UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2024
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 001-40782
(Exact name of Registrant as specified in its Charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Not Applicable
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(Address of principal executive offices)
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(Zip Code)
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+44 207 400 3347
(Registrant’s telephone number, including area code)
Not Applicable
(Former Name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 6, 2024, the registrant had 739,521,824
common shares, par value $0.0000000341740141 per share, outstanding (the “Common Shares”).
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Page
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PART I—FINANCIAL INFORMATION
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Item 1.
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7 | |
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| 9 | ||
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Item 2.
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30 |
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Item 3.
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43 | |
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Item 4.
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43 | |
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PART II—OTHER INFORMATION
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Item 1.
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44 | |
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Item 1A.
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44 | |
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Item 2.
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102 | |
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Item 3.
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102 | |
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Item 4.
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102 | |
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Item 5.
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103 | |
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Item 6.
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104 | |
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Where You Can Find More Information
Investors and others should note that we may announce material business and financial information to our investors using our
investor relations website (https://investor.roivant.com), filings we make with the Securities and Exchange Commission (the “SEC”), our corporate twitter account (@Roivant), other social media platforms, webcasts, press releases and conference
calls. Similarly, our subsidiary Immunovant, Inc. may announce material business and financial information to its investors and others using its investor relations website (https://immunovant.com/investors), filings it makes with the SEC, social
media platforms, webcasts, press releases and conference calls. We and our public company subsidiaries use these mediums to communicate with our and our public company subsidiaries’ shareholders and the public about our company, our subsidiaries,
our products and product candidates and other matters. It is possible that the information that we make available in this manner may be deemed to be material information. We therefore encourage investors and others interested in our company and our
public company subsidiaries to review this information.
The above-referenced information is not incorporated by reference into this filing and the website addresses and Twitter account
name are provided only as inactive textual references.
Summary Risk Factors
You should consider carefully the risks described under “Risk Factors” in Part II, Item 1.A of this Quarterly Report
on Form 10-Q. Unless the context otherwise requires, references in this section to “we,” “us,” “our,” “Roivant” and the “Company” refer to Roivant Sciences Ltd. and its consolidated subsidiaries and affiliates, as the context requires. A summary
of the risks that could materially and adversely affect our business, financial condition, operating results and prospects include the following:
Risks Related to Our Business and Industry
| • |
Our relatively limited operating history and the inherent uncertainties and risks involved in biopharmaceutical product development and commercialization
may make it difficult for us to execute on our business model and for you to assess our future viability. We have generated limited revenue from our operations since inception, and there is no guarantee that we will generate significant
revenues in the future.
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We may never achieve sustained profitability.
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We have relatively limited experience as a commercial-stage company and the marketing and sale of VTAMA® (tapinarof) or any future products may be
unsuccessful or less successful than anticipated.
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Our business is dependent to a significant extent on the successful commercialization of VTAMA and the development, regulatory approval and
commercialization of our current and future products and product candidates.
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We may not be successful in our efforts to acquire or in-license new product candidates, and newly acquired or in-licensed product candidates may not
perform as expected in clinical trials or be successful in eventually achieving marketing approvals.
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We face risks associated with the allocation of capital and personnel across our businesses.
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We face risks associated with the Vant structure.
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We face risks associated with potential future payments related to our products and product candidates.
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Our business strategy and potential for future growth relies on a number of assumptions, some or all of which may not be realized.
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We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.
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We face risks associated with the use of our cash, cash equivalents and restricted cash, including any return of capital to shareholders.
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Clinical trials and preclinical studies are very expensive, time-consuming, difficult to design and implement and involve uncertain outcomes. We may
encounter substantial delays in clinical trials, or may not be able to conduct or complete clinical trials or preclinical studies on the expected timelines, if at all.
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We may encounter difficulties enrolling and retaining patients in clinical trials, and clinical development activities could thereby be delayed or
otherwise adversely affected.
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The results of our preclinical studies and clinical trials may not support our proposed claims for our products or product candidates, or regulatory
approvals on a timely basis or at all, and the results of earlier studies and trials may not be predictive of future trial results.
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Interim, top-line or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data.
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Obtaining approval of a new drug is an extensive, lengthy, expensive and inherently uncertain process, and the FDA or another regulator may delay, limit or
deny approval. If we are unable to obtain regulatory approval in one or more jurisdictions for any products or product candidates, our business will be substantially harmed.
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Our clinical trials may fail to demonstrate substantial evidence of the safety and efficacy of product candidates that we may identify and pursue for their
intended uses, which would prevent, delay or limit the scope of regulatory approval and commercialization.
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Our products and product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval, cause us to
suspend or discontinue clinical trials, abandon further development or limit the scope of any approved label or market acceptance.
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We depend on the knowledge and skills of our senior leaders and may not be able to manage our business effectively if we are unable to attract and retain
key personnel.
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If we are unable to obtain and maintain patent and other intellectual property protection for our technology, products and product candidates or if the
scope of the intellectual property protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
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If the patent applications we hold or have in-licensed with respect to our products or product candidates fail to issue, if their breadth or strength of
protection is threatened, or if they fail to provide meaningful exclusivity for our current and future products or product candidates, it could dissuade companies from collaborating with us to develop product candidates, and threaten
our ability to commercialize our products. Any such outcome could have a materially adverse effect on our business. Our pending patent applications cannot be enforced against third parties practicing the claims in such applications
unless and until a patent issues from such applications.
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Patent terms and their scope may be inadequate to protect our competitive position on current and future products and product candidates for an adequate
amount of time.
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Risks Related to Our Securities, Our Jurisdiction of Incorporation and Certain Tax Matters
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If our performance does not meet market expectations, the price of our securities may decline.
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We have incurred and will continue to incur increased costs as a result of operating as a public company and our management has devoted and will continue
to devote a substantial amount of time to new compliance initiatives.
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If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements
could be impaired, investors may lose confidence in our financial reporting and the trading price of our common shares may decline.
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Anti-takeover provisions in our memorandum of association and bye-laws, as well as provisions of Bermuda law, could delay or prevent a change in control,
limit the price investors may be willing to pay in the future for our common shares and could entrench management.
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Our largest shareholders own a significant percentage of our common shares and are able to exert significant control over matters subject to shareholder
approval.
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Future sales, or the perception of future sales, of our common shares by us or our existing shareholders could cause the market price for our common shares
to decline and impact our ability to raise capital in the future.
