UroGen Pharma(URGN) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents UroGen Pharma Ltd.'s unaudited condensed consolidated financial statements and detailed notes for Q3 2022 and FY 2021 Condensed Consolidated Balance Sheets Total assets increased, but a significant rise in liabilities, driven by new debt and prepaid forward obligation, led to a shift to a shareholder deficit Total Assets, Liabilities, and Equity (in thousands) | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $128,473 | $119,746 | | Total Liabilities | $191,759 | $111,333 | | Total Shareholders' Equity (Deficit) | $(63,286) | $8,413 | - The increase in total liabilities is primarily driven by a new long-term debt of $71.87 million and an increase in prepaid forward obligation to $96.19 million[12] Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss slightly improved to $80.9 million for the nine months ended September 30, 2022, despite increased revenue, due to higher costs and new interest expense Operations and Comprehensive Loss (Nine Months Ended Sep 30, in thousands) | Metric (Nine Months Ended Sep 30) | 2022 (in thousands) | 2021 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Revenue | $46,265 | $31,868 | +$14,397 | | Cost of revenue | $5,391 | $3,568 | +$1,823 | | Gross profit | $40,874 | $28,300 | +$12,574 | | Research and development expenses | $38,429 | $34,560 | +$3,869 | | Selling, general and administrative expenses | $61,204 | $66,117 | -$4,913 | | Operating loss | $(58,759) | $(72,377) | +$13,618 | | Financing on prepaid forward obligation | $(16,478) | $(9,948) | -$6,530 | | Interest expense on long-term debt | $(5,215) | $0 | -$5,215 | | Net Loss | $(80,914) | $(82,368) | +$1,454 | | Net loss per ordinary share - basic and diluted | $(3.56) | $(3.69) | +$0.13 | - Revenue increased by $14.4 million (45.2%) for the nine months ended September 30, 2022, compared to the same period in 2021, driven by increased sales volume of Jelmyto[13] - Operating loss improved by $13.6 million, but this was partially offset by increased financing costs on the prepaid forward obligation and new interest expense from long-term debt[13] Condensed Consolidated Statements of Shareholders' Equity (Deficit) Shareholders' equity shifted from a $8.4 million positive balance to a $63.3 million deficit by September 30, 2022, primarily due to a $80.9 million net loss Shareholders' Equity (Deficit) (in thousands) | Metric (in thousands) | Jan 1, 2022 | Sep 30, 2022 | | :-------------------- | :---------- | :----------- | | Total Shareholders' Equity (Deficit) | $8,413 | $(63,286) | | Net Loss | | $(80,914) | | Share-based compensation | | $8,212 | | Exercise of options | | $1,133 | - The accumulated deficit increased from $467.3 million at January 1, 2022, to $548.2 million at September 30, 2022[17] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $65.8 million, investing activities used $22.0 million, and financing provided $71.8 million, resulting in a $16.1 million net decrease in cash Cash Flow Activity (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity (Nine Months Ended Sep 30) | 2022 (in thousands) | 2021 (in thousands) | Change (YoY) | | :-------------------------------------------- | :------------------ | :------------------ | :----------- | | Net cash used in operating activities | $(65,807) | $(64,822) | -$985 | | Net cash used in investing activities | $(22,048) | $(5,056) | -$16,992 | | Net cash provided by financing activities | $71,766 | $72,351 | -$585 | | Net change in cash and cash equivalents | $(16,089) | $2,473 | -$18,562 | - The increase in cash used in investing activities is primarily related to higher purchases of marketable securities in 2022 ($63.0 million) compared to 2021 ($51.6 million)[20] - Financing activities in 2022 were significantly impacted by $70.8 million in proceeds from long-term debt, while 2021 included $72.4 million from a prepaid forward arrangement[20] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's business, accounting policies, and specific financial line items, offering crucial context for reported performance Note 1 – Business and Nature of Operations UroGen Pharma Ltd. is a biotechnology company focused on urothelial and specialty cancers, with Jelmyto, approved in April 2020, as its primary commercial product - UroGen Pharma Ltd. is an Israeli biotechnology company, with a U.S. subsidiary, UroGen Pharma Inc., focused on urothelial and specialty cancers[22][23] - The company's first commercial product, Jelmyto (mitomycin) for pyelocalyceal solution, received expedited FDA approval on April 15, 2020, for low-grade UTUC, leveraging its proprietary RTGel technology for sustained drug release[23][24] Note 2 – Basis of Presentation Financial statements are prepared under U.S. GAAP, with an accumulated deficit of $548.2 million as of September 30, 2022, indicating a future need for additional capital - Financial statements are prepared under U.S. GAAP for interim reporting, with all necessary adjustments for fair statement[25] - The company has an accumulated deficit of $548.2 million as of September 30, 2022, and anticipates continued losses and negative cash flows from operations[26] - Management believes current cash and marketable securities are sufficient for the next 12 months, but additional capital will be needed in the future, with no assurance of securing it on satisfactory terms[27] Note 3 – Significant Accounting Policies This note details significant accounting policies, including functional currency, investment