mikkelwilliam
Investment Thesis
I last covered Myovant (NYSE:MYOV) for Seeking Alpha back in mid April, giving the stock a “Hold” recommendation. Three and a half months later, Myovant stock trades at a value of $12.1, up 6% since my note. The Swiss-based pharma’s market cap is presently $1.2bn.
To recap the investment thesis, Myovant markets and sells two FDA approved products, both derived from the drug Relugolix – an oral, once-daily, small molecule that acts as a gonadotropin-releasing hormone (“GnRH”) receptor antagonist that binds to and inhibits GnRH receptors in the anterior pituitary gland.
Relugolix decreases the production of estrogen and progesterone in women, and testosterone in men, and is approved as a 120mg dose to treat prostate cancer under the brand name ORGOVYX, and also approved as a 40mg dose, plus estradiol 1mg and norethindrone acetate 0.5mg, to treat heavy menstrual bleeding associated with uterine fibroids under the brand name MYFEMBREE. Both products also are approved in Europe.
ORGOVYX was approved in the US in December 2020 and MYFEMBREE was approved in May 2021. In December 2020, pharma giant Pfizer (PFE) paid Myovant $650m up front for the rights to jointly develop and commercialize Relugolix in oncology and women’s health, meaning profits from sales of ORGOVYX and MYFEMBREE are split equally between the two firms, and some expenses shared.
Pfizer additionally paid $100m to Myovant when MYFEMBREE was approved and there are $3.8bn of potential milestone payments on the table, $3.5bn of which are dependent on Relugolix meeting certain sales targets.
Together, Pfizer and Myovant have been pushing for FDA approval of MYFEMBREE in a third indication – endometriosis, an inflammatory disease in which tissue similar to the lining of the uterus is found outside the uterine cavity. In its pivotal Phase 3 SPIRIT study, 84.8% and 73.3% of women receiving Relugolix combination therapy over one year achieved clinically meaningful pain reductions in dysmenorrhea and non-menstrual pelvic pain, respectively.
As such, an FDA approval was expected, but in May this year the FDA said it had identified deficiencies in the marketing application, preventing “discussion of labeling and/or post-marketing requirements and commitments at this time,” and extended its decision by three months to Aug. 6.
In my last note I made the point that, although cash rich thanks to the Pfizer deal, and generating healthy revenues of $231m in FY21, Myovant is still a heavily loss making company – net loss was $205m in FY21. It also should be noted that $105m of the revenue figure of $230m is actually derived from Pfizer’s original upfront payment, and not from product sales.
I also noted that Pfizer had declined to take up an option to market and sell Relugolix outside of the US and Canada, meaning Myovant won’t be able to leverage the much larger company’s sales and marketing channels overseas to drive revenues.
Peak sales forecasts for ORGOVYX are a healthy $1bn, and with the might of Pfizer behind it, that figure seems achievable, meaning Myovant theoretically trades at a forward price to sales of a little over 2x, based on its 50% share of future blockbuster (>$1bn per annum) sales.
On the Women’s Health side, however, the market opportunity is more uncertain, given AbbVie’s (ABBV) Orilissa and Oriahnn, both formulations of Elagolix and indicated for endometriosis and heavy menstrual bleeding respectively, brought in revenues of just $145m last year combined, and the endometriosis market as a whole has an estimated value of ~$1bn presently.
As such, I still believe the jury is out on Myovant as an investment opportunity. The company’s share price is the same now as it was when its 2016 IPO raised $218m at a price of $15 per share (the largest IPO of 2016), although it’s down 39% across the past 12 months, partly due to the MYFEMBREE endometriosis setback, and partly, perhaps, because the long-term value proposition is unclear.
In the rest of this post, I’ll review the FY21 earnings in more detail, consider the impact a fresh approval could have in the US, and try to assess prospects for Myovant’s share price.
There are two major short-term catalysts in play, with Q221 earnings due to be released in five day’s time, and with the MYFEMBREE FDA decision date upcoming on Aug. 5. There may be a bump in value if earnings outperform and approval is granted, as I expect, but it may not be wise to be holding Myovant stock long term.
FY21 Earnings and Business Updates
ORGOVYX appears to be performing reasonably well for Myovant and Pfizer, generating $83m of net revenues in FY21, with ~14.5k patients treated, and 18% growth in commercial demand volume sequentially between Q321 and Q421. Prescriber satisfaction score was 73%, according to Myovant’s FY21 earnings presentation.
Meanwhile, there was good news to report on MYFEMBREE also in that it already appears to have taken on market leader status, achieving a greater share of new prescriptions than Oriahnn in both February and March 2022, management reported. 165m commercial lives were covered for MYFEMBREE as of April 2022.
With that said, net revenues for the year were just $6.4m, and net revenues in Q421 $2.2m. This figure ought to improve, although as I observed in my last note, another Swiss Pharma, ObsEva, has scored an approval for Linzagolix in uterine fibroid treatment, and Merck (MRK) spinout Organon (OGN) (my note here) is developing an experimental oral inhibitor of 17β-hydroxysteroid dehydrogenase type 1 to treat endometriosis.
