urgn20220930_10q.htm
0001668243 UroGen Pharma Ltd. false --12-31 Q3 2022 0.01 0.01 100,000,000 100,000,000 23,011,324 23,011,324 22,462,995 22,462,995 481,485 522,404 56 40,913 1 1,116 99 99 25,831 25,831 61 464,823 408,658 56,271 3 3 475,698 467,321 25 8,413 2 1,131 80,914 80,914 60 452,525 356,501 96,355 1 60 61 82,368 82,368 3 0 5 3 100.0 3 2 2 $1.5M of the Amounts paid and payable are included as current portion of the prepaid forward obligation within other current liabilities on the balance sheet $1.5 million and $1.0 million of raw materials are included within other non-current assets on the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, respectively. 00016682432022-01-012022-09-30 xbrli:shares 00016682432022-11-07 thunderdome:item iso4217:USD 00016682432022-09-30 00016682432021-12-31 iso4217:ILSxbrli:shares 00016682432022-07-012022-09-30 00016682432021-07-012021-09-30 00016682432021-01-012021-09-30 iso4217:USDxbrli:shares 0001668243us-gaap:CommonStockMember2022-06-30 0001668243us-gaap:AdditionalPaidInCapitalMember2022-06-30 0001668243us-gaap:RetainedEarningsAppropriatedMember2022-06-30 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-30 00016682432022-06-30 0001668243us-gaap:CommonStockMember2022-07-012022-09-30 0001668243us-gaap:AdditionalPaidInCapitalMember2022-07-012022-09-30 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-30 0001668243us-gaap:RetainedEarningsAppropriatedMember2022-07-012022-09-30 0001668243us-gaap:CommonStockMember2022-09-30 0001668243us-gaap:AdditionalPaidInCapitalMember2022-09-30 0001668243us-gaap:RetainedEarningsAppropriatedMember2022-09-30 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-30 0001668243us-gaap:CommonStockMember2021-06-30 0001668243us-gaap:AdditionalPaidInCapitalMember2021-06-30 0001668243us-gaap:RetainedEarningsAppropriatedMember2021-06-30 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-30 00016682432021-06-30 0001668243us-gaap:CommonStockMember2021-07-012021-09-30 0001668243us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-30 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-30 0001668243us-gaap:RetainedEarningsAppropriatedMember2021-07-012021-09-30 0001668243us-gaap:CommonStockMember2021-09-30 0001668243us-gaap:AdditionalPaidInCapitalMember2021-09-30 0001668243us-gaap:RetainedEarningsAppropriatedMember2021-09-30 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-30 00016682432021-09-30 0001668243us-gaap:CommonStockMember2021-12-31 0001668243us-gaap:AdditionalPaidInCapitalMember2021-12-31 0001668243us-gaap:RetainedEarningsAppropriatedMember2021-12-31 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-31 0001668243us-gaap:CommonStockMember2022-01-012022-09-30 0001668243us-gaap:AdditionalPaidInCapitalMember2022-01-012022-09-30 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-09-30 0001668243us-gaap:RetainedEarningsAppropriatedMember2022-01-012022-09-30 0001668243us-gaap:CommonStockMember2020-12-31 0001668243us-gaap:AdditionalPaidInCapitalMember2020-12-31 0001668243us-gaap:RetainedEarningsAppropriatedMember2020-12-31 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 00016682432020-12-31 0001668243us-gaap:CommonStockMember2021-01-012021-09-30 0001668243us-gaap:AdditionalPaidInCapitalMember2021-01-012021-09-30 0001668243us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-30 0001668243us-gaap:RetainedEarningsAppropriatedMember2021-01-012021-09-30 utr:Y 0001668243urgn:ComputersAndSoftwareMember2022-01-012022-09-30 0001668243urgn:LaboratoryEquipmentMembersrt:MinimumMember2022-01-012022-09-30 0001668243urgn:LaboratoryEquipmentMembersrt:MaximumMember2022-01-012022-09-30 0001668243urgn:FurnitureMembersrt:MinimumMember2022-01-012022-09-30 0001668243urgn:FurnitureMembersrt:MaximumMember2022-01-012022-09-30 0001668243urgn:ManufacturingEquipmentMembersrt:MinimumMember2022-01-012022-09-30 0001668243urgn:ManufacturingEquipmentMembersrt:MaximumMember2022-01-012022-09-30 0001668243us-gaap:OtherNoncurrentAssetsMember2022-09-30 0001668243us-gaap:OtherNoncurrentAssetsMember2021-12-31 0001668243us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:USGovernmentCorporationsAndAgenciesSecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-06-30 0001668243us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-06-30 0001668243us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-06-30 0001668243us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2022-09-30 0001668243us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2022-09-30 0001668243us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2022-09-30 0001668243us-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0001668243us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001668243us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001668243us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001668243us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryAndGovernmentMember2021-12-31 0001668243us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryAndGovernmentMember2021-12-31 0001668243us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryAndGovernmentMember2021-12-31 0001668243us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-12-31 0001668243us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-12-31 0001668243us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-12-31 0001668243us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2021-12-31 0001668243us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2021-12-31 0001668243us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2021-12-31 0001668243us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2021-12-31 0001668243us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2021-12-31 0001668243us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2021-12-31 0001668243us-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001668243us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001668243us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0001668243us-gaap:USTreasuryAndGovernmentMember2022-09-30 0001668243us-gaap:CorporateDebtSecuritiesMember2022-09-30 0001668243us-gaap:CommercialPaperMember2022-09-30 0001668243us-gaap:CertificatesOfDepositMember2022-09-30 0001668243urgn:LaboratoryEquipmentMember2022-09-30 0001668243urgn:LaboratoryEquipmentMember2021-12-31 0001668243urgn:ComputersAndSoftwareMember2022-09-30 0001668243urgn:ComputersAndSoftwareMember2021-12-31 0001668243urgn:FurnitureMember2022-09-30 0001668243urgn:FurnitureMember2021-12-31 0001668243us-gaap:LeaseholdImprovementsMember2022-09-30 0001668243us-gaap:LeaseholdImprovementsMember2021-12-31 0001668243urgn:ManufacturingEquipmentMember2022-09-30 0001668243urgn:ManufacturingEquipmentMember2021-12-31 0001668243urgn:RTWInvestmentsMember2021-03-012021-03-31 xbrli:pure 0001668243urgn:RTWInvestmentsMemberurgn:JelmytoMemberurgn:SalesOfUpTo200MillionMember2021-03-012021-03-31 0001668243urgn:RTWInvestmentsMemberurgn:JelmytoMemberurgn:SalesBetween200MillionAnd300MillionMember2021-03-012021-03-31 0001668243urgn:RTWInvestmentsMemberurgn:JelmytoMemberurgn:SalesOver300MillionMember2021-03-012021-03-31 0001668243urgn:RTWInvestmentsMember2022-09-30 utr:Rate 0001668243urgn:RTWInvestmentsMemberurgn:UGN102Memberurgn:SalesUpTo200MillionWithFDAApprovalMember2021-03-012021-03-31 0001668243urgn:RTWInvestmentsMemberurgn:SalesBetween200MillionAnd300MillionWithFDAApprovalMember2021-03-012021-03-31 0001668243urgn:RTWInvestmentsMemberurgn:SalesOver300MillionWithFDAApprovalMember2021-03-012021-03-31 0001668243urgn:RTWInvestmentsMember2021-05-012021-05-31 00016682432021-01-012021-12-31 0001668243us-gaap:SecuredDebtMember2022-03-07 0001668243us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2022-03-072022-03-07 0001668243urgn:PharmakonLoanMember2022-09-30 0001668243urgn:PharmakonLoanMember2022-01-012022-09-30 0001668243urgn:CompanyOfficesInIsraelMember2022-09-30 0001668243urgn:LeaseAgreementForOfficeInLosAngelesCaliforniaMemberurgn:UroGenPharmaIncMember2020-10-012020-10-31 0001668243urgn:LeaseAgreementForOfficeInLosAngelesCaliforniaMemberurgn:UroGenPharmaIncMember2022-09-30 0001668243urgn:LeaseAgreementForOfficeInLosAngelesCaliforniaMemberurgn:UroGenPharmaIncMember2022-01-012022-09-30 utr:M 0001668243urgn:LeaseAgreementForOfficeInPrincetonNewJerseyMemberurgn:UroGenPharmaIncMember2019-11-29 0001668243urgn:LeaseAgreementForOfficeInPrincetonNewJerseyMemberurgn:UroGenPharmaIncMember2022-09-30 0001668243us-gaap:OtherCurrentLiabilitiesMember2022-09-30 0001668243us-gaap:OtherCurrentLiabilitiesMember2021-12-31 0001668243urgn:JelmytoMember2022-07-012022-09-30 0001668243urgn:JelmytoMember2021-07-012021-09-30 0001668243urgn:JelmytoMember2022-01-012022-09-30 0001668243urgn:JelmytoMember2021-01-012021-09-30 0001668243urgn:GovernmentSponsoredProgramsReservesMember2021-12-31 0001668243urgn:OtherReservesMember2021-12-31 0001668243urgn:GovernmentSponsoredProgramsReservesMember2022-01-012022-09-30 0001668243urgn:OtherReservesMember2022-01-012022-09-30 0001668243urgn:GovernmentSponsoredProgramsReservesMember2022-09-30 0001668243urgn:OtherReservesMember2022-09-30 0001668243urgn:AgenusIncMember2019-11-012019-11-30 0001668243urgn:AgenusIncMember2019-11-30 0001668243urgn:AgenusIncMembersrt:MinimumMember2019-11-012019-11-30 0001668243urgn:AgenusIncMembersrt:MaximumMember2019-11-012019-11-30 0001668243urgn:MDAndersonMember2021-01-012021-01-31 0001668243urgn:MDAndersonMember2022-01-012022-09-30 0001668243us-gaap:EmployeeStockOptionMemberurgn:ShareOptionPlanMembersrt:MaximumMember2022-01-012022-09-30 0001668243us-gaap:EmployeeStockOptionMemberurgn:ShareOptionPlanMembersrt:MinimumMember2022-01-012022-09-30 0001668243us-gaap:EmployeeStockOptionMemberurgn:ShareOptionPlanMember2022-01-012022-09-30 0001668243us-gaap:EmployeeStockOptionMemberurgn:ShareOptionPlanMembersrt:MinimumMember2022-01-012022-06-30 0001668243us-gaap:RestrictedStockUnitsRSUMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-01-012022-09-30 0001668243us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-09-30 0001668243us-gaap:EmployeeStockOptionMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-01-012022-09-30 0001668243us-gaap:EmployeeStockOptionMember2022-01-012022-09-30 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2017-03-31 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2018-01-012018-01-01 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2018-01-01 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2018-10-122018-10-12 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2018-10-12 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2020-06-082020-06-08 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2020-06-08 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2021-06-072021-06-07 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2021-06-07 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2022-06-082022-06-08 0001668243urgn:TwoThousandSeventeenEquityIncentivePlanMember2022-06-08 0001668243urgn:The2019InducementPlanMember2019-05-31 0001668243urgn:The2019InducementPlanMember2021-12-012021-12-31 0001668243us-gaap:ResearchAndDevelopmentExpenseMember2022-07-012022-09-30 0001668243us-gaap:ResearchAndDevelopmentExpenseMember2021-07-012021-09-30 0001668243us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-09-30 0001668243us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-09-30 0001668243us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-07-012022-09-30 0001668243us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-07-012021-09-30 0001668243us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-012022-09-30 0001668243us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-09-30 0001668243urgn:PharmakonLoanMemberus-gaap:SecuredDebtMemberus-gaap:SubsequentEventMember2022-10-21
 


