UPDATE 2-Roivant, Pfizer launch unit to develop inflammatory disease drug

(Rewrites throughout, adds background, updates shares)

Dec 1 (Reuters) - Roivant Sciences and Pfizer Inc on Thursday said they were forming a unit to advance the development of a treatment for ulcerative colitis, an inflammatory bowel disease.

The drug, RVT-3101, was originally developed by Pfizer, which will hold a 25% stake in the new unit, with Roivant holding the remaining interest.

The deal hands over the development of the drug to the new company, along with commercial rights to the treatment in the United States and Japan. Pfizer will hold commercial rights outside of the two countries.

The deal also gives the unit an option to develop and co-commercialize a second antibody therapy for inflammatory and fibrotic diseases with the U.S. drugmaker.

Both therapies under the deal belong to a class of drugs that work as antibodies against the TL1A protein, the excess presence of which has been linked to inflammatory diseases such as rheumatoid arthritis and ulcerative colitis.

Globally, the market for inflammatory bowel diseases is about $20 billion, making it a lucrative target for drugmakers.

Pfizer's other treatment for ulcerative colitis, etrasimod, which it acquired as part of its $6.7 billion deal for Arena Pharmaceuticals, succeeded in a second late-stage study earlier

this year.

Shares of Roivant rose nearly 2% in early trade before paring gains. (Reporting by Bhanvi Satija and Khushi Mandowara in Bengaluru; Editing by Sherry Jacob-Phillips and Anil D'Silva)