Share-Based Compensation

(A) Myovant 2016 Equity Incentive Plan

In June 2016, the Company adopted its 2016 Equity Incentive Plan, or as amended, the 2016 Plan, under which 4.5 million common shares were originally reserved for issuance. Pursuant to the “evergreen” provision contained in the 2016 Plan, the number of shares reserved for issuance under the 2016 Plan automatically increases on April 1 of each year, commencing on (and including) April 1, 2017 and ending on (and including) April 1, 2026, in an amount equal to 4% of the total number of shares of capital stock outstanding on March 31 of the preceding fiscal year, or a lesser number of shares as determined by the Company’s board of directors. At March 31, 2018, a total of 1.7 million common shares were available for future issuance under the 2016 Plan. On April 1, 2017, the number of common shares authorized for issuance increased automatically by 2.4 million shares in accordance with the evergreen provision of the 2016 Plan.

The Company’s employees, directors, officers and consultants are eligible to receive non-qualified and incentive stock options, stock appreciation rights, restricted share awards, restricted stock unit awards, and other share awards under the 2016 Plan.

(B) Stock Options

Each option will have an exercise price equal to the fair market value of the Company’s common shares on the date of grant. For grants of incentive stock options, if the grantee owns, or is deemed to own, 10% or more of the total voting power of the Company, then the exercise price shall be 110% of the fair market value of the Company’s common shares on the date of grant and the option will have a five-year contractual term. Options that are forfeited or expire are available for future grants.

Stock options granted under the 2016 Plan may provide option holders, if approved by the Company’s board of directors, the right to exercise their options prior to vesting. In the event that an option holder exercises the unvested portion of any option, such unvested portion will be subject to a repurchase option held by the Company at the lower of (1) the fair market value of its common shares on the date of repurchase and (2) the exercise price of the options. Any common shares underlying such unvested portion will continue to vest in accordance with the original vesting schedule of the option.

A summary of option activity and data under the Company’s 2016 Plan for the year ended March 31, 2018 is as follows:



	Number of Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (in thousands)
Options outstanding at March 31, 2017	1,525,857		$	5.06	$	11.90
Granted	2,338,116		$	12.50	$	8.35
Exercised	(15,195	)	$	2.38	$	12.75
Forfeited	(299,373	)	$	6.64	$	11.35
Options outstanding at March 31, 2018	3,549,405		$	9.84	$	9.60	9.02	$	40,557
Options vested and expected to vest at March 31, 2018	3,549,405		$	9.84	$	9.60	9.02	$	40,557
Options exercisable at March 31, 2018	502,361		$	4.88	$	11.95	8.49	$	8,235

At March 31, 2018 and 2017, there were 502,361 and 28,406 vested options, respectively. No options vested during the period from February 2, 2016 (Date of Inception) to March 31, 2016. Additional information regarding options is set forth below (in thousands, except per share data).



	Years Ended March 31,				Period from February 2, 2016 (Date of Inception) to March 31,
	2018		2017		2016
Intrinsic value of options exercised	$	181	$	—	$	—
Grant date fair value of options vested	$	5,831	$	350	$	—
Weighted-average grant date fair value per share of options granted	$	8.35	$	11.90	$	—

A summary of restricted share award and restricted stock unit activity under the Company’s 2016 Plan for the year ended March 31, 2018 is as follows:



	Number of shares		Weighted Average Grant Date Fair Value
Unvested balance at March 31, 2017	1,128,222		$	5.10
Granted	579,111		$	14.10
Vested	(493,598	)	$	5.10
Unvested balance at March 31, 2018	1,213,735		$	9.39

The total fair value of restricted share awards vested during the year ended March 31, 2018 was $2.5 million. No restricted share awards vested during the year ended March 31, 2017 or period from February 2, 2016 (Date of Inception) to March 31, 2016. No restricted stock units have vested as of March 31, 2018.

(D) Share-Based Compensation Expense

Share-based compensation expense was as follows (in thousands):



	Years Ended March 31,				Period from February 2, 2016 (Date of Inception) to March 31,
	2018		2017		2016
Share-based compensation expense recognized as:
R&D expenses	$	3,674	$	3,893	$	—
G&A expenses	7,909		4,824		987
Total	$	11,583	$	8,717	$	987

Share-based compensation expense is included in R&D and G&A expenses in the accompanying consolidated statements of operations consistent with the grantee’s salary. Share-based compensation expense presented in the table above includes share-based compensation expense allocated to the Company by RSL as described below in Note 9(E).

Total unrecognized share-based compensation expense was approximately $33.7 million at March 31, 2018 and is expected to be recognized over a weighted-average period of approximately 3.16 years.

The Company estimated the fair value of each option on the date of grant using the Black-Scholes closed-form option-pricing model applying the weighted average assumptions in the following table.



