UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
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Registrant’s telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol |
Name of exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 4, 2019, the registrant had
UROGEN PHARMA, LTD.
INDEX
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Page |
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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2 |
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3 |
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5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
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Item 3. |
28 |
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Item 4. |
29 |
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PART II. |
30 |
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Item 1. |
30 |
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Item 1A. |
30 |
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Item 2. |
72 |
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Item 3. |
72 |
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Item 4. |
72 |
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Item 5. |
72 |
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Item 6. |
73 |
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74 |
Trademarks and Trade Names
Unless the context requires otherwise, references in this Quarterly Report to the “Company”, “we,” “us” and “our” refer to UroGen Pharma Ltd. and its subsidiary, Urogen Pharma, Inc. The Company has trademarks for UroGen and RTGel. This Quarterly Report on Form 10-Q, or this Quarterly Report, contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
UROGEN PHARMA, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except share amounts)
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September 30, 2019 |
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December 31, 2018 |
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Assets |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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— |
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Restricted deposit |
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Prepaid expenses and other current assets |
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TOTAL CURRENT ASSETS |
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NON-CURRENT ASSETS |
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Property and equipment, net |
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Restricted deposit |
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Marketable securities |
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— |
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Other non-current assets |
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TOTAL ASSETS |
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$ |
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$ |
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Liabilities and Shareholder's equity |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Employee related accrued expenses |
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Other current liabilities |
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— |
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TOTAL CURRENT LIABILITIES |
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NON-CURRENT LIABILITIES: |
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Long-term lease liability |
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— |
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TOTAL NON-CURRENT LIABILITIES |
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— |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (Note 14) |
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SHAREHOLDERS’ EQUITY: |
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Ordinary shares, NIS authorized at September 30, 2019 and December 31, 2018; and of September 30, 2019 and December 31, 2018, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income |
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— |
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TOTAL SHAREHOLDERS’ EQUITY |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
UROGEN PHARMA, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited; in thousands, except share and per share amounts)
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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REVENUES |
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$ |
— |
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$ |
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$ |
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$ |
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COST OF REVENUES |
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$ |
— |
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— |
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GROSS (LOSS) PROFIT |
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— |
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( |
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( |
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OPERATING EXPENSES: |
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RESEARCH AND DEVELOPMENT EXPENSES |
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$ |
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GENERAL AND ADMINISTRATIVE EXPENSES |
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$ |
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OPERATING LOSS |
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( |
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( |
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( |
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( |
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INTEREST AND OTHER INCOME, NET |
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$ |
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REALIZED LOSS ON SALE OF SHORT-TERM INVESTMENT |
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$ |
— |
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— |
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— |
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( |
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NET LOSS |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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NET LOSS PER ORDINARY SHARE BASIC AND DILUTED |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER ORDINARY SHARE |
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STATEMENTS OF COMPREHENSIVE LOSS |
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NET LOSS |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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OTHER COMPREHENSIVE INCOME: |
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UNREALIZED GAIN ON MARKETABLE SECURITIES |
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$ |
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— |
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— |
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COMPREHENSIVE LOSS |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
UROGEN PHARMA, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited; in thousands, except share amounts)
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Ordinary Shares |
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Additional paid-in |
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Accumulated |
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Other comprehensive |
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Number of |
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capital |
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Deficit |
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income |
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Total |
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Shares |
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Amount |
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Amounts |
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BALANCE AS OF JUNE 30, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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CHANGES DURING THE THREE MONTHS ENDED SEPTEMBER 30, 2019 |
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Exercise of options into ordinary shares |
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— |
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Share-based compensation |
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Other comprehensive income |
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Net loss |
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( |
) |
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( |
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BALANCE AS OF SEPTEMBER 30, 2019 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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BALANCE AS OF JUNE 30, 2018 |
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$ |
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$ |
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$ |
( |
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$ |
— |
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$ |
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CHANGES DURING THE THREE MONTHS ENDED SEPTEMBER 30, 2018 |
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Exercise of options into ordinary shares |
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Share-based compensation |
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Other comprehensive income |
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— |
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— |
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Net loss |
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( |
) |
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( |
) |
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BALANCE AS OF SEPTEMBER 30, 2018 |
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$ |
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$ |
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$ |
( |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
UROGEN PHARMA, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited; in thousands, except share amounts)
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Ordinary Shares |
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Additional paid-in |
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Accumulated |
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Other comprehensive |
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Number of |
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capital |
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Deficit |
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income |
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Total |
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Shares |
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Amount |