 

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 September 30, 2022

 

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

 

Registrants 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 November 7, 2022, the registrant had 23,090,039 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 and Comprehensive Loss

2

 

Condensed Consolidated Statements of Shareholders Equity (Deficit)

3

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

19

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

76

Item 3.

Defaults Upon Senior Securities

76

Item 4.

Mine Safety Disclosures

76

Item 5.

Other Information

76

Item 6.

Exhibits

77

 

Signatures

78

 

 

Trademarks and Trade Names

 

Unless the context requires otherwise, references in this Quarterly Report to the “Company,” "UroGen," “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.

 

 

 

 

Part IFinancial Information

 

Item 1. Financial Statements.

 

UroGen Pharma Ltd.

Condensed Consolidated Balance Sheets

(unaudited; in thousands, except share amounts and par value)

 

  

September 30,

  

December 31,

 
  

2022

  

2021

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $28,686  $44,360 

Marketable securities

  67,225   44,779 

Restricted cash

  812   1,226 

Accounts receivable

  9,429   11,717 

Inventories

  4,862   4,832 

Prepaid expenses and other current assets

  10,580   7,476 

Total current assets

  121,594   114,390 

Non-current assets:

        

Property and equipment, net

  1,519   1,967 

Restricted deposit

  223   223 

Right of use assets

  2,666   1,180 

Marketable securities

     675 

Other non-current assets

  2,471   1,311 

Total Assets

 $128,473  $119,746 

Liabilities and Shareholders' Equity (Deficit)

        

Current liabilities:

        

Accounts payable and accrued expenses

 $9,356  $12,102 

Employee related accrued expenses

  6,625   6,948 

Other current liabilities

  3,018   3,330 

Total current liabilities:

  18,999   22,380 

Non-current liabilities:

        

Prepaid forward obligation

  96,192   85,713 

Long-term debt

  71,870    

Long-term lease liabilities

  1,856   398 

Uncertain tax positions liability

  2,842   2,842 

Total Liabilities

  191,759   111,333 

Commitments and Contingencies (Note 18)

          

Shareholders' Equity (Deficit):

        

Ordinary shares, NIS 0.01 par value, 100,000,000 shares authorized at September 30, 2022 and December 31, 2021; 23,011,324 and 22,462,995 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

  63   61 

Additional paid-in capital

  485,041   475,698 

Accumulated deficit

  (548,235)  (467,321)

Accumulated other comprehensive loss

  (155)  (25)

Total Shareholders' Equity (Deficit)

  (63,286)  8,413 

Total Liabilities and Shareholders' Equity (Deficit)

 $128,473  $119,746 

 

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

 

 

 

 

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 September 30,

  

For the Nine Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Revenue

 $16,097  $11,351  $46,265  $31,868 

Cost of revenue

  2,020   1,244   5,391   3,568 

Gross profit

  14,077   10,107   40,874   28,300 

Operating expenses:

                

Research and development expenses

  13,093   11,923   38,429   34,560 

Selling, general and administrative expenses

  19,071   21,624   61,204   66,117 

Operating loss

  (18,087)  (23,440)  (58,759)  (72,377)

Financing on prepaid forward obligation

  (4,819)  (6,828)  (16,478)  (9,948)

Interest expense on long-term debt

  (2,694)     (5,215)   

Interest and other income, net

  478   57   604   269 

Loss before income taxes

  (25,122)  (30,211)  (79,848)  (82,056)

Income tax expense

  (709)     (1,066)  (312)

Net Loss

 $(25,831) $(30,211) $(80,914) $(82,368)

Statements of Comprehensive Loss

                

Net loss

 $(25,831) $(30,211) $(80,914) $(82,368)

Other comprehensive (loss)

                

Unrealized (loss) on investments

  (99)  (41)  (130)  (267)

Comprehensive Loss

 $(25,930) $(30,252) $(81,044) $(82,635)

Net loss per ordinary share - basic and diluted

 $(1.13)  (1.35) $(3.56) $(3.69)

Weighted average number of shares outstanding used in computation of basic and diluted loss per ordinary share

  22,798,263   22,380,598   22,711,686   22,318,589 

 

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

 

 

 

UroGen Pharma Ltd.

Condensed Consolidated Statements of Shareholders Equity (Deficit)

(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 July 1, 2022

  22,727,891  $62  $481,485  $(522,404) $(56) $(40,913)

Changes During the Three Months Ended September 30, 2022

                        

Exercise of options into ordinary shares

  283,433   1   1,116           1,117 

Share-based compensation

          2,440           2,440 

Other comprehensive income

                  (99)  (99)

Net loss

              (25,831)      (25,831)

Balance as of September 30, 2022

  23,011,324  $63  $485,041  $(548,235) $(155) $(63,286)
                         

Balance as of July 1, 2021

  22,354,533  $61  $464,823  $(408,658) $45  $56,271 

Changes During the Three Months Ended September 30, 2021

                        

Exercise of options into ordinary shares

  50,312      3           3 

Share-based compensation

          5,515           5,515 

Other comprehensive loss

                  (41)  (41)

Net loss

              (30,211)      (30,211)

Balance as of September 30, 2021

  22,404,845  $61  $470,341  $(438,869) $4  $31,537 

 

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

 

 

UroGen Pharma Ltd.

Condensed Consolidated Statements of Shareholders Equity (Deficit)

(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 January 1, 2022

  22,462,995  $61  $475,698  $(467,321) $(25) $8,413 

Changes During the Nine Months Ended September 30, 2022

                        

Exercise of options into ordinary shares

  548,329   2   1,131           1,133 

Share-based compensation

          8,212           8,212 

Other comprehensive loss

                  (130)  (130)

Net loss

              (80,914)      (80,914)

Balance as of September 30, 2022

  23,011,324  $63  $485,041   (548,235) $(155) $(63,286)
                         

Balance as of January 1, 2021

  22,167,791  $60  $452,525  $(356,501)  271  $96,355 

Changes During the Nine Months Ended September 30, 2021

                        

Exercise of options into ordinary shares

  237,054   1   60           61 

Share-based compensation

          17,756           17,756 

Other comprehensive loss

                  (267)  (267)

Net loss

              (82,368)      (82,368)

Balance as of September 30, 2021

  22,404,845  $61  $470,341  $(438,869) $4  $31,537 

 

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

 

 

 

UroGen Pharma Ltd.

Condensed Consolidated Statements of Cash Flow

(unaudited; in thousands)

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

 

Cash Flows From Operating Activities

               

Net loss

  $ (80,914 )   $ (82,368 )

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

               

Depreciation and amortization

    688       618  

Inventory Obsolescence

    615        

Accrued financing on prepaid forward obligation

    11,019       8,583  

Amortization (accretion) on marketable securities

    (93 )     343  

Share-based compensation

    8,212       17,756  

Amortization of discount on long-term debt

    1,077        

Amortization of right of use assets

    679       704  

Changes in operating assets and liabilities:

               

Inventory

    (645 )     (1,844 )

Accounts receivable

    2,288       (737 )

Prepaid expenses and other current assets

    (3,104 )     (2,749 )

Other non-current assets

    (1,000 )     (1,573 )

Accounts payable and accrued expenses

    (2,746 )     1,032  

Employee related accrued expenses

    (323 )     (3,078 )

Other current liabilities

    (704 )     (595 )

Lease liabilities

    (856 )     (914 )

Net cash used in operating activities

    (65,807 )     (64,822 )

Cash Flows From Investing Activities

               

Purchases of marketable securities

    (63,009 )     (51,594 )

Sales of marketable securities

          2,463  

Maturities of marketable securities

    41,202       44,625  

Purchases of property and equipment

    (241 )     (550 )

Net cash (used in) provided by investing activities

    (22,048 )     (5,056 )

Cash Flows From Financing Activities

               

Proceeds from prepaid forward arrangement

          72,417  

Proceeds from exercise of options into ordinary shares

    1,133       61  

Proceeds from issuance of long-term debt

    70,793        

Issuance cost related to at-the-market issuances

    (160 )     (127 )

Net cash provided by financing activities

    71,766       72,351  

Increase (Decrease) in Cash and Cash Equivalents

    (16,089 )     2,473  

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

    45,587       54,090  

Cash, Cash Equivalents and Restricted Cash at End of Period

  $ 29,498     $ 56,563  

Supplemental Disclosures of Non-Cash Activities

               

Right of use assets obtained in exchange for new operating lease liabilities

  $ 2,165     $ (36 )

Non-cash issuance cost

  $     $ 7  

 

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

 

 

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 biotechnology company dedicated to developing and commercializing innovative solutions that treat urothelial and specialty cancers. 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, clinical development of 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, 2021, as filed with the Securities and Exchange Commission (“SEC”) on March 21, 2022.

