What is the most common investor mistake? Trading – getting in and getting out at all the wrong times, for all the wrong reasons.
– Kenneth Fisher
A big challenge in biotech investing is to seize the opportunity in the thick of difficulties. For instance, a company may release ambiguous yet positive clinical data. Usually, the market will quote down the stock amid ambiguity. As such, the crisis creates an opportunity for you to build shares in anticipation of a rebound.
As you can see, the stock that epitomized the aforesaid phenomenon is Myovant Sciences (MYOV). Recent data release for its lead medicine relugolix causes the stock to depreciate over 30% in one month. As I alluded, there is more to this data than meets the eyes. In this research, I’ll present a fundamental analysis of Myovant and provide my forward expectations on this growth equity.
About The Company
As usual, I’ll present a brief corporate overview for new investors. If you are familiar with the firm, I recommend that you skip to the subsequent section. Operating out of Brisbane, California, Myovant harnesses the power of its therapeutic innovation to serve unmet needs in women’s health, endocrine diseases, and prostate cancer.
As the crown jewel of this pipeline, relugolix (Relu) is an oral, once-daily, GnRH receptor blocker that recently cleared all phase 3 (IBERTY1/2, SPIRIT1/2, and HERO) trials for uterine fibroids-heavy menstrual bleeding, endometriosis-pain, and advanced prostate cancer, respectively. Interestingly, Myovant is also brewing MVT-602 as a potential medicine to treat female infertility.
Figure 2: Therapeutic pipeline (Source: Myovant)
HERO Data Update
In biotech investing, data development either makes or breaks a company. Therefore, you should analyze the latest data release for Relu. So on September 29, Myovant published additional results of the Phase 3 HERO trial which studied Relu as the potential management for advanced prostate cancer.
Accordingly, the Relu-treated group demonstrated a similar rate of castration-resistant free survival as patients who received leuprolide. Specifically, the rate was 74% for Relu compared to 75% for leuprolide. Of note, the finding was not statistically significant. In other words, the p-value is 0.84. Hence, there isn’t much for you to interpret here.
Now when you heard this news, I bet that you think that Relu flopped and that Relu’s chances of approval are in jeopardy. Nevertheless, when you look at the big picture, FDA approval is dependent on the overall data. And the primary endpoint, of which Relu cleared with flying colors, is most important to an approval decision.
Let me elaborate on what I just said. Precisely speaking, Relu posted the 96.7% sustained testosterone suppression compared to 88.8% for leuprolide. Remarkably, Relu met all six key secondary endpoints. For instance, the Relu-treated patients had a 54% lower risk of major adverse cardiovascular events (i.e., MACE) versus Leuprolide.
Commenting on recent clinical development, Dr. Dan George, Professor at Duke University, remarked,
These new data from the Phase 3 HERO study show that three out of four men with metastatic prostate cancer remained castration resistance-free through 48 weeks while on oral Relugolix, in-line with leuprolide acetate injections, the current standard of care. I continue to be excited by Relugolix as a potential new and differentiated treatment option for men with prostate cancer given its robust clinical and safety data, including the lower risk of major adverse cardiovascular events compared to leuprolide acetate.
On note, the average age of men affected by prostate cancer is 66 years. And, you know that cardiovascular events risk increases with age. As such, the advantage of Relu is not negligible.
Will Relugolix be FDA-approved for Advanced prostate cancer?
In my view, you should expect approval either toward year-end or sometime next year. However, the exact approval depends on how the coronavirus pandemic slows down the FDA.
Based on my forecasting system, I ascribed a good chance of approval for Relu. My decision heavily rests on the totality of the HERO’s data package. Notably, the primary endpoint of testosterone suppression is a crucial indicator that prostate cancer is subdued.
As she provides more clarity and guidance, CEO Dr. Lynn Seely noted,
We believe the totality of data – including previously reported data from the Phase 3 HERO program, published in the New England Journal of Medicine – presents compelling evidence for the potential use of Relugolix in men with advanced prostate cancer. With our New Drug Application under Priority Review by the FDA, we look forward to our target action date in December 2020 and hope to advance our commitment to redefining care by bringing once-daily, oral Relugolix to men with prostate cancer.
