This story was made available early to subscribers of STAT Plus.
NEW YORK — Is Vivek Ramaswamy the smartest guy in biotech?
His business model all but depends on it. The 31-year-old former hedge fund manager has raised $1 billion in just two years to play a sprawling game of pharmaceutical moneyball — sifting through the thousands of would-be drugs that larger companies have left to gather dust and picking out a few gems he believes can be developed into blockbuster medicines.
Ramaswamy was just 29, with neither a PhD nor MBA, when he devised this approach and founded Roivant Sciences to carry it out. Confident and charismatic, he speaks like the valedictorian of a school for biotech CEOs — explaining his vision in full paragraphs dappled with business buzzphrases, rarely sounding rehearsed and yet always staying on message.
And that message is brash: The trillion-dollar pharmaceutical industry is broken, and his startup knows how to fix it.
“It’s not just about resuscitating these shelved drugs,” Ramaswamy said in an interview in his expansive office on Manhattan’s west side, a glassy open space that looks more apt to produce listicles than molecules. “It’s a building block toward reshaping the biopharmaceutical business for the better.”
In two years, Ramaswamy has spun off four startups. One made the biggest Wall Street debut in biotech history. The second pulled off the sector’s largest initial public offering of 2016. His companies have yet to produce a single data point from a clinical trial; they’re still too new. But Ramaswamy strongly believes Roivant, like a perpetual motion machine of drug development, can pick out winning drugs, turn them into new medicines, and, of course, make a few billion dollars along the way. The ROI in its name stands for return on investment, after all.
If all that strikes you as too good to be true, you’re not alone.
“I know I run the risk of looking like a fool two or three years from now, but this sounds like some people are being bamboozled,” said Pierre Azoulay, a professor who teaches the business of biotech at the Massachusetts Institute of Technology’s Sloan School of Management.
Many of the dozen investors, analysts, and Roivant employees who spoke to STAT said they were somewhere between skeptical and incredulous when they first heard Ramaswamy’s grand plans.
It didn’t help that the first company he took public, Axovant Sciences, was working on Alzheimer’s disease — only the wiliest target in drug development. More than 99 percent of therapies for the condition have failed in clinical trials, and not one has won approval since 2003.
Nor did it help that Ramaswany put his mother and his brother on Axovant’s payroll from the start, when there were just seven employees. (He says that his mother, a geriatric psychiatrist, was the first person to introduce him to the societal scourge of Alzheimer’s, making her hiring “almost an act of completing the circle,” and that his brother, also a trained physician, is plenty qualified to work at a biotech company.)
Despite those red flags, Axovant reached a valuation of more than $1.5 billion after its record-setting IPO last year, landing Ramaswamy on the cover of Forbes, smirking above Helvetic print declaring him the “Boy in the Bubble.”
But Axovant’s star and stock have swooned in the ensuing year. A pair of similar dementia drugs, in development at other companies, have since failed in clinical trials, which is hardly a good omen for Axovant. “They’re making the same mistakes, I’m sorry to say,” said Dr. Gad Marshall, a neurologist at Brigham and Women’s Hospital who has studied the field.
“This sounds like some people are being bamboozled.”
Pierre Azoulay, MIT professor
A great many investors are now betting against Axovant, with nearly half of its shares on loan to short sellers as of last week.
Unmoved by critics he dismisses as “distant observers,” Ramaswamy has doubled down.
Roivant has since spun off Myovant, a women’s health company, and took it public earlier this year. Then there’s Dermavant, at work on therapies for skin ailments, and Enzyvant, focused on rare diseases. And there’s apparently more to come: Ramaswamy’s firm has filed trademarks for Orphavant, Belvant, Hemavant, and Immunovant.
While most biotech startups toil in labs and scrimp by on venture capital, Roivant’s offshoots pay to cut in line by licensing potential drugs that others have already spent years investigating. And where Big Pharma gets tripped up in brambles of groupthink and careerism, Ramaswamy says his startups will be dispassionate and efficient.
His bigger and more audacious promise stems from what he calls “the drugome,” Roivant’s massive database of the thousands of compounds in development throughout the global pharma industry. With it, Ramaswamy and his team of drug hunters say they can sort drugs by efficacy, market size, and probability of success, allowing them to home in on the waylaid compounds that might power future spinoffs.