 

The Company has experienced net losses since its inception and has an accumulated deficit of $548.2 million and $467.3 million as of September 30, 2022 and December 31, 2021, 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 will 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 on 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 presents all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. Cash and cash equivalents generally consist 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 $95.9 million as of September 30, 2022. The Company accounts for its investments, which include cash equivalents and 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, net. The cost of securities sold is based on the specific-identification method.

 

Certain 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.

 

Restricted cash is related primarily to cash held to secure corporate credit cards; restricted deposits are related to cash held to secure leases.

 

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 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.

 

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 United States. 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 16 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 - 10 

 

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.

 

Long-Term Debt

 

The Company is party to a loan agreement with funds managed by Pharmakon Advisors, L.P. (“Pharmakon”). The Company recognizes interest expense in current earnings, and accrued interest within other current liabilities on the condensed consolidated balance sheets. The Company recognizes capitalized financing expenses as a direct offset to the long-term debt on the Company's condensed consolidated balance sheets, and amortizes them over the term of the debt using the effective interest method. See Note 10 for further discussion related to long-term debt.

 

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.

 

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.

 

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.

 

Revenue

 

Product sales from Jelmyto are recognized as revenue under ASC 606 at the point in time that control of the product has been transferred to the customer, generally at the point the product has been delivered to the treating physician. All product sales of Jelmyto are recognized through the Company's arrangement with a single customer, a third-party national specialty distributor. Net revenue recognized include management’s estimate of returns, consideration paid to the customer, chargebacks relating to differences between the wholesale acquisition cost and the contracted price offered to the end consumer, chargebacks relating to 340b drug pricing programs, Medicaid drug rebate programs, and the Company’s copay assistance program, which are estimated based on industry benchmarking studies as well as the Company’s historical experience.

 

9

 

Research and Development Expenses

 

Research and development costs are expensed as incurred and consist primarily of the cost of salaries, share-based compensation expense, 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 such development 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, employees and consultants). 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 the Company’s ordinary shares on the grant date. The Company accounts for forfeitures as they occur in accordance with ASC Topic 718, “Compensation—Stock Compensation”.

 

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 Issued Accounting Pronouncements

 

The Company has reviewed the Accounting Standards Updates recently issued by the Financial Accounting Standards Board, and determined that they are not applicable to the Company.

 

10

 
 

Note 4 Other Financial Information

 

Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Accounts payable

  $ 2,545     $ 5,786  

Accrued sales reserves

    687       497  

Accrued clinical expenses

    2,285       1,377  

Accrued research and development expenses

    1,118       1,748  

Accrued selling, general and administrative expenses

    2,139       1,965  

Accrued other expenses

    582       729  

Total accounts payable and accrued expenses

  $ 9,356     $ 12,102  

 

Interest and Other Income, Net

 

Interest and other income, net consisted of the following as of September 30, 2022 and 2021 (in thousands):

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

 

Interest income

  $ 469     $ 345  

Other income (expense), net

    135       (76 )

Interest and other income, net

  $ 604     $ 269  

 

 

Note 5 Inventories

 

Inventories consisted of the following as of  September 30, 2022 and December 31, 2021 (in thousands):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Raw materials (1)

  $ 5,100     $ 3,894  

Finished goods

    1,863       1,958  

Total inventories

  $ 6,963     $ 5,852  

 

 

(1) $2.1 million and $1.0 million of raw materials are included within other non-current assets on the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021, respectively.

 

 

Note 6 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.

 

11

 

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 entity’s own assumptions.

 

The carrying amounts of the Company’s cash, restricted cash, 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 assets and liabilities.

 

The carrying value of the prepaid forward obligation (See Note 9 - Prepaid Forward Obligation) approximates its fair value.  The Company estimated the fair value of the prepaid forward obligation using Level 3 inputs, including internally developed financial forecasts and management's estimate of probability of success related to product candidates, and determined that the effective interest rate in the obligation approximates market rates for loans with similar terms and risk characteristics. 

 

The Company estimated the fair value of long-term debt (see Note 10 - Long-Term Debt) using the income approach with Level 3 inputs. The Company estimated future floating rate interest payments using a forward curve of a three-month benchmark rate, and estimated fair value based on publicly available data reported in the financial statements of publicly traded venture lending companies. Based on a reasonable range of yields for debt instruments of similar tenor in a similar industry, the Company determined that the carrying value of the long-term debt on the Company's balance sheet approximates its fair value.

 

No transfers between levels have occurred during the periods presented.

 

Assets measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of September 30, 2022 are as follows (in thousands):

 

           

Fair Value Measurements Using

 
           

Quoted Prices

   

Significant

 
           

in Active

   

Other

 
   

Balance as of

   

Markets for

   

Observable

 
   

September 30,

   

Identical Assets

   

Inputs

 
   

2022

   

(Level 1)

   

(Level 2)

 

Marketable securities

                       

US government

    46,452       46,452        

Corporate bonds

    4,406             4,406  

Commercial paper

    12,312             12,312  

Certificates of deposit

    4,055             4,055  

Total marketable securities

    67,225       46,452       20,773  

 

Assets measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of December 31, 2021 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

 
   

2021

   

(Level 1)

   

(Level 2)

 

Assets:

                       

Cash equivalents

                       

Money market funds

  $ 21,402     $ 21,402     $  

Marketable securities

                       

US government

    19,307       19,307        

Corporate bonds

    8,652             8,652  

Commercial paper

    14,492             14,492  

Certificates of deposit

    3,003             3,003  

Total marketable securities

    45,454       19,307       26,147  

Total assets at fair value

  $ 66,856     $ 40,709     $ 26,147  

 

12

 
 

Note 7  Investments

 

The following table summarizes the Company’s investments as of September 30, 2022 (in thousands):

 

   

Amortized

   

Unrealized

   

Unrealized

         
   

Cost Basis

   

Gains

   

Losses

   

Fair Value

 

Marketable securities:

                               

US government

  $ 46,554     $     $ (102 )   $ 46,452  

Corporate bonds

    4,416             (10 )     4,406  

Commercial paper

    12,336             (24 )     12,312  

Certificates of deposit

    4,074             (19 )     4,055  

Total marketable securities

  $ 67,380     $     $ (155 )   $ 67,225  

 

The Company classifies its investments as available-for-sale and they consist entirely of debt securities. As of September 30, 2022, the amortized cost of investments included an immaterial amount of accrued interest. As of September 30, 2022, marketable securities were in a net unrealized loss position. Unrealized gains and losses on available-for-sale debt securities are included as a component of comprehensive loss. 

 

As of  September 30, 2022, the aggregate fair value of investments held by the Company in an unrealized loss position was $64.9 million which consisted of 28 securities. The unrealized loss was primarily driven by rising interest rates. The Company does not expect to settle the debentures at a price less than the amortized cost basis of the investment; the Company expects to recover the entire amortized cost basis of the security. In accordance with the Company’s general investment strategy, the Company does not intend to sell the investments before maturity. As of  September 30, 2022, the Company believes the cost basis for its marketable securities were recoverable in all material aspects and no credit losses were recognized in the period.

 

The Company’s investments as of September 30, 2022 mature at various dates through August 2023. The fair values of investments by contractual maturity consist of the following (in thousands):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Maturities within one year

  $ 67,225     $ 44,779  

Maturities after one year through three years

          675  

Total investments

  $ 67,225     $ 45,454  

 

 

 

Note 8 Property and Equipment

 

Property and equipment, consists of the following as of September 30, 2022 and December 31, 2021 (in thousands):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Laboratory equipment

  $ 444     $ 360  

Computer equipment and software

    2,168       2,064  

Furniture

    597       597  

Leasehold improvements

    617       617  

Manufacturing equipment

    607       555  
      4,433       4,193  

Less: accumulated depreciation and amortization

    (2,914 )     (2,226 )

Property and equipment, net

  $ 1,519     $ 1,967  

 

Depreciation and amortization expense was $0.2 million and $0.7 million for the three and nine months ended September 30, 2022 and $0.2 million and $0.6 million for the three and nine months ended September 30, 2021.

 

13

 
 

Note 9 Prepaid Forward Obligation

 

In March 2021, the Company entered into a prepaid forward agreement with RTW Investments (“RTW”). Under the terms of the RTW Transaction, the Company received $75.0 million ($72.4 million net of transaction costs) to support the continued launch of Jelmyto and the development of UGN-102. In return for the transferred funds, RTW is entitled to receive tiered, future cash payments based on aggregate worldwide annual net product sales of Jelmyto in an amount equal to: (i) 9.5% of annual net sales up to $200 million, (ii) 3.0% of annual net sales for annual net sales between $200 million and $300 million, and (iii) 1.0% of annual net sales for annual net sales above $300 million. If certain revenue thresholds for Jelmyto aggregate worldwide annual net sales are not met, the future cash payments to RTW with respect to Jelmyto annual net sales up to $200 million will increase by 3.5%, and may decrease back to 9.5% dependent on the Company meeting certain subsequent Jelmyto aggregate worldwide annual net sales thresholds. The rate in effect for the nine months ended September 30, 2022 for annual sales up to $200 million was 13.0%.

 

In addition, subject to FDA approval of UGN-102, RTW is entitled to receive tiered, future cash payments based on aggregate worldwide annual net product sales of UGN-102 in an amount equal to: (i) 2.5% of annual net sales up to $200 million, (ii) 1.0% of annual net sales for annual net sales between $200 million and $300 million, and (iii) 0.5% of annual net sales for annual net sales above $300 million. If the Company does not receive FDA approval for UGN-102 by a specified date, the future cash payments to RTW with respect to aggregate worldwide annual net sales of Jelmyto across all Jelmyto annual net sales tiers will increase by 1.5%.  

 

In accordance with the prepaid forward agreement, the Company will be required to make payments of amounts owed to RTW each calendar quarter, through and until the quarter in which the aggregate cash payments received by RTW are equal to or greater than $300 million. As security for the payment and fulfilment of these amounts throughout the arrangement, the Company has granted RTW a first priority security interest in Jelmyto and UGN-102, including the regulatory approvals, intellectual property, material agreements, proceeds and accounts receivable related to these products.

