UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended December 31, 2022
or
For the transition period from _______ to _______
Commission file number 001-37929
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| Not Applicable | ||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code: +44 (207 ) 400 3351
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the Registrant’s common shares, $0.000017727 par value per share, on January 20, 2023 was 97,235,316 .
MYOVANT SCIENCES LTD.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2022
TABLE OF CONTENTS
| Page | |||||
2
In this Quarterly Report on Form 10-Q (“Quarterly Report”), references to “Myovant,” “the Company,” “we,” “us” and “our” refer to Myovant Sciences Ltd. and its wholly-owned subsidiaries on a consolidated basis, unless the context otherwise provides.
All brand names or trademarks appearing in this Quarterly Report are the property of their respective owners. This Quarterly Report may contain references to our proprietary intellectual property, including among others, trademarks for our products, ORGOVYX® and MYFEMBREE®. These trademarks and trade names are the property of Myovant or the property of our wholly-owned subsidiaries and are protected under applicable intellectual property laws. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report may appear without the ® or other symbols, but such references are not intended to indicate in any way that the Company will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names.
Risk Factor Summary
Below is a summary of the material factors that make an investment in our common shares speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Report. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should consider carefully the risks and uncertainties described under “Risk Factors” in Item 1A of Part II of this Quarterly Report as part of your evaluation of an investment in our common shares.
Risks Related to the Proposed Acquisition of Myovant by Sumitovant
•The conditions to the proposed Merger as set forth in the Merger Agreement may not be satisfied or waived in a timely manner or at all, or the Merger Agreement may be terminated in accordance with its terms, which could negatively impact our business, financial condition, results of operations, and the price of our common shares.
•The pendency of the proposed Merger could negatively impact our business, financial condition, or results of operations.
•Litigation could prevent or delay the closing of the proposed Merger or otherwise negatively impact our business and operations.
•The Merger Agreement contains provisions that may discourage a third party from acquiring us prior to the completion of the Merger.
•Attending to matters related to the proposed Merger could divert our management’s focus from our ongoing business operations.
•We have incurred, and will continue to incur, direct and indirect costs as a result of the transactions related to the Merger Agreement.
Risks Related to Commercialization of Our Drug Products
•Our success depends in part on the successful commercialization of our drug products. To the extent our drug products are not commercially successful, our business, financial condition and results of operations will be materially harmed.
•Our drug products may fail to achieve the degree of market acceptance by physicians, patients, third-party payers or others in the medical community necessary for commercial success, which would negatively impact our business.
•If we and our collaboration or commercialization partners are unable to effectively market and sell our drug products, the commercialization of our drug products will not be successful and our business will be harmed.
•Failure to successfully obtain and maintain coverage and reimbursement for ORGOVYX and MYFEMBREE in the United States, or the availability of coverage only at limited levels, would diminish our ability to generate net product revenue.
•We face substantial competition in the commercialization of our approved drug products and our operating results will suffer if we fail to compete effectively.
3
•If we or our collaboration or commercialization partners are found to have improperly promoted unapproved uses of our drug products, we may be subject to restrictions on the sale or marketing of our drug products and significant fines, penalties, sanctions and product liability claims, and our image and reputation within the industry and marketplace could be harmed.
Risks Related to Our Financial Position and Capital Requirements
•If we do not have adequate funds to cover our development and commercialization activities, we may have to raise additional capital or curtail or cease operations. We may not be able to obtain funding through public or private offerings of our capital shares, debt financings, collaboration or licensing arrangements, or other sources.
•We may never achieve or maintain profitability.
Risks Related to Our Business Operations
•The terms of the Sumitomo Pharma Loan Agreement place restrictions on our operating and financial flexibility.
•We do not have our own manufacturing capabilities and rely on third parties to produce clinical and commercial supplies of drug substance and drug product. If these third parties do not perform as we expect, do not maintain their regulatory approvals, or become subject to other negative circumstances, it may result in a delay in our ability to develop and commercialize our products.
Risks Related to Clinical Development and Regulatory Approval
•Clinical studies are very expensive, time consuming, difficult to design and implement, and involve uncertain outcomes. Clinical study failures can occur at any stage of clinical studies, and we could encounter problems that cause us to suspend, abandon or repeat clinical studies. We cannot predict with any certainty the timing for commencement or completion of current or future clinical studies.
•The results of our clinical studies may not support our proposed claims for our product candidates. The results of previous clinical studies may not be predictive of future results, and interim or top-line data may be subject to change or qualification based on the complete analysis of data.
•The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, and inherently unpredictable. If we are not able to obtain required regulatory approvals for our product candidates, our ability to generate net product revenue will be materially impaired.
•Adverse events associated with our product candidates could cause us, regulatory authorities, other reviewing entities or clinical study sites to interrupt, delay, request modification of, or halt clinical studies and could result in the denial of regulatory approval.
Risks Related to Our Dependence on Third Parties
•We are dependent upon our relationships with collaboration and commercialization partners to further develop, fund, manufacture, and commercialize our drug products and our product candidates. If such relationships are unsuccessful, or if a collaboration or commercialization partner terminates its collaboration or commercialization agreement with us, it could negatively impact our ability to conduct our business and generate net product revenue. Failure by a collaboration or commercialization partner to perform its duties under its collaboration or commercialization agreement with us (e.g. financial reporting or internal control compliance) may negatively affect us.
•We are reliant on third parties to conduct, manage, and monitor our clinical studies, and if those third parties perform in an unsatisfactory manner, it may harm our business.
4
Risks Related to Our Intellectual Property
•If we are unable to obtain, maintain and defend the patent protection covering our technology and products, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
•If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damages and could lose intellectual property rights that are necessary for developing and protecting our product candidates.
Risks Related to Our Being a Controlled Company
•We have agreements with Sumitovant, our majority shareholder, and with Sumitovant’s parent, Sumitomo Pharma, and their affiliates, including Sunovion, that may be perceived to create conflicts of interest which, if other investors perceive that Sumitovant or Sumitomo Pharma will not act in the best interests of all of our shareholders, may affect the price of our common shares and have other effects on our company.
5
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MYOVANT SCIENCES LTD.