classification, revenue recognition, and expense treatment for R&D, SG&A, and share-based compensation - The U.S. Dollar is the functional currency, and transactions in other currencies are re-measured, with effects recorded in 'Interest and other income, net'[30][31] - Investments, including cash equivalents and marketable securities, are classified as available-for-sale and carried at fair value, with unrealized gains/losses in other comprehensive income/loss[33] - Product sales from Jelmyto are recognized as revenue when control is transferred to the customer, generally upon delivery to the treating physician, with net revenue reflecting estimates for returns, chargebacks, and rebates[54] - Research and development costs and selling, general and administrative expenses are expensed as incurred, with share-based compensation measured at grant date fair value and recognized over the vesting period[55][56][57] Note 4 – Other Financial Information Accounts payable and accrued expenses decreased to $9.4 million by September 30, 2022, while interest and other income, net, increased to $0.6 million for the nine-month period Accounts Payable and Accrued Expenses (in thousands) | Accounts Payable and Accrued Expenses (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------------------- | :----------- | :----------- | | Accounts payable | $2,545 | $5,786 | | Accrued sales reserves | $687 | $497 | | Accrued clinical expenses | $2,285 | $1,377 | | Accrued research and development expenses | $1,118 | $1,748 | | Accrued selling, general and administrative expenses | $2,139 | $1,965 | | Accrued other expenses | $582 | $729 | | Total accounts payable and accrued expenses | $9,356 | $12,102 | Interest and Other Income, Net (in thousands) | Interest and Other Income, Net (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $469 | $345 | | Other income (expense), net | $135 | $(76) | | Interest and other income, net | $604 | $269 | Note 5 – Inventories Total inventories increased to $6.96 million by September 30, 2022, from $5.85 million at year-end 2021, primarily due to higher raw materials Inventories (in thousands) | Inventories (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------- | :----------- | :----------- | | Raw materials | $5,100 | $3,894 | | Finished goods | $1,863 | $1,958 | | Total inventories | $6,963 | $5,852 | - Raw materials included in other non-current assets increased from $1.0 million at December 31, 2021, to $2.1 million at September 30, 2022[64] Note 6 – Fair Value Measurements The company uses a three-tier fair value hierarchy, with $67.2 million in marketable securities measured using Level 1 and 2 inputs, and debt obligations using Level 3 inputs - Fair value hierarchy categorizes inputs into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[70] Marketable Securities by Fair Value Level (in thousands) | Marketable Securities (in thousands) | Sep 30, 2022 Balance | Level 1 (Quoted Prices) | Level 2 (Observable Inputs) | | :----------------------------------- | :------------------- | :---------------------- | :-------------------------- | | US government | $46,452 | $46,452 | — | | Corporate bonds | $4,406 | — | $4,406 | | Commercial paper | $12,312 | — | $12,312 | | Certificates of deposit | $4,055 | — | $4,055 | | Total marketable securities | $67,225 | $46,452 | $20,773 | - The carrying values of the prepaid forward obligation and long-term debt approximate their fair values, estimated using Level 3 inputs based on internal financial forecasts and market rates for similar loans[67][68] Note 7 – Investments Available-for-sale debt securities totaled $67.2 million at fair value, with a net unrealized loss of $0.155 million due to rising interest rates, but recovery of amortized cost is expected Investment Portfolio (in thousands) | Investment Type (in thousands) | Amortized Cost Basis | Unrealized Losses | Fair Value | | :----------------------------- | :------------------- | :---------------- | :--------- | | US government | $46,554 | $(102) | $46,452 | | Corporate bonds | $4,416 | $(10) | $4,406 | | Commercial paper | $12,336 | $(24) | $12,312 | | Certificates of deposit | $4,074 | $(19) | $4,055 | | Total marketable securities| $67,380 | $(155) | $67,225| - The unrealized loss of $0.155 million on marketable securities is primarily due to rising interest rates, but no credit losses were recognized as the company expects to recover the amortized cost[73] - As of September 30, 2022, all marketable securities, totaling $67.2 million, mature within one year[74] Note 8 – Property and Equipment Net property and equipment decreased to $1.52 million by September 30, 2022, from $1.97 million at year-end 2021, primarily due to accumulated depreciation Property and Equipment, Net (in thousands) | Property and Equipment (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------ | :----------- | :----------- | | Laboratory equipment | $444 | $360 | | Computer equipment and software | $2,168 | $2,064 | | Furniture | $597 | $597 | | Leasehold improvements | $617 | $617 | | Manufacturing equipment | $607 | $555 | | Less: accumulated depreciation and amortization | $(2,914) | $(2,226) | | Property and equipment, net | $1,519 | $1,967 | - Depreciation and amortization expense for the nine months ended September 30, 2022, was $0.7 million, compared to $0.6 million for the same period in 2021[75] Note 9 – Prepaid Forward Obligation The prepaid forward obligation with RTW Investments increased to $96.19 million by September 30, 2022, with a $16.48 million financing