Myovant: Endometriosis Setback Hints At Issues Around Pfizer Partnership (NYSE:MYOV)

Investment Thesis

Myovant Sciences (NYSE:MYOV) was the largest biotech IPO of 2016, raising $218m at a listing price of $15, which valued the company at ~$875m.

More than five years later, Myovant shares trade at a value of $11, and the current market cap is $1.06bn, so investors can still acquire a position in the company at a similar valuation today.

What has changed at Myovant over the past five and a bit years? Let me provide a brief overview.

The company was brought to market by then 31-year old entrepreneur and ex-hedge fund manager Vivek Ramaswamy, through his biotech vehicle Roivant Sciences, which also was behind the largest biotech IPO of 2015, Axovant, which raised $360m to develop an Alzheimer’s drug acquired from GlaxoSmithKline (GSK) for the sum of $5m.

Axovant rapidly burned through its cash resources without developing any therapies to the pivotal trial stage, and subsequently became Sio Gene Therapies in November 2020. Under its new CEO, Pavan Cheruvu, Sio Gene is targeting gangliosidosis (my note from October 2021 is here) and Parkinson’s, and the name change was to distance itself from any association with Roivant. Sio Gene’s current market cap is just $44m.

Myovant has clearly enjoyed better fortunes than Axovant. It was launched primarily to develop Relugolix – a once-daily, oral, gonadotropin-releasing hormone (“GnRH”) receptor antagonist – which was in-licensed from Takeda Pharmaceuticals (TAK) in exchange for 5.1m shares, or 12% of Myovant at the time, according to Forbes.

Relugolix was in trials to treat heavy menstrual bleeding associated with uterine fibroids, endometriosis-associated pain, and advanced prostate cancer. The drug attracted the attention of Pfizer (PFE), which invested $30m in Myovant’s IPO and gained a board observer seat.

This was not necessarily surprising, since Relugolix targets prostate cancer, and Pfizer had recently paid ~$14bn to acquire Medivation, and its prostate drug Xtandi, which continues to be a blockbuster selling (>$1bn per annum revenues) asset for the big pharma. Dr. Lynn Seely, recently appointed CEO of Myovant, had formerly been Chief Medical Officer (« CMO ») at Medivation.

Myovant has been developing Relugolix, and a second asset acquired from Takeda, MVT-602, which is being developed to treat female infertility as part of assisted reproduction (with little tangible progress reported) ever since.

In December 2020 the drug was approved under the name ORGOVYX as the first and only oral gonadotropin-releasing hormone (“GnRH”) receptor antagonist for the treatment of adult patients with advanced prostate cancer, and in May 2021, under the name MYFEMBREE, as the first and only once-daily oral treatment for the management of heavy menstrual bleeding associated with uterine fibroids.

At the end of 2020, Myovant announced an agreement with Pfizer to jointly develop and commercialise ORGOVYX and MYFEMBREE in the US and Canada. By the terms of the deal, Pfizer paid Myovant $650m upfront, $200m upon approval of MYFEMBREE, and could pay up to $4.2bn in total in development and sales milestones.

Shortly after this deal was signed, in January 2021, CEO Dr. Seely departed, replaced by Dave Marek, formerly of Axsome Therapeutics (AXSM), and before that, Amgen (AMGN), where he was heavily involved in the commercial launch of migraine therapy Aimovig.

The CEO swap appears to be related to Marek’s superior commercial experience, and in its latest results – Q3 2021, apparently FY21 results are still not available – sales of ORGOVYX and MYFEMBREE were respectively $24.4m and $2.4m for Q3, with ORGOVYX sales up 40% year-on-year.

Cash position was reported as a healthy $527.8m thanks to the Pfizer deal, although net losses for the 9m to September 2021 were more concerning, at $147m, down from $173m in the prior year.

Pfizer and Myovant – Joint Approval In Endometriosis Stalls

Progress with Relugolix, and the ORGOVYX and MYFEMBREE approvals saw Myovant grow its share price as high as $27, in August 2021, but things took a turn for the worse when Pfizer announced it would not be taking up an exclusive option for international commercialization and development rights for Relugolix (excluding Canada and certain Asian countries), denying Myovant some additional milestone payments and royalties on any net sales.

