Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
  
FORM 10-Q
 
 
(Mark One)
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2018
 or
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to            
Commission file number 001-37929
 
Myovant Sciences Ltd.
(Exact name of registrant as specified in its charter)
 
Bermuda
 
98-1343578

(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
Suite 1, 3rd Floor
11-12 St. James’s Square
London
SW1Y 4LB
United Kingdom

 
Not Applicable
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: +44 203 318 9709


(former name, former address and former fiscal year, if changed since last report)
 
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  ý  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  ý   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.
Large accelerated filer
o
Accelerated filer
ý
Non-accelerated filer
o
Smaller reporting company
o
 
 
Emerging growth company
ý




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. ý

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o   No  ý
 The number of shares outstanding of the Registrant’s common shares, $0.000017727 par value per share, on February 1, 2019, was 70,812,541.





MYOVANT SCIENCES LTD.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2018
 
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 


3



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, 2018
 
March 31, 2018
Assets
 


 

Current assets:
 


 

Cash and cash equivalents
$
183,003


$
108,624

Prepaid expenses and other current assets
12,396


5,139

Income tax receivable
767


1,000

Total current assets
196,166


114,763

 
 
 
 
Property and equipment, net
1,693


1,273

Other assets
3,811


3,065

Total assets
$
201,670


$
119,101

 
 
 
 
Liabilities and Shareholders’ Equity
 


 

Current liabilities:
 


 

Accounts payable
$
5,471


$
4,578

Interest payable
429

 
282

Accrued expenses
48,388


30,265

Due to RSL, RSI and RSG
66


1,960

Current maturities of long-term debt
1,520

 

Total current liabilities
55,874


37,085

 
 
 
 
Deferred rent
1,132


408

Deferred interest payable
773


255

Long-term debt, less current maturities
97,156

 
43,624

Total liabilities
154,935


81,372

Commitments and contingencies (Note 10)


 


 
 
 
 
Shareholders’ equity:
 

 
 

Common shares, par value $0.000017727 per share, 564,111,242 shares authorized, 70,801,521 and 60,997,856 issued and outstanding common shares at December 31, 2018 and March 31, 2018, respectively
1

 
1

Additional paid-in capital
473,518

 
266,178

Accumulated other comprehensive income
227

 
24

Accumulated deficit
(427,011
)
 
(228,474
)
Total shareholders’ equity
46,735


37,729

Total liabilities and shareholders’ equity
$
201,670


$
119,101


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4



MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Operations
(unaudited; in thousands, except share and per share data)

 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 

 
 
 
 
Operating expenses:



 

 
 
 
 
Research and development(1)
$
58,434


$
34,875

 
$
163,588

 
$
76,753

General and administrative(2)
10,686


6,640

 
29,738

 
16,963

Total operating expenses
69,120


41,515

 
193,326

 
93,716


 

 
 

 
 
 
 
Interest expense, net
1,634

 
904

 
4,831

 
904

Other (income) expense, net
(121
)

(429
)
 
147

 
(225
)
Loss before income taxes
(70,633
)

(41,990
)
 
(198,304
)
 
(94,395
)
Income tax (benefit) expense


(213
)
 
233

 
607

Net loss
$
(70,633
)

$
(41,777
)
 
$
(198,537
)
 
$
(95,002
)
Net loss per common share — basic and diluted
$
(1.04
)

$
(0.70
)
 
$
(3.01
)
 
$
(1.60
)
Weighted average common shares outstanding — basic and diluted
67,616,419


59,629,486

 
65,873,779

 
59,446,140

 
(1) Includes $41 and $1,958 of costs allocated from RSL, RSI, and RSG during the three months ended December 31, 2018 and 2017, respectively, and $2,524 and $3,061 of costs allocated from RSL, RSI, and RSG during the nine months ended December 31, 2018 and 2017, respectively. Also includes share-based compensation expense (see Note 9).
(2) Includes $470 and $1,183 of costs allocated from RSL, RSI, and RSG during the three months ended December 31, 2018 and 2017, respectively, and $2,644 and $2,692 of costs allocated from RSL, RSI, and RSG during the nine months ended December 31, 2018 and 2017, respectively. Also includes share-based compensation expense (see Note 9).

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


5



MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited; in thousands)

 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net loss
$
(70,633
)
 
$
(41,777
)
 
$
(198,537
)
 
$
(95,002
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(150
)
 
(379
)
 
203

 
(231
)
Total other comprehensive (loss) income
(150
)
 
(379
)
 
203

 
(231
)
 
 
 
 
 
 
 
 
Comprehensive loss
$
(70,783
)
 
$
(42,156
)
 
$
(198,334
)
 
$
(95,233
)


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


6


MYOVANT SCIENCES LTD.
Condensed Consolidated Statement of Shareholders’ Equity
(unaudited; in thousands, except share data)
 
Common Shares
 
Additional Paid
in Capital
 
Accumulated Other Comprehensive Income
 
Accumulated
Deficit
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
 
 
 
Balance at March 31, 2018
60,997,856

 
$
1

 
$
266,178

 
$
24

 
$
(228,474
)
 
$
37,729

Issuance of shares in connection with “at-the-market” equity offering, net of commissions and offering costs of $2.1 million
2,767,129

 

 
57,315

 

 

 
57,315

Issuance of shares in connection with Private Placement with RSL
1,110,015

 

 
22,500

 

 

 
22,500

Share-based compensation expense

 

 
4,053

 

 

 
4,053

Capital contribution — share-based compensation

 

 
191

 

 

 
191

Foreign currency translation adjustment

 

 

 
425

 

 
425

Issuance of shares upon exercise of stock options
16,218

 

 
76

 

 

 
76

Net loss

 

 

 

 
(62,134
)
 
(62,134
)
Balance at June 30, 2018
64,891,218

 
1

 
350,313

 
449

 
(290,608
)
 
60,155

Share-based compensation expense

 

 
4,529

 

 

 
4,529

Capital contribution — share-based compensation

 

 
196

 

 

 
196

Capital contribution from RSI and RSG

 

 
212

 

 

 
212

Foreign currency translation adjustment

 

 

 
(72
)
 

 
(72
)
Issuance of shares in secondary public equity offering, net of commissions and offering costs of $5.1 million
3,533,399

 

 
74,391

 

 

 
74,391

Issuance of shares upon exercise of stock options and vesting of RSUs
60,271

 

 
460

 

 

 
460

Net loss

 

 

 

 
(65,770
)
 
(65,770
)
Balance at September 30, 2018
68,484,888

 
1

 
430,101

 
377

 
(356,378
)
 
74,101

Share-based compensation expense

 

 
4,669

 

 

 
4,669

Capital contribution — share-based compensation

 

 
125

 

 

 
125

Capital contribution from RSI and RSG

 

 
384

 

 

 
384

Foreign currency translation adjustment

 

 

 
(150
)
 

 
(150
)
Shares issued to NovaQuest, net of issuance costs
2,286,284

 

 
37,982

 

 

 
37,982

Issuance of shares upon exercise of stock options and vesting of RSUs
30,349

 

 
257

 

 

 
257

Net loss

 

 

 

 
(70,633
)
 
(70,633
)
Balance at December 31, 2018
70,801,521

 
$
1

 
$
473,518

 
$
227

 
$
(427,011
)
 
$
46,735

 

7


 
Common Shares
 
Common
Shares
Subscribed
 
Additional Paid
in Capital
 
Accumulated Other Comprehensive Income
 
Accumulated
Deficit
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
 
 
 
 
Balance at March 31, 2017
60,275,757

 
$
1

 
$
(1
)
 
$
251,733

 
$
140

 
$
(85,097
)
 
$
166,776

Adjustment to adopt ASU 2016-09

 

 

 
122

 

 
(122
)
 

Shares issued to settle the warrant liability to Takeda
4,432

 

 

 
58

 

 

 
58

Share-based compensation expense
564,111

 

 

 
1,954

 

 

 
1,954

Capital contribution — share-based compensation

 

 

 
247

 

 

 
247

Foreign currency translation adjustment

 

 

 

 
264

 

 
264

Net loss

 

 

 

 

 
(23,317
)
 
(23,317
)
Balance at June 30, 2017
60,844,300

 
1

 
(1
)
 
254,114

 
404

 
(108,536
)
 
145,982

Share-based compensation expense

 

 

 
2,519

 

 

 
2,519

Capital contribution — share-based compensation

 

 

 
230

 

 

 
230

Foreign currency translation adjustment

 

 

 

 
(116
)
 

 
(116
)
Issuance of shares upon exercise of stock options
4,936

 

 

 
12

 

 

 
12

Net loss

 

 

 

 

 
(29,908
)
 
(29,908
)
Balance at September 30, 2017
60,849,236

 
1

 
(1
)
 
256,875

 
288

 
(138,444
)
 
118,719

Share-based compensation expense

 

 

 
3,046

 

 

 
3,046

Capital contribution — share-based compensation

 

 

 
247

 

 

 
247

Foreign currency translation adjustment

 

 

 

 
(379
)
 

 
(379
)
Issuance of shares upon exercise of stock options
1,798

 

 

 
4

 

 

 
4

Shares issued to NovaQuest, net of issuance costs of $0.1 million
138,361

 

 

 
1,857

 

 

 
1,857

Warrants issued with debt financing

 

 

 
481

 

 

 
481

Net loss

 

 

 

 

 
(41,777
)
 
(41,777
)
Balance at December 31, 2017
60,989,395

 
$
1

 
$
(1
)
 
$
262,510

 
$
(91
)
 
$
(180,221
)
 
$
82,198


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8



MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Cash Flows
(unaudited; in thousands)
 
 
Nine Months Ended December 31,
 
2018
 
2017
Cash flows from operating activities:
 

 
 
Net loss
$
(198,537
)
 
$
(95,002
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 
Share-based compensation
13,763

 
8,243

Depreciation
298

 
167

Amortization of debt discount and issuance costs
1,378

 
390

Foreign currency translation adjustment
203

 
(231
)
Other
596

 

Changes in operating assets and liabilities:
 

 
 
Prepaid expenses and other current assets
(7,235
)
 
(2,058
)
Deferred tax assets

 
208

Income tax receivable
233

 
(502
)
Other assets
(146
)
 
(2,098
)
Accounts payable
893

 
(1,238
)
Interest payable
147

 

Accrued expenses
18,079

 
8,838

Due to RSL, RSI and RSG
(1,894
)
 
653

Deferred rent
724

 
259

Deferred interest payable
518

 
105

Net cash used in operating activities
(170,980
)
 
(82,266
)
Cash flows from investing activities:
 

 
 
Purchase of property and equipment
(718
)
 
(375
)
Net cash used in investing activities
(718
)
 
(375
)
Cash flows from financing activities:
 

 
 
Cash proceeds from issuance of common shares in secondary public equity offering, net of issuance costs paid
74,391

 

Cash proceeds from issuance of common shares in “at-the-market” equity offering, net of issuance costs paid
57,315

 

Cash proceeds from issuance of common shares in Private Placement with RSL
22,500

 

Cash proceeds from debt financings, net of financing costs paid
54,000

 
28,803

Cash proceeds from issuance of common shares to NovaQuest, net of issuance costs paid
38,000

 
1,857

Cash proceeds from stock option exercises
771

 
16

Cash paid to NovaQuest for annual debt administration fee
(300
)
 

Net cash provided by financing activities
246,677

 
30,676

Net change in cash, cash equivalents and restricted cash
74,979

 
(51,965
)
Cash, cash equivalents and restricted cash, beginning of period
108,624

 
180,838

Cash, cash equivalents and restricted cash, end of period
$
183,603

 
$
128,873

Non-cash financing activities:
 

 
 
Stock options exercised receivables, included in prepaid expenses and other current assets
$
(22
)
 
$

Deferred financing costs included in accrued expenses
$
26

 
$
137

Offering costs included in accrued expenses
$
18

 
$

Warrant issued to Hercules
$

 
$
481


9




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—Description of Business
Myovant Sciences Ltd. (or together with its wholly owned subsidiaries, the Company) is a clinical-stage biopharmaceutical company focused on developing and commercializing innovative therapies for women’s health and endocrine diseases. The Company is developing relugolix in combination with low-dose estradiol and a progestin for the treatment of heavy menstrual bleeding associated with uterine fibroids and for pain associated with endometriosis, relugolix as monotherapy at a higher dose for advanced prostate cancer, and an additional product candidate, MVT-602, an oligopeptide kisspeptin-1 receptor agonist, for the treatment of female infertility as part of assisted reproduction. Both relugolix and MVT-602 were licensed to the Company by Takeda Pharmaceuticals International AG, or Takeda, on April 29, 2016.
Since its inception, the Company has devoted substantially all of its efforts to organizing and staffing the Company, raising capital, identifying and in-licensing its product candidates, preparing for and advancing the clinical development of its product candidates, and preparing for the potential future regulatory approvals and commercialization of relugolix.
The Company has incurred, and expects to continue to incur, significant operating losses and negative cash flows as it continues to develop its product candidates and prepares for the potential future regulatory approvals and commercialization of relugolix. To date, the Company has not generated any revenue, and it does not expect to generate revenue unless and until it successfully completes development and obtains regulatory approval for one of its product candidates. See Note 2, “Summary of Significant Accounting Policies—Going Concern and Management’s Plans.”

Note 2—Summary of Significant Accounting Policies
(A) Basis of Presentation
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 operating and reporting segment as it allocates resources and assesses financial performance on a consolidated basis.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States, or U.S., generally accepted accounting principles, or 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. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018, filed with the U.S. Securities and Exchange Commission, or the SEC, on June 7, 2018. The unaudited consolidated balance sheet at March 31, 2018 has been derived from the audited consolidated financial statements at that date. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented have been included. Operating results for the three and nine months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2019, for any other interim period or for any other future year.
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, or ASC, and Accounting Standards Update, or ASU, issued by the Financial Accounting Standards Board, or FASB. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K for the fiscal year ended March 31, 2018, filed with the SEC on June 7, 2018.
(B) Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets, liabilities, costs, and expenses, including the evaluation of the Company’s ability to continue as a going concern, compensation and other expenses allocated to the Company under its services agreements with Roivant Sciences, Inc., or RSI, and Roivant Sciences GmbH, or RSG, each a wholly owned subsidiary of the Company’s controlling shareholder,

11



Roivant Sciences Ltd., or RSL, as well as share-based compensation expenses, research and development, or R&D, expenses, and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses incurred during the reporting period, that are not readily apparent from other sources. Actual results could differ from those estimates.
(C) Going Concern and Management’s Plans
The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements are issued. During the nine months ended December 31, 2018, the Company incurred net losses of $198.5 million and used $171.0 million of cash and cash equivalents in operations. The Company expects to continue to incur significant and increasing operating losses and negative cash flows as it continues to develop its product candidates and prepares for the potential future regulatory approvals and commercialization of relugolix. The Company has not generated any revenue to date and does not expect to generate product revenue unless and until it successfully completes development and obtains regulatory approval for one of its product candidates. Based on its current operating plan, the Company expects that its existing cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements through at least the first quarter of its fiscal year ending March 31, 2020, and to enable it to announce top-line data from the first Phase 3 clinical trial for one of its women’s health clinical programs. This estimate is based on the Company’s current assumptions, including assumptions relating to its ability to manage its spend, that might prove to be wrong, and it could use its available capital resources sooner than it currently expects. These funds will not be sufficient to enable the Company to complete all necessary development activities and commercially launch relugolix. The Company anticipates that it will continue to incur net losses for the foreseeable future.
To continue as a going concern, the Company will need, among other things, additional capital resources. The Company continually assesses multiple options to obtain additional funding to support its operations, including through financing activities in public or private capital markets, financing arrangements with Roivant Sciences, potential business development activities and cost containment measures. Management can provide no assurances that any sources of a sufficient amount of financing will be available to the Company on favorable terms, if at all. Although the Company believes that it will continue to raise capital to fund its operations as it has in the past, ASC 240-40, Going Concern, does not allow the Company to consider future financing activities in its assessment of the Company’s future cash burn for the purpose of its liquidity assessment.
These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period following the date that these unaudited condensed consolidated financial statements were issued. The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared on the basis that the Company will continue as a going concern, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
(D) Net Loss per Common Share
Basic net loss per common share is computed by dividing net loss applicable to common shareholders by the weighted-average number of common shares outstanding during the period, reduced, where applicable, for outstanding yet unvested shares of restricted common stock. The computation of diluted net loss per common share is based on the weighted-average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, restricted share units, restricted share awards, and warrants. In periods in which the Company reports a net loss, all common share equivalents are deemed anti-dilutive such that basic net loss per common share and diluted net loss per common share are equal. Potentially dilutive common shares have been excluded from the diluted net loss per common share computations in all periods presented because such securities have an anti-dilutive effect on net loss per common share due to the Company’s net loss. There are no reconciling items used to calculate the weighted-average number of total common shares outstanding for basic and diluted net loss per common share data.
At December 31, 2018 and 2017, potentially dilutive securities were as follows:
  

12




 
December 31,
 
2018
 
2017
Options
5,351,908

 
3,409,366

Restricted share awards (unvested)
987,193

 
1,269,249

Restricted stock units (unvested)
40,325

 
15,000

Warrants
73,710

 
49,800

Total
6,453,136

 
4,743,415

(E) 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. The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains cash deposits and cash equivalents in highly-rated, federally-insured financial institutions in excess of federally insured limits. The Company has established guidelines relative to diversification and maturities to maintain safety and liquidity. The Company has not experienced any credit losses related to these financial instruments and does not believe that it is exposed to any significant credit risk related to these instruments.
Restricted cash consists of legally restricted deposits held as compensating balances against the Company’s corporate credit card program. This amount will remain deposited with the bank for the duration of the corporate credit card program as the agreements require the Company to maintain compensating balances against its corporate credit card program. Cash as reported in the unaudited condensed consolidated statements of cash flows includes the aggregate amounts of cash, cash equivalents, and restricted cash as presented on the unaudited condensed consolidated balance sheets. Cash as reported in the unaudited condensed consolidated statements of cash flows consists of (in thousands):
 
December 31, 2018
 
December 31, 2017
Cash and cash equivalents
$
183,003

 
$
128,873

Restricted cash(1)
600

 

Total cash, cash equivalents and restricted cash
$
183,603

 
$
128,873

(1) Included in other assets on the unaudited condensed consolidated balance sheets.
(F) Fair Value Measurements
The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy for financial instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.
Fair value is defined as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a three-tier fair value hierarchy that distinguishes among the following:
Level 1-Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2-Valuations are based on 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 and models for which all significant inputs are observable, either directly or indirectly.
Level 3-Valuations are based on inputs that are unobservable (supported by little or no market activity) and significant to the overall fair value measurement.

