BioSci Research On Myovant Sciences (Part I): Is This A Big Winner In The Making?

Summary

• Myovant is innovating a stellar molecule (Relugolix) for the treatment of pain and heavy bleeding associated with endometriosis and uterine fibroids, respectively.
• Relugolix is also being investigated as a potential treatment of advanced prostate cancer.
• The three aforesaid franchises have a stellar chance of delivering positive outcomes in 2019 (and to gain regulatory approvals).

Through the entire twentieth century, with a single exception, every time major war has broken out anywhere in the world or whenever American forces have become involved in any fighting, whatever, the American stock market has always plunged sharply downward. At the condition of actual fighting most stocks were selling at levels vastly higher than prevailed before there was any thought of war at all. - The Father of Growth Investing (Philip Fisher)

Myovant Sciences (NASDAQ:NYSE:MYOV) is an unpopular company on Wall Street. Most investors have yet to hear this name. In the Integrated BioSci Rounds Report, we came across this potential big winner through our tracking of insider transactions. Notably, the company is brewing an enriched pipeline of advanced-stage molecules, seeking to fulfill the needs of women as well as men’s health. And, there is the substantial unlocked value of this pipeline which positioned the firm to become a multifold winner within next few years.

Despite its low profile status, some whale investors have been purchasing shares aggressively to send the stock on an uptrend. As follows, the share price traded north by $9.96 at $21.20 for over 88% profits in the past year. In this report, we’ll elucidate the fundamentals as well as the substantial pipeline’s prospects for investors to decide whether they should invest in this bioscience.

Figure 1: Myovant Sciences stock chart. (Source: StockCharts)

Fundamental Analysis

Based in Brisbane, CA, Myovant is focused on the therapeutics innovation that serves women’s health, endocrine diseases in areas of high unmet needs, and prostate cancer. The company is powering an interesting pipeline of medicine (as shown in figure 2). At the heart of the pipeline is Relugolix - an oral, once-daily, GnRH receptor blocker that is currently being assessed in the Phase 3 (LIBERTY1/2, SPIRIT1/2, and HERO) trials for uterine fibroids-heavy menstrual bleeding, endometriosis-pain, and advanced prostate cancer, respectively. The outcomes for those trials are expected in 2019.

Through a collaborative partnership with Takeda, Relugolix was investigated as a potential treatment for pains and heavy menstrual bleeding (associated with uterine fibroids) in Japan. With positive results, Takeda is now seeking for marketing approval with the Japanese authority. Furthermore, MVT-602 is in its preclinical phase as a potential medicine for female infertility as part of the assisted reproduction.

Figure 2: Therapeutic pipeline (Source: Myovant Sciences)

As a condition due to the endometrial tissue growing outside of the uterus, endometriosis occurs in up to 11% of all women (though many non-severe cases are unnoticeable). With every ovulation cycle, the female hormone (estrogen) surges and recedes, thereby subjecting the lining of endometrial tissue to slough off: this leads to both pain and excessive bleeding for patients afflicted with endometriosis.

And, it can cause the deterioration of the quality of life. Aside from the pain control with NSAIDs for mild cases, the hormonal regulation with an estrogen agonist - like leuprorelin or leuprolide (Lupron) is the next step. If that fails, the surgical removal of accessory endometrial tissues (i.e. surgical tissue fulguration) is the subsequent course of action.

Uterine fibroids (leiomyomas) are benign tumors of the uterus. Histologic confirmation is not necessary for the diagnosis in most cases. There are both growth and regression of fibroids. Asymptomatic or mild symptoms can be observed with watchful waiting. Severe disease is treated with hormonal therapy while more severe cases are managed with surgery.

Of note, the endometrial cells are responsive to the effects of estrogen: drugs that regulate estrogen level are highly efficacious and safe therapeutic options. Molecules that regulates estrogen level are either blockers or enhancers (agonists). It is paradoxical that giving estrogen can treat a condition, in which the symptoms are exacerbated by estrogen release itself.

This is because the excess estrogen given (at high dose) will cause negative feedback loops to the pituitary gland and the hypothalamus to prevent endogenous estrogen from being released (as depicted in figure 3). And, we prognosticate the blockage of estrogen via an antagonist like Relugolix should be equally, if not more, efficacious than an estrogen enhancer.

