UroGen Pharma Ltd. 10-Q

Item 1. Financial Statements. UroGen Pharma Ltd. Condensed Consolidated Balance Sheets (unaudited; in thousands, except share amounts and par value) June 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 63,322 $ 52,864 Marketable securities 57,710 49,154 Restricted cash 1,225 1,226 Accounts receivable 9,512 7,047 Inventories 3,421 1,964 Prepaid expense and other current assets 5,308 3,364 Total current assets 140,498 115,619 Non-current assets: Property and equipment, net 2,001 2,046 Restricted deposit 223 223 Right of use asset 1,653 2,158 Marketable securities 8,290 1,893 Other non-current assets 1,103 66 Total Assets $ 153,768 $ 122,005 Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expense $ 10,342 $ 10,023 Employee related accrued expense 6,773 9,554 Other current liabilities 1,941 1,859 Total current liabilities: 19,056 21,436 Non-current liabilities: Prepaid forward obligation 74,802 - Long-term lease liability 922 1,497 Uncertain tax positions liability 2,717 2,717 Total Liabilities 97,497 25,650 Commitments and contingencies (Note 14) Shareholders' equity: Ordinary shares, NIS 0.01 par value; 100,000,000 shares authorized at June 30, 2021 and December 31, 2020; 22,354,533 and 22,167,791 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 61 60 Additional paid-in capital 464,823 452,525 Accumulated deficit ( 408,658 ) ( 356,501 ) Accumulated other comprehensive income 45 271 Total Shareholders' Equity 56,271 96,355 Total Liabilities and Shareholders' Equity $ 153,768 $ 122,005 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 UroGen Pharma Ltd. Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited; in thousands, except share and per share amounts) For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Revenue $ 13,032 $ 372 $ 20,517 $ 372 Cost of revenue 1,427 48 2,324 48 Gross profit 11,605 324 18,193 324 Operating expense: Research and development expense 12,124 8,106 22,637 24,694 Selling, general and administrative expense 22,304 24,018 44,493 45,991 Operating loss ( 22,823 ) ( 31,800 ) ( 48,937 ) ( 70,361 ) Financing on prepaid forward obligation ( 3,120 ) — ( 3,120 ) — Interest and other income, net 33 451 212 1,219 Loss before income taxes ( 25,910 ) ( 31,349 ) ( 51,845 ) ( 69,142 ) Income tax expense 312 — 312 — Net Loss $ ( 26,222 ) $ ( 31,349 ) $ ( 52,157 ) $ ( 69,142 ) Statements of Comprehensive Loss $ — $ — Net loss $ ( 26,222 ) $ ( 31,349 ) $ ( 52,157 ) $ ( 69,142 ) Other comprehensive income Unrealized (loss) gain on marketable securities ( 98 ) 449 ( 226 ) 484 Comprehensive Loss $ ( 26,320 ) $ ( 30,900 ) $ ( 52,383 ) $ ( 68,658 ) Net loss per ordinary share basic and diluted $ ( 1.17 ) $ ( 1.44 ) $ ( 2.34 ) $ ( 3.22 ) Weighted average number of shares outstanding used in computation of basic and diluted loss per ordinary share 22,331,119 21,753,001 22,287,037 21,454,341 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 UroGen Pharma Ltd. Condensed Consolidated Statements of Shareholders’ Equity (unaudited; in thousands, except share amounts) Ordinary Shares Number of Additional paid-in Accumulated Other comprehensive Shares Amount capital Deficit income (loss) Total Balance as of April 1, 2021 22,280,394 $ 61 $ 458,723 $ ( 382,436 ) $ 143 $ 76,491 Changes During the Three Months Ended June 30, 2021 Exercise of options into ordinary shares 74,139 — 54 54 Share-based compensation 6,046 6,046 Other comprehensive loss ( 98 ) ( 98 ) Net loss ( 26,222 ) ( 26,222 ) Balance as of June 30, 2021 22,354,533 $ 61 $ 464,823 $ ( 408,658 ) $ 45 $ 56,271 Balance as of April 1, 2020 21,212,940 $ 58 $ 415,895 $ ( 265,810 ) $ 311 $ 150,454 Changes During the Three Months Ended June 30, 2020 Exercise of options into ordinary shares 88,356 — 210 210 Share-based compensation 7,119 7,119 Issuance of ordinary shares, net of issuance expense 700,000 2 15,775 15,777 Other comprehensive loss 449 449 Net loss ( 31,349 ) ( 31,349 ) Balance as of June 30, 2020 22,001,296 $ 60 $ 438,999 $ ( 297,159 ) $ 760 $ 142,660 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Ordinary Shares Additional paid-in Accumulated Other comprehensive Number of capital Deficit Income (loss) Total Shares Amount Balance as of January 1, 2021 22,167,791 $ 60 $ 452,525 $ ( 356,501 ) $ 271 $ 96,355 Changes During the Six Months Ended June 30, 2021 Exercise of options into ordinary shares 186,742 1 57 58 Share-based compensation 12,241 12,241 Other comprehensive loss ( 226 ) ( 226 ) Net loss ( 52,157 ) ( 52,157 ) Balance as of June 30, 2021 22,354,533 $ 61 $ 464,823 $ ( 408,658 ) $ 45 $ 56,271 Balance as of January 1, 2020 21,026,184 $ 57 $ 407,986 $ ( 228,017 ) 276 $ 180,302 Changes During the Six Months Ended June 30, 2020 Exercise of options into ordinary shares 275,112 1 502 503 Share-based compensation 14,736 14,736 Issuance