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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)
   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2021
or
      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 KingdomNot Applicable
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: +44 (207) 400 3351
Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading SymbolName of each exchange on which registered
Common Shares, $0.000017727 par value per shareMYOVNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares outstanding of the Registrant’s common shares, $0.000017727 par value per share, on January 21, 2022 was 93,904,902.


Table of Contents
MYOVANT SCIENCES LTD.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2021
TABLE OF CONTENTS
 Page
 
2

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In this Quarterly Report on Form 10-Q (“Quarterly Report”), “Myovant,” “the Company,” “we,” “us” and “our” refer to Myovant Sciences Ltd. and its wholly-owned subsidiaries.
This Quarterly Report may contain references to our proprietary intellectual property, including among others, trademarks for our products, ORGOVYX® and MYFEMBREE®.
These trademarks and trade names are the property of Myovant or the property of our wholly-owned subsidiaries and are protected under applicable intellectual property laws. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report may appear without the ® or other symbols, but such references are not intended to indicate in any way that the Company will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names.
Risk Factor Summary
Below is a summary of the material factors that make an investment in our common shares speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Report. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should consider carefully the risks and uncertainties described under “Risk Factors” in Item 1A of Part II of this Quarterly Report as part of your evaluation of an investment in our common shares.
Risks Related to Commercialization of Our Drug Products
Our success depends in part on the successful commercialization of our drug products. To the extent our drug products are not commercially successful, our business, financial condition and results of operations will be materially harmed.
Our drug products may fail to achieve the degree of market acceptance by physicians, patients, third-party payers or others in the medical community necessary for commercial success, which would negatively impact our business.
If we and our collaboration partners are unable to effectively market and sell our drug products, the commercialization of our drug products will not be successful and our business will be harmed.
Failure to successfully obtain coverage and reimbursement for ORGOVYX and MYFEMBREE in the United States, or the availability of coverage only at limited levels, would diminish our ability to generate net product revenue.
We face substantial competition in the commercialization of our approved drug products, and our operating results will suffer if we fail to compete effectively.
If we or our collaboration partner, Pfizer, are found to have improperly promoted unapproved uses of our drug products, we may be subject to restrictions on the sale or marketing of our drug products and significant fines, penalties, sanctions and product liability claims, and our image and reputation within the industry and marketplace could be harmed.
Risks Related to Our Financial Position and Capital Requirements
If we do not have adequate funds to cover our development and commercialization activities, we may have to raise additional capital or curtail or cease operations. We may not be able to obtain funding through public or private offerings of our capital shares, debt financings, collaboration or licensing arrangements, or other sources.
We may never achieve or maintain profitability.
Risks Related to Our Business Operations
The terms of the Sumitomo Dainippon Pharma Loan Agreement place restrictions on our operating and financial flexibility.
We do not have our own manufacturing capabilities and rely on third parties to produce clinical and commercial supplies of drug substance and drug product. If these third parties do not perform as we expect, do not maintain their regulatory approvals, or become subject to other negative circumstances, it may result in a delay in our ability to develop and commercialize our products.
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Risks Related to Clinical Development and Regulatory Approval
Clinical studies are very expensive, time-consuming, difficult to design and implement, and involve uncertain outcomes. Clinical study failures can occur at any stage of clinical studies, and we could encounter problems that cause us to suspend, abandon or repeat clinical studies. We cannot predict with any certainty the timing for commencement or completion of current or future clinical studies.
The results of our clinical studies may not support our proposed claims for our product candidates. The results of previous clinical studies may not be predictive of future results, and interim or top-line data may be subject to change or qualification based on the complete analysis of data.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable. If we are not able to obtain required regulatory approvals for our product candidates, our ability to generate net product revenue will be materially impaired.
Adverse events associated with our product candidates could cause us, regulatory authorities, other reviewing entities or clinical study sites to interrupt, delay, request modification of, or halt clinical studies and could result in the denial of regulatory approval.
Risks Related to Our Dependence on Third Parties
We are dependent upon our relationships with collaboration partners to further develop, fund, manufacture and commercialize our drug products and our product candidates. If such relationships are unsuccessful, or if a collaboration partner terminates its collaboration agreement with us, it could negatively impact our ability to conduct our business and generate net product revenue. Failure by a collaboration partner to perform its duties under its collaboration agreement with us (e.g. financial reporting or internal control compliance) may negatively affect us.
We are reliant on third parties to conduct, manage, and monitor our clinical studies, and if those third parties perform in an unsatisfactory manner, it may harm our business.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damages and could lose intellectual property rights that are necessary for developing and protecting our product candidates.
Risks Related to Our Being a Controlled Company
We have agreements with Sumitovant, our majority shareholder, and with Sumitovant’s parent, Sumitomo Dainippon Pharma, and their affiliates, including Sunovion, that may be perceived to create conflicts of interest which, if other investors perceive that Sumitovant or Sumitomo Dainippon Pharma will not act in the best interests of all of our shareholders, may affect the price of our common shares and have other effects on our company.