expense for the nine-month period - The company received $75.0 million ($72.4 million net of transaction costs) from RTW in March 2021, creating a prepaid forward obligation[76][79] - RTW is entitled to tiered future cash payments based on worldwide annual net sales of Jelmyto (9.5% up to $200 million, 3.0% between $200 million-$300 million, 1.0% above $300 million) and UGN-102 (2.5% up to $200 million, 1.0% between $200 million-$300 million, 0.5% above $300 million)[76][77] Prepaid Forward Obligation Activity (in thousands) | Prepaid Forward Obligation Activity (in thousands) | Amount | | :------------------------------------------------- | :----- | | Carrying value as of December 31, 2021 | $85,713| | Financing on prepaid forward obligation | $16,478| | Amounts paid and payable | $(5,999)| | Carrying value as of September 30, 2022 | $96,192| Note 10 – Long-Term Debt A $100 million senior secured term loan with Pharmakon was initiated in March 2022, with a $75 million first tranche, resulting in a $71.87 million carrying value by September 30, 2022 - A $100 million senior secured term loan agreement was signed with Pharmakon on March 7, 2022, with a first tranche of $75 million funded in March 2022[81] - The loan matures in five years, with interest-only payments for the first 48 months, and accrues interest at 3-month LIBOR (1.25% floor) plus 8.25%[81] Long-Term Debt Activity (in thousands) | Long-Term Debt Activity (in thousands) | Amount | | :------------------------------------- | :----- | | Long-term debt at closing of Pharmakon loan | $75,000| | Capitalized costs and discounts | $(4,207)| | Interest expense | $5,215 | | Amounts paid and payable | $(4,138)| | Carrying value as of September 30, 2022 | $71,870| Note 11 – Leases Operating leases for office space and equipment resulted in $2.67 million in right-of-use assets and $1.86 million in long-term lease liabilities as of September 30, 2022 - The company has operating leases for offices in Israel, Los Angeles, and Princeton, NJ, with lease terms extending through 2025 and 2026 for the Israel and Princeton offices, respectively[83][84][200][202] Lease Metrics (in thousands) | Lease Metrics (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------- | :----------- | :----------- | | Right of use assets | $2,666 | $1,180 | | Long-term lease liabilities | $1,856 | $398 | | Other current liabilities | $940 | $1,089 | Lease Liabilities Maturities (in thousands) | Lease Liabilities Maturities (in thousands) | Operating Leases | | :------------------------------------------ | :--------------- | | Remainder of 2022 | $300 | | 2023 | $1,161 | | 2024 | $918 | | 2025 | $799 | | 2026 and thereafter | $49 | | Total future minimum lease payments | $3,227 | | Less: Interest | $(431) | | Present value of lease liabilities | $2,796 | - The weighted-average remaining lease term for operating leases is 2.95 years, with a weighted-average discount rate of 10.21% as of September 30, 2022[87] Note 12 – Revenue From Product Sales Net product sales from Jelmyto increased to $16.1 million for Q3 2022 and $46.3 million for the nine months ended September 30, 2022, reflecting strong growth Net Product Sales (in thousands) | Net Product Sales (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Jelmyto | $16,097 | $11,351 | $46,265 | $31,868 | - Sales reserves, including those related to government-sponsored programs and other reserves, increased from $1.71 million at December 31, 2021, to $2.33 million at September 30, 2022[90] Note 13 – License and Collaboration Agreements The company holds a license agreement with Agenus for zalifrelimab and concluded its strategic research collaboration with MD Anderson in July 2022 - Agenus agreement grants UroGen an exclusive, worldwide license for AGEN1884 (zalifrelimab) for intravesical delivery in urinary tract cancers, with potential payments up to $200 million in milestones and 14%-20% royalties on net sales[91][92] - The MD Anderson collaboration for UGN-201 and UGN-301 in high-grade NMIBC was concluded in July 2022, as the company achieved its objectives, ceasing further fixed bi-annual funding payments[94] Note 14 – Shareholders' Equity As of September 30, 2022, 100 million ordinary shares were authorized, with 23.0 million issued and outstanding, and no dividends have been declared - 100 million ordinary shares were authorized, with 23.0 million issued and outstanding as of September 30, 2022[95] - No cash dividends have been declared or paid since the company's inception[95] Note 15 – Share-Based Compensation The company's equity incentive plans have 3.44 million shares subject to outstanding awards and 1.60 million available for future awards, with $8.21 million in share-based compensation expense for the nine-month period - The 2017 Equity Incentive Plan authorized 4,750,167 shares for issuance as of June 8, 2022[101] - As of September 30, 2022, 3,442,209 ordinary shares are subject to outstanding awards, and 1,601,242 shares remain available for future awards[103] Share-Based Compensation Expense (in thousands) | Share-Based Compensation (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development expenses | $642 | $971 | $2,040 | $3,119 | | Selling, general and administrative expenses | $1,798 | $4,544 | $6,172 | $14,637 | | Total | $2,440 | $5,515 | $8,212 | $17,756 | Note 16 – Income Taxes A full valuation allowance is maintained against deferred tax assets, and a $2.8 million liability for uncertain tax positions, primarily for transfer pricing, is recognized - A full