 

In  May 2021, following the receipt of necessary regulatory approvals, the Company received the $75.0 million prepaid forward payment ($72.4 million net of transaction costs) from RTW and recognized an associated prepaid forward obligation liability. Each period the Company makes a payment to RTW, an expense is recognized related to financing on the prepaid forward obligation based on an imputed rate derived from the expected future payments. Management reassesses the effective rate each period based on the current carrying value of the obligation and the revised estimated future payments. Changes in future payments from previous estimates are included in future financing expense. The Company does not expect to make any principal payments in the next 12 months.

 

The following table shows the activity with respect to the carrying value of the prepaid forward liability, in thousands:

 

Prepaid forward obligation at closing of RTW Transaction

  $ 75,000  

Capitalized closing costs

    (2,599 )

Financing on prepaid forward obligation

    17,291  

Amounts paid and payable

    (3,979 )

Carrying value of prepaid forward obligation as of December 31, 2021

    85,713  

Financing on prepaid forward obligation

    16,478  

Amounts paid and payable

    (5,999 )

Carrying value of prepaid forward obligation as of September 30, 2022

  $ 96,192  

 

14

 
 

Note 10 – Long-Term Debt

 

On  March 7, 2022, the Company entered into a loan agreement with Pharmakon for a senior secured term loan of up to $100 million in two tranches. The first tranche of $75 million was funded in  March 2022. At its option, the Company  may draw up to an additional $25 million before  December 31, 2022, subject to customary bring down conditions and deliverables. The facility will mature five years from initial funding and can be prepaid in whole at the Company's discretion, at any time, subject to prepayment premiums and make-whole amounts. The loan will require interest-only payments for the first 48 months followed by principal and interest payments with interest accruing using 3-month London Inter-Bank Offered Rate (“LIBOR”) (with a 1.25% floor) plus 8.25%. In the event of the cessation of LIBOR, the benchmark governing the interest rate will be replaced with a rate based on the secured overnight financing rate published by the Federal Reserve Bank of New York. The Company is not required to maintain any financial covenants.

 

The Company incurred financing expenses of $4.2 million which are recognized as a direct offset to the long-term debt on the Company's condensed consolidated balance sheet. These debt issuance costs are amortized over the term of the debt using the effective interest method, and are recorded in the condensed consolidated statements of operations as “Interest expense".

 

The following table shows the activity with respect to the carrying value of the long-term debt, in thousands:

 

Long-term debt at closing of Pharmakon loan

  $ 75,000  

Capitalized costs and discounts

    (4,207 )

Interest expense

    5,215  

Amounts paid and payable

    (4,138 )

Carrying value of Pharmakon loan as of September 30, 2022

  $ 71,870  

 

 

Note 11  Leases

 

Operating Leases

 

The Company had the following office and laboratory facility leases as of September 30, 2022:

 

 

In April 2016, UPL signed an addendum to its November 2014 lease agreement for the Company’s offices located in Israel, in order to increase the office space rented and to extend the rent period until 2019. In March 2019, UPL utilized the agreement extension option and extended the rent period for an additional three years until August 2022. In  July 2022, the Company signed a lease extension agreement for the Company’s offices located in Israel, extending the term of the lease through  September 2025.  The Company's remaining contractual obligation under this lease is approximately $0.9 million as of September 30, 2022. 

 

 

In September 2017, UPI entered into a new lease agreement for its office space in New York, which the Company previously used as its headquarters. The lease agreement commenced in October 2017 and terminated in February 2021. 

 

 

In April 2018, UPI entered into a new lease agreement for an office in Los Angeles, California. The lease commencement date was July 10, 2018 and terminates in March 2024. The landlord provided a tenant allowance for leasehold improvements of $0.2 million that was accounted for as a lease incentive. The Company’s remaining contractual obligation under this lease is approximately $0.4 million as of September 30, 2022. In November 2019, UPI entered into a sublease for this office space, with a lease commencement date of  January 1, 2020 and continuing until the end of the lease term in March 2024. The subtenants exercised their early access clause and moved into the premises at the end of November 2019. The remaining rental payments to be received over the lease term is approximately $0.4 million as of September 30, 2022. The Company accounts for the sublease as an operating lease in accordance with ASC 842-10-25-2 and ASC 842-10-25-3. The main lease was considered for impairment and the amount was determined to be immaterial.

 

 

In November 2019, UPI entered into a new lease agreement for an office in Princeton, New Jersey, which the Company now uses as its headquarters. The lease commencement date was November 29, 2019, with an original lease term of 38 months, expiring January 31, 2023. In June 2022, the Company signed a lease extension for the Princeton office, extending the term of the lease through January 31, 2026. The Company’s remaining contractual obligation under this lease is approximately $1.9 million as of September 30, 2022.

 

In addition, the Company has other operating office equipment and vehicle leases. The Company’s operating leases may require minimum rent payments, contingent rent payments adjusted periodically for inflation, or rent payments equal to the greater of a minimum rent or contingent rent. The Company’s leases do not contain any residual value guarantees or material restrictive covenants. The Company’s leases expire at various dates from 2022 through 2026, with varying renewal and termination options.

 

The components of lease cost for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Operating lease cost

  $ 219     $ 259     $ 735     $ 786  

Sublease income

    (56 )     (56 )     (168 )     (168 )

Variable lease cost

    16       15       52       51  
    $ 179     $ 218     $ 619     $ 669  

 

The amounts recognized as of September 30, 2022 and  December 31, 2021 were as follows (in thousands):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Right of use assets

  $ 2,666     $ 1,180  

Long-term lease liabilities

    1,856       398  

Other current liabilities

    940       1,089  

 

As of September 30, 2022, no impairment losses have been recognized to date.

 

15

 

Supplemental information related to leases for the nine months ended  September 30, 2022 and 2021 is as follows (in thousands):

 
    Nine Months Ended  
   

September 30,

 
   

2022

   

2021

 

Cash paid for amounts included in the measurement of lease liabilities:

               

Operating cash flows from operating leases

    3,926       2,734  

Right-of-use assets obtained in exchange for new operating lease liabilities

    2,606       135  

Weighted-average remaining lease term of operating leases (in years)

    2.95       1.68  

Weighted-average discount rate of operating leases

    10.21 %     5.51 %

 

As of September 30, 2022, maturities of lease liabilities were as follows (in thousands):

 

   

Operating

 
   

Leases

 

Years ending December 31,

       

Remainder of 2022

  $ 300  

2023

    1,161  

2024

    918  

2025

    799  

2026 and thereafter

    49  

Total future minimum lease payments

  $ 3,227  

Less: Interest

    (431 )

Present value of lease liabilities

  $ 2,796  

 

Subleases

 

As of September 30, 2022, undiscounted cash flows to be received under the Company’s operating sublease on an annual basis were as follows (in thousands):

 

   

Operating Leases

 

Years ending December 31,

       

Remainder of 2022

  $ 61  

2023

    251  

2024

    49  

2025

     

2026 and thereafter

     
    $ 361  

 

Sublease income is recognized net within operating expenses. Sublease income for the three and nine months ended September 30, 2022 and 2021 was as follows (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 
                                 

Sublease income from fixed lease payments

  $ 56     $ 56     $ 168     $ 168  

 

 

Note 12  Revenue From Product Sales

 

Net product sales consist of the following for the three and nine months ended September 30, 2022 and 2021 (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Jelmyto

  $ 16,097     $ 11,351     $ 46,265     $ 31,868  

 

Net revenue recognized includes management’s estimate of returns, consideration paid to the customer, chargebacks relating to differences between the wholesale acquisition cost and the contracted price offered to the end consumer, chargebacks relating to 340b drug pricing programs, Medicaid drug rebate programs, and the Company’s copay assistance program, which are estimated based on industry benchmarking studies as well as the Company’s historical experience. Reserves related to items that are contractually able to be net settled are recognized as contra accounts receivables. The following table shows the activity with respect to sales reserves for period ended of September 30, 2022 (in thousands):

 

   

Reserves related to government sponsored programs

   

Other reserves

   

Total accrued sales reserves

 

Balance as of December 31, 2021

  $ 373     $ 1,335     $ 1,708  

Accruals

    4,410       4,432       8,842  

Utilizations

    (4,226 )     (3,999 )     (8,225 )

Balance as of September 30, 2022

  $ 557     $ 1,768     $ 2,325  

 

 

Note 13  License and Collaboration Agreements

 

Agenus Agreement

 

In November 2019, the Company entered into a license agreement with Agenus Inc., pursuant to which Agenus granted to the Company an exclusive, worldwide (not including Argentina, Brazil, Chile, Colombia, Peru, Venezuela and their respective territories and possessions), royalty-bearing, sublicensable license under Agenus’s intellectual property rights to develop, make, use, sell, import, and otherwise commercialize products incorporating a proprietary monoclonal antibody of Agenus known as AGEN1884 (zalifrelimab), an anti-CTLA-4 antagonist, for the treatment of cancers of the urinary tract via intravesical delivery. Initially, the Company plans to develop AGEN1884 in combination with UGN-201 for the treatment of high-grade NMIBC.

 

Pursuant to the license agreement, the Company paid Agenus an upfront fee of $10.0 million and has agreed to pay Agenus up to $115.0 million upon achieving certain clinical development and regulatory milestones, up to $85.0 million upon achieving certain commercial milestones, and royalties on net sales of licensed products in the 14%-20% range. The Company will be responsible for all development and commercialization activities. Under the terms of the license agreement, Agenus has agreed to use commercially reasonable efforts to supply AGEN1884 to the Company for use in preclinical studies or clinical trials.

 

Unless earlier terminated in accordance with the terms of the license agreement, the license agreement will expire on a product-by-product and country-by-country basis at the later of (a) the expiration of the last to expire valid claim of a licensed patent right that covers the licensed product in such country or (b) 15 years after the first commercial sale of the licensed product in such country. The Company may terminate the license agreement for convenience upon 180 days’ written notice to Agenus. Either party may terminate the license agreement upon 60 days’ notice to the other party if, prior to the first commercial sale of a licensed product, the Company substantially ceases to conduct development activities of the licensed products for nine consecutive months (and during such period, Agenus has complied with its obligations under the license agreement) other than in response to a requirement of an applicable regulatory authority or an event outside of the Company’s control. In addition, either party may terminate the license agreement in the event of an uncured material breach of the other party.