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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, 2021March 31, 2021
Assets  
Current assets:  
Cash and cash equivalents$457,742 $674,493 
Accounts receivable, net18,910 3,570 
Marketable securities70,020 10,435 
Inventories6,737 2,611 
Prepaid expenses and other current assets20,795 13,536 
Amount due from related party550  
Total current assets574,754 704,645 
Property and equipment, net2,952 3,300 
Operating lease right-of-use asset8,405 9,655 
Other assets18,181 7,427 
Total assets$604,292 $725,027 
Liabilities and shareholders’ deficit  
Current liabilities:  
Accounts payable$12,130 $17,809 
Accrued expenses and other current liabilities58,423 44,612 
Share-based compensation liabilities2,724 21,636 
Deferred revenue100,564 100,564 
Amounts due to Pfizer37,727 1,954 
Cost share advance from Pfizer55,026 92,415 
Operating lease liability2,052 1,807 
Amounts due to related parties391 543 
Total current liabilities269,037 281,340 
Deferred revenue, non-current400,849 397,369 
Cost share advance from Pfizer, non-current 29,447 
Long-term operating lease liability7,618 9,189 
Long-term debt, less current maturities (related party)358,700 358,700 
Other liabilities371 2,947 
Total liabilities1,036,575 1,078,992 
Commitments and contingencies (Note 9)
Shareholders’ deficit:  
Common shares, $0.000017727 par value, 564,111,242 shares authorized; 93,658,206 and 91,000,869 issued and outstanding at December 31, 2021 and March 31, 2021, respectively
2 2 
Additional paid-in capital777,844 709,466 
Accumulated other comprehensive loss(17,285)(17,285)
Accumulated deficit(1,192,844)(1,046,148)
Total shareholders’ deficit (432,283)(353,965)
Total liabilities and shareholders’ deficit$604,292 $725,027 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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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,
 2021202020212020
Revenues:
Product revenue, net$29,268 $ $61,885 $ 
Pfizer collaboration revenue25,172 1,379 79,853 1,379 
Richter license and milestone revenue  31,667 33,333 
Total revenues54,440 1,379 173,405 34,712 
Operating costs and expenses:
Cost of product revenue4,243  7,897  
Collaboration expense to Pfizer12,086  25,912  
Research and development25,726 30,453 82,886 115,160 
Selling, general and administrative (1)
72,125 49,243 192,118 103,387 
Total operating costs and expenses114,180 79,696 308,813 218,547 
Loss from operations(59,740)(78,317)(135,408)(183,835)
Interest expense (2)
3,479 2,609 10,478 6,908 
Interest income(70)(32)(248)(178)
Foreign exchange gain (5,891) (16,178)
Loss before income taxes(63,149)(75,003)(145,638)(174,387)
Income tax expense (benefit)296 (1,154)1,058 (616)
Net loss$(63,445)$(73,849)$(146,696)$(173,771)
Net loss per common share — basic and diluted$(0.68)$(0.82)$(1.59)$(1.94)
Weighted average common shares outstanding — basic and diluted93,474,985 90,096,557 92,514,657 89,715,160 
(1) Includes $1,337 and $3,784 of related party expense (inclusive of third-party pass-through costs) for the three and nine months ended December 31, 2021, respectively. Includes $1,671 and $3,076 of related party expense (inclusive of third-party pass-through costs) for the three and nine months ended December 31, 2020, respectively (see Note 5).
(2) Includes $2,871 and $8,660 of interest expense under the Sumitomo Dainippon Pharma Loan Agreement for the three and nine months ended December 31, 2021, respectively. Includes $2,569 and $6,868 of interest expense under the Sumitomo Dainippon Pharma Loan Agreement for the three and nine months ended December 31, 2020, respectively (see Note 5).
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited; in thousands)
Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Net loss$(63,445)$(73,849)$(146,696)$(173,771)
Other comprehensive loss:
Foreign currency translation adjustment (5,745) (15,639)
Total other comprehensive loss (5,745) (15,639)
Comprehensive loss$(63,445)$(79,594)$(146,696)$(189,410)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Shareholders’ Deficit
(unaudited; in thousands, except share data)

Common SharesAdditional
Paid-in Capital
Accumulated
Other Comprehensive
Loss
Accumulated DeficitTotal Shareholders’
 Deficit
SharesAmount
Balance at March 31, 2021
91,000,869 $2 $709,466 $(17,285)$(1,046,148)$(353,965)
Share-based compensation — — 11,262 — — 11,262 
Share-based compensation liabilities reclassified to equity upon settlement of awards— — 1,862 — — 1,862 
Share-based compensation reclassified to current liabilities— — (1,377)— — (1,377)
Issuance of shares upon exercise of stock options and release of restricted stock units941,774 — 4,252 — — 4,252 
Net loss— — — — (61,660)(61,660)
Balance at June 30, 202191,942,643 2 725,465 (17,285)(1,107,808)(399,626)
Share-based compensation— — 11,863 — — 11,863 
Share-based compensation liabilities reclassified to equity upon settlement of awards— — 16,297 — — 16,297 
Share-based compensation reclassified to current liabilities— — (915)— — (915)
Issuance of shares upon exercise of stock options and release of restricted stock units and performance share units1,135,146 — 11,045 — — 11,045 
Net loss— — — — (21,591)(21,591)
Balance at September 30, 2021
93,077,789 2 763,755 (17,285)(1,129,399)(382,927)
Share-based compensation— — 7,199 — — 7,199 
Share-based compensation liabilities reclassified to equity upon settlement of awards— — 2,491 — — 2,491 
Share-based compensation reclassified to current liabilities— — 554 — — 554 
Issuance of shares upon exercise of stock options and release of restricted stock units580,417 — 2,565 — — 2,565 
Capital contribution - other— — 1,280 — — 1,280 
Net loss— — — — (63,445)(63,445)
Balance at December 31, 2021
93,658,206 $2 $777,844 $(17,285)$(1,192,844)$(432,283)

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Common SharesAdditional
Paid-in Capital
Accumulated
Other Comprehensive
Loss
Accumulated DeficitTotal Shareholders’
 Deficit
SharesAmount
Balance at March 31, 2020
89,833,998 $2 $684,381 $(1,646)$(791,014)$(108,277)
Share-based compensation— — 7,812 — — 7,812 
Issuance of shares upon exercise of stock options and release of restricted stock units303,014 — 2,190 — — 2,190 
Foreign currency translation adjustment— — — (3,475)— (3,475)
Net loss— — — — (32,860)(32,860)
Balance at June 30, 202090,137,012 2 694,383 (5,121)(823,874)(134,610)
Share-based compensation— — 6,924 — — 6,924 
Issuance of shares upon exercise of stock options and
release of restricted stock units and performance share
units
443,991 — 1,388 — — 1,388 
Foreign currency translation adjustment— — — (6,419)— (6,419)
Net loss— — — — (67,062)(67,062)
Balance at September 30, 202090,581,003 2 702,695 (11,540)(890,936)(199,779)
Share-based compensation— — 7,010 — — 7,010 
Issuance of shares upon exercise of stock options and release of restricted stock units and performance share units289,039 — 1,706 — — 1,706 
Foreign currency translation adjustment— — — (5,745)— (5,745)
Net loss— — — — (73,849)(73,849)
Balance at December 31, 202090,870,042 $2 $711,411 $(17,285)$(964,785)$(270,657)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MYOVANT SCIENCES LTD.
