UroGen Pharma Ltd. 10-K

Item 8. Financial Statements and Supplementary Data   UroGen Pharma Ltd.   Index to financial statements     Pages Report of Independent Registered Public Accounting Firm  (PCAOB ID 238 ) 72 Consolidated Balance Sheets 73 Consolidated Statements of Operations and Comprehensive Loss 74 Consolidated Statements of Shareholders’ Equity (Deficit) 75 Consolidated Statements of Cash Flows 76 Notes to Consolidated Financial Statements 77   71 Table of Contents   Report of Independent Registered Public Accounting Firm   To the Board of Directors and Shareholders of UroGen Pharma Ltd.   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of UroGen Pharma Ltd. and its subsidiary (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of shareholders' equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.   Substantial Doubt About the Company ’ s Ability to Continue as a Going Concern   The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred losses and experienced negative operating cash flows since its inception that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.   Basis for Opinion   These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit Matters   The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.   Revenue Recognition - Gross Revenue from Product Sales   As described in Notes 1, 3 and 12 to the consolidated financial statements, product sales from the Company’s commercial product, Jelmyto, are recognized as revenue 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 includes gross revenue and 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. The Company’s consolidated net revenue was $64.4 million for the year ended December 31, 2022, of which gross revenue from product sales represented a majority.   The principal consideration for our determination that performing procedures relating to revenue recognition for gross revenue from product sales is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.   Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing the Company’s reconciliation of gross revenue recognized from product sales to third-party information, (ii) evaluating reconciling items, as applicable, (iii) confirming sales terms with the Company’s single customer, (iv) confirming accounts receivable from product sales of Jelmyto with the Company’s single customer, and (v) evaluating a sample of gross revenue transactions by obtaining and inspecting source documents, including the customer contract, purchase orders, invoices, proof of delivery, cash remittances, and bank statements, as applicable.   /s/ PricewaterhouseCoopers LLP Florham Park, New Jersey March 24, 2023   We have served as the Company’s auditor since 2020.       72 Table of Contents     UROGEN PHARMA LTD. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts and par value)       December 31,       2022     2021   Assets                 Current assets:                 Cash and cash equivalents   $ 55,408     $ 44,360   Marketable securities     44,556       44,779   Restricted cash     813       1,226   Accounts receivable     12,704       11,717   Inventories     4,325       4,832   Prepaid expenses and other current assets     11,101       7,476   Total current assets     128,907       114,390   Non-current assets:                 Property and equipment, net     1,297       1,967   Restricted deposit     223       223   Right of use assets     2,452       1,180   Marketable securities     —       675   Other non-current assets     2,740       1,311   Total Assets   $ 135,619     $ 119,746   Liabilities and Shareholders' Equity (Deficit)                 Current liabilities:                 Accounts payable and accrued expenses   $ 12,383     $ 12,102   Employee related accrued expenses     8,257       6,948   Other current liabilities     3,276       3,330   Total current liabilities:     23,916       22,380   Non-current liabilities:                 Prepaid forward obligation     98,923       85,713   Long-term debt     97,537       —   Long-term lease liabilities     1,586       398   Uncertain tax positions liability     3,018       2,842   Total Liabilities     224,980       111,333   Commitments and Contingencies (Note 19)                     Shareholders' Equity (Deficit):                 Ordinary shares, NIS 0.01 par value; 100,000,000 shares authorized at December 31, 2022 and 2021; 23,129,953 and 22,462,995 shares issued and outstanding as of December 31, 2022 and 2021, respectively     63       61   Additional paid-in capital     487,787       475,698   Accumulated deficit     ( 577,104 )     ( 467,321 ) Accumulated other comprehensive loss     ( 107 )     ( 25 ) Total Shareholders' (Deficit) Equity     ( 89,361 )     8,413   Total Liabilities and Shareholders' (Deficit) Equity   $ 135,619     $ 119,746     The accompanying notes are an integral part of these consolidated financial statements.   