 

MD Anderson Agreement

 

In January 2021, the Company announced that it entered into a three-year strategic research collaboration agreement with MD Anderson focusing on the sequential use of UGN-201 and UGN-301 as an investigational treatment for high-grade NMIBC. Under the terms of the agreement, MD Anderson and the Company will collaborate on the design and conduct of non-clinical and clinical studies with oversight from a joint steering committee. The Company will provide funding, developmental candidates, and other support. Pursuant to the agreement, the Company makes bi-annual payments to MD Anderson to fund the collaboration. As of September 30, 2022, the Company has made payments to MD Anderson totaling $2.0 million recognized evenly over the associated period through research and development expenses. In July 2022, the Company determined that it had achieved the objectives that it established when the agreement was initiated, and notified MD Anderson that it was exercising its right to conclude the collaboration in 2022 as the Company did not foresee initiating further development activities as part of the collaboration, although the Company will continue to collaborate on existing joint projects. As a result of this notification, the Company is not responsible for any further fixed bi-annual funding payments, although the Company will be responsible for costs related to existing joint projects that exceed the payments already made to MD Anderson.  

 

 

Note 14  Shareholders Equity

 

The Company had 100.0 million ordinary shares authorized for issuance as of September 30, 2022 and December 31, 2021. The Company had 23.0 million and 22.5 million ordinary shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. Each ordinary share is entitled to one vote. The holders of ordinary shares are also entitled to receive dividends whenever funds are legally available, when and if declared by the Board of Directors (the “Board”). Since its inception, the Board has not declared any dividends.

 

16

 
 

Note 15  Share-Based Compensation

 

In October 2010, the Board approved a share option plan (the "2010 Plan") for grants to Company employees, consultants, directors, and other service providers. Subsequently, in March 2017, the Board adopted the 2017 Equity Incentive Plan (the "2017 Plan" and, together with the 2010 Plan, the "Plans"), which was approved by the shareholders in April 2017. The 2017 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, RSU awards, performance share awards, performance cash awards, and other forms of share awards to the Company's employees, directors and consultants.

 

The grant of options to Israeli employees under the Plans is subject to the terms stipulated by Section 102 of the Israeli Income Tax Ordinance (“Section 102”). The option grants are subject to the track chosen by the Company, either the “regular income” track or the “capital gains” track, as set out in Section 102. The Company registered the Plans under the capital gains track, which offers more favorable tax rates to the employees. As a result, and pursuant to the terms of Section 102, the Company is not allowed to claim as an expense for tax purposes the amounts credited to the employees in respect of options granted to them under the Plans, including amounts recorded as salary benefits in the Company’s accounts, with the exception of the work-income benefit component, if any, determined on grant date. For non-employees and for non-Israeli employees, the Plans are subject to Section 3(i) of the Israeli Income Tax Ordinance.

 

Employees are typically granted stock options and/or restricted stock units ("RSUs"), upon commencement of employment. Also, eligible employees may receive an annual grant of options or RSUs. Non-employee members of the Board typically receive a grant of stock options upon initial appointment to the Board, and stock options annually. The term of any option granted under the Plans cannot exceed 10 years. Options shall not have an exercise price less than 100% of the fair market value of the Company’s ordinary shares on the grant date, and generally vest over a period of three years. If the individual possesses more than 10% of the combined voting power of all classes of equity of the Company, the exercise price shall not be less than 110% of the fair market value of an ordinary share on the date of grant.

 

The Company’s RSU and option grants provide for accelerated or continued vesting in certain circumstances as defined in the plans and related grant agreements, including a termination in connection with a change in control. RSUs generally vest in a 33% increment upon the first anniversary of grant, and in either equal quarterly or annual amounts for the two years following the one-year anniversary of the grant date. Options generally vest in a 33% increment upon the first anniversary of the grant date, and in either equal quarterly or annual amounts for the two years following the one-year anniversary of the grant date.

 

The expected volatility is based on a mix of the Company’s historical volatility, and the historical volatility of comparable companies with similar attributes to the Company, including industry, stage of life cycle, size and financial leverage. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted. The expected term is the length of time until the expected dates of exercising the options and is estimated for employees using the simplified method due to insufficient specific historical information of employees’ exercise behavior, and for non-employees, and directors using the contractual term.

 

The maximum number of ordinary shares that was initially authorized for issuance under the 2017 Plan was 1,400,000. On January 1, 2018, the share reserve increased by 250,167 to 1,650,167 shares. On October 12, 2018, the Company increased the amount of ordinary shares authorized for issuance under the 2017 Plan by 1,900,000 to 3,550,167 shares. On June 8, 2020 the Company’s shareholders approved an increase to the amount of ordinary shares authorized for issuance under the 2017 Plan by 400,000 to 3,950,167 shares. On June 7, 2021, the Company’s shareholders approved an increase to the amount of ordinary shares authorized for issuance under the 2017 Plan by 400,000 to 4,350,167 shares. On June 8, 2022, the Company's shareholders approved an increase to the amount of ordinary shares authorized for issuance under the 2017 Plan by 400,000 to 4,750,167 shares. 

 

In May 2019, the Company adopted the UroGen Pharma Ltd. 2019 Inducement Plan (the “Inducement Plan”). Under the Inducement Plan, the Company is authorized to issue up to 900,000 ordinary shares pursuant to inducement awards. The only persons eligible to receive grants under the Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq Marketplace Rule 5635(c)(4) and the related guidance under Nasdaq IM 5635-1, including individuals who were not previously an employee or director of the Company or are following a bona fide period of non-employment, in each case as an inducement material to such individual’s agreement to enter into employment with the Company. In December 2021, the Board approved a 300,000 increase in the share reserve of the Inducement Plan. 

 

As of September 30, 2022, 3,442,209 ordinary shares are subject to outstanding awards under the Company's share-based compensation plans and 1,601,242 ordinary shares remain available for future awards.

 

17

 

The following table illustrates the effect of share-based compensation on the condensed consolidated statements of operations (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Research and development expenses

  $ 642     $ 971     $ 2,040     $ 3,119  

Selling, general and administrative expenses

    1,798       4,544       6,172       14,637  
    $ 2,440     $ 5,515     $ 8,212     $ 17,756  

 

The total unrecognized compensation cost of options and RSUs at September 30, 2022 is $12.2 million with a weighted average recognition period of 1.67 years.

 

 

Note 16  Income Taxes

 

UroGen Pharma Ltd. is taxed under Israeli tax laws. As of September 30, 2022, the Company continues to maintain a full valuation allowance against deferred tax assets for all jurisdictions. In evaluating the need for a valuation allowance, the Company considers all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing temporary differences, forecasts of future taxable income, and tax planning strategies. The Company has cumulative global pretax losses for the years ended 2021, 2020 and 2019, and for the nine months ended September 30, 2022. The Company will continue to assess the extent to which its deferred tax assets may be realized in the future and will adjust the valuation allowance as needed.

 

The Company has a liability for uncertain tax positions of $2.8 million as of September 30, 2022, for tax positions relating to transfer pricing between affiliated entities. The Company recognizes interest accrued and penalties related to uncertain tax positions as a component of income tax expense. As of September 30, 2022, the Company’s liability for uncertain tax positions includes $0.9 million of accrued interest and penalties.

 

The Company operates on a global basis and is subject to tax laws and regulations in the United States and Israel. The estimate of the Company’s tax liabilities relating to uncertain tax positions requires management to assess uncertainties and to make judgments about the application of complex tax laws and regulations, expectations regarding the outcome of tax authority examinations, as well as the ultimate measurement of potential liabilities.

 

The uncertain tax positions are reviewed quarterly and adjusted as events occur that could affect potential liabilities for additional taxes, including lapsing of applicable statutes of limitations, correspondence with tax authorities, proposed assessments by tax authorities, identification of new issues, and issuance of new legislation or regulations. The Company believes that adequate amounts of tax have been provided in income tax expense for any adjustments that may result from its uncertain tax positions. Based upon the information currently available, the Company does not reasonably expect changes in its existing uncertain tax positions in the next 12 months and has recorded the gross uncertain tax positions as a long-term liability.

 

 

Note 17  Related Parties

 

There were no related party transactions for the nine months ended September 30, 2022 or 2021.

 

 

Note 18  Commitments and Contingencies

 

In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service providers. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown as of September 30, 2022 and December 31, 2021. The Company does not anticipate recognizing any significant losses relating to these arrangements.

 

Leases

 

See Note 11 for further discussion regarding lease commitments.

 

 

Note 19  Subsequent Events

 

On October 21, 2022, the Company requested the advance of the second tranche (the "Tranche B Loan") under the Pharmakon loan agreement in the amount of $25.0 million. The funding of the Tranche B Loan is expected to occur on December 16, 2022, subject to customary bring down conditions and deliverables. The proceeds of the Tranche B Loan will be used to fund the Company's general corporate and working capital requirements.

  

The Company has evaluated and determined there were no further subsequent events.

 

18

 
 

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report and the audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Managements Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (Annual Report), which was filed with the SEC on March 21, 2022. The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), which are subject to the safe harbor created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, trends, seasonality, projected costs, prospects and plans and objectives of management. The words anticipates, believes, estimates, expects, intends, may, plans, projects, will, would and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, Risk Factors in this Quarterly Report. In addition, statements that we believe and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

 

Overview

 

We are a biotechnology company dedicated to developing and commercializing innovative solutions that treat urothelial and specialty cancers. We have developed RTGel® reverse-thermal hydrogel, a proprietary sustained release, hydrogel-based technology that has the potential to improve therapeutic profiles of existing drugs. Our technology is designed to enable longer exposure of the urinary tract tissue to medications, making local therapy a potentially more effective treatment option. Our approved product Jelmyto® (mitomycin) for pyelocalyceal solution, and our investigational candidate, UGN-102 (mitomycin) for intravesical solution, are designed to ablate tumors by non-surgical means and to treat several forms of non-muscle invasive urothelial cancer, including low-grade upper tract urothelial cancer (“low-grade UTUC”) and low-grade intermediate risk non-muscle invasive bladder cancer (“low-grade intermediate risk NMIBC”), respectively. In addition, our immuno-uro-oncology pipeline includes UGN-301 (zalifrelimab), an anti-CTLA-4 antibody, which we intend to study as a combination therapy with multiple potential agents.