13



To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company’s financial instruments include cash, cash equivalents consisting of money market funds, accounts payable and debt. Cash, cash equivalents, and accounts payable are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature. The carrying value of the Company’s debt approximates fair value based on current interest rates for similar types of borrowings and is included in Level 2 of the fair value hierarchy.
(G) Recently Adopted Accounting Standards
In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” or ASU No. 2018-05. ASU No. 2018-05, which amends certain SEC material in Topic 740 for the income tax accounting implications of the Tax Cuts and Jobs Act and was effective immediately. The adoption of ASU No. 2018-05 did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” ASU 2016-18 requires that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown in the statements of cash flows. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017 and is required to be adopted using a retrospective approach, if applicable, with early adoption permitted. The Company adopted ASU 2016-18 on April 1, 2018. The adoption of ASU 2016-18 did not have a material impact on the Company’s consolidated financial statements and related disclosures.
(H) Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” or ASU No. 2016-02, which is a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The core principle of ASU No. 2016-02 will require lessees to present the assets and liabilities that arise from leases on their balance sheets. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company plans to adopt this standard as of April 1, 2019. The Company has implemented a process to identify its outstanding lease portfolio and is currently evaluating its outstanding leases to determine the impact the new standard will have on its consolidated financial statements. The Company expects that the adoption of this standard will result in the recognition of an asset for the right to use a leased facility on the Company’s consolidated balance sheet, as well as the recognition of a liability for the lease payments remaining on the lease. While the consolidated balance sheet presentation is expected to change, the Company does not expect a material change to the consolidated statements of operations and comprehensive loss or cash flows.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” or ASU No. 2018-02. ASU No. 2018-02 allows companies to reclassify stranded tax effects resulting from the newly enacted federal corporate income tax rate under the Tax Cuts and Jobs Act, from accumulated other comprehensive (loss) income to retained earnings. ASU No. 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the new standard and its impact on the Company’s consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” or ASU No. 2018-07. ASU No. 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU No. 2018-07 is effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the new standard and its impact on the Company’s consolidated financial statements and related disclosures.


Note 3—Fair Value Measurements
At December 31, 2018, assets measured at fair value consisted of money market funds, which are included in cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheet. There were no assets measured at fair value at December 31, 2017. The following table summarizes these assets (in thousands):

14



 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 

 
 
 
 
Money market funds
$
65,328

 
$

 
$

 
$
65,328

Total assets
$
65,328

 
$

 
$

 
$
65,328


Money market funds are included in Level 1 of the fair value hierarchy and are valued at the closing price reported by an actively traded exchange.

Note 4—Accrued Expenses
As of December 31, 2018, and March 31, 2018, accrued expenses consisted of the following (in thousands):
 
December 31, 2018
 
March 31, 2018
 
 
 
 
Accrued R&D expenses
$
42,607

 
$
25,988

Accrued compensation-related expenses
3,925

 
2,792

Accrued professional fees
417

 
566

Accrued other expenses
1,439

 
919

Total accrued expenses
$
48,388

 
$
30,265



15



Note 5—Financing Arrangements
(A) NovaQuest
In October 2017, the Company, and its subsidiaries, as guarantors, and NovaQuest Capital Management, or NovaQuest, entered into (i) a Securities Purchase Agreement, or the NovaQuest Securities Purchase Agreement, and (ii) an Equity Purchase Agreement, or the NovaQuest Equity Purchase Agreement. Pursuant to the NovaQuest Securities Purchase Agreement, the Company had the option, at its discretion, to issue up to $60.0 million aggregate principal amount of notes to NovaQuest and concurrent with each purchase of notes, NovaQuest was obligated to purchase up to $20.0 million of the Company’s common shares on a pro rata basis, subject to certain terms and conditions, through December 31, 2018. The equity purchase price for each such purchase would be equal to 105% of the average of the volume-weighted average price for the five consecutive trading days immediately prior to the relevant purchase date. The Company committed that it would issue at least $30.0 million aggregate principal amount of notes through December 31, 2018, subject to certain terms and conditions. The Company issued $6.0 million aggregate principal amount in October 2017 and $54.0 million aggregate principal amount in December 2018. With the issuance of $6.0 million aggregate principal amount of notes in October 2017, NovaQuest also purchased 138,361 common shares for $2.0 million in accordance with the terms of the NovaQuest Securities Purchase Agreement, and with the issuance of $54.0 million aggregate principal amount of notes in December 2018, NovaQuest also purchased 1,082,977 common shares for $18.0 million in accordance with the terms of the NovaQuest Securities Purchase Agreement.
The notes bear interest at a rate of 15% per annum, of which 5% is payable quarterly, and 10% is payable on a deferred basis on the earlier of the Amortization Date (as defined below) and the repayment in full of the notes. The notes mature on October 16, 2023. The Company will be required to amortize the principal amount of the notes in equal quarterly installments commencing on November 1, 2020, subject to extension at the option of the Company to November 1, 2021, or the Amortization Date, provided certain terms and conditions are met as set forth in the NovaQuest Securities Purchase Agreement. Early redemption of the notes is subject to a redemption charge. The Company’s obligations under the NovaQuest Securities Purchase Agreement are secured by a second-lien security interest in substantially all of the Company’s and its subsidiaries’ respective assets, other than intellectual property. The NovaQuest Securities Purchase Agreement includes customary affirmative and restrictive covenants and representations and warranties, including a minimum cash covenant that applies commencing on the Amortization Date, and also includes customary events of default. Upon the occurrence of an event of default, a default interest rate of an additional 5% may be applied to the outstanding note balance and NovaQuest may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the NovaQuest Securities Purchase Agreement.
Pursuant to the NovaQuest Equity Purchase Agreement, NovaQuest committed to purchase up to an additional $20.0 million of the Company’s common shares from time to time at the Company’s discretion through December 31, 2018, with an option to extend the commitment through December 31, 2019, subject to certain terms and conditions as set forth in the NovaQuest Equity Purchase Agreement. The Company committed that it would exercise its option to sell and issue a minimum of $10.0 million of its common shares under the NovaQuest Equity Purchase Agreement through December 31, 2018, subject to certain terms and conditions. The purchase price for the common shares issued pursuant to the NovaQuest Equity Purchase Agreement would be equal to 105% of the average of the volume-weighted average price for the five consecutive trading days immediately prior to the relevant purchase date. In December 2018, the Company exercised this option and issued and sold 1,203,307 common shares for $20.0 million in accordance with the terms of the NovaQuest Equity Purchase Agreement.
The Company incurred financing costs related to the NovaQuest Securities Purchase Agreement of $1.0 million which are recorded as an offset to long-term debt on the Company’s unaudited condensed consolidated balance sheets. These deferred financing costs are being amortized over the term of the debt using the effective interest method, and are included in interest expense, net in the Company’s unaudited condensed consolidated statements of operations. During the three and nine months ended December 31, 2018, interest expense, net included $0.1 million and $0.3 million of amortized deferred financing costs related to the NovaQuest notes. During the three and nine months ended December 31, 2017, interest expense, net included $0.1 million of amortized deferred financing costs related to the NovaQuest notes. During the three months ended December 31, 2018, the Company paid NovaQuest an annual debt administration fee of $0.3 million.
Outstanding debt obligations to NovaQuest are as follows (in thousands):
 
 
December 31, 2018
 
March 31, 2018
 
 
 
 
 
Principal amount
 
$
60,000

 
$
6,000

Less: unamortized debt issuance costs
 
(891
)
 
(854
)
Loan payables less unamortized debt issuance costs
 
59,109

 
5,146

Less: current maturities
 

 

Long-term debt, net of current maturities and unamortized debt issuance costs
 
$
59,109

 
$
5,146


16



(B) Hercules
In October 2017, the Company, and its subsidiaries, as guarantors, and Hercules Capital, Inc., or Hercules, entered into a Loan Agreement, or the Hercules Loan Agreement, which provided up to $40.0 million principal amount of term loans, or the Term Loans. A first tranche of $25.0 million principal amount was funded upon execution of the Hercules Loan Agreement in October 2017 and the remaining $15.0 million principal amount was funded in March 2018. The Term Loans bear interest at a variable per annum rate at the greater of (i) the prime rate plus 4.00% and (ii) 8.25%. The interest rate on the Term Loans was 9.50% at December 31, 2018. Pursuant to the terms of the Hercules Loan Agreement, the Term Loan Maturity Date has been extended from May 1, 2021 to November 1, 2021 as a result of the achievement of a financing milestone in July 2018. The Company is obligated to make monthly payments of accrued interest until June 1, 2019, or the Interest-only Period, subject to certain terms and conditions, followed by monthly installments of principal and interest through the maturity date. The Interest-only Period has been extended to December 1, 2019 as a result of the achievement of a financing milestone during July 2018. The Interest-only Period may be further extended until June 1, 2020 if a certain clinical milestone is met, as specified in the Hercules Loan Agreement. Prepayment of the Term Loan is subject to a prepayment charge. The Company is also obligated to pay an end of term charge of 6.55% of the principal amount of the Term Loans funded under the Hercules Loan Agreement, on the earlier of the maturity date or the date that the Term Loans otherwise become due and payable. The Company’s obligations under the Hercules Loan Agreement are secured by a first lien security interest in substantially all of the Company’s and its subsidiaries’ respective assets, other than intellectual property. The Hercules Loan Agreement includes customary affirmative and restrictive covenants and representations and warranties, including a minimum cash covenant that ceases to apply if the Company achieves certain clinical development and financing milestones as set forth in the Hercules Loan Agreement. The Hercules Loan Agreement also includes customary events of default. Upon the occurrence of an event of default, a default interest rate of an additional 5.00% may be applied to the outstanding principal balance, and Hercules may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Hercules Loan Agreement.
Concurrent with each funding of the Term Loans, the Company was required to issue to Hercules a warrant, or the Warrants, to purchase a number of its common shares equal to 3.00% of the principal amount of the relevant Term Loan funded divided by the exercise price, which is based on the lowest three-day volume-weighted average price for the three consecutive trading days prior to the funding date for such Term Loan. The Warrants may be exercised on a cashless basis, and are immediately exercisable through the seventh anniversary of the applicable funding date. In connection with the first tranche funded under the Hercules Loan Agreement, the Company issued a Warrant to Hercules exercisable for an aggregate of 49,800 of its common shares at an exercise price of $15.06 per common share. Concurrent with the funding of the second tranche, the Company issued a Warrant to Hercules exercisable for an aggregate of 23,910 of its common shares at an exercise price of $18.82 per common share. The Company accounted for the Warrants as equity instruments since they were indexed to the Company’s common shares and met the criteria for classification in shareholders’ equity (deficit). The relative fair value of the Warrants related to the first and second tranche funding were approximately $0.5 million and $0.3 million, respectively, and were treated as a discount to the Term Loans. This amount is being amortized to interest expense, net using the effective interest method over the life of the Term Loans. The Company estimated the fair value of the Warrants using the Black-Scholes model based on the following key assumptions:
 
 
Tranche 1
 
Tranche 2
 
 
 
 
 
Exercise price
 
$15.06
 
$18.82
Common share price on date of issuance
 
$14.39
 
$18.96
Volatility
 
73.2%
 
72.3%
Risk-free interest rate
 
2.15%
 
2.78%
Expected dividend yield
 
—%
 
—%
Contractual term (in years)
 
7.00
 
7.00

The Company issued the first tranche of the Term Loans at a discount of $2.1 million, including the relative fair value of the related Warrant, and incurred financing costs of $1.3 million relating to the Hercules Loan Agreement which are recorded as an offset to long-term debt on the Company’s unaudited condensed consolidated balance sheets. The second tranche of the Term Loans was issued at a discount of $1.3 million, including the relative fair value of the related Warrant. The debt discount and deferred financing costs are being amortized over the term of the debt using the effective interest method, and are included in interest expense, net in the Company’s unaudited condensed consolidated statements of operations. During the three and nine months ended December 31, 2018, interest expense, net included $0.3 million and $1.0 million of amortized debt discount and issuance costs related to the Term Loans. During the three and nine ended December 31, 2017, interest expense, net included $0.3 million of amortized debt discount and issuance costs related to the Term Loans.

17



Outstanding debt obligations to Hercules are as follows (in thousands):
 
 
December 31, 2018
 
March 31, 2018
 
 
 
 
 
Principal amount
 
$
40,000

 
$
40,000

End of term charge
 
2,620

 
2,620

Less: unamortized debt discount and issuance costs
 
(3,053
)
 
(4,142
)
Loan payables less unamortized debt discount and issuance costs
 
39,567

 
38,478

Less: current maturities
 
(1,520
)
 

Long-term debt, net of current maturities and unamortized debt discount and issuance costs
 
$
38,047

 
$
38,478


Note 6—Related Party Transactions
(A) Services Agreements
In July 2016, the Company entered into a services agreement with RSI, effective April 29, 2016, under which RSI agreed to provide certain administrative and R&D services to the Company. Under this services agreement, the Company pays or reimburses RSI for expenses it, or third parties acting on its behalf, incurs for the Company. For any general and administrative, or G&A, and R&D activities performed by RSI employees, RSI charges the Company based upon the relative percentage of time utilized on Company matters by the respective employee. All other third-party pass thru costs are billed to the Company at cost. The accompanying unaudited condensed consolidated financial statements include third-party expenses incurred on behalf of the Company that have been paid by RSI and RSL.
In February 2017, the Company and MSI amended and restated the services agreement, effective as of November 11, 2016, to include Myovant Sciences GmbH, or MSG, as a services recipient. In addition, in February 2017, MSG entered into a separate services agreement with RSG, effective as of November 11, 2016, for the provisioning of services by RSG to MSG in relation to services related to clinical development, administrative and finance and accounting activities. The Company refers to the amended and restated services agreement with RSI and the services agreement with RSG, collectively, as the Services Agreements.
Under the Services Agreements, for the three months ended December 31, 2018 and 2017, the Company incurred expenses (inclusive of third party pass thru costs billed to the Company) of $0.4 million and $2.9 million, respectively, inclusive of the mark-up. Under the Services Agreements, for the nine months ended December 31, 2018 and 2017, the Company incurred expenses (inclusive of third party pass thru costs billed to the Company) of $4.6 million and $5.0 million, respectively, inclusive of the mark-up. These amounts are included in R&D expenses and G&A expenses based upon the nature of the service performed under the Services Agreements.
(B) Share-Based Compensation Expense Allocated to the Company by RSL
Share-based compensation expense has been and will continue to be allocated to the Company by RSL over the requisite service period over which RSL common share awards and RSL options are expected to vest and based upon the relative percentage of time utilized by RSL, RSI and RSG employees on Company matters.
In relation to the RSL common share awards and options issued by RSL to RSL, RSI, RSG, and the Company’s employees, the Company recorded share-based compensation expense of $0.1 million and $0.2 million, respectively, for the three months ended December 31, 2018 and 2017 and $0.5 million and $0.7 million, respectively, for the nine months ended December 31, 2018 and 2017. Refer to Note 9 for further details.
(C) Private Placement with RSL
See Note 8(B) for information regarding the Private Placement with RSL.
Note 7—Income Taxes
The Company is not subject to taxation under the laws of Bermuda since it was organized as a Bermuda Exempted Limited Company, for which there is no current tax regime. The Company’s provision (benefit) for income taxes is primarily based on income taxes in the U.S. for federal, state and local taxes. The Company’s effective tax rate for the three months ended December 31, 2018 and 2017 was 0.00% and 0.51%, respectively. The Company’s effective tax rate for the nine months ended December 31, 2018 and 2017 was (0.12)% and (0.64)%, respectively. The effective tax rate is driven by the Company’s jurisdictional earnings by location and a valuation allowance that eliminates the Company’s global net deferred tax assets.