of ordinary shares in public offering, net of issuance expense 700,000 2 15,775 15,777 Other comprehensive income 484 484 Net loss ( 69,142 ) ( 69,142 ) Balance as of June 30, 2020 22,001,296 $ 60 $ 438,999 $ ( 297,159 ) $ 760 $ 142,660 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 UroGen Pharma Ltd. Condensed Consolidated Statements of Cash Flow (unaudited; in thousands) Six Months Ended June 30, 2021 2020 Cash Flows From Operating Activities Net loss $ ( 52,157 ) $ ( 69,142 ) Adjustment to reconcile net loss to net cash from operating activities: Depreciation and amortization 401 178 Accrued financing on prepaid forward obligation 2,330 — Amortization on marketable securities 181 234 Stock-based compensation 12,241 14,736 Amortization of right of use asset 469 753 Lease liability ( 652 ) ( 748 ) Changes in operating assets and liabilities: Inventory ( 1,457 ) ( 1,125 ) Accounts receivable ( 2,465 ) ( 402 ) Prepaid expense and other current assets ( 1,944 ) ( 1,035 ) Other non-current assets ( 1,026 ) — Accounts payable and accrued expense 319 ( 2,046 ) Employee related accrued expense ( 2,781 ) ( 967 ) Other current liabilities 195 — Net cash used in operating activities ( 46,346 ) ( 59,564 ) Cash Flows From Investing Activities Purchases of marketable securities ( 41,655 ) ( 29,688 ) Maturities of marketable securities 26,295 60,610 Purchases of property and equipment ( 356 ) ( 383 ) Net cash (used in) provided by investing activities ( 15,716 ) 30,539 Cash Flows From Financing Activities Proceeds from prepaid forward arrangement 72,472 503 Proceeds from exercise of options into ordinary shares 58 — Issuances of ordinary shares, net of issuance expense — 15,885 Issuance cost related to at-the-market issuances ( 11 ) — Net cash provided by financing activities 72,519 16,388 Increase (Decrease) in Cash and Cash Equivalents 10,457 ( 12,637 ) Cash, Cash Equivalents and Restricted Cash at Beginning of Period 54,090 50,211 Cash, Cash Equivalents and Restricted Cash at End of Period $ 64,547 $ 37,574 Supplemental Disclosures of Non-Cash Activities Non-cash purchases of property and equipment $ — $ 219 Non-cash new lease liabilities $ ( 36 ) $ 29 Non-cash issuance cost $ — $ 32 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 UroGen Pharma Ltd. Notes to the Unaudited Condensed Consolidated Financial Statements Note 1 – Business and Nature of Operations Nature of Operations UroGen Pharma Ltd. is an Israeli company incorporated in April 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. Intercompany balances and transactions have been eliminated during consolidation. The Company has experienced net losses since its inception and has an accumulated deficit of $ 408.7 million and $ 356.5 million as of June 30, 2021 and December 31, 2020, respectively. The Company expects to incur losses and have negative net cash flows from operating activities as it executes on its strategy including engaging in further research and development activities, particularly conducting non-clinical studies and clinical trials. The success of the Company depends on the ability to successfully commercialize its technologies to support its operations and strategic plan. Based on management’s cash flow projections the Company believes that its cash and cash equivalents and marketable securities are sufficient to fund the Company’s planned operations for at least the next 12 months. The Company anticipates that it may need to raise additional capital in the future. There can be no assurances that the Company will be able to secure such additional financing if at all, or at terms that are satisfactory to the Company, and that it will be sufficient to meet its needs. In the event the Company is not successful in obtaining sufficient funding, this could force us to delay, limit, or reduce our product development, commercialization efforts or other operations. 6 Note 3 – Significant Accounting Policies Principles of Consolidation The condensed consolidated financial statements include the accounts of UPL and its subsidiary, UPI. Intercompany balances and transactions have been eliminated during consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires 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 revenue and expense 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, estimate of uncertain tax positions, and measurement of liabilities accounted for under the interest method. Functional Currency The U.S. dollar (“Dollar”) is the currency of the primary economic environment in which the operations of the 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 $ 129.3 million as of June 30, 2021. The Company classifies its marketable securities as available-for-sale in accordance with the Financial Accounting Standards Board (“ FASB”) Accounting Standards Codification (“ASC”) Topic 320, “Investments — Debt and Equity Securities”. Available-for-sale debt securities are carried at fair value with unrealized gains and losses reported in other comprehensive income/loss within shareholders’ equity. Realized gains and losses are recorded as a component of interest and other income (expense), net. The cost of securities sold is based on the specific-identification method. Short-term investments are valued using models or other valuation methodologies that use Level 2 inputs. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, default rates, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. The majority of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. For individual debt securities classified as available-for-sale securities where there has been a decline in fair value below amortized cost, the Company determines whether the decline resulted from a credit loss or other factors. The Company records impairment relating to credit losses through an allowance for credit losses, limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded through an allowance for credit losses is recorded through other comprehensive income, net of applicable taxes. 7 Concentration of Credit Risk Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents and marketable securities. The primary objectives for the 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 15 for further discussion related to income taxes. Inventory The Company capitalizes inventory costs related to products to be sold in the ordinary course of business. The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. For Jelmyto , the Company commenced capitalization of inventory at the receipt of FDA approval. The Company values its inventory at the lower of cost or net realizable value. The Company measures inventory approximating actual cost under a first-in, first-out basis. The Company assesses recoverability of inventory each reporting period to determine any write down to net realizable value resulting from excess or obsolete inventories . Property and Equipment Property and equipment are recorded at historical cost, net of accumulated depreciation, amortization and, if applicable, impairment charges. The Company reviews its property and equipment assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Property and equipment are depreciated over the following useful lives (in years): Useful Lives Computers and software 3 Laboratory equipment 3-6.5 Furniture 5-16.5 Manufacturing equipment 2 8 Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. See Note 8 for further discussion regarding property and equipment. Prepaid Forward Obligation The Company is party to a transaction with RTW Investments (the “RTW Transaction”) in which the Company received funds to support the continued launch of Jelmyto and the development of UGN-102 in return for tiered, future cash payments based on net sales of Jelmyto and UGN-102, if approved by the FDA. The net proceeds received under the RTW Transaction were recognized as a long-term liability. The subsequent measurement for the liability follows the accounting principles defined in ASC Topic 835-30, “Imputation of Interest”. See Note 9 for further discussion related to the prepaid forward obligation. Leases The Company is a lessee in several noncancelable operating leases, primarily for office space, office equipment and vehicles. The Company currently has no finance leases. The Company accounts for leases in accordance with ASC Topic 842, “Leases” . The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Operating lease ROU assets are presented as operating lease right of use assets on the condensed consolidated balance sheets. The current portion of operating lease liabilities is included in other current liabilities and the long-term portion is presented separately as operating lease liabilities on the condensed consolidated balance sheets. Lease expense is recognized on a straight-line basis for operating leases. Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expense on the condensed consolidated statements of operations in the same line item as expense arising from fixed lease payments. The Company’s lease terms may include options to extend the lease. The lease extensions are included in the measurement of the right of use asset and lease liability when it is reasonably certain that it will exercise that option. Because most of the Company’s leases do not provide an implicit rate of return, an incremental borrowing rate is used based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. ROU assets for operating leases are periodically reviewed for impairment losses under ASC 360-10, “Property, Plant, and Equipment”, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. Revenue Product sales from