Condensed Consolidated Statements of Cash Flows
(unaudited; in thousands)
Nine Months Ended December 31,
20212020
Cash flows from operating activities: 
Net loss$(146,696)$(173,771)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: 
Share-based compensation30,324 21,746 
Depreciation1,062 686 
Non-cash interest expense1,818 40 
Foreign currency transaction gain (16,178)
Amortization of operating lease right-of-use assets1,250 1,101 
Other9 538 
Changes in operating assets and liabilities: 
Accounts receivable(15,340) 
Inventories(4,126) 
Prepaid expenses and other current assets(7,259)89 
Amount due from related party(550) 
Other assets(3,641)(1,309)
Accounts payable(5,679)(2,977)
Interest payable (related party) (15)
Accrued expenses and other current liabilities13,811 15,317 
Deferred revenue3,480 478,908 
Amounts due to Pfizer35,773  
Cost share advance from Pfizer(68,654)138,800 
Operating lease liabilities(1,326)(1,112)
Amounts due to related parties(152)628 
Other liabilities(2,576)1,080 
Net cash (used in) provided by operating activities(168,472)463,571 
Cash flows from investing activities: 
Purchases of marketable securities(118,837)(47,562)
Maturities of marketable securities59,252 18,235 
Purchases of property and equipment(723)(1,036)
Net cash used in investing activities(60,308)(30,363)
Cash flows from financing activities: 
Capital contribution- other1,280  
Proceeds from related party debt financing 200,000 
Proceeds from stock option exercises17,862 5,284 
Net cash provided by financing activities19,142 205,284 
Net change in cash, cash equivalents and restricted cash(209,638)638,492 
Cash, cash equivalents and restricted cash, beginning of period677,480 78,018 
Cash, cash equivalents and restricted cash, end of period$467,842 $716,510 
Supplemental Disclosures of Non-Cash Financing Information:
Change in fair value of share-based awards recorded to additional paid-in capital$1,738 $ 
Reclassification of share-based compensation liabilities to additional paid-in capital upon settlement of awards$20,650 $ 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MYOVANT SCIENCES LTD.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1—Organization and Summary of Significant Accounting Policies
Description of Business
Myovant Sciences Ltd. (together with its wholly-owned subsidiaries, the “Company”) is a healthcare company focused on redefining care for women and for men through purpose-driven science, empowering medicines, and transformative advocacy. Founded in 2016, the Company has two FDA-approved products: (1) ORGOVYX® (relugolix 120 mg), which was approved in the U.S. by the U.S. Food and Drug Administration (“FDA”) in December 2020 as the first and only oral gonadotropin-releasing hormone (“GnRH”) receptor antagonist for the treatment of adult patients with advanced prostate cancer; and (2) MYFEMBREE® (relugolix 40 mg, estradiol 1.0 mg, and norethindrone acetate 0.5 mg), which was approved in the U.S. by the FDA in May 2021 as the first and only once-daily oral treatment for the management of heavy menstrual bleeding associated with uterine fibroids. In July 2021 and August 2021, the European Commission and the Medicines and Healthcare products Regulatory Agency, respectively, approved RYEQO® (relugolix 40 mg, estradiol 1.0 mg, and norethindrone acetate 0.5 mg) as the first and only long-term, once-daily oral treatment in the European Union and United Kingdom, respectively, for moderate to severe symptoms of uterine fibroids in adult women of reproductive age. In September 2021, the FDA accepted the Company’s supplemental New Drug Application (“sNDA”) for MYFEMBREE for the management of moderate to severe pain associated with endometriosis, setting a target action date of May 6, 2022. MYFEMBREE is also being evaluated for contraceptive efficacy in women with heavy menstrual bleeding associated with uterine fibroids or endometriosis-associated pain who are 18 to 50 years of age and at risk for pregnancy. Relugolix (120 mg) is also under regulatory review in Europe for men with advanced prostate cancer. The Company is also developing MVT-602, an investigational oligopeptide kisspeptin-1 receptor agonist, which has completed a Phase 2a study for the treatment of female infertility as a part of assisted reproduction.
Since its inception, the Company has funded its operations primarily from the issuance and sale of its common shares, from debt financing arrangements, and more recently from the upfront and regulatory milestone payments it received from Pfizer Inc. (“Pfizer”) and Gedeon Richter Plc. (“Richter”) and net revenue generated from sales of ORGOVYX and MYFEMBREE in the U.S. The Company began generating product revenue from the sales of ORGOVYX and MYFEMBREE in the U.S. in January 2021 and June 2021, respectively.
The Company’s majority shareholder is Sumitovant Biopharma Ltd. (“Sumitovant”), a wholly-owned subsidiary of Sumitomo Dainippon Pharma Co., Ltd. (“Sumitomo Dainippon Pharma”). As of December 31, 2021, Sumitovant directly, and Sumitomo Dainippon Pharma indirectly, own 50,041,181, or approximately 53.4%, of the Company’s outstanding common shares.