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Amounts |
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BALANCE AS OF JANUARY 1, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
— |
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$ |
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CHANGES DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2019 |
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Exercise of options into ordinary shares |
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Share-based compensation |
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Issuance of ordinary shares in public offering, net of issuance expenses |
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Other comprehensive income |
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Net loss |
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( |
) |
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( |
) |
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BALANCE AS OF SEPTEMBER 30, 2019 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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BALANCE AS OF JANUARY 1, 2018 |
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$ |
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$ |
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$ |
( |
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$ |
— |
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$ |
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CHANGES DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2018 |
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Exercise of options into ordinary shares |
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Share-based compensation |
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Issuance of ordinary shares in public offering, net of issuance expenses |
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Net loss |
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( |
) |
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( |
) |
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BALANCE AS OF SEPTEMBER 30, 2018 |
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$ |
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$ |
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$ |
( |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
UROGEN PHARMA, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited; in thousands)
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Nine Months Ended September 30, |
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2019 |
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2018 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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Adjustment to reconcile net loss to net cash from operating activities: |
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Depreciation and amortization |
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Amortization/Accretion on marketable securities |
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( |
) |
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— |
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Stock-based compensation |
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Exchange rate differences |
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— |
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Realized loss on sale of short-term investment |
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— |
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Right of use asset |
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— |
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Lease liability |
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( |
) |
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— |
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Changes in operating assets and liabilities: |
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Decrease in inventory |
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— |
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Increase in accounts receivable |
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— |
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( |
) |
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(Increase) decrease in prepaid expenses and other current assets |
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( |
) |
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(Decrease) increase in accounts payable and accrued expenses |
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( |
) |
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Decrease in deferred revenues |
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— |
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( |
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Increase in employee related accrued expenses |
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Net cash used in operating activities |
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( |
) |
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( |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Change in restricted deposit |
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( |
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( |
) |
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Purchase of marketable securities |
|
|
( |
) |
|
|
— |
|
|
Sale of short-term investment |
|
|
— |
|
|
|
|
|
|
Maturities of marketable securities |
|
|
|
|
|
|
— |
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from exercise of options into ordinary shares |
|
|
|
|
|
|
— |
|
|
Issuance of ordinary shares, net of issuance expenses |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
( |
) |
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE YEAR |
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE YEAR |
|
$ |
|
|
|
$ |
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Exercise of options |
|
$ |
— |
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
UROGEN PHARMA, LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-BUSINESS AND NATURE OF OPERATIONS
Nature of Operations
UroGen Pharma Ltd. is an Israeli company incorporated in
UroGen Pharma Inc., a subsidiary of UPL, was incorporated in Delaware in October 2015 and began operating in
UPL and UPI (together the “Company”) is a clinical stage biopharmaceutical company focused on developing novel therapies designed to change the standard of care for urological pathologies. Since commencing operations, the Company has devoted substantially all of its efforts to securing intellectual property rights, performing research and development activities, including conducting clinical trials and manufacturing activities, hiring personnel, preparing for the potential commercial launch of its lead product candidates, UGN-101 and UGN-102 and raising capital to support and expand these activities.
NOTE 2-BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary to state fairly the financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. Interim results are not necessarily indicative of results for the full fiscal year. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The consolidated financial statements include the accounts of UPL and its wholly-owned subsidiary UPI. All material intercompany balances and transactions have been eliminated during consolidation.
The Company has not generated any revenue from the sale of products since its inception. The Company has experienced net losses since its inception and has an accumulated deficit of $
The success of the Company depends on its ability to develop its technologies to the point of U.S. Food and Drug Administration (“FDA”) approval and subsequent revenue generation and, accordingly, to raise enough capital to finance these efforts. Based on management’s cash flow projections, the Company believes that its cash and cash equivalents and marketable securities are sufficient to fund the Company’s planned operations for at least the next 12 months. However, in the future, the Company may need to raise additional capital to finance the continued operating and capital requirements of the Company. There can be no assurances that the Company will be able to secure such additional financing, or if available, that it will be sufficient to meet its needs. If the Company cannot obtain adequate working capital, it may be forced to reevaluate its planned business operations.
6
UROGEN PHARMA, LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3-SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of UPL and its subsidiary, UPI. Intercompany balances and transactions have been eliminated during consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. As applicable to the unaudited condensed consolidated financial statements, the most significant estimates and assumptions relate to the fair value of share-based compensation and timing of revenue recognition.
Functional Currency
The U.S. dollar (“Dollar”) is the currency of the primary economic environment in which the operations of the Company are conducted. Therefore, the functional currency of the Company is the Dollar.
Accordingly, transactions in currencies other than the Dollar are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the Dollar are measured using the official exchange rate at the balance sheet date. The effects of foreign currency re-measurements are recorded in the condensed consolidated statements of operations as “finance (income) expenses.”
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist primarily of money market funds and bank money market accounts and are stated at cost, which approximates fair value.
Marketable Securities
Cash and cash equivalents and marketable securities totaled $
Short-term investments are valued using models or other valuation methodologies that use Level 2 inputs. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, default rates, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. The majority of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
The Company reviews its available-for-sale securities for other-than-temporary declines in fair value below its cost basis each quarter and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors that include the length of time and extent to which fair value has been less than the cost basis and adverse conditions related specifically to the security, and the intent to sell, or whether the Company will more likely than not be required to sell, the security before recovery of its amortized cost basis. The Company’s assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security.
7
UROGEN PHARMA, LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the nine months ended September 30, 2018, the Company sold its short-term investments that consisted of mutual and bond funds. The Company recognized a loss on sale of $
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents and marketable securities. The primary objectives for the Company’s investment portfolio are the preservation of capital and the maintenance of liquidity. The Company does not enter into any investment transaction for trading or speculative purposes.
The Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer. The Company maintains cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation and concentrated within a limited number of financial institutions. The accounts are monitored by management to mitigate the risk.
Income Taxes
The Company provides for income taxes based on pretax income, if any, and applicable tax rates available in the various jurisdictions in which we operate. Deferred taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future.
The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained upon examination by the taxing authorities based on the technical merits of the position. If this threshold is met, the second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. As of September 30, 2019, and December 31, 2018, the Company had not accrued a provision for uncertain tax positions. See Note 12 for further discussion related to income taxes.
Property and Equipment
Property and equipment are recorded at historical cost, net of accumulated depreciation, amortization and, if applicable, impairment charges. The Company reviews its property and equipment assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Property and equipment are depreciated over the following useful lives (in years):
|
|
|
Useful Lives |
|
|
|
Computers and software |
|
|
3 |
|
|
Laboratory equipment |
|
3-6.5 |
|
|
|
Furniture |
|
5-16.5 |
|
|
|
Manufacturing equipment |
|
|
2 |
|
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. See Note 7 for further discussion regarding property and equipment.
Leases
The Company is a lessee in several noncancelable operating leases, primarily for office space, office equipment and vehicles. The Company currently has no finance leases.
The Company accounts for leases in accordance with ASC Topic 842, “Leases”. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Operating lease ROU assets are presented as operating lease right of use assets on the condensed consolidated balance sheets. The current portion of operating lease liabilities is included in other current liabilities and the long-term portion is presented separately as operating lease liabilities on the condensed consolidated balance sheets.
8
UROGEN PHARMA, LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Lease expense is recognized on a straight-line basis for operating leases. Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expense on the condensed consolidated statements of operations in the same line item as expense arising from fixed lease payments.
The Company’s lease terms may include options to extend the lease. The lease extensions are included in the measurement of the right of use asset and lease liability when it is reasonably certain that it will exercise that option.
Because most of the Company’s leases do not provide an implicit rate of return, an incremental borrowing rate is used based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
The Company has lease agreements with lease and non-lease components. We applied the modified retrospective transition method and elected the transition option to use the effective date of January 1, 2019 as the date of initial application (“Transition Date”). Consequently, the disclosures required under Topic 842 are not provided for dates and periods before January 1, 2019.
Topic 842 provides for a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits not to reassess under Topic 842 its prior conclusions about lease identification, lease classification, and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company.
Topic 842 had a material impact on our condensed consolidated balance sheets but did not have an impact on our condensed consolidated statements of operations. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.
ROU assets for operating leases are periodically reviewed for impairment losses under ASC 360-10, “Property, Plant, and Equipment”, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize.
Revenues
The Company derives virtually all its revenues from its license and supply agreement (the “Allergan Agreement”) with Allergan Pharmaceuticals International Limited (“Allergan”), a wholly owned subsidiary of Allergan plc. Under the Allergan Agreement, the Company grants Allergan an exclusive license to develop, commercialize, and otherwise exploit products that contain reverse thermal hydrogel (“RTGel”) and agrees to supply Allergan with pre-clinical and clinical quantities of the RTGel product, also referred to as the RTGel vials. The Allergan Agreement contains up-front license fees, future supply fees, development, regulatory, and sales-based milestone payments, and sales-based royalty payments.
The Company determined that Allergan is its customer and the Allergan Agreement is in scope of ASC 606, which was adopted as of January 1, 2018. The Company adopted ASC 606 under the modified retrospective method, which did not have a material impact on the condensed consolidated statements of operations.
Supply of RTGel to Allergan
The Company recognizes revenue related to supply of RTGel at a point in time, upon delivery to Allergan. During the three and nine months ended September 30, 2019, the Company recognized $
Shipping and handling costs associated with supply of RTGel are accounted for as a fulfillment cost and are included in cost of revenues.
9
UROGEN PHARMA, LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs (including share-based compensation related to directors, executives, finance, commercial, medical affairs, business development, investor relations and human resources functions). Other significant costs include commercial, medical affairs, external professional service costs, facility costs, accounting and audit services, legal services, and other consulting fees. General and administrative costs are expensed as incurred, and the Company accrues for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from its service providers and adjusting its accruals as actual costs become known.
Research and Development Expenses
Research and development costs are expensed as incurred and consist primarily of the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for research and development activities, including nonclinical studies, clinical trials, manufacturing costs and professional services. The costs of services performed by others in connection with the research and development activities of an entity, including research and development conducted by others on behalf of the entity, shall be included in research and development costs and expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from its external service providers. The Company adjusts its accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the milestone payment obligations are expensed when the milestone results are achieved.
Share-Based Compensation
Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the required service period, which is equal to the vesting period. The fair value of options is determined using the Black-Scholes option-pricing model. The fair value of a restricted stock unit (“RSU”) equaled the closing price of our ordinary shares on the grant date.
As of December 31, 2016, the Company early adopted the policy