Item 1. Financial Statements
Item 1. Financial Statements.
UroGen Pharma Ltd.
Condensed Consolidated Balance Sheets
(unaudited; in thousands, except share amounts and par value)
March 31, 2021
December 31, 2020
Assets
Current assets:
Cash and cash equivalents
$
40,492
$
52,864
Marketable securities
35,417
49,154
Restricted cash
1,225
1,226
Accounts receivable
6,301
7,047
Inventory
3,331
1,964
Prepaid expenses and other current assets
6,316
3,364
Total current assets
93,082
115,619
Non-current assets:
Property and equipment, net
2,142
2,046
Restricted deposit
223
223
Right of use asset
1,901
2,158
Marketable securities
—
1,893
Other non-current assets
66
66
Total Assets
$
97,414
$
122,005
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses
$
10,558
$
10,023
Employee related accrued expenses
4,712
9,554
Other current liabilities
1,735
1,859
Total current liabilities:
17,005
21,436
Non-current liabilities:
Long-term lease liability
1,201
1,497
Uncertain tax positions liability
2,717
2,717
Total Liabilities
20,923
25,650
Commitments and contingencies (Note 14)
Shareholders' equity:
Ordinary shares, NIS 0.01 par value; 100,000,000 shares
authorized at March 31, 2021 and December 31, 2020; 22,280,394
and 22,167,791 shares issued and outstanding as
of March 31, 2021 and December 31, 2020, respectively
61
60
Additional paid-in capital
458,723
452,525
Accumulated deficit
( 382,436
)
( 356,501
)
Accumulated other comprehensive income
143
271
Total Shareholders' Equity
76,491
96,355
Total Liabilities and Shareholders' Equity
$
97,414
$
122,005
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
UroGen Pharma Ltd.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited; in thousands, except share and per share amounts)
For the Three Months Ended March 31,
2021
2020
Revenues
$
7,485
$
—
Cost of revenues
897
—
Gross profit
6,588
—
Operating expenses:
Research and development expenses
10,513
16,588
Selling, general and administrative expenses
22,189
21,973
Operating loss
( 26,114
)
( 38,561
)
Interest and other income, net
179
768
Net Loss
$
( 25,935
)
$
( 37,793
)
Statements of Comprehensive Loss
Net loss
$
( 25,935
)
$
( 37,793
)
Other comprehensive income
Unrealized (loss) gain on marketable securities
( 128
)
35
Comprehensive Loss
$
( 26,063
)
$
( 37,758
)
Net loss per ordinary share basic and diluted
$
( 1.17
)
$
( 1.79
)
Weighted average number of shares
outstanding used in computation
of basic and diluted loss per
ordinary share
22,242,375
21,158,161
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
UroGen Pharma Ltd.
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited; in thousands, except share amounts)
Ordinary Shares
Additional
paid-in
Accumulated
Other
comprehensive
Number of
capital
Deficit
income
Total
Shares
Amount
Amounts
Balance as of January 1, 2020
21,026,184
$
57
$
407,986
$
( 228,017
)
$
276
$
180,302
Changes During the Three
Months Ended March 31, 2020
Exercise of options into ordinary shares
186,756
1
292
293
Share-based compensation
7,617
7,617
Other comprehensive income
35
35
Net loss
( 37,793
)
( 37,793
)
Balance as of March 31, 2020
21,212,940
$
58
$
415,895
$
( 265,810
)
$
311
$
150,454
Balance as of January 1, 2021
22,167,791
$
60
$
452,525
$
( 356,501
)
$
271
$
96,355
Changes During the Three
Months Ended March 31, 2021
Exercise of options into ordinary shares
112,603
1
3
4
Share-based compensation
6,195
6,195
Other comprehensive loss
( 128
)
( 128
)
Net loss
( 25,935
)
( 25,935
)
Balance as of March 31, 2021
22,280,394
$
61
$
458,723
$
( 382,436
)
$
143
$
76,491
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
UroGen Pharma Ltd.