18



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.
On December 22, 2017, the Tax Cuts and Jobs Act, or the Act, was enacted, which introduced a comprehensive set of tax reform in the U.S. The Act revises the U.S. corporate income tax by, among other things, lowering the corporate income tax rate from a top marginal tax rate of 35% to a flat tax rate of 21%, adopting a quasi-territorial income tax system and imposing a one-time transition tax on foreign unremitted earnings, and setting limitations on deductibility of certain costs (e.g., interest expense).
The Act did not have a material impact on the Company’s consolidated financial statements since its global net deferred tax assets are fully offset by a valuation allowance and the Company does not have any off-shore earnings from which to record the mandatory transition tax. As a result of finalizing the Company’s fiscal 2018 operating results, the issuance of new interpretive guidance, and other analyses performed, the Company finalized its accounting related to the impacts of the Act and recorded immaterial measurement period adjustments in the period ended December 31, 2018.
Note 8—Shareholders’ Equity
(A) Underwritten Secondary Public Equity Offering of Common Stock
In July 2018, the Company completed an underwritten secondary public equity offering of 3,333,334 of its common shares at a public offering price of $22.50 per common share. Subsequently, in August 2018, the Company issued and sold an additional 200,065 common shares upon the partial exercise of the underwriters’ over-allotment option at a price of $22.50 per common share. After deducting the underwriting discounts and commissions and estimated offering costs payable by the Company, the net proceeds to the Company in connection with the underwritten secondary public equity offering, including the over-allotment option, were approximately $74.4 million.
(B) Private Placement with RSL
On April 2, 2018, the Company entered into a share purchase agreement, or the Purchase Agreement, with RSL, its controlling shareholder, pursuant to which the Company agreed to issue and sell to RSL 1,110,015 of its common shares at a purchase price of $20.27 per common share in a private placement, or the Private Placement. In April 2018, the Company received proceeds of $22.5 million from RSL at the closing of the Private Placement.
(C) At-the-Market Equity Offering Program
On April 2, 2018, the Company entered into a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, to sell its common shares having an aggregate offering price of up to $100.0 million from time to time through an “at-the-market” equity offering program under which Cowen acts as the Company’s agent. During the three and nine months ended December 31, 2018, the Company issued and sold none and 2,767,129, respectively, of its common shares under the Sales Agreement. The common shares were sold at a weighted-average price of $21.47 per common share for aggregate net proceeds to the Company of approximately $57.3 million, after deducting underwriting commissions and offering costs payable by the Company. The Company currently has approximately $40.6 million of capacity available under its “at-the-market” equity offering program. 
(D) Issuance of Equity Instruments to NovaQuest and Hercules
In October 2017, the Company issued and sold 138,361 common shares to NovaQuest for $2.0 million in accordance with the terms of the NovaQuest Securities Purchase Agreement. In December 2018, the Company issued and sold 1,082,977 common shares to NovaQuest for $18.0 million in accordance with the NovaQuest Securities Purchase Agreement and issued and sold 1,203,307 common shares to NovaQuest for $20.0 million in accordance with the NovaQuest Equity Purchase Agreement. In October 2017, the Company issued a Warrant to Hercules exercisable for 49,800 of its common shares at an exercise price of $15.06 per common share and in March 2018, the Company issued a Warrant to Hercules exercisable for an aggregate of 23,910 of its common shares at an exercise price of $18.82 per common share. Additional information is included in Note 5, “Financing Arrangements.”
(E) Takeda Warrant Liability
During the year ended March 31, 2018, the Company issued 4,432 common shares to Takeda pursuant to a warrant which expired on April 30, 2017.
Note 9—Share-Based Compensation
(A) Myovant 2016 Equity Incentive Plan
In June 2016, the Company adopted its 2016 Equity Incentive Plan, or as amended, the 2016 Plan, under which 4.5 million common shares were originally reserved for issuance. Pursuant to the “evergreen” provision contained in the 2016 Plan, the

19



number of common shares reserved for issuance under the 2016 Plan automatically increases on April 1 of each year, commencing on (and including) April 1, 2017 and ending on (and including) April 1, 2026, in an amount equal to 4% of the total number of shares of capital stock outstanding on March 31 of the preceding fiscal year, or a lesser number of shares as determined by the Company’s board of directors. On April 1, 2018, the number of common shares authorized for issuance increased automatically by 2.4 million shares in accordance with the evergreen provision of the 2016 Plan. At December 31, 2018, a total of 2.2 million common shares were available for future issuance under the 2016 Plan.
The Company’s employees, directors, officers and consultants are eligible to receive non-qualified and incentive stock options, stock appreciation rights, restricted share awards, restricted stock unit awards, and other share awards under the 2016 Plan.
(B) Stock Options
A summary of option activity under the Company’s 2016 Plan is as follows:
 
 
Number of Options
Options outstanding at March 31, 2018
 
3,549,405

Granted
 
2,097,210

Exercised
 
(102,463
)
Forfeited
 
(192,244
)
Options outstanding at December 31, 2018
 
5,351,908

Options vested and expected to vest at December 31, 2018
 
5,351,908

Options exercisable at December 31, 2018
 
1,392,679


(C) Restricted Share Awards and Restricted Stock Units
A summary of restricted share award and restricted stock unit activity under the Company’s 2016 Plan is as follows:
 
 
Number of Shares
Unvested balance at March 31, 2018
 
1,213,735

Granted
 
29,700

Vested
 
(215,917
)
Unvested balance at December 31, 2018
 
1,027,518

(D) Share-Based Compensation Expense
Share-based compensation expense was as follows (in thousands):
 
Three Months Ended December 31,
 
2018
 
2017
Share-based compensation expense recognized as:
 
 
 
R&D expenses
$
1,840

 
$
1,041

G&A expenses
2,954

 
2,252

Total
$
4,794

 
$
3,293

 
Nine Months Ended December 31,
 
2018
 
2017
Share-based compensation expense recognized as:
 
 
 
R&D expenses
$
5,247

 
$
2,580

G&A expenses
8,516

 
5,663

Total
$
13,763

 
$
8,243

Share-based compensation expense is included in R&D and G&A expenses in the accompanying unaudited condensed consolidated statements of operations consistent with the grantee’s salary. Share-based compensation expense presented in the table above includes share-based compensation expense allocated to the Company by RSL as described below in Note 9(E).
Of the total share-based compensation expense, amounts recognized for options granted to non-employees were immaterial for all periods presented.

20



Total unrecognized share-based compensation expense for awards granted pursuant to the 2016 Plan was approximately $48.6 million at December 31, 2018 and is expected to be recognized over a weighted-average period of approximately 2.98 years.
(E) Share-Based Compensation Expense for Related Parties:
(1) Stock Options Granted to RSI Employees:
During the three months ended December 31, 2018 and 2017, the Company recorded share-based compensation expense related to stock options granted to RSI employees of $17,745 and $7,293, respectively. During the nine months ended December 31, 2018 and 2017, the Company recorded share-based compensation expense related to stock options granted to RSI employees of $47,721 and $0.2 million, respectively. At December 31, 2018, total unrecognized compensation expense related to stock options granted to RSI employees was $0.1 million, which is expected to be recognized over a period of approximately 1.63 years. This share-based compensation expense is included in R&D and G&A expenses in the accompanying unaudited condensed consolidated statements of operations.
(2) Share-Based Compensation Expense Allocated to the Company by RSL:
In relation to the RSL common share awards and RSL options issued by RSL to RSL, RSI, RSG and the Company’s employees, the Company recorded share-based compensation expense of $0.1 million and $0.2 million, respectively, for the three months ended December 31, 2018 and 2017, and $0.5 million and $0.7 million, respectively, for the nine months ended December 31, 2018 and 2017.
The RSL common share awards and RSL options granted by RSL to RSL, RSI, RSG and the Company’s employees are valued by RSL at fair value on the date of grant and that fair value is recognized as share-based compensation expense over the requisite service period. Significant judgment and estimates were used by RSL to estimate the fair value of these awards and options, as they are not publicly traded. RSL common share awards and RSL options are subject to specified vesting schedules and requirements (a mix of time-based and performance-based events). The fair value is based on various corporate event-based considerations, including targets for RSL’s post-IPO market capitalization and future financing events). The fair value of each RSL option is estimated on the date of grant using the Black-Scholes closed-form option-pricing model.
Share-based compensation expense has been and will continue to be allocated to the Company over the requisite service period over which these RSL common share awards and RSL options are expected to vest and based upon the relative percentage of time utilized by RSL, RSI and RSG employees on Company matters.
(3) RSL RSUs:
The Company’s Principal Executive Officer was granted 66,845 RSL RSUs during the year ended March 31, 2017. These RSUs will vest to the extent certain RSL performance criteria are achieved and certain RSL liquidity conditions are satisfied within specified years of the grant date, provided that the Company’s Principal Executive Officer has provided continued service to RSL or its subsidiaries through such date. As of December 31, 2018, the performance conditions had not been met and were deemed not probable of being met. For the three and nine months ended December 31, 2018 and 2017, the Company recorded no share-based compensation expense related to these RSL RSUs. At December 31, 2018, there was $0.9 million of unrecognized compensation expense related to unvested RSL RSUs. The Company will recognize this share-based compensation expense upon achievement of the performance and market conditions through the requisite service period.
Note 10—Commitments and Contingencies
The Company has entered into commitments under its license agreement with Takeda, services agreements with RSI and RSG (See Note 6(A)), and financing agreements with NovaQuest and Hercules (See Note 5). In addition, the Company has entered into services agreements with third parties for pharmaceutical R&D and manufacturing activities and has a lease agreement for office space located in Brisbane, California. Expenditures to contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, represent significant costs in the Company’s clinical development of its product candidates. Subject to required notice periods and the Company’s obligations under binding purchase orders, the Company can elect to discontinue the work under these agreements at any time. The Company expects to enter into additional commitments as its business further develops.
The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company accrues for loss contingencies when available information indicates that it is probable that a liability has been incurred and the amount of such liability can be reasonably estimated. In the cases where the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the loss contingency, including an estimable range, if possible.
In May 2018, the Company entered into a Commercial Manufacturing and Supply Agreement with Takeda, or the Takeda Commercial Supply Agreement. Pursuant to the Takeda Commercial Supply Agreement, Takeda has agreed to supply the Company and the Company has agreed to obtain from Takeda certain quantities of relugolix drug substance according to agreed-upon quality specifications and in order to commercialize relugolix in accordance with the Takeda Agreement. Under

21



the Takeda Commercial Supply Agreement, the Company will pay Takeda a fixed price per kilogram of relugolix drug substance through December 31, 2019. The Company has made and Takeda has accepted an initial firm order to supply relugolix drug substance to the Company through December 31, 2019. For relugolix drug substance manufactured or delivered on or after such date, the Company will pay Takeda a price per kilogram of relugolix drug substance to be agreed upon between the parties at the beginning of each fiscal year.
In addition, under the Takeda Commercial Supply Agreement, Takeda has agreed to assist with the transfer of technology and Takeda manufacturing know-how to a second CMO of the Company’s subsidiary, Myovant Sciences GmbH. The Company has agreed to reimburse Takeda for all internal costs, and external costs, charges, and expenses, in each case, reasonably incurred by Takeda in connection with any technology transfer services.
The initial term of the Takeda Commercial Supply Agreement began on May 30, 2018 and will continue for five years. At the end of the initial term, the Takeda Commercial Supply Agreement automatically renews for successive one-year terms, unless either party gives notice of termination to the other at least 12 months prior to the end of the then-current term. The Takeda Commercial Supply Agreement may be terminated by either party upon 90 days’ notice of an uncured material breach of its terms by the other party, or immediately upon notice to the other party of a party’s bankruptcy. Each party will also have the right to terminate the Takeda Commercial Supply Agreement, in whole or in part, for any reason upon 180 days’ prior written notice to the other party, provided that any then-open purchase orders, including the initial firm order for relugolix drug substance through December 31, 2019, will remain in effect and be binding on both parties. The Takeda Commercial Supply Agreement, including any then-open purchase order thereunder, will terminate immediately upon the termination of the Takeda Agreement in accordance with its terms.
The Takeda Commercial Supply Agreement also includes customary provisions relating to, among others, delivery, inspection procedures, warranties, quality management, storage, handling and transport, intellectual property, confidentiality and indemnification.

22



Item 2.                                                         Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended March 31, 2018 included in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission, or the SEC, on June 7, 2018. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Myovant,” the “Company,” “we,” “us,” and “our” refer to Myovant Sciences Ltd. and its wholly-owned subsidiaries.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “to be,” “will,” “would,” or the negative or plural of these words, or similar expressions or variations, although not all forward-looking statements contain these words. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those expressed or implied by these forward-looking statements.
The forward-looking statements appearing in a number of places throughout this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things:
the success and anticipated timing of our clinical trials for relugolix in combination with low-dose estradiol and a progestin, relugolix monotherapy and MVT-602;
the anticipated start dates, durations and completion dates of our ongoing and future nonclinical studies and clinical trials;
the anticipated designs of our future clinical trials;
the anticipated future regulatory submissions and the timing of, and our ability to, obtain and maintain regulatory approvals for relugolix in combination with low-dose estradiol and a progestin, relugolix monotherapy, MVT-602 and any future product candidates;
our plans to commercialize relugolix, if approved;
our ability to achieve commercial sales of any approved products, whether alone or in collaboration with others;
our ability to obtain reimbursement coverage for our products when commercialized;
the rate and degree of market acceptance and clinical utility of any approved products;
our ability to initiate and continue relationships with third-party clinical research organizations and manufacturers;
our ability to quickly and efficiently identify and develop product candidates;
our ability to hire and retain our key scientific or management personnel;
our ability to obtain, maintain and enforce intellectual property rights for our product candidates;
our estimates regarding our results of operations, financial condition, liquidity, capital requirements, access to capital, prospects, growth and strategies;
our ability to continue to fund our operations with the cash and cash equivalents currently on hand;
our ability to raise additional capital;
industry trends;
developments and projections relating to our competitors or our industry; and
the success of competing drugs that are or may become available.

23



Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors known and unknown that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors” set forth in Part II. Item 1A. of this Quarterly Report on Form 10-Q and in our other filings with the SEC. These risks are not exhaustive. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Business Overview
We are a clinical-stage biopharmaceutical company focused on developing and commercializing innovative therapies for women’s health and endocrine diseases. Our goal is to be the leading global biopharmaceutical company focused on women’s health and endocrine diseases in areas of high unmet medical need. Our lead product candidate is relugolix, an oral once-daily small molecule that acts as a gonadotropin-releasing hormone, or GnRH, receptor antagonist. We are advancing relugolix in combination with low-dose estradiol and a progestin for the treatment of heavy menstrual bleeding associated with uterine fibroids and for pain associated with endometriosis, and relugolix as a monotherapy at a higher dose for advanced prostate cancer. In addition, we are developing MVT-602, an oligopeptide kisspeptin-1 receptor agonist, for the treatment of female infertility as a part of assisted reproduction. Both relugolix and MVT-602 were licensed to us by Takeda Pharmaceuticals International AG, or Takeda, on April 29, 2016.
Since our inception, we have devoted substantially all of our efforts to organizing and staffing our company, raising capital, identifying and in-licensing our product candidates, preparing for and advancing the clinical development of our product candidates and preparing for the potential regulatory approvals and commercialization of relugolix.
Financial History
We have incurred, and expect to continue to incur, significant operating losses and negative cash flows as we continue to develop our product candidates and prepare for the potential future regulatory approvals and commercialization of relugolix. To date, we have not generated any revenue, and we do not expect to generate revenue unless and until we successfully complete development and obtain regulatory approval for one of our product candidates.
We have funded our operations primarily from the issuance and sale of our common shares and from the issuance of notes to NovaQuest Capital Management, or NovaQuest, and from the Term Loans we have with Hercules Capital, Inc., or Hercules. Through December 31, 2018, our sources of funding have primarily consisted of:
In November 2016, we completed our initial public offering, or IPO, in which we sold 14,500,000 common shares at a price of $15.00 per common share. The net proceeds to us were approximately $200.0 million, after deducting $15.2 million in underwriting discounts and commissions and $2.3 million in offering costs payable by us.
In October 2017, we and our subsidiaries, entered into financing arrangements with NovaQuest and Hercules under which we obtained financing commitments of up to $140.0 million. In October 2017, March 2018, and December 2018, we obtained gross proceeds of $33.0 million, $15.0 million, and $92.0 million, respectively, from these financing arrangements. As of December 31, 2018, the financing arrangements have been fully drawn. Additional information is included in Note 5, “Financing Arrangements,” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
On April 2, 2018, we entered into a share purchase agreement, or the Purchase Agreement, with Roivant Sciences Ltd., or RSL, our controlling shareholder, pursuant to which we agreed to issue and sell to RSL 1,110,015 of our common shares at a purchase price of $20.27 per common share in a private placement, or the Private Placement. In April 2018, we received proceeds of $22.5 million from RSL at the closing of the Private Placement.

