I covered Revolution Medicines, Inc. (NASDAQ:RVMD) in July, when I said that although they are doing interesting science, they are too early stage to justify their near $3bn market cap. The stock is up just 1.39% from that time, so I was surprised to see a $4.5bn market cap showing up on Seeking Alpha. On further check, though, the market cap turns out to be $3.04bn, which sounds about right, given there’s no news of any change in share count in the interim.
In other important developments at RVMD, there are a couple of data announcements, and we will cover those today. We will also look at the EQRx (EQRX) deal.
RVMD develops RAS-targeted oncology therapeutics. Its pipeline consists of 5 RAS (ON) inhibitors and 3 RAS Companion inhibitors.
Ras derives its name from certain sarcomas discovered in rats in the early 60s. Ras is a family of genes – H-Ras, K-Ras, and N-Ras – that encode proteins involved in cell signaling pathways. Mutations in Ras genes can lead to uncontrolled cell growth and proliferation, thereby causing various cancers. The Ras protein acts as a molecular switch, cycling between an inactive (GDP-bound) state and an active (GTP-bound) state, and mutations often result in the protein being stuck in the active state. GDP (Guanosine Diphosphate) and GTP (Guanosine Triphosphate) are nucleotide molecules that play crucial roles in cellular processes, particularly in energy transfer and signal transduction.
Targeting Ras proteins is made difficult by the nature of their molecular switches and the lack of well-defined binding pockets for small molecules. Two general approaches involve targeting Ras directly or inhibiting its downstream signaling pathways. A number of small molecules are being developed to target Ras directly in order to lock them in their inactive state. These are the RAS (ON) inhibitors. Ras companion inhibitors, on the other hand, inhibit proteins that interact with Ras or participate in Ras-mediated signaling pathways. By blocking specific downstream effectors or pathways, these inhibitors aim to indirectly modulate Ras activity.
The molecule in the latest stage of development at RVMD is RMC-4630, an oral RAS companion inhibitor of SHP2, which has been in phase 2 trials. However, the company says that development activities for this program have been paused. A second Ras companion inhibitor is in phase 1 trials. 3 RAS (ON) inhibitors – RMC-6236, RMC-6291 and RMC-9805, are also in the clinic in phase 1 trials. The rest of the pipeline is in the lab.
RMC-4630 produced data from a phase 1 dose escalation study in combination with Cobimetinib in Relapsed/ Refractory Solid Tumors and in combination with Osimertinib in EGFR Positive Locally Advanced/Metastatic NSCLC. This molecule was also partnered with Sanofi once. However, that partnership was canceled by Sanofi in December 2022, and rights were returned. When I last covered it, this program was still online. Right now, it has been paused.
Besides this paused program, they have data from RMC-6236, which I covered briefly earlier. There were two partial responses in that phase 1 trial, one each in an NSCLC and a pancreatic cancer patient with a KRAS-G12X mutation, both in late-line settings.
In October, the company presented Phase 1 data updates for RMC-6236 and RMC-6291. In the open label phase 1b trial of RMC-6236, a total of 131 patients (69 PDAC, 47 NSCLC, 10 CRC, and 5 other tumor types, with a median of two prior lines of therapy (range 1–7)) were treated across multiple dose levels administered once daily. Besides a positive safety data with no hepatotoxicity, here’s the efficacy data:
RMC-6236 demonstrated dose-dependent increases in exposure at a steady state with minimal accumulation after repeated daily oral dosing, which is compatible with once-daily dosing. Clinical exposures achieved at dose levels of 80 mg QD and above were comparable to those that induced tumor regressions in preclinical xenograft models with KRASG12X mutations. Circulating tumor DNA (ctDNA) was assessed in 27 patients with detectable baseline plasma KRASG12X alleles and evaluable for changes in KRAS variant allele frequency (VAF) on-treatment. Molecular responses were observed across two tumor types (NSCLC and PDAC) and 4 different KRAS mutations (KRASG12D, KRASG12V, KRASG12R, and KRASG12A) with reductions in KRAS VAF consistent with anti-tumor activity. Three clinical case reports illustrated tumor regressions induced by RMC-6236 in patients with ovarian cancer (KRASG12V), NSCLC (KRASG12D) or PDAC (KRASG12D).