Condensed Consolidated Statements of Cash Flow
(unaudited; in thousands)
Three Months Ended March 31,
2021
2020
Cash Flows From Operating Activities
Net loss
$
( 25,935
)
$
( 37,793
)
Adjustment to reconcile net loss to net cash from operating activities:
Depreciation and amortization
191
82
Amortization on marketable securities
191
98
Stock-based compensation
6,195
7,617
Amortization of right of use asset
237
374
Lease liability
( 400
)
( 361
)
Changes in operating assets and liabilities:
Inventory
( 1,367
)
—
Accounts receivable
746
—
Prepaid expenses and other current assets
( 2,952
)
( 518
)
Accounts payable and accrued expenses
535
( 2,498
)
Employee related accrued expenses
( 4,842
)
( 2,636
)
Net cash used in operating activities
( 27,401
)
( 35,635
)
Cash Flows From Investing Activities
Purchase of marketable securities
—
( 9,378
)
Maturities of marketable securities
15,311
22,499
Purchases of property and equipment
( 287
)
( 96
)
Net cash provided by investing activities
15,024
13,025
Cash Flows From Financing Activities
Proceeds from exercise of options into ordinary shares
4
293
Issuance cost related to at-the-market issuances
—
( 203
)
Net cash provided by financing activities
4
90
Decrease in Cash and Cash Equivalents
( 12,373
)
( 22,520
)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
54,090
50,211
Cash, Cash Equivalents and Restricted Cash at End of Period
$
41,717
$
27,691
Supplemental Disclosures of Non-Cash Activities
Non-cash new lease liabilities
$
( 20
)
$
72
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
UroGen Pharma Ltd .
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 1 – Business and Nature of Operations
Nature of Operations
UroGen Pharma Ltd. is an Israeli company incorporated in April 20 0 4 (“UPL”).
UroGen Pharma Inc., a wholly owned subsidiary of UPL, was incorporated in Del a ware in October 2015 and began operati n g in February 2016 (“UPI”).
UPL and UPI (together the “Company”) is a bi o pharmaceutical company focused on deve l oping and commercializing novel therapies desi g ned to change the standard of care for urological pathologies. Since commencing operations, the Company has devoted substantially all of its efforts to securing intellectual property rights, performing research and development activities, including conducting clinical trials and manufacturing activities, hiring personnel, launching the Company’s first commercial product, Jelmyto (mitomycin) for pyelocalyceal solution, formerly known as UGN-101, and its product candidate UGN-102, and raising capital to support and expand these activities.
On April 15, 2020, the U.S. Food and Drug Administration (“FDA”) granted expedited approval for Jelmyto , a first-in-class treatment indicated for adults with low-grade upper tract urothelial cancer (“low grade-UTUC”). Jelmyto consists of mitomycin, an established chemotherapy, and sterile hydrogel, using our proprietary sustained release RTGel technology. It has been designed to enable longer exposure of urinary tract tissue to mitomycin, thereby enabling the treatment of tumors by non-surgical means.
Note 2 – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary for fair statement of its financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. Interim results are not necessarily indicative of results for the full fiscal year. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on March 18, 2021.
The consolidated financial statements include the accounts of UPL and its wholly owned subsidiary UPI. All material intercompany balances and transactions have been eliminated during consolidation.
The Company has experienced net losses since its inception and has an accumulated deficit of $ 382.4 million and $ 356.5 million as of March 31, 2021 and December 31, 2020, respectively. The Company expects to incur losses and have negative net cash flows from operating activities as it executes on its strategy including engaging in further research and development activities, particularly conducting non-clinical studies and clinical trials.
The success of the Company depends on the ability to successfully commercialize its technologies to support its operations and strategic plan. Based on management’s cash flow projections the Company believes that its cash and cash equivalents and marketable securities after the closing of the transaction with RTW Investments (See Note 17 for further discussion) are sufficient to fund the Company’s planned operations for at least the next 12 months. The Company anticipates that it may need to raise additional capital in the future. There can be no assurances that the Company will be able to secure such additional financing if at all, or at terms that are satisfactory to the Company, and that it will be sufficient to meet its needs. In the event the Company is not successful in obtaining sufficient funding, this could force us to delay, limit, or reduce our product development, commercialization efforts or other operations.