Basis of Presentation and Principles of Consolidation
The Company’s fiscal year ends on March 31, and its first three fiscal quarters end on June 30, September 30 and December 31. The Company has determined that it has one 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 U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (“Quarterly Report”) reflect all adjustments necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of December 31, 2021 and March 31, 2021, and its condensed consolidated statements of operations, comprehensive loss, and shareholders’ deficit for the three and nine months ended December 31, 2021 and 2020, and its condensed consolidated statements of cash flows for the nine months ended December 31, 2021 and 2020. The March 31, 2021 condensed consolidated balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP. The results for interim periods are not necessarily indicative of results for the entire fiscal year or any other interim period. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s previously filed audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 11, 2021.

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”), issued by the Financial Accounting
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Standards Board (“FASB”). The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ materially from those estimates.

On an ongoing basis, the Company’s management evaluates its estimates, including those related to valuation of inventories, impairment testing for long-lived-assets, variables used in calculating the fair value of the Company’s equity awards, expected achievement of performance-based vesting criteria for equity awards, variable consideration and other relevant inputs impacting the gross and net revenue recognition, contingent liabilities, recoverability of deferred tax assets, determination of lease term and effective income tax rates. Management bases estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period, that are not readily apparent from other sources. Estimates and assumptions are periodically reviewed in light of changes in circumstances, facts, or experience. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows.
Summary of Significant Accounting Policies
The accounting policies used by the Company in its presentation of interim financial results are consistent with those described in Note 2 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed with the SEC on May 11, 2021. There have been no significant changes in the Company’s significant accounting policies from those disclosed in its Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
Reclassifications
Certain reclassifications have been made to the unaudited condensed consolidated statements of cash flows for the nine months ended December 31, 2020 to place them on a comparable basis with the nine months ended December 31, 2021 regarding the presentation of amortization of operating lease right-of-use assets of $1.1 million. The reclassification had no effect on the previously reported results of operations. The reclassification had no effect on previously reported cash flows from operating activities in the unaudited condensed consolidated statements of cash flows.
Liquidity and Capital Resources
As of December 31, 2021, the Company had approximately $527.8 million in cash, cash equivalents, and marketable securities. The Company believes that its existing cash, cash equivalents, and marketable securities will be sufficient to fund its anticipated operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of this Quarterly Report.
In future periods, if the Company’s cash, cash equivalents, marketable securities, and amounts that it expects to generate from product sales and/or third-party collaboration payments are not sufficient to enable the Company to fund its operations, the Company may need to raise additional funds in the form of equity, debt, or from other sources. There can be no assurances that such funding sources will be available at terms acceptable to the Company, or at all. If the Company has insufficient funding to meet its working capital needs, it could be required to delay, limit, reduce, or terminate its drug development programs, commercialization efforts, and/or limit or cease operations.
As of December 31, 2021, the Company had approximately $41.3 million of borrowing capacity available to it under the Sumitomo Dainippon Pharma Loan Agreement (see Note 5(A)). As of the date of issuance of this Quarterly Report, the Company is also eligible to earn up to $3.6 billion and $122.5 million of additional milestone payments from Pfizer and Richter pursuant to the Pfizer Collaboration and License Agreement and the Richter Development and Commercialization Agreement, respectively, as well as potential royalty payments on net sales under the Richter Development and Commercialization Agreement. See Note 8 for additional information about the Pfizer Collaboration and License Agreement and the Richter Development and Commercialization Agreement.
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Net Loss per Common Share
Basic net loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted-average number of common shares and potentially dilutive shares of common stock outstanding during the period. Potential dilutive securities outstanding include stock options, restricted stock units, performance stock units, and warrants. During all periods presented, the Company incurred net losses. Accordingly, the effect of any common share equivalents would be anti-dilutive during those periods and are not included in the calculation of diluted weighted-average number of common shares outstanding.
As of December 31, 2021 and 2020 potentially dilutive securities were as follows:
December 31,
20212020
Stock options7,512,729 8,221,197 
Restricted stock awards (unvested) 564,111 
Restricted stock units and performance stock units (unvested)4,543,929 3,791,682 
Warrants73,710 73,710 
Total12,130,368 12,650,700 
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU 2019-12”), that eliminates certain exceptions to the general principles in ASC 740 related to intra-period tax allocation, deferred tax liability and general methodology for calculating income taxes. ASU 2019-12 also simplifies U.S. GAAP by making other changes for matters such as, franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The Company adopted ASU 2019-12 on April 1, 2021, which did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. These amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective prospectively for all entities as of March 12, 2020 through December 31, 2022. The Company’s outstanding debt with Sumitomo Dainippon Pharma bears a variable interest rate that is indexed off of 3-month LIBOR, for which publication is expected to be discontinued on June 30, 2023. In the event that 3-month LIBOR becomes unavailable, the Company and Sumitomo Dainippon Pharma will negotiate in good faith to select an alternative interest rate in accordance with the Sumitomo Dainippon Pharma Loan Agreement. The Company has not yet adopted this guidance and is currently evaluating the potential impact the adoption of this standard will have on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses on available-for-sale debt securities to be recorded through an allowance for credit losses instead of as a reduction in the amortized cost basis of the securities. ASU 2016-13 was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption was permitted, including adoption in any interim period. In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amended the effective date of the original pronouncement for smaller reporting companies. ASC 2016-13 and its amendments will be effective for annual and interim periods beginning after December 15, 2022 for smaller reporting
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companies. The Company is currently assessing the impact the adoption of this new standard will have on its consolidated financial statements and related disclosures.
