RVMD - Revolution Medicines: Early-Stage Firm Whose High Valuation I Cannot Explain

2023-07-11 18:56:04 ET

Summary

• Revolution Medicines, Inc. is undoubtedly doing interesting science.
• However, I can name 10 companies that are doing equally interesting science but are valued at a fifth of Revolution Medicines stock.
• There is no way their early data justifies that nearly $3bn valuation.

Here’s another early-to-mid stage biopharma with a ~$3bn valuation - Revolution Medicines, Inc. ( RVMD ). RVMD is a Third Rock Ventures-backed originally antifungal developer that moved into oncology a few years ago. Now it develops RAS-targeted cancer medicines. Its pipeline consists of many molecules, with two clinical stage RAS ((ON)) inhibitors and two more RAS companion inhibitors. RMC-4630, an SPH2-targeting RAS companion inhibitor, is in the latest stage, clinical stage 2. The 3 others are in phase 1, and there are 4-5 other IND-enabling stage molecules. Here it is, the pipeline:

Lead candidate RMC-4630 has trials running in NSCLC and various solid tumors. Earlier, it published data from a phase 1 trial, a dose escalation study in combination with Cobimetinib in Relapsed/ Refractory Solid Tumors and in combination with Osimertinib in EGFR Positive Locally Advanced/Metastatic NSCLC. There were 113 patients in this trial, and while the primary endpoints were AEs and DLTs, secondary endpoints included efficacy measures like ORR and DOR.

In 2020, the company presented data that showed the following:

• …target plasma exposures for each drug based on preclinical models of RAS pathway-driven cancers that project potential clinical activity.

• As of the data cut-off date, tumor volume reduction was observed in three of seven patients who were treated at the highest dose of RMC-4630, including one unconfirmed partial response.

• The adverse event profile was consistent with expected on-pathway effects of both drugs and was tolerable.

This molecule had a partnership with Sanofi, whose details are still available on their website :

The RMC-4630 program is the focus of an exclusive global research, development and commercialization agreement with Sanofi, under which we received a $50 million upfront payment, and Sanofi agreed to cover all development costs and certain research costs for the joint SHP2 program. Sanofi received an exclusive worldwide license for global commercialization of any approved products targeting SHP2, subject to a U.S. co-promote right for Revolution Medicines. The companies have agreed to a 50/50 profit and loss share arrangement in the U.S., and, subject to certain limitations, we are entitled to receive tiered royalties on annual net sales ranging from high single digit to mid-teen percentages on sales in other markets. We could also receive more than $500 million in development and regulatory milestone payments.

I say “still” because in December, Sanofi canceled the deal and returned rights for the molecule back to RVMD. No reasons were offered except that the decision follows “a recent portfolio review and prioritization,” and the company says their phase 2 trial will continue, but Sanofi has probably seen data it didn’t like. This phase 2 trial is also partnered with Amgen (AMGN). Besides, they have another monotherapy trial active.

Investor focus for RVMD has moved away from the RAS companion inhibitors like RMC-4630 and to the portfolio of RAS inhibitors it acquired from the purchase of Warp Drive Bio in 2018, shortly after signing the Sanofi deal. Lead asset is RMC-6236, which has an ongoing phase 1 trial from which there appears to be some data. I say “appears to be” because although they have published data in their corporate presentation , I cannot locate any separate press release for that data, except in a corporate update during February earnings. Anyway, here’s the data:

This data shows 2 PRs, one confirmed, and the other which was confirmed after this chart was published. These two PRs are at the 80 mg QD dose, or the second highest dose. The highest dose only saw 2 stable diseases. The lowest dose also saw multiple stable diseases.

The summary of the efficacy data is this:

12 patients — three non-small cell lung cancer ((NSCLC)) and nine pancreatic cancer —treated with RMC-6236 at doses of 40 mg, 80 mg or 120 mg daily were efficacy evaluable as of the February 17, 2023 data cut-off date. All 12 patients exhibited stable disease or better as their best response; 10 of these had reductions in tumor volume as of the data cut-off date. Importantly, as of the data cut-off date, all patients remained on study, with total duration of approximately 1.5-4.5 months. One patient with KRASG12D NSCLC treated with 80 mg achieved a partial response ((PR)) on first re-staging scan that was subsequently confirmed by a follow-up scan. One patient with metastatic KRASG12D pancreatic cancer who progressed following a third course of chemotherapy received RMC-6236 80 mg daily and has tolerated it well. At baseline the patient had three distinct lesions in the lung that are followed radiographically. At six weeks, all three tumor lesions were reduced in size, reported as 17% reduction by Response Evaluation Criteria in Solid Tumors ((RECIST)). At 12 weeks, all three residual lesions were barely detectable, and the patient achieved a 70% reduction and PR by RECIST. The patient continues on study as of the data cut-off date and confirmation of the response awaits a follow-up scan.

There is no clinical data from the rest of the pipeline. However, this 6236 data is impressive for a 3rd line seeing in a difficult-to-treat cancer.

Financials

Revolution Medicines, Inc. has a market cap of $2.89bn and a cash balance of $909mn as of March. They raised $345mn through a stock offering in March, which must be included in the cash balance. Research and development expenses were $68.9 million for the quarter ended March 31, 2023, while general and administrative expenses were $13.2 million. At that rate, they have a cash runway of well over 10 quarters.

RVMD stock is heavily owned by institutions with little retail presence. Key holders are Wellington, BlackRock and so on. I consider such highly valued early stage companies as like gambling tables for institutions, so this ownership record simply confirms my suspicions to me that this is another case of that syndrome. This company was founded by a venture fund, and is heavily owned by smart money, despite the company having no real justification for its valuation, at all. Such companies are like jackpot tables where smart money throws in funds into the pot, and the few that hold on get the jackpot if the company makes good. That is the only way I can see to explain this tremendous valuation.

Risks

Revolution Medicines, Inc. is overvalued at $3bn because it simply has no data to justify such a valuation. The data they have is from one also-ran product, and there’s early positive data from one decent product which needs years of confirmation. I really cannot explain the valuation.

The company has a very high cash balance, but they are spending way too much money for a company at this stage of their development. That is a negative for me because, the way I see it, this is a money-making machine but not yet a drug-making machine.

Bottom Line

I am interested in learning how RMC-6236 fares in its future development, and for that reason I will keep track of Revolution Medicines, Inc. But at these prices, there is just no way a conservative small investor like me will want to have anything to do with RVMD.

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