 

We estimate that the annual treatable patient population of low-grade UTUC in the United States is approximately 6,000 to 7,000; the estimated annual treatable population of low-grade intermediate risk NMIBC is approximately 80,000.

 

RTGel is a novel proprietary polymeric biocompatible, reverse thermal gelation hydrogel, which, unlike the general characteristics of most forms of matter, is liquid at lower temperatures and converts into gel form when warmed to body temperature. We believe that these characteristics promote ease of delivery into and retention of drugs in body cavities, including the bladder and the upper urinary tract, forming a transient reservoir of drug that disintegrates over time while preventing rapid excretion, providing for increased dwell time. RTGel leverages the physiologic flow of urine to provide a natural exit from the body.

 

We believe that RTGel, when formulated with an active drug, may allow for the improved efficacy of treatment of various types of urothelial and specialty cancers and urologic diseases without compromising the safety of the patient or interfering with the natural flow of fluids in the urinary tract. RTGel achieves this by:

 

 

increasing the exposure of active drugs in the bladder and upper urinary tract by significantly extending the dwell time of the active drug while conforming to the anatomy of the bladder and the upper urinary tract, which allows for enhanced drug tissue coverage. For example, the average dwell time of the standard mitomycin water formulation, currently used as adjuvant treatment, in the upper urinary tract is approximately five minutes, compared to up to six hours when mitomycin is formulated with RTGel;

 

 

administering higher doses of an active drug than would otherwise be possible using standard water-based formulations. For instance, it is only possible to dissolve 0.5 mg of mitomycin in 1 mL of water while it is possible to formulate up to 8 mg of mitomycin with 1 mL of RTGel; and

 

 

maintaining the active drug’s molecular structure and mode of action.

 

 

These characteristics of RTGel enable sustained release of mitomycin in the urinary tract for both Jelmyto and UGN-102. Further, RTGel may be particularly effective in the bladder and upper urinary tract where tumor visibility and access are challenging, and where there exists a significant amount of urine flow and voiding. We believe that these characteristics of RTGel may prove useful for the local delivery of active drugs to other bodily cavities in addition to the bladder and upper urinary tract.

 

Jelmyto

 

On April 15, 2020, the FDA approved our new drug application (“NDA”) for Jelmyto (mitomycin) for pyelocalyceal solution, formerly known as UGN-101, for the treatment of adult patients with 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 prolong exposure of urinary tract tissue to mitomycin, thereby enabling the treatment of tumors by non-surgical means. New product exclusivity for Jelmyto exists through April 15, 2023, Orphan Drug exclusivity through April 15, 2027, as well as a composition of matter patent set to expire in early 2031. The main patents that protect Jelmyto in the United States are set to expire on January 20, 2031. These patents were listed in the FDA's Orange Book (Approved Drug Products with Therapeutic Equivalence Evaluations).

 

Low-grade UTUC is a rare cancer that develops in the lining of the upper urinary tract, ureters and kidneys. In the United States, there are approximately 6,000 - 7,000 new or recurrent low-grade UTUC patients annually. It is a challenging condition to treat due to the complex anatomy of the urinary tract system. Prior to Jelmyto, the current standard of care included endoscopic resection(s) and radical nephroureterectomy, which involves the removal of the renal pelvis, kidney, ureter and bladder cuff. Treatment is further complicated by the fact that low-grade UTUC is most commonly diagnosed in patients over 70 years of age, who may already have compromised kidney function and may suffer further complications as a result of a major surgery. We are focused on changing the way urothelial cancers are treated, an area in which there has been no significant advancements in recent years. Jelmyto is the first drug therapy of its kind, providing an alternative to endoscopic resection(s) and/or radical nephroureterectomy.

 

The FDA approval is based on results from our Phase 3 OLYMPUS trial showing Jelmyto achieved clinically significant disease eradication in adults with low-grade UTUC. Findings from the final study results include:

 

 

Complete response (“CR”) (primary endpoint) of 58% (41/71) in the intent-to-treat population and in the sub-population of patients who were deemed not capable of surgical removal at diagnosis.

 

 

At the 12-month time point for assessment of durability, 23 patients remained in CR of a total of 41 patients, eight had experienced recurrence of disease and ten patients were unable to be evaluated.

 

 

Durability of response was estimated to be 81.8% at 12 months by Kaplan-Meier analysis. The median duration of response was not reached.

 

 

The most commonly reported adverse events (≥ 20%) were ureteric obstruction, flank pain, urinary tract infection, hematuria, abdominal pain, fatigue, renal dysfunction, nausea, dysuria and vomiting. Most adverse events were mild to moderate and manageable using well established treatments. No treatment-related deaths occurred.

 

In June 2020, we initiated our commercial launch of Jelmyto in the United States. We have staffed, trained and prepared a customer-facing team that includes territory business managers with deep experience in both urology and oncology. These territory business managers are led by seven regional business directors. Each region is additionally supported by one to two clinical nurse educators to provide education and training around instillation, as well as a field reimbursement manager to help ensure access and reimbursement for appropriate patients. In addition, our organization currently includes several medical science liaisons who appropriately engage with physicians interested in learning more about UroGen, Jelmyto and our technology, both in person and virtually. In total, our customer-facing team comprises approximately 80 colleagues. 

 

We are committed to helping patients access Jelmyto. Our market access teams have laid the foundation for coverage and reimbursement, meeting multiple times with payors. All Medicare patients are covered and the vast majority of commercial plans have policies in place, in whole covering over 150 million lives. In addition to reimbursement and access, we have also been focused on ensuring seamless integration into physician practices. We have implemented processes to help make Jelmyto preparation and administration safe and seamless for practitioners and patients, including entering into an agreement with a major national specialty pharmacy under which the pharmacy, following receipt of a patient prescription, prepares the Jelmyto admixture on our behalf. In September 2022, the FDA authorized an extension of the in-use period for Jelmyto admixture from eight hours to 96 hours (four days) following reconstitution of the product, adding convenience and flexibility in managing patient care. In October 2020, a Medicare C-Code was issued for Jelmyto. The Centers for Medicare & Medicaid Services established a permanent and product-specific J-code for Jelmyto that took effect on January 1, 2021, and replaced the C-Code. We have also launched a registry to capture data and evaluate real world outcomes in patients with low-grade UTUC that have been or will be treated with Jelmyto. The purpose of the registry is to study the use of Jelmyto in clinical practice in the United States and address specific clinical questions.

 

In the first two full fiscal years following the initiation of our commercial launch of Jelmyto in June 2020, we have experienced a moderate decline in revenue during the third quarter from the preceding quarter. We believe this result is primarily attributable to the nature of low-grade disease, which does not require immediate treatment and therefore we believe there is an impact in the summer months. However, it is too early to say with confidence whether this seasonality trend will continue in future periods. Moreover, our future Jelmyto revenue will be impacted by various factors and we expect our Jelmyto revenue to fluctuate quarter-to-quarter for the foreseeable future.

 

 

UGN-102 (mitomycin) for intravesical solution

 

UGN-102 is our sustained-release formulation of mitomycin that we are developing for the treatment of low-grade intermediate risk NMIBC.

 

In October 2021, we reported final data from the Phase 2b OPTIMA II trial. The single-arm, open label trial completed enrollment of 63 patients at clinical sites across the United States and Israel in September 2019. Patients were treated with six weekly instillations of UGN-102 and underwent assessment of CR (the primary endpoint) four to six weeks following the last instillation. Consistent with our previous reports showing that 65%, or 41 out of 63 patients, treated with UGN-102 achieved a complete response three months after the start of therapy. In this subset of patients, 39 (95%), 30 (73%), and 25 (61%) remained disease-free at six, nine, and 12 months after treatment initiation, respectively. The probability of durable response nine months after CR (12 months after treatment initiation) was estimated to be 72.5% by Kaplan-Meier analysis. Thirteen patients had documented recurrences. Fifty-seven of 63 (90%) patients completed all six instillations of UGN-102 according to study protocol. Median duration of response was not reached. The most common adverse events, greater than 10%, were most often reported as mild to moderate in severity and include dysuria, hematuria, urinary frequency, fatigue, urgency and urinary tract infection. The final data was published online in The Journal of Urology in October 2021 and was included in the January 2022 print edition.

 

Urothelial cancer, which is comprised of bladder cancer and UTUC, affects a large, and what we believe to be, an underserved patient population. Annual expenditures for Medicare alone in the United States for the treatment of urothelial cancer were estimated to be at least $5.0 billion in 2020. The majority of the expenditures are spent on tumor resection surgeries such as transurethral resection of bladder tumor ("TURBT"). The prevalence of bladder cancer in the United States based on most recently published data was approximately 724,000 and estimated 2021 annual incidence of bladder cancer was approximately 85,000. We estimate based upon a review of peer-reviewed literature and publicly available data that there are approximately 80,000 low-grade intermediate risk NMIBC patients in the United States annually. We believe that UGN-102 has the potential to be a new therapeutic option for the treatment of low-grade intermediate risk NMIBC patients.

 

UGN-102 is administered locally using the standard practice of intravesical instillation directly into the bladder via a catheter. The instillation into the bladder is expected to take place in a physician’s office as a non-operative same-day treatment, in comparison with TURBT or similar surgical procedures, which are operations conducted under general anesthesia and may require an overnight stay. Surgical tumor removal often has limited success due to the inability to properly identify, reach and resect all tumors. We believe that an effective chemoablation agent can potentially provide better eradication of tumors irrespective of the detectability and location of the tumors. In addition, by removing the need for surgery, patients may avoid potential complications associated with surgery.

 

We initiated the Phase 3 ATLAS trial in December 2020 and until November 2021, were enrolling patients in this trial comparing UGN-102 with or without TURBT to standard of care, TURBT. In parallel, we continued to engage in discussions with the FDA and, based on this dialogue, we designed a trial in order to demonstrate the efficacy and safety of UGN-102. This new Phase 3 ENVISION trial is a single-arm, multinational, multicenter study evaluating the efficacy and safety of UGN-102 as primary chemoablative therapy in patients with low-grade intermediate risk NMIBC. The design for the Phase 3 ENVISION trial is similar to our Phase 2 OPTIMA II trial in that the patient population will have similar clinical characteristics, receive the same treatment regimen and undergo the same efficacy and safety assessments and qualitative follow-up. Study participants will receive six once-weekly intravesical instillations of UGN-102. The planned primary endpoint will evaluate the complete response rate at three months after the first instillation, and the key secondary endpoint will evaluate durability over time in patients who achieve complete response at the three-month assessment.