Note 2—Revenue Components
The following table provides information about the Company’s revenues for the three and nine months ended December 31, 2021 and 2020 (in thousands):
Three Months Ended December 31,Nine Months Ended December 31,
2021202020212020
Revenues:
Product revenue, net:
ORGOVYX$24,393 $ $53,535 $ 
MYFEMBREE2,429  4,133  
Richter product supply and royalties2,446  4,217  
Total product revenue, net29,268  61,885  
Pfizer collaboration revenue:
Amortization of upfront payment20,974 1,379 62,922 1,379 
Amortization of regulatory milestone4,198  16,931  
Total Pfizer collaboration revenue25,172 1,379 79,853 1,379 
Richter license and milestone revenue  31,667 33,333 
Total revenues$54,440 $1,379 $173,405 $34,712 
The Company began generating product revenue from sales of ORGOVYX and MYFEMBREE in the U.S. in January 2021 and June 2021, respectively. The Company records product revenue net of estimated discounts, chargebacks, rebates, product returns, and other gross-to-net revenue deductions. For the three and nine months ended December 31, 2021, product revenue, net also includes revenues related to product supply to Richter to support their European launches of $2.3 million and $4.1 million, respectively, as well as royalties on net sales of RYEQO in Richter’s Territory of $0.1 million and $0.2 million, respectively. There were no such revenues recorded in the comparable prior year periods.
Pfizer collaboration revenue for the three and nine months ended December 31, 2021 consists of the partial recognition of the upfront payment the Company received from Pfizer upon entering into the Pfizer Collaboration and License Agreement in December 2020 and of the regulatory milestone payment from Pfizer that was triggered upon the FDA approval of MYFEMBREE for the management of heavy menstrual bleeding associated with uterine fibroids on May 26, 2021. Pfizer collaboration revenue for the three and nine months ended December 31, 2020 consists of the partial recognition of the upfront payment the Company received from Pfizer in December 2020.
Richter license and milestone revenue for the nine months ended December 31, 2021 was $31.7 million, consisting of the recognition of a $15.0 million regulatory milestone payment from Richter that was triggered upon the European Commission approval of RYEQO for the treatment of moderate to severe symptoms of uterine fibroids in adult women of reproductive age and $16.7 million of previously deferred revenue that was recognized upon the completion of the Company’s delivery of the remaining substantive relugolix combination tablet data packages to Richter. Richter license and milestone revenue for the nine months ended December 31, 2020 consists of the recognition of $33.3 million of the upfront and regulatory milestone payments the Company received from Richter in March and April 2020, respectively. There was no Richter license and milestone revenue for the three months ended December 31, 2021 and 2020.
See Note 8 for additional information regarding the Pfizer Collaboration and License Agreement and the Richter Development and Commercialization Agreement.
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Note 3—Certain Balance Sheet Components
Cash, Cash Equivalents and Restricted Cash
The following represents a reconciliation of cash and cash equivalents in the unaudited condensed consolidated balance sheets to total cash, cash equivalents and restricted cash in the unaudited condensed consolidated statements of cash flows (in thousands):
December 31,
20212020
Cash and cash equivalents$457,742 $713,523 
Restricted cash10,100 2,987 
Total cash, cash equivalents and restricted cash$467,842 $716,510 
Cash and cash equivalents include cash deposits in banks and all highly liquid investments that are readily convertible to cash (maturity of three months or less at the time of purchase). Restricted cash consists of funds held or designated to satisfy the requirements of certain agreements that are restricted in their use and are included in other assets on the unaudited condensed consolidated balance sheets. As of December 31, 2021, restricted cash includes approximately $7.1 million that is held in an escrow fund for use by Sunovion Pharmaceuticals Inc. (“Sunovion”), a subsidiary of Sumitomo Dainippon Pharma, to manage payments for rebates, chargebacks, and similar fees pursuant to the Market Access Services Agreement (see Note 5(C)).
Inventories
As of December 31, 2021 and March 31, 2021, inventories consisted of the following (in thousands):
December 31, 2021March 31, 2021
Raw materials$823 $1,390 
Work in process1,405 773 
Finished goods4,509 448 
Total inventories$6,737 $2,611 
Accrued Expenses and Other Current Liabilities
As of December 31, 2021 and March 31, 2021, accrued expenses and other current liabilities consisted of the following (in thousands):
December 31, 2021March 31, 2021
Accrued compensation-related expenses$22,201 $20,571 
Accrued sales discounts, rebates, and allowances15,549 1,315 
Accrued R&D expenses6,463 8,544 
Accrued commercial expenses8,309 7,770 
Accrued other expenses5,259 5,315 
Accrued professional fees642 935 
Deferred product revenue 162 
Total accrued expenses and other current liabilities$58,423 $44,612 
Note 4—Fair Value Measurements
The preparation of the Company’s unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires certain assets and liabilities to be reflected at their fair value. 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 measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be
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classified and disclosed into one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
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.
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of the Company’s financial instruments, see Note 2, “Summary of Significant Accounting Policies,” and Note 3, “Fair Value Measurements,” to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed with the SEC on May 11, 2021.