5
Note 3 – Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of UPL and its subsidiary, UPI. Intercompany balances and transactions have been eliminated during consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires man a gement to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of cont i ngent assets and liabilities at the date of the financ i al statements and the reported amounts of revenues and expenses duri n g the reporting period. Actual results may differ from those estimates. As applicable to the unaudited condensed consolidated financi a l statements, the critical accounting estimates relate to the fair value of share-based compensat i on, measurement of revenue and estimate of uncertain tax positions.
Functional Currency
The U.S. dollar (“Dollar”) is the currency of the primary economic environment in which the operations of the Com p any are conducted. Therefore, the functional currency of the Company is the Dol l ar.
Accordingly, transactions in currencies other than the Do l lar are measured and recorded in the functional currency usi n g the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liab i lities that are denominated in currencies other than the Dollar are measured using the official exch a nge rate at the balance sheet date. The effects of foreign currency re-measurements are recorded in the condensed consolidated statements of operations as “Interest and other income, net.”
Cash and Cash Equivalents; Marketable Securities
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist primarily of money market funds and bank money market accounts and are stated at cost, which approximates fair value.
Cash and cash equivalents and marketable securities totaled $ 75.9 million as of March 31, 2021. The Company classifies its marketable securities as available-for-sale in accordance with the Financial Accounting Standards Board (“ FASB”) Accounting Standards Codification (“ASC”) Topic 320, “Investments — Debt and Equity Securities”. Available-for-sale debt securities are carried at fair value with unrealized gains and losses reported in other comprehensive income/loss within shareholders’ equity. Realized gains and losses are recorded as a component of interest and other income (expense), net. The cost of securities sold is based on the specific-identification method.
Short-term investments are valued using models or other valuation methodologies that use Level 2 inputs. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, default rates, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. The majority of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
For individual debt securities classified as available-for-sale securities where there has been a decline in fair value below amortized cost, the Company determines whether the decline resulted from a credit loss or other factors. The Company records impairment relating to credit losses through an allowance for credit losses, limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded through an allowance for credit losses is recorded through other comprehensive income, net of applicable taxes.
6
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents and marketable securities. The primary objectives for the 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 U.S. Deferred taxes are computed using the asset and liabi l ity method. Under the asset and liability method, deferred income tax assets and liabilities are determined bas e d on the differences between the financial reporti n g and tax bases of assets and liabilities and are mea s ured using the currently enacted tax rates and laws. A valuation a llowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foresee a ble future.
The Company follows a two-step approach in recognizing a n d 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 14 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.
7
Property and equipment are depreciated over the following useful lives (in years):
Useful Lives
Computers and software
3
Laboratory equipment
3-6.5
Furniture
5-16.5
Manufacturing equipment
2
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. See Note 8 for further discussion regarding property and equipment.
Leases
The Company is a lessee in several noncancelable operating leases, primarily for office space, office equipment and vehicles. The Company currently has no finance leases.
The Company accounts for leases in accordance with ASC Topic 842, “Leases” . The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Operating lease ROU assets are presented as operating lease right of use assets on the condensed consolidated balance sheets. The current portion of operating lease liabilities is included in other current liabilities and the long-term portion is presented separately as operating lease liabilities on the condensed consolidated balance sheets.
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.
Revenues
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 revenues 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.
8
Research and Development Expenses
Research and development costs are expensed as incurred and consist primarily of the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for research and development activities, including nonclinical studies, clinical trials, manufacturing costs and professional services. The costs of services performed by others in connection with the research and development activities of the Company, including research and development conducted by others on behalf of the Company, shall be included in research and development costs and expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from its external service providers. The Company adjusts its accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the milestone payment obligations are expensed when the milestone results are achieved.
Selling General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs (including share-based compensation related to directors, 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 compen s ation costs for awards conditioned only on conti n ued service that have a graded vesting schedule using the straight-line method and to value the awards based on the sin g le-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.