Jelmyto are recognized as revenue under ASC 606 at the point in time that control of the product has been transferred to the customer, generally at the point the product has been delivered to the treating physician. All product sales of Jelmyto are recognized through the Company's arrangement with a single customer, a third-party national specialty distributor. Net revenue recognized include management’s estimate of returns, consideration paid to the customer, chargebacks relating to differences between the wholesale acquisition cost and the contracted price offered to the end consumer, chargebacks relating to 340b drug pricing programs, Medicaid drug rebate programs, and the Company’s copay assistance program, which are estimated based on industry benchmarking studies as well as the Company’s historical experience. 9 Research and Development Expense Research and development costs are expensed as incurred and consist primarily of the cost of salaries, share-based compensation expense, payroll taxes and other employee benefits, subcontractors and materials used for research and development activities, including nonclinical studies, clinical trials, manufacturing costs and professional services. The costs of services performed by others in connection with the research and development activities of the Company, including research and development conducted by others on behalf of the Company, shall be included in research and development costs and expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from its external service providers. The Company adjusts its accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the milestone payment obligations are expensed when the milestone results are achieved. Selling General and Administrative Expense Selling, general and administrative expense consists 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. Recently Issued Accounting Pronouncements The Company has reviewed the Accounting Standards Updates recently issued by the Financial Accounting Standards Board, and determined that they are not applicable to the Company. 10 Note 4 – Other Financial Information Accounts Payable and Accrued Expense Accounts payable and accrued expense consists of the following as of June 30, 2021 and December 31, 2020 (in thousands): June 30, 2021 December 31, 2020 Accounts payable $ 4,830 $ 3,271 Accrued sales reserves 712 382 Accrued clinical expense 1,256 1,359 Accrued research and development expense 859 1,356 Accrued selling, general and administrative expense 1,585 2,440 Accrued other expense 1,100 1,215 Total accounts payable and accrued expense $ 10,342 $ 10,023 Interest and Other Income (Expense), Net Interest and other income (expense) consisted of the following as of June 30, 2021 and 2020 (in thousands): Six Months Ended June 30, 2021 2020 Interest income $ 272 $ 1,331 Other finance (expense) ( 60 ) ( 112 ) Total interest and other income $ 212 $ 1,219 Note 5 – Inventories Inventories consist of the following as of June 30, 2021 and December 31, 2020 (in thousands): June 30, 2021 December 31, 2020 Raw materials (1) $ 2,887 $ 1,051 Finished goods 1,560 913 Total inventories $ 4,447 $ 1,964 (1) $ 1.0 million of raw materials at June 30, 2021 are included within other non-current assets on the condensed consolidated balance sheets . Note 6 – Fair Value Measurements The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. 11 As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that reflect the reporting entity ’ s own assumptions. The carrying amounts of the Company ’ s 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 June 30, 2021 are as follows (in thousands): Fair Value Measurements Using Quoted Prices Significant in Active Other Balance as of Markets for Observable June 30, Identical Assets Inputs 2021 (Level 1) (Level 2) Marketable securities: US government $ 35,585 $ 35,585 $ — Corporate bonds 12,230 — 12,230 Commercial paper 10,984 — 10,984 Money market funds (1) 21,835 21,835 — Certificates of deposit (2) 10,202 — 10,202 Total marketable securities $ 90,836 $ 57,420 $ 33,416 ( 1) Included within cash and cash equivalents on the condensed consolidated balance sheets. ( 2 ) $ 3.0 million 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 June 30, 2021 and December 31, 2020. 