Condensed Consolidated Balance Sheets
(unaudited; in thousands, except share and per share data)
| December 31, 2022 | March 31, 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Marketable securities | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Amount due from related party | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use asset | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and shareholders’ deficit | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Deferred revenue | |||||||||||
| Amounts due to Pfizer | |||||||||||
| Cost share advance from Pfizer | |||||||||||
| Operating lease liability | |||||||||||
| Amounts due to related parties | |||||||||||
| Total current liabilities | |||||||||||
| Deferred revenue, non-current | |||||||||||
| Long-term operating lease liability | |||||||||||
| Long-term debt, less current maturities (related party) | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Shareholders’ deficit: | |||||||||||
Common shares, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total shareholders’ deficit | ( | ( | |||||||||
| Total liabilities and shareholders’ deficit | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited; in thousands, except share and per share data)
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Product revenue, net | $ | $ | $ | $ | |||||||||||||||||||
| Pfizer collaboration revenue | |||||||||||||||||||||||
| Accord license and milestone revenue | |||||||||||||||||||||||
| Richter license and milestone revenue | |||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Operating costs and expenses: | |||||||||||||||||||||||
| Cost of product revenue | |||||||||||||||||||||||
| Collaboration expense to Pfizer | |||||||||||||||||||||||
Selling, general and administrative (1) | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Total operating costs and expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
Interest expense (2) | |||||||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net loss and comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per common share — basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average common shares outstanding — basic and diluted | |||||||||||||||||||||||
(1) Includes $1,362 and $3,766 of related party expense (inclusive of third-party pass-through costs) for the three and nine months ended December 31, 2022, respectively. Includes $1,337 and $3,784 of related party expense (inclusive of third-party pass-through costs) for the three and nine months ended December 31, 2021, respectively. See Note 5.
(2) Includes $6,118 and $14,563 of interest expense under the Sumitomo Pharma Loan Agreement for the three and nine months ended December 31, 2022, respectively. Includes $2,871 and $8,660 of interest expense under the Sumitomo Pharma Loan Agreement for the three and nine months ended December 31, 2021, respectively. See Note (5C).
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Shareholders’ Deficit
(unaudited; in thousands, except share data)
| Common Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Shareholders’ Deficit | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of shares upon exercise of stock options and release of share awards | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of shares upon exercise of stock options and release of share awards | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of shares upon exercise of stock options and release of share awards | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
8
| Common Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Shareholders’ Deficit | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation liabilities reclassified to equity upon settlement of awards | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation reclassified to current liabilities | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of shares upon exercise of stock options and release of share awards | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation liabilities reclassified to equity upon settlement of awards | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation reclassified to current liabilities | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of shares upon exercise of stock options and release of share awards | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2021 | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation liabilities reclassified to equity upon settlement of awards | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation reclassified to current liabilities | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of shares upon exercise of stock options and release of share awards | — | — | — | ||||||||||||||||||||||||||||||||
| Capital contribution -other | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Cash Flows
(unaudited; in thousands)
| Nine Months Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Share-based compensation | |||||||||||
| Depreciation | |||||||||||
| Non-cash interest expense | |||||||||||
| Amortization of operating lease right-of-use assets | |||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Amount due from related party | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Deferred revenue | ( | ||||||||||
| Amounts due to Pfizer | ( | ||||||||||
| Cost share advance from Pfizer | ( | ( | |||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Amounts due to related parties | ( | ||||||||||
| Other liabilities | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of marketable securities | ( | ( | |||||||||
| Maturities of marketable securities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash provided by (used) in investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from stock option exercises | |||||||||||
| Capital contribution- other | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
| Supplemental Disclosures of Non-Cash Financing and Investing Information: | |||||||||||
| Change in fair value of share-based awards recorded to additional paid-in capital | $ | $ | |||||||||
| Reclassification of share-based compensation liabilities to additional paid-in capital upon settlement of awards | $ | $ | |||||||||
| Right-of-use asset obtained in exchange for operating lease obligation | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
MYOVANT SCIENCES LTD.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1—Organization and Summary of Significant Accounting Policies
Description of Business
Myovant Sciences Ltd. (together with its wholly-owned subsidiaries, the “Company” or “Myovant”) is a biopharmaceutical company that aspires to redefine care for women and for men through purpose-driven science, empowering medicines, and transformative advocacy worldwide. Founded in 2016, the Company has executed multiple successful Phase 3 clinical trials across oncology and women’s health leading to three regulatory approvals by the United States (“U.S.”) Food and Drug Administration (“FDA”): (1) ORGOVYX® (relugolix 120 mg), which was approved in the U.S. in December 2020 as the first and only oral gonadotropin-releasing hormone (“GnRH”) receptor antagonist for the treatment of adult patients with advanced prostate cancer; (2) MYFEMBREE® (relugolix 40 mg, estradiol 1.0 mg, and norethindrone acetate 0.5 mg), which was approved in the U.S. in May 2021 as the first and only once-daily oral GnRH treatment for the management of heavy menstrual bleeding associated with uterine fibroids; and (3) MYFEMBREE which was approved in the U.S. in August 2022 for the management of moderate to severe pain associated with endometriosis, establishing MYFEMBREE as the first and only once-daily oral GnRH treatment approved for both uterine fibroids and endometriosis.
In July 2021, the European Commission (“EC”), and in August 2021, the United Kingdom (“U.K.”) Medicines and Healthcare products Regulatory Agency (“MHRA”), approved RYEQO® (relugolix 40 mg, estradiol 1.0 mg, and norethindrone acetate 0.5 mg) as the first and only long-term, once-daily oral treatment in the European Union (“EU”) and U.K., respectively, for moderate to severe symptoms of uterine fibroids in adult women of reproductive age. In April 2022, the EC, and in June 2022, the MHRA, approved ORGOVYX (relugolix 120 mg) as the first and only oral androgen deprivation therapy for advanced hormone-sensitive prostate cancer in the EU and U.K., respectively.
In June 2022, the FDA accepted for review the Company’s supplemental New Drug Application (“sNDA”) that proposes updates to the U.S. Prescribing Information based on the safety and efficacy data from the Phase 3 LIBERTY randomized withdrawal study of MYFEMBREE in premenopausal women with heavy menstrual bleeding due to uterine fibroids for up to two years. The FDA set a Prescription Drug User Fee Act (“PDUFA”) goal date of January 29, 2023 for this sNDA.