	Years Ended March 31,				Period from February 2, 2016 (Date of Inception) to March 31,
	2018		2017		2016
Expected common share price volatility	74.4	%	75.5	%	—	%
Expected risk free interest rate	2.04	%	1.57	%	—	%
Expected term, in years	6.22		6.35		—
Expected dividend yield	—	%	—	%	—	%

In connection with the Company’s IPO and after discussions with the underwriters, the Company reassessed the fair value of: (1) 1.1 million restricted common share awards issued to its Principal Executive Officer in June 2016 with an initial fair value of $1.52 per common share; (2) 0.6 million common shares underlying stock options granted in August 2016 (including options to purchase 0.1 million common shares granted to certain consultants as described below in Note 9(E)(1) with an exercise price of $2.38 per common share; and (3) 0.6 million common shares underlying stock options granted in September 2016 to the Company’s employees, officers and directors with a weighted-average exercise price of $4.00 per common share. As a result, the Company determined that the reassessed fair value of the restricted common share awards was $5.10 per common share and the reassessed fair value of the common shares underlying the stock options granted in August and September 2016 was $15.00 per common share, which was the IPO price of the Company’s common shares. The use of this higher fair value per common share increased the weighted-average fair value of the stock options granted in August and September 2016 to $13.44 per common share and $12.78 per common share, respectively. Prior to the IPO, the fair value of the common shares underlying the Company’s stock options was estimated on each grant date by the board of directors. In order to determine the fair value of the Company’s common shares underlying granted stock options, the board of directors considered, among other things, timely valuations of the common shares prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The use of this higher share price increased both recognized and unrecognized share-based compensation expense.

(E) Share-Based Compensation Expense for Related Parties:

(1) Stock Options Granted to Non-Employees:

During the year ended March 31, 2017, the Company granted options to purchase 0.1 million common shares to certain consultants, who are also employees of RSI, with a weighted average exercise price of $2.41. As discussed above in Note 9(D), the use of the higher fair value per common share of $15.00, which was reassessed in conjunction with the IPO and after discussions with the underwriters, increased both recognized and unrecognized share-based compensation expense. No options were granted to consultants during the year ended March 31, 2018 or period from February 2, 2016 (Date of Inception) to March 31, 2016. For the years ended March 31, 2018 and 2017, share-based compensation expense related to stock options granted to consultants was $0.3 million and $0.4 million, respectively. There was no share-based compensation expense for the period from February 2, 2016 (Date of Inception) to March 31, 2016. At March 31, 2018, total unrecognized compensation expense related to stock options granted to consultants was approximately $0.1 million, which is expected to be recognized over approximately 2.38 years.

(2) Share-Based Compensation Expense Allocated to the Company by RSL:

In relation to the RSL common share awards and RSL options issued by RSL to RSL, RSI and RSG employees, the Company recorded share-based compensation expense of $1.0 million, $4.9 million and $1.0 million, respectively, for the years ended March 31, 2018 and 2017 and for the period from February 2, 2016 (Date of Inception) to March 31, 2016.

The RSL common share awards and RSL options granted by RSL to RSL, RSI and RSG employees are valued by RSL at fair value on the date of grant and that fair value is recognized as share-based compensation expense over the requisite service period. As RSL is a non-public entity, the RSL common share awards and RSL options are classified as Level 3 by RSL due to their unobservable nature. Significant judgment and estimates were used by RSL to estimate the fair value of these awards and options, as they are not publicly traded. RSL common share awards and RSL options are subject to specified vesting schedules and requirements (a mix of time-based and performance- based events). The fair value is based on various corporate event-based considerations, including targets for RSL’s post-IPO market capitalization and future financing events). The fair value of each RSL option is estimated on the date of grant using the Black-Scholes closed-form option-pricing model.

Share-based compensation expense has been and will continue to be allocated to the Company over the requisite service period over which these RSL common share awards and RSL options are expected to vest and based upon the relative percentage of time utilized by RSL, RSI and RSG employees on Company matters.

(3) RSL RSUs:

The Company’s Principal Executive Officer was granted 66,845 RSUs of RSL during the year ended March 31, 2017. These RSUs have a requisite service period of eight years and have no dividend rights. These RSUs will vest upon the achievement of both a performance and market condition, if both are achieved within the requisite service period. As of March 31, 2018, the performance conditions had not been met and were deemed not probable of being met. For the years ended March 31, 2018 and 2017, the Company recorded no share-based compensation expense related to these RSUs. At March 31, 2018, there was $0.9 million of unrecognized compensation expense related to unvested RSL RSUs. The Company will recognize this share-based compensation expense upon achievement of the performance and market conditions through the requisite service period.