By Rafi Glass, Yana Zharkova, James Searle, Guy Collins, Marcin Wolniewicz and Ruiting Yi (Durham University) ; Edward Mazin, Lars Birkeland, Agastya Jain and Luca Cuffe (UCLA)
Photo: Diana Polekhina (Unsplash)
Overview of the deal
Acquirer: Roche
Target: Carmot Therapeutics
Implied Equity Value: N/A
Total Transaction Size: $2.7bn
Closed date: Expected Q1 2024
Target advisors: Centerview Partners and J.P. Morgan Securities (Financial), Cooley LLP (Legal)
Roche has agreed on a $2.7bn deal to acquire Carmot Therapeutics, a clinical-stage biotechnology company, challenging the dominant makers of blockbuster weight-loss drugs. Earlier this year, the US Food and Drug Administration (FDA) approved Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound, marking the beginning of a global scramble to bring obesity and weight-loss drugs to market. Carmot’s most promising drug candidate, CT-388, is a once-a-week weight-loss injection that is expected to be ready for market in the 2030s having passed FDA Phase I tests with encouraging results. Roche management hopes that Carmot’s pipeline will benefit from the drug development expertise and extensive resources of Roche.
While Novo Nordisk and Eli Lilly are far ahead of Carmot in the drug pipeline, Roche executives believe that CT-388 could become the best obesity drug in its class. Additionally, as Eli Lilly and Novo Nordisk struggle to keep up with demand for their drugs, there is enough market share in the obesity and weight loss space for other players to participate, especially if Roche can undercut their pricing.
"There is opportunity for deeper weight loss, there is opportunity for that weight loss to happen more quickly and tolerability is maybe one of the bigger issues" - Teresa Graham, CEO (Roche)
Company Details (Acquirer - Roche)
Roche’s international research, development, and product manufacturing capabilities position the company as a global leader in pharmaceutics and diagnostics. The company’s pharmaceutical products are focused in the therapeutic areas of oncology, neuroscience, infectious diseases, immunology, haemophilia, ophthalmology, dermatology, anaemia, and transplantation. Additionally, the company is a supplier of diagnostics tests, instruments, and reagents. Roche has utilized a robust M&A platform to support rapid expansion into new fields and adaptation to new technologies, recently acquiring Telavant Holdings for $7.1bn.
Founded in 1896, headquartered in Basel, Switzerland
CEO: Thomas Schinecker
Number of employees: 103,613
Market Cap: $233bn (as of 11/12/2023)
EV: $258.28bn
LTM Revenue: $71.79bn
LTM EBITDA: $26.15bn
LTM EV/Revenue: 3.6x
LTM EV/EBITDA: 9.88x
Recent Transactions: $7.1bn acquisition of Telavant Holdings (Oct 2023 - Report available on our website); $1.9bn acquisition of Genmark Diagnostics (Apr 2021); $4.7bn acquisition of Spark Therapeutics (Dec 2019)
Company Details (Target - Carmot Therapeutics)
Carmot Therapeutics is a U.S.-based clinical-stage biotech company focused on discovering and developing therapies for metabolic diseases, including obesity and diabetes. Their approach is underpinned by a proprietary drug discovery platform, Chemotype Evolution, which has led to a pipeline of novel incretin receptor signaling therapeutics. Carmot’s key clinical candidates are CT-388, CT-996, and CT-868, which are designed to produce significant weight loss and improved glycemic control.
Founded in 2008, headquartered in Berkeley, California, USA
CEO: Heather Turner
Number of employees: 57 (as of 2023)
Market Cap: n.m. (privately held)
EV: $ N/A
LTM Revenue: $3.5M
LTM EBITDA: $ n.m.
LTM EV/Revenue: $ n.m.
LTM EV/EBITDA: $ n.m.
Recent Transactions: $150 million Series E financing round
Projections and Assumptions
Short-term consequences
Roche’s acquisition of Carmot adds a trio of drugs in early testing to Roche’s giant pharmaceutical pipeline. Carmot has a strong portfolio of early-stage incretins—hormones that play a crucial role in helping balance blood sugar levels—that fill Roche’s previous gap in the market.
Following the closing of the transaction—expected to come in the first quarter of 2024—Roche will obtain access to Carmot’s current R&D portfolio of clinical and pre-clinical assets in addition to exclusive access to Carmot’s innovative Chemotype Evolution discovery platform in metabolism. The platform strengthens Roche’s R&D efforts and portfolio across cardiovascular and metabolic diseases. In addition, Carmot and its employees will be joining the Roche Group as part of Roche’s Pharmaceuticals Division.
On the day of the announcement, U.S.-listed Roche stock jumped 3.1% to close at $35.42. While Roche’s stock has been continuously climbing since the announcement of the acquisition, it is still down about 10% this year and has been trading below its 200-day moving average.
Long-term Upsides
The market for obesity drug development is expanding, driven by projections that nearly half of the world’s population may be affected by the obesity epidemic by 2035. Roche, one of the largest pharmaceutical companies in the world, acquires obesity drug developer Carmot in order to enter the competition with Novo Nordisk’s Ozempic and Wegovy, and Eli Lilly’s Mounjaro, intending to treat patients with obesity and type 2 diabetes.
Founded over 120 years ago, Roche has expertise in various aspects of drug development. This includes experience in diabetes management under the Accu-Check brand, as well as in the treatment of obesity, showcased by their development of Xenical.
Currently, Carmot is developing three clinical candidates targeting obesity and both type 1 and type 2 diabetes. These treatments have the potential to compete with existing blockbuster therapies. The once-weekly injection CT-388 is similar to Mounjaro but the once-daily oral CT-996 offers a distinct approach and can differentiate Roche in the crowded market.
Carmot’s incretin-based portfolio, which has already demonstrated significant weight loss in Phases I and II clinical trials, also holds potential for treating cardiovascular, retinal and neurodegenerative diseases. This expansion into multiple associated therapeutic areas presents a considerable opportunity for Roche.
Risks and Uncertainties
A key strategic reason for this acquisition is the potential to combine Carmot’s incretins with Roche’s existing pipeline of assets, including ones focused on preserving muscle mass. One of these assets is an anti-myostatin antibody, which has been used to strengthen the muscles of people with spinal muscular atrophy. Roche’s CEO, Thomas Schinecker, has stated they are looking at how this antibody can play a role alongside anti-obesity drugs in the future. Whether these two assets can be successfully integrated together is highly uncertain and will determine the overall synergies derivable from this transaction.
A second risk to this acquisition is whether Carmot’s three leading assets, CT-388, CT-996, and CT-868, can pass all three trial stages and launch successfully. Clinical data for the lead asset CT-388 suggests it has best-in-class potential to achieve and maintain weight loss. However, only data for one out of three trial stages is available for CT-388, possibly explaining the modest 2.5% increase in Roche’s share price following the acquisition. Both CT-388 and CT-868 are injectable treatments, while CT-996 is in a once-daily oral form. Analysts have said, however, that it will be difficult for pills to achieve the same efficacy as injectable treatments. This has led rival biotech company Pfizer to abandon its plans to develop an oral form obesity treatment to be taken twice a day. Whether these assets can pass clinical trials is highly uncertain.
“These assets are all relatively early stage, so we expect the 2030 plus timeframe is when we will actually be able to bring these products to market. What is really exciting about the acquisition of Carmot is the early research assets included in the portfolio. All of them have applicability not only as a monotherapy solution but also in combination with other therapies that could potentially change the game when it comes to patient outcomes.” - Teresa Graham, CEO (Roche)