The Company is currently conducting a number of clinical studies to generate data that would potentially expand the prescribing labels for MYFEMBREE and ORGOVYX. For example, in the Phase 3 SERENE study, MYFEMBREE is being evaluated for contraceptive efficacy in women with heavy menstrual bleeding associated with uterine fibroids or endometriosis-associated pain who are 18 to 50 years of age and at risk for pregnancy, and in the Phase 3 REPLACE-CV study, the risk of major adverse cardiovascular events associated with ORGOVYX compared to leuprolide will be assessed in men 18 years of age or older with prostate cancer who require treatment with androgen deprivation therapy for at least one year. The Company is also developing MVT-602, an investigational oligopeptide kisspeptin-1 receptor agonist, which has completed a Phase 2a study for the treatment of female infertility as a part of assisted reproduction.
Since its inception, the Company has funded its operations primarily from the issuance and sale of its common shares, from debt financing arrangements, and more recently from the upfront and milestone payments it has received from its collaboration and commercialization partners, as well as net revenues generated from sales of ORGOVYX and MYFEMBREE in the U.S.
The Company’s majority shareholder is Sumitovant Biopharma Ltd. (“Sumitovant”), a wholly-owned subsidiary of Sumitomo Pharma Co., Ltd. (“Sumitomo Pharma”), the name of which prior to April 1, 2022 was Sumitomo Dainippon Pharma Co., Ltd. As of December 31, 2022, Sumitovant directly, and Sumitomo Pharma indirectly, beneficially own 50,041,181 , or approximately 51.6 %, of the Company’s outstanding common shares.
On October 23, 2022, Myovant, Sumitovant, Zeus Sciences Ltd., a wholly owned subsidiary of Sumitovant (“Merger Sub”), and, solely with respect to Article IX and Annex A of the Merger Agreement, Sumitomo Pharma, entered into an Agreement and Plan of Merger (the “Merger Agreement”) providing for the merger of Merger Sub with and into Myovant (the “Merger”), with Myovant continuing as the surviving company following the Merger as a wholly owned subsidiary of Sumitovant (the “Surviving Company”). Subject to the terms and conditions set forth in the Merger Agreement, in the event the Merger is consummated, holders of the Company’s common shares (other than Excluded Shares, Parent Owned Shares and Dissenting Shares (as each such term is defined in the Merger Agreement)) will be entitled to receive $27.00 per share in cash, without interest and less any applicable withholding taxes (the “Per Share Merger Consideration”). See Note 5(A) for more information about the Merger Agreement.
11
Basis of Presentation and Principles of Consolidation
The Company’s fiscal year ends on March 31, and its first three fiscal quarters end on June 30, September 30 and December 31. The Company has determined that it has one
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (“Quarterly Report”) reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of December 31, 2022 and March 31, 2022, and its condensed consolidated statements of operations and comprehensive loss, and shareholders’ deficit for the three and nine months ended December 31, 2022 and 2021, and its condensed consolidated statements of cash flows for the nine months ended December 31, 2022 and 2021. The March 31, 2022 condensed consolidated balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. The results for interim periods are not necessarily indicative of results for the entire fiscal year or any other interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s previously filed audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended March 31, 2022, filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 11, 2022.
Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”), issued by the Financial Accounting Standards Board (“FASB”). The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Dollar amounts reported in millions within this Quarterly Report are computed based on the amounts in thousands, and therefore, the sum of components may not equal the total amount reported in millions due to rounding.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ materially from those estimates.
12
Summary of Significant Accounting Policies
The accounting policies used by the Company in its presentation of interim financial results are consistent with those described in Note 2 to the Company’s audited consolidated financial statements included in its Annual Report for the fiscal year ended March 31, 2022, filed with the SEC on May 11, 2022. There have been no significant changes in the Company’s significant accounting policies from those disclosed in its Annual Report for the fiscal year ended March 31, 2022.
Liquidity and Capital Resources
As of December 31, 2022, the Company had approximately $274.4 million in cash, cash equivalents, and marketable securities. The Company believes that its existing cash, cash equivalents, marketable securities and expected cash flows to be generated from product sales will be sufficient to fund its anticipated operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of this Quarterly Report.
13
In future periods, if the Company’s cash, cash equivalents, marketable securities, and amounts that it expects to generate from product sales and/or third-party collaboration payments are not sufficient to enable the Company to fund its operations, the Company may need to raise additional funds in the form of equity, debt, or from other sources. There can be no assurances that such funding sources will be available at terms acceptable to the Company, or at all. If the Company has insufficient funding to meet its working capital needs, it could be required to delay, limit, reduce, or terminate its drug development programs, commercialization efforts, and/or limit or cease operations.
As of December 31, 2022, the Company’s subsidiary, Myovant Sciences GmbH (“MSG”), had approximately $41.3 million of borrowing capacity available to it under the Sumitomo Pharma Loan Agreement (see Note 5(C)). As of December 31, 2022, the Company is also eligible to earn up to $3.5 billion, $85.5 million, and $118.2 million of additional milestone payments from Pfizer Inc. (“Pfizer”), Accord Healthcare, Ltd. (“Accord”), and Gedeon Richter Plc. (“Richter”), respectively, as well as potential royalty payments from Accord and Richter. See Note 8 for additional information about the Pfizer Collaboration and License Agreement, the Accord License Agreement, and the Richter Development and Commercialization Agreement.
Net Loss per Common Share
Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted-average number of common shares and potentially dilutive shares of common stock outstanding during the period. Potential dilutive securities outstanding include stock options, restricted stock units, performance stock units, and warrants. During all periods presented, the Company incurred net losses. Accordingly, the effect of any common share equivalents would have been anti-dilutive during those periods and are not included in the calculation of diluted weighted-average number of common shares outstanding.