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements, including matters discussed under Part I, Item 2. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” Part II, Item 1. “Legal Proceedings,” Part II, Item 1A. “Risk Factors” and in other sections of this report, that are “forward-looking statements” within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the
future, and statements that are not historical facts. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking
statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking
statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning
future developments and their potential effects on us taking into account information currently available to us. There can be no assurance that future developments affecting us will be those that we have anticipated. Should one or more of
these risks or uncertainties materialize, they could cause our actual results to differ materially from the forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to risk associated
with:
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our relatively limited operating history and the inherent uncertainties and risks involved in biopharmaceutical product development and commercialization;
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| • |
our relatively limited experience as a commercial-stage company and ability to successfully commercialize VTAMA® (tapinarof);
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| • |
our ability to acquire or in-license new product candidates;
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| • |
the allocation of capital and personnel across our business;
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| • |
our Vant structure and the potential that we may fail to capitalize on certain development opportunities;
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potential future payments related to our products and product candidates;
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our ability to consummate strategic transactions;
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the use of our cash and cash equivalents;
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clinical trials and preclinical studies, which are very expensive, time-consuming, difficult to design and implement and involve uncertain outcomes;
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the novelty, complexity and difficulty of manufacturing certain of our products and product candidates, including any manufacturing problems that result in delays in
development or commercialization of our products and product candidates;
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difficulties we may face in enrolling and retaining patients in clinical trials, which could affect or otherwise delay clinical development activities;
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the results of our clinical trials not supporting our proposed claims for a product candidate;
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interim, top-line and/or preliminary data from our clinical trials changing as more data becoming available or data being delayed due to audit and verification processes;
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changes in product manufacturing or formulation that could lead to the incurrence of costs or delays;
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the failure of any third-party we contract with to conduct, supervise and monitor our clinical trials to perform in a satisfactory manner or to comply with applicable
requirements;
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the fact that obtaining approvals for new drugs is an extensive, lengthy, expensive and inherently uncertain process that may end with our inability to obtain regulatory
approval by the FDA or other regulatory agencies in other jurisdictions;
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the failure of our clinical trials to demonstrate substantial evidence of the safety and efficacy of our products and product candidates, including, but not limited to,
scenarios in which our products and product candidates may cause adverse effects that could delay regulatory approval, discontinue clinical trials, limit the scope of approval or generally result in negative media coverage of us;
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our inability to obtain regulatory approval for a product or product candidate in certain jurisdictions, even if we are able to obtain approval in certain other jurisdictions;
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our ability to effectively manage growth and to attract and retain key personnel;
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any business, legal, regulatory, political, operational, financial and economic risks associated with conducting business globally;
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our ability to obtain and maintain patent and other intellectual property protection for our technology, products and product candidates;
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the inadequacy of patent terms and their scope to protect our competitive position;
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the failure to issue (or the threatening of their breadth or strength of protection) or provide meaningful exclusivity for our current and future products and product
candidates of our patent applications that we hold or have in-licensed;
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| • |
the fact that we do not currently and may not in the future own or license any issued composition of matter patents covering certain of our products and product candidates and
our inability to be certain that any of our other issued patents will provide adequate protection for such products and product candidates;
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| • |
the fact that our largest shareholders own a significant percentage of our stock and will be able to exert significant control over matters subject to shareholder approval;
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future sales of securities by us or our largest shareholders, or the perception of such sales, and the impact thereof on the price of our common shares;
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the outcome of any pending or potential litigation, including but not limited to our expectations regarding the outcome of any such litigation and costs and expenses associated
with such litigation;
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changes in applicable laws or regulations;
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the possibility that we may be adversely affected by other economic, business and/or competitive factors; and
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any other risks and uncertainties, including those described under Part II, Item 1A. “Risk Factors.”
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These risks are not exhaustive. New risk factors emerge from time to time and it is not possible for our management to predict all risk
factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In
addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and
while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of,
all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Except as required by law, we undertake no obligation to update any
forward-looking statements to reflect events or circumstances after the date of such statements.
PART I—FINANCIAL INFORMATION
ROIVANT SCIENCES LTD.
(unaudited, in thousands, except share and per share amounts)
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June 30, 2024
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March 31, 2024
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|||||||
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Assets
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||||||||
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Current assets:
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Cash and cash equivalents
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$
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$
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Other current assets
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||||||
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Total current assets
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Property and equipment, net
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Operating lease right-of-use assets
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Investments measured at fair value
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Intangible assets, net
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Other assets
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Total assets
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$
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$
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Liabilities and Shareholders’ Equity
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||||||||
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Current liabilities:
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||||||||
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Accounts payable
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$
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$
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Accrued expenses
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||||||
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Operating lease liabilities
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Current portion of long-term debt (includes $
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Other current liabilities
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Total current liabilities
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Liability instruments measured at fair value
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Operating lease liabilities, noncurrent
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Long-term debt, net of current portion (includes $
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Other liabilities
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Total liabilities
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||||||
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Commitments and contingencies (Note 12)
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Shareholders’ equity:
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||||||||
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Common shares, par value $
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||||||
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Additional paid-in capital
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|||||||
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Retained earnings
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||||||
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Accumulated other comprehensive loss
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(
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)
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(
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)
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||||
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Shareholders’ equity attributable to Roivant Sciences Ltd.
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|
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||||||
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Noncontrolling interests
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|
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||||||
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Total shareholders’ equity
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|
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||||||
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Total liabilities and shareholders’ equity
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$
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$
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||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(unaudited, in thousands, except share and per share amounts)
|
Three Months Ended June 30,
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2024
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2023
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|||||||
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Revenues:
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||||||||
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Product revenue, net
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$ | $ | ||||||
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License, milestone and other revenue
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||||||||
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Revenue, net
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||||||||
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Operating expenses:
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||||||||
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Cost of revenues
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Research and development (includes $
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||||||
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Acquired in-process research and development
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Selling, general and administrative (includes $
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|
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||||||
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Total operating expenses
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|
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||||||
| Gain on sale of Telavant net assets |
||||||||
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Loss from operations
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(
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)
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(
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)
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||||
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Change in fair value of investments
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(
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)
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|||||
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Change in fair value of debt and liability instruments
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(
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)
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|
|||||
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Interest income
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(
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)
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(
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)
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||||
| Interest expense |
||||||||
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Other expense (income), net
|
|
(
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)
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|||||
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Income (loss) before income taxes
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(
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)
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|||||
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Income tax expense
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||||||
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Net income (loss)
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(
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)
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|||||
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Net loss attributable to noncontrolling interests
|
(
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)
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(
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)
|
||||
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Net income (loss) attributable to Roivant Sciences Ltd.
|
$
|
|
$
|
(
|
)
|
|||
|
Net income (loss) per common share:
|
||||||||
| Basic |
$ |
$ | ( |
) | ||||
| Diluted |
$ |
$ | ( |
) | ||||
|
Weighted average shares outstanding:
|
||||||||
| Basic |
||||||||
| Diluted |
||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(unaudited, in thousands)
|
Three Months Ended June 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Net income (loss)
|
$
|
|
$
|
(
|
)
|
|||
|
Other comprehensive loss:
|
||||||||
|
Change in fair value of debt due to change in subsidiary credit risk
|
( |
) | ||||||
|
Foreign currency translation adjustment
|
(
|
)
|
(
|
)
|
||||
|
Total other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Comprehensive income (loss)
|
|
(
|
)
|
|||||
|
Comprehensive loss attributable to noncontrolling interests
|
(
|
)
|
(
|
)
|
||||
|
Comprehensive income (loss) attributable to Roivant Sciences Ltd.