“Now that we’ve built an enterprise, the goal is to do each of these serial entrepreneurial acts on an industrial scale,” Ramaswamy said. He then likens himself to Warren Buffett, out to create the Berkshire Hathaway of drug development.
What’s more, he also wants to turn Roivant — which now has 130 employees — into a sort of auditor for pharma R&D, helping big companies clear up traffic jams in their sprawling pipelines. Just as Uber turns idle vehicles into money-making taxis, Roivant would help Big Pharma transform shelved assets into blockbusters — for a cut of the proceeds, of course.
But Roivant knows quite well that the whole enterprise will be judged by the fate of its Alzheimer’s trial, which is scheduled to read out in the second half of next year.
After all, “in biotech, your first impression is your first drug,” as Harvard business professor and Axovant board member Gary Pisano put it.
If the drug succeeds, Ramaswamy and his contrarian model will look ingenious. If not? They won’t.
A big bet in a risky field
Ramaswamy often says that he never buys a discarded drug from pharma unless it has evangelists — scientists who nursed it through the clinic and swear by its potential, even after their bosses have shut it down.
For intepirdine, the Alzheimer’s drug at the heart of Axovant, that ardent champion is Dr. Atul Pande, who describes the day GlaxoSmithKline shelved the drug as the lowest point in his long career.
On Feb. 4, 2010, GSK announced it would all but abandon the field of neuroscience, orphaning a host of in-development drugs for depression, pain, and neurodegenerative disease. Among the casualties: intepirdine.
In clinical trials, the drug had mostly failed to beat a placebo. But in one study, which paired intepirdine with the approved Alzheimer’s pill Aricept, the drug had a substantial effect on cognitive symptoms. Intepirdine targets a receptor in the brain called 5-HT6 to stimulate the release of a memory-boosting neurotransmitter. Aricept, which has since gone generic, works by preserving that same neurotransmitter. Together, the two appeared to deliver a one-two punch.
It would never be a cure for Alzheimer’s. At best, it would temporarily dampen symptoms like forgetfulness and trouble with daily tasks, keeping patients out of nursing homes for a few months. But for the more than 5 million Americans diagnosed with Alzheimer’s, that’s something.
And Pande believed intepirdine could win Food and Drug Administration approval if he could just repeat that promising study on a larger scale.
The problem was getting someone to pay for it.
GSK gave Pande its blessing to try to spin the drug out into a new company. Pande spent years meeting venture capitalists. One after another agreed the data were compelling, he said, but each balked at the idea of putting up the hundreds of millions needed to fund a larger trial.
“If you form a company around a single compound, you’re taking a binary risk, and after a very large investment, you turn the card over and find out whether you won or lost,” Pande said. That was too high-stakes a proposition for everyone who came to kick the tires on intepirdine.
Except for Roivant.
The company was just months old, formed by Ramaswamy and three drug industry stalwarts around a table at a Mexican restaurant on Cinco de Mayo in 2014. Among them was Dr. Lawrence Friedhoff, a pharma lifer who led the development of Aricept, making him something of a celebrity in the world of Alzheimer’s drugs, where FDA approvals are an exceptional rarity.
Friedhoff, now 68, came into the fold after getting a cold call from Ramaswamy, a man he vaguely recalled from a consulting gig he did at the young exec’s hedge firm. (“I just remember I talked to a guy with a funny name, and his secretary kept changing the time of the appointment.”) Ramaswamy talked up his plan to turn discarded drugs into blockbusters, starting with intepirdine.
“Vivek said he could raise $100 million to do this,” Friedhoff recalled. “I said, ‘Good luck.’”
“Vivek said he could raise $100 million to do this. I said, ‘Good luck.’”
Dr. Lawrence Friedhoff
A month later, Roivant had its seed money in the bank, thanks to Ramaswamy’s hedge fund friends, and Friedhoff came on board.
The company negotiated to pay GSK just $5 million up-front for intepridine, promising as much as $155 million more if it’s a success and a 12.5 percent cut of future sales. In exchange, GSK handed over “a disk full of data and tub full of drug powder,” said Roivant cofounder William Symonds, who’d developed a blockbuster hepatitis C drug earlier in his career.
