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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020 

OR

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: 001-38079

 

UROGEN PHARMA LTD.

(Exact Name of Registrant as Specified in its Charter)

 

 

Israel

98-1460746

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

400 Alexander Park Drive, Princeton, New Jersey

08540

(Address of principal executive offices)

(Zip Code)

 

(646) 768-9780

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:

 

Title of each class

Trading Symbol

Name of exchange on which registered

Ordinary Shares, par value NIS 0.01 per share

URGN

The Nasdaq Stock Market LLC

 

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.     Yes      No  

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).    Yes      No  

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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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      No  

As of May 4, 2020, the registrant had 21,935,131 shares of ordinary shares, par value NIS 0.01 per share, outstanding.

 

 

 

 


UROGEN PHARMA LTD.

INDEX

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Shareholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3.

Defaults Upon Senior Securities

70

Item 4.

Mine Safety Disclosures

70

Item 5.

Other Information

70

Item 6.

Exhibits

71

 

Signatures

72

 

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 and par value)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,468

 

 

$

49,688

 

Marketable securities

 

 

92,623

 

 

 

97,389

 

Restricted cash

 

 

1,223

 

 

 

523

 

Prepaid expenses and other current assets

 

 

1,552

 

 

 

1,034

 

TOTAL CURRENT ASSETS

 

 

121,866

 

 

 

148,634

 

NON-CURRENT ASSETS

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

991

 

 

 

977

 

Restricted deposit

 

 

223

 

 

 

223

 

Right of use asset

 

 

3,433

 

 

 

3,735

 

Marketable securities

 

 

40,137

 

 

 

48,555

 

Other non-current assets

 

 

279

 

 

 

264

 

TOTAL ASSETS

 

$

166,929

 

 

$

202,388

 

Liabilities and Shareholder's equity

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

8,500

 

 

$

11,186

 

Employee related accrued expenses

 

 

4,075

 

 

 

6,711

 

Other current liabilities

 

 

1,632

 

 

 

1,585

 

TOTAL CURRENT LIABILITIES

 

 

14,207

 

 

 

19,482

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Long-term lease liability

 

 

2,268

 

 

 

2,604

 

TOTAL LIABILITIES

 

 

16,475

 

 

 

22,086

 

COMMITMENTS AND CONTINGENCIES (Note 14)

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Ordinary shares, NIS 0.01 par value; 100,000,000 shares

   authorized at March 31, 2020 and December 31, 2019; 21,212,940

   and 21,026,184 shares issued and outstanding as

   of March 31, 2020 and December 31, 2019, respectively

 

 

58

 

 

 

57

 

Additional paid-in capital

 

 

415,895

 

 

 

407,986

 

Accumulated deficit

 

 

(265,810

)

 

 

(228,017

)

Accumulated other comprehensive income

 

 

311

 

 

 

276

 

TOTAL SHAREHOLDERS’ EQUITY

 

 

150,454

 

 

 

180,302

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

166,929

 

 

$

202,388

 

 

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)

 

 

 

For the Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

REVENUES

 

$

 

 

$

 

COST OF REVENUES

 

 

 

 

 

 

GROSS (LOSS) PROFIT

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

RESEARCH AND DEVELOPMENT EXPENSES

 

 

16,588

 

 

 

9,726

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

 

21,973

 

 

 

12,707

 

OPERATING LOSS

 

 

(38,561

)

 

 

(22,433

)

INTEREST AND OTHER INCOME, NET

 

 

768

 

 

 

989

 

NET LOSS

 

$

(37,793

)

 

$

(21,444

)

STATEMENTS OF COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

NET LOSS

 

$

(37,793

)

 

$

(21,444

)

OTHER COMPREHENSIVE INCOME:

 

 

 

 

 

 

 

 

UNREALIZED GAIN ON MARKETABLE SECURITIES

 

 

35

 

 

 

 

COMPREHENSIVE LOSS

 

$

(37,758

)

 

$

(21,444

)

NET LOSS PER ORDINARY SHARE BASIC AND DILUTED

 

$

1.79

 

 

$

1.11

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

   USED IN COMPUTATION OF BASIC AND DILUTED LOSS

   PER ORDINARY SHARE

 

 

21,158,161

 

 

 

19,340,082

 

 

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)

 

 

 

Ordinary Shares

 

 

Additional

paid-in

 