|
$
|
|
$
|
(
|
)
|
|||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(unaudited, in thousands, except share data)
|
Shareholders’ Equity
|
||||||||||||||||||||||||||||
|
Common Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained Earnings |
Noncontrolling
Interests
|
Total
Shareholders’
Equity
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||
|
Balance at March 31, 2024
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Issuance of the Company’s common shares in connection with
equity incentive plans and tax withholding payments
|
( |
) | ( |
) | ||||||||||||||||||||||||
| Issuance of subsidiary common shares, net |
||||||||||||||||||||||||||||
| Subsidiary stock options exercised |
— |
|||||||||||||||||||||||||||
|
Cash contributions to majority-owned subsidiaries
|
— | ( |
) | |||||||||||||||||||||||||
|
Repurchase of common shares
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Share-based compensation |
—
|
|
|
|
|
|
|
|||||||||||||||||||||
| Change in fair value of debt due to change in subsidiary credit risk |
— | ( |
) | ( |
) | |||||||||||||||||||||||
|
Foreign currency translation adjustment
|
—
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Net income (loss)
|
—
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||
|
Balance at June 30, 2024
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Shareholders’ Equity
|
||||||||||||||||||||||||||||
|
Common Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Accumulated
Deficit
|
Noncontrolling
Interests
|
Total
Shareholders’
Equity
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||
|
Balance at March 31, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||||||
|
Issuance of the Company’s common shares in connection with
equity incentive plans and tax withholding payments
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Subsidiary stock options exercised | — |
|||||||||||||||||||||||||||
|
Cash contributions to majority-owned subsidiaries
|
— |
( |
) | |||||||||||||||||||||||||
| Dividend declared by subsidiary |
— |
( |
) | ( |
) | |||||||||||||||||||||||
|
Share-based compensation
|
—
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Foreign currency translation adjustment
|
—
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
||||||||||||||||||
|
Net loss
|
— |
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||
|
Balance at June 30, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(unaudited, in thousands)
|
Three Months Ended June 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Cash flows from operating activities:
|
||||||||
| Net income (loss) |
$
|
|
$
|
(
|
)
|
|||
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
||||||||
|
Share-based compensation
|
|
|
||||||
|
Change in fair value of investments
|
(
|
)
|
|
|||||
|
Change in fair value of debt and liability instruments
|
(
|
)
|
|
|||||
|
Gain on sale of Telavant net assets
|
( |
) | ||||||
|
Depreciation and amortization
|
||||||||
|
Non-cash lease expense
|
||||||||
|
Other
|
|
(
|
)
|
|||||
|
Changes in assets and liabilities, net of effects from acquisition and divestiture:
|
||||||||
|
Other current assets
|
( |
) | ( |
) | ||||
|
Accounts payable
|
(
|
)
|
|
|||||
|
Accrued expenses
|
(
|
)
|
(
|
)
|
||||
|
Operating lease liabilities
|
(
|
)
|
(
|
)
|
||||
|
Other
|
|
|
||||||
|
Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from investing activities:
|
||||||||
|
Purchase of property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Other
|
||||||||
|
Net cash (used in) provided by investing activities
|
(
|
)
|
|
|||||
|
Cash flows from financing activities:
|
||||||||
|
Repayment of debt by subsidiary
|
(
|
)
|
(
|
)
|
||||
|
Payments on principal portion of finance lease obligations
|
( |
) | ( |
) | ||||
|
Proceeds from exercise of the Company’s and subsidiary stock options
|
||||||||
|
Taxes paid related to net settlement of equity awards
|
(
|
)
|
(
|
)
|
||||
|
Repurchase of common shares
|
( |
) | ||||||
|
Net cash (used in) provided by financing activities
|
(
|
)
|
|
|||||
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
|
( |
) | ( |
) | ||||
|
Net change in cash, cash equivalents and restricted cash
|
(
|
)
|
(
|
)
|
||||
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
||||||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
|
$
|
|
||||
|
Non-cash investing and financing activities:
|
||||||||
|
Dividend payable
|
$ | $ | ||||||
|
Issuance of subsidiary shares in connection with Debt Renegotiation
|
$ | $ | ||||||
|
Other
|
$
|
|
$
|
(
|
)
|
|||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ROIVANT SCIENCES LTD.
(Unaudited)
Note 1—Description of Business and Liquidity
(A) Description of Business
Roivant Sciences Ltd. (inclusive of its consolidated subsidiaries, the “Company” or “RSL”) aims to improve the lives of patients by accelerating
the development and commercialization of medicines that matter. The Company does this by creating nimble subsidiaries or “Vants” to develop and commercialize its medicines and technologies. Beyond therapeutics, the Company also incubates
discovery-stage companies and health technology startups complementary to its biopharmaceutical business. The Company was founded on April 7, 2014 as a Bermuda exempted limited company.
VTAMA® (tapinarof) was approved by the United States Food and Drug Administration (“FDA”) in May 2022 for the treatment of plaque psoriasis in
adult patients. A Supplemental New Drug Application for VTAMA (tapinarof) for the topical treatment of atopic dermatitis in adults and children 2 years of age and older was accepted by the FDA in April 2024.
The Company has determined that it has one
RSL completed its business combination (the “Business Combination”) with Montes Archimedes Acquisition Corp. (“MAAC”), a special purpose
acquisition company, on September 30, 2021 and on October 1, 2021 began trading on the Nasdaq Global Select Market under the ticker symbol “ROIV.”
(B) Liquidity
Historically,
the Company has incurred significant
operating losses and negative cash flows from operations since its inception. In December 2023, the Company sold its entire equity interest in its majority-owned subsidiary Telavant Holdings, Inc. (“Telavant”). At closing, the Company received approximately $5.2 billion in cash. As of June 30, 2024, the Company had cash and cash equivalents of approximately $5.7
billion and its retained earnings was approximately $671.5 million. For the three months ended June 30, 2024 and 2023, the Company had net income of approximately $57.5 million and incurred a net loss of approximately $327.8 million,
respectively. The Company has historically financed its operations primarily through the sale of equity securities, sale of subsidiary interests, debt financings and revenue generated from licensing and collaboration arrangements. Through its
subsidiary, Dermavant Sciences Ltd. (“Dermavant”), the Company has
launched its first commercial product, VTAMA, following approval by the FDA in May 2022.
The Company is subject to risks common to companies in the biopharmaceutical industry including, but not limited to, uncertainties related to
commercialization of products, regulatory approvals to market its product candidates, dependence on key products, dependence on third-party service providers, such as contract research organizations, and protection of intellectual property
rights. Management expects to incur additional losses in the future to fund its operations and conduct product research and development and may require additional capital to fully implement its business plan.
The Company expects its existing cash and cash equivalents will be sufficient to fund its committed operating expenses and capital expenditure
requirements for at least the next 12 months from the date of issuance of these condensed consolidated financial statements.
Note 2—Summary of Significant Accounting Policies
(A) Basis of Presentation and Principles of Consolidation
The Company’s fiscal year ends on March 31, and its fiscal quarters end on June 30, September 30, and December 31.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”) for interim financial information and follow the requirements of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, these unaudited condensed
consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements as certain footnotes or other financial information that are normally required by U.S. GAAP can be
condensed or omitted. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements.
These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024 filed with the SEC. The unaudited condensed consolidated balance sheet at March 31, 2024 has been derived from the audited
consolidated financial statements at that date. In the opinion of management, the unaudited condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary to present fairly the financial
position of the Company and its results of operations and cash flows for the interim periods presented. Operating results for the three months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the fiscal
year ending March 31, 2025, for any other interim period, or for any other future year.
Any references in these notes to applicable accounting guidance are meant to refer to the authoritative U.S. GAAP as found in the Accounting
Standards Codification (‘‘ASC’’) and Accounting Standards Updates (‘‘ASU’’) of the Financial Accounting Standards Board (‘‘FASB’’). The unaudited condensed consolidated financial statements include the accounts of RSL and the subsidiaries in
which it has a controlling financial interest, most often through a majority voting interest. All intercompany balances and transactions have been eliminated in consolidation.