By the fall of 2015, they were off, recruiting more than 1,000 patients with mild to moderate Alzheimer’s disease in hopes of duplicating GSK’s sole successful trial.
“We’re just doing what I was taught 30 years ago,” Friedhoff said. “When you’re in a risky situation, don’t add risk on top of it.”
But risk has reared its head anyway. Late last year, Pfizer cut its ties to a drug that works the same way as intepirdine because it simply wasn’t working. And a second drug in the family, developed by Lundbeck, failed in final-stage testing in September. Axovant claims that each of those therapies was too weak to work at low doses and too toxic for a high dose. Intepirdine, the company says, is different.
Not everyone’s buying it.
“Our view is that inteperdine will probably fail, but I think this is consensus among smart money,” said Sahm Adrangi, a hedge fund manager at Kerrisdale Capital. “I can’t think of an instance where three drugs in the same class failed for a [central nervous system] indication and then one of the first drugs was brought back and proved successful.”
Axovant skeptics ask an obvious question: If inteperdine is so great, why’d it take five years for someone to buy it?
“One of the true and time-tested rules of drug development is, the better an asset is, the faster it is in development,” said Dr. Gbola Amusa, a biotech analyst at Chardan Capital Markets. “Drugs that have been sitting around a long time are the ones most likely to fail.”
Friedhoff is unmoved by these arguments. The history of pharma is littered with examples of companies failing to see the diamonds scattered among the rough terrain of drug pipelines.
“I wrote a book on this stuff,” Friedhoff said.
And indeed he did. Called “New Drugs: An Insider’s Guide to the FDA’s New Drug Approval Process,” Friedhoff’s volume is full of such anecdotes, making it a sort of urtext for Roivant’s whole model. (“I feel like Thomas Jefferson,” he said, deadpan.)
Copies of it are omnipresent in the company’s office, where Friedhoff’s colleagues talk about him like a famed gunslinger brought out of retirement for one last caper, and he carries himself accordingly.
“When you’ve spent 30-some odd years doing this, you see very dramatically what works and what doesn’t,” Friedhoff said. “And I’m rarely wrong.”
The millennial factor
This hasn’t been a good year for young life sciences CEOs vowing to upend their industries.
Theranos founder Elizabeth Holmes, 32, sought to revolutionize blood testing and is now being sued by her investors for alleged fraud in the midst of an escalating scandal. And 33-year-old Martin Shkreli, another hedge fund wunderkind, has been driven out of two companies after rising to international infamy; he’s now campaigning to get un-banned from a video gaming community as he awaits a criminal trial.
And thus an Ivy League millennial like Ramaswamy, swooping in from Wall Street to save pharma from its own ineptitude, can sound a bit beyond belief. And that’s according to some of his biggest fans.
Yet the autodidactic CEO, a college debater and onetime rapper, has managed to win over many of his doubters.
“I don’t want to say I came away a true believer, but whatever the optics are of having a thirtysomething hedge fund guy managing an Alzheimer’s program, I had gotten past that,” said Eden Rahim, a portfolio manager at Next Edge Capital who has a stake in Axovant.
Roivant supporters also point out that Ramaswamy has a track record of identifying hidden gems of the pharma world. After graduating Harvard with a biology degree in 2007, he joined New York hedge fund QVT Financial, where he immersed himself in biotech and became a voracious processor of information, former colleagues said.
That diligence led to some hugely successful investments for QVT, particularly one in Pharmasset, developer of the hepatitis C treatment that would become a multibillion-dollar success for Gilead Sciences. Ramaswamy made partner within three years and, in 2014, found himself on Forbes’s 30 Under 30 list.
So who’s to say he can’t pull it off on a grander scale?
“Innovative ideas and clear thinking are not age-dependent qualities, just as they aren’t gender-dependent or race-dependent,” said Dr. Lynn Seely, who took the helm of Myovant after a decade at the drug maker Medivation.
But until Roivant’s grand experiment works once, there’s no proof it ever will. And Ramaswamy, as ever, is succinct.
“I don’t consider our IPOs to be our accomplishments,” he said. “I don’t consider our financings to be our accomplishments. Our contributions will be measured in the new medicines we bring to market. I can’t claim to you that we’ve accomplished much of anything meaningful until that is done.”