reported a GAAP EPS of $6.03, which exceeded expectations by $5.54.
• Net income was approximately $5.1 billion for the quarter, compared to a net loss of $384.9 million for the three months ended December 31, 2022.
• Research and development expenses decreased by $1.8 million to $123.7 million, compared to $125.5 million for the prior year’s quarter.
• Selling, general and administrative expenses increased by $29 million to $197.3 million, compared to $168.3 million for the prior year’s quarter, primarily due to an increase in personnel-related expenses of $27 million.
• Batoclimab produced positive results in Graves’ disease with response rates meaningfully exceeding 50% in the initial cohort of an ongoing 24-week Phase 2 trial.
• VTAMA (tapinarof) cream, 1% net product revenue was $20.7 million for the quarter.
• Roivant reported its consolidated cash, cash equivalents and restricted cash of $6.7 billion on December 31, 2023.

Major Upcoming Milestones

Roivant is quite optimistic about its upcoming milestones scheduled for the latter half of this year and next year.

Source: Roivant (Investor Presentation)

Source: Roivant (Investor Presentation)

Risks/Headwinds

• Developing new drugs is a lengthy and expensive process. It can take over a decade and billions of dollars to bring a single drug from discovery to market, with a high chance of failure at each stage.
• Roivant encounters stiff competition in the Atopic Dermatitis sector, with established players like AbbVie Inc.’s (ABBV) Rinvoq, Sanofi’s (SNY) Dupixent, and Pfizer’s (PFE) Cibinqo expected to generate substantial revenues.
• Incyte Corporation’s (INCY) Opzelura and Arcutis Biotherapeutics, Inc.’s (ARQT) Zoryve are two topical creams that have gained approval solely for psoriasis treatment, presenting additional hurdles to Vtama’s success.

Bottom Line

Roivant’s drug pipeline presents diverse prospects, and the company anticipates several promising catalysts in the near future. The current influx of cash provides the company with a significant financial cushion. The additional cash effectively reduces the company’s “burn rate” by “30%+” annually.

While it is striking that neither the founder nor the current CEO has a background in medicine or drug development, their financial acumen has clearly helped them fund several promising candidates in the portfolio and the capital to pursue them through either commercialization or potential acquisitions.

The company is difficult to value and a sum-0f-the-parts (SOTP) approach needs to be utilized to get comfortable with investing in Roivant.

Welcome to edition 89 of Buyback Wednesdays, a monthly series that tracks the top stock buyback announcements during the prior month. The companies in the list below are the ones that announced the most significant buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap or micro-cap stocks with a market cap below $2 billion.

The number of companies announcing buybacks decreased from 80 in the prior month to 68 this month.

Top 5 Stock Buyback Announcements 

1. Cango Inc. (CANG): $1.5

On April 23, 2024, the Board of Directors of this automotive transaction service platform approved a new $50 million share repurchase authorization, equal to around 27.7% of its market cap at announcement.

2. KB Home (KBH): $64.76

On April 18, 2024, the Board of Directors of this home builder announced that it had approved a new $1 billion stock repurchase agreement. This represents around 22% of its market cap at announcement.

3. Roivant Sciences Ltd. (ROIV): $10.9

On April 2, 2024, the Board of Directors of this commercial-stage biopharmaceutical company announced that it had approved a new $1.5 billion share repurchase program, equal to around 17% of its market cap at announcement.

4. Dynex Capital Inc. (DX): $11.67

On April 22, 2024, the Board of Directors of this mortgage REIT approved an additional $100 million share repurchase program, equal to around 15% of its market cap at announcement.

5. The Bank of New York Mellon Corporation (BK): $56.49

 On April 16, 2024, the Board of Directors of this financial products and services provider authorized a new $6 billion stock repurchase program, equal to around 14.7% of its market cap at announcement.

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Disclaimer:  I hold a short position in KB Home. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.