For consolidated entities where the Company owns or is exposed to less than 100% of the economics, the Company records net loss attributable to
noncontrolling interests in its unaudited condensed consolidated statements of operations equal to the noncontrolling interest’s proportionate share of the respective operations. The Company presents noncontrolling interests as a component of
shareholders’ equity on its unaudited condensed consolidated balance sheets.
The Company accounts for changes in its ownership interest in its subsidiaries while control is retained as equity transactions. The carrying
amount of the noncontrolling interest is adjusted to reflect the change in the ownership interest in the subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest
is adjusted is recognized within shareholders’ equity attributable to RSL.
(B) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets, liabilities, costs, expenses, contingent liabilities, share-based compensation and research and development
costs. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
(C) Concentrations
Financial instruments that potentially subject the Company to
concentration of credit risk include cash and cash equivalents. The Company maintains cash deposits and cash equivalents in highly-rated, federally-insured financial institutions in excess of federally insured limits. The Company has established
guidelines relative to diversification and maturities to maintain safety and liquidity. The Company has not experienced any credit losses related to these financial instruments and does not believe that it is exposed to any significant credit
risk related to these instruments.
The Company has long-lived assets in different geographic locations. As of June 30, 2024 and March 31, 2024, a majority of the Company’s
long-lived assets were located in the United States (‘‘U.S.’’).
(D) Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash deposits in banks and all highly liquid investments that are readily convertible to cash. The Company
considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Cash as reported in the accompanying condensed consolidated statements of cash flows includes the aggregate amounts of cash, cash equivalents, and
restricted cash as presented on the accompanying condensed consolidated balance sheets as follows (in thousands):
|
June 30, 2024
|
March 31, 2024
|
|||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Restricted cash (included in “Other current assets”)
|
|
|
||||||
|
Restricted cash (included in “Other assets”)
|
||||||||
|
Cash, cash equivalents and restricted cash
|
$
|
|
$
|
|
||||
(E) Contingencies
The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company continually
assesses any litigation or other claims it may confront to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss which could be estimated. The Company accrues for all contingencies at the earliest date at
which the Company deems it probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely than another, the
Company accrues the minimum of the range. In the cases where the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the contingent loss, including an estimable range, if possible.
(F) Investments
Investments in equity securities for which the Company does not have control or significant influence may be accounted for using (i) the fair
value option, if elected, (ii) fair value through earnings, if fair value is readily determinable or (iii) for equity investments without readily determinable fair values, the measurement alternative to measure at cost adjusted for any impairment
and observable price changes, as applicable. The election to use the measurement alternative is made for each eligible investment.
The Company has elected the fair value option to account for certain investments over which the Company has significant influence. The Company
believes the fair value option best reflects the underlying economics of the investment. See Note 4, “Equity Method Investments.”
(G) Fair Value Measurements
The Company utilizes fair value measurement guidance prescribed by U.S. GAAP to value its financial instruments. The guidance establishes a fair
value hierarchy for financial instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market
participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would
use in pricing the asset or liability and are developed based on the best information available in the circumstances. Fair value is defined as the exchange price, or exit price, representing the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the reporting date. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a three-tier fair value
hierarchy that distinguishes among the following:
|
•
|
Level 1-Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
|
|
•
|
Level 2-Valuations are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models
for which all significant inputs are observable, either directly or indirectly.
|
|
•
|
Level 3-Valuations are based on inputs that are unobservable (supported by little or no market activity) and significant to the overall fair value measurement.
|
To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value
requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value measurement.
The Company’s financial instruments include shares of common stock of Arbutus Biopharma Corporation (“Arbutus”); Class A units of Heracles Parent,
L.L.C. (“Datavant”); liability instruments issued, including the earn-out shares liabilities issued in connection with the Company’s business combination with MAAC (as discussed in Note 13, “Earn-Out Shares”); its investments in other entities;
cash and cash equivalents consisting of money market funds; accounts payable; and long-term debt.
The shares of Arbutus common stock and
investments in common stock with a readily determinable fair value are classified as Level 1, and their fair value is determined based upon quoted market prices in an active market. The Class A units of Datavant and liability instruments issued
are classified as Level 3 within the fair value hierarchy as the assumptions and estimates used in the valuations are unobservable in the market. Cash and accounts payable are stated at their respective historical carrying amounts, which
approximate fair value due to their short-term nature. Money market funds are included in Level 1 of the fair value hierarchy and are valued at the closing price reported by an actively traded exchange. Long-term debt issued by Dermavant for
which the fair value option has been elected is included in Level 3 of the fair value hierarchy as the assumptions and estimates used in the valuation are unobservable in the market. Other long-term debt issued by Dermavant is recorded at amortized cost under the interest method.
(H) Significant Accounting Policies
There were no significant changes to the Company’s significant accounting policies from those disclosed in the Company’s Form 10-K for the year ended March 31, 2024.
(I) Recently Adopted Accounting Pronouncements
The Company did not adopt any material accounting pronouncements during the three months ended June 30, 2024.
(J) Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard
setting bodies that the Company adopts as of the specified
effective date.
In
November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant
segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. This ASU is applicable to the Company’s Annual Report on Form 10-K
for the fiscal year ended March 31, 2025, and subsequent interim periods, with early adoption permitted. These amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently
evaluating the impact of adopting this ASU on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income
Tax Disclosures,” which includes updates to the income tax disclosures related to the rate reconciliation and disaggregation of income taxes paid by jurisdiction. The amendments are effective for fiscal years beginning after December 15, 2024
and are applicable to the Company’s fiscal year beginning April 1, 2025, with early adoption permitted. The amendments should be applied prospectively, however retrospective application is permitted. The Company is currently evaluating the
impact of adopting this ASU on its consolidated financial statements.
Note 3—Revenue
(A) Product Revenue, Net
The Company’s product revenue, net relates entirely to the sale of VTAMA in the U.S. The Company began
generating product revenue, net from sales of VTAMA in the U.S. following the approval of VTAMA for the treatment of plaque psoriasis in adult patients by the FDA in May 2022. The Company records product revenue net of estimated chargebacks,
discounts, rebates, returns, and other allowances associated with the respective sales.
(B) License, Milestone and Other Revenue
In January 2020, Dermavant entered into a collaboration and license agreement with Japan Tobacco Inc. (“JT”) for exclusive rights to develop, register, and market tapinarof in Japan for
the treatment of dermatological diseases and conditions, including psoriasis and atopic dermatitis. In conjunction with this agreement, JT executed an exclusive license agreement with its subsidiary, Torii Pharmaceutical Co., Ltd., for
co-development and commercialization of tapinarof in Japan. The Company evaluated the collaboration and license agreement and concluded that JT is a customer. During the three months ended June 30, 2024, the Company determined that certain development milestones totaling $28.0 million became probable as such milestones were achieved. As a result, the Company recorded $28.0
million as license, milestone and other revenue in the accompanying condensed consolidated statements of operations for the three months ended June 30, 2024. The payment
was received in July 2024.
Note 4—Equity Method Investments
The Company maintains equity method investments in certain entities. As of June 30, 2024 and March 31, 2024, the most significant of these were the Company’s investments in Arbutus and Datavant,
which are accounted for using the fair value option.
The Company determined that it does not control these entities and as a result does not consolidate these entities. Due to the Company’s significant influence over operating and financial policies of
these entities, the entities are considered related parties of the Company.