24



On April 2, 2018, we entered into a Sales Agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, to sell our common shares having an aggregate offering price of up to $100.0 million from time to time through an “at-the-market” equity offering program under which Cowen acts as our agent. During the three and nine months ended December 31, 2018, we issued and sold none and 2,767,129, respectively, of our common shares under the Sales Agreement. The common shares were sold at a weighted-average-price of $21.47 per common share for aggregate net proceeds to us of approximately $57.3 million, after deducting underwriting commissions and offering costs payable by us. We currently have approximately $40.6 million of capacity available under our “at-the-market” equity offering program.
In July 2018, we completed an underwritten secondary public equity offering of 3,333,334 of our common shares at a public offering price of $22.50 per common share. Subsequently, in August 2018, we issued and sold an additional 200,065 common shares upon the partial exercise of the underwriters’ over-allotment option at a price of $22.50 per common share. After deducting the underwriting discounts and commissions and estimated offering costs payable by us, the net proceeds to us in connection with the underwritten secondary public equity offering, including the over-allotment option, were approximately $74.4 million.
As of December 31, 2018, and March 31, 2018, we had an accumulated deficit of $427.0 million and $228.5 million, respectively. We recorded net losses of $70.6 million and $41.8 million for the three months ended December 31, 2018 and 2017, respectively, and $198.5 million and $95.0 million for the nine months ended December 31, 2018 and 2017, respectively. As of December 31, 2018, we had $183.0 million of cash and cash equivalents available to us, as compared to $108.6 million of cash and $92.0 million of financing commitments available to us from NovaQuest as of March 31, 2018.
Our Product Candidates
Relugolix
We are currently developing relugolix in three target indications: heavy menstrual bleeding associated with uterine fibroids; pain associated with endometriosis; and advanced prostate cancer. Relugolix is an oral, once-daily, small molecule that acts as a GnRH receptor antagonist that binds to and inhibits GnRH receptors in the anterior pituitary gland. Inhibition of GnRH receptors decreases the release of gonadotropins (luteinizing hormone and follicle-stimulating hormone), thereby decreasing the downstream production of estrogen and progesterone by the ovaries in women and testosterone by the testes in men.
As a GnRH receptor antagonist, relugolix has a clinically-validated mechanism of action in each of our three target indications for relugolix. Lowering estrogen levels decreases heavy menstrual bleeding in women with uterine fibroids and reduces the pelvic pain associated with endometriosis. We are developing relugolix, 40 mg orally once daily, administered in combination with estradiol (1.0 mg) and a progestin (0.5 mg norethindrone acetate), with the goal of optimizing estradiol levels to maximize the benefit of relugolix on the symptoms of uterine fibroids and endometriosis, while mitigating side effects from a low-estrogen state (e.g., hot flashes or bone mineral density loss). We expect to launch in our women’s health indications with a once-daily oral fixed-dose formulation of relugolix, estradiol and norethindrone acetate. Decreasing testosterone has been shown to slow growth and progression of advanced prostate cancer, including when the disease recurs or the prostate-specific antigen, or PSA, is rising following prostatectomy or radiation therapy, and is the central objective of treatment with relugolix, 120 mg orally once daily following a single dose 360 mg loading dose. Myovant Sciences GmbH, our wholly owned subsidiary, holds global commercial rights to relugolix, excluding Japan, China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam, including the territories and possessions of each of the foregoing. In May 2018, Takeda announced that it had entered into a licensing agreement to grant ASKA Pharmaceutical Co., Ltd. exclusive commercialization rights to relugolix for uterine fibroids and exclusive development and commercialization rights to relugolix for endometriosis, in each indication in Japan, and in January 2019 Takeda and ASKA Pharmaceutical Co., Ltd. announced that Takeda obtained marketing authorization in Japan for Relumina® Tablets 40 mg (generic name: relugolix) for the improvement of symptoms of uterine fibroids (heavy menstrual bleeding, lower abdominal pain, lower back pain, and anemia).
Our Phase 3 Program for the Treatment of Heavy Menstrual Bleeding Associated with Uterine Fibroids

25



We initiated a Phase 3 clinical program in January 2017, evaluating relugolix in women with heavy menstrual bleeding associated with uterine fibroids. The program consists of two international, replicate pivotal clinical trials, which we refer to as LIBERTY 1 and LIBERTY 2. Each trial randomizes women 1:1:1 to one of three treatment arms: relugolix 40 mg once daily co-administered with commercially available low-dose hormonal add-back therapy (1.0 mg estradiol and 0.5 mg norethindrone acetate) for 24 weeks; relugolix 40 mg once daily monotherapy for 12 weeks followed by relugolix 40 mg once daily co-administered with hormonal add-back therapy for an additional 12 weeks; or placebo once daily for a period of 24 weeks. We have completed enrollment in the two replicate LIBERTY 1 (N=388) and LIBERTY 2 (N=382) trials. Eligible women completing the initial 24-week period are offered an active treatment extension with relugolix 40 mg once daily co-administered with hormonal add-back therapy for an additional 28-week period, or a total treatment period of 52 weeks, to evaluate the safety and efficacy of longer-term treatment. Women completing the open-label extension study will be offered the opportunity to participate in a randomized withdrawal study to provide up to two years of safety and efficacy data for relugolix in combination with low-dose estradiol and a progestin and information about the need for maintenance therapy. We are also conducting a one-year observational study of bone mineral density in women with uterine fibroids or endometriosis to provide additional context for our phase 3 clinical programs.
Top-line results for the LIBERTY 1 trial are expected in the second quarter of calendar 2019 and top-line results from the LIBERTY 2 trial are expected in the third quarter of calendar 2019. We expect to file the New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for relugolix to treat heavy menstrual bleeding associated with uterine fibroids in the fourth quarter of calendar 2019.
Takedas Phase 3 Clinical Development for Uterine Fibroids
In October 2017, Takeda reported positive top-line results from its Phase 3 trial in Japan evaluating the efficacy and safety of relugolix monotherapy compared with leuprorelin for the treatment of heavy menstrual bleeding associated with uterine fibroids. In this trial, approximately 280 patients were randomized 1:1 to receive either 40 mg of relugolix administered orally once daily or leuprorelin acetate administered by injection once every four weeks. Relugolix achieved an 82.2% response rate, meeting the primary endpoint, which was the proportion of patients achieving a pre-defined reduction in menstrual bleeding (Pictorial Blood Loss Assessment Chart, or PBAC, score of <10), and was observed to be statistically non-inferior to leuprorelin alone (p = 0.0013). Additionally, in November 2017, Takeda reported positive top-line results from its Phase 3 trial in Japan evaluating the efficacy and safety of relugolix for the treatment of pain associated with uterine fibroids. In this trial, 65 patients were randomized 1:1 to receive either 40 mg relugolix or placebo administered orally once daily. Relugolix met the primary endpoint demonstrating a marked improvement in pain in 57.6% of women with uterine fibroids compared to 3.1% of women receiving placebo (p < 0.0001). Adverse events in both studies were consistent with the mechanism of action of relugolix and adverse events observed in previous clinical trials. In February 2018, Takeda announced that it had submitted the data from both of these trials to the Ministry of Health, Labour and Welfare in Japan for marketing authorization of relugolix in Japan for the treatment of uterine fibroids. On January 8, 2019, Takeda and ASKA Pharmaceutical Co., Ltd. announced that Takeda obtained marketing authorization in Japan for Relumina® Tablets 40 mg (generic name: relugolix) for the improvement of symptoms of uterine fibroids (heavy menstrual bleeding, lower abdominal pain, lower back pain, and anemia). The Phase 3 data from each of the trials described above will be available to us, and may be used to support our anticipated NDA submission to the FDA. Although we will be solely responsible for obtaining FDA approval for relugolix in the U.S., the FDA can accept the results of clinical trials conducted outside the U.S. that were not conducted under an investigational new drug application in support of an NDA under certain conditions. At a minimum, the trials must have been conducted in accordance with FDA’s good clinical practice requirements, and the FDA may also require that the foreign data be applicable to the U.S. population and U.S. medical practice. We cannot provide assurance that the FDA will allow us to use data from Takeda’s clinical trials in support of any NDA that we may submit.
Our Phase 3 Program for the Treatment of Pain Associated with Endometriosis
We initiated a Phase 3 clinical program in June 2017, evaluating relugolix in women with pain associated with endometriosis. The program consists of two international replicate pivotal clinical trials, which we refer to as SPIRIT 1 and SPIRIT 2. Each trial randomizes women 1:1:1 to one of three treatment arms: relugolix 40 mg once daily co-administered with low-dose hormonal add-back therapy for 24 weeks (1.0 mg estradiol and 0.5 mg norethindrone acetate); relugolix 40 mg once daily monotherapy for 12 weeks followed by relugolix 40 mg once daily co-administered with commercially available hormonal add-back therapy for an additional 12 weeks; or placebo once daily for a period of 24 weeks. We expect to enroll approximately 600 women in each of the two replicate SPIRIT 1 and SPIRIT 2 trials. Eligible women completing the initial 24-week period will be offered an active treatment extension with relugolix 40 mg once daily co-administered with hormonal add-back therapy for an additional 80-week period, or a total treatment period of 104 weeks, to evaluate the safety of longer-term treatment. We currently expect to complete enrollment for the SPIRIT 1 and SPIRIT 2 trials in calendar 2019 with top line results expected in the first quarter of calendar 2020.
Our Phase 3 Program for the Treatment of Advanced Prostate Cancer

26



We initiated a Phase 3 clinical trial in March of 2017, evaluating the safety and efficacy of relugolix in men with advanced prostate cancer, which we refer to as the HERO trial. We believe the HERO trial, if successful, will be sufficient to support the submission of an NDA based on an End-of-Phase 2 meeting held with the FDA. The European Scientific Advice procedure and an End-of-Phase 2 meeting with the Japanese health authority have also been completed supporting the design of the HERO trial for approval in those regions should it be successful.
The HERO trial has completed enrollment after randomizing 934 men with advanced prostate cancer who require androgen deprivation therapy in a 2:1 ratio to treatment with either oral relugolix 120 mg once daily (after a single oral loading dose of 360 mg) or a depot injection of leuprolide (per national or regional product label) for a period of at least 48 weeks. Based on FDA discussions, we believe that we will be required to conduct only one Phase 3 trial with a single relugolix arm to gain approval for relugolix in men with advanced prostate cancer in the U.S. Nonetheless, we have designed the trial to include a second arm with leuprolide to demonstrate that treatment with relugolix is noninferior to leuprolide in achieving sustained suppression of testosterone to castrate levels over 48 weeks, an outcome expected to be required for approval in other major markets such as Europe and Japan. We expect to present top-line results from the HERO trial in the fourth quarter of calendar 2019 and to submit the U.S. NDA filing in early calendar 2020.
In addition, we filed an amendment to the HERO protocol to continue to enroll approximately 120 additional men with metastatic prostate cancer with the objective of prospectively demonstrating that relugolix can delay the time to progression to the lethal state of the disease, castration-resistant prostate cancer, as compared to leuprolide. We believe that relugolix, a direct GnRH receptor antagonist, has the potential to delay the time to castration-resistant disease as compared with leuprolide, a GnRH agonist, because relugolix more rapidly suppresses testosterone and PSA and more fully suppresses follicle-stimulating hormone than leuprolide.
MVT-602
As part of our license agreement with Takeda, or the Takeda License Agreement, we acquired the worldwide rights to MVT-602, our second product candidate, which has been previously evaluated in over 150 men. MVT-602 is an oligopeptide kisspeptin-1 receptor agonist. Kisspeptin, the ligand, is a naturally-occurring peptide that stimulates GnRH release and is required for puberty and maintenance of normal reproductive function, including production of sperm, follicular maturation and ovulation, and production of estrogen and progesterone in women and testosterone in men.  MVT-602 is being developed as a potential treatment for female infertility in women as part of assisted reproduction, such as in vitro fertilization, or IVF. We believe MVT-602 has the potential to be a safer alternative to human chorionic gonadotropin as a part of assisted reproduction for the treatment of female infertility.
In October 2018, we presented data from a Phase 1 trial of MVT-602 at the American Society of Reproductive Medicine (ASRM) Annual Congress. Results of the study showed that administration of MVT-602 in healthy premenopausal women in the follicular phase produced a dose-related increase in luteinizing hormone concentrations and expected effects on follicle-stimulating hormone and estradiol. A total of 24 women were randomized to one of three MVT-602 dose groups (0.3 µg, 1 µg or 3 µg) and then subsequently randomized to receive a single subcutaneous dose of MVT-602 or placebo in a 3:1 ratio. Results showed that administration of single subcutaneous doses of MVT-602 demonstrated dose-related increases in luteinizing hormone concentrations and expected post-dose increases in follicle-stimulating hormone and estradiol concentrations, with little effect observed on progesterone as expected. No serious adverse events were reported, and no subject discontinued from the study due to an adverse event. Adverse events were similar between the placebo and MVT-602 groups with no apparent dose-related effects.
Further assessment of the exposure-response profile of MVT-602 administered is being conducted in a Phase 2a study during the pre-ovulatory phase in approximately 70 fertile women undergoing a controlled ovarian stimulation. This study has completed enrollment and top-line results are expected to be reported in the first half of calendar 2019. This study is intended to provide information for dose selection for a study of MVT-602 in infertile women seeking pregnancy.





27



 
Financial Operations Overview
Revenue
To date, we have not generated any revenue, and we do not expect to generate any revenue from the sale of any products unless and until we obtain regulatory approval of and commercialize relugolix, MVT-602, or a potential future product candidate.
Research and Development Expenses
Since our inception, our operations have primarily been limited to the in-licensing of the rights to relugolix and MVT-602, the expansion of our team, and the initiation and ongoing activities of our clinical programs. Our research and development, or R&D, expenses include program-specific costs, as well as unallocated costs.
Program-specific costs include:
third-party costs, which include expenses incurred under agreements with contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, the cost of consultants who assist with the development of our product candidates on a program-specific basis, investigator grants, sponsored research, manufacturing costs in connection with producing materials for use in conducting nonclinical studies and clinical trials, and other third-party expenses directly attributable to the development of our product candidates.
Unallocated costs primarily include:
employee-related expenses, such as salaries, share-based compensation, benefits and travel for R&D personnel;
costs allocated to us for activities performed by RSI and RSG under the Services Agreements and share-based compensation expense allocated to us from RSL;
depreciation expenses for assets used in R&D activities; and
other expenses, which include the costs of consultants who assist with R&D activities not specific to a program.
R&D activities will continue to be central to our business model. We expect our R&D expenses to increase in the near term as we continue to support the clinical development of our relugolix and MVT-602 clinical studies, prepare to seek regulatory approval for our product candidates, establish a medical affairs function, and expand our employee base. Product candidates in later stages of clinical development, such as relugolix, generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our share-based compensation expense to increase as we continue to increase our number of R&D employees.
The duration, costs and timing of clinical trials of relugolix, MVT-602 and any other product candidates will depend on a variety of factors that include, but are not limited to:
the number of trials required for approval;
the per patient trial costs;
the number of patients who participate in the trials;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to recruit and enroll eligible patients;
the number of patients who fail to meet the study’s inclusion and exclusion criteria;
the number of study drugs that patients receive;
the drop-out or discontinuation rates of patients;
the potential additional safety monitoring or other studies requested by regulatory agencies;
the duration of patient follow-up;
the timing and receipt of regulatory approvals;
the costs of clinical trial material; and
the efficacy and safety profile of the product candidate.

28



In addition, the probability of success for relugolix, MVT-602 and any other product candidates will depend on numerous factors, including competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our programs or when and to what extent we will generate revenue from commercialization and sale of any of our product candidates. Our R&D activities may be subject to change from time to time as we evaluate our priorities and available resources.
General and Administrative Expenses
General and administrative, or G&A, expenses consist primarily of employee-related expenses, such as salaries, share-based compensation, benefits and travel, professional fees for legal, consulting, accounting, auditing and tax services, rent and facilities expense, information technology costs, general overhead, costs billed to us under the Services Agreements, and share-based compensation expense and other costs allocated to us from RSL.
We anticipate that our G&A expenses will increase in future periods as we expand our operations. These increases will likely include costs related to the hiring of additional personnel, costs to implement and upgrade certain information technology systems, professional fees and additional rent and other facilities related costs. In addition, we expect to incur increased costs associated with establishing sales, marketing, and commercialization functions in advance of potential future regulatory approvals and commercialization of our product candidates. If relugolix or MVT-602 obtains regulatory approval for marketing, we expect sales, marketing, and commercialization costs to be significant.