73 Table of Contents     UROGEN PHARMA LTD. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share amounts)       Year Ended December 31,       2022     2021   Revenue   $ 64,357     $ 48,042   Cost of revenue     7,654       5,157   Gross profit     56,703       42,885   Operating expenses:                 Research and development expenses     52,906       47,642   Selling, general and administrative expenses     82,838       87,535   Operating loss     ( 79,041 )     ( 92,292 ) Financing on prepaid forward obligation     ( 21,559 )     ( 17,291 ) Interest expense on long-term debt     ( 8,438 )     —   Interest and other income, net     1,010       212   Loss before income taxes     ( 108,028 )     ( 109,371 ) Income tax expense     ( 1,755 )     ( 1,449 ) Net Loss   $ ( 109,783 )   $ ( 110,820 )                   Statements of Comprehensive Loss                 Net loss   $ ( 109,783 )   $ ( 110,820 ) Other comprehensive (loss)                 Unrealized (loss) on investments     ( 82 )     ( 296 ) Comprehensive Loss   $ ( 109,865 )   $ ( 111,116 ) Net loss per ordinary share - basic and diluted   $ ( 4.81 )   $ ( 4.96 ) Weighted average number of shares outstanding used in computation of basic and diluted loss per ordinary share     22,806,812       22,347,481     The accompanying notes are an integral part of these consolidated financial statements.   74 Table of Contents     UROGEN PHARMA LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY (DEFICIT) (in thousands, except share amounts)       Ordinary Shares     Additional Paid-in Capital     Accumulated Deficit     Other Comprehensive Loss     Total       Number of Shares     Amount     Amounts   Balance as of January 1, 2021     22,167,791     $ 60     $ 452,525     $ (356,501 )   $ 271     $ 96,355   Changes During 2021                                                 Exercise of options into ordinary shares     295,204       1       60                       61   Share-based compensation                     23,113                       23,113   Other comprehensive loss                                     ( 296 )     ( 296 ) Net loss                             (110,820 )             (110,820 ) Balance as of January 1, 2022     22,462,995     $ 61     $ 475,698     $ ( 467,321 )   $ ( 25 )   $ 8,413   Changes during 2022                                                 Exercise of options into ordinary shares     666,958       2       1,509                       1,511   Share-based compensation                     10,580                       10,580   Other comprehensive loss                               ( 82 )     ( 82 ) Net loss                             ( 109,783 )             ( 109,783 ) Balance as of December 31, 2022     23,129,953     $ 63     $ 487,787     $ (577,104 )   $ ( 107 )   $ (89,361 )   The accompanying notes are an integral part of these consolidated financial statements.   75 Table of Contents     UROGEN PHARMA LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)       Year Ended December 31,       2022     2021   Cash Flows From Operating Activities                 Net loss   $ ( 109,783 )   $ ( 110,820 ) Adjustment to reconcile net loss to net cash from operating activities:                 Depreciation and amortization     924       831   Inventory Obsolescence     870       —   Accrued financing on prepaid forward obligation     14,007       14,848   Amortization (accretion) on marketable securities     ( 498 )     476   Share-based compensation     10,580       23,113   Amortization of discount on long-term debt     1,754       —   Amortization of right of use assets     893       942   Changes in operating assets and liabilities:                 Inventory     ( 362 )     ( 2,868 ) Accounts receivable     ( 987 )     ( 4,671 ) Prepaid expenses and other current assets     ( 3,626 )     ( 4,111 ) Other non-current assets     ( 1,269 )     ( 1,020 ) Accounts payable and accrued expenses     281       1,998   Employee related accrued expenses     1,309       ( 2,606 ) Other current liabilities     ( 703 )     47   Lease liabilities     ( 1,125 )     ( 1,176 ) Uncertain tax positions     176       125   Net cash used in operating activities     ( 87,559 )     ( 84,892 ) Cash Flows From Investing Activities                 Purchases of marketable securities     ( 63,009 )     ( 51,898 ) Sales of marketable securities     —       2,463   Maturities of marketable securities     64,323       54,256   Purchases of property and equipment     ( 254 )     ( 752 ) Net cash provided by investing activities     1,060       4,069   Cash Flows From Financing Activities                 Proceeds from prepaid forward arrangement     —       72,402   Proceeds from exercise of options into ordinary shares     1,511       61   Proceeds from issuance of long-term debt     95,783       —   Issuance cost related to at-the-market issuances     ( 160 )     ( 144 ) Net cash provided by financing activities     97,134       72,319   Increase (Decrease) in Cash and Cash Equivalents     10,635       ( 8,504 ) Cash, Cash Equivalents and Restricted Cash at Beginning of Year     45,586       54,090   Cash, Cash Equivalents and Restricted Cash at End of Year   $ 56,221     $ 45,586   Supplemental Disclosures of Non-Cash Activities                 Non-cash issuance cost   $ —     $ 81   Right of use assets obtained in exchange for new operating lease liabilities   $ 2,165     $ ( 36 )   The accompanying notes are an integral part of these consolidated financial statements.     