9
Note 4 – Other Financial Information
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following as of March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021
December 31, 2020
Accounts payable
$
6,096
$
3,271
Accrued sales reserves
449
382
Accrued clinical expenses
554
1,359
Accrued research and development costs
862
1,356
Accrued selling, general and administrative expenses
1,309
2,440
Accrued other expense
1,288
1,215
Total accounts payable and accrued expenses
$
10,558
$
10,023
Interest and Other Income (Expenses), Net
Interest and other income (expenses) consisted of the following as of March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
2021
2020
Interest income
$
167
$
811
Other finance income(expenses)
12
( 43
)
Total interest and other income
$
179
$
768
Note 5 – Inventories
Inventories consist of the following as of March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021
December 31, 2020
Raw materials
$
2,443
$
1,051
Finished goods
888
913
Total inventories
$
3,331
$
1,964
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.
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.
10
The carrying amounts of the Company ’ s other current assets, accounts payable and accrued liabilities are generally considered to be representative of their fair value because of the short-term nature of these instruments. No transfers between levels have occurred during the periods presented.
Assets and liabilities measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of March 31, 2021 are as follows (in thousands):
Fair Value Measurements Using
Quoted Prices
Significant
in Active
Other
Balance as of
Markets for
Observable
March 31,
Identical Assets
Inputs
2021
(Level 1)
(Level 2)
Marketable securities:
US government
$
20,572
$
20,572
$
—
Corporate bonds
14,845
—
14,845
Money market funds (1)
30,413
30,413
—
Total marketable securities
$
65,830
$
50,985
$
14,845
(1)
Included within cash and cash equivalents on the condensed consolidated balance sheets.
Assets and liabilities measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of December 31, 2020 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
2020
(Level 1)
(Level 2)
Marketable securities:
US government
$
29,186
$
29,186
$
—
Corporate bonds
21,861
—
21,861
Money market funds (1)
39,744
39,744
—
Total marketable securities
$
90,791
$
68,930
$
21,861
(1)
Included within cash and cash equivalents on the condensed consolidated balance sheets.
The Company ’ s in money market funds are valued based on publicly available quoted market prices for identical securities as of March 31, 2021 and December 31, 2020.
Note 7 – Marketable Securities
The following table summarizes the Company’s marketable securities as of March 31, 2021 (in thousands):
Amortized
Cost Basis
Unrealized
Gains
Unrealized
Losses
Fair Value
Marketable securities:
US government
$
20,448
$
124
$
—
$
20,572
Corporate bonds
14,826
19
—
14,845
Money market funds (1)
30,413
—
—
30,413
Total marketable securities
$
65,687
$
143
$
—
$
65,830
11
(1)
Included within cash and cash equivalents on the condensed consolidated balance sheets.
The Company classifies its marketable securities as available-for-sale and they consist of all debt securities. The amortized cost basis as of March 31, 2021 includes $ 0.1 million of accrued interest receivable . As of March 31, 2021, marketable securities were in a net unrealized gain position of $ 0.1 million. Unrealized gains and losses on available-for-sale debt securities are included as a component of comprehensive loss.
As of March 31, 2021 , the Company did no t hold any marketable securities in an unrealized loss position. Per the Company’s general investment strategy, the Company does not intend to sell the investments before maturity. As of March 31, 2021, the Company believes the cost basis for its marketable securities were recoverable in all material aspects and no credit impairments were recognized in the period.
The Company’s marketable securities as of March 31, 2021 mature at various dates through February 2022. The fair values of marketable securities by contractual maturity consist of the following (in thousands) :
March 31, 2021
December 31, 2020
Maturities within one year
$
65,830
$
88,898
Maturities after one year through three years
—
1,893
Total marketable securities
$
65,830
$
90,791
Note 8 – Property and Equipment
Property and equipment, consists of the following as of March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021
December 31, 2020
Laboratory equipment
$
337
$
333
Computer equipment and software
1,970
1,676
Furniture
586
597
Leasehold improvements
609
609
Manufacturing equipment
226
226
3,728
3,441
Less: accumulated depreciation and amortization
( 1,586
)
( 1,395
)
Property and equipment, net
$
2,142
$
2,046
Depreciation and amortization expenses were $ 0.2 million and $ 0.1 million for the three months ended March 31, 2021 and 2020, respectively.