29



Results of Operations
The following table summarizes our results of operations for the three and nine months ended December 31, 2018 and 2017 (in thousands):
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Operating expenses:
 
 
 
 
 
 
 
Research and development
$
58,434

 
$
34,875

 
$
163,588

 
$
76,753

General and administrative
10,686

 
6,640

 
29,738

 
16,963

Total operating expenses
69,120

 
41,515

 
193,326

 
93,716

 
 
 
 
 
 
 
 
Interest expense, net
1,634

 
904

 
4,831

 
904

Other (income) expense, net
(121
)
 
(429
)
 
147

 
(225
)
Loss before income taxes
(70,633
)
 
(41,990
)
 
(198,304
)
 
(94,395
)
Income tax (benefit) expense

 
(213
)
 
233

 
607

Net loss
$
(70,633
)
 
$
(41,777
)
 
$
(198,537
)
 
$
(95,002
)
Research and Development Expenses
For the three and nine months ended December 31, 2018 and 2017, our R&D expenses consisted of the following (in thousands):
 
Three Months Ended December 31,
 
 
 
2018
 
2017
 
Change
Program-specific costs:
 
 
 
 
 
Relugolix
$
47,800

 
$
29,095

 
$
18,705

MVT-602
1,779

 
899

 
880

 
 
 
 
 
 
Unallocated costs:
 
 
 
 
 
Share-based compensation
1,840

 
1,041

 
799

Personnel expense
6,353

 
3,213

 
3,140

Services Agreements

 
192

 
(192
)
Other expense
662

 
435

 
227

Total R&D expenses
$
58,434

 
$
34,875

 
$
23,559


 
Nine Months Ended December 31,
 
 
 
2018
 
2017
 
Change
Program-specific costs:
 
 
 
 
 
Relugolix
$
134,023

 
$
63,498

 
$
70,525

MVT-602
4,820

 
943

 
3,877

 
 
 
 
 
 
Unallocated costs:
 
 
 
 
 
Share-based compensation
5,247

 
2,580

 
2,667

Personnel expense
16,279

 
8,131

 
8,148

Services Agreements
748

 
501

 
247

Other expense
2,471

 
1,100

 
1,371

Total R&D expenses
$
163,588

 
$
76,753

 
$
86,835





30



R&D expenses increased by $23.6 million, to $58.4 million, in the three months ended December 31, 2018 compared to $34.9 million in the three months ended December 31, 2017, primarily due to increases in expenses as a result of the progress of our ongoing Phase 3 clinical trials of relugolix, which were initiated in 2017, as well as additional personnel-related expenses and MVT-602 clinical trial expenses. R&D expenses in the three months ended December 31, 2018 consisted primarily of CRO, clinical drug supply and other study-related costs of $49.6 million, personnel expenses of $6.4 million and share-based compensation expense of $1.8 million, of which $40,921 was allocated to us by RSL.
R&D expenses for the three months ended December 31, 2017 consisted primarily of CRO, clinical drug supply and other study-related costs of $28.4 million, personnel expenses of $3.2 million, share-based compensation expense of $1.0 million$0.1 million of which was allocated to us by RSL, and costs billed to us under the Services Agreements of $1.9 million, including unallocated personnel expenses and third-party pass thru costs associated with our ongoing clinical and other research programs.
R&D expenses increased by $86.8 million, to $163.6 million, in the nine months ended December 31, 2018 compared to $76.8 million in the nine months ended December 31, 2017, primarily due to increases in expenses as a result of the progress of our ongoing Phase 3 clinical trials of relugolix, which were initiated in 2017, as well as additional personnel-related expenses and MVT-602 clinical trial expenses. R&D expenses in the nine months ended December 31, 2018 consisted primarily of CRO, clinical drug supply and other study-related costs of $137.2 million, personnel expenses of $16.3 million, share-based compensation expense of $5.2 million, of which $0.2 million was allocated to us by RSL, and costs billed to us under the Services Agreements of $2.3 million, including unallocated personnel expenses and third-party pass thru costs associated with our ongoing clinical and other research programs.
R&D expenses for the nine months ended December 31, 2017 consisted primarily of CRO, clinical drug supply and other study-related costs of $61.9 million, personnel expenses of $8.1 million, share-based compensation expense of $2.5 million$0.2 million of which was allocated to us by RSL, and costs billed to us under the Services Agreements of $2.8 million, including unallocated personnel expenses and third-party pass thru costs associated with our ongoing clinical and other research programs.

General and Administrative Expenses
G&A expenses increased by $4.0 million, to $10.7 million, in the three months ended December 31, 2018 compared to $6.6 million in the three months ended December 31, 2017, primarily due to an increase in employee salaries, benefits and share-based compensation expense resulting from additional headcount to support the growth of our operations, increases in professional service fees, and increases in other administrative expenses. G&A expenses in the three months ended December 31, 2018 consisted primarily of personnel-related and general overhead expenses of $5.8 million, share-based compensation expense of $3.0 million, of which $0.1 million was allocated to us by RSL, legal and professional fees of $1.0 million, rent and other facilities related costs of $0.5 million and costs of $0.4 million allocated to us from RSL.
G&A expenses for the three months ended December 31, 2017 consisted primarily of personnel-related and general overhead expenses of $2.7 million, share-based compensation expense of $2.3 million, including $0.2 million allocated to us by RSI and RSL, legal and professional fees of $0.6 million, and costs of $1.0 million billed to us under the Services Agreements, including personnel expenses, overhead allocations and third-party costs.
G&A expenses increased by $12.8 million, to $29.7 million, in the nine months ended December 31, 2018 compared to $17.0 million in the nine months ended December 31, 2017, primarily due to an increase in employee salaries, benefits and share-based compensation expense resulting from additional headcount to support the growth of our operations, increases in professional service fees, and increases in other administrative expenses. G&A expenses in the nine months ended December 31, 2018 consisted primarily personnel-related and general overhead expenses of $14.6 million, share-based compensation expense of $8.5 million, of which $0.3 million was allocated to us by RSL, costs of $2.3 million billed to us under the Services Agreements, including personnel expenses, overhead allocations and third-party pass thru costs, legal and professional fees of $2.7 million and rent and other facilities related costs of $1.6 million.
G&A expenses for the nine months ended December 31, 2017 consisted primarily of personnel-related and general overhead expenses of $6.9 million, share-based compensation expense of $5.7 million, including $0.5 million allocated to us by RSI and RSL, legal and professional fees of $2.2 million, and costs of $2.2 million billed to us under the Services Agreements, including personnel expenses, overhead allocations and third-party costs.


31



Interest Expense, net
Interest expense, net consists of interest expense related to the NovaQuest Securities Purchase Agreement and Hercules Loan Agreement as well as the associated non-cash amortization of debt discount and issuance costs, partially offset by interest income earned on cash equivalents. Interest expense, net, was $1.6 million and $4.8 million for the three and nine months ended December 31, 2018, respectively, and $0.9 million for the three and nine months ended December 31, 2017.
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations primarily from the issuance and sale of our common shares and from the issuance of notes to NovaQuest and the funds received from our Term Loans with Hercules.
As of December 31, 2018, we had $183.0 million of cash and cash equivalents available to us, as compared to $108.6 million of cash and $92.0 million of financing commitments available to us from NovaQuest as of March 31, 2018.
We currently have approximately $40.6 million of capacity available under our “at-the-market” equity offering program that we established in April 2018.
Capital Requirements
We recorded net losses of $70.6 million and $41.8 million for the three months ended December 31, 2018 and 2017, respectively, and net losses of $198.5 million and $95.0 million for the nine months ended December 31, 2018 and 2017, respectively. As of December 31, 2018, we had an accumulated deficit of $427.0 million.
We have incurred, and expect to continue to incur, significant operating losses and negative cash flows as we continue to develop our product candidates and prepare for the potential future regulatory approvals and commercialization of relugolix. We have not generated any revenue to date and do not expect to generate product revenue unless and until we successfully complete development and obtain regulatory approval for one of our product candidates. Our operating losses and negative cash flows may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our planned clinical trials, anticipated regulatory filings, and our expenditures on other R&D and G&A activities. We anticipate that our capital requirements will be significant as we:
advance our Phase 3 programs of relugolix in combination with estradiol and a progestin for the treatment of heavy menstrual bleeding associated with uterine fibroids and for pain associated with endometriosis and relugolix as monotherapy at a higher dose for advanced prostate cancer;
conduct a Phase 2a clinical trial in healthy female volunteers to characterize the dose-response relationship in a controlled ovarian stimulation setting prior to studying MVT-602 in infertile women seeking pregnancy;
expand our chemistry, manufacturing, and control and other manufacturing related activities;
seek to identify, acquire, develop, and commercialize additional product candidates;
integrate acquired technologies into a comprehensive regulatory and product development strategy;
maintain, expand, and protect our intellectual property portfolio;
hire scientific, clinical, regulatory, quality, and administrative personnel;
add operational, accounting, finance, quality, commercial, and management information systems and personnel;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
establish a medical affairs group with a medical scientific liaison team;
establish a sales, marketing, and distribution infrastructure and increase the scale of our external manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval;
service debt obligations and payment of interest associated with the NovaQuest Securities Purchase Agreement and the Hercules Loan Agreement; and
continue to operate as a public company.
Our primary use of cash has been to fund the development of relugolix and MVT-602. We expect our operating expenses to continue to increase over the near term as we expand our operations to continue to develop our product candidates and prepare for the potential future regulatory approvals and commercialization of relugolix.

32



Based on our current operating plan, we expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through at least the first quarter of our fiscal year ending March 31, 2020, and to enable us to receive top-line data from the first Phase 3 clinical trial for one of our women’s health clinical programs. This estimate is based on our current assumptions, including assumptions relating to our ability to manage our spend, that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. These funds will not be sufficient to enable us to complete all necessary development activities and commercially launch relugolix. We anticipate that we will continue to incur net losses for the foreseeable future. To continue as a going concern, we will need, among other things, additional capital resources. We continually assess multiple options to obtain additional funding to support our operations, including through financing activities in public or private capital markets, financing arrangements with Roivant Sciences, potential business development activities and cost containment measures. We can provide no assurances that any sources of a sufficient amount of financing will be available to us on favorable terms, if at all. Although we believe that we will continue to raise capital to fund our operations as we have in the past, ASC 240-40, Going Concern, does not allow us to consider future financing activities in our assessment of our future cash burn for the purpose of our liquidity assessment. If we are unable to raise capital in sufficient amounts and on terms acceptable to us, we may have to significantly delay, scale back, or discontinue operations.
Until such time, if ever, as we can generate substantial product revenue from sales of relugolix, MVT-602, or any future product candidate, we expect to finance our operations through a combination of cash and cash equivalents on hand, equity offerings, debt financings, and potential collaboration, license, or development agreements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our common shareholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our common shareholders’ rights. Our existing agreements with NovaQuest and Hercules involve, and any agreements for future debt or preferred equity financings, if available, may involve covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
In addition, if we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table sets forth a summary of our cash flows for the nine months ended December 31, 2018 and 2017 (in thousands):
 
Nine Months Ended December 31,
 
2018
 
2017
Net cash used in operating activities
$
(170,980
)
 
$
(82,266
)
Net cash used in investing activities
$
(718
)
 
$
(375
)
Net cash provided by financing activities
$
246,677

 
$
30,676

Operating Activities
For the nine months ended December 31, 2018, we used $171.0 million in operating activities primarily due to our ongoing development and clinical trials for relugolix and MVT-602. This was primarily attributable to a net loss for the period of $198.5 million, along with an increase of $7.2 million in prepaid expenses and other current assets and a decrease of $1.9 million in amounts due to RSL, RSI and RSG. These amounts were partially offset by an increase in accrued expenses of $18.1 million and an increase in accounts payable of $0.9 million which were primarily due to the progress of our ongoing Phase 3 clinical trials of relugolix, $13.8 million of non-cash share-based compensation expense as a result of an increase in headcount, and $1.7 million of total depreciation and amortization expense.
For the nine months ended December 31, 2017, we used $82.3 million in operating activities primarily due to our ongoing development and clinical trials for relugolix. This was primarily attributable to a net loss for the period of $95.0 million, increases of $2.1 million in other assets and $2.1 million in prepaid expenses and other current assets along with a decrease of $1.2 million in accounts payable. These amounts were partially offset by an increase in accrued expenses of $8.8 million, $8.2 million of share-based compensation and $0.6 million of total depreciation and amortization expense.

33



Investing Activities
For the nine months ended December 31, 2018, $0.7 million was used in investing activities, all for the purchase of property and equipment.
For the nine months ended December 31, 2017, $0.4 million was used in investing activities, all for the purchase of property and equipment.
Financing Activities
For the nine months ended December 31, 2018, financing activities provided $246.7 million of cash. This was primarily due to the net proceeds of $74.4 million we received from the issuance and sale of 3,533,399 common shares in our underwritten secondary public equity offering (including the partial exercise of the underwriters’ over-allotment option), $57.3 million we received from the sale of 2,767,129 common shares through our “at-the-market” equity offering program that we established in April 2018, proceeds of $22.5 million we received from the sale of 1,110,015 common shares to RSL in a private placement, net proceeds from debt financings with NovaQuest of $54.0 million, and net proceeds of $38.0 million from the issuance and sale of 2,286,284 common shares to NovaQuest. In addition, we received cash proceeds of $0.8 million from the exercise of stock options under our 2016 Equity Incentive Plan and paid an annual debt administration fee of $0.3 million to NovaQuest under the NovaQuest Securities Purchase Agreement.
For the nine months ended December 31, 2017, financing activities provided $30.7 million of cash. This was primarily due to the net proceeds from debt financings of $28.8 million and net proceeds from the issuance of common shares of $1.9 million.
Contractual Obligations
In May 2018, we entered into a Commercial Manufacturing and Supply Agreement with Takeda, or the Takeda Commercial Supply Agreement. See Note 10, “Commitments and Contingencies” to our unaudited condensed consolidated financial statements contained herein for a further discussion of this agreement.
During the nine months ended December 31, 2018, there were no other material changes outside of the ordinary course of business to the specified contractual obligations set forth in the contractual obligations table included in our Annual Report on Form 10-K for the year ended March 31, 2018.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the unaudited condensed consolidated financial statements and the reported amounts of expenses incurred during the reporting periods. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. Significant estimates include assumptions used in the evaluation of our ability to continue as a going concern, the determination of some of our costs incurred under the Services Agreements, which costs are charged to R&D and G&A expenses, as well as assumptions used to estimate the fair value of common share and option awards. We base our estimates on historical experience and on various other information available to us at the time we make the estimates and judgments that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies as those under U.S. GAAP that require us to make subjective estimates and judgments about matters that are inherently uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. Our critical accounting policies are more fully described in “Critical Accounting Policies and Significant Judgments and Estimates” in Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K. We believe there have been no material changes to our critical accounting policies and use of estimates as disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, filed with the SEC on June 7, 2018.
Recent Accounting Pronouncements

34



For information regarding recently issued accounting pronouncements and the expected impact on our consolidated financial statements, see Note 2, “Summary of Significant Accounting Policies,” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

35



Item 3.                                                         Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and market prices such as interest rates, foreign currency exchange rates, and changes in the market value of equity instruments.
Our investment policy establishes guidelines for the investment of surplus cash in a conservative and diversified investment portfolio which seeks to provide adequate liquidity for our operations while minimizing the loss of any principal. The securities permitted under our investment policy may be subject to market risk related to changes in interest rates and other market factors. We manage our sensitivity to these risks by investing in short-term, investment grade marketable securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, we do not believe that a hypothetical 10% change in market rates would have a material impact on the realized value of our investments. As of December 31, 2018, we had cash and cash equivalents of $183.0 million, consisting of money market funds and non-interest-bearing cash deposits denominated in the U.S. dollar and Swiss franc. As of March 31, 2018, we had cash of $108.6 million, consisting of non-interest bearing cash deposits denominated in the U.S. dollar and Swiss franc.
We also have certain debt that bears interest at a prime-based variable rate. A hypothetical 10% change in this interest rate would have an approximate $0.4 million impact on our annual interest expense. We do not believe we are currently exposed to any material market risk. 

Item 4.                                                         Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision of our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018, the end of the period covered by this report. The term “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2018 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(f) and 15d-15(f) of the Exchange Act that occurred during the fiscal quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Myovant Sciences Ltd. have been detected.


36



PART II. OTHER INFORMATION
Item 1.                                                         Legal Proceedings
From time to time, we may become involved in legal proceedings related to claims arising from the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceedings against us that we believe could have a material adverse effect on our business, operating results, or financial condition.
Item 1A. Risk Factors
You should carefully consider the following risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the events described in the following risk factors and the risks described elsewhere in this Quarterly Report on Form 10-Q occurs, our business, operating results and financial condition could be seriously harmed and the trading price of our common shares could decline and you could lose all or part of your investment in our common shares. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
Risks Related to Our Business, Financial Position and Capital Requirements
We believe our current cash and cash equivalents will be sufficient to fund our business only for a limited amount of time, and if we are not able to raise additional funds, we may be unable to continue as a going concern.