valuation allowance is maintained against deferred tax assets due to historical and anticipated future operating losses[105] - A $2.8 million liability for uncertain tax positions, including $0.9 million in accrued interest and penalties, is recognized as of September 30, 2022, primarily for transfer pricing[106] Note 17 – Related Parties No related party transactions occurred during the nine months ended September 30, 2022 or 2021 - No related party transactions occurred during the nine months ended September 30, 2022 or 2021[109] Note 18 – Commitments and Contingencies The company has indemnification agreements with various parties, including directors and officers, with unknown maximum exposure but no significant losses anticipated - The company has indemnification agreements with employees, licensors, suppliers, service providers, directors, and officers, with unknown maximum exposure but no significant losses anticipated[110] Note 19 – Subsequent Events On October 21, 2022, the company requested a $25.0 million second tranche of the Pharmakon loan, expected to fund on December 16, 2022, for working capital - The company requested a $25.0 million Tranche B Loan from Pharmakon on October 21, 2022, expected to be funded on December 16, 2022, for general corporate and working capital[112] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses UroGen Pharma Ltd.'s business, RTGel technology, product pipeline, financial condition, results of operations, liquidity, and COVID-19 impact for Q3 and nine months ended September 30, 2022 Overview UroGen Pharma is a biotechnology company leveraging RTGel technology for urothelial and specialty cancers, with Jelmyto approved and UGN-102 in development for significant patient populations - UroGen Pharma is a biotechnology company developing innovative solutions for urothelial and specialty cancers, leveraging its RTGel® reverse-thermal hydrogel technology[116] - RTGel technology enables longer exposure of urinary tract tissue to medications, improving therapeutic profiles by increasing dwell time (e.g., mitomycin from 5 minutes to 6 hours) and allowing higher drug doses (e.g., mitomycin up to 8 mg/mL with RTGel vs. 0.5 mg/mL in water)[118][119] - The estimated annual treatable patient population in the U.S. is approximately 6,000-7,000 for low-grade UTUC and 80,000 for low-grade intermediate risk NMIBC[117] Jelmyto Jelmyto, FDA-approved in April 2020 for low-grade UTUC, demonstrated a 58% complete response rate in Phase 3, with commercial launch in June 2020 and an extended 96-hour in-use period - Jelmyto received FDA approval on April 15, 2020, for low-grade UTUC, offering a non-surgical treatment option for a rare cancer affecting 6,000-7,000 U.S. patients annually[122][123] - Phase 3 OLYMPUS trial results showed a 58% complete response (CR) rate, with 81.8% durability at 12 months by Kaplan-Meier analysis[126] - Commercial launch began in June 2020, supported by a customer-facing team of approximately 80 colleagues, with all Medicare patients covered and most commercial plans having policies in place[124][125] - In September 2022, the FDA extended the in-use period for Jelmyto admixture from 8 hours to 96 hours, improving convenience and flexibility[125] UGN-102 (mitomycin) for intravesical solution UGN-102, a sustained-release mitomycin formulation for low-grade NMIBC, showed a 65% complete response in Phase 2b, with Phase 3 initiated and NDA submission anticipated in 2024 - UGN-102 is being developed for low-grade intermediate risk NMIBC, targeting an estimated 80,000 patients annually in the U.S.[128][130] - Phase 2b OPTIMA II trial reported a 65% complete response rate at three months, with 61% of responders remaining disease-free at 12 months[129] - The Phase 3 ENVISION trial, a single-arm study, was initiated in February 2022, with NDA submission for UGN-102 anticipated in 2024[133] - A Phase 3b study is evaluating at-home administration of UGN-102 by qualified health professionals to enhance patient access and quality of life[134] UGN-301 (zalifrelimab) intravesical solution UGN-301, an anti-CTLA-4 antibody delivered via RTGel, is in Phase 1 clinical development for recurrent NMIBC, with a Master Protocol study initiated in April 2022 - UGN-301 (zalifrelimab), an anti-CTLA-4 antibody, is in Phase 1 clinical development for recurrent NMIBC, leveraging RTGel technology for intravesical delivery[135][137] - The initial combination therapy under investigation is with UGN-201 (imiquimod), a TLR-7 agonist, for high-grade NMIBC, aiming for innate and adaptive immune responses[137] - A multi-arm Phase 1 Master Protocol study for UGN-301 was initiated in April 2022, designed for efficient evaluation of safety, tolerability, and dosing in combination with other agents[138] Our Research and Development and License Agreements The company maintains a license agreement with Agenus for zalifrelimab and concluded its strategic research collaboration with MD Anderson in July 2022 - The Agenus agreement grants UroGen an exclusive, worldwide license for zalifrelimab (UGN-301) for intravesical delivery in urinary tract cancers[140] - The MD Anderson strategic research collaboration, focused on UGN-201 and UGN-301 for high-grade NMIBC, was concluded in July 2022, as the company achieved its established objectives[141] Impact of COVID-19 Pandemic The COVID-19 pandemic continues to pose potential detrimental impacts on clinical trials, commercial activities, and capital market access, with ultimate business impact difficult to predict - The