Roche: Roivant’s Ulcerative Colitis Drug Could Lead New Class of Drugs, Maintaining Valuation

Roche ROG is paying $7.1 billion to acquire U.S. and Japan rights to inflammatory bowel disease drug RVT-3101 from Roivant in a deal that has been rumored for months, and we’re not making any changes to our fair value estimate. The value of the drug candidate has skyrocketed in recent months with positive midstage data, as Pfizer sold U.S. and Japan rights to Roivant in November 2022 in exchange for a 25% stake in the RVT-3101-focused subsidiary, which was valued at $88 million at the time. While Roche does not have an existing IBD business, this will be a nice boost to the firm’s immunology arm, which is under pressure from recent generics of pulmonary fibrosis drug Esbriet and upcoming potential biosimilar launches for arthritis drug Actemra (later this year) and asthma and hives drug Xolair (in 2025). We think RVT-3101 has demonstrated excellent data so far and has potential for a strong position ($3 billion in 2032 sales) in a nearly $20 billion IBD market, further supporting Roche’s wide moat.

Roche is starting a phase 3 trial of the once-monthly subcutaneously administered drug when the deal closes later this year or in early 2024, putting it in a strong position to compete with Merck’s similar TL1A-targeting drug candidate. In the phase 2 Tuscany-2 study in 245 ulcerative colitis patients, once-monthly subcu dosing of RVT-3101 produced a 31% clinical remission and 40% endoscopic improvement at week 12 at the selected phase 3 dose. The drug is also in phase 2 in Crohn’s disease. Roche could compete with Merck’s MK-7240/PRA023, which was acquired with Prometheus for $10.8 billion earlier this year and is poised to begin phase 3 this year. Phase 2 Artemis-UC data for MK-7240 showed 26.5% clinical remission and 37% endoscopic improvement at week 12 with a low placebo remission rate. Sanofi and Teva’s TEV-48574 is also in midstage studies and poised to start phase 3 in 2025.