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per common share for the periods indicated because their inclusion would have been anti-dilutive:
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Stock options | |||||||||||
| Restricted stock units and performance stock units (unvested) | |||||||||||
| Warrants | |||||||||||
| Total | |||||||||||
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective prospectively for all entities as of March 12, 2020 through December 31, 2022, and subject to a proposed extension to December 31, 2024. The outstanding debt with Sumitomo Pharma under the Sumitomo Pharma Loan Agreement bears a variable interest rate that is indexed off of 3-month LIBOR, for which publication is expected to be discontinued on June 30, 2023. In the event that 3-month LIBOR becomes unavailable, the Company’s subsidiary, MSG, and Sumitomo Pharma will negotiate in good faith to select an alternative interest rate in accordance with the Sumitomo Pharma Loan Agreement. The Company has not yet adopted this guidance and is currently evaluating the potential impact the adoption of this standard will have on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses on available-for-sale debt securities to be recorded through an allowance for credit losses instead of as a reduction in the amortized cost basis of the securities. ASU 2016-13 was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption was permitted, including adoption in any interim period. In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
14
Note 2—Revenue Components
The following table provides information about the Company’s revenues (in thousands):
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Product revenue, net: | |||||||||||||||||||||||
| ORGOVYX | $ | $ | $ | $ | |||||||||||||||||||
| MYFEMBREE | |||||||||||||||||||||||
| Accord product supply and royalties | |||||||||||||||||||||||
| Richter product supply and royalties | |||||||||||||||||||||||
| Total product revenue, net | |||||||||||||||||||||||
| Pfizer collaboration revenue: | |||||||||||||||||||||||
| Amortization of upfront payment | |||||||||||||||||||||||
| Amortization of regulatory milestones | |||||||||||||||||||||||
| Total Pfizer collaboration revenue | |||||||||||||||||||||||
| Accord license and milestone revenue | |||||||||||||||||||||||
| Richter license and milestone revenue | |||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
Product Revenue, net
The Company generates product revenue from sales of ORGOVYX and MYFEMBREE in the U.S. The Company records product revenue net of estimated discounts, chargebacks, rebates, product returns, and other gross-to-net revenue deductions.
For both the three and nine months ended December 31, 2022, product revenue, net includes revenues related to product supply to Accord of $0.4 0.1 no
For the three and nine months ended December 31, 2022, product revenue, net includes revenues related to product supply to Richter of $1.4 million and $2.6 million, respectively, as well as royalties on net sales of RYEQO in Richter’s Territory of $0.4 million and $0.7 million, respectively. For the three and nine months ended December 31, 2021, product revenue, net includes revenues related to product supply to Richter of $2.3 million and $4.1 million, respectively, as well as royalties on net sales of RYEQO in Richter’s Territory of $0.1 million and $0.2 million, respectively.
15
| Reserve -government and other incentives | Chargebacks and administrative fees | Returns | Sales Discounts | Total | |||||||||||||||||||||||||
Balance as of March 31, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Provision related to sales in the current year | |||||||||||||||||||||||||||||
| Adjustments related to prior year sales | ( | ||||||||||||||||||||||||||||
| Credits and payments made during the current year | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The total reserves described above are summarized as components of the Company’s unaudited condensed consolidated balance sheets as follows (in thousands):
| December 31, 2022 | March 31, 2022 | ||||||||||
| Reduction of accounts receivable, net | $ | $ | |||||||||
| Component of accrued expenses and other current liabilities | |||||||||||
| Total revenue-related reserves | $ | $ | |||||||||
Pfizer Collaboration Revenue
Pfizer collaboration revenue for the three and nine months ended December 31, 2022 and 2021 consists of the partial recognition of the upfront payment the Company received from Pfizer upon entering into the Pfizer Collaboration and License Agreement in December 2020 and of the $100.0 million regulatory milestone payment the Company received from Pfizer that was triggered upon the FDA approval of MYFEMBREE for the management of heavy menstrual bleeding associated with uterine fibroids on May 26, 2021. Pfizer collaboration revenue for the three and nine months ended December 31, 2022 also includes the partial recognition of the $100.0 million regulatory milestone payment the Company received from Pfizer that was triggered upon the FDA approval of MYFEMBREE for the management of moderate to severe pain associated with endometriosis on August 5, 2022. See Note 8(A) for additional information regarding the Pfizer Collaboration and License Agreement.
Accord License and Milestone Revenue
Accord license and milestone revenue for the three months ended December 31, 2022 consists of the recognition of a $5.0 million milestone payment from Accord that was triggered upon Accord’s first commercial sale of ORGOVYX in Europe in October 2022. Accord license and milestone revenue for the nine months ended December 31, 2022 consists of the recognition of a $50.0 million upfront payment the Company received from Accord in May 2022 pursuant to the Accord License Agreement, as well as the $5.0 million milestone payment that was triggered upon Accord’s first commercial sale of ORGOVYX in Europe in October 2022. There was no
Richter License and Milestone Revenue
16
Note 3—Certain Balance Sheet Components
Cash, Cash Equivalents and Restricted Cash
The following represents a reconciliation of cash and cash equivalents on the unaudited condensed consolidated balance sheets to total cash, cash equivalents and restricted cash in the unaudited condensed consolidated statements of cash flows (in thousands):
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash (included in other assets) | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Cash and cash equivalents include cash deposits in banks and all highly liquid investments that are readily convertible to cash (maturity of three months or less at the time of purchase). Restricted cash consists of funds held or designated to satisfy the requirements of certain agreements that are restricted in their use. As of December 31, 2022 and 2021, restricted cash includes approximately $2.4 million and $7.1 million, respectively, that is held in an escrow fund for use by Sunovion Pharmaceuticals Inc. (“Sunovion”), a subsidiary of Sumitomo Pharma, to manage payments for rebates, chargebacks, and similar fees pursuant to the Market Access Services Agreement (see Note 5(F)).
Inventories
Inventories consisted of the following (in thousands):
| December 31, 2022 | March 31, 2022 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| December 31, 2022 | March 31, 2022 | ||||||||||
| Accrued sales discounts, rebates, and allowances | $ | $ | |||||||||
| Accrued compensation-related expenses | |||||||||||
| Accrued R&D expenses | |||||||||||
| Accrued commercial expenses | |||||||||||
| Accrued royalties payable to Takeda | |||||||||||
| Accrued other expenses | |||||||||||
| Accrued professional fees | |||||||||||
| Accrued income tax payable | |||||||||||
| Deferred product revenue | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
Note 4—Fair Value Measurements
17
market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed into one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable. These levels are as follows:
•Level 1—inputs, which include unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;
•Level 2—inputs, which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and
•Level 3—inputs, which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies, or similar valuation techniques, as well as significant management judgement or estimation.