Note 9 - Leases
Operating Leases
The Company has the following office and laboratory facility leases:
•
In April 2016, UPL signed an addendum to its November 2014 lease agreement for the Company’s executive 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 additional three years until August 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 .
12
•
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 $ 0.8 million as of March 31, 2021. 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 the end of November 2019. The remaining rental payments to be received over the lease term is approximately $ 0.7 million as of March 31, 2021 . The Company accounts for the sublease as on 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 and the lease term is 38 months. The Company’s remaining contractual obligation under this lease is approximately $ 1.0 million as of March 31, 2021.
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 2021 through 2024 , with varying renewal and termination options.
The components of lease cost for the three months ended March 31, 2021 were as follows (in thousands) :
Three Months Ended March 31, 2021
Operating lease cost
$
267
Sublease income
( 56
)
Variable lease cost
22
$
233
The amounts recognized as of March 31, 2021 were as follows (in thousands):
March 31, 2021
Right of use asset
$
1,901
Long-term lease liability
1,201
Other current liabilities
1,077
As of March 31, 2021, no impairment losses have been recognized to date.
Supplemental information related to leases for the periods reported is as follows (in thousands):
Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
2,157
Right-of-use assets obtained in exchange for new operating lease liabilities
135
Weighted-average remaining lease term of operating leases
2.13 years
Weighted-average discount rate of operating leases
5.36 %
13
Subleases
As of March 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,
Remainder of 2021
$
176
2022
243
2023
251
2024
49
2025
—
2026 and thereafter
—
$
719
Sublease income is recognized net within operating expenses. Sublease income for the three months ended March 31, 2021 was as follows (in thousands):
Three Months Ended March 31, 2021
Sublease income from fixed lease payments
$
56
Sublease income from variable payments
—
$
56
Note 10 – Revenue From Product Sales
Net product sales consist of the following for the three months ended March 31, 2021 (in thousands):
Three Months Ended March 31, 2021
Jelmyto
$
7,485
Note 11 – License and Collaboration Agreements
Allergan/AbbVie Agreement
In October 2016, the Company entered into the Allergan/AbbVie Agreement and granted Allergan (now part of AbbVie) an exclusive worldwide license to research, develop, manufacture and commercialize pharmaceutical products that contain RTGel and clostridial toxins (including BOTOX ® ), alone or in combination with certain other active ingredients, referred to as the Licensed Products, which are approved for the treatment of adults with overactive bladder who cannot use or do not adequately respond to anticholinergics. Additionally, the Company granted Allergan a non-exclusive, worldwide license to use certain of the Company’s trademarks as required for Allergan to practice its exclusive license with respect to the Licensed Products.
Under the Allergan/AbbVie Agreement, Allergan is solely responsible for costs and development of the Licensed Products and obtaining all regulatory approvals for Licensed Products worldwide, as well as worldwide commercialization of the Licensed Products after receiving the regulatory approval to do so. Allergan is required to use commercially reasonable efforts to develop and commercialize the Licensed Products for overactive bladder in certain major market countries.
14
Further, the Company is eligible to receive additional material milestone payments of up to an aggregate of $ 200.0 million upon the successful completion of certain development, regulatory and commercial milestones. As of March 31, 2021, since inception of the Allergan/AbbVie Agreement the Company has received a total of $ 25.0 million in milestone payments from Allergan. Allergan will pay the Company a tiered royalty in the low single digits based on worldwide annual net sales of Licensed Products, subject to certain reductions for the market entry of competing products and/or loss of the Company’s patent coverage of Licensed Products. The Company is responsible for payments to any third party for certain RTGel -related third-party intellectual properties.