76 Table of Contents UROGEN PHARMA LTD. NOTES TO THE 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 Company has experienced net losses since its inception and has an accumulated deficit of $ 577.1  million and $ 467.3  million as of December 31, 2022 and 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.   The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The consolidated financial statements include the accounts of UPL and its wholly owned subsidiary UPI. All material intercompany balances and transactions have been eliminated during consolidation.    In accordance with the accounting guidance related to the presentation of financial statements, management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date the financial statements are issued. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, and do not include any adjustments relating to the carrying amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. The Company’s ability to continue as a going concern is expected to be impacted by its ability to raise additional capital to fund its operations, produce cash inflows from Jelmyto product sales and develop UGN- 102.     The Company believes that absent sufficient proceeds received from equity, financing, or business development transactions, the Company will not have sufficient cash and cash equivalents to fund its operations beyond one year from the issuance of these financial statements. Accordingly, the Company will, over the next twelve months, require significant additional financing to continue its operations. In addition, there can be no assurances that the Company will be able to secure such additional financing if at all, on terms that are satisfactory to the Company, and in amounts sufficient to meet its needs. These factors raise substantial doubt about the ability of the Company to continue as a going concern.  Failure to successfully receive additional financing will require the Company to delay, limit or reduce product development and commercialization efforts.     Note   3  –  Significant Accounting Policies   Principles of Consolidation   The Company’s 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 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.   77 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   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 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.   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.   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.   78 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   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     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 consolidated balance sheets. The Company recognizes capitalized financing expenses as a direct offset to the long-term debt on the Company's 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 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 consolidated balance sheets.   79 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   Lease expense is recognized on a straight-line basis for operating leases. Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expense on the 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 includes gross revenue and 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 the Company’s historical experience.   Research and Development Expenses   Research and development costs are expensed as incurred and consist primarily of the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for research and development activities, including nonclinical studies, clinical trials, manufacturing costs and professional services. The costs of services performed by others in connection with the research and development activities of the Company, including research and development conducted by others on behalf of the Company, shall be included in research and development costs and expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from its external service providers. The Company adjusts its accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the milestone payment obligations are expensed when 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.   