Investment in Arbutus
The Company holds an investment in Arbutus in the form of 38,847,462 common shares of Arbutus. As of June 30, 2024, RSL held approximately 21 %
of issued and outstanding shares of Arbutus.
At June 30, 2024 and March 31, 2024, the aggregate fair value of the Company’s investment in Arbutus was $120.0 million and $100.2 million, respectively, with the Company recognizing an unrealized gain of $19.8 million and an unrealized loss of $28.4 million on
its investment in Arbutus in the accompanying condensed consolidated statements of operations for the three months ended June 30, 2024 and 2023, respectively. The fair value of the Company’s investment was determined using the closing price of Arbutus’s
common stock on June 30, 2024 and March 31, 2024 of $3.09 and $2.58 , respectively.
Investment
in Datavant
The Company holds an investment in Class A units of Datavant. As of June 30, 2024, the Company’s minority equity interest represented approximately 9 % of the outstanding Class A units in Datavant. Datavant’s capital structure includes several classes of preferred units that, among other features, have liquidation preferences and
conversion rights. Upon conversion of such preferred units into Class A units, the Company’s ownership interest would be diluted.
As
of
June 30, 2024 and March
31, 2024, the fair value of the Company’s investment was $142.9 million and $147.5 million, respectively, with the Company recognizing an unrealized loss of $4.6
million and an unrealized gain of $20.9 million on its investment in Datavant in the accompanying condensed consolidated statements of
operations for the three months ended June 30, 2024 and 2023,
respectively.
The fair value of the Company’s investment was determined using valuation models that incorporate significant unobservable inputs and is
classified as a Level 3 measurement within the fair value hierarchy. Refer to Note 14, “Fair Value Measurements” for more information.
Note 5—Intangible Assets
In July 2018, Dermavant acquired the worldwide rights (other than for China) with respect to certain intellectual property rights retained by
Welichem Biotech Inc. (“Welichem”) to VTAMA and related compounds from Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development Ltd. (collectively, “GSK”) pursuant to an asset purchase agreement. GSK previously acquired rights to
a predecessor formulation from Welichem pursuant to an asset purchase agreement between GSK and Welichem entered into in May 2012. The Company evaluated the agreement and determined that the acquired assets did not meet the definition of a
business and thus the transaction was accounted for as an asset acquisition.
Following the FDA approval of VTAMA in May 2022, the Company became obligated to pay a regulatory milestone to GSK of £100.0 million (approximately $126
Additionally, the first sale of VTAMA in May 2022 resulted in the achievement of a milestone to Welichem Biotech Inc. of CAD$25.0 million (approximately $20
Both of the above milestones were capitalized as intangible assets upon achievement and are being amortized over their estimated useful lives.
The following table summarizes the Company’s recognized intangible assets (in thousands):
| June 30, 2024 |
March 31, 2024
|
|||||||
|
Gross amount
|
$ |
$
|
|
|||||
|
Less: accumulated amortization
|
( |
) |
(
|
)
|
||||
|
Net book value
|
$ |
$
|
|
|||||
Amortization expense was $2.4 7.1 million for the remainder of the year ending March 31, 2025, $9.5 81.4
million thereafter. The Company’s intangible assets are denominated in currencies other than U.S. dollar and therefore are subject to foreign currency movements.
Note 6—Recent Transactions and Developments
Telavant Disposition
On December 14, 2023 (the “Transaction Date”), the Company completed the sale of its entire equity interest in its majority-owned subsidiary Telavant
to Roche Holdings, Inc. (“Roche”) (the “Roche Transaction”). The Roche Transaction was made pursuant to a Stock Purchase Agreement dated October 22, 2023 among the Company, Telavant, Pfizer Inc. (“Pfizer”), and Roche (the “Stock Purchase Agreement”).
Telavant was jointly formed by the Company and Pfizer in November 2022 to develop and commercialize RVT-3101, an anti-TL1A antibody in development for ulcerative colitis (“UC”) and Crohn’s disease, in the U.S. and Japan. Prior to the Roche
Transaction, the Company held 75 % of the issued and outstanding shares of common stock and preferred stock of Telavant, and Pfizer owned
the remaining 25 %, in each case on an as-converted basis.
Pursuant to the Stock Purchase Agreement, Roche acquired all of the issued and outstanding shares of capital stock of Telavant in exchange for
approximately $7.1 billion in cash at the closing of the Roche Transaction and a one-time milestone payment of $150 million in cash payable upon the initiation of a Phase 3 trial in UC. The $7.1 billion in closing consideration was paid to all of Telavant’s equity holders, including holders of restricted stock units, on a pro rata basis relative to their ownership of Telavant
prior to the closing of the Roche Transaction, and this same treatment applies to the one-time milestone payment. The Company received an upfront payment of approximately $5.2 billion in cash as its pro rata portion of the consideration upon closing of the Roche Transaction.
In June 2024, the one-time milestone was achieved. Accordingly, the Company will receive approximately $110.4 million in cash for its pro rata portion of the milestone payment. The Company recognized a gain on sale of Telavant net assets of $110.4 million related to the one-time milestone payment during the three months ended June 30, 2024 in the accompanying condensed consolidated statements of operations. As of June 30, 2024, the milestone payment
receivable of approximately $110.4
Note 7—Certain Balance Sheet Components
(A) Other Current Assets
Other current assets at June 30, 2024 and March 31, 2024 consisted of the following (in thousands):
|
June 30, 2024
|
March 31, 2024
|
|||||||
|
Prepaid expenses
|
$
|
|
$
|
|
||||
|
Trade receivables, net
|
|
|
||||||
| Restricted cash | ||||||||
| Inventory |
||||||||
|
Income tax receivable
|
|
|
||||||
| Interest receivable | ||||||||
|
Milestone receivable
|
||||||||
|
Other
|
|
|
||||||
|
Total other current assets
|
$
|
|
$
|
|
||||
(B) Accrued Expenses
Accrued expenses at June 30, 2024 and March 31, 2024 consisted of the following (in thousands):
|
June 30, 2024
|
March 31, 2024
|
|||||||
|
Research and development expenses
|
$
|
|
$
|
|
||||
|
Compensation-related expenses
|
|
|
||||||
| Sales allowances | ||||||||
|
Other expenses
|
|
|
||||||
|
Total accrued expenses
|
$
|
|
$
|
|
||||
(C) Other Current
Liabilities
Other current liabilities at June 30, 2024 and March 31, 2024 consisted of the following (in thousands):
|
June 30, 2024
|
March 31, 2024
|
|||||||
|
Deferred revenue
|
$
|
|
$
|
|
||||
|
Income tax payable
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total other current liabilities
|
$
|
|
$
|
|
||||
Note 8—Long-Term Debt
Dermavant
Funding Agreement with NovaQuest
In connection with Dermavant’s acquisition of tapinarof from GSK pursuant to an asset purchase agreement (the “GSK Agreement”), Dermavant and
NovaQuest Co-Investment Fund VIII, L.P. (“NovaQuest”) entered into a funding agreement (the “NovaQuest Agreement”). Pursuant to the NovaQuest Agreement, Dermavant borrowed $100.0 million in August 2018 and $17.5 million in October 2018.
In May 2024, Dermavant entered into a series of agreements to renegotiate its existing debt obligations (the “Debt Renegotiation”). The Debt Renegotiation included an amendment to the NovaQuest Agreement (the “NovaQuest Agreement Amendment”) as
discussed further below.