As of December 31, 2018, we had approximately $183.0 million of cash and cash equivalents. Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through at least the first quarter of our fiscal year ending March 31, 2020, and to enable us to announce top-line data from the first Phase 3 clinical trial for one of our women’s health programs. This estimate is based on our current assumptions, including assumptions relating to our ability to manage our spend, that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. These funds will not be sufficient to enable us to complete all necessary development activities and commercially launch relugolix. We anticipate that we will continue to incur net losses for the foreseeable future. These factors raise substantial doubt about our ability to continue as a going concern for the one-year period following the filing of this Quarterly Report on Form 10-Q. We may be forced to delay or reduce the scope of our development programs and/or limit or cease our operations if we are unable to obtain additional funding to support our current operating plan. Management’s plans in this regard are described in Note 2 of the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. In the event that these plans cannot be effectively realized, there can be no assurance that we will be able to continue as a going concern.
We will require substantial additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of relugolix or MVT-602.
We expect to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize relugolix and MVT-602. These expenditures will include costs associated with the Takeda License Agreement, pursuant to which we are obligated to cover substantial development costs of relugolix and MVT-602 and make royalty payments in connection with the net sales of resulting products, if any.
We will require additional capital to complete the development and potential commercialization of relugolix and MVT-602. Because the length of time and activities associated with successful development of relugolix and MVT-602 are highly uncertain, we are unable to estimate with certainty the actual capital we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
the initiation, progress, timing, costs and results of our planned and ongoing clinical trials for relugolix and MVT-602;
the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;
the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or our products or any future product candidates;

37



the effect of competing technological and market developments;
the cost and timing of completion of commercial-scale manufacturing activities;
the cost of establishing sales, marketing and distribution capabilities for our products in regions where we choose to commercialize our products on our own; and
the initiation, progress, timing and results of our commercialization of our product candidates, if approved for commercial sale.
Our current funds will not be sufficient for us to compete all necessary development activities and commercially launch relugolix. Accordingly, we will need to obtain substantial further funding through other public or private offerings of our capital shares, debt financing, collaboration and licensing arrangements, or other sources. We cannot be certain that additional capital will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of our product candidates or potentially discontinue operations. In addition, attempting to secure additional capital may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts. Because of the numerous risks and uncertainties associated with the development and potential commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays, operating expenditures and capital requirements associated with our current and anticipated product development programs.
Raising additional funds by issuing equity securities may cause dilution to existing shareholders; raising additional funds through debt financings may involve additional restrictive covenants; and raising funds through collaboration and licensing arrangements may restrict our operations or require us to relinquish proprietary rights.
Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, strategic alliances, and license and development agreements or other collaborations. To the extent that we raise additional capital by issuing equity securities, our existing shareholders’ ownership may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of a common shareholder. Our existing agreements with NovaQuest and Hercules involve, and any agreements for future debt or preferred equity financings, if available, may involve, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
In addition, if we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us or grant rights to develop and market product candidates that we would otherwise develop and market ourselves.
We have a limited operating history and no history of commercializing products, which may make it difficult to evaluate our business and prospects.
We are a clinical-stage biopharmaceutical company with a limited operating history. We were formed in February 2016, and our operations to date have been limited to organizing and staffing our company, raising capital, identifying and in-licensing our product candidates, preparing for and advancing our product candidates through clinical development, conducting global clinical trials, and preparing for potential future regulatory approvals and commercialization of relugolix. We have not yet demonstrated an ability to successfully complete a large-scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial scale product, or conduct sales and marketing activities necessary for successful product commercialization. We may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown difficulties in achieving our business objectives. If our product candidates are approved by the U.S. Food and Drug Administration, or the FDA, we will need to expand our capabilities to support commercial activities and we may not be successful in adding such capabilities. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.
We have incurred significant operating losses since our inception and expect to continue to incur significant operating losses and negative cash flows; and we have not generated any revenue from any commercial products and may never achieve or maintain profitability.
Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or fail to become commercially viable. Since inception, we have focused our efforts on research and development with the goal of achieving regulatory approval and have incurred significant operating losses. Our net loss was $198.5 million and $143.3 million for the nine months ended December 31, 2018 and year ended March 31, 2018, respectively, and, as of December 31, 2018, we had an accumulated deficit of $427.0 million.

38



We expect to continue to incur significant operating losses and negative cash flows as we continue to develop our product candidates and prepare for the potential future regulatory approvals and commercialization of relugolix. Past operating losses, combined with expected future operating losses, have had and will continue to have an adverse effect on our results of operations, financial position and working capital. If we obtain regulatory approval for relugolix or MVT-602, we expect to incur increased sales, marketing and manufacturing expenses.
Neither relugolix nor MVT-602 has been approved for marketing anywhere in the world, and they may never receive such approval. As a result, we have never generated any product revenue. We are uncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. Our ability to generate product revenue and achieve profitability is dependent on our ability to complete the development of relugolix and MVT-602, obtain necessary regulatory approvals, and have relugolix and MVT-602 manufactured and successfully marketed. We cannot assure you that we will be profitable even if we successfully commercialize relugolix or MVT-602. Even if we successfully obtain regulatory approvals to market relugolix or MVT-602, our revenue will be dependent upon, in part and among other things, the size of the markets in the territories for which we gain regulatory approval, the number of competitors in such markets, the accepted price for relugolix and MVT-602 and whether we own the commercial rights for those territories. For example, ORILISSA™, an oral GnRH receptor antagonist for the management of moderate to severe pain associated with endometriosis, was recently approved by the FDA and launched by AbbVie in August 2018. The launch and commercialization of ORILISSA™ or other competing drugs may limit the revenue from relugolix. If the indication approved by regulatory authorities is narrower than we expect, or the treatment population is narrowed by competition, physician choice or treatment guidelines, or if we are unable to obtain a favorable price for relugolix, we may not generate significant revenue from sales of relugolix or MVT-602, even if approved. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Failure to become and remain profitable may adversely affect the market price of our common shares and our ability to raise capital and continue operations.
We are heavily dependent on the success of relugolix in combination with low-dose estradiol and a progestin for our women’s health indications of uterine fibroids and endometriosis, relugolix monotherapy for men with prostate cancer, and MVT-602, our only product candidates, which are still under clinical development, and if either relugolix or MVT-602 does not receive regulatory approval or is not successfully commercialized, our business may be harmed.
We are a clinical-stage biopharmaceutical company with no products approved for commercial sale. We have invested and expect to continue to invest a substantial portion of our efforts and expenditures in the development and advancement of our product candidates, relugolix in combination with low-dose estradiol and a progestin, relugolix monotherapy, and MVT-602. Our business and our ability to generate revenue depends heavily on the successful clinical development, regulatory approval and commercialization of these product candidates, which may never occur. We currently generate no revenue from sales of any product. We may never receive regulatory approval for any indication for relugolix or MVT-602 and may never be able to develop or commercialize a marketable product. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of products are and will remain subject to extensive regulation by the FDA and other regulatory authorities in the U.S. and other countries. We are not permitted to market relugolix or MVT-602 in the U.S. until we receive approval of New Drug Applications, or NDAs, or in any foreign country until we receive the requisite approvals from the appropriate regulatory authorities in such countries.
Obtaining approval of an NDA or similar regulatory approval is an extensive, lengthy, expensive and inherently uncertain process, and the FDA or other foreign regulatory authority may delay, limit or deny approval of relugolix or MVT-602. See the Risk Factor titled “The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, and inherently unpredictable, and even if we obtain approval for a product candidate in one country or jurisdiction, we may never obtain approval for or commercialize it in any other jurisdiction which would limit our ability to realize our full market potential.” We have not submitted an NDA to the FDA, or any comparable application to any other regulatory authority.
Even if we receive regulatory approval for one or both formulations of relugolix or MVT-602, our ability to generate revenues from relugolix or MVT-602 will depend on our ability to:
set an acceptable price for relugolix or MVT-602 and obtain coverage and adequate reimbursement from third-party payors;
establish effective sales, marketing, and distribution systems in jurisdictions around the world for relugolix (excluding Japan and certain other Asian countries) or MVT-602;
initiate and continue relationships with Takeda and/or other third-party manufacturers and have adequate commercial quantities of relugolix or MVT-602 manufactured at acceptable cost and quality levels;
attract and retain experienced management and advisory teams;
achieve broad market acceptance of our products in the medical community and with third-party payors and consumers;

39



launch commercial sales of our products, whether alone or in collaboration with others;
establish the safety and efficacy of relugolix and MVT-602 in comparison to competing products; and
maintain, expand, and protect our intellectual property portfolio.
If we cannot successfully execute any one of the foregoing, our business may not succeed and your investment in us may be adversely affected.
If we are unable to formulate a fixed-dose combination version of relugolix with low-dose estradiol and a progestin for our womens health indications, its potential commercial opportunity and competitive advantage could be limited.
GnRH antagonists, like relugolix, may cause loss of bone mineral density due to the induced hypoestrogenic state that may limit duration of use. This risk, and a related risk of hot flush, may be mitigated by the co-administration of low-dose estradiol and a progestin. A key part of our relugolix clinical development strategy is to formulate a fixed-dose combination of relugolix with low-dose estradiol and a progestin to facilitate patient convenience and compliance. If we are unsuccessful in our attempts to formulate a fixed-dose combination in time for the initial application for market authorization in the U.S., we expect to seek approval for relugolix tablets co-packaged with commercially available low-dose estradiol and a progestin. This would potentially decrease our advantages relative to our competition by requiring patients to take two pills once daily instead of one pill once daily until the fixed-dose combination can be developed and approved. If our competitors develop a fixed-dose combination with hormonal add-back therapy before we do, or if we are unable to do so, then we would be at a competitive disadvantage and this could limit our commercial opportunity. We are not aware of any barriers preventing competitors from developing or achieving regulatory approval of a fixed-dose combination.
We are conducting our Phase 3 clinical trials of relugolix in our target women’s health indications with co-administration of relugolix and commercially available low-dose estradiol and a progestin product co-packaged. We are conducting bridging studies to support the submission of NDAs or comparable foreign applications for the proposed fixed-dose combination for each of our target women’s health indications. Any such bridging study may be unsuccessful or insufficient to support approval of the fixed-dose combination formulation, which would delay and increase the expenses associated with our development program and could limit our commercial opportunity.
The terms of the NovaQuest Securities Purchase Agreement and the Hercules Loan Agreement place restrictions on our operating and financial flexibility.
In October 2017, we and our subsidiaries entered into the NovaQuest Securities Purchase Agreement and the Hercules Loan Agreement. Our obligations under the notes issued pursuant to the NovaQuest Securities Purchase Agreement are secured by a second lien security interest in substantially all of our and our subsidiaries’ assets, other than intellectual property, and our obligations under the Hercules Loan Agreement are secured by a first lien security interest in substantially all of our and our subsidiaries’ respective assets, other than intellectual property.
Each of these agreements includes customary affirmative and restrictive covenants and representations and warranties, including a minimum cash covenant. Under the NovaQuest Securities Purchase Agreement, a minimum cash covenant applies commencing on November 1, 2020 (or November 1, 2021 if extended pursuant to the terms of the NovaQuest Securities Purchase Agreement) and under the Hercules Loan Agreement, a minimum cash covenant applies until such time as Myovant achieves both the clinical development and financing milestones as set forth in the Hercules Loan Agreement. Other restrictive covenants include limitations on additional indebtedness, liens (including a negative pledge on intellectual property and other assets), investments, distributions (including dividends), transfers, mergers or acquisitions, taxes, corporate changes and deposit accounts. Compliance with these covenants may limit our flexibility in operating our business and our ability to take actions that might be advantageous to us and our shareholders.
Additionally, the NovaQuest Securities Purchase Agreement and the Hercules Loan Agreement each also includes customary events of default, including payment defaults, breaches of covenants following any applicable cure period, cross acceleration to certain debt, certain events relating to bankruptcy or insolvency and certain events relating to United Kingdom or Irish pension plans. Upon the occurrence of an event of default under the NovaQuest Securities Purchase Agreement, a default interest rate of an additional 5.0% will apply to the outstanding obligations under the NovaQuest Securities Purchase Agreement, and NovaQuest, as the agent for the holders of the notes, may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the NovaQuest Securities Purchase Agreement. Upon the occurrence of an event of default under the Hercules Loan Agreement, a default interest rate of an additional 5.0% may be applied to the outstanding obligations under the Hercules Loan Agreement, and Hercules may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Hercules Loan Agreement. In addition, upon the occurrence of certain bankruptcy and insolvency events, our obligations under the notes issued pursuant to the NovaQuest Securities Purchase Agreement and our obligations under the Hercules Loan Agreement would automatically become due and payable. We may not have enough available cash or be able to raise additional funds through equity or debt financings to repay these outstanding obligations at the time any event of default occurs. In that case, we may be required to delay, limit, reduce or terminate our

40



clinical development efforts or grant to others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. NovaQuest and Hercules could also exercise their rights to take possession and dispose of the collateral securing our obligations, which collateral includes all of our and our subsidiaries’ respective assets other than intellectual property. Our business, financial condition and results of operations could be substantially harmed as a result of any of these events.
We may not be successful in our efforts to identify and acquire or in-license additional product candidates.
Part of our strategy involves diversifying our product development risk by identifying and acquiring or in-licensing novel product candidates. We may fail to identify and acquire or in-license product candidates, including for reasons discussed in these risk factors and also:
the process by which we identify and decide to acquire product candidates may not be successful;
the competition to acquire or in-license promising product candidates is fierce and many of our competitors are large, multinational pharmaceutical, biotechnology and medical device companies with considerably more financial, development and commercialization resources and experience than we have;
potential product candidates may, upon further study during the acquisition process, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval or achieve market acceptance; and
potential product candidates may not be effective in treating their targeted diseases.
In addition, we may choose to focus our efforts and resources on potential product candidates that ultimately prove to be unsuccessful. Further, time and resources spent searching for, identifying, acquiring, and developing potential product candidates may distract management’s attention from our primary business or other development programs. If we are unable to identify and acquire or in-license suitable product candidates, we will be unable to diversify our product risk. We believe that any such failure could have a significant negative impact on our prospects because the risk of failure of any particular development program in the pharmaceutical field is high.

We rely on agreements with Takeda to provide rights to the core intellectual property relating to our existing product candidates and to supply us with clinical and commercial trial material to support development and potential commercialization of relugolix and MVT-602. Any termination or loss of significant rights under those agreements would adversely affect our development or commercialization of relugolix and MVT-602.
We have licensed our core intellectual property relating to relugolix and MVT-602 from Takeda. If, for any reason, the Takeda License Agreement is terminated or we otherwise lose the rights thereunder, it would adversely affect our business. The Takeda License Agreement imposes on us obligations relating to exclusivity, territorial restrictions, development, commercialization, funding, payment, diligence, sublicensing, insurance, intellectual property protection, and other matters. If we breach any material obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages to Takeda and Takeda may have the right to terminate the License Agreement, which would result in us being unable to develop, manufacture, and sell relugolix and MVT-602.
In June 2016, we and one of Takeda’s affiliates, Takeda Pharmaceutical Company Limited, or Takeda Limited, entered into an agreement for the manufacture and clinical supply of relugolix. Under this agreement, Takeda Limited will supply us, and we will obtain from Takeda Limited, all of our requirements for relugolix drug substance and drug product to be used under our development plans for all indications. Takeda Limited is also assisting us with a technical transfer of the manufacturing process for relugolix to us and our designee and we are paying the expenses related to such transfer. On May 30, 2018, we entered into a Commercial Manufacturing and Supply Agreement with Takeda, or the Takeda Commercial Supply Agreement, pursuant to which Takeda will manufacture and supply us with relugolix drug substance to support the commercial launch of relugolix, if marketing authorization is granted. Takeda has also agreed to assist with the transfer of technology and manufacturing know-how to a second contract manufacturing organization. We are paying for the expenses related to such transfer. If Takeda fails to fulfill its obligations to manufacture and supply clinical and/or commercial quantities of relugolix or fails to enable the transfer of the manufacturing process for relugolix to us or our designee, our development plans and commercialization of relugolix, if approved, could be significantly delayed or otherwise adversely affected.
We currently have a limited number of employees and we currently rely on Roivant Sciences, Inc. and Roivant Sciences GmbH to provide various services for us.
We currently rely in part on services provided by Roivant Sciences, Inc., or RSI, and Roivant Sciences GmbH, or RSG, wholly owned subsidiaries of Roivant Sciences Ltd., or RSL, pursuant to the Services Agreements we have with these entities. Personnel and support staff who provide services to us under these Services Agreements are not required to treat management