80 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   The following table summarizes the calculation of basic and diluted loss per common share for the periods presented (in thousands, except share and per share amounts):       Year Ended December 31,       2022     2021   Basic and diluted:                 Loss attributable to equity holders of the Company   $ 109,783     $ 110,820   Weighted-average number of ordinary shares     22,806,812       22,347,481   Loss per ordinary share   $ 4.81     $ 4.96     Recently Adopted Issued 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.     N OTE 4 - o THER f INANCIAL I NFORMATION   Accounts Payable and Accrued Expenses   Accounts payable and accrued expenses consisted of the following as of December 31, 2022 and 2021 (in thousands):       December 31, 2022     December 31, 2021   Accounts payable   $ 5,527     $ 5,786   Accrued sales reserves     618       497   Accrued clinical expenses     2,853       1,377   Accrued research and development expenses     1,285       1,748   Accrued selling, general and administrative expenses     1,609       1,965   Accrued other expenses     491       729   Total accounts payable and accrued expenses   $ 12,383     $ 12,102       Interest and Other Income, Net   Interest and other income, net consisted of the following as of December 31, 2022 and 2021 (in thousands):       Year Ended December 31,       2022     2021   Interest income   $ 938     $ 365   Other income (expense), net     72       ( 153 ) Total interest and other income, net   $ 1,010     $ 212       N OTE 5 - I NVENTORIES   Inventories consist of the following as of December 31, 2022 and December 31, 2021 (in thousands):       December 31, 2022     December 31, 2021   Raw materials (1)   $ 4,676     $ 3,894   Finished goods     2,019       1,958   Total inventories   $ 6,695     $ 5,852     ( 1 )  $ 2.4  million and $ 1.0 million of raw materials are included within other non-current assets on the consolidated balance sheets at December 31, 2022 and December 31, 2021, respectively. Changes in non-current assets are reflected on the consolidated statements of cash flows within the caption of other non-current assets.       N OTE 6 - F AIR V ALUE M EASUREMENTS   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.   81 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   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 December 31, 2022 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       2022     (Level 1)     (Level 2)   Marketable securities                         US government   $ 28,693     $ 28,693     $ —   Corporate bonds     2,387       —       2,387   Commercial paper     9,392       —       9,392   Certificates of deposit     4,084       —       4,084   Total marketable securities   $ 44,556     $ 28,693     $ 15,863     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     The Company’s investments in US government bonds and money market funds are measured based on publicly available quoted market prices for identical securities as of December 31, 2022 and 2021 . The Company's investments in corporate bonds, commercial paper and certificates of deposits are measured based on quotes from market makers for similar items in active markets.     NOTE  7 - I nvestments   The following table summarizes the Company’s investments as of December 31, 2022 (in thousands):       Amortized Cost Basis     Unrealized Gains     Unrealized Losses     Fair Value   Marketable securities                                 US government   $ 28,742     $ —     $ ( 49 )   $ 28,693   Corporate bonds     2,392       —       ( 5 )     2,387   Commercial paper     9,417       —       ( 25 )     9,392   Certificates of deposit     4,112       —       ( 28 )     4,084   Total marketable securities   $ 44,663     $ —     $ ( 107 )   $ 44,556       82 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   The following table summarizes the Company’s investments as of December 31, 2021 ( in thousands):       Amortized Cost Basis     Unrealized Gains     Unrealized Losses     Fair Value   Assets:                                 Cash equivalents                                 Money market funds   $ 21,402     $ —     $ —     $ 21,402   Marketable securities                                 US government   $ 19,325     $ —     $ ( 18 )   $ 19,307   Corporate bonds     8,657       —       ( 5 )     8,652   Commercial paper     14,494       —       ( 2 )     14,492   Certificates of deposit     3,004       —       ( 1 )     3,003   Total marketable securities   $ 45,480     $ —     $ ( 26 )   $ 45,454   Total assets at fair value   $ 66,882     $ —     $ ( 26 )   $ 66,856     The Company classifies its investments as available-for-sale, and they consist entirely of debt securities. As of December 31, 2022 , the amortized cost of investments included an immaterial amount of accrued interest. As of December 31, 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 December 31, 2022 , the aggregate fair value of investments held by the Company in an unrealized loss position was $ 42.2  million which consisted of 20  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  December 31, 2022 , the Company believes the cost basis for its marketable securities were recoverable in all material aspects and  no  allowance for credit losses were recognized in the period.   