Pursuant to the original terms of the NovaQuest Agreement, Dermavant agreed to make fixed payments to NovaQuest under the NovaQuest Agreement upon
regulatory approval of tapinarof in exchange for the $117.5 million in total funding from NovaQuest. For each of the atopic dermatitis
and psoriasis indications, Dermavant was required to make quarterly payments to NovaQuest totaling $176.3 million per indication over a six-year
period following regulatory approval of tapinarof for the applicable indication in the U.S. In the event that Dermavant received regulatory approval for one indication, and Dermavant terminated the development of the other indication for any
reason other than a Technical Failure (as defined below), then Dermavant would be required to make the above-referenced quarterly payments to NovaQuest up to $440.6 million over a 15 -year period for the approved indication, which are referred to as 15 -year Payments. A Technical Failure was deemed to occur for an indication if the development program for such indication was terminated due to (1)
significant safety concerns, (2) material adverse developments or (3) the receipt by Dermavant of a complete response letter or a final non-approval letter from the FDA that was expected to result in significant delay or cost to reach
commercialization for the applicable indication. In addition, Dermavant was required to make up to $141.0 million in payments to
NovaQuest upon achievement of certain commercial milestones. In the event that Dermavant was required to start making 15 -year
Payments, then Dermavant had the right to offset such amounts by up to $88.1 million of the commercial milestone payments, with such
offset being applied to the quarterly payments in reverse chronological order (such that the final quarterly payments owed would be used first to offset the commercial milestone payments).
The NovaQuest Agreement Amendment eliminated the fixed quarterly cash payments totaling $176.3 million
that would have been due and payable following regulatory approval of tapinarof in the U.S. for atopic dermatitis, if approved. In addition, the NovaQuest Agreement Amendment (i) eliminated cash payments of up to $141.0 million to NovaQuest that would have been due and payable upon achievement of certain commercial milestones by Dermavant and (ii) amended
the timing of remaining cash payments, which now total $122.5 million in aggregate, to be paid between the fiscal years ending
March 31, 2025 and March 31, 2029,
with payments totaling $6.0
In connection with the NovaQuest Agreement Amendment, Dermavant
issued common shares to NovaQuest with a total fair value of $11.7 million, representing approximately 12.0 % of Dermavant’s issued and outstanding common and preferred shares (on an as converted basis). The common shares include certain
anti-dilution top-up rights tied primarily to an equity commitment made by RSL. Refer to Note 9, “Shareholders’ Equity” for further detail regarding the equity commitment made by RSL. The consideration paid was applied as a reduction to the
long-term debt.
As of June 30, 2024, Dermavant has made cumulative
payments totaling $60.3 million to NovaQuest.
At issuance, the Company concluded that certain features of the long-term debt would be considered derivatives that would require bifurcation. In
lieu of bifurcating various features in the agreement, the Company has elected the fair value option for this financial instrument and records the changes in the fair value within the accompanying condensed consolidated statements of operations
at the end of each reporting period. As of June 30, 2024 and March 31, 2024, the fair value of the debt was $88.4 million and $210.4 million, respectively. The fair value as of June 30, 2024
reflects the amended terms resulting from the Debt Renegotiation. Refer to Note 14, “Fair Value Measurements” for additional details regarding the fair value measurement.
The carrying balance of the debt issued to NovaQuest was as follows (in thousands):
|
June 30, 2024
|
March 31, 2024
|
|||||||
|
Fair value of long-term debt
|
$
|
|
$
|
|
||||
|
Less: current portion
|
(
|
)
|
(
|
)
|
||||
|
Total long-term debt, net
|
$
|
|
$
|
|
||||
Credit Facility with XYQ Luxco
In May 2021, Dermavant and certain of its subsidiaries entered into a $40.0 million senior secured credit facility (the “Credit Facility”) with XYQ Luxco S.A.R.L (“XYQ Luxco”), as lender, and U.S. Bank National Association, as collateral agent. As part of the Debt Renegotiation in May 2024,
the Credit Facility was amended (the “Credit Facility Amendment”) to extend the maturity date of the Credit Facility from May 2026 to May 2028 and to increase the interest rate payable on borrowings under the Credit Facility from 10.00 % to 12.25 % per annum.
Under the terms of the Credit Facility, as amended by the Credit Facility Amendment, the Credit Facility matures in May 2028 and bears an
interest rate of 12.25 % per annum. Interest is payable quarterly in arrears on the last day of each calendar quarter through the
maturity date. A lump sum principal payment is due on the maturity date. Dermavant is also obligated to pay an exit fee of $5.0
million. The exit fee can be reduced to $4.0 million upon achievement of certain equity milestones defined in the agreement, which
are not deemed likely as of June 30, 2024.
The Credit Facility Amendment was accounted for as a
troubled debt restructuring as (i) Dermavant was experiencing financial difficulties and (ii) the lender was determined to have granted a concession. The Company did not record a gain in connection with the restructuring as the total
undiscounted future cash payments for the Credit Facility exceeded the carrying value of the Credit Facility as of the effective date of the Credit Facility Amendment.
Outstanding debt obligations to XYQ Luxco were as follows (in thousands):
|
June 30, 2024
|
March 31, 2024
|
|||||||
|
Principal amount
|
$
|
|
$
|
|
||||
|
Exit fee
|
|
|
||||||
|
Less: unamortized discount and debt issuance costs
|
(
|
)
|
(
|
)
|
||||
|
Total debt, net
|
|
|
||||||
|
Less: current portion
|
|
|
||||||
|
Total long-term debt, net
|
$
|
|
$
|
|
||||
Revenue Interest Purchase and Sale Agreement
In
May 2021, Dermavant, as seller, entered into a $160.0 million revenue interest purchase and sale agreement (the “RIPSA”) for its
investigational product tapinarof with XYQ Luxco, NovaQuest Co-Investment Fund XVII, L.P., an affiliate of NovaQuest Capital Management, LLC, and MAM Tapir Lender, LLC, an affiliate of Marathon Asset Management, L.P., together with U.S. Bank
National Association, as collateral agent. Under the terms of the RIPSA, Dermavant is obligated to pay royalties based on a capped single-digit revenue interest in net sales of tapinarof for all dermatological indications in the U.S., up to a cap
of $344.0 million, in exchange for the $160.0
million in committed funding, which was paid to Dermavant in June 2022 following the approval of tapinarof by the FDA.
The
transaction is accounted for as debt. Over the term of the arrangement, the effective interest rate will be updated prospectively each reporting period based on the carrying amount of the note, payments made to date, and the estimated remaining
cash flows related to the note.
As part of the Debt Renegotiation in May 2024, the RIPSA was amended (the “RIPSA Amendment”). The RIPSA Amendment provided for, among other
things, a near-term cap on the royalties currently payable equal to $6.0 344.0 million.
In connection with the RIPSA Amendment, Dermavant issued
common shares to the holders of the RIPSA with a total fair value of $1.2 million, representing approximately 1.2 % of Dermavant’s issued and outstanding common and preferred shares (on an as converted basis). The common shares include certain
anti-dilution top-up rights tied primarily to an equity commitment made by RSL. Refer to Note 9, “Shareholders’ Equity” for further detail regarding the equity commitment made by RSL. The consideration paid was applied as a reduction to the
long-term debt.