 

Accumulated

 

 

Other

comprehensive

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

capital

 

 

Deficit

 

 

income

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Amounts

 

BALANCE AS OF JANUARY 1, 2020

 

 

21,026,184

 

 

$

57

 

 

$

407,986

 

 

$

(228,017

)

 

$

276

 

 

$

180,302

 

CHANGES DURING THE THREE

   MONTHS ENDED MARCH 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options into ordinary shares

 

 

186,756

 

 

 

1

 

 

 

292

 

 

 

 

 

 

 

 

 

 

 

293

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

7,617

 

 

 

 

 

 

 

 

 

 

 

7,617

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

35

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,793

)

 

 

 

 

 

 

(37,793

)

BALANCE AS MARCH 31, 2020

 

 

21,212,940

 

 

$

58

 

 

$

415,895

 

 

$

(265,810

)

 

$

311

 

 

$

150,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AS OF JANUARY 1, 2019

 

 

16,214,883

 

 

$

44

 

 

$

212,921

 

 

$

(122,871

)

 

$

 

 

$

90,094

 

CHANGES DURING THE THREE

   MONTHS ENDED MARCH 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options into ordinary shares

 

 

336,148

 

 

 

1

 

 

 

2,046

 

 

 

 

 

 

 

 

 

 

 

2,047

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

7,447

 

 

 

 

 

 

 

 

 

 

 

7,447

 

Issuance of ordinary shares in public offering, net

   of issuance expenses

 

 

4,207,317

 

 

 

11

 

 

 

161,436

 

 

 

 

 

 

 

 

 

 

 

161,447

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,444

)

 

 

 

 

 

 

(21,444

)

BALANCE AS OF MARCH 31, 2019

 

 

20,758,348

 

 

$

56

 

 

$

383,850

 

 

$

(144,315

)

 

$

 

 

$

239,591

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

3


UROGEN PHARMA LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(unaudited; in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(37,793

)

 

$

(21,444

)

Adjustment to reconcile net loss to net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

82

 

 

 

63

 

Amortization/Accretion on marketable securities

 

 

98

 

 

 

 

Stock-based compensation

 

 

7,617

 

 

 

7,447

 

Amortization of right of use asset

 

 

374

 

 

 

245

 

Lease liability

 

 

(361

)

 

 

(173

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase in prepaid expenses and other current assets

 

 

(518

)

 

 

(41

)

Decrease in accounts payable and accrued expenses

 

 

(2,498

)

 

 

(2,440

)

Decrease in employee related accrued expenses

 

 

(2,636

)

 

 

(1,591

)

Net cash used in operating activities

 

 

(35,635

)

 

 

(17,934

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(9,378

)

 

 

 

Maturities of marketable securities

 

 

22,499

 

 

 

 

Purchases of property and equipment

 

 

(96

)

 

 

(44

)

Net cash provided by (used in) investing activities

 

 

13,025

 

 

 

(44

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of options into ordinary shares

 

 

293

 

 

 

1,532

 

Issuance of ordinary shares, net of issuance expenses

 

 

 

 

 

161,974

 

Issuance cost for shelf filing

 

 

(203

)

 

 

 

Net cash provided by financing activities

 

 

90

 

 

 

163,506

 

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(22,520

)

 

 

145,528

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT

   BEGINNING OF THE PERIOD

 

 

50,211

 

 

 

101,571

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT

   END OF THE PERIOD

 

$

27,691

 

 

$

247,099

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING

   AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Non-cash new lease liabilities

 

$

72

 

 

$

 

Non-cash issuance cost

 

$

 

 

$

312

 

Exercise of options

 

$

 

 

$

515

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

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 April 2004 (“UPL”).

UroGen Pharma Inc., a wholly owned subsidiary of UPL, was incorporated in Delaware in October 2015 and began operating in February 2016 (“UPI”).

UPL and UPI (together the “Company”) is a biopharmaceutical company focused on developing and commercializing 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 our first commercial product, Jelmyto (mitomycin), formerly known as UGN-101, and our product candidate UGN-102, and raising capital to support and expand these activities.

On April 15, 2020, the U.S. Food and Drug Administration (“FDA”) granted expedited approval for Jelmyto (mitomycin), for pyelocalyceal solution, a first-in-class treatment indicated for adults with low-grade upper tract urothelial cancer (“LG-UTUC”). See Note 15 for further details.