The Company’s investments as of December 31, 2022 mature at various dates through August 2023. The fair values of investments by contractual maturity consist of the following (in thousands):       December 31, 2022     December 31, 2021   Maturities within one year   $ 44,556     $ 66,181   Maturities after one year through three years     —       675   Total investments   $ 44,556     $ 66,856       N OTE 8 - P ROPERTY AND E QUIPMENT   Property and equipment, consists of the following as of December 31, 2022 and 2021 (in thousands):       December 31,       2022     2021   Laboratory equipment   $ 452     $ 360   Computer equipment and software     2,168       2,064   Furniture     602       597   Leasehold improvements     617       617   Manufacturing equipment     608       555         4,447       4,193   Less: accumulated depreciation and amortization     ( 3,150 )     ( 2,226 ) Property and equipment, net   $ 1,297     $ 1,967     Depreciation and amortization expense was $ 0.9 million and $ 0.8 million for the years ended December 31, 2022 and 2021 , respectively.     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 year ended December 31, 2022 for annual net 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 (1)     ( 3,979 ) Carrying value of prepaid forward obligation as of December 31, 2021     85,713   Financing on prepaid forward obligation     21,559   Amounts paid and payable (1)     ( 8,348 ) Carrying value of prepaid forward obligation as of December 31, 2022   $ 98,923     ( 1 ) $ 2.3 million and $ 1.5 million of the Amounts paid and payable are included as current portion of the prepaid forward obligation within other current liabilities on the consolidated balance sheets as of December 31, 2022 and December 31, 2021, respectively.   83 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     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. The second tranche of $ 25 million was funded in December 2022. 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 consolidated balance sheets. These debt issuance costs are amortized over the term of the debt using the effective interest method, and are recorded in the 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 $ 100,000   Capitalized costs and discounts   ( 4,217 ) Interest expense   8,438   Amounts paid   ( 6,685 ) Carrying value of Pharmakon loan as of December 31, 2022 $ 97,537       N OTE 11  - L eases   Operating Leases   The Company had the following office and laboratory facility leases as of December 31, 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 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 $ 0.7  million as of December 31, 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 December 31, 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 $ 0.3  million as of December 31, 2022 . The Company accounts for the sublease as on operating lease in accordance with ASC 842.     • 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 $ 1.8  million as of December 31, 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 year ended December 31, 2022  and 2021  were as follows (in thousands):       Year Ended December 31, 2022     Year Ended December 31, 2021   Operating lease cost   $ 975     $ 1,045   Sublease income     ( 224 )     ( 224 ) Variable lease cost     65       66       $ 816     $ 887     The amounts recognized as of December 31, 2022  and 2021  were as follows (in thousands):       Year Ended December 31, 2022     Year Ended December 31, 2021   Right-of-use assets   $ 2,452     $ 1,180   Long-term lease liabilities     1,586       398   Other current liabilities     941       1,089     As of December 31, 2022, no impairment losses have been recognized.   