Each amended debt instrument held by the holders of the RIPSA under the RIPSA Amendment was accounted for as a troubled debt restructuring as (i) Dermavant was experiencing financial difficulties and (ii) the lender was determined to have granted a concession. The Company did not record a gain
in connection with the restructuring as the total undiscounted future cash payments for the RIPSA exceeded the carrying balance of the RIPSA as of the effective date of the RIPSA Amendment.
The RIPSA carrying balance was as follows (in thousands):
|
June 30, 2024
|
March 31, 2024
|
|||||||
|
Carrying balance
|
$
|
|
$
|
|
||||
|
Less: unamortized issuance costs
|
(
|
)
|
(
|
)
|
||||
|
Total debt, net
|
|
|
|
|
||||
|
Less: current portion
|
(
|
)
|
(
|
)
|
||||
|
Total long-term debt, net
|
$
|
|
$
|
|
||||
Note 9—Shareholders’ Equity
(A) At-the-Market Equity Offering Program
On September 19, 2022, the Company entered into a sales agreement with Cowen and Company, LLC (“Cowen”) to sell its
common shares having an aggregate offering price of up to $400.0 million from time to time through an “at-the-market” equity offering
program under which Cowen acts as the Company’s agent (the “ATM Facility”).
As of June 30, 2024, the Company had $400.0 million of remaining capacity available under the ATM Facility.
(B) Share
Repurchase Program
The Company’s board of directors has authorized a common share repurchase program, allowing for repurchases of common shares in an aggregate amount of up to $1.5 billion (excluding fees and expenses). The repurchase program is funded by available cash and cash equivalents on hand and does not have an expiration date. In April 2024, pursuant
to the share repurchase program, the Company entered into a share repurchase agreement with Sumitomo Pharma Co., Ltd. ("Sumitomo") and repurchased all 71,251,083 common shares held by Sumitomo at a purchase price per share of $9.10 , for an
aggregate purchase price of approximately $648.4 million.
(C) Debt Renegotiation
In conjunction with the Debt Renegotiation completed in May 2024, RSL entered into
an equity commitment letter (the “Equity Commitment Letter”) with Dermavant. Under the Equity Commitment Letter, RSL agreed to contribute $195.0
million (the “Commitment”) to Dermavant in exchange for convertible preferred shares with a 1.5 times liquidation preference
on invested capital. RSL has contributed $125.0 million of the Commitment as of June 30, 2024. As part of the Debt
Renegotiation, Dermavant issued common shares with an aggregate fair value of $12.9 million to NovaQuest and the holders of the
RIPSA, representing approximately 13.2 % of Dermavant’s issued and outstanding common and preferred shares (on an as converted
basis). The common shares include certain anti-dilution top-up rights tied primarily to RSL’s Commitment.
Note 10—Share-Based Compensation
(A) RSL Equity Incentive Plans
RSL has three equity incentive
plans: the Roivant Sciences Ltd. 2021 Equity Incentive Plan (the “RSL 2021 EIP”), the Roivant Sciences Ltd. Amended and Restated 2015 Equity Incentive Plan, and the Roivant Sciences Ltd. Amended and Restated 2015 Restricted Stock Unit Plan
(collectively, the “RSL Equity Plans”). The RSL 2021 EIP was approved and adopted in connection with the Business Combination and became effective immediately prior to closing. At June 30, 2024, a total of 37,558,162 common shares were available for future grants under the RSL 2021 EIP.
Stock Options and Performance Stock Options
Activity for stock options and performance stock options under the RSL Equity Plans for the three months ended June 30, 2024 was as follows:
|
Number of Options
|
||||
|
Options outstanding at March 31, 2024
|
|
|||
|
Granted
|
|
|||
| Exercised |
( |
) | ||
|
Options outstanding at June 30, 2024
|
|
|||
|
Options exercisable at June 30, 2024
|
|
|||
Restricted Stock Units and Performance Stock Units
Activity for restricted stock units and performance stock units under the RSL Equity Plans for the three months ended June 30, 2024 was as
follows:
|
Number of Shares
|
||||
|
Non-vested balance at March 31, 2024
|
|
|||
|
Granted
|
|
|||
|
Vested
|
(
|
)
|
||
|
Forfeited
|
(
|
)
|
||
|
Non-vested balance at June 30, 2024
|
|
|||
Capped Value Appreciation Rights
March 2020 CVAR Grants
As of June 30, 2024, 17,548,368 CVARs remain outstanding. These CVARs had met the service vesting
condition as of June 30, 2024 but have not satisfied their applicable hurdle price on an applicable hurdle measurement date.
November 2021 CVAR Grants
Activity for CVARs granted in November 2021 under the RSL 2021 EIP for the three months ended June 30, 2024 was as follows:
|
Number of CVARs
|
||||
|
Non-vested balance at March 31, 2024
|
|
|||
|
Vested
|
(
|
)
|
||
|
Forfeited
|
(
|
)
|
||
|
Non-vested balance at June 30, 2024
|
|
|||
During the three months ended June 30, 2024, 290,968 common shares were issued upon their settlement.
(B) Subsidiary Equity Incentive Plans
Certain subsidiaries of
RSL adopt their own equity incentive plan (“EIP”). Each EIP is generally structured so that the applicable subsidiary, and its affiliates’ employees, directors, officers, and consultants are eligible to receive non-qualified and incentive
stock options, stock appreciation rights, restricted share awards, restricted stock unit awards, and other share awards under their respective EIP. The Company recorded share-based compensation expense of $17.5 million and $14.9 million for
the three months ended June 30, 2024 and 2023, respectively, related to subsidiary EIPs.
Note 11—Income Taxes
The Company’s effective tax rate for the three months ended June 30, 2024 and 2023 was 18.0 % and (0.5 )%, respectively. The effective tax rate for the three months
ended June 30, 2024 is driven by the Company’s gain on sale of Telavant’s net assets, which qualifies for the substantial shareholding exemption in the U.K. and consequently is not subject to the corporation income tax, as well as earnings by
jurisdiction and a valuation allowance that eliminates the Company’s global net deferred tax assets. The effective tax rate for three months ended June 30, 2023 is driven by the earnings by jurisdiction and a valuation allowance that eliminates
the Company’s global net deferred tax assets.
The Company assesses the realizability of its deferred tax assets at each balance sheet date based on available positive and negative evidence in
order to determine the amount which is more likely than not to be realized and records a valuation allowance as necessary.
Note 12—Commitments and Contingencies
(A) Commitments
Long-Term Debt
The
Company is obligated to make contractual payments related to its long-term debt. Refer to Note 8, “Long-Term Debt” for further information.
Lease Commitments
The Company has leases, consisting primarily of real estate leases. Refer to Note 13, “Leases” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024 for further information regarding the Company’s lease
commitments. There have been no material changes to the commitments relating to the Company’s leases during the three months ended June 30, 2024.