 

 

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, 2019, as filed with the Securities and Exchange Commission (“SEC”) on March 2, 2020.

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 $265.8 million and $228.0 million as of March 31, 2020 and December 31, 2019, respectively. The Company expects to incur losses and have negative net cash flows from operating activities as it expands its portfolio and engages in further research and development activities, particularly conducting nonclinical studies, clinical trials and preparing for the potential commercial launch of Jelmyto (mitomycin).

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, the Company must 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.

 

5


 

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; Marketable Securities

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.

Cash and cash equivalents and marketable securities totaled $159.2 million as of March 31, 2020.  The Company classifies its marketable securities as available-for-sale in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, “Investments — Debt and Equity Securities”. Available-for-sale debt securities are carried at fair value with unrealized gains and losses reported in other comprehensive income/loss within shareholders’ equity. Realized gains and losses are recorded as a component of interest and other income (expense), net. The cost of securities sold is based on the specific-identification method.

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. 

For individual debt securities classified as available-for-sale securities where there has been a decline in fair value below amortized cost, the Company determines whether the decline resulted from a credit loss or other factors. The Company records impairment relating to credit losses through an allowance for credit losses, limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded through an allowance for credit losses is recorded through other comprehensive income, net of applicable taxes.

 

6


 

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 Companys 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 Companys 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 March 31, 2020, and December 31, 2019, 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.

7


 

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”).

ROU assets for operating leases are periodically reviewed for impairment losses under ASC 360-10, “Property, Plant, and Equipment”, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.

Revenues

 

To date, the Company has derived 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 granted Allergan an exclusive license to develop, commercialize, and otherwise exploit products that contain reverse thermal hydrogel (“RTGel”) and agreed 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.   

 

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 the Company, including research and development conducted by others on behalf of the Company, 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.

Selling General and Administrative Expenses

Selling, 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. Selling, 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.

 

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. The Company accounts for forfeitures as they occur according to the FASB’s Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting.

8


 

The Company elected to recognize compensation costs for awards conditioned only on continued service that have a graded vesting schedule using the straight-line method and to value the awards based on the single-option award approach.

 

Net Loss per Ordinary Share

Basic net loss per share is computed by dividing the net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding. Diluted net loss per share is computed similarly to basic net loss per share except that the denominator is increased to include the number of additional ordinary shares that would have been outstanding if the potential ordinary shares had been issued and if the additional ordinary shares were dilutive.

For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive.

 

Recently Adopted Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 requires the Company to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the Company’s current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, the standard requires allowances to be recorded through net income instead of directly reducing the amortized cost of the investment under the prior other-than-temporary impairment model.

 

The Company applied the modified retrospective transition method as of the date of initial application, January 1, 2020, or the Transition Date. As of March 31, 2020, the Company believes the cost basis for its marketable securities were recoverable in all material aspects and no credit impairments were recognized in the period.

NOTE 4-OTHER FINANCIAL INFORMATION

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Accounts payable

 

$

4,152

 

 

$

4,694

 

Accrued clinical expenses

 

 

235

 

 

 

399

 

Accrued research and development costs

 

 

1,696

 

 

 

2,644

 

Accrued selling, general and administrative expenses

 

 

2,057

 

 

 

2,767

 

Accrued other expense

 

 

360

 

 

 

682

 

Total accounts payable and accrued expenses

 

$

8,500

 

 

$

11,186

 

 

Interest and Other (Income) Expenses, Net

Interest and other (income) expenses consisted of the following as of March 31, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Interest income

 

$

(811

)

 

$

(1,010

)

Other finance expenses

 

 

43

 

 

 

21

 

Total finance income

 

$

(768

)

 

$

(989

)

 

9


 

NOTE 5-FAIR VALUE MEASUREMENTS

The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1:

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2:

Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3:

Unobservable inputs that reflect the reporting entitys own assumptions.

The carrying amounts of the Companys other current assets, accounts payable and accrued liabilities are generally considered to be representative of their fair value because of the short-term nature of these instruments. No transfers between levels have occurred during the periods presented.