Supplemental information related to leases for the periods reported is as follows (in thousands, except for lease term and discount rate amounts):       Year Ended December 31, 2022     Year Ended December 31, 2021   Cash paid for amounts included in the measurement of lease liabilities:                 Operating cash flows from operating leases     1,195       1,300   Right-of-use assets obtained in exchange for new operating lease liabilities     2,165       —   Weighted-average remaining lease term of operating leases (in years)     2.73       1.46   Weighted-average discount rate of operating leases     10.25 %     5.62 %       84 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   As of December 31, 2022 , maturities of lease liabilities were as follows (in thousands):       Operating Leases   Years ending December 31,         2023   $ 1,146   2024     904   2025     788   2026     49   Total future minimum lease payments   $ 2,887   Less: Interest     ( 360 ) Present value of lease liabilities   $ 2,527     As of December 31, 2021 , maturities of lease liabilities were as follows (in thousands):       Operating Leases   Years ending December 31,         2022   $ 1,141   2023     357   2024     58   Total future minimum lease payments   $ 1,556       Subleases   As of December 31, 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,         2023   $ 251   2024     49   Total future minimum sublease payments   $ 300       As of December 31, 2021,  undiscounted cash flows to be received under the Company’s operating sublease on an annual basis was as follows (in thousands):       Operating Leases   Years ending December 31,         2022   $ 243   2023     251   2024     49   Total future minimum sublease payments   $ 543               Sublease income is recognized net within operating expenses. Sublease income for the year ended December 31, 2022  and 2021 was as follows (in thousands):       Year Ended December 31, 2022     Year Ended December 31, 2021   Sublease income from fixed lease payments   $ 224     $ 224       N OTE 12  - R EVENUE F ROM P RODUCT S ALES   Net product sales consist of the following for the year ended December 31, 2022 and 2021 (in thousands):       Year Ended       Year Ended December 31, 2022     Year Ended December 31, 2021   Jelmyto   $ 64,357     $ 48,042       Net revenue recognized includes gross revenue and 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 the Company’s historical experience. Reserves related to items that are contractually able to be net settled are recognized as contra accounts receivable while other remaining reserves are recognized within other current liabilities on the consolidated balance sheets. The following table shows the activity with respect to sales reserves for the year ended December 31, 2022 and 2021 , in thousands:       Reserves related to government sponsored programs     Other reserves     Total accrued sales reserves   Balance as of January 1, 2021   $ 323     $ 519     $ 842   Changes during 2021                         Accruals     3,824       4,415       8,239   Utilizations     ( 3,774 )     ( 3,993 )     ( 7,767 ) Balance as of December 31, 2021   $ 373     $ 941     $ 1,314   Changes during 2022                         Accruals     6,967       6,463       13,430   Utilizations     ( 6,750 )     ( 6,557 )     ( 13,307 ) Balance as of December 31, 2022   $ 590     $ 847     $ 1,437       85 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     N OTE 13  - L ICENSE AND C OLLABORATION A GREEMENTS   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. 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,  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. Pursuant to the agreement, as of December 31, 2022 the Company has made bi-annual payments totaling $ 2.0 million to MD Anderson to fund the collaboration, 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.     N OTE 14  - E MPLOYEE R IGHTS U PON R ETIREMENT   In Israel, the Company is required by law to make severance payments upon dismissal of an employee or upon termination of employment in certain other circumstances.   The Company operates a number of post-employment defined contribution plans. A defined contribution plan is a program that benefits an employee after termination of employment, under which the Company regularly makes fixed payments to a separate and independent entity so that the Company has no legal or constructive obligation to pay additional contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The fund assets are not included in the Company’s financial position.   The Company operates pension and severance compensation plans subject to Section 14 of the Israeli Severance Pay Law, 5723 - 1963. The plans are funded through payments to insurance companies or pension funds administered by trustees. In accordance with its terms, the plans meet the definition of a defined contribution plan, as defined above.   86 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     N OTE 15  - S HAREHOLDERS ’ E QUITY   Ordinary Shares   The Company had 100.0 million ordinary shares authorized for issuance as of December 31, 2022 and 2021 . The Company had 23.1  million and 22.5  million ordinary shares issued and outstanding as of December 31, 2022 and 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.     N OTE 16  - S HARE- B ASED C OMPENSATION   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 is 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/or 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 December 31, 2022, 3,281,494  ordinary shares are subject to outstanding awards under the Company's share-based compensation plans, and 1,595,328  ordinary shares remain available for future awards.   