Figure 3: Hypothalamic-pituitary feedback loops (Source: Lancet, enhanced by Dr. Tran BioSci)

As a gonadotropin releasing hormone (“GnRH”) blocker, Relugolix acts on the pituitary glands to suppress the effects of GnRH (as shown in figure 4). As a result, this inhibits the production of steroid hormones downstream in the testes as well as the ovaries. In the testes, the suppression of the male hormone (testosterone) can be both a safe and efficacious approach for the management of hormone-dependent prostate cancer.

As for the reduction of estrogen synthesis in the ovaries, it is good for alleviating the pain associated with endometriosis. The use of Relugolix in combinations with a low-dose add-back estrogen and progestin are most likely the ideal treatment for patients with endometriosis and uterine fibroids.

Figure 4: Relugolix mechanism of action (Source: Myovant investor presentation)

For the quarter ended Dec. 31, 2017, there were $41.8M ($0.70 per share) net losses, compared to the $8.1M ($0.15 per share) for the same period a year prior. The higher decline was due to the ongoing LIBERTY 1/2, SPIRIT 1/2, and HERO Phase 3 clinical studies which were initiated in 2017. It is the norm for a developing bioscience to incur an increasing loss as its drug is advancing into the later stages of clinical investigations.

Looking at the balance sheet, there were $235.9M in cash/funding for the said period, of which $128.9 million and $107.0M came from the financing agreements with NovaQuest and Hercules. The total liabilities stand at $26.7M. Based on the $117M operating expenses in the trailing twelve months (“TTM”), there should be adequate cash to fund further therapeutic innovation for at least two years (prior to needing any additional financing).

In monitoring insider transactions, one should analyze the data with a grain of salt. That being said, we wish to share with you the quote from the Former Fidelity-Magellan Manager (Peter Lynch): “Insiders might sell their shares for any number of reasons, but they buy them for only one they think the price will rise.”

Three notable insider transactions were presented in table 1. Interestingly, the 10% owner (Andrew Lo) acquired 1.1M shares for $22.5M to increased his ownership to 38.3M shares on April 02, 2018. The other 10% stakeholders - Svf Investments and Roivant Sciences - also accumulated similar amounts to Mr. Lo on that same day.

Company	Insider	Shares Traded	Date	Value	Shares Owned
Myovant Sciences	Andrew Lo (10% owner)	+1,110,015 (+3%)	04/02/2018	+$22,500,004	38,341,357
Myovant Sciences	Svf Investments (10% owner)	+1,110,015 (+3%)	04/02/2018	+$22,500,004	38,341,357
Myovant Sciences	Roivant Sciences (10% owner)	+1,110,015 (+3%)	04/02/2018	+$22,500,004	38,341,357

Click to enlarge

Table 1: Notable insider transactions. (Source: Dr. Tran BioSci, compiled data from Openinsider)

In the midst of the current market volatility due to the China Trade war, Myovant still presents as a stellar purchase for the serious bioscience investors. Even with a highly conservative estimate, Relugolix should procure at least $800M in peak sales in the foreseeable future. And yet, Myovant has a meager $1.3B market cap. In multiplying the price to sales (“P/S”) ratio of 4 to the current market valuation, the result is $3.2B. Taking the 25% discount on the said result yielded $2.4B true worth for Myovant (which is 1.8X higher than its current market valuation). In terms of share price, 1.8 X $21.20 revealed $38.16 per share.

Final Remarks

While there are different approaches to valuing a bioscience, certain techniques tend to be more applicable than other depending on the stage in the lifecycle of a company. For an older firm (already generating significant earrings), the discount cash flow valuation works best. In contrast, comparative market analysis (and using the sum of the parts) is applicable throughout a growth company lifecycle.

Readers wishing to learn more about our valuations can check out other analytical research on other firms such as Protalix Biotherapeutics (NYSE:PLX), Gilead Sciences (NASDAQ:GILD), Exelixis (NASDAQ:EXEL), and Mallinckrodt (NYSE:MNK). Investors should be cognizant that the main risk for Myovant is whether Relugolix can deliver robust clinical outcomes for the Phase 3 (LIBERTY, SPIRIT, and HERO) trials. Moreover, even if Relugolix will be approved, it might not generate substantial sales due to market competition and other unforeseen variables.

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