Assets and liabilities measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of March 31, 2020 are as follows (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 

in Active

 

 

Other

 

 

 

Balance as of

 

 

Markets for

 

 

Observable

 

 

 

March 31,

 

 

Identical Assets

 

 

Inputs

 

 

 

2020

 

 

(Level 1)

 

 

(Level 2)

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

US government

 

$

68,414

 

 

$

68,414

 

 

$

 

Corporate bonds

 

 

55,671

 

 

 

 

 

 

55,671

 

Commercial paper(1)

 

 

8,486

 

 

 

 

 

 

8,486

 

Money market funds(2)

 

 

13,904

 

 

 

13,904

 

 

 

 

Certificates of deposit

 

 

1,788

 

 

 

 

 

 

1,788

 

 

 

$

148,263

 

 

$

82,318

 

 

$

65,945

 

 

 

(1)

$1.6 million is included within cash and cash equivalents on the condensed consolidated balance sheets.

 

(2)

Included within cash and cash equivalents on the condensed consolidated balance sheets.

 

Assets and liabilities measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of December 31, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 

in Active

 

 

Other

 

 

 

Balance as of

 

 

Markets for

 

 

Observable

 

 

 

December 31,

 

 

Identical Assets

 

 

Inputs

 

 

 

2019

 

 

(Level 1)

 

 

(Level 2)

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

US government

 

$

66,094

 

 

$

66,094

 

 

$

 

Corporate bonds

 

 

68,084

 

 

 

 

 

 

68,084

 

Commercial paper

 

 

7,658

 

 

 

 

 

 

7,658

 

Money market funds(1)

 

 

16,998

 

 

 

16,998

 

 

 

 

Certificates of deposit

 

 

4,108

 

 

 

 

 

 

4,108

 

 

 

$

162,942

 

 

$

83,092

 

 

$

79,850

 

10


 

 

(1)

Included within cash and cash equivalents on the condensed consolidated balance sheets.

The Companys marketable securities are valued based on publicly available quoted market prices for identical securities as of March 31, 2020 and December 31, 2019.

 

 

NOTE 6-MARKETABLE SECURITIES

 

The following table summarizes the Company’s marketable securities as of March 31, 2020 (in thousands):

 

 

 

Amortized

Cost Basis

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US government

 

$

67,648

 

 

$

766

 

 

$

 

 

$

68,414

 

Corporate bonds

 

 

56,135

 

 

 

75

 

 

 

(539

)

 

 

55,671

 

Commercial paper

 

 

8,480

 

 

 

6

 

 

 

 

 

 

8,486

 

Money market funds

 

 

13,904

 

 

 

 

 

 

 

 

 

13,904

 

Certificates of deposit

 

 

1,785

 

 

 

3

 

 

 

 

 

 

1,788

 

 

 

$

147,952

 

 

$

850

 

 

$

(539

)

 

$

148,263

 

 

The Company classifies its marketable securities as available-for-sale and they consist of all debt securities. The amortized cost basis as of March 31, 2020 includes $0.6 million of accrued interest receivable. As of March 31, 2020, marketable securities were in a net unrealized gain position of $0.3 million. Unrealized gains and losses on available-for-sale debt securities are included as a component of comprehensive loss.  

As of March 31, 2020, the aggregate fair value of marketable securities held by the Company in an unrealized loss position was $33.7 million which consisted of 41 securities. The unrealized loss was primarily caused by recent impacts to the automotive and financial services industries, as well as decreases in the credit ratings of two names in the portfolio. However, the Company does not expect to settle the debentures at a price less than the amortized cost basis of the investment (that is, the Company expects to recover the entire amortized cost basis of the security). Per the Company’s general investment strategy, the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost basis. As of March 31, 2020, the Company believes the cost basis for its marketable securities were recoverable in all material aspects and no credit impairments were recognized in the period.

 

The Company’s marketable securities as of March 31, 2020 mature at various dates through February 2022. The fair values of marketable securities by contractual maturity consist of the following (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Maturities within one year

 

$

108,126

 

 

$

114,386

 

Maturities after one year through three years

 

 

40,137

 

 

 

48,556

 

 

 

$

148,263

 

 

$

162,942

 

 

NOTE 7-PROPERTY AND EQUIPMENT

Property and equipment, consists of the following as of March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Laboratory equipment

 

$

264

 

 

$

259

 

Computer equipment and software

 

 

455

 

 

 

416

 

Furniture

 

 

596

 

 

 

544

 

Leasehold improvements

 

 

530

 

 

 

530

 

Manufacturing equipment

 

 

226