41



and administration of our business as their primary responsibility or act exclusively for us, and we do not expect them to do so. Under the Services Agreements, RSI and RSG have the discretion to determine who, among their employees, will perform services for us. RSI and RSG have limited resources. If either RSI or RSG fails to perform its obligations in accordance with the terms of the Services Agreements or to effectively manage services provided to us, the operations of our business may be adversely affected.
In addition, the level of support we receive from RSI and RSG has decreased and we expect that it will continue to decrease in the near term. As a result, we will be required to replace many of these services with our own internally developed teams or engage external professional service providers. We primarily intend to develop these capabilities internally, and may incur increased costs as we hire and train additional personnel. If we are unable to develop these capabilities or we fail to do so in a timely and effective manner, the operations of our business would be adversely affected.
Our future success depends on our ability to attract and retain key personnel.
We expect to hire additional employees for our managerial team and other teams supporting G&A, commercial, clinical, medical affairs, operations and other functions. Many of the other pharmaceutical companies we compete against for qualified personnel and consultants have greater financial and other resources, more favorable risk profiles and a longer operating history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these opportunities may be more appealing to high-quality candidates and consultants than what we have to offer. Due to these reasons, we may not be able to attract or retain qualified personnel.
In addition, our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the skills and leadership of our management team and key employees. Our senior management and key employees may terminate their positions with us at any time. In addition, we do not maintain “key person” insurance for any of our executives or other employees. If we lose one or more members of our senior management team or key employees, our ability to successfully implement our business strategies could be seriously harmed. Replacing these individuals may be difficult, cause disruption, and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of, and commercialize products successfully. If we are not able to attract and retain necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital, our ability to commercialize relugolix or MVT-602 if we obtain regulatory approvals, and our ability to implement our business strategies.
We plan to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
We expect to expand our organization and hire additional employees. Our management is expected to have increasing responsibilities to identify, recruit, maintain, motivate, and integrate additional employees, consultants and contractors which may divert a disproportionate amount of its time and attention away from our day-to-day activities. The expected growth may also require significant capital expenditures and divert financial resources from other projects. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate or grow revenue could be adversely affected, and we may not be able to implement our business strategy. As a result, our future financial performance and our ability to complete clinical development, obtain regulatory approval, and commercialize relugolix, MVT-602 or any potential future product candidate may be adversely affected.
Our employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers, and other vendors, or those of our affiliates, may engage in misconduct or other improper activities, including noncompliance with regulatory or legal standards and requirements, which could have an adverse effect on our results of operations.
We are exposed to the risk that our employees, contractors, advisers, including principal investigators, consultants, commercial collaborators, service providers, and other vendors, or those of our affiliates, may engage in fraudulent, illegal activity, or other misconduct. Misconduct by these parties could include intentional, reckless or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA or other regulatory bodies, including: those laws that require the reporting of true, complete, and accurate information to such regulatory bodies; laws that require manufacturing by current Good Manufacturing Practice, or cGMP, standards; federal, state and foreign healthcare fraud and abuse laws and data privacy laws; or laws and regulations that require the true, complete, and accurate reporting of financial information or data. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive regulations intended to prevent fraud, kickbacks, self-dealing, bribery, corruption, antitrust violations, and other abusive practices. See the Risk Factors titled “Our current and future relationships with investigators, healthcare professionals, consultants, third-party payors, and customers will be subject to applicable healthcare regulatory laws, which could expose us to penalties,” “International expansion of our business exposes us to business, legal, regulatory, political, operational, financial, economic, and other risks associated with conducting business outside of the U.S.,” and “If we obtain approval to market any products

42



outside of the U.S., a variety of risks associated with international operations could materially adversely affect our business.” These laws may restrict or prohibit a wide range of business activities, including research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in our nonclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and serious harm to our reputation. We have a Code of Business Conduct and Ethics and other corporate compliance policies, but it is not always possible to identify and deter employee or third-party misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, we are subject to the risk that a person or government agency could allege such fraud or other misconduct, even if none occurred. If our employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers or other vendors, or those of our affiliates, are found to be in violation of any such regulatory or legal standards or requirements, it could have a significant impact on our business and financial results, including the imposition of significant civil, criminal, and administrative penalties, damages, monetary fines, suspension or delay in our clinical trials, possible exclusion from participation in Medicare, Medicaid, and other federal healthcare programs, FDA debarment, contractual damages, reputational harm, diminished future earnings and profits, additional reporting requirements, and regulatory oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
International expansion of our business exposes us to business, legal, regulatory, political, operational, financial, economic, and other risks associated with conducting business outside of the U.S.
Part of our business strategy involves international expansion, including establishing and maintaining operations outside of the U.S. and establishing and maintaining relationships with health care providers, payors, government officials, distributors and manufacturers globally. Conducting business internationally involves a number of risks, including:
multiple conflicting and changing laws and regulations such as tax laws, export and import restrictions, employment laws, anti-bribery and anti-corruption laws, regulatory requirements and other governmental approvals, permits and licenses;
possible failure by us or our distributors to obtain appropriate licenses or regulatory approvals for the sale or use of our product candidates, if approved, in various countries;
difficulties in managing foreign operations;
complexities associated with managing multiple payor-reimbursement regimes or self-pay systems;
financial risks, such as longer payment cycles, difficulty enforcing contracts and collecting accounts receivable, and exposure to foreign currency exchange rate fluctuations;
reduced protection for intellectual property rights;
business interruptions resulting from geopolitical actions, economic instability, or natural disasters, including, but not limited to, wars and terrorism, political unrest, outbreak of disease, earthquakes, boycotts, curtailment of trade, and other business restrictions;
failure to comply with foreign laws, regulations, standards and regulatory guidance governing the collection, use, disclosure, retention, security and transfer of personal data, including the European Union General Data Protection Regulation, or the GDPR, which introduced strict requirements for processing personal data of individuals within the European Union, or the EU; and
failure to comply with the Foreign Corrupt Practices Act, including its books and records provisions and its anti-bribery provisions, the United Kingdom Bribery Act 2010, and similar antibribery and anticorruption laws in other jurisdictions, for example by failing to maintain accurate information and control over sales or distributors’ activities.
Any of these risks, if encountered, could significantly harm our future international expansion and operations and, consequently, negatively impact our financial condition, results of operations, and cash flows.
Our internal computer systems, as well as those of RSI and RSG, and our third-party collaborators, consultants or contractors, may fail or suffer cybersecurity breaches and data leakage, which could result in a material disruption of our business and operations or liabilities that adversely affect our financial performance.
Our computer systems, as well as those of RSI, RSG and our contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and other contractors, consultants, and law and accounting firms, may sustain damage or data leakage from computer viruses, unauthorized access or disclosure, data breaches, cybercriminals, natural disasters (including hurricanes

43



and earthquakes), terrorism, war, and telecommunication and electrical failures. A significant breakdown, invasion, corruption, destruction or interruption of critical information technology systems or infrastructure, by our workforce, others with authorized access to our information systems or unauthorized persons, could cause interruptions in our operations and result in a material disruption of our drug development programs. For example, the loss of nonclinical or clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of relugolix or MVT-602 or any future product candidate could be delayed.
The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our or our third-party providers’ systems, portable media or storage devises. We could also experience a business interruption, theft of confidential information, intellectual property or reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our information system infrastructure or lead to data leakage, either internally or at our third-party providers, and could result in liabilities that adversely affect our financial performance. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent services interruptions or security breaches.
The results of the United Kingdom’s referendum on withdrawal from the EU may have a negative effect on global economic conditions, financial markets and our business.
In June 2016, the United Kingdom, or UK, held a referendum in which voters approved an exit from the EU, commonly referred to as “Brexit.” This referendum has created political and economic uncertainty, particularly in the UK and the EU, and this uncertainty may persist for years. A withdrawal could, among other outcomes, disrupt the free movement of goods, services and people between the UK and the EU, and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe. This is particularly the case if the UK and the EU do not reach agreement on how the UK will exit the EU, commonly referred to as a “hard Brexit.” The UK’s vote to exit the EU could also result in similar referendums or votes in other European countries in which we do business. Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the withdrawal of the UK from the EU would have and how such withdrawal would affect us.
For example, Brexit could result in the UK or the EU significantly altering its regulations affecting the clearance or approval of our product candidates that are developed in the UK. Brexit could also affect the clearance or timing of the release of our clinical materials into the UK or the EU. Any such delays could result in our clinical study sites not having sufficient clinical materials and could adversely affect the timing and completion of our clinical trials. Any new regulations could add time and expense to the conduct of our business, as well as the process by which our products receive regulatory approval in the UK, the EU and elsewhere. In addition, the announcement of Brexit and the withdrawal of the UK from the EU have had and may continue to have, particularly in the case of a hard Brexit, a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these effects of Brexit, among others, could adversely affect our business, our results of operations, liquidity and financial condition.
If we fail to comply with applicable U.S. and foreign privacy and data protection laws and regulations, we may be subject to liabilities that adversely affect our business, operations and financial performance.
We are subject to federal and state laws and regulations requiring that we take measures to protect the privacy and security of certain information we gather and use in our business. For example, federal and state security breach notification laws, state health information privacy laws and federal and state consumer protection laws impose requirements regarding the collection, use, disclosure and storage of personal information. In addition, in June 2018, California enacted the California Consumer Privacy Act, or CCPA, which takes effect on January 1, 2020. The CCPA gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. Although the CCPA includes exemptions for certain clinical trials data, the law may increase our compliance costs and potential liability with respect to other personal information we collect about California residents. Some observers note that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability, increase our compliance costs and adversely affect our business.
We may also be subject to or affected by foreign laws and regulations, including regulatory guidance, governing the collection, use, disclosure, security, transfer and storage of personal data, such as information that we collect about patients and healthcare providers in connection with clinical trials and our other operations in the U.S. and abroad. The global legislative and regulatory landscape for privacy and data protection continues to evolve, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. This evolution may create uncertainty in our business, result

44



in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. For example, the EU has adopted the GDPR, which introduces strict requirements for processing personal data. The GDPR increases our compliance burden with respect to data protection, including by mandating potentially burdensome documentation requirements and granting certain rights to individuals to control how we collect, use, disclose, retain and leverage information about them. The processing of sensitive personal data, such as information about health conditions, entails heightened compliance burdens under the GDPR and is a topic of active interest among foreign regulators. In addition, the GDPR provides for breach reporting requirements, more robust regulatory enforcement and fines of up to the greater of 20 million euros or 4% of annual global revenue. While companies are afforded some flexibility in determining how to comply with the GDPR’s various requirements, significant effort and expense are required to ensure continuing compliance with the GDPR. Moreover, the requirements under the GDPR may change periodically or may be modified, and such changes or modifications could have an adverse effect on our business operations if compliance becomes substantially costlier than under current requirements. It is possible that each of these privacy laws may be interpreted and applied in a manner that is inconsistent with our practices. Further, Brexit has created uncertainty with regard to data protection regulation in the UK. In particular, it is unclear whether, post Brexit, the UK will enact data protection legislation equivalent to the GDPR and how data transfers to and from the United Kingdom will be regulated. Any failure or perceived failure by us to comply with federal, state, or foreign laws or self-regulatory standards could result in negative publicity, diversion of management time and effort and proceedings against us by governmental entities or others. In many jurisdictions, enforcement actions and consequences for noncompliance are rising. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.
Use of social media platforms presents new risks.
We believe that our targeted patient population is active on social media. Social media practices in the pharmaceutical and biotechnology industries are evolving, which creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social media platforms to comment on the effectiveness of, or adverse experiences with, a product candidate, which could result in reporting obligations. In addition, there is a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us or our product candidates on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face restrictive regulatory actions or incur other harm to our business.
The failure to successfully implement an enterprise resource planning system could adversely impact our business and results of operations.
We are implementing a company-wide enterprise resource planning, or ERP, system to upgrade certain existing business, operational, and financial processes, upon which we rely. ERP implementations are complex and time-consuming projects that require transformations of business and finance processes to reap the benefits of the ERP system. Any such transformation involves risk inherent in the conversion to a new system, including loss of information and potential disruption to normal operations. Additionally, if the ERP system is not effectively implemented as planned, or the system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess those controls adequately could be delayed. Significant delays in documenting, reviewing and testing our internal control over financial reporting could cause us to fail to comply with the U.S. Securities and Exchange Commission, or the SEC, reporting obligations related to our management’s assessment of our internal control over financial reporting, or result in the issuance of an adverse opinion on the effectiveness of internal control over financial reporting by our independent registered public accounting firm. In addition, if we experience interruptions in service or operational difficulties and are unable to effectively manage our business during or following the implementation of the ERP system, our business and results of operations could be harmed.
Potential product liability lawsuits against us could cause us to incur substantial liabilities and could impact ongoing and
planned clinical trials as well as limit commercialization of any products that we may develop.

The use of relugolix and MVT-602 in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by regulatory or governmental agencies, consumers, health care providers, other pharmaceutical companies or others taking or otherwise coming into contact with our products. On occasion, large monetary judgments have been awarded in class action lawsuits where drugs have had unanticipated adverse effects. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:
impairment of our business reputation and significant negative media attention;
withdrawal of participants from our clinical trials;
significant costs to defend related litigation;

45



distraction of management’s attention from our primary business;
substantial monetary awards to patients or other claimants;
inability to commercialize our products or any future product candidates;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
decreased demand for our products or any future product candidate, if approved for commercial sale; and
loss of revenue.
The product liability and clinical trial insurance we currently carry, and any additional product liability and clinical trial insurance coverage we acquire in the future, may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain marketing approval for relugolix or MVT-602, we intend to acquire insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. A successful product liability claim or series of claims brought against us could cause our common share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing or limiting the commercialization of any product candidates we develop.
Risks Related to Clinical Development, Regulatory Approval and Commercialization
Clinical trials are very expensive, time-consuming, difficult to design and implement, and involve uncertain outcomes.
Our product candidates, relugolix in combination with low-dose estradiol and a progestin, relugolix monotherapy, and MVT-602, are still in development and will require extensive clinical testing resulting in sufficiently positive outcomes before we are prepared to submit an NDA or other similar application for regulatory approval. We cannot predict with certainty if or when we might submit an NDA for regulatory approval for relugolix or MVT-602 in any indication or whether any such application will be approved by the relevant regulatory authorities. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA or other regulatory authorities may not agree with our proposed plans for any clinical trials of relugolix or MVT-602, which may delay the approval of an NDA or similar application. The clinical trial process is also very time-consuming.
Failures can occur at any stage of clinical trials, and we could encounter problems that cause us to abandon or repeat clinical trials. In addition, results from clinical trials may require further evaluation, delaying the next stage of clinical development or submission of an NDA. Further, product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through nonclinical studies and initial clinical trials. For example, Takeda’s Phase 2 trial for relugolix in men with advanced prostate cancer, C27002, did not meet the criteria for success for its primary endpoint specified in the statistical analysis plan, highlighting the importance of appropriate selection of the primary endpoint, statistical powering of a clinical study, and diligent oversight of the treatment compliance of those patients enrolled into the trial. A number of companies in the biopharmaceutical industry have suffered significant setbacks in or the discontinuation of advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Likewise, the results of early clinical trials of relugolix and MVT-602 may not be predictive of the results of our planned development programs, and there can be no assurance that the results of studies conducted by collaborators or other third parties will be viewed favorably or are indicative of our own future study results.
The commencement and completion of clinical trials may be delayed by several factors, including:
failure to obtain regulatory approval to commence a trial;
unforeseen safety issues;
lack of effectiveness during clinical trials;
identification of dosing issues;
inability to reach agreement on acceptable terms with prospective CROs and/or clinical trial sites, the terms of which can be subject to extensive negotiations and may vary significantly among different CROs and trial sites;
slower than expected rates of patient recruitment and enrollment or failure to recruit suitable patients to participate in a trial;
failure to open a sufficient number of clinical trial sites;
unanticipated impact from changes in or modifications to clinical trial design;