COVID-19 pandemic could detrimentally impact ongoing and future clinical trials, the commercial launch of Jelmyto, and the company's ability to access capital markets[143] - The company monitors the evolving COVID-19 situation, including variants, and its potential impacts on patients, hospital systems, and Jelmyto access, acknowledging the difficulty in predicting the ultimate business impact[144] Components of Operating Results This section outlines key operating result components, including Jelmyto revenue, cost of revenue, R&D, SG&A, financing costs, interest income, and income taxes, along with critical accounting policies - Revenue is primarily from Jelmyto sales, recognized upon product delivery to the treating physician[146] - Research and development expenses include salaries, third-party services for clinical trials, manufacturing costs, and facility expenses, all expensed as incurred[148][151] - Selling, general and administrative expenses cover personnel costs, commercial activities, professional services, and facility costs, also expensed as incurred[156][157] - Financing on prepaid forward obligation and interest expense on long-term debt are significant non-operating expenses, while interest and other income, net, primarily consists of interest income[159][160][161] Results of Operations This section details financial performance for Q3 and nine months ended September 30, 2022, highlighting increased Jelmyto revenue, higher R&D, and new interest expense, partially offset by lower SG&A Comparison of the three months ended September 30, 2022 and 2021 Q3 2022 revenue increased by $4.7 million to $16.1 million, improving operating loss by $5.4 million to $(18.1) million, despite new interest expense, leading to a $4.4 million net loss improvement Financial Performance (Three Months Ended Sep 30, in thousands) | Metric (Three Months Ended Sep 30) | 2022 (in thousands) | 2021 (in thousands) | Change | | :--------------------------------- | :------------------ | :------------------ | :----- | | Revenue | $16,097 | $11,351 | $4,746 | | Cost of revenue | $2,020 | $1,244 | $776 | | Gross profit | $14,077 | $10,107 | $3,970 | | Research and development | $13,093 | $11,923 | $1,170 | | Selling and marketing | $11,882 | $12,473 | $(591) | | General and administrative | $7,189 | $9,151 | $(1,962)| | Operating loss | $(18,087) | $(23,440) | $5,353 | | Financing on prepaid forward obligation | $(4,819) | $(6,828) | $2,009 | | Interest expense on long-term debt | $(2,694) | $0 | $(2,694)| | Net loss | $(25,831) | $(30,211) | $4,380 | - Research and development expenses increased by $1.2 million, primarily due to the Phase 3 ENVISION study for UGN-102 and research into Jelmyto production efficiency[169] - Selling and marketing, and general and administrative expenses decreased by $0.6 million and $2.0 million, respectively, mainly due to lower stock-based compensation[170][171] Comparison of the nine months ended September 30, 2022 and 2021 Nine-month revenue increased by $14.4 million to $46.3 million, improving operating loss by $13.6 million to $(58.8) million, but increased financing costs led to a $80.9 million net loss Financial Performance (Nine Months Ended Sep 30, in thousands) | Metric (Nine Months Ended Sep 30) | 2022 (in thousands) | 2021 (in thousands) | Change | | :-------------------------------- | :------------------ | :------------------ | :----- | | Revenue | $46,265 | $31,868 | $14,397| | Cost of revenue | $5,391 | $3,568 | $1,823 | | Gross profit | $40,874 | $28,300 | $12,574| | Research and development | $38,429 | $34,560 | $3,869 | | Selling and marketing | $38,075 | $35,418 | $2,657 | | General and administrative | $23,129 | $30,699 | $(7,570)| | Operating loss | $(58,759) | $(72,377) | $13,618| | Financing on prepaid forward obligation | $(16,478) | $(9,948) | $(6,530)| | Interest expense on long-term debt | $(5,215) | $0 | $(5,215)| | Net loss | $(80,914) | $(82,368) | $1,454 | - Selling and marketing expenses increased by $2.7 million due to increased market access and brand marketing, and participation in industry events, partially offset by lower stock-based compensation[181] - General and administrative expenses decreased by $7.6 million, primarily due to lower stock-based compensation[182] Liquidity and Capital Resources As of September 30, 2022, the company held $95.9 million in cash and marketable securities, sufficient for 12 months, but anticipates needing additional capital for R&D and commercialization - As of September 30, 2022, cash, cash equivalents, and marketable securities totaled $95.9 million, sufficient to fund planned operations for at least the next 12 months[187] - Funding sources include public equity offerings, private placements, a $75 million prepaid forward arrangement with RTW (May 2021), and a $75 million first tranche of a $100 million senior secured term loan with Pharmakon (March 2022)[188][191][192] - The company has an accumulated deficit of $548.2 million as of September 30, 2022, and expects to incur further losses, requiring additional capital for commercialization and R&D[193] Funding and Material Cash Requirements Future cash requirements depend on clinical trial progress, regulatory approvals, and commercialization costs, necessitating additional funding, while existing debt covenants restrict financial flexibility - Future cash requirements depend on clinical trial progress for UGN-102 and UGN-301, regulatory approval costs, commercialization expenses for Jelmyto, and intellectual property maintenance[196] - Additional