Financial Instruments Measured at Fair Value on a Recurring Basis
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):
Fair Value Measurement Using:
 Level 1Level 2Level 3Total
As of December 31, 2021
Assets:
Money market funds (1)
$129 $ $ $129 
Commercial paper (2)
 215,635  215,635 
Corporate bonds (3)
 4,000  4,000 
Total assets$129 $219,635 $ $219,764 
Liabilities:
Share-based compensation liabilities - stock options (4)
$ $2,724 $ $2,724 
Total liabilities$ $2,724 $ $2,724 
Fair Value Measurement Using:
 Level 1Level 2Level 3Total
As of March 31, 2021
 
Assets:
Money market funds (1)
$36,903 $ $ $36,903 
Commercial paper (2)
 21,689  21,689 
U.S. agency securities (1)
 10,000  10,000 
Municipal bonds (3)
 1,417  1,417 
Total assets$36,903 $33,106 $ $70,009 
Liabilities:
Share-based compensation liabilities - stock options (4)
$ $12,113 $ $12,113 
Share-based compensation liabilities - common shares (5)
9,523   9,523 
Total liabilities$9,523 $12,113 $ $21,636 
(1) Included in cash and cash equivalents.
(2) Includes $149.6 million in cash and cash equivalents and $66.0 million in marketable securities as of December 31, 2021. Includes $12.7 million in cash and cash equivalents and $9.0 million in marketable securities as of March 31, 2021.
(3) Included in marketable securities.
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(4) Includes 390,083 and 1,281,803 outstanding stock options remeasured using the Black-Scholes option-pricing model as of December 31, 2021 and March 31, 2021, respectively. See Note 7(D).
(5) As of March 31, 2021, includes 462,705 common shares remeasured using the Company’s March 31, 2021 closing market price of $20.58 per common share. See Note 7(D).
The following table includes information regarding the Company’s share-based compensation liabilities (a current liability) for the nine months ended December 31, 2021 (in thousands):
March 31, 2021$21,636 
Change in fair value1,738 
Settlements(20,650)
December 31, 2021
$2,724 
The fair value of the share-based compensation liabilities related to outstanding stock options was estimated as of December 31, 2021 and March 31, 2021, respectively, using the Black-Scholes option-pricing model and the following assumptions:
December 31, 2021March 31, 2021
Expected common share price volatility60.8 %72.9 %
Expected risk free interest rate0.06 %0.06 %
Expected term, in years0.030.78
Expected dividend yield % %
Financial Instruments Not Measured at Fair Value on a Recurring Basis
The Company recorded the cost share advance from Pfizer, which is included in Level 2 of the fair value hierarchy, at its estimated fair value as of the transaction date. As discussed in Note 8(B), on the transaction date, the cost share advance from Pfizer was discounted to fair value using the Company’s estimated incremental borrowing rate over the period in which the cost share advance is expected to be utilized. The recorded amount has been and will continue to be reduced each reporting period by the amount of Allowable Expenses applied to the cost share advance. There were no non-recurring fair value assets as of December 31, 2021 and March 31, 2021.
Note 5—Related Party Transactions
As of December 31, 2021, Sumitovant directly, and Sumitomo Dainippon Pharma indirectly, own 50,041,181, or approximately 53.4%, of the Company’s outstanding common shares. The Company has agreements with Sumitovant, Sumitomo Dainippon Pharma, and their affiliates, including Sunovion, a subsidiary of Sumitomo Dainippon Pharma. Certain of these agreements are described below.
(A) Sumitomo Dainippon Pharma Co., Ltd.
Sumitomo Dainippon Pharma Loan Agreement
On December 27, 2019, the Company and one of its subsidiaries, Myovant Sciences GmbH (“MSG”), entered into a loan agreement with Sumitomo Dainippon Pharma (the “Sumitomo Dainippon Pharma Loan Agreement”). Pursuant to the Sumitomo Dainippon Pharma Loan Agreement, Sumitomo Dainippon Pharma agreed to make revolving loans to the Company in an aggregate principal amount of up to $400.0 million. Funds may be drawn down by the Company once per calendar quarter, subject to certain terms and conditions, including consent of the Company’s board of directors. In addition, if Sumitomo Dainippon Pharma fails to own at least a majority of the Company’s outstanding common shares, it may become unlawful under Japanese law for Sumitomo Dainippon Pharma to fund loans to the Company, and in which case the Company would not be able to continue to borrow under the Sumitomo Dainippon Pharma Loan Agreement. Interest is due and payable quarterly, and the outstanding principal amounts are due and payable in full on the five-year anniversary of the closing date of the Sumitomo Dainippon Pharma Loan Agreement. Loans under the Sumitomo Dainippon Pharma Loan Agreement are prepayable at any time without premium or penalty upon 10 business days’ prior written notice.
Loans under the Sumitomo Dainippon Pharma Loan Agreement bear interest at a rate per annum equal to 3-month LIBOR plus a margin of 3% payable on the last day of each calendar quarter. Publication of 3-month LIBOR is currently expected to be discontinued on June 30, 2023. In the event that 3-month LIBOR becomes unavailable, the Company and Sumitomo Dainippon
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Pharma will negotiate in good faith to select an alternative interest rate and, if applicable as a result of such alternative interest rate, margin adjustment that is consistent with industry accepted successor rates for determining a LIBOR replacement. The Company’s obligations under the Sumitomo Dainippon Pharma Loan Agreement are fully and unconditionally guaranteed by the Company and its subsidiaries. The loans and other obligations are senior unsecured obligations of the Company, MSG, and subsidiary guarantees. The Sumitomo Dainippon Pharma Loan Agreement includes customary representations and warranties and affirmative and negative covenants.
The Sumitomo Dainippon Pharma Loan Agreement also includes customary events of default, including payment defaults, breaches of representations and warranties, breaches of covenants following any applicable cure period, cross acceleration to certain other debt, failure to pay certain final judgments, certain events relating to bankruptcy or insolvency, failure of material provisions of the loan documents to remain in full force and effect or any contest thereto by the Company or any of its subsidiaries and certain breaches by the Company under the Investor Rights Agreement. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% will apply to the outstanding principal amount of the loans, Sumitomo Dainippon Pharma may terminate its obligations to make loans to the Company and declare the principal amount of loans to become immediately due and payable, and Sumitomo Dainippon Pharma may take such other actions as set forth in the Sumitomo Dainippon Pharma Loan Agreement. Upon the occurrence of certain bankruptcy and insolvency events, the obligations of Sumitomo Dainippon Pharma to make loans to the Company would automatically terminate and the principal amount of the loans would automatically become due and payable. In addition, if it becomes unlawful for Sumitomo Dainippon Pharma to maintain the loans under the Sumitomo Dainippon Pharma Loan Agreement or within 30 days of a change of control with respect to the Company, the Company would be required to repay the outstanding principal amount of the Loans.