12 Note 7 – Marketable Securities The following table summarizes the Company’s marketable securities as of June 30, 2021 (in thousands): Amortized Cost Basis Unrealized Gains Unrealized Losses Fair Value Marketable securities: US government $ 35,541 $ 44 $ — $ 35,585 Corporate bonds 12,226 4 — 12,230 Commercial paper 10,986 — ( 2 ) 10,984 Money market funds (1) 21,835 — — 21,835 Certificates of deposit (2) 10,203 — ( 1 ) 10,202 Total marketable securities $ 90,791 $ 48 $ ( 3 ) $ 90,836 ( 1) Included within cash and cash equivalents on the condensed consolidated balance sheets ( 2 ) $ 3.0 million 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 June 30, 2021 includes $ 0.2 million of accrued interest receivable . As of June 30, 2021 marketable securities were no t in a net unrealized gain or loss position. Un realized gains and losses on available-for-sale debt securities are included as a component of comprehensive loss. As of June 30, 2021, the aggregate fair value of marketable securities held by the Company in an unrealized loss position was $ 40.2 million which consisted of 24 securities. The unrealized loss was driven by investments in commercial paper and certificates of deposit which are measured at fair value based on bid price and purchased at ask price (bid-ask spread). 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 June 30, 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 June 30, 2021 mature at various dates through February 2022. The fair values of marketable securities by contractual maturity consist of the following (in thousands) : June 30, 2021 December 31, 2020 Maturities within one year $ 82,546 $ 88,898 Maturities after one year through three years 8,290 1,893 Total marketable securities $ 90,836 $ 90,791 Note 8 – Property and Equipment Property and equipment, consists of the following as of June 30, 2021 and December 31, 2020 (in thousands): June 30, 2021 December 31, 2020 Laboratory equipment $ 355 $ 333 Computer equipment and software 1,982 1,676 Furniture 598 597 Leasehold improvements 617 609 Manufacturing equipment 245 226 3,797 3,441 Less: accumulated depreciation and amortization ( 1,796 ) ( 1,395 ) Property and equipment, net $ 2,001 $ 2,046 13 Depreciation and amortization expense was $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2021 and $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2020. 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 ($ 72.5 million net of transactions 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. 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 ($ 72.5 million net of transaction costs) from RTW and recognized an associated prepaid forward obligation liability. The subsequent measurement for the liability follows the accounting principles as defined in ASC 835-30, “Imputation of Interest”; each period the Company makes a payment to RTW, and recognizes expense related to financing on the prepaid forward obligation based on an imputed rate derived from the expected future payments. The Company uses a prospective approach for reassessing the effective rate in which a new rate is computed 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 the future financing expense on a prospective basis. The Company does no t 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 ( 2,528 ) Financing on prepaid forward obligation 3,120 Expected payments ( 790 ) Carrying value of prepaid forward obligation as of June 30, 2021 $ 74,802 14 Note 10 – 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 . • 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 June 30, 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 at the end of November 2019. The remaining rental payments to be received over the lease term is approximately $ 0.7 million as of June 30, 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 $ 0.9 million as of June 30, 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 2023 , with varying renewal and termination options. The components of lease cost for the three and six months ended June 30, 2021 were as follows (in thousands) : Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Operating lease cost $ 260 $ 428 $ 527 $ 858 Sublease income $ ( 56 ) $ ( 56 ) $ ( 112 ) ( 112 ) Variable lease cost 14 30 36 86 $ 218 $ 402 $ 451 $ 832 The amounts recognized as of June 30, 2021 and December 31, 2020 were as follows (in thousands): June 30, 2021 December 31, 2020 Right of use asset $ 1,653 $ 2,158 Long-term lease liabilities 922 1,497 Other current liabilities 1,089 1,202 As of June 30, 2021, no impairment losses have been recognized to date. 15 Supplemental information related to leases for the periods reported is as follows (in thousands): Six Months Ended June 30, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 2,445 Right-of-use assets obtained in exchange for new operating lease liabilities 135 Weighted-average remaining lease term of operating leases 1.91 years Weighted-average discount rate of operating leases 5.43 % Subleases As of June 30, 2021, undiscounted cash flows to be received under the Company’s operating sublease on an annual basis were as follows (in thousands): Operating Leases Years ending December 31, Remainder of 2021 $ 117 2022 243 2023 251 2024 49 2025 — 2026 and thereafter — $ 660 Sublease income is recognized net within operating expense. Sublease income for the three and six months ended June 30, 2021 was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Sublease income from fixed lease payments $ 56 $ 56 $ 112 $ 112 Note 11 – Revenue From Product Sales Net product sales consist of the following for the three and six months ended June 30, 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Jelmyto $ 13,032 $ 372 $ 20,517 $ 372 Note 12 – 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. 