46



inability or unwillingness of clinical investigators or study participants to follow our clinical and other applicable protocols;
premature discontinuation of study participants from clinical trials or missing data;
failure to manufacture or release sufficient quantities of relugolix, MVT-602, estradiol, progestin or placebo or failure to obtain sufficient quantities of concomitant medication, that in each case meet our quality standards, for use in clinical trials;
inability to monitor patients adequately during or after treatment; or
inappropriate unblinding of study results.
Further, we, the FDA or an institutional review board, or IRB, or other regulatory authority may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements, including, the FDA’s current Good Clinical Practice, or cGCP, or cGMP regulations, that we are exposing participants to unacceptable health risks, or if the FDA or other regulatory authority, as the case may be, finds deficiencies in our Investigational New Drug application, or IND, or other submissions or the manner in which the clinical trials are conducted. Therefore, we cannot predict with any certainty the timing for commencement or completion of future clinical trials. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of relugolix or MVT-602 could be harmed, and our ability to generate product revenue from relugolix or MVT-602 may be delayed. In addition, any delays in our clinical trials could increase our costs, cause a decline in our common share price, slow down the approval process, and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition, and results of operations. In addition, many of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory authorities. The FDA or other regulatory authorities may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected the integrity of the study. The FDA or other regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
In addition, prior to our acquisition of worldwide rights (excluding Japan and certain other Asian countries) to relugolix and worldwide rights to MVT-602, we had no involvement with or control over the nonclinical or clinical development of either relugolix or MVT-602. We are dependent on Takeda having conducted such research and development in accordance with the applicable protocols, legal, regulatory, and scientific standards, having accurately reported the results of all clinical trials and other research conducted prior to our acquisition of the rights to relugolix and MVT-602, having correctly collected and interpreted the data from these trials and other research, and having supplied us with complete information, data sets, and reports required to adequately demonstrate the results reported through the date of our acquisition of these assets. Problems related to predecessors could result in increased costs and delays in the development of our product candidates, which could adversely affect our ability to generate any future revenue from these product candidates.
Recruitment, enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control.
We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials on our current timelines, or at all, and even once enrolled we may be unable to retain a sufficient number of patients to complete any of our clinical trials. Enrollment in our clinical trials may be slower than we anticipated, leading to delays in our development timelines. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, our ability to recruit clinical trial investigators with the appropriate competencies and experience, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical sites, the eligibility criteria for the study and the proportion of patients screened that meets those criteria, our ability to obtain and maintain patient consents, and the risk that patients enrolled in clinical trials will drop out of the trials before completion. Furthermore, any negative results we or Takeda may report in clinical trials of our product candidates may make it difficult or impossible to recruit, enroll, and retain patients in other clinical trials of that same product candidate. Similarly, negative results reported by our competitors about their drug candidates may negatively affect patient recruitment, enrollment, or retention in our clinical trials. Also, marketing authorization of competitors in the same class of product candidates may impair our ability to recruit, enroll, or retain patients into our clinical trials, delaying or potentially preventing us from

47



completing clinical trials. Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop relugolix and MVT-602, or could render further development impossible.
The results of our clinical trials may not support our proposed claims for relugolix or MVT-602.
Even if our clinical trials are completed as planned, we cannot be certain that their results will support the efficacy or safety of relugolix or MVT-602. Success in nonclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and nonclinical testing. Likewise, promising results in interim analyses or other preliminary analyses do not ensure that the clinical trial as a whole will be successful. In addition, the FDA may not agree that clinical trial results are sufficient for approval for any product candidate. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials, even after promising results in earlier nonclinical or clinical studies. These setbacks have been caused by, among other things, nonclinical findings made while clinical studies were underway and safety or efficacy observations made in clinical studies, including previously unreported adverse events. The results of nonclinical and early clinical studies of our product candidates may not be predictive of the results of later-stage nonclinical studies or clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through nonclinical and initial clinical trials. A future failure of a clinical trial to meet its predetermined endpoints would likely cause us to abandon a product candidate and may delay development of any other product candidates. Any delay in, or termination of, our clinical trials will delay the submission of our NDAs to the FDA or other similar applications with other relevant foreign regulatory authorities and, ultimately, our ability to commercialize relugolix and MVT-602 and generate product revenue.
Reported data or other clinical development announcements by Takeda may adversely affect our clinical development plan.
Takeda is developing relugolix for the treatment of women with uterine fibroid-associated pain and heavy menstrual bleeding in Japan. Takeda reported positive top-line results from its two Phase 3 clinical trials in Japan in women with uterine fibroids and announced that it had obtained market authorization in Japan from the Ministry of Health, Labour and Welfare for Relumina® Tablets 40 mg (generic name: relugolix) for the improvement of symptoms of uterine fibroids (heavy menstrual bleeding, lower abdominal pain, lower back pain, and anemia). Favorable announcements by Takeda do not guarantee that the results of our clinical trials will also be favorable as the designs of our Phase 3 clinical trials differ from those of Takeda. Further, if post marketing adverse events regarding Relumina® are reported, or subsequent announcements by Takeda regarding relugolix are unfavorable, it could negatively impact our clinical development plans for relugolix.
We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.
Drug development is highly competitive and subject to rapid and significant technological advancements. As a significant unmet medical need exists for the treatment of each of uterine fibroids, endometriosis, and advanced prostate cancer, as well as infertility in women, there are several large and small pharmaceutical companies focused on delivering therapeutics for the treatment of these indications. For example, ORILISSA, an oral GnRH receptor antagonist, has been approved by the FDA for the management of moderate to severe pain associated with endometriosis and was launched by AbbVie in August 2018. Further, it is likely that additional drugs will become available in the future for the treatment of each of our target indications.
We are aware of several companies that are developing and commercializing drugs that would compete against relugolix for the treatment of heavy menstrual bleeding associated with uterine fibroids, pain associated with endometriosis, and/or advanced prostate cancer and against MVT-602 for the treatment of female infertility as part of assisted reproduction. Many of our current and potential future competitors have significantly more experience commercializing drugs that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a smaller number of our competitors. Competition may reduce the number and types of patients available to us to participate in clinical trials, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors or opt to take an approved product.
Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drugs that are more effective or less costly than any product candidate that we may develop.
We will face competition from other drugs currently approved or that will be approved in the future for the treatment of uterine fibroids, endometriosis, or advanced prostate cancer, as well as infertility in females. Therefore, our ability to compete successfully will depend largely on our ability to:
develop and commercialize medicines that are superior in safety and efficacy to other products in the market;
demonstrate through our clinical trials that relugolix or MVT-602 are differentiated from existing and future therapies;

48



attract qualified scientific, clinical, product development, and commercial personnel;
obtain patent or other proprietary protection for our medicines;
obtain required regulatory approvals;
obtain market access, coverage and adequate reimbursement from third-party payors; and
successfully collaborate with pharmaceutical companies in the discovery, development, and commercialization of new medicines.
The availability and pricing of our competitors’ products could limit the demand and the price we are able to charge for any product candidate we develop. The inability to compete with existing or subsequently introduced drugs would have an adverse impact on our business, financial condition and prospects.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make relugolix or MVT-602 less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving FDA or other regulatory authority approval for or commercializing medicines before we do, which would have an adverse impact on our business and results of operations.
In addition, if the competing drugs that are mechanistically similar to our product candidates do not meet the expectations of the marketplace or have safety or efficacy issues, the market perception of our product candidates may be negatively affected, and the commercial performance of our product candidates may suffer.
If we are not able to obtain required regulatory approvals, we will not be able to commercialize relugolix or MVT-602, and our ability to generate product revenue will be materially impaired.
Relugolix and MVT-602 and the activities associated with their development and commercialization, including their design, research, testing, manufacture, formulations, safety, efficacy, recordkeeping, labeling, packaging, storage, approval, advertising, promotion, sale, and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the U.S. and by similar regulatory authorities outside the U.S. Failure to obtain marketing approval for relugolix and MVT-602 will prevent us from commercializing them.
We have not received approval from regulatory authorities to market any product candidate in any jurisdiction, and it is possible that neither relugolix in combination with low-dose estradiol and a progestin, relugolix monotherapy, MVT-602 nor any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us to commence product sales. Neither we nor Takeda, nor any future collaborator is permitted to market any of our product candidates in the U.S. or any other jurisdiction until regulatory approval of an NDA from the FDA or similar regulatory authorities outside of the U.S. is received.
The time required to obtain approval of an NDA by the FDA or similar regulatory authorities outside of the U.S. is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authority. Prior to submitting an NDA to the FDA or any comparable application to any other foreign regulatory authorities for approval of relugolix, we will need to complete our ongoing Phase 3 programs for relugolix, and for approval of MVT-602, we will need to complete Phase 2 and Phase 3 clinical trials. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approvals may change during the course of a product candidate’s clinical development and may vary among jurisdictions.
Securing marketing approvals requires the submission of extensive nonclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the safety and efficacy of relugolix and MVT-602 for the specified indication. Further, because we are exploring the use of relugolix in combination with low-dose estradiol and a progestin as a longer-term therapy (i.e., greater than 6 months) for the treatment of heavy menstrual bleeding associated with uterine fibroids and for the treatment of pain associated with endometriosis, we expect to be required to submit data on a patient population followed for at least one year. We expect to rely on third-party CROs and consultants to assist us in filing and supporting the applications necessary to gain marketing approvals. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Delays or errors in the submission of applications for marketing approval or issues, including those related to gathering the appropriate data and the inspection process, may ultimately delay or affect our ability to obtain regulatory approvals, commercialize our product candidates, and generate product revenue.
Relugolix and MVT-602 may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.
Adverse events associated with relugolix or MVT-602 could cause us, other reviewing entities, clinical trial sites or regulatory

49



authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval. If an unacceptable frequency or severity of adverse events are reported in our clinical trials for relugolix or MVT-602 or any future product candidates, our ability to obtain regulatory approval for such product candidates may be negatively impacted. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. Any of these occurrences may harm our business, financial condition and prospects.
Furthermore, the FDA has raised concern about a potential increase in the risk of diabetes and certain cardiovascular diseases in men with prostate cancer treated with GnRH agonists. Further, on May 18, 2018, the European Medicines Agency, or the EMA, Pharmacovigilance Risk Assessment Committee, or PRAC, completed its review of Esmya (ulipristal acetate) following reports of serious liver injury. The PRAC concluded that Esmya may have contributed to the development of some cases of serious liver injury. The PRAC has recommended that Esmya must not be used in women with known liver problems and should be used for more than one treatment course only in women who are not eligible for surgery. Liver function testing should be performed at the start of each treatment course and once a month and for two to four weeks after stopping treatment for the first two treatment courses. In August 2018, Allergan, Inc. announced that it received a Complete Response letter from the FDA in which the FDA cited safety concerns regarding Esmya post-marketing reports outside the U.S., indicated that Esmya could not be approved in its current form, and requested additional information. Although Esmya is in a different class of drugs from relugolix, the review of post-marketing events of liver toxicity for Esmya by regulatory bodies may lead to increased scrutiny regarding liver function for GnRH antagonists. Further, if post marketing adverse events related to Relumina® are reported, it could negatively impact our clinical development plans for relugolix.
If any of our product candidates are approved and then cause serious or unexpected side effects, a number of potentially significant negative consequences could result, including:
regulatory authorities may withdraw their approval of the product or require a Risk Evaluation and Mitigation Strategy, or a REMS (or equivalent outside the U.S.) to impose restrictions on its distribution or other risk management measures;
we may be required to recall a product;
additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;
we may be required to conduct post-marketing studies or clinical trials;
regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
we may be required to change the way the product is administered or to conduct additional clinical trials;
we may be required to repeat a nonclinical study or clinical trial or terminate a program, even if other studies or trials related to the program are ongoing or have been successfully completed;
we could be sued and held liable for harm caused to patients;
we could elect to discontinue the sale of our product;
the product may become less competitive; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing relugolix or MVT-602.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, and inherently unpredictable, and even if we obtain approval for a product candidate in one country or jurisdiction, we may never obtain approval for or commercialize it in any other jurisdiction which would limit our ability to realize our full market potential.
Prior to obtaining approval to commercialize a product candidate in any jurisdiction, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. To market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the U.S. does not ensure approval by regulatory authorities in any other country or jurisdiction. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory

50



approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking regulatory approval could result in difficulties and costs for us and require additional nonclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of any product we develop will be unrealized.
Even if we obtain regulatory approval for our product candidates, we will still face extensive regulatory requirements and our products may face future development risks and regulatory difficulties.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, and promotional activities for such product, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, establishment of registration and drug listing requirements, continued compliance with cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of drug product samples to physicians, recordkeeping, and cGCP requirements for any clinical trials that we conduct post-approval. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval or the FDA or other regulatory authorities may require that contraindications, warnings or precautions-including in some cases, a boxed warning-be included in the product labeling. If relugolix or MVT-602 receives marketing approval, the accompanying label may limit the approved use of our product, which could limit sales of the product.
Regulatory authorities closely regulate the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. Regulatory authorities impose stringent restrictions on manufacturers’ communications regarding off-label use, and if regulatory authorities believe that we are in violation of these restrictions, we may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act in the U.S., and other comparable regulations in foreign jurisdictions, relating to the promotion of prescription drugs may lead to enforcement actions and investigations by the FDA, Department of Justice, State Attorney Generals and other foreign regulatory agencies alleging violations of U.S. federal and state health care fraud and abuse laws, as well as state consumer protection laws and comparable laws in foreign jurisdictions.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements may yield various results, including:
restrictions on the manufacture of such products;
restrictions on the labeling or marketing of such products;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
requirement of a REMS (or equivalent outside the U.S.);
Warning or Untitled Letters;
withdrawal of the products from the market;
recall of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of such products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
The FDA and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of relugolix or MVT-602 or any future product candidate. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. If we are slow or unable to adapt to changes in existing requirements or to the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we

51



may have obtained.
Even if one of our product candidates receives marketing approval, it may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.
Even if one of our product candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors, and others in the medical community. If it does not achieve an adequate level of acceptance, we may not generate significant product revenue or become profitable. The degree of market acceptance of a product candidate, if approved for commercial sale, will depend on a number of factors, including but not limited to:
the efficacy and potential advantages compared to alternative treatments;
the prevalence and severity of any side effects;
the content of the approved product label;
the effectiveness of sales and marketing efforts;
the cost of treatment in relation to alternative treatments, including any similar generic treatments;
our ability to offer our products for sale at competitive prices;
the convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support;
the availability of third-party payor coverage and adequate reimbursement;
whether diagnosis and treatment rates increase for the diseases our products treat; and
any restrictions on the use of our product together with other medications.
Because we expect sales of relugolix and MVT-602, if approved, to generate substantially all of our product revenue for the foreseeable future, the failure of these product candidates to obtain market acceptance would harm our business and could require us to seek additional financing.
If we are unable to establish sales, marketing, and distribution capabilities, either on our own or in collaboration with third parties, we may not be successful in commercializing our product candidates, if approved.
To market any product that may be approved, we must build our sales, distribution, marketing, managerial, and other nontechnical capabilities or make arrangements with third parties to perform these services. To achieve commercial success for any product for which we obtain marketing approval, we will need a sales and marketing organization. We are currently building our sales and marketing infrastructure; however, we currently do not have an established infrastructure for the sales, marketing, or distribution of our products, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so.
We expect to build a focused sales, distribution, and marketing infrastructure to market our product candidates in the U.S., if approved. There are significant expenses and risks involved with establishing our own sales, marketing, and distribution capabilities, including our ability to hire, retain, and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage geographically dispersed sales and marketing teams. Any failure or delay in the development of our internal sales, marketing, and distribution capabilities could delay any product launch, which would adversely impact its commercialization. For example, if the commercial launch of relugolix or MVT-602, if approved, for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include:
our inability to recruit, train, and retain adequate numbers of qualified and effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or attain access to adequate numbers of physicians to prescribe any drugs;
the inability to negotiate with payors regarding reimbursement for our products; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
We do not anticipate having the resources in the foreseeable future to allocate to the sales, marketing and distribution of our product candidates in certain markets overseas. Therefore, our future success will depend, in part, on our ability to enter into

52



and maintain collaborative relationships for such capabilities, the collaborator’s strategic interest in our products, and such collaborator’s ability to successfully market and sell the products. We intend to pursue collaborative arrangements regarding the sales, marketing and distribution of our product candidates, if approved, for certain markets overseas; however, it might be difficult for us to find third parties that are willing to enter into such transactions on acceptable economic terms or at all. We also will be competing with many other companies as we seek sales partners for our product candidates and we may not be able to compete successfully against those other firms. We cannot assure you that we will be able to establish or maintain such collaborative arrangements on terms favorable to us, or even if we are able to do so, that they will have effective sales forces. To the extent that we depend on third parties for sales, marketing and distribution, the financial returns to us will depend on our future collaborators’ capabilities. If any such future collaborator terminates its collaboration with us or fails to perform or satisfy its obligations to us, the sales, marketing and distribution of our product candidates would be delayed or may not occur and our business and prospects could be materially and adversely affected.
If we are unable to build our own sales force or negotiate a collaborative relationship for the commercialization of our product candidates, we may be forced to delay their potential commercialization or reduce the scope of our sales or marketing activities for them. If we elect to increase our expenditures to fund commercialization activities ourselves, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market or generate product revenue. We could enter into arrangements with collaborative partners at an earlier stage than otherwise would be ideal and we may be required to relinquish certain rights to our product candidates or otherwise agree to terms unfavorable to us, any of which may have an adverse effect on our business, operating results, and prospects.
If we are unable to establish adequate sales, marketing, and distribution capabilities, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates and may not become profitable. We will be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
If we obtain approval to market any products outside of the U.S., a variety of risks associated with international operations could materially adversely affect our business.
If either relugolix or MVT-602 is approved for marketing outside of the U.S., we intend to enter into agreements with third parties to market these products in certain jurisdictions. We expect that we will be subject to additional risks related to international operations or entering into international business relationships, including:
different regulatory requirements for drug approvals and rules governing drug commercialization in foreign countries;
reduced or no protection over intellectual property rights;
unexpected changes in tariffs, trade barriers, and regulatory requirements;