Under the Allergan/AbbVie Agreement, Allergan granted the Company a non-exclusive, sublicensable, fully paid-up, perpetual, worldwide license under any improvements Allergan makes to the composition, formulation, or manufacture of RTGel for the research, development, manufacture and commercialization of any product containing RTGel and any active ingredient (other than a clostridial toxin) for all indications other than indications covered by the agreement and an exclusive, sublicensable, royalty-bearing (in low single digits), perpetual worldwide license under such improvements for use in the prevention or treatment of oncology indications.
In August 2020, the Company announced that the Phase 2 APOLLO trial did not meet the primary endpoint, it is believed to be the result of BOTOX not effectively permeating the urothelium. The Company is continuing to explore the potential use of RTGel in combination with other products in AbbVie’s portfolio.
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 antibody of Agenus known as AGEN1884 for the treatment of cancers of the urinary tract via intravesical delivery. AGEN1884 is an anti-CTLA-4 antagonist that is currently being evaluated by Agenus as a monotherapy in PD-1 refractory patients and in combination with Agenus’ anti-PD-1 antibody in solid tumors. 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.
15
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 UGN-302 as an investigational treatment for high-grade NMIBC. Under 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 fund the collaboration. As of March 31, 2021, the Company has made payments to MD Anderson of $ 500,000 recognized evenly over the associated six-month period through research and development expenses .
Note 12 – Shareholders’ Equity
The Company had 100.0 million ordinary shares authorized for issuance as of March 31, 2021 and December 31, 2020, respectively. The Company had 22.3 million and 22.2 million ordinary shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively. Each ordinary share is entitled to one vote. The hol d ers of ordinary shares are also entitled to receive dividends w henever 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.
Note 13 – Share-Based Compensation
In October 2010, the Board approved a share option plan (the “Pl a n”) for grants to Company employees, consultants, directors, and other service providers.
The grant of options to Israeli employees under the Plan is su b ject 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 Plan un d er 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 ex p ense for tax purposes the amounts credited to the employees in respect of options granted to them under the P l an, including amounts recorded as salary be n efits in the Company’s accounts, with the exception of the work-income b e nefit component, if any, determined on grant date. For non-employees and for non-Israeli employees, the Plan is subject to Section 3(i) of the Israeli Income Tax Ordinance.
Employees are typically granted stock options and/or restricted stock units, or 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 RSUs and/or stock options annually. The term of any option granted under the Plan 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 of stock 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 histori c al 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 employ e es’ exercise behavior, and for non-employees, and directors using the contractual term.
In March 2017, the Board adopted the 2017 Equity Incentive Plan (the "2017 Plan"), which was approved by the shareholders in April 2017. The 2017 Plan provides for the grant of incentive stock options to the Company's employees and for the grant of
16
nonstatutory 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 maximum number of ordinary shares that may initially be issued under the 2017 Plan is 1,400,000 . In addition, the number of ordinary shares reserved for issuance under the 2017 Plan will automatically increase on January 1st of each calendar year, from January 1, 2018 through January 1, 2026, so that the number of such shares reserved for issuance will equal 12 % of the total number of ordinary shares outstanding on the last day of the calendar month prior to the date of each automatic increase, or a lesser number of shares determined by the Board. The maximum number of ordinary shares that may be issued upon the exercise of stock options under the 2017 Plan is 5,600,000 . On January 1, 2018, the share reserve increased by 250,167 to 1,650,167 . On October 12, 2018, the Company increased the amount of registered ordinary shares of the Company’s 2017 Plan by 1,900,000 to 3,550,167 . On June 8, 2020 the Company increased the amount of registered ordinary shares of the Company’s 2017 Plan by 400,000 to 3,950,167 . On March 17, 2021, the Board approved an increase to the amount of registered ordinary shares of the Company’s 2017 Plan by 400,000 to 4,350,167 , subject to approval by the Company’s shareholders.
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 awards issued under the Inducement Plan. The only persons eligible to receive grants of Awards (as defined below) under the Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq Marketplace Rule 5635(c)(4) or 5635(c)(3) 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. Under the Inducement Plan, an “Award” is a nonstatutory stock option, restricted stock unit or other right to receive ordinary shares pursuant to the Inducement Plan.