The ORGOVYX and MYFEMBREE part of the deal remained intact, however, and both Pfizer and Myovant were optimistic that their supplementary New Drug Application (« sNDA ») for MYFEMBREE in endometriosis – a potential 3m patient market – would be approved in May this year, after a successful Phase 3 trial in 1,200 patients. In January 2021 Pfizer / Myovant had reported that:

in the Phase 3 SPIRIT long-term extension 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.

Last week, however, Myovant reported that the FDA had « identified deficiencies that preclude discussion of labeling and/or post-marketing requirements and commitments at this time » in relation to the MYFEMBREE sNDA for endometriosis.

This was entirely unexpected, given the prior approvals of Relugolix in prostate and uterine fibroids, and apparently the FDA has not yet provided any further detail about the issues at stake – although it could be related to safety concerns – in uterine fibroids, MYFEMBREE is limited to a 24-week regimen due to the risk of bone loss.

It could be that the deficiencies identified are not safety related and can be resolved by Pfizer and Myovant, but the uncertainty has been bad for Myovant’s share price, dragging it down further to $11.33 at COB yesterday (14th April) – discounted by 58% to its August 2021 high.

The Unwanted Setback Part Of A Big Picture That Looks Somewhat Tainted

The FDA’s communication is clearly bad news for Myovant, and gives the impression that there are cracks emerging in its collaboration with Pfizer, but it doesn’t necessarily derail the company’s long-term plans to generate blockbuster sales – perhaps even revenues – from Relugolix.

Prostate is generally considered the bigger market, my research suggests, and Pfizer’s experience with Xtandi means it has a ready made sales and marketing channel to reach physicians dealing with prostate cancer – the second most common cancer amongst men.

Around ~3m men are diagnosed with prostate cancer in the US alone, and 200k treated with an androgen deprivation therapy (« ADT ») each year. ADT prevents the production of testosterone, preventing tumors from growing. In its pivotal trial, ORGOVYX outperformed the ADT Lupron, which earned $783m of revenues for AbbVie (ABBV) last year, whilst also lowering the risk of adverse cardiac events, potentially setting itself up as a new standard of care.

Analysts have pegged ORGOVYX – which also is orally taken as opposed to injected, arguably making for a more convenient dosing regime – for peak sales of ~$1bn. Given that 50% of profits from ORGOVYX go to Pfizer, Myovant’s share if things go well commercially could be ~$500m, which is nearly half of its current market cap of $1.07bn, implying a very low forward price to sales ratio of 2x.

There don’t seem to be too many impediments to Myovant’s path to successfully commercializing ORGOVYX, but MYFEMBREE may prove to be a trickier proposition.

The drug has a strong competitor in AbbVie and Neurocrine Biosciences’ (NBIX) rival drug Oriahnn (elagolix), which earned $145m of revenues in 2021, and $125m and $95m in 2020 and 2019, respectively. Oriahn is a twice daily oral pill, while MYFEMBREE is once-daily, and costs ~$975 for a 28-pill bottle, before rebates, sources suggest.

Uterine fibroids are non cancerous tumors that develop in the uterus, often causing heavy menstrual bleeding, pain, abdominal bloating and, in some cases, infertility. Around 5 million women seek medical help for the condition, and Myovant’s target market is the 3m of these women who fail on first line treatments, CEO Marek has said.

It’s a substantial market, but not one that AbbVie has been able to capitalize on with Oriahnn, which appears to be practically interchangeable with MYFEMBREE, which could be a concern. If AbbVie is struggling to drive revenues, then perhaps even Pfizer will also struggle to establish market share for its similar drug.

What’s more, Oriahnn is also approved to treat endometriosis, under the brand name ORILISSA, and the sales figures I quoted above in relation to Oriahnn cover ORILISSA in endometriosis also, so again, it leads me to wonder whether Myovant has been overstating the value of the MYFEMBREE opportunity.

Another issue is the emergence of new therapies targeting both endometriosis and uterine fibroids, including Swiss Pharma Obseva’s Linzagolix, approved for heavy menstrual bleeding owing to uterine fibroids in November last year, and Merck spin-off Organon (OGN), which recently paid $75m upfront, with ~$850m of potential milestone payments, to acquire Forendo Pharmaceuticals.