As of December 31, 2021, approximately $41.3 million of borrowing capacity remains available to the Company, subject to the terms of the Sumitomo Dainippon Pharma Loan Agreement and the outstanding loan balance of $358.7 million is classified as a long-term liability on the unaudited condensed consolidated balance sheet under the caption long-term debt, less current maturities (related party). Interest expense under the Sumitomo Dainippon Pharma Loan Agreement was $2.9 million and $8.7 million for the three and nine months ended December 31, 2021, respectively, and $2.6 million and $6.9 million for the three and nine months ended December 31, 2020, respectively, and is included interest expense in the unaudited condensed consolidated statements of operations.
Investor Rights Agreement
On December 27, 2019, the Company entered into an Investor Rights Agreement with Sumitomo Dainippon Pharma and Sumitovant (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, among other things, the Company agreed, at the request of Sumitovant, to register for sale, under the Securities Act of 1933, common shares beneficially owned by Sumitovant, subject to specified conditions and limitations. In addition, the Company agreed to periodically provide Sumitovant (i) certain financial statements, projections, capitalization summaries and other information and (ii) access to the Company’s books, records, facilities and employees during the Company’s normal business hours as Sumitovant may reasonably request, subject to specified limitations.
The Investor Rights Agreement also contains certain protections for the Company’s minority shareholders for so long as Sumitomo Dainippon Pharma or certain of its affiliates beneficially owns more than 50% of the Company’s common shares. These protections include: (i) a requirement that Sumitovant vote its shares for the election of independent directors in accordance with the recommendation of the Company’s board of directors (the “board”) or in the same proportion as the shareholders not affiliated with Sumitovant vote their shares; (ii) a requirement that the audit committee of the Company’s board be composed solely of three independent directors; (iii) a requirement that any transaction proposed by Sumitomo Dainippon Pharma or certain of its affiliates that would increase Sumitomo Dainippon Pharma’s beneficial ownership to over 60% of the outstanding voting power of the Company must be approved by the Company’s audit committee (if occurring prior to December 27, 2022), and be conditioned on the approval of shareholders not affiliated with Sumitovant approving the transaction by a majority of the common shares held by such shareholders; and a requirement that any related person transactions between Sumitomo Dainippon Pharma or certain of its affiliates and the Company must be approved by the Company’s audit committee.
Pursuant to the Investor Rights Agreement, the Company also agreed that at all times that Sumitomo Dainippon Pharma beneficially owns more than 50% of the Company’s common shares, Sumitomo Dainippon Pharma, by purchasing common shares in the open market or from the Company in certain specified circumstances, will have the right to maintain its percentage ownership in the Company’s common shares in the event of a financing event or acquisition event conducted by the Company, or specified other events, subject to specific conditions.
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(B) Sumitovant
On May 18, 2020, the Company and Sumitovant entered into a consulting agreement, as amended on November 9, 2020, pursuant to which Sumitovant provided consulting services to the Company and its subsidiaries to support commercial planning, commercial launch, and implementation activities. Adele Gulfo, Sumitovant’s Chief Business and Commercial Development Officer and a member of the Company’s board of directors, provided services to the Company on behalf of Sumitovant under this agreement. For the three and nine months ended December 31, 2020, the Company incurred $0.2 million and $0.5 million respectively, of expense under this consulting agreement, which are included in selling, general and administrative (“SG&A”) expenses in the unaudited condensed consolidated statements of operations. The term of the consulting agreement with Sumitovant expired on March 31, 2021.
(C) Sunovion Pharmaceuticals Inc.
Market Access Services Agreement
On August 1, 2020, one of the Company’s subsidiaries, MSG, entered into a Market Access Services Agreement, as amended (“Market Access Services Agreement”), with Sunovion. Pursuant to the Market Access Services Agreement, among other things, Sunovion agreed to provide to MSG certain market access services with respect to the distribution and sale of ORGOVYX (“Prostate Cancer Product”) and MYFEMBREE (“Women’s Health Product,” and collectively with Prostate Cancer Product, the “Products”, and each a “Product”), including, among other things: (i) adding the Products to Sunovion’s agreements with its third party logistics providers; (ii) adding the Women’s Health Product to certain of Sunovion’s contracts with wholesalers, group purchasing organizations and integrated delivery networks and negotiating rates for the Products with certain market access customers; (iii) providing order-to-cash services; (iv) providing certain employees to provide market access account director services; (v) performing activities required in connection with supporting and maintaining contracts between the Company and market access customers for the coverage, purchase, or dispensing of the Products; (vi) managing the validation, processing and payment of rebates, chargebacks, and certain administrative, distribution and service fees related to the Products; (vii) providing MSG with price reporting metrics and other information required to allow the Company to comply with applicable government price reporting requirements; (viii) coordinating with MSG and any applicable wholesalers and distributors to address any recalls, investigations, or product holds; (ix) configuring, or causing to be configured, the appropriate software systems to enable Sunovion to perform its obligations under the Market Access Services Agreement; and (x) providing training and certain other ancillary support services to facilitate the foregoing. Pursuant to this agreement, Sunovion will also provide certain services to the Company to enable the Company to comply with its obligations under the State Transparency Laws.