 

In February 2022, we announced the initiation of the Phase 3 ENVISION trial, which is expected to enroll approximately 220 patients across 90 sites, with completion of enrollment expected by the end of 2022. Assuming positive findings, we anticipate submitting an NDA for UGN-102 in 2024. In November 2021, as a result of the FDA's acceptance of a single arm approach (the ENVISION Trial), we stopped enrollment of the Phase 3 ATLAS study. However, at the time enrollment was stopped, any patients who had signed an informed consent were able to complete screening, and if eligible were randomized into the trial. Patients continue to be followed in the Phase 3 ATLAS study, and clinical results from these patients are expected to generate additional safety data and other insights in our evaluation of UGN-102 as a primary therapy in the treatment of low-grade intermediate risk NMIBC.

 

We have also initiated a Phase 3b study with the objective of demonstrating whether UGN-102 can be administered at home by a qualified home health professional, avoiding the need for repeated visits to a healthcare setting for instillation. Patients in the ongoing Phase 3b study will receive six once-weekly intravesical instillations of UGN-102. The Phase 3b study aims to enroll up to 10 patients across four centers, with completion of enrollment anticipated by the end of 2022. The initial treatment visit will occur at the investigative site and instillation will be performed by a qualified physician. Treatment visits two to six will take place at the patient's home and instillation will be performed by a properly trained and qualified home health professional. The primary endpoint of the study is the incidence of treatment-emergent adverse events ("TEAEs"), serious TEAEs, TEAEs of special interest, discontinuations from at home study treatment, and clinically significant abnormalities in laboratory tests (hematology, serum chemistry, and urinalysis). We believe establishing a precedent for a convenient at home solution may facilitate access-to-care and address quality of life issues that certain patients may face with the current standard of care.

 

UGN-301 (zalifrelimab) intravesical solution

 

Our immuno-uro-oncology pipeline includes UGN-301, an anti-CTLA-4 monoclonal antibody, which we intend to study as a combination therapy with multiple potential agents. Non-human primate toxicity studies supported the initiation of a multi-arm Phase 1 study of UGN-301 in combination with other agents. We believe that this approach leverages our unique drug delivery technology and provides an opportunity to evaluate intravesical delivery of UGN-301 in combination with other immuno-modulators, chemotherapies, gene therapy and innate immune stimulators.

 

High-grade NMIBC is a highly aggressive form of bladder cancer. TURBT followed by adjuvant intravesical immunotherapy with Bacillus of Calmette and Guerin ("BCG") is the current standard of care therapy for high-grade NMIBC. However, the high rates of recurrence and significant risk of progression to muscle-invasive tumors are particularly dangerous. Radical cystectomy, or bladder removal is strongly advocated in patients with BCG-unresponsive NMIBC (i.e., patients with BCG-refractory and BCG-relapsing tumors in whom further BCG therapy is not recommended) or for patients who cannot tolerate BCG.

 

The first combination we are seeking to investigate clinically involves the sequential use of UGN-201 (imiquimod), a toll-like receptor-7 ("TLR 7") agonist, and UGN-301 in high-grade NMIBC ("high-grade NMIBC"). UGN-201 is a liquid formulation of imiquimod for intravesical administration that has been optimized for delivery in the urinary tract. We believe that UGN-201 may elicit an innate immune response in the presence of released bladder cancer antigens, which may translate into a long lasting acquired immune response. We believe the combination of UGN-301 and UGN-201 could elicit an innate as well as adaptive immune response and potentially represent a valid post-TURBT adjuvant treatment of high-grade NMIBC. UGN-301 is delivered using our proprietary RTGel technology, which has been designed to significantly improve the effectiveness of certain intravesical therapy. In November 2019, we entered into a worldwide license agreement with Agenus Inc. to develop and commercialize zalifrelimab via intravesical delivery for the treatment of urinary tract cancers, initially in high-grade NMIBC. We believe that the combination of UGN-301 and UGN-201 makes local therapy a potentially more effective treatment option while minimizing systemic exposure and potential side effects.

 

In March 2022, we announced FDA clearance of our Investigational New Drug application ("IND") to begin a novel Phase 1 clinical study of UGN-301 in patients with recurrent NMIBC. The novel study design will utilize a Master Protocol that we believe is a more efficient and streamlined approach to development. It will provide more flexibility to add study arms as the trial progresses and is expected to increase efficiency and potentially reduce costs. We expect the Master Protocol will allow the Company to more quickly evaluate safety, tolerability and dosing of UGN-301 in combination with additional immunomodulators and chemotherapies, with the goal of developing optimized treatment regimens for patients. The multi-arm Phase 1 study, which is expected to support the development of UGN-301 in high-grade NMIBC, was initiated in April 2022 and is actively enrolling.

 

 

Our Research and Development and License Agreements

 

Agenus Agreement

 

In November 2019, we entered into a license agreement with Agenus Inc., pursuant to which Agenus granted us an exclusive, worldwide (not including Argentina, Brazil, Chile, Colombia, Peru, Venezuela and their respective territories and possessions), royalty-bearing, sublicensable license under Agenus’s intellectual property rights to develop, make, use, sell, import, and otherwise commercialize products incorporating a proprietary monoclonal antibody of Agenus known as AGEN1884 (zalifrelimab), an anti-CTLA-4 antagonist, for the treatment of cancers of the urinary tract via intravesical delivery. UGN-301 is a formulation of zalifrelimab administered using RTGel technology that is in Phase 1 clinical development for high-grade NMIBC.

 

MD Anderson Agreement

 

In January 2021, we announced that we had entered into a three-year strategic research collaboration agreement with MD Anderson focusing on the sequential use of UGN-201 and UGN-301 as an investigational treatment for high-grade NMIBC. Under the terms of the agreement, we and MD Anderson agreed to collaborate on the design and conduct of non-clinical and clinical studies with oversight from a joint steering committee. We agreed to provide funding, developmental candidates, and other support. Pursuant to the agreement, we have made bi-annual payments to MD Anderson to fund the collaboration, totaling $2.0 million and recognized evenly over the associated period through research and development expenses. In July 2022, we determined that we had achieved the objectives that we established when the agreement was initiated, and notified MD Anderson that we were exercising our right to conclude the collaboration in 2022 as we did not foresee initiating further development activities as part of the collaboration, although we will continue to collaborate on existing joint projects. As a result of this notification, we are not responsible for any further fixed bi-annual funding payments, although we will be responsible for costs related to existing join projects that exceed the payments already made to MD Anderson.  

 

For additional information regarding our research and development and license agreements, see Note 13 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report.

 

Impact of COVID-19 Pandemic

 

COVID-19 could have a detrimental impact on our ongoing and future clinical trials, our ongoing commercial launch and future commercialization activities for Jelmyto, and our ability to access capital markets.

 

According to the Centers for Disease Control and Prevention, as of October 2022, over 68% of the U.S. population has completed their primary series of vaccination. However, as circumstances evolve, in particular related to the emergence of variants and subvariants, it will be important to understand potential impacts to patients and the hospital system, and the ability for patients to access Jelmyto. While it is difficult to predict the ultimate impact of the ongoing COVID-19 pandemic on our business and the healthcare industry, we continue to monitor the evolving COVID-19 situation, and the potential further impacts that the pandemic and the related government response may have on our business.

 

 

Components of Operating Results

 

Revenue

 

During the three and nine months ended September 30, 2022 we recognized $16.1 million and $46.3 million of revenue, respectively from sales of our product, Jelmyto.

 

Cost of Revenue

 

Cost of revenue consists primarily of inventory and related costs associated with the manufacturing, distribution, warehousing and preparation of Jelmyto, including inventory impairment. In periods prior to receiving FDA approval for Jelmyto, we recognized inventory and related costs associated with the manufacture of Jelmyto as research and development expenses.

 

Research and Development Expenses

 

Research and development expenses, net consist primarily of:

 

 

salaries and related costs, including share-based compensation expense, for our personnel in research and development functions;

 

 

expense incurred under agreements with third parties, including clinical research organizations (“CROs”), subcontractors, suppliers and consultants, nonclinical studies and clinical trials;

 

 

expense incurred to acquire, develop and manufacture nonclinical study and clinical trial materials;

 

 

expense incurred to purchase active pharmaceutical ingredient (“API”) in support of R&D activities and other related manufacturing costs; and

 

 

facility and equipment costs, including depreciation expense, maintenance and allocated direct and indirect overhead costs.

 

We expense all research and development costs as incurred. We estimate nonclinical study and clinical trial expense based on the services performed pursuant to contracts with research institutions and contract research organizations that conduct and manage nonclinical studies and clinical trials on our behalf based on actual time and expense incurred by them.

 

We accrue for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from our external service providers. We adjust our accrual as actual costs become known. Where at risk contingent milestone payments are due to third parties under research and development and collaboration agreements, the milestone payment obligations are expensed when such development milestone results are achieved.

 

We are currently focused on advancing our product candidates, and our future research and development expenses will depend on their clinical success. Research and development expenses will continue to be significant and will increase over at least the next several years as we continue to develop our product candidates and conduct nonclinical studies and clinical trials of our product candidates.

 

 

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We do not believe that it is possible at this time to accurately project total expense required for us to reach commercialization of our product candidates. Due to the inherently unpredictable nature of nonclinical and clinical development, we are unable to estimate with certainty the costs we will incur and the timelines that will be required in the continued development and approval of our product candidates. Clinical and nonclinical development timelines, the probability of success and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, if and when such arrangements will be entered into, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect our research and development expenses to increase over the next several years as our clinical programs progress and as we seek to initiate clinical trials of additional product candidates. We also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates.

