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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 June 30, 2021 

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 July 27, 2021, the registrant had 22,363,023 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

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

85

Item 3.

Defaults Upon Senior Securities

85

Item 4.

Mine Safety Disclosures

85

Item 5.

Other Information

85

Item 6.

Exhibits

86

 

Signatures

87

 

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.

UroGen, RTGel and Jelmyto are trademarks of ours that we use in this Quarterly Report. This Quarterly Report also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this Quarterly Report appear without the ® or ™ symbols, but those 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 right of the applicable licensor to our trademark and tradenames. 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)

 

 

 

June 30,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,322

 

 

$

52,864

 

Marketable securities

 

 

57,710

 

 

 

49,154

 

Restricted cash

 

 

1,225

 

 

 

1,226

 

Accounts receivable

 

 

9,512

 

 

 

7,047

 

Inventories

 

 

3,421

 

 

 

1,964

 

Prepaid expense and other current assets

 

 

5,308

 

 

 

3,364

 

Total current assets

 

 

140,498

 

 

 

115,619

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

2,001

 

 

 

2,046

 

Restricted deposit

 

 

223

 

 

 

223

 

Right of use asset

 

 

1,653

 

 

 

2,158

 

Marketable securities

 

 

8,290

 

 

 

1,893

 

Other non-current assets

 

 

1,103

 

 

 

66

 

Total Assets

 

$

153,768

 

 

$

122,005

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expense

 

$

10,342

 

 

$

10,023

 

Employee related accrued expense

 

 

6,773

 

 

 

9,554

 

Other current liabilities

 

 

1,941

 

 

 

1,859

 

Total current liabilities:

 

 

19,056

 

 

 

21,436

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Prepaid forward obligation

 

 

74,802

 

 

-

 

Long-term lease liability

 

 

922

 

 

 

1,497

 

Uncertain tax positions liability

 

 

2,717

 

 

 

2,717

 

Total Liabilities

 

 

97,497

 

 

 

25,650

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

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

   authorized at June 30, 2021 and December 31, 2020; 22,354,533

   and 22,167,791 shares issued and outstanding as

   of June 30, 2021 and December 31, 2020, respectively

 

 

61

 

 

 

60

 

Additional paid-in capital

 

 

464,823

 

 

 

452,525

 

Accumulated deficit

 

 

(408,658

)

 

 

(356,501

)

Accumulated other comprehensive income

 

 

45

 

 

 

271

 

Total Shareholders' Equity

 

 

56,271

 

 

 

96,355

 

Total Liabilities and Shareholders' Equity

 

$

153,768

 

 

$

122,005

 

 

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

13,032

 

 

$

372

 

 

$

20,517

 

 

$

372

 

Cost of revenue

 

 

1,427

 

 

 

48

 

 

 

2,324

 

 

 

48

 

Gross profit

 

 

11,605

 

 

 

324

 

 

 

18,193

 

 

 

324

 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

 

12,124

 

 

 

8,106

 

 

 

22,637

 

 

 

24,694

 

Selling, general and administrative expense

 

 

22,304

 

 

 

24,018

 

 

 

44,493

 

 

 

45,991

 

Operating loss

 

 

(22,823

)

 

 

(31,800

)

 

 

(48,937

)

 

 

(70,361

)

Financing on prepaid forward obligation

 

 

(3,120

)

 

 

 

 

 

(3,120

)

 

 

 

Interest and other income, net

 

 

33

 

 

 

451

 

 

 

212

 

 

 

1,219

 

Loss before income taxes

 

 

(25,910

)

 

 

(31,349

)

 

 

(51,845

)

 

 

(69,142

)

Income tax expense

 

 

312

 

 

 

 

 

 

312

 

 

 

 

Net Loss

 

$

(26,222

)

 

$

(31,349

)

 

$

(52,157

)

 

$

(69,142

)

Statements of Comprehensive Loss

 

 

 

 

 

$

 

 

 

 

 

 

$

 

Net loss

 

$

(26,222

)

 

$

(31,349

)

 

$

(52,157

)

 

$

(69,142

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

 

 

(98

)

 

 

449

 

 

 

(226

)

 

 

484

 

Comprehensive Loss

 

$

(26,320

)

 

$

(30,900

)

 

$

(52,383

)

 

$

(68,658

)

Net loss per ordinary share basic and diluted

 

$

(1.17

)

 

$

(1.44

)

 

$

(2.34

)

 

$

(3.22

)

Weighted average number of shares

   outstanding used in computation

   of basic and diluted loss per

   ordinary share

 

 

22,331,119

 

 

 

21,753,001

 

 

 

22,287,037

 

 

 

21,454,341

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Additional

paid-in

 

 

Accumulated

 

 