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of the Company’s financial instruments, see Note 2, “Summary of Significant Accounting Policies,” and Note 4, “Fair Value Measurements,” to the Company’s audited consolidated financial statements included in its Annual Report for the fiscal year ended March 31, 2022, filed with the SEC on May 11, 2022.
Financial Instruments Measured at Fair Value on a Recurring Basis
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):
| Fair Value Measurement Using: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Money market funds (1) | $ | $ | $ | $ | |||||||||||||||||||
Commercial paper (2) | |||||||||||||||||||||||
U.S. treasury securities (3) | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value Measurement Using: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
As of March 31, 2022 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Money market funds (1) | $ | $ | $ | $ | |||||||||||||||||||
Commercial paper (2) | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
(1) Included in cash and cash equivalents.
(2) Includes $133.7 million in cash and cash equivalents and $21.9 million in marketable securities as of December 31, 2022. Includes $192.3 million in cash and cash equivalents and $27.5 million in marketable securities as of March 31, 2022.
(3) Included in marketable securities.
There were no
18
The Company does not intend to sell its marketable securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell its securities before recovery of their amortized cost basis, which may be at maturity. There were no
Financial Instruments Not Measured at Fair Value on a Recurring Basis
The Company recorded the cost share advance from Pfizer, which was included in Level 2 of the fair value hierarchy, at its estimated fair value as of the transaction date. As discussed in Note 8(A), on the transaction date, the cost share advance from Pfizer was discounted to fair value using the Company’s estimated incremental borrowing rate over the period in which the cost share advance was expected to be utilized. The recorded amount was reduced each reporting period by the amount of Allowable Expenses applied to the cost share advance. As of December 31, 2022, the cost share advance from Pfizer has been fully utilized and no amounts remained outstanding on the Company’s unaudited condensed consolidated balance sheet as of December 31, 2022. There were no
Note 5—Related Party Transactions
As of December 31, 2022, Sumitovant directly, and Sumitomo Pharma indirectly, beneficially own 50,041,181 , or approximately 51.6 %, of the Company’s outstanding common shares. The Company has agreements with Sumitovant, Sumitomo Pharma, and their affiliates, including Sunovion, a subsidiary of Sumitomo Pharma. Certain of these agreements are described below.
(A) Merger Agreement
On October 23, 2022, Myovant, Sumitovant, Merger Sub, and, solely with respect to Article IX and Annex A of the Merger Agreement, Sumitomo Pharma, entered into the Merger Agreement. Pursuant to the Merger Agreement, and subject to the terms and conditions set forth therein, at the closing of the merger contemplated thereby, Merger Sub will be merged with and into Myovant (the “Merger”), with Myovant continuing as the surviving company following the Merger as a wholly owned subsidiary of Sumitovant.
Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (i) each of Myovant’s common shares, $0.000017727 par value per share (the “Common Share”), issued and outstanding immediately prior to the Effective Time (other than Excluded Shares, Sumitovant Owned Shares and Dissenting Shares (as each such term is defined below)) will automatically cease to exist, and each holder of a Common Share will cease to have any rights with respect thereto, except for the right to receive the Per Share Merger Consideration; (ii) any Common Share owned by Myovant or any direct or indirect wholly owned subsidiary of Myovant (each, an “Excluded Share”) as of immediately prior to the Effective Time will be cancelled and will automatically cease to exist, and no consideration will be delivered in exchange therefor; (iii) each Common Share that is owned directly by Sumitovant as of immediately prior to the Effective Time (each, a “Sumitovant Owned Share”) will remain outstanding and will constitute a fully paid and nonassesable common share of the Surviving Company; (iv) each Common Share held by a holder who, as of the Effective Time, did not vote in favor of the Merger and complied with certain procedures specified in the Merger Agreement (each, a “Dissenting Share”), will automatically be cancelled and the holder thereof will have the right to receive the Per Share Merger Consideration plus the amount of any excess of the appraised fair value as determined by the Supreme Court of Bermuda above the Per Share Merger Consideration; and (v) each common share, par value $0.000017727 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time will remain outstanding and will constitute a fully paid and nonassesable common share of the Surviving Company. As a result of the Merger, Sumitovant will acquire Myovant and own all of the issued and outstanding shares of the Surviving Company.
In addition, immediately prior to the Effective Time, subject to specified exceptions applicable to certain restricted share units to be granted after the execution of the Merger Agreement or as otherwise agreed between the parties thereto, each Myovant equity award that is outstanding, whether vested or unvested, will be cancelled and thereafter only entitle the holder to the right to receive an amount (reduced by any applicable withholding tax) in cash equal to, as applicable: (i) the number of Common Shares subject to a Myovant stock option multiplied by the Per Share Merger Consideration, minus such stock option’s exercise price; provided that each option with an exercise price per Common Share that is equal to or greater than the Per Share Merger Consideration will be cancelled without payment; (ii) the number of restricted share units of Myovant multiplied by the Per Share Merger Consideration; and (iii) the number of restricted share units of Myovant subject to performance-based vesting conditions (deeming performance goals as being satisfied), multiplied by the Per Share Merger Consideration.
Completion of the Merger is subject to the satisfaction of certain conditions, including: (i) the adoption of the Merger Agreement at a shareholder meeting to consider such matter by the requisite vote of Myovant’s shareholders, including the approval by the holders of a majority of the outstanding Common Shares entitled to vote and voting at such meeting and by the holders of a majority of the outstanding Common Shares not held by Sumitovant or its affiliates, (ii) the expiration of applicable
19
waiting period of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), (iii) the absence of any law, injunction, judgment or other legal restraint that prohibits the consummation of the Merger, (iv) the accuracy of each party’s representations and warranties (subject to certain materiality and Company Material Adverse Effect (as defined in the Merger Agreement) qualifications), (v) each party’s performance in all material respects of its obligations contained in the Merger Agreement and (vi) the absence of a Company Material Adverse Effect following the date of the Merger Agreement that is continuing. The applicable waiting period under the HSR Act expired on January 2, 2023.
