Nanalyze

A Story About Roivant, Axovant, and Myovant

If you haven’t taken notice of what Softbank (TYO:9984) has been getting up to, then you may be spending too much time buried up to your neck in the drama that seems to be consuming most of America. Tune that stuff out, and instead turn your attention to where the biggest tech investment fund out there is placing their bets. Softbank’s investment thesis is particularly interesting when you consider that the CEO and Founder of SoftBank, Masayoshi Son, believes that we’re going to see The Singularity in under 30 years. This means that all the investments Softbank is making in areas such as commercial-grade equipment automation and autonomous driving data tell us where they expect to see the growth as we move closer to AI dominance. Of course it’s awful hard to get excited about the coming Singularity if you’re dead, so our ears perked up when we saw Softbank make their first biotech investment in a startup called Roivant Sciences. What raised some eyebrows about this $1.1 billion investment was that it edged out Illumina’s investment in Grail to set a record for the largest private placement in healthcare ever:

Source: FT

What’s interesting about Roivant Sciences is that many investors outside of the healthcare industry may not be familiar with what they do. We decided to dig in a bit and try to understand just what it was that caught Softbank’s eye here.

With Softbank having to be accountable to the shareholders of their fund, they have a fiduciary responsibility to perform sufficient levels of due diligence prior to making an investment. When you first read about Roivant, you start to get the feeling that maybe things are just a bit too good to be true. Then you start to see some red flags that have been raised. The best way to explain Roivant Sciences is by telling you a short story which starts with a man named Daniel Gold.

The year was 2004 and a young man named Daniel Gold was running a prop trading desk at Deutsche Bank. This means that the team of traders he was responsible for managing were trading with the “house money” given to them by the bank with which they placed calculated bets which were expected to beat the market. With a BA in Physics from Harvard, Daniel was said to be a star trader at Deutsche Bank before he decided to peel off (some say with his entire team in tow) to start his own hedge fund in 2004 called QVT Financial which manages anywhere from $4-7 billion in assets depending on who you ask. Over the years QVT made eclectic investments ranging from Dubai real estate bonds to Turkish football soccer franchises and has made Daniel one of the highest paid hedge fund managers in the world (21st to be exact according to Forbes):

Then, in 2007 a man by the name of Vivek Ramaswamy came to work at QVT at the ripe old age of 22 years old. Vivek also attended Harvard where he graduated summa cum laude with a BA in Biology (eventually going on to get a J.D. from Yale). During his time at QVT, Vivek was assigned to manage the biotech portion of the fund until 2014 when something remarkable happened. Vivek left QVT and purchased a Phase-II drug candidate from Glaxosmithkline called RVT-101 for the price of just $5 million which he then formed a company around called Axovant Neurology Solutions (NYSE:AXON). RVT-101 is a treatment for Alzheimer’s Disease which had been in Phase-II development at Glaxo, but like so many other Alheimer’s drugs did not show enough promise and was shelved. Vivek then defies all odds and takes this startup with the one drug candidate RVT-101 and manages to go public with the biggest biotech IPO in history. The day was June 10th, 2015 and the stock closed up +99% on the first day of trading giving Vivek’s startup a market cap of $3 billion leading to an mutual stroking session insightful interview with Jim Cramer and some great magazine covers like this one:

While the success of that IPO put $364 million into the coffers of Axovant, they managed to raise even more money with a $134 million follow-on equity offering and even opened a $55 million line of credit. Based on their last filing, cash on hand is expected to last them through the fourth quarter of 2018. Why do they need so much money? Maybe because they’re lighting it on fire having burnt through $69 million in the three months ended June 30 2017 and $181 million during the year prior to that. Large-scale clinical trials are not cheap, and in October of 2015 they launched MINDSET which is a Phase 3 study that is expected to report “topline results” in September of 2017:

Note that the doctor who developed Aricept (the most commonly used Alzheimer’s drug for palliative care today) is also leading the study and was the person responsible for conducting the due diligence that took place before RVT-101 was acquired from Glaxo. The story isn’t without some bumps along the way though. After the resounding success of the IPO, the company was subjected to some due criticisms from all the haters. These were noted in an article published by Forbes a few months after the IPO, and explained away as follows:

  • Problem: Hired mother and brother and gave them cheap options
    Explanation: Both were qualified and the perceived nepotism was a result of his youthful naivety
  • Problem: Some hedge funds made off like bandits with a short “lock-up period
    Explanation: Lockup period could have been longer but oh well. Looking back now it doesn’t seem to have mattered much.
  • Problem: Glaxo would have never sold this drug for so cheap
    Explanation: Companies make mistakes and do this sort of stuff often
  • Problem: RVT-101 had failed four clinical trials in the past
    Explanation: Science is complicated

While it’s understandable that the above points of contention would make any investor a bit skittish, what does Vivek decide to do? He decides to do it all over again and floats the biggest biotech IPO in 2016 with a startup named Myovant Sciences (NYSE:MYOV) focused on women’s health diseases and other endocrine-related disorders. A good article from Fierce Biotech laid out all the important facts about the IPO such as the following:

The Myovant IPO was backed by new investors Pfizer ($PFE) and European healthcare investor BB Biotech, each of which bought $30 million of the IPO. Pfizer gains a right of first negotiation and a board observer seat at Myovant. “Pfizer ended up as a lead investor with a $30 million investment,” Myovant President and CEO Dr. Lynn Seely told FierceBiotech. “Pfizer, of course, recently acquired Medivation for expanding their oral prostate cancer offerings. It’s not a coincidence that they are interested in Myovant’s prostate cancer candidate.” Seely is in a position to know; she is the former CMO of Medivation, which sold to Pfizer for $14 billion in September.

The IPO was actually oversubscribed raising $218 million and giving the company a valuation of almost $1 billion despite that fact that it wasn’t even a year old. Fast forward to today and shares of MYOV are down -20% since the IPO giving the company a market cap of about $637 million.

Astute readers will notice that the companies we’ve talked about so far all have the “-vant” suffix which is similar to how Dr. Soon-Shiong is setting up his empire using the “-nant” suffix (an empire that hasn’t been doing too well lately). Here are all the “vants” currently underway at Roivant Sciences:

There is one “vant” that’s not on the above list though which should be of interest. Regular readers will recall our article on “9 Computational Drug Discovery Startups Using AI” in which we talked about companies like Verge and Insilico Medicine which look for drugs that already exist and try to find new applications for them using artificial intelligence (AI) algorithms. Roivant has taken note of that and founded Datavant, their own AI startup dedicated to “accelerating the discovery, development, and commercialization of new medicines through machine learning“. If you know data science you’re probably not looking for a job but they’re hiring for a few data roles and a bunch of engineer roles if you want work on something cool.

If we take a step back and look at the bigger picture, Roivant Sciences is a platform that identifies drug candidates that show promise but “that may not be a core focus”. They then acquire the drug candidates and create companies around them accelerating the time to market. Here’s a look at the Roivant Sciences pipeline so far:

As we reach the end of our story, there’s one last individual who seems to have been very involved along the way and who stands to make a great deal of money by buying up big chunks of shares in each of these “vants”. That would be none other than the gentleman who started our whole story in motion, Mr. Daniel Gold. As it turns out, QVT is holding over $2 billion in “vant shares” based on today’s prices:

We’d like to believe that beneath that cheesy “why you should work at Roivant” video and the CEO’s feel-good marketing spiel about “pivoting and unlocking“, there lies a platform that will revolutionize how drugs are developed and brought to market. Softbank just gave us 1.1 billion reasons why we should.

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