Forendo’s lead asset is FOR-6219 – an experimental oral inhibitor of 17β-hydroxysteroid dehydrogenase type 1 (HSD17B1) being developed to treat endometriosis, and ready for Phase 2 studies.

As such, with competition intensifying, and sales of AbbVie’s Oriahnn / ORILISSA growing, but far from entering blockbuster territory, the real value of Relugolix may be in Prostate cancer treatment, and not in women’s health.

Conclusion – Relugolix May Already Have Its Most Important Approval – But The Endometriosis Setback Poses Some Unwelcome Questions

Pfizer paid a substantial upfront fee to acquire 50% of net sales of Relugolix across its twin indications of prostate cancer / menstrual bleeding and possibly endometriosis, but when we consider its leading role in Prostate with Xtandi, it seems quite clear where the big Pharma’s focus is.

With Xtandi facing patent expiry, ORGOVYX should help to cover any losses caused by generic competition for Xtandi, whilst also taking market share away from AbbVie’s Lupron.

But, is there really a $1bn peak sales opportunity here? If there is, AbbVie and Lupron have been unable to quite find it, and it will take many years for ORGIVYX to wrestle market share away from Lupron, so $1bn of peak sales in this indication looks a genuine stretch, if not out of the question.

Much depends on Pfizer, but it may be a worrying sign that the big pharma did not exercise its option to develop Relugolix outside of the US. That may have more to do with Pfizer’s strategic review of its international markets policies, but it’s tempting to wonder if Pfizer had doubts about whether ORGOVYX would generate sufficient sales in overseas markets, and if Pfizer had doubts on that front, perhaps it has doubts about the US market also.

$650m is small change for a Pharma that is expected to generate $100bn in revenues this year, and if Pfizer is not fully committed to ORGIVYX, let alone MYFEMBREE, Myovant is going to struggle to make any headway in competitive markets itself, with losses >$150m per annum, and « only » ~$550m cash.

In that light, the endometriosis setback looks worse. Could it be that Pfizer has taken its eye off this particular prize, believing the market to be too small? That could be a mistake – women’s health is often underrepresented by big pharma, but it’s estimated to be a >$40bn market by 2027 – but on the other hand, pharmas have struggled to successfully develop drugs and products for this market. Last year, Merck (MRK) spun out its underperforming women’s health division into a new entity, Organon (OGN), while AbbVie is rumoured to want to sell its own Women’s Health division.

When we consider that Organon paid just $75m upfront to acquire a promising Phase 2 endometriosis candidate, and take into account sales of ORILISSA, perhaps we should assume that the MYFEMBREE opportunity is not worth much more than $250m in peak sales?

Taking that into account, we could perhaps optimistically expect Myovant’s peak sales opportunity to be in the region of ~$500m, not $1bn, and given these sales are far from guaranteed, and there must be significant doubt about whether they will be achieved, there may not be much upside potential reflected in the company’s currently low valuation and share price.

The P/S ratio still looks attractive at 2x, but we must also take into account operating costs that were >$300m in the 9m to September 2021, net losses exceeding >$150m over the same period, and the uncertainty surrounding how many more milestone payments the company is going to receive from Pfizer.

There’s nothing concrete in Myovant’s pipeline besides Relugolix, and the company cannot presently find any takers to develop the drug outside of the US.

In summary, last week’s news of the regulatory setback relating to MYFEMBREE in endometriosis was a blow for Myovant, and the subsequent sell-off justified, in my view, but there may also be some deeper underlying problems at the company, which I have discussed in this post, namely overambitious sales targets, a possible deterioration in the relationship with Pfizer, which will no longer develop Relugolix overseas, new competitive threats, expenses and debts, and the lack of a pipeline.

Myovant is certainly no Axovant, which performed so disastrously for investors, but neither is it a strong investment opportunity at the present time, even >50% discounted to recent highs, in my view.

Myovant is no longer a Roivant owned company – it was acquired by Sumitomo in a $3bn deal that also involved the sale of other « Vants. » That’s a positive, but it seems as though Sumitomo, like Pfizer, may have overestimated the value it will be able to extract from Relugolix.