Sumitovant and Myovant have each made customary representations, warranties and covenants in the Merger Agreement, including covenants: (i) in the case of Myovant, to cause a meeting of its shareholders to be duly called and held as soon as reasonably practicable following the clearance of a proxy statement and Statement on Schedule 13E-3 in connection with the Merger by the SEC for the purpose of voting on the adoption of the Merger Agreement and (ii) in the case of each party, to use its reasonable best efforts to promptly take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under the Merger Agreement and applicable laws to consummate and make effective as promptly as practicable the Merger, subject to certain limitations set forth in the Merger Agreement. Subject to certain exceptions, Myovant has agreed to conduct its business in the ordinary course consistent with past practice, including not taking certain specified actions, prior to the consummation of the Merger or the termination of the Merger Agreement pursuant to its terms.
Under the Merger Agreement, Myovant has agreed not to: (i) initiate, solicit, propose, knowingly encourage or knowingly facilitate any inquiry or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, an Alternative Proposal (as defined in the Merger Agreement); (ii) engage in, continue or otherwise participate in any discussions with or negotiations relating to any Alternative Proposal, subject to certain exceptions, or any inquiry, proposal or offer that would reasonably be expected to lead to an Alternative Proposal; (iii) provide any non-public information to any person in connection with any Alternative Proposal or any proposal or offer that would reasonably be expected to lead to an Alternative Proposal; (iv) otherwise knowingly facilitate any effort or attempt to make an Alternative Proposal; or (v) cause or permit the Company to enter into an Alternative Proposal. However, subject to the satisfaction of certain conditions, the Company Board (acting upon the recommendation of the Special Committee) or the Special Committee is permitted to take certain actions which may, as more fully described in the Merger Agreement, include, prior to adoption and approval of the Merger Agreement and the other transactions contemplated thereby, including the Merger, by the requisite vote of Myovant’s shareholders, changing the Company Board’s or the Special Committee’s recommendation in response to a Superior Proposal or Intervening Event (each as defined in the Merger Agreement).
The Merger Agreement contains certain termination rights for each of Sumitovant and Myovant, including the right to terminate (i) by mutual written consent, (ii) by either the Company (acting at the recommendation of the Special Committee) or by Sumitovant under specific circumstances, (iii) if the Merger is not consummated on or before 5:00 p.m., Pacific Time, on May 31, 2023 or (iv) to enter into a definitive agreement related to a Superior Proposal. Additionally, the Merger Agreement provides that, upon termination of the Merger Agreement, under specified circumstances, Myovant will be required to pay Sumitovant a termination fee of $55.25 million.
No amounts have been paid to or received from Sumitovant under the Merger Agreement; however, the Company believes the Merger Agreement is material to its business and operations.
(B) Voting and Support Agreement
In connection with the entry into the Merger Agreement, on October 23, 2022, Sumitovant and Myovant entered into a Voting and Support Agreement (the “Voting and Support Agreement”) whereby Sumitovant has agreed, among other things, that at any meeting of the shareholders of Myovant or in connection with any written consent of the shareholders of Myovant, Sumitovant will appear at such meeting or cause its Common Shares to be counted as present at such meeting for purposes of establishing a quorum and, so long as Sumitovant is not prohibited from doing so by applicable law, vote or consent all of its Common Shares in favor of the Merger and the adoption of the Merger Agreement.
No amounts have been paid to or received from Sumitovant under the Voting and Support Agreement; however, the Company believes the Voting and Support Agreement is material to its business and operations.
(C) Sumitomo Pharma Loan Agreement
On December 27, 2019, the Company and one of its subsidiaries, MSG (the “Borrower”), entered into a Loan Agreement with Sumitomo Pharma (the “Sumitomo Pharma Loan Agreement”). The Sumitomo Pharma Loan Agreement was amended on December 24, 2022.
Pursuant to the Sumitomo Pharma Loan Agreement, Sumitomo Pharma agreed to make revolving loans to the Borrower in an aggregate principal amount of up to $400.0 million. Funds may be drawn down by the Borrower once per calendar quarter,
20
subject to certain terms and conditions, including consent of the Company’s board of directors. The maturity date of the loans under the Sumitomo Pharma Loan Agreement is December 27, 2024 or the date the outstanding principal of the loans is declared due and payable due to an event of default pursuant to the terms of the Sumitomo Pharma Loan Agreement. In addition, if Sumitomo Pharma fails to own at least a majority of the Company’s outstanding common shares, it may become unlawful under Japanese law for Sumitomo Pharma to continue to fund loans to the Borrower, and in which case the Borrower would not be able to continue to borrow under the Sumitomo Pharma Loan Agreement. Interest is due and payable quarterly, and the outstanding principal amounts are due and payable in full on the five-year anniversary of the closing date of the Sumitomo Pharma Loan Agreement. Loans under the Sumitomo Pharma Loan Agreement are prepayable at any time without premium or penalty upon 10 business days’ prior written notice.
Loans under the Sumitomo Pharma Loan Agreement bear interest at a variable rate per annum equal to 3-month LIBOR plus a margin of 3 % payable on the last day of each calendar quarter. Publication of 3-month LIBOR is currently expected to be discontinued on June 30, 2023. In the event that 3-month LIBOR becomes unavailable, the Borrower and Sumitomo Pharma will negotiate in good faith to select an alternative interest rate and, if applicable as a result of such alternative interest rate, margin adjustment that is consistent with industry accepted successor rates for determining a LIBOR replacement. The Borrower’s obligations under the Sumitomo Pharma Loan Agreement are fully and unconditionally guaranteed by the Company and certain of the Company’s other subsidiaries (collectively, the “Subsidiary Guarantors”). The loans and other obligations are senior unsecured obligations of the Company, the Borrower, and the Subsidiary Guarantors.