Other Commitments
The Company has entered into commitments under various asset acquisition and license agreements. Under these agreements, the Company is required to make milestone payments upon successful completion and achievement
of certain development, regulatory and commercial milestones. The payment obligations under the asset acquisition and license agreements are contingent upon future events, such as the achievement of specified development, regulatory
and commercial milestones, and the Company will be required to make milestone payments and royalty payments in connection with the sale of products developed under these agreements. Refer to Note 14, “Commitments and Contingencies” in
the Company’s Annual Report on Form 10-K for the year ended March 31, 2024 for further information regarding certain key asset acquisition and license agreements. There have been no material changes to the key asset acquisition and
license agreements during the three months ended June 30, 2024, apart from changes to the milestones owed to NovaQuest as a result of the NovaQuest Agreement Amendment as discussed in Note 8, “Long-Term Debt.” The Company has further
commitments relating to other asset acquisition and license agreements entered and expects to enter into additional asset acquisition and license agreements in the future, which may require upfront payments and long-term commitments
of capital resources.
Additionally, the Company enters into agreements with contract service providers to assist in the performance of its research and development activities. Expenditures to contract research organizations and
contract manufacturing organizations represent significant costs in the clinical development of its product candidates. Subject to required notice periods and certain obligations under binding purchase orders, the Company can elect
to discontinue the work under these agreements at any time. The Company expects to enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront
payments and long-term commitments of capital resources.
In conjunction with Dermavant’s entry into the GSK Agreement in 2018, Dermavant entered into a clinical supply agreement pursuant to which GSK would provide a supply of tapinarof and clinical product at an
agreed upon price during the Company’s clinical trials. In April 2019, Dermavant entered into a commercial supply agreement with GSK to continue to provide certain quantities of tapinarof and commercial product at agreed upon
minimum quantities and prices. The commercial supply agreement commenced in April 2022 upon completion of certain quality and regulatory conditions. In July 2022, Dermavant and GSK amended the terms of the clinical supply and
commercial supply agreements which released GSK of certain commitments to supply tapinarof and released Dermavant of certain commitments to purchase tapinarof in exchange for a supplementary fee. Other supply and purchase
commitments under the agreements remain in effect. In addition, Dermavant and Thermo Fisher Scientific (“TFS”) entered into a Commercial Manufacturing and Supply Agreement for which TFS agreed to provide a supply of tapinarof to
Dermavant at an agreed upon price. The agreements discussed above require Dermavant to purchase certain quantities of inventory over a period of five years . As of June 30, 2024, the remaining minimum purchase commitment related to these agreements was estimated to be approximately $25.9 million.
In November 2021, the Company's subsidiary, Immunovant, entered into a Product Service Agreement (“PSA”) with Samsung Biologics Co., Ltd. (“Samsung”), pursuant to which Samsung will manufacture and supply
Immunovant with batoclimab drug substance for commercial sale, if approved, and perform other manufacturing-related services with respect to batoclimab. Upon execution of the PSA, Immunovant committed to purchase process
performance qualification batches of batoclimab and pre-approval inspection batches of batoclimab which may be used for regulatory submissions and, pending regulatory approval, commercial sale. In addition, Immunovant has a
minimum obligation to purchase further batches of batoclimab in the four-year period of 2026 through 2029. As of June
30, 2024, the remaining minimum purchase commitment related to this agreement was estimated to be approximately $44.5
million.
Cash
Bonus Program
During the year ended March 31, 2024, the Company approved a special one-time cash retention bonus award to its employees in the aggregate amount of $79.7 million (the “Cash Bonus Program”). During the three months ended June 30, 2024, the Company recognized selling, general and administrative expense and research and development expense of $6.9 million and $1.8 million,
respectively, relating to the Cash Bonus Program. The remaining portion of $22.0 million as of June 30, 2024 will be recognized over
the applicable service periods of the awards made under the Cash Bonus Program.
Multi-Year Incentive Compensation Program
In July 2024, the Compensation Committee of the
Board of Directors approved cash bonus awards for the Company's Chief Executive Officer, President and Chief Investment Officer, and President and Chief Operating Officer as part of a multi-year incentive compensation program. Refer to Note 16,
“Subsequent Events” for further details.
(B) Loss Contingencies
The Company
may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company accrues for loss contingencies when available information indicates that it is probable that a liability has been incurred
and the amount of such loss can be reasonably estimated, and if the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the litigation or claim, including an estimable range, if
possible.
(C) Indemnification
Agreements
The Company is a party to a number of agreements entered into in the ordinary course of business that contain typical provisions that obligate the Company to indemnify the other parties to such agreements upon the
occurrence of certain events. The aggregate maximum potential future liability of the Company under such indemnification provisions is uncertain. The Company also indemnifies each of its directors and officers for certain events or occurrences,
subject to certain limits. The maximum amount of potential future indemnification is unlimited; however, the Company currently maintains director and officer liability insurance, which may cover certain liabilities arising from the Company’s
obligation to indemnify its directors and officers. To date, the Company has not incurred any material costs related to these indemnification obligations and has not accrued any liabilities related to such obligations in the accompanying
condensed consolidated financial statements as of June 30, 2024 and March 31, 2024.
Note 13—Earn-Out Shares
In connection with the Business Combination, the Company issued the following:
|
a.
|
|
| b. |
| c. |
The remaining number of common shares issued to the MAAC Sponsor and each of MAAC’s independent directors are not subject to the vesting conditions described above (the “Retained Shares”).
|
The Vesting Period commenced on November 9, 2021 and ends no later than September 30, 2026 (the “Vesting Period”). The Vesting Period will, if a definitive purchase agreement with respect to a Sale (as defined in the
Sponsor Support Agreement) is entered into on or prior to the end of such period, be extended to the earlier of one day after the consummation of such Sale and the termination of such definitive transaction agreement, and if a Sale occurs
during such Vesting Period, then all of the Earn-Out Shares unvested as of such time will automatically vest immediately prior to the consummation of such Sale. If any Earn-Out Shares have not vested on or prior to the end of such Vesting
Period, then such Earn-Out Shares will be forfeited.
The Earn-Out Shares require liability classification and are classified as “Liability instruments measured at fair value” on the accompanying condensed consolidated balance sheets. The Earn-Out Shares liability is
subject to remeasurement at each balance sheet date with changes in fair value recognized in the Company’s statements of operations. As of June 30, 2024, no Earn-Out Shares have vested.
The Earn-Out Shares are subject to certain lock-up agreements pursuant to which, among other things, the MAAC Sponsor and each of MAAC’s independent directors (the “MAAC
Independent Directors”) have agreed
not to effect any sale or distribution of the Company’s common shares during the applicable lock-up period, subject to customary exceptions. The lock-up periods applicable to the Company’s common shares, including Earn-Out Shares, held by the
MAAC Sponsor and MAAC Independent Directors as of immediately following the closing of the Business Combination (the “Closing”) are (i) with respect to 25 %
of the Company’s common shares held by the MAAC Sponsor and MAAC Independent Directors, six months following the Closing, which expired on March 30, 2022, (ii) with respect to an additional 25 % of the Company’s common shares held by the MAAC Sponsor and MAAC Independent Directors, the earlier of twelve months following the achievement of certain price-based
vesting restrictions or six years from the Closing and (iii) with respect to 50 % of the Company’s common shares held by the MAAC
Sponsor and MAAC Independent Directors, thirty-six months following the Closing.
Note 14—Fair Value Measurements
Recurring Fair Value Measurements
The
following table sets forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2024 and March 31, 2024, by level, within the fair value hierarchy (in thousands):
|
As of June 30, 2024
|
As of March 31, 2024
|
|||||||||||||||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Balance as of
June 30,
2024
|
Level 1
|
Level 2
|
Level 3
|
Balance as
of March 31,
2024
|
|||||||||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||||||||||