Roivant Sells Dermavant to Organon for $1.2B

Roivant's decision to sell Dermavant to Organon for up to $1.2 billion is a strategic move allowing it to focus on its autoimmune subsidiary, Immunovant, and upcoming pivotal trials. Organon, which spun off from Merck & Co. in 2021, will acquire Vtama, a non-steroidal topical treatment for plaque psoriasis approved in 2022. The cream is also awaiting FDA approval for atopic dermatitis, with a decision expected soon.

Jefferies analysts highlighted that Dermavant was considered one of Roivant’s less valuable assets. They noted that off-loading Dermavant would help improve investor sentiment and enable Roivant to allocate more resources to Immunovant's pivotal programs. The transaction involves Organon paying $175 million upfront, up to $75 million upon FDA approval for atopic dermatitis, and up to $950 million based on certain commercial milestones. Additionally, Dermavant shareholders will receive royalties on net sales.

Organon CFO Matthew Walsh explained that the deal's structure, which includes milestone payments rather than a large upfront sum, aligns with the company's disciplined capital allocation strategy. This approach is intended to reduce leverage while strategically adding growth assets.

Organon primarily focuses on women's health and has previously enhanced its portfolio through rights deals with major pharmaceutical companies. For instance, at the end of 2023, Organon secured European rights to Eli Lilly’s migraine medications Emgality and Rayvow for $50 million. The company also licensed Daré Bioscience’s bacterial vaginosis gel Xaciato and acquired Chinese rights to Bayer’s contraceptive pills Marvelon and Mercilon in 2022.

Roivant, led by CEO Matt Gline, has been an attractive partner for Big Pharma, evidenced by its sale of Telavant to Roche for $7.1 billion a year ago. The sale of Dermavant is expected to remove $200 million in operating expenses from Roivant's balance sheet, funds that are likely to be redirected to research and development at Immunovant. Immunovant is preparing to launch several pivotal Phase III studies and is working on treatments for autoimmune diseases, including batoclimab for myasthenia gravis and thyroid eye disease.

Jefferies analysts pointed out that many investors were not enthusiastic about Dermavant due to its modest revenue and slow market launch, coupled with high operating expenses that prevented it from becoming profitable. They were, however, optimistic about Roivant's financial health, as the company reportedly has $5 billion in cash reserves. The analysts view the cost savings and increased flexibility for Immunovant as significant advantages.

Regarding future deals, Roivant has 10 “vants” in its portfolio, and while multiple discussions are ongoing, Jefferies analysts mentioned that Roivant executives do not anticipate making any business development announcements soon. They noted that the timing of any deals would depend more on the pharmaceutical market conditions rather than Roivant's internal strategy, with the company looking to take advantage of favorable business development opportunities.