The Sumitomo Pharma Loan Agreement includes customary representations and warranties and affirmative and negative covenants. The Sumitomo Pharma Loan Agreement also includes customary events of default, including payment defaults, breaches of representations and warranties, breaches of covenants following any applicable cure period, cross acceleration to certain other debt, failure to pay certain final judgments, certain events relating to bankruptcy or insolvency, failure of material provisions of the loan documents to remain in full force and effect or any contest thereto by the Company or any of its subsidiaries and certain breaches by the Company under the Investor Rights Agreement. Upon the occurrence of an event of default, a default interest rate of an additional 5 % will apply to the outstanding principal amount of the loans, Sumitomo Pharma may terminate its obligations to make loans to the Borrower and declare the principal amount of loans to become immediately due and payable, and Sumitomo Pharma may take such other actions as set forth in the Sumitomo Pharma Loan Agreement. Upon the occurrence of certain bankruptcy and insolvency events, the obligations of Sumitomo Pharma to make loans to the Borrower would automatically terminate and the principal amount of the loans would automatically become due and payable. In addition, if it becomes unlawful for Sumitomo Pharma to maintain the loans under the Sumitomo Pharma Loan Agreement or within 30 days of a change of control with respect to the Company, the Borrower would be required to repay the outstanding principal amount of the Loans.
The parties entered into an amendment to the Sumitomo Pharma Loan Agreement on December 24, 2022 pursuant to which, Sumitomo Pharma agreed to subordinate the Borrower’s obligations to Sumitomo Pharma under the Sumitomo Pharma Loan Agreement to all other existing and future claims against the Borrower.
As of December 31, 2022, approximately $41.3 million of borrowing capacity remains available to the Borrower, subject to the terms of the Sumitomo Pharma Loan Agreement and the outstanding loan balance of $358.7 million is classified as a long-term liability on the Company’s unaudited condensed consolidated balance sheet under the caption long-term debt, less current maturities (related party). Interest expense under the Sumitomo Pharma Loan Agreement was $6.1 million and $14.6 million for the three and nine months ended December 31, 2022, respectively, and $2.9 million and $8.7 million for the three and nine months ended December 31, 2021, respectively, and is included in interest expense in the unaudited condensed consolidated statements of operations and comprehensive loss.
(D) Investor Rights Agreement
On December 27, 2019, the Company entered into an Investor Rights Agreement with Sumitomo Pharma and Sumitovant (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, among other things, the Company agreed, at the request of Sumitovant, to register for sale, under the Securities Act of 1933, common shares beneficially owned by Sumitovant, subject to specified conditions and limitations. In addition, the Company agreed to periodically provide Sumitovant (i) certain financial statements, projections, capitalization summaries and other information and (ii) access to the Company’s books, records, facilities and employees during the Company’s normal business hours as Sumitovant may reasonably request, subject to specified limitations.
The Investor Rights Agreement also contains certain protections for the Company’s minority shareholders for so long as Sumitomo Pharma or certain of its affiliates beneficially owns more than 50 % of the Company’s common shares. These protections include: (i) a requirement that Sumitovant vote its shares for the election of independent directors in accordance with the recommendation of the Company’s board of directors (the “board”) or in the same proportion as the shareholders not
21
affiliated with Sumitovant vote its shares; (ii) a requirement that the audit committee of the Company’s board be composed solely of three independent directors; (iii) a requirement that any transaction proposed by Sumitomo Pharma or certain of its affiliates that would increase Sumitomo Pharma’s beneficial ownership to over 60 % of the outstanding voting power of the Company must be approved by the Company’s audit committee (if occurring prior to December 27, 2022), and be conditioned on the approval of shareholders not affiliated with Sumitovant approving the transaction by a majority of the common shares held by such shareholders; and a requirement that any related person transactions between Sumitomo Pharma or certain of its affiliates and the Company must be approved by the Company’s audit committee.
Pursuant to the Investor Rights Agreement, the Company also agreed that at all times that Sumitomo Pharma beneficially owns more than 50 % of the Company’s common shares, Sumitomo Pharma, by purchasing common shares in the open market or from the Company in certain specified circumstances, will have the right to maintain its percentage ownership in the Company’s common shares in the event of a financing event or acquisition event conducted by the Company, or specified other events, subject to specific conditions.
(E) Services and Information Sharing Agreement
In February 2022, the Company and two of its subsidiaries, MSG and Myovant Sciences, Inc. (“MSI”), entered into a services and information sharing agreement with Sumitovant Biopharma, Inc., a wholly-owned subsidiary of Sumitovant. Under the agreement, for so long as Sumitovant is a majority owner of the Company, the Company agrees to (1) subject to Sumitovant’s reasonable request and on a timeline to be reasonably agreed by the parties, supply certain information summarizing material aspects of the Company’s business to Sumitovant, and with reasonable advanced notice, give Sumitovant and its representatives the reasonable opportunity to discuss such information with the Company’s senior management; and (2) subject to the oversight of the chairperson of the Company’s Audit Committee, provide certain additional, more detailed information on business-essential matters in order to collaborate with Sumitovant or to enable the Company to leverage Sumitovant’s expertise.
Under the agreement, Sumitovant also agrees to provide, upon the Company’s election, various administrative and general business support services as well as research and development services to the Company and its subsidiaries, and the Company agrees to reimburse Sumitovant for expenses it, or third parties acting on its behalf, incurs for the Company. For any general and administrative and research and development activities performed by employees of Sumitovant, the agreement provides for Sumitovant to charge the Company based upon the relative percentage of time utilized on matters related to the Company by the respective employee and a mutually agreed upon mark-up on such expenses. Under the agreement, all other third-party pass-through costs are billed to the Company at cost. For both the three and nine months ended December 31, 2022, the Company incurred less than $0.1
(F) Market Access Services Agreement
On August 1, 2020, one of the Company’s subsidiaries, entered into a Market Access Services Agreement, as amended (“Market Access Services Agreement”), with Sunovion. Pursuant to the Market Access Services Agreement, among other things, Sunovion agreed to provide certain market access services with respect to the distribution and sale of ORGOVYX (“Prostate Cancer Product”) and MYFEMBREE (“Women’s Health Product,” and collectively with Prostate Cancer Product, the “Products”, and each a “Product”), including, among other things: (i) adding the Products to Sunovion’s agreements with its third party logistics providers; (ii) adding the Women’s Health Product to certain of Sunovion’s contracts with wholesalers, group purchasing organizations and integrated delivery networks and negotiating rates for the Products with certain market access customers; (iii) providing order-to-cash services; (iv) providing certain employees to provide market access account director services; (v) performing activities required in connection with supporting and maintaining contracts between the Company and market access customers for the coverage, purchase, or dispensing of the Products; (vi) managing the validation, processing and payment of rebates, chargebacks, and certain administrative, distribution and service fees related to the Products; (vii) providing the Company with price reporting metrics and other information required to allow the Company to comply with applicable government price reporting requirements; (viii) coordinating with the Company and any applicable wholesalers and distributors to address any recalls, investigations, or product holds; (ix) configuring, or causing to be configured, the appropriate software systems to enable Sunovion to perform its obligations under the Market Access Services Agreement; and (x) providing training and certain other ancillary support services to facilitate the foregoing. Pursuant to this agreement, Sunovion will also provide certain services to the Company to enable the Company to comply with its obligations under the State Transparency Laws.