funding will be required, potentially through equity offerings, debt financings, or collaborations, with risks of dilution or restrictive covenants[197] - The RTW Prepaid Forward Contract and Pharmakon Loan Agreement contain covenants that restrict the company's ability to incur additional indebtedness and take certain actions, potentially limiting financial flexibility[197][360][364][365][366] Contractual Obligations and Commitments Primary contractual obligations include $2.8 million in operating lease payments and the $100 million Pharmakon Loan Agreement, with a $25 million second tranche requested in October 2022 - Total future minimum lease payments under operating leases amount to $2.8 million as of September 30, 2022[203] - The Pharmakon Loan Agreement provides for a senior secured term loan of up to $100 million, with the Tranche A Loan of $75 million advanced in March 2022, and the Tranche B Loan of $25 million requested in October 2022, expected to fund in December 2022[204] Cash Flows Net cash used in operating activities was $65.8 million, investing activities used $22.0 million, and financing activities provided $71.8 million, leading to a $16.1 million net decrease in cash Cash Flow Activity (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity (Nine Months Ended Sep 30) | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------------------------- | :------------------ | :------------------ | | Operating activities | $(65,807) | $(64,822) | | Investing activities | $(22,048) | $(5,056) | | Financing activities | $71,766 | $72,351 | | Net change in cash and cash equivalents | $(16,089) | $2,473 | - The $1.0 million increase in cash used in operating activities was primarily due to financing costs related to the prepaid forward obligation and Pharmakon loan[207] - The $17.0 million increase in cash used in investing activities was mainly due to reinvestment in securities[208] - The $0.6 million decrease in cash provided by financing activities was due to proceeds from the Pharmakon loan in 2022 compared to the RTW prepaid forward arrangement in 2021[209] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses market risks, including interest rate, inflation, and foreign currency exchange, concluding that a 10% change in interest or NIS-to-Dollar rates would not materially affect financial position Interest Rate Fluctuation Risk The company is exposed to interest rate risk on its $95.9 million in cash and marketable securities, but a 10% change in rates would not materially affect their fair value - As of September 30, 2022, the company held $95.9 million in cash, cash equivalents, and marketable securities, primarily invested in money market accounts and debt instruments[210] - A 10% change in interest rates would not have a material effect on the fair value of the company's cash and marketable securities[210] Inflation Risk Inflation has not had a material effect on the company's business, financial condition, or results of operations for the three and nine months ended September 30, 2022 - Inflation has not had a material effect on the company's business, financial condition, or results of operations for the three and nine months ended September 30, 2022[212] Foreign Currency Exchange Risk The company faces foreign currency exchange risk due to NIS-denominated operating expenses, but a 10% change in NIS-to-Dollar rates would not materially affect operating expenses - A significant portion of operating expenses are in New Israeli Shekels (NIS), exposing the company to foreign currency exchange risk[213] - A 10% change in NIS-to-Dollar exchange rates would not have a material effect on operating expenses for the three months ended September 30, 2022[213] - The company does not currently engage in currency hedging activities but may do so in the future[214] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated as effective at a reasonable assurance level as of September 30, 2022[215][216] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[217] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in legal proceedings expected to have a material adverse effect, though litigation can negatively impact the business - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business[219] - Litigation can adversely impact the company through defense/settlement costs and diversion of management resources[219] Item 1A. Risk Factors This section outlines significant risks impacting UroGen Pharma Ltd.'s business, financial condition, and stock price, categorized across strategy, financial, intellectual property, regulatory, operational, and general factors Risk Factor Summary Key risks include high dependence on Jelmyto, limited marketing experience, small market opportunities, low physician adoption, intense competition, UGN-102's success, lengthy clinical development, supply chain reliance, product liability, personnel retention, COVID-19, limited operating history, indebtedness, financing needs, IP protection, regulatory pathways, reimbursement, and geopolitical risks - High dependence on successful commercialization of Jelmyto, the only approved product - Limited experience in marketing and distributing products, posing risks to commercialization - Market opportunities for Jelmyto and product candidates may be smaller than anticipated - Risk of Jelmyto and other approved candidates failing to achieve broad physician adoption and market acceptance - Significant competition from existing treatments and other pharmaceutical companies - Dependence on