The following table illustrates the effect of share-based com p ensation on the condensed consolidated statements of operations (in thousands):
Three Months Ended March 31,
2021
2020
Research and development expenses
$
1,107
$
1,943
Selling, general and administrative expenses
5,088
5,674
$
6,195
$
7,617
The total unrecognized compensation cost of options and RSUs at March 31, 2021 is $ 33.6 million with a weighted average recognition period of 1.86 years.
Note 14 – Income Taxes
UroGen Pharma Ltd. is taxed under Israeli tax laws. As of March 31, 2021, 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 accounting losses for the years ended 2020, 2019 and 2018, and for the three months ended March 31, 2021. 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 $ 2.7 million as of March 31, 2021 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 March 31, 2021, the Company’s liability for uncertain tax positions includes $ 0.7 million of interest and penalties accrued during 2020.
The Company operates on a global basis and is subject to tax laws and regulations in the U.S. 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.
17
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 have recorded the gross uncertain tax positions as a long-term liability.
Note 15 – Related Parties
There were no related party transactions for the three months ended March 31, 2021 or the three months ended March 31, 2020.
Note 16 – 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 March 31, 2021 and December 31, 2020. The Company does not anticipate recognizing any significant losses relating to these arrangements.
Grants from the Israeli Innovation Authority in Israel (“IIA”)
The Company has received grants from the IIA for research and development funding. Up until 2007, the IIA participation in the funding of the Company’s operations was by grants provided to Granot Ventures, a government supported technology incubator, as part of the Israeli Ministry of Industry and Commerce Director General Directive 8.2. Since 2008, the funding was provided directly to Company.
On January 12, 2020, the IIA Office of Chief Scientist approved the Company's request to unwind its obligation to the IIA regarding grants that were loaned to the Company between January 2004 and September 2016. The total payment under the IIA approval, net of the royalties already paid, $ 6.6 million, was fully paid during the first quarter of 2020 and recognized as research and development expense. Based on this payment, the Company will have full freedom to transfer IIA-funded technology or manufacture products developed with IIA-funded technology outside of the State of Israel. Other than the commitment to continue at least 75 % of its based R&D jobs in Israel (at the time of settlement) for a period of at least three years , all other obligations with the IIA ceased to exist as per the agreement.
Separation Agreement
On March 20, 2020, the Company entered into a Separation Agreement with Stephen Mullennix, the Company’s Chief Operating Officer, which sets forth the terms of Mr. Mullennix’s termination of employment with the Company, effective as of April 30, 2020, or Separation Date. The arrangement includes cash severance, as well as a pro rata portion of the target annual bonus for calendar year 2020, contingent on certain performance conditions. The Company accrued $ 0.4 million during the quarter ended March 31, 2020 in relation to this arrangement.
On September 7, 2020, the Company entered into a Separation Agreement with Peter Pfreundschuh, the Company’s Chief Financial Officer, which sets forth the terms of Mr. Pfreundschuh’s termination of employment with the Company, effective as of October 15, 2020. The arrangement includes cash severance, a pro rata portion of the target annual bonus for calendar year 2020 contingent on certain performance conditions, and partial acceleration of share-based compensation. The Company recognized $ 0.7 million during the year ended December 31, 2020 in relation to this arrangement, which was paid during March and April 2021.
Leases
18
See N ote 9 for further discussion regarding lease commitments.
Note 17 – Subsequent Events
In March 2021, the Company announced a transaction with RTW Investments (“RTW”) totaling $75.0 million in funding for the Company to support the launch of Jelmyto and the development of UGN-102. RTW will provide the Company with an upfront cash payment of $ 75.0 million and will receive tiered future payments based on global annual net product sales of Jelmyto and UGN-102, if approved. The Company received the $ 75.0 million of cash, net of costs in May 2021 following the receipt of necessary regulatory approvals, and recognized an associated long term liability.
19