 

The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:

 

 

per patient trial costs;

 

 

the number of patients that participate in the trials;

 

 

the number of sites included in the trials;

 

 

the countries in which the trials are conducted;

 

 

the length of time required to enroll eligible patients;

 

 

delays or operational challenges resulting from the ongoing COVID-19 pandemic;

 

 

the number of doses that patients receive;

 

 

the drop-out or discontinuation rates of patients;

 

 

potential additional safety monitoring or other studies requested by regulatory agencies;

 

 

the duration of patient follow-up; and

 

 

the efficacy and safety profile of the product candidates.

 

In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.

 

Other than Jelmyto, which was approved by the FDA in April 2020, we have not received approval of any of our product candidates. UGN-102 and UGN-301 are still in clinical development, and the outcome of these efforts is uncertain. As such, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements.

 

License fees and development milestone payments related to in-licensed products and technology are expensed as incurred or when achieved, in the case of milestones, if it is determined at that point that they have no established alternative future use.

 

Selling and Marketing Expenses

 

To date, selling and marketing expenses consist primarily of commercial personnel costs (including share-based compensation) along with pre-commercialization and commercialization activities related to Jelmyto. We anticipate that our selling and marketing expenses will remain relatively consistent for the remainder of 2022.

 

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of personnel costs (including share-based compensation related to directors, executives, finance, medical affairs, business development, investor relations, and human resource functions). Other significant costs include medical affairs services, external professional service costs, facility costs, accounting and audit services, legal services, and other consulting fees.

 

We anticipate that our general and administrative expenses will remain relatively consistent for the remainder of 2022, and may increase in the future to support the potential approval and commercialization of our product candidates and our continued research and development programs. 

 

Financing on prepaid forward obligation

 

Financing on prepaid forward obligation is comprised of financing expense related to the RTW Transaction (see Note 9 to our condensed consolidated financial statements included in this Quarterly Report).

 

Interest expense

 

Interest expense is comprised of interest related to our long-term debt with Pharmakon (see Note 10 to our condensed consolidated financial statements included in this Quarterly Report).

 

Interest and Other Income, Net

 

Interest and other income, net, consisted primarily of interest income.

 

Income Taxes

 

We have yet to generate net taxable income in Israel. We have historically incurred operating losses resulting in carry forward tax losses totaling approximately $335.8 million as of December 31, 2021. We anticipate that we will continue to generate tax losses for the foreseeable future and that we will be able to carry forward these tax losses indefinitely to future taxable years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses. We have provided a full valuation allowance with respect to the deferred tax assets related to these carry forward losses. Income tax expense also consists of our estimate of uncertain tax positions, and related interest and penalties. See Note 16 to the condensed consolidated financial statements for further information.

 

Critical Accounting Policies and Estimates

 

The preparation of our unaudited condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenue and expense incurred during the reported periods. In accordance with GAAP, we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ from these estimates under different assumptions or conditions. We discussed the critical accounting policies used in the preparation of our financial statements in Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report as well as in the Note 3 to the condensed consolidated financial statements included in this Quarterly Report.

 

 

Results of Operations

 

Comparison of the three months ended September 30, 2022 and 2021

 

The following table sets forth our results of operations for the three months ended September 30, 2022 and 2021.

 

   

Three Months Ended September 30,

 
   

2022

   

2021

   

Change

 
   

(in thousands)

 

Revenue

  $ 16,097     $ 11,351     $ 4,746  

Cost of revenue

    2,020       1,244       776  

Gross profit

    14,077       10,107       3,970  

Operating expenses:

                       

Research and development

    13,093       11,923       1,170  

Selling and marketing

    11,882       12,473       (591 )

General and administrative

    7,189       9,151       (1,962 )

Total operating expenses

    32,164       33,547       (1,383 )

Operating loss

    (18,087 )     (23,440 )     5,353  

Financing on prepaid forward obligation

    (4,819 )     (6,828 )     2,009  

Interest expense on long-term debt

    (2,694 )           (2,694 )

Interest and other income, net

    478       57       421  

Loss before income taxes

    (25,122 )     (30,211 )     5,089  

Income tax expense

    (709 )           (709 )

Net loss

  $ (25,831 )   $ (30,211 )   $ 4,380  

 

Revenue

 

Revenue was $16.1 million and $11.4 million for the three months ended September 30, 2022 and 2021, respectively. The increase in revenue of $4.7 million reflects the increased volume of sales of our product Jelmyto.

 

Cost of Revenue

 

Cost of revenue was $2.0 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively. In periods prior to receiving FDA approval for Jelmyto, we recognized inventory and related costs associated with the manufacture of Jelmyto as research and development expenses. We expect this to continue to impact cost of revenue through approximately the second quarter of 2023 as we produce Jelmyto at costs reflecting the full cost of manufacturing and as we deplete inventories that we had expensed prior to receiving FDA approval. Gross margin would have been approximately 86.9% versus 87.5% for the three months ended September 30, 2022, if we had not sold Jelmyto units that were expensed prior to regulatory approval.

 

Research and Development Expenses

 

Research and development expenses were $13.1 million and $11.9 million for the three months ended September 30, 2022 and 2021, respectively. The overall increase of $1.2 million is primarily attributable to the Phase 3 ENVISION study for UGN-102, research into ingredient scale-up and production efficiency for Jelmyto, partially offset by lower stock-based compensation expenses in 2022.

 

Selling and Marketing Expenses

 

Selling and marketing expenses were $11.9 million and $12.5 million for the three months ended September 30, 2022 and 2021, respectively. The decrease in selling and marketing expenses of $0.6 million is primarily attributable to lower stock-based compensation expenses in 2022.

 

General and Administrative Expenses

 

General and administrative expenses were $7.2 million and $9.2 million for the three months ended September 30, 2022 and 2021, respectively. The decrease in general and administrative expenses of $2.0 million resulted primarily from a decrease in stock-based compensation expenses in 2022.

 

 

Financing on Prepaid Forward Obligation

 

Financing on prepaid forward obligation was $4.8 million and $6.8 million for the three months ended September 30, 2022 and 2021, respectively. The measurement of financing on prepaid forward obligation is an accounting estimate under the "imputed interest method" of accounting (see Note 3 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report) which is affected by estimated future payments to RTW, which are based on a percentage of revenues. The decrease in financing on prepaid forward obligation of $2.0 million was driven primarily by changes in underlying assumptions for remeasuring the effective rate.

 

Interest Expense on Long-term Debt

 

Interest expense was $2.7 million and zero for the three months ended September 30, 2022 and 2021, respectively. The cost in 2022 relates to the Pharmakon loan which closed in March 2022.

 

Interest and Other Income, Net

 

Interest and other income, net was $0.5 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively. The increase in interest and other income, net was primarily due to minor fluctuations in interest earned on investments and foreign exchange.

 

Comparison of the nine months ended September 30, 2022 and 2021

 

The following table sets forth our results of operations for the nine months ended September 30, 2022 and 2021.

 

   

Nine Months Ended September 30,

 
   

2022

   

2021

   

Change

 
   

(in thousands)

 

Revenue

  $ 46,265     $ 31,868     $ 14,397  

Cost of revenue

    5,391       3,568       1,823  

Gross profit

    40,874       28,300       12,574  

Operating expenses:

                       

Research and development

    38,429       34,560       3,869  

Selling and marketing

    38,075       35,418       2,657  

General and administrative

    23,129       30,699       (7,570 )

Total operating expenses

    99,633       100,677       (1,044 )

Operating loss

    (58,759 )     (72,377 )     13,618  

Financing on prepaid forward obligation

    (16,478 )     (9,948 )     (6,530 )

Interest expense on long-term debt

    (5,215 )           (5,215 )

Interest and other income, net

    604       269       335  

Loss before income taxes

    (79,848 )     (82,056 )     2,208  

Income tax expense

    (1,066 )     (312 )     (754 )

Net loss

  $ (80,914 )   $ (82,368 )   $ 1,454  

 

Revenue

 

Revenue was $46.3 million and $31.9 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in revenue of $14.4 million reflects the increased volume of sales of our product Jelmyto.

 

Cost of Revenue

 

Cost of revenue was $5.4 million and $3.6 million for the nine months ended September 30, 2022 and 2021, respectively. In periods prior to receiving FDA approval for Jelmyto, we recognized inventory and related costs associated with the manufacture of Jelmyto as research and development expenses. We expect this to continue to impact cost of revenue through approximately the second quarter of 2023 as we produce Jelmyto at costs reflecting the full cost of manufacturing and as we deplete inventories that we had expensed prior to receiving FDA approval. Gross margin would have been approximately 87.8% versus 88.3% for the nine months ended September 30, 2022, if we had not sold Jelmyto units that were expensed prior to regulatory approval.

 

Research and Development Expenses

 

Research and development expenses were $38.4 million and $34.6 million for the nine months ended September 30, 2022 and 2021, respectively. The overall increase of $3.8 million is primarily attributable to the Phase 3 ENVISION study for UGN-102, research into ingredient scale-up and production efficiency for Jelmyto, partially offset by lower stock-based compensation expenses in 2022.

 

Selling and Marketing Expenses

 

Selling and marketing expenses were $38.1 million and $35.4 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in selling and marketing expenses of $2.7 million is primarily attributable to increased market access and brand marketing expenditures, and other expenses related to our participation in the American Urological Association's annual meeting, as well as our annual sales meeting, which did not occur in 2021, partially offset by lower stock-based compensation expenses in 2022.

 

General and Administrative Expense

 

General and administrative expense was $23.1 million and $30.7 million for the nine months ended September 30, 2022 and 2021, respectively. The decrease in general and administrative expense of $7.6 million resulted primarily from a decrease in stock-based compensation expenses in 2022.

 

 

Financing on Prepaid Forward Obligation

 

Financing on prepaid forward obligation was $16.5 million and $9.9 million for the nine months ended September 30, 2022 and 2021, respectively.  The measurement of financing on prepaid forward obligation is an accounting estimate under the "imputed interest method" of accounting (see Note 3 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report) which is affected by estimated future payments to RTW, which are based on a percentage of revenues. The increase in financing on prepaid forward obligation of $6.6 million was driven primarily from a full nine months of financing cost in 2022 for the RTW Transaction, which closed in May 2021, partially offset by changes in underlying assumptions for remeasuring the effective rate.