Other

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

Deficit

 

 

income (loss)

 

 

Total

 

Balance as of April 1, 2021

 

 

22,280,394

 

 

$

61

 

 

$

458,723

 

 

$

(382,436

)

 

$

143

 

 

$

76,491

 

Changes During the Three

   Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options into ordinary shares

 

 

74,139

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

 

 

54

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

6,046

 

 

 

 

 

 

 

 

 

 

 

6,046

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(98

)

 

 

(98

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,222

)

 

 

 

 

 

 

(26,222

)

Balance as of June 30, 2021

 

 

22,354,533

 

 

$

61

 

 

$

464,823

 

 

$

(408,658

)

 

$

45

 

 

$

56,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of April 1, 2020

 

 

21,212,940

 

 

$

58

 

 

$

415,895

 

 

$

(265,810

)

 

$

311

 

 

$

150,454

 

Changes During the Three

   Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options into ordinary shares

 

 

88,356

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

210

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

7,119

 

 

 

 

 

 

 

 

 

 

 

7,119

 

Issuance of ordinary shares, net

   of issuance expense

 

 

700,000

 

 

 

2

 

 

 

15,775

 

 

 

 

 

 

 

 

 

 

 

15,777

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

449

 

 

 

449

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,349

)

 

 

 

 

 

 

(31,349

)

Balance as of June 30, 2020

 

 

22,001,296

 

 

$

60

 

 

$

438,999

 

 

$

(297,159

)

 

$

760

 

 

$

142,660

 

 

 

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

 

 

3


 


 

 

 

Ordinary Shares

 

 

Additional

paid-in

 

 

Accumulated

 

 

Other

comprehensive

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

capital

 

 

Deficit

 

 

Income (loss)

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

 

 

Balance as of January 1, 2021

 

 

22,167,791

 

 

$

60

 

 

$

452,525

 

 

$

(356,501

)

 

$

271

 

 

$

96,355

 

Changes During the Six

   Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options into ordinary shares

 

 

186,742

 

 

 

1

 

 

 

57

 

 

 

 

 

 

 

 

 

 

 

58

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

12,241

 

 

 

 

 

 

 

 

 

 

 

12,241

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(226

)

 

 

(226

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52,157

)

 

 

 

 

 

 

(52,157

)

Balance as of June 30, 2021

 

 

22,354,533

 

 

$

61

 

 

$

464,823

 

 

$

(408,658

)

 

$

45

 

 

$

56,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2020

 

 

21,026,184

 

 

$

57

 

 

$

407,986

 

 

$

(228,017

)

 

 

276

 

 

$

180,302

 

Changes During the Six

   Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options into ordinary shares

 

 

275,112

 

 

 

1

 

 

 

502

 

 

 

 

 

 

 

 

 

 

 

503

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

14,736

 

 

 

 

 

 

 

 

 

 

 

14,736

 

Issuance of ordinary shares in public

   offering, net of issuance expense

 

 

700,000

 

 

 

2

 

 

 

15,775

 

 

 

 

 

 

 

 

 

 

 

15,777

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

484

 

 

 

484

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(69,142

)

 

 

 

 

 

 

(69,142

)

Balance as of June 30, 2020

 

 

22,001,296

 

 

$

60

 

 

$

438,999

 

 

$

(297,159

)

 

$

760

 

 

$

142,660

 

 

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)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(52,157

)

 

$

(69,142

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

401

 

 

 

178

 

Accrued financing on prepaid forward obligation

 

 

2,330

 

 

 

 

Amortization on marketable securities

 

 

181

 

 

 

234

 

Stock-based compensation

 

 

12,241

 

 

 

14,736

 

Amortization of right of use asset

 

 

469

 

 

 

753

 

Lease liability

 

 

(652

)

 

 

(748

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Inventory

 

 

(1,457

)

 

 

(1,125

)

Accounts receivable

 

 

(2,465

)

 

 

(402

)

Prepaid expense and other current assets

 

 

(1,944

)

 

 

(1,035

)

Other non-current assets

 

 

(1,026

)

 

 

 

Accounts payable and accrued expense

 

 

319

 

 

 

(2,046

)

Employee related accrued expense

 

 

(2,781

)

 

 

(967

)

Other current liabilities

 

 

195

 

 

 

 

Net cash used in operating activities

 

 

(46,346

)

 

 

(59,564

)

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(41,655

)

 

 

(29,688

)

Maturities of marketable securities

 

 

26,295

 

 

 

60,610

 

Purchases of property and equipment

 

 

(356

)

 

 

(383

)

Net cash (used in) provided by investing activities

 

 

(15,716

)

 

 

30,539

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Proceeds from prepaid forward arrangement

 

 

72,472

 

 

 

503

 