16 Under the Allergan/AbbVie Agreement , Allergan is solely responsible , at its expense, for developing, obtaining regulatory approvals for and commercializing the Licensed Products on a worldwide basis . Allergan is obligated to 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. In August 2017, the Company announced that Allergan had submitted an IND to the FDA in order to be able to commence clinical trials in the United States using an RTGel formulation in combination with BOTOX. In October 2017, Allergan commenced a Phase 2 clinical trial of BOTOX/ RTGel for the treatment of OAB, with the potential to evolve from multiple injections of BOTOX into the bladder to a single instillation of the novel formulation. 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. 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. 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 June 30, 2021, the Company has made payments to MD Anderson of $ 500,000 recognized evenly over the associated six-month period through research and development expense . Note 13 – Shareholders’ Equity The Company had 100.0 million ordinary shares authorized for issuance as of June 30, 2021 and December 31, 2020. The Company had 22.4 million and 22.2 million ordinary shares issued and outstanding as of June 30, 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. 17 Note 14 – 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 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 was initially authorized for issuance under the 2017 Plan is 1,400,000 . 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’s shareholders approved an increase to the amount of registered ordinary shares of the Company’s 2017 Plan by 400,000 to 3,950,167 . On June 7, 2021, the Company’s shareholders approved an increase of the amount of registered ordinary shares of the Company’s 2017 Plan by 400,000 to 4,350,167 . As of June 30, 2021, 3,197,979 ordinary shares are subject to outstanding awards under the 2017 Plan and 752,188 ordinary shares remain available for future awards. 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. 18 The following table illustrates the effect of share-based com p ensation on the condensed consolidated statements of operations (in thousands): For the Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Research and development expense $ 1,041 $ 1,570 $ 2,148 $ 3,513 Selling, general and administrative expense 5,005 5,549 10,093 11,223 $ 6,046 $ 7,119 $ 12,241 $ 14,736 The total unrecognized compensation cost of options and RSUs at June 30, 2021 is $ 27.7 million with a weighted average recognition period of 1.78 years. Note 15 – Income Taxes UroGen Pharma Ltd. is taxed under Israeli tax laws. As of June 30, 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 losses for the years ended 2020, 2019 and 2018, and for the six months ended June 30, 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 June 30, 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 June 30, 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. The uncertain tax positions are reviewed quarterly and adjusted as events occur that could affect potential liabilities for additional taxes, including lapsing of applicable statutes of limitations, correspondence with tax authorities, proposed assessments by tax authorities, identification of new issues, and issuance of new legislation or regulations. The Company believes that adequate amounts of tax have been provided in income tax expense for any adjustments that may result from its uncertain tax positions. Based upon the information currently available, the Company does not reasonably expect changes in its existing uncertain tax positions in the next 12 months and has recorded the gross uncertain tax positions as a long-term liability. Note 16 – Related Parties There were no related party transactions for the six months ended June 30, 2021 or 2020. Note 17 – 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 June 30, 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 19 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 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. Leases See Note 10 for further discussion regarding lease commitments. Note 18 – Subsequent Events The Company has evaluated and determined there were no subsequent events through August 4, 2021. 20