Roivant Sciences Goes Public in $7.3 Billion Deal

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Slated for a third quarter (Q3) closing, “biopharma” medicine manufacturer Roivant Sciences’ IPO will be launched through merger with a SPAC, Montes Archimedes Acquisition Corp. (NASDAQ: MAAC).

The deal will put approximately $611 million worth of proceeds in Roivant’s pocket, and has given Montes Archimedes Acquisition Corp. a small boost in morning trading today. Here’s a closer look at the details.

Montes Archimedes: Zeroing in on Healthcare From the First

Blank check company Montes Archimedes was launched last November with the idea of finding a privately-held health or medicine company to take public. Its reasoning is straightforward: there’s a lot of money to be made in healthcare and the sector is growing fast, with an extra upward nudge provided by the COVID-19 pandemic.

Montes Archimedes says it’s targeting the health sector because it’s “a large and growing market” driven by increasing numbers of chronic disease patients, a population with a rising average age, and other factors. The company’s site provides some specific data behind its rationale:

  • Spending on healthcare in America topped $3.5 trillion in 2019.
  • The health sector will amount to nearly 20% of the United States GDP by 2027.
  • Between now and 2027, research indicates healthcare spending will grow at a 5.5% compound annual growth rate (CAGR).

According to information from Simply Wall Street, Montes Archimedes has a high level of insider stock ownership and very little from hedge funds or similar institutions. CEO James Momtazee personally holds a 20% stake, while 18 shareholders (including Momtazee) control 50% of shares, and about 43% is held by the public. The company hasn’t been making headlines prior to today’s IPO deal with Roivant Sciences. 

It’s sponsored by another healthcare private equity firm, Patient Square Capital, though this isn’t as exciting an endorsement as Montes Archimedes tries to make it sound: Patient Square was also founded by James Momtazee, and is just three months older, with an August 2020 launch. In Momtazee’s favor, he did acquire experience as the chief of health investment for 20 years at major investment firm KKR & Co. (NYSE: KKR), which has approximately $233 billion worth of assets under management (AUM).

Montes Archimedes said it also picked the healthcare sector because the huge number of companies there gave it the chance to pick one with excellent characteristics and potential. With 55,000 candidates in the United States according to its own information, it chose Roivant Sciences as its merger partner. What did it see in Roivant and where will the merger go?

Roivant Sciences Tries to Bring Tech to Medicine

Roivant Sciences, which intends to go public under the ticker (NASDAQ: ROIV) once this merger closes, is earning plenty of money yet has surprisingly few “wins” in the healthcare field where it’s operating. According to its own press release, the “biopharmaceutical” company “is at the cutting edge of using technology to discover and develop transformative medicines for a wide range of serious diseases.” 

Roivant says its mission is to find experimental medicines or health processes with promise, but that lack the funding to be developed into approved therapies. It is positioning itself as a sort of medical tech company, creating a large computer network which it claims can use machine learning to develop medicines to a usable form.

According to Forbes reporting, however, only 5% of its attempted developments have seen any success up to this point, with two out of 40 therapies winning FDA approval and its Alzheimer’s drug flunking trials after major publicity buildup. 

While the company’s medicine development project successes are sparse to date, it has pulled in considerable money. A Japanese pharmaceutical giant, Sumitomo Dainippon Pharma, bought five spinoff companies from Roivant for $3 billion in 2019, while becoming a 10% stakeholder in the enterprise itself.

Some facts about the upcoming SPAC-based IPO include:

  • Roivant will receive $411 million in proceeds from Montes Archimedes, plus $200 million from a PIPE (private investment in public equity) from various institutional investors.
  • The $611 million will bring its net cash to $2.3 billion according to Forbes. Roivant says the proceeds “are expected to extend the company’s operating runway through mid-2024” and “will enable strategic pipeline expansion through internal drug discovery and in-licensing, continued development of wholly-owned drugs, and commercialization.” 
  • Roivant’s valuation after its IPO is expected to be $7.3 billion.
  • Montes Archimedes CEO James Momtazee will join Roivant’s board of directors.
  • After the merger, Roivant’s current shareholders will own 92% of the company.
  • Patient Square Capital and several other major shareholders will lock up a minimum of 50% of their shares for 3 years following the IPO, with Patient Square turning an additional 30% of its shares into “earnout shares.”
  • The earnout shares provide an incentive for Roivant’s original ownership to meet performance targets.

Troubling Signs for the Future of ROIV Stock 

With a $7.3 billion valuation, the Roivant Sciences and Montes Archimedes SPAC merger appears to be a significant IPO in the health sector. Montes Archimedes is also correct that Roivant is operating in a fast-growing, profitable field, and its computational model could have promise for future drug developments, especially backed by $611 million in additional funding. However, Roivant’s low rate of FDA approvals and the failure of its frontrunner Alzheimer’s drug sound a warning note for investors.

The earnout shares forming part of the SPAC deal are also another possible red flag, since earnouts are often used to patch up disagreements about valuation between two companies involved in a merger. Earnouts often lead to conflict and even lawsuits between the merger partners. While more details may emerge, Roivant sounds like a potentially successful but somewhat risky IPO at this stage of the game.

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