Proceeds from exercise of options into ordinary shares

 

 

58

 

 

 

 

Issuances of ordinary shares, net of issuance expense

 

 

 

 

 

15,885

 

Issuance cost related to at-the-market issuances

 

 

(11

)

 

 

 

Net cash provided by financing activities

 

 

72,519

 

 

 

16,388

 

Increase (Decrease) in Cash and Cash Equivalents

 

 

10,457

 

 

 

(12,637

)

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

 

 

54,090

 

 

 

50,211

 

Cash, Cash Equivalents and Restricted Cash at End of Period

 

$

64,547

 

 

$

37,574

 

Supplemental Disclosures of Non-Cash Activities

 

 

 

 

 

 

 

 

Non-cash purchases of property and equipment

 

$

 

 

$

219

 

Non-cash new lease liabilities

 

$

(36

)

 

$

29

 

Non-cash issuance cost

 

$

 

 

$

32

 

 

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 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, launching the Company’s first commercial product, Jelmyto (mitomycin) for pyelocalyceal solution, formerly known as UGN-101, and its 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, a first-in-class treatment indicated for adults with low-grade upper tract urothelial cancer (“low grade-UTUC”). Jelmyto consists of mitomycin, an established chemotherapy, and sterile hydrogel, using our proprietary sustained release RTGel technology. It has been designed to enable longer exposure of urinary tract tissue to mitomycin, thereby enabling the treatment of tumors by non-surgical means.

 

 

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. 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 for fair statement of its 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, 2020, as filed with the Securities and Exchange Commission (“SEC”) on March 18, 2021.

The consolidated financial statements include the accounts of UPL and its wholly owned subsidiary UPI. Intercompany balances and transactions have been eliminated during consolidation.

The Company has experienced net losses since its inception and has an accumulated deficit of $408.7 million and $356.5 million as of June 30, 2021 and December 31, 2020, respectively. The Company expects to incur losses and have negative net cash flows from operating activities as it executes on its strategy including engaging in further research and development activities, particularly conducting non-clinical studies and clinical trials.

The success of the Company depends on the ability to successfully commercialize its technologies to support its operations and strategic plan. 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. The Company anticipates that it may need to raise additional capital in the future. There can be no assurances that the Company will be able to secure such additional financing if at all, or at terms that are satisfactory to the Company, and that it will be sufficient to meet its needs. In the event the Company is not successful in obtaining sufficient funding, this could force us to delay, limit, or reduce our product development, commercialization efforts or other operations.

 

6


 

 

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 U.S. 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 revenue and expense during the reporting period. Actual results may differ from those estimates. As applicable to the unaudited condensed consolidated financial statements, the critical accounting estimates relate to the fair value of share-based compensation, measurement of revenue, estimate of uncertain tax positions, and measurement of liabilities accounted for under the interest method.

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 “Interest and other income, net.”

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 $129.3 million as of June 30, 2021. 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.

 

7


 

 

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.

The Company’s product sales are recognized through the Company's arrangement with a single customer, a third-party national specialty distributor. The Company assesses the need for an allowance for doubtful accounts primarily based on creditworthiness, historical payment experience and general economic conditions. The Company has not experienced any credit losses related to this customer and has not currently recognized any allowance for doubtful accounts.

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 it operates, including Israel and the U.S. 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. After concluding that a particular filing position can be recognized (i.e., has a more-likely-than-not chance of being sustained), ASC 740-10-30-7 requires that the amount of benefit recognized be measured using a methodology based on the concept of cumulative probability. Under this methodology, the amount of benefit recorded represents the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority that has full knowledge of all relevant information. See Note 15 for further discussion related to income taxes.

Inventory

 

The Company capitalizes inventory costs related to products to be sold in the ordinary course of business. The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. For Jelmyto, the Company commenced capitalization of inventory at the receipt of FDA approval.

 

The Company values its inventory at the lower of cost or net realizable value. The Company measures inventory approximating actual cost under a first-in, first-out basis. The Company assesses recoverability of inventory each reporting period to determine any write down to net realizable value resulting from excess or obsolete inventories.

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

 

8


 

 

 

Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. See Note 8 for further discussion regarding property and equipment.

Prepaid Forward Obligation

The Company is party to a transaction with RTW Investments (the “RTW Transaction”) in which the Company received funds to support the continued launch of Jelmyto and the development of UGN-102 in return for tiered, future cash payments based on net sales of Jelmyto and UGN-102, if approved by the FDA. The net proceeds received under the RTW Transaction were recognized as a long-term liability. The subsequent measurement for the liability follows the accounting  principles defined in ASC Topic 835-30, “Imputation of Interest”. See Note 9 for further discussion related to the prepaid forward obligation.

Leases