the success of lead product candidate UGN-102 and other candidates, including regulatory approval - Clinical drug development is lengthy, expensive, and uncertain, with earlier trial results not predictive of future success - Reliance on third-party subcontractors and single-source suppliers for raw materials and manufacturing - Potential for substantial liabilities from product liability lawsuits - Risk of failing to attract and retain senior management and key personnel - Adverse effects from health pandemics, including the ongoing COVID-19 pandemic - Limited operating history, significant losses, and negative cash flows since inception - Indebtedness from loan agreements could adversely affect financial condition - Need for additional financing, with failure to obtain it forcing delays or termination of development - Inadequate protection or enforcement of intellectual property rights - Uncertainty regarding FDA approval pathway (505(b)(2)) for UGN-102 - Ongoing regulatory obligations and review for approved products, leading to additional expenses and potential penalties - Difficulty in profitably selling products if coverage and reimbursement are limited - Adverse effects from political, economic, and military instability in Israel, where R&D operations are located[221][223] Risks Related to Our Business and Strategy This section details business and strategic risks, including reliance on Jelmyto, marketing challenges, market size, physician adoption, competition, clinical development uncertainties, supply chain, product liability, personnel, cybersecurity, COVID-19, and geopolitical instability - The company is highly dependent on the successful commercialization of Jelmyto, its only approved product, with significant uncertainty regarding market potential and physician adoption[226][228] - Clinical development for UGN-102 and UGN-301 is lengthy, expensive, and uncertain, with risks of trial delays, undesirable side effects, and failure to demonstrate safety and efficacy[250][271][276] - Reliance on single-source suppliers for key raw materials (mitomycin API, gel) and third-party manufacturers creates supply chain risks, including potential disruptions, increased costs, and compliance issues[294][295][298] - The COVID-19 pandemic continues to pose risks to clinical trials, commercial activities, and supply chains, with potential for delays, reduced patient access, and increased operational challenges[337][339][340] - Geopolitical instability, particularly in regions where clinical trials or operations are located (e.g., Ukraine, Russia, Israel), could adversely affect patient follow-up, operations, and financial results[343][344][488][489] Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements The company has a limited operating history, significant losses, and an accumulated deficit of $548.2 million, requiring substantial additional financing, while existing debt covenants restrict financial flexibility - The company has a limited operating history, has incurred significant losses and negative cash flows since inception, and had an accumulated deficit of $548.2 million as of September 30, 2022[350] - Substantial additional financing will be required to complete clinical trials, obtain regulatory approvals, and commercialize product candidates, with no guarantee of availability on favorable terms[351][359][361] - The Pharmakon Loan Agreement and RTW Prepaid Forward Contract contain negative covenants that restrict the company's ability to incur additional debt, dispose of assets, pay dividends, and engage in certain other financial activities, limiting operational flexibility[356][365][366] Risks Related to Our Intellectual Property Commercial success relies on protecting intellectual property, including patents and trade secrets, facing risks of validity challenges, infringement claims, trade secret loss, and changes in patent law, with potential for costly litigation - The company relies on patents and trade secrets to protect its RTGel technology, pharmaceutical compositions, and methods of use, with 40 granted patents worldwide and over 45 pending applications[370][371] - Risks include challenges to patent validity, enforceability, or scope by third parties, potential infringement claims, and the possibility that patents may be narrowed, invalidated, or deemed unenforceable[376][381] - Trade secret protection is difficult to maintain, and misappropriation or unauthorized disclosure could significantly affect the company's competitive position[385][386] - Changes in U.S. patent law, such as the America Invents Act (AIA) and recent Supreme Court rulings, introduce uncertainty regarding patentability, enforcement, and the value of patents[387][388] Risks Related to Government Regulation Significant regulatory risks include uncertainty for UGN-102's FDA pathway, healthcare reform impacts on reimbursement, challenges to Orphan Drug Designation, ongoing compliance obligations, and stringent data privacy regulations - Uncertainty exists regarding the FDA's acceptance of the 505(b)(2) pathway for UGN-102, which could significantly increase development time and costs if additional trials are required[414][415] - Healthcare reform legislation (e.g., ACA, IRA) is expected to increase limitations on reimbursement, rebates, and pricing, potentially reducing product profitability and market access[418][419][421][422] - Failure to obtain or maintain Orphan Drug Designation and exclusivity for product candidates could lead to earlier competition and reduced revenue