A quick online search suggests that the endometriosis market is estimated to be worth between $1.5bn – $3bn by 2030, which makes it hard to believe there’s a blockbuster sales opportunity for Myovant here.
In fact, it’s not yet a foregone conclusion that Myovant will secure its approval in August, since the FDA has expressed concerns around analysis of bone mineral density data, although Myovant’s latest study data showed this remained stable for up to 104 weeks after minimal, non-clinically meaningful bone loss through week 24.
Myovant has been able to secure a commercial partner in Europe for ORGOVYX, in the shape of Accord Healthcare, although it’s not remotely as lucrative as the Pfizer deal, being comprised of an upfront payment of $50m, and a total deal value of $140.5m, plus tiered royalties on sales in the high teens / low twenties. ORGOVYX will launch this year in the EU, it’s expected, and New Drug Submissions will be filed with Health Canada for approvals of ORGOVYX and MYFEMBREE in the region.
In fiscal year 2021, as mentioned, Myovant made a net loss of $206m, which included a collaboration expense of $40m to Pfizer, $107m of research and development expenses, and a staggering $259.4m of selling, general and administrative expenses.
Looking Ahead
The kinds of losses experienced by Myovant are unsustainable, in my view, firstly because the company only has remaining cash of $475.5m, which could run out in 2024 at the current burn rate, and secondly because that cash ought to be earmarked to in-license and develop new drugs to support Relugolix.
Myovant’s single asset risk is substantial, and the company is heavily reliant on Pfizer to help it grow ORGOVYX revenues in the US, which seems to be by some distance its most lucrative market.
Pfizer signed its deal with Myovant in part because it’s trying to build a prostate cancer franchise following its $14bn acquisition of Medivation, gaining access to its prostate cancer drug Xtandi, which is already a blockbuster seller. The pharma will owe Myovant a $100m milestone payment if MYFEMBREE is approved in endometriosis next month, which will be a boon to the company, although it’s questionable if Pfizer believes it’s getting a good return on its $850m outlay to date, receiving just ~$40m of revenues last year.
Myovant’s product revenues in Q421 were $32.4, and my understanding is that $14.1m of that was paid to Pfizer as its share of revenues. That leaves ~$18m, and that figure simply has to improve over the next three quarters or Myovant will be looking at ~$72m revenues retained in FY22, which does not justify a market cap of >$1bn.
There will be ~$100m of Pfizer “revenues” from the upfront payment to augment that figure, but if Q421 net losses of $59m are anything to go by, Myovant could make another $200m loss in FY22, which again casts doubt over a >$1bn company valuation, given there is no current pipeline of note.
Conclusion – Not Clear How Myovant Justifies >$1bn Valuation.
Just as in my last note, there appears to be some worrying red flags waving in relation to Myovant as an investment opportunity.
Fundamentally, sales are not where they need to be, while losses are excessive. This must change when Q122 earnings are announced next week, or Myovant’s share price will fall, in my view. There must be signs that Pfizer is throwing its full weight behind ORGOVYX and attempting to make it a blockbuster, and there also must be signs that sales of MYFEMBREE are growing exponentially.
With Myovant set to earn ~20% on sales of ORGOVYX in Europe, in an optimistic scenario there may be a triple-digit income stream from this source in time. An approval in endometriosis will obviously be an upside catalyst, but is there a blockbuster sales opportunity here? The market dynamics, with several competitors fighting over a market worth not much more than $1bn presently, suggests there isn’t.
Another quirk of Myovant is that it’s >50% owned by Sumitovant, a wholly owned subsidiary of Sumitomo Pharma, the Japanese pharmaceutical giant. That may not be the best news for minority / retail shareholders, since Sumitomo may not necessarily act in the best interests of shareholders. For example, Sumitomo may not agree with in-licensing new products to support Relugolix, may not allow Myovant to raise further funding, and may, in an extreme case, simply pull the plug on the Relugolix experiment if it does not believe it’s working.
As such, for my money at least, it’s not clear how Myovant supports a >$1bn market cap valuation at this time. The company seems unlikely to earn >$200m in revenues in FY22 given current sales volumes, and seems highly likely to post a substantial net loss, so there will be no price to earnings ratio to consider and price to sales will likely be >5x, which is not attractive.
The MYFEMBREE catalyst i.e. approval in endometriosis looks like a potentially underwhelming market opportunity, and there are no pipeline assets to support the lead asset, and no new indications on the table for Relugolix. The European opportunity with Accord Healthcare also looks modest.
At present, to me at least, the $750m outlay by Pfizer to date seems unjustifiably high, even if sales ramp up substantially in 2022. That money has been Myovant’s saving grace, and will continue to be for some years yet, apparently. It may be the case that Myovant can one day extract ~$500m sales from MYFEMBREE and ORGOVYX, but that figure looks a long way off at the present time.
Some investors may continue to see Myovant as a long-term hold, based more on the strength of Pfizer and perhaps Sumitomo as opposed to what Myovant is doing internally, and I will continue to give them the benefit of the doubt, but there are some substantial hurdles to be overcome, and in my view there are far more convincing investment opportunities within the biotech sector at present.
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