Just as you would get an annual physical for your well-being, it’s important to check the financial health of your stock. For instance, your health is affected by “blood flow” as your stock’s viability is dependent on the “cash flow.” With that in mind, I’ll analyze the 1Q2020 earnings report for the period that ended on June 30.
As follows, Myovant procured $33.3M for the quarter compared to no revenues for the same period a year prior. The increased revenues came from the partnership agreement payment with Gedeon Richter (Richter). Moreover, the research and development (R&D) for the respective periods went from $50.1M to $44.1M. I usually like to see a young company to increase R&D spending. Notwithstanding, the reduced R&D is due to Phase 3 trials completion for Relu.
Additionally, there was a $32.8M ($0.37 per share) net loss versus $67.9M ($0.89 per share) decline for the same comparison. On a per-share basis, the bottom line improved by 0.58%. As you can see, this is related to the R&D reduction.
Figure 3: Key financial metrics (Source: Myovant)
About the balance sheet, there was $306.0M in cash and equivalents. Based on the $67.0M quarterly OpEx rate, there should be adequate capital to fund operations into 2Q2021. While on the balance sheet, you should check to see if the company is a serial diluter. After all, a company that serially diluted will render your stocks essentially worthless.
Given that the shares outstanding increased from 74.4M to 89.3M, my math reveals a 16.7% annual dilution. At this rate, Myovant easily cleared my 30% cutoff for a profitable investment.
Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are “growth-cycle dependent.” At this point in its life cycle, the main concern for Myovant is if Relu will gain FDA approval for advanced prostate cancer.
As follows, I ascribed a low chance of regulatory failure for the prostate cancer franchise. In such a calamity, the stock will tumble by 50% and vice versa. That aside, there is a chance that the coronavirus pandemic may slow down the FDA decision. Furthermore, the company may grow too aggressively and thereby may run into potential cash-flow constraints.
In all, I recommend Myovant a buy with a 4.5 out of 5 stars rating. After the recent share price pullback, you can say that the former price took into account Relu’s potential superiority over leuprolide acetate injections. It’s possible. Nevertheless, do you think the value of Myovant is in line with the current price when relugolix is approved for its various indications? No.
If the Relu approval catalyst hits next month, chances are that Myovant will do well for you. To help our members, I ascribed specific probability of success for catalysts inside IBI. In my view, the current price is a bargain compared to its true worth if that catalyst will turn positive.
Riding the potential blockbuster, Relu, Myovant is transitioning from a developmental to commercialization stage bioscience company. The lead medicine (Relu) already yielded robust data for its various Phase 3 (LIBERTY, HERO, and SPIRIT) studies. With the company already having filed a submission for approval for the uterine fibroids and advanced prostate cancer franchises, I expect great things to come. While the temporary data hiccup deterred investors, you can make a lot of money by taking advantage of this opportunity.
As usual, the choice to buy, sell, or hold is always yours to make. In my view, you should build a small position in Myovant if you haven’t done so. If you already own the stock, I believe that it’s best for you to hold on to your shares for the long term.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: As a medical doctor/market expert, I’m not a registered investment advisor. Despite that I strive to provide the most accurate information, I neither guarantee the accuracy nor timeliness. Past performance does NOT guarantee future results. I reserve the right to make any investment decision for myself and my affiliates pertaining to any security without notification except where it is required by law. I’m also NOT responsible for the action of my affiliates. The thesis that I presented may change anytime due to the changing nature of information itself. Investing in stocks and options can result in a loss of capital. The information presented should NOT be construed as recommendations to buy or sell any form of security. My articles are best utilized as educational and informational materials to assist investors in your own due diligence process. That said, you are expected to perform your own due diligence and take responsibility for your action. You should also consult with your own financial advisor for specific guidance, as financial circumstance are individualized.