potential[425][429] - Approved products are subject to ongoing regulatory obligations, including post-marketing studies and compliance with cGMP, with penalties for non-compliance including market withdrawal or fines[430][431][432] - Compliance with federal and state healthcare fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act), transparency laws, and stringent data privacy regulations (e.g., EU/UK GDPR, CCPA) imposes substantial costs and potential for significant penalties[433][434][435][440][441][442][449][450] Risks Related to Ownership of Our Ordinary Shares Ordinary share price is subject to fluctuation, dilution from future sales, and limited shareholder influence due to insider ownership; no dividends are anticipated, and PFIC classification or tax law changes could have adverse tax consequences - The market price of ordinary shares is subject to fluctuation due to factors such as operational results, product market acceptance, competition, regulatory developments, and general economic conditions[466][467] - Future sales of ordinary shares by existing shareholders or additional equity offerings (e.g., under the ATM Sales Agreement) could lead to dilution and a decline in share price[469][470][472] - The company has never paid cash dividends and does not anticipate doing so in the foreseeable future, with capital appreciation being the sole source of gain for investors[474] - If classified as a Passive Foreign Investment Company (PFIC), U.S. shareholders could face adverse tax consequences, including ordinary income treatment for gains and interest charges on distributions[475][478] - Changes in tax laws, such as the deductibility of federal net operating losses (NOLs) or potential ownership changes under Section 382 of the Code, could limit the company's ability to offset future taxable income[480][486] Risks Related to our Operations in Israel Operations in Israel expose the company to political, economic, and military instability risks, potentially affecting R&D and financial results, while Israeli law provisions may impact business and judgment enforcement - Operations in Israel expose the company to risks from political, economic, and military instability, including potential damage to facilities, disruption of R&D, and adverse effects on trade[488][489] - Israeli law provisions, such as those regulating mergers and tender offers, and potential claims for remuneration for employee service inventions, could delay or impede transactions and affect business[492][494][497] - Enforcing U.S. court judgments against the company or its Israeli directors/experts in Israel may be difficult due to differences in legal systems and potential refusal of Israeli courts to hear U.S. securities law claims[495][496] Risks Related to Our Management and Employees The company's success is highly dependent on retaining key executive and technical personnel, and failure to attract and motivate qualified employees could delay product development and commercialization - The company's success relies on its executive officers and key clinical, technical, and commercial personnel; loss of these individuals could delay product development and commercialization[500] - Competition for qualified personnel in the pharmaceutical field is intense, and the company may struggle to attract and retain skilled employees on acceptable terms, impacting its ability to grow[501][502] General Risk Factors General risks include stock price decline from analyst coverage changes, activist shareholder impacts, adverse effects from unstable market and geopolitical conditions, and negative consequences from increased ESG focus - The stock price could decline if equity research analysts do not publish reports or issue unfavorable commentary[504] - Activist shareholder campaigns could disrupt business, divert management attention, and negatively impact operating results and stock trading value[505] - Unstable market, economic, and geopolitical conditions (e.g., the Russia-Ukraine war) could increase costs, disrupt supply chains, impair capital access, and adversely affect business and stock price[506][507] - Increased focus on ESG matters and potential new reporting requirements could negatively impact the business, increase costs, and affect investor interest[508][509] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds were reported[510] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[511] Item 4. Mine Safety Disclosures No mine safety disclosures were reported - No mine safety disclosures were reported[511] Item 5. Other Information No other information was reported - No other information was reported[511] Item 6. Exhibits This section lists the exhibits filed with the report, including Articles of Association, supply agreements, officer certifications, and Inline XBRL documents - Exhibit 3.1: Articles of Association of the Registrant - Exhibit 10.1+: Manufacturing and Supply Agreement with Isotopia Molecular Imaging Ltd. and its extension - Exhibit 31.1 & 31.2: Certifications of Principal Executive Officer and Principal Financial Officer - Exhibit 32.1 & 32.2: Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 - Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE: Inline XBRL Taxonomy Extension Documents - Exhibit 104: The cover page formatted in Inline XBRL[513] Signatures The report was duly signed on November 10, 2022, by Elizabeth Barrett (CEO) and Don Kim (CFO) on behalf of UroGen Pharma Ltd - The report was signed by Elizabeth Barrett (CEO) and Don Kim (CFO) on November 10, 2022[518]