87 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   Options granted:   Set forth below are grants made by the Company as of December 31, 2022 . The majority of options vest over three years and expire on the tenth anniversary of the date of grant.     a) During 2022 , the Company granted 410,064  options with exercise prices ranging from $ 5.19  to $ 11.88  per share.     b) During 2021 , the Company granted 593,000 options with exercise prices ranging from $ 11.92  to $ 22.07  per share.   The fair value of options granted during  2022 and 2021 was $ 2.2  million and $ 7.0  million, respectively.   The total unrecognized compensation cost of options as of December 31, 2022 was $ 4.0  million, which is expected to be recognized over a weighted average period of 1.6  years.   The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:       2022     2021   Value of ordinary shares     5.19 9 11.88 8       11.92 2 22.07 7   Dividend yield     0 %       0 %   Expected volatility     72.35 %- 81.00 %       73.76 %- 79.16 %   Risk-free interest rate     1.69 %- 4.14 %       0.60 %- 1.62 %   Expected term (in years)     6.0-10 years       6.0-10 years     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 following table summarizes the number of employee and non-employee options outstanding under the Plan for the years ended December 31, 2022 and 2021 , and related information:       Number of options     Weighted Average price per share   Outstanding as of January 1, 2021     2,726,331     $ 31.29   Granted     593,000       17.29   Forfeited     ( 337,717 )     39.18   Exercised     ( 12,057 )     5.00   Outstanding as of December 31, 2021     2,969,557     $ 27.70   Granted     410,064       7.82   Forfeited     ( 496,417 )     27.97   Exercised     ( 292,665 )     5.16   Outstanding as of December 31, 2022     2,590,539     $ 27.05   Vested and expected to vest, December 31, 2022     2,590,539     $ 27.05   Exercisable, December 31, 2022     1,910,065     $ 32.03     88 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   The intrinsic value of stock options exercised was $ 0.8  million and $ 0.2 million for the years ended December 31, 2022 and 2021 , respectively.    The following table summarizes the outstanding and exercisable options as of December 31, 2022 :           Options outstanding     Options exercisable   Exercise price per share     Number of options outstanding at end of year     Weighted average remaining contractual life     Number of options exercisable at end of year     Weighted average remaining contractual life   $ 0.00 - 10.00       585,166       8.61       265,767       1.16   $ 10.01 - 20.00       451,166       7.94       253,660       7.31   $ 20.01 - 30.00       470,675       6.88       307,106       6.30   $ 30.01 - 40.00       331,000       3.57       331,000       3.57   $ 40.01 - 50.00       666,532       5.57       666,532       5.57   $ 50.01 - 59.23       86,000       5.43       86,000       5.43             2,590,539               1,910,065             The aggregate intrinsic value of the total vested and exercisable options as of December 31, 2022 is $ 0.9  million.   The following table summarizes information about RSU activity as of December 31, 2022 :       Outstanding Restricted Stock Units   Outstanding as of January 1, 2021     720,416   Granted     501,125   Vested and released     ( 283,147 ) Forfeited     ( 185,120 ) Outstanding as of December 31, 2021     753,274   Granted     445,980   Vested and released     ( 374,293 ) Forfeited     ( 134,006 ) Outstanding as of December 31, 2022     690,955     The fair value of RSUs granted during  2022 and 2021 was $ 3.2  million and $ 9.9 million, respectively. The total unrecognized compensation cost of RSUs as of December 31, 2022 is $ 5.8  million with a weighted average recognition period of 1.59  years.   The following table illustrates the effect of share-based compensation on the Statements of Operations:       Year ended December 31,       2022     2021   Research and development expenses   $ 2,626     $ 4,009   Selling, general and administrative expenses     7,954       19,104   Total share-based compensation expense   $ 10,580     $ 23,113     89 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS     N OTE 17  - I NCOME T AXES   The Company is taxed under Israeli tax laws:   Corporate tax rate   The applicable Israeli tax rate relevant to the Company for 2021  and thereafter is 23 %.   