The Company, in turn, appointed Sunovion as the exclusive distributor of the Women’s Health Product and a non-exclusive distributor of the Prostate Cancer Product, each in the U.S., including all of its territories and possessions.
In order to facilitate Sunovion’s provision of these services, the Company agreed, among other things, to: (i) grant Sunovion a non-exclusive license under all intellectual property owned or controlled by the Company, solely for Sunovion’s use in connection with its performance of the contemplated services; (ii) provide Sunovion periodic reports of sales projections and
22
estimated volume requirements, as well as such other information as Sunovion reasonably requests or may need to perform the services; (iii) comply with the provisions of any agreements between Sunovion and third parties pursuant to which the Products will be distributed or sold; (iv) cooperate with certain investigations related to orders and audits of the Company’s quality systems solely related, as reasonably determined by Myovant, to Sunovion’s performance of certain regulatory services, at Sunovion’s costs; and (v) promptly notify Sunovion in the event relugolix is recalled.
As consideration for the services, the Company has paid and will continue to pay Sunovion an agreed-upon monthly service charge for each of the first two years of the Market Access Services Agreement term and any agreed regulatory and training service charges. After the second year of the Market Access Services Agreement term, the monthly service charges will be determined by the parties. In addition, the Company also agreed to (x) reimburse Sunovion for any pass-through expenses it incurs while providing the services, and (y) establish an escrow fund for use by Sunovion to manage payments for rebates, chargebacks and similar fees. For the three and nine months ended December 31, 2022, the Company incurred $1.3 million and $3.7 million, respectively, under this agreement (inclusive of third-party pass-through costs billed to the Company) which are included in SG&A expenses, in the accompanying consolidated statements of operations and comprehensive loss. For the three and nine months ended December 31, 2021, the Company incurred $1.3 million and $3.8 million of expense under this agreement (inclusive of third-party pass-through costs billed to the Company), which is included in SG&A expenses in the unaudited condensed consolidated statements of operations and comprehensive loss.
The Market Access Services Agreement also contains customary representations and warranties by the parties and customary provisions related to confidentiality, indemnification and insurance. The initial term of the Market Access Services Agreement is three years . Thereafter, the term will be automatically extended for one-year periods, unless either party provides notice of its intent not to renew the Market Access Services Agreement at least nine (9 ) months prior to the expiration of the applicable term. Either party may also terminate the Market Access Services Agreement prior to the end of its term in the event of an uncured material breach by the other party, if there are certain changes of law, or if such other party becomes insolvent or undergoes a change of control. The Company may also terminate the Market Access Services Agreement with respect to one or both Products if Sunovion fails to satisfy certain market access milestones or for convenience upon payment of a break-up fee.
Note 6—Income Taxes
The Company is not subject to taxation under the laws of Bermuda since it is organized as a Bermuda Exempted Limited Company, for which there is no current tax regime. It is subject to taxation under the laws of the U.K. by virtue of location of central management and control. The income tax expense of the Company and its affiliates currently is primarily attributable to U.S. federal, state and local taxes. The Company’s effective tax rate for the three and nine months ended December 31, 2022 was (2.14 )% and (16.34 )%, respectively. The Company’s effective tax rate for the three and nine months ended December 31, 2021 was (0.47 )% and (0.73 )%, respectively. Key determinative factors of the Company’s effective tax rate include the allocation of its earnings by jurisdiction and a valuation allowance that currently eliminates all of the Company’s net deferred tax assets, including in respect of the R&D matter referred to below.
Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 (“TCJA”) amendments to Internal Revenue Code Section 174 will no longer permit an immediate deduction for R&D expenditures in the tax year that such costs are incurred. For expenses that are incurred for R&D in the U.S., such amounts will be amortized over five years (this is currently approximately 90 % of the Company’s relevant spend), and expenses that are incurred for R&D expenditures outside the U.S. will be amortized over 15 years. The Company’s effective tax rate for the three and nine months ended December 31, 2022 was impacted accordingly.
The Company assesses the realizability of its deferred tax assets at each balance sheet date based on available positive and negative evidence in order to determine the amount which is more likely than not to be realized, and records a valuation allowance as necessary. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis. Factors reviewed include projections of pre-tax book income for the foreseeable future, determination of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting. Future factors may arise at subsequent balance sheet dates that would impact the assessment of the objective and subjective evidence of the Company. Any adjustment to the deferred tax asset valuation allowance would be recorded in the consolidated statement of operations and comprehensive loss for the period that the adjustment is determined to be required.
23
Note 7—Share-Based Compensation
The Company has two share-based compensation plans, the Myovant Sciences Ltd. 2016 Equity Incentive Plan (“Equity Incentive Plan”) and the Myovant Sciences Ltd. 2020 Inducement Plan (“Inducement Plan”) (collectively, the “Equity Plans”). As of December 31, 2022, there were approximately 2.7 million and 0.2 million common shares available for future issuance under the Equity Incentive Plan and the Inducement Plan, respectively. For additional information about the Company’s Equity Plans, see Note 10, “Share-Based Compensation,” to the Company’s audited consolidated financial statements included in its Annual Report for the fiscal year ended March 31, 2022, filed with the SEC on May 11, 2022.
(A) Stock Options
Activity for stock options for the nine months ended December 31, 2022 is included in the following table:
Number of Options | |||||
Options outstanding at March 31, 2022 | |||||
Granted | |||||
Exercised | ( | ||||
Forfeited | ( | ||||
Options outstanding at December 31, 2022 | |||||