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 common 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. On April 1, 2018, 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. At September 30, 2018, a total of 2.5 million common shares were available for future issuance under 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

A summary of option activity under the Company’s 2016 Plan is as follows:



	Number of Options
Options outstanding at March 31, 2018	3,549,405
Granted	1,710,760
Exercised	(73,989	)
Forfeited	(70,682	)
Options outstanding at September 30, 2018	5,115,494
Options vested and expected to vest at September 30, 2018	5,115,494
Options exercisable at September 30, 2018	1,195,945

A summary of restricted share award and restricted stock unit activity under the Company’s 2016 Plan is as follows:



	Number of Shares
Unvested balance at March 31, 2018	1,213,735
Vested	(143,528	)
Unvested balance at September 30, 2018	1,070,207

(D) Share-Based Compensation Expense

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



	Three Months Ended September 30,
	2018		2017
Share-based compensation expense recognized as:
R&D expenses	$	1,846	$	679
G&A expenses	2,879		2,070
Total	$	4,725	$	2,749



	Six Months Ended September 30,
	2018		2017
Share-based compensation expense recognized as:
R&D expenses	$	3,407	$	1,539
G&A expenses	5,562		3,411
Total	$	8,969	$	4,950

Share-based compensation expense is included in R&D and G&A expenses in the accompanying unaudited condensed 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 8(E).

Of the total share-based compensation expense, amounts recognized for options granted to non-employees were immaterial for all periods presented.

Total unrecognized share-based compensation expense for awards granted pursuant to the 2016 Plan was approximately $49.3 million at September 30, 2018 and is expected to be recognized over a weighted-average period of approximately 3.07 years.

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

(1) Stock Options Granted to RSI Employees:

During the three months ended September 30, 2018 and 2017, the Company recorded share-based compensation expense related to stock options granted to RSI employees of $15,091 and $0.1 million, respectively. During the six months ended September 30, 2018 and 2017, the Company recorded share-based compensation expense related to stock options granted to RSI employees of $29,976 and $0.2 million, respectively. At September 30, 2018, total unrecognized compensation expense related to stock options granted to RSI employees was $0.1 million, which is expected to be recognized over a period of approximately 1.88 years. This share-based compensation expense is included in R&D and G&A expenses in the accompanying unaudited condensed consolidated statements of operations.

(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 $0.1 million and $0.3 million, respectively, for the three months ended September 30, 2018 and 2017, and $0.3 million and $0.5 million, respectively, for the six months ended September 30, 2018 and 2017.

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 RSL RSUs during the year ended March 31, 2017. These RSUs will vest to the extent certain RSL performance criteria are achieved and certain RSL liquidity conditions are satisfied within specified years of the grant date, provided that the Company’s Principal Executive Officer has provided continued service to RSL or its subsidiaries through such date. As of September 30, 2018, the performance conditions had not been met and were deemed not probable of being met. For the three and six months ended September 30, 2018 and 2017, the Company recorded no share-based compensation expense related to these RSL RSUs. At September 30, 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.