For financial reporting purposes, the expense for current income taxes consists of the following (in thousands):       2022     2021   Current taxes:                 U.S. Federal   $ 584     $ 1,454   U.S. State     1,171       ( 5 ) Total current taxes   $ 1,755     $ 1,449     Deferred income taxes:   Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company and its subsidiary deferred tax assets are as follows (in thousands):       December 31,       2022     2021   In respect of:                 Net operating loss carryforward   $ 96,434     $ 77,277   Research and development expenses     17,949       8,988   Stock-based compensation     11,485       10,958   Issuance costs     -       65   In-process research and development     1,489       1,909   Right of use asset     ( 434 )     ( 228 ) Lease Liabilities     461       282   Accrued expenses     1,769       1,207   Depreciation of fixed assets     ( 113 )     ( 158 ) Other     561       319   Less—valuation allowance     ( 129,601 )     ( 100,619 ) Net deferred tax assets   $ —     $ —     The change in valuation allowance for the years ended December 31, 2022 and 2021 were as follows (in thousands):       2022     2021   Balance at the beginning of the year   $ ( 100,619 )   $ ( 76,963 ) Changes during the year     ( 28,982 )     ( 23,656 ) Balance at the end of the year   $ ( 129,601 )   $ ( 100,619 )   The main reconciling item between the statutory tax rates of the Company and the effective rate is the share-based compensation, the provision for a full valuation allowance in respect of tax benefits from carryforward tax losses due to the uncertainty of the realization of such tax benefits, utilization of tax credits and expense related to uncertain tax positions. A reconciliation of the Company’s statutory tax rate to effective tax is as follows (in thousands, except statutory rate):       December 31,       2022     2021   Pretax loss   $ ( 108,028 )   $ ( 109,371 ) Statutory rate     23 %     23 % Income tax expense/(benefit) at statutory rate     ( 24,847 )     ( 25,155 ) Additional tax (tax saving) in respect of:                 Non-deductible compensation expense     1,052       2,264   R&D and orphan drug credits     ( 3,586 )     -   Different tax rate of foreign subsidiaries     ( 263 )     ( 58 ) Uncertain tax positions     176       125   Change in valuation allowance     28,982       23,656   Other     241       617   Income tax expense   $ 1,755     $ 1,449         90 Table of Contents UROGEN PHARMA LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS   Pretax loss for December 31, 2022  and 2021  includes pretax loss from foreign (United States) jurisdictions of $ 13.3  million and $ 10.1  million, respectively.   The Internal Revenue Code contains provisions that may limit our use of federal net operating loss carryforwards if significant changes occur in the constructive stock ownership of UroGen Pharma Inc. In the event it has had an “ownership change” within the meaning of Section 382 of the Code, utilization of its net operating loss carryforwards could be restricted under Section  382 of the Code and similar state provisions. Such limitations could result in the expiration of the net operating carryforwards incurred before 2018 before their utilization.    Losses   for   tax   purposes   carried   forward   to   future   years   As of December 31, 2022  and  2021 , the Company had approximately $ 419.1  million and $ 335.8 million of carryforward tax losses, prior to tax effecting, respectively, available to reduce future taxable income without limitation of use.   Uncertain tax positions   A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):       2022     2021   Uncertain tax positions at the beginning of the year   $ 2,842     $ 2,717   Gross increases — tax positions in current period     —       —   Gross increases — tax positions in prior period     176       125   Uncertain tax positions at the end of the year   $ 3,018     $ 2,842     The balances of uncertain tax positions as of December 31, 2022 would affect the Company’s effective tax rate if recognized.   The Company has recorded a liability for uncertain tax positions of $ 3.0  million as of December 31, 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 December 31, 2022 , the Company's liability for uncertain tax positions includes $ 1.1  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.   The Company has received final tax assessments up to and including its 2015  tax year.       N OTE 18  - R ELATED P ARTIES   There were no related party transactions for the year ended  December 31, 2022 or 2021 .     N OTE 19  - C OMMITMENTS AND C ONTINGENCIES   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 December 31, 2022 and 2021 . The Company does not anticipate recognizing any significant losses relating to these arrangements.   Leases   See Note 11  for further discussion regarding lease commitments.     N OTE 20  - S UBSEQUENT E VENTS   The Company has evaluated and determined there were no subsequent events.     91 Table of Contents     Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   None.