MSG, in turn, appointed Sunovion as the exclusive distributor of the Women’s Health Product and a non-exclusive distributor of the Prostate Cancer Product, each in the United States, including all of its territories and possessions.
In order to facilitate Sunovion’s provision of these services, MSG agreed, among other things, to: (i) grant Sunovion a non-exclusive license under all intellectual property owned or controlled by MSG, solely for Sunovion’s use in connection with its performance of the contemplated services; (ii) provide Sunovion periodic reports of sales projections and estimated volume requirements, as well as such other information as Sunovion reasonably requests or may need to perform the services; (iii) comply with the provisions of any agreements between Sunovion and third parties pursuant to which the Products will be distributed or sold; (iv) cooperate with certain investigations related to orders and audits of MSG’s quality systems solely related, as reasonably determined by Myovant, to Sunovion’s performance of certain regulatory services, at Sunovion’s costs; and (v) promptly notify Sunovion in the event relugolix is recalled.
As consideration for the services, MSG has paid and will continue to pay Sunovion an agreed-upon monthly service charge for each of the first two years of the Market Access Services Agreement term and any agreed regulatory and training service charges. After the second year of the Market Access Services Agreement term, the monthly service charges will be determined by the parties. In addition, MSG also agreed to (x) reimburse Sunovion for any pass-through expenses it incurs while providing the services, and (y) establish an escrow fund for use by Sunovion to manage payments for rebates, chargebacks and similar fees (see Note 3). For the three and nine months ended December 31, 2021, the Company incurred $1.3 million and $3.8 million of expense under this agreement (inclusive of third-party pass-through costs billed to the Company), which is included in SG&A expenses in the unaudited condensed consolidated statements of operations. For the three and nine months ended December 31, 2020, the Company incurred $1.4 million and $2.5 million, respectively, of expense under this agreement (inclusive of third-party pass-through costs billed to the Company), which is included in SG&A expenses in the unaudited condensed consolidated statements of operations.
The Market Access Services Agreement also contains customary representations and warranties by the parties and customary provisions related to confidentiality, indemnification and insurance. The initial term of the Market Access Services Agreement is three years. Thereafter, the term will be automatically extended for one-year periods, unless either party provides notice of its
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intent not to renew the Market Access Services Agreement at least nine (9) months prior to the expiration of the applicable term. Either party may also terminate the Market Access Services Agreement prior to the end of its term in the event of an uncured material breach by the other party, if there are certain changes of law, or if such other party becomes insolvent or undergoes a change of control. MSG may also terminate the Market Access Services Agreement with respect to one or both Products if Sunovion fails to satisfy certain market access milestones or for convenience upon payment of a break-up fee.
Note 6—Income Taxes
The Company is not subject to taxation under the laws of Bermuda since it was organized as a Bermuda Exempted Limited Company, for which there is no current tax regime. The Company’s income tax expense 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 and nine months ended December 31, 2021 was (0.47)% and (0.73)%, respectively. The Company’s effective tax rate for the three and nine months ended December 31, 2020 was 1.54% and 0.35%, respectively. The Company’s 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.
The Company assesses the realizability of the deferred tax assets at each balance sheet date based on available positive and negative evidence in order to determine the amount which is more likely than not to be realized and records a valuation allowance as necessary. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available positive and negative evidence. Factors reviewed include projections of pre-tax book income for the foreseeable future, determining of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting. The Company will continue to assess the need for a valuation allowance on its deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the consolidated statement of operations for the period that the adjustment is determined to be required.
In response to the COVID-19 pandemic, many governments have enacted measures to provide aid and economic stimulus. These measures include deferring the due dates of tax payments and other changes to income and non-income-based-tax laws as well as providing direct government assistance through grants and forgivable loans. On March 27, 2020, the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic and the negative impacts that it had on the global economy and U.S. companies. The CARES Act includes measures to assist companies, including temporary changes to income and non-income-based tax laws. The Company implemented certain provisions of the CARES Act, such as deferring employer payroll taxes through the end of calendar year 2020. As of December 31, 2021, the Company has deferred $0.9 million of employer payroll taxes, which is included in accrued expenses and other current liabilities on the unaudited condensed consolidated balance sheet.
Note 7—Share-Based Compensation
The Company has two share-based compensation plans, the Myovant Sciences Ltd. 2016 Equity Incentive Plan (“Equity Incentive Plan”) and the Myovant Sciences Ltd. 2020 Inducement Plan (“Inducement Plan”) (collectively, the “Equity Plans”). As of December 31, 2021, there were approximately 2.4 million and less than 0.1 million common shares available for future issuance under the Equity Incentive Plan and the Inducement Plan, respectively. For additional information about the Company’s Equity Plans, see Note 10, “Share-Based Compensation,” to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed with the SEC on May 11, 2021.
(A) Stock Options
Activity for stock options for the nine months ended December 31, 2021 is as follows:
Number of Options
Options outstanding at March 31, 2021
8,293,331 
Granted
1,178,625 
Exercised
(1,579,493)
Forfeited
(379,734)
Options outstanding at December 31, 2021
7,512,729 
Options vested and expected to vest at December 31, 2021
7,512,729 
Options exercisable at December 31, 2021
4,828,377 
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(B) Restricted Stock and Performance Stock Units
Activity for restricted stock units and performance stock units for the nine months ended December 31, 2021 is as follows:
Number of Shares
Unvested balance at March 31, 2021
3,571,235 
Granted2,972,148 
Vested(1,077,844)
Forfeited(921,610)
Unvested balance at December 31, 2021
4,543,929 
(C) Share-Based Compensation
Share-based compensation during the three and nine months ended December 31, 2021 and 2020 was as follows (in thousands):
Three Months Ended December 31,Nine Months Ended December 31,