It appears from the above that an ovarian cancer patient has been added to the list of patients with PRs. This data was presented at AACR. A few days later, at ESMO, the company presented more data. This data showed an ORR of 38% in NSCLC patients, with one CR and 14 PRs. PDAC patients had an ORR of 20%, with 9 PRs.
A much more interesting news for RVMD was the all-stock buyout of low-cost medicines advocate EQRx. RVMD went into this deal looking to own the over $1bn in cash held by EQRx, and it does not intend to pursue any of the company’s assets. RVMD issued 55mn shares of its stock for the transaction. Looking at it another way, this is an issuing of 55 million new RVMD shares against $1bn of EQRx cash. With this, current shares outstanding are approximately 164 million; so the 55 million new shares were a bit less than 50% of the original shares outstanding. From this angle, the approximate price at which RVMD issued these 55mn shares is around $18. The transaction occurred at around one of the lowest points of RVMD’s price chart, when it fell sharply after posting what appears to be quite positive data. Currently, the stock is at $28, and the company is richer by a billion dollars. All told, this was not a bad deal for RVMD – except they didn’t need the money.
How did such a sweet deal come through? Well, Alexis Borisy, the serial biotech entrepreneur and erstwhile Third Rock Ventures partner, is a board member at RVMD as well as the founding CEO at EQRx. Many RVMD C-suite, including CEO and Chairman of the Board Mark Goldsmith, are Third Rock alumni. This deal is basically passing along EQRx funds to RVMD after EQRx shut shop, and RVMD shareholders lose nothing. The deal just assumes that EQRx shareholders have very strong faith in RVMD – about $1bn worth of faith.
Interestingly, during their last earnings conference call, among the analyst participants from five major firms, only one, Alec Stranahan of Bank of America, had a question about the EQRx deal, which had just been confirmed. All the other 4 analysts asked what I consider less important questions about the science and data – given that the company has very little of either at this stage – but Mr Stranahan did ask his EQRx question in an interesting manner. What he said was this:
…how do you continue to be judicious in your spending despite having almost $2 billion in cash on the balance sheet, assuming the EQRx deal closed (this?).
The company’s response, in part, was also interesting:
I think your question is whether we’re going to be judicious (and?) with our spend..
As we will see in the next section, RVMD seems to be spending a lot of money on R&D, which seems strange at this early clinical stage.
Financials
RVMD has a market cap of $3bn and a cash balance of $813mn. Research and development expenses were $107.7 million for the quarter ended September 30, 2023, while general and administrative expenses were $15.5 million. These are very high expenses for a company like RVMD with early-stage trials. I do not understand how a company running 4 early stage “live” clinical trials according to the official registry, and two more in “new recruiting” stages, can have such high R&D expenses. For a quick comparison, Axsome, which has 5 late-stage trials running in different indications, has an R&D expense figure of $28.8mn. In the previous two quarters, AXSM’s R&D expenses were $17mn and $20mn. I cannot figure out the $107.7mn figure for RVMD.
Given the over $1bn in cash they will add through the EQRx acquisition, they will have more than enough runway to last them for 3-4 years. But they still need to conserve cash if they want to do anything meaningful with it – like acquire a company with an actual pipeline.
Bottom Line
I like to invest in companies whose science I can understand, and whose valuation corresponds to the science and the actual data. Here, the Revolution Medicines, Inc. science is interesting, but the early data does not justify the valuation. There are also too many big players in the company, and that makes the company even more difficult to understand. I do not like to invest in a company which I do not understand. I have a very strong retail investor mindset and I will stay away from Revolution Medicines, Inc. shares.
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