UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
UROGEN PHARMA LTD.
(Exact Name of Registrant as Specified in its Charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
(
Registrant’s telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 7, 2022, the registrant had
Index
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| PART I. |
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| Item 1. |
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| Condensed Consolidated Statements of Operations and Comprehensive Loss |
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| Condensed Consolidated Statements of Shareholders’ Equity (Deficit) |
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| Notes to Unaudited Condensed Consolidated Financial Statements |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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Trademarks and Trade Names
Unless the context requires otherwise, references in this Quarterly Report to the “Company,” "UroGen," “we,” “us” and “our” refer to UroGen Pharma Ltd. and its subsidiary, UroGen Pharma, Inc.
UroGen, RTGel and Jelmyto are trademarks of ours that we use in this Quarterly Report. This Quarterly Report also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this Quarterly Report appear without the ® or ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to our trademark and tradenames. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Item 1. Financial Statements.
UroGen Pharma Ltd.
Condensed Consolidated Balance Sheets
(unaudited; in thousands, except share amounts and par value)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Restricted deposit | ||||||||
| Right of use assets | ||||||||
| Marketable securities | ||||||||
| Other non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders' Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Employee related accrued expenses | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities: | ||||||||
| Non-current liabilities: | ||||||||
| Prepaid forward obligation | ||||||||
| Long-term debt | ||||||||
| Long-term lease liabilities | ||||||||
| Uncertain tax positions liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 18) | ||||||||
| Shareholders' Equity (Deficit): | ||||||||
| Ordinary shares, NIS par value, shares authorized at September 30, 2022 and December 31, 2021; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Shareholders' Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Shareholders' Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited; in thousands, except share and per share amounts)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Financing on prepaid forward obligation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense on long-term debt | ( | ) | ( | ) | ||||||||||||
| Interest and other income, net | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Statements of Comprehensive Loss | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (loss) | ||||||||||||||||
| Unrealized (loss) on investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per ordinary share - basic and diluted | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of shares outstanding used in computation of basic and diluted loss per ordinary share | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
(unaudited; in thousands, except share amounts)
| Ordinary Shares | ||||||||||||||||||||||||
| Number of | Additional paid-in | Accumulated | Other comprehensive | |||||||||||||||||||||
| Shares | Amount | capital | Deficit | income (loss) | Total | |||||||||||||||||||
| Balance as of July 1, 2022 | $ | 62 | $ | $ | ) | $ | ) | $ | ) | |||||||||||||||
| Changes During the Three Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Exercise of options into ordinary shares | 1,117 | |||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||
| Other comprehensive income | ) | ) | ||||||||||||||||||||||
| Net loss | ) | ) | ||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Balance as of July 1, 2021 | $ | $ | $ | ) | $ | $ | ||||||||||||||||||
| Changes During the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Exercise of options into ordinary shares | ||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UroGen Pharma Ltd.
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
(unaudited; in thousands, except share amounts)
| Ordinary Shares | ||||||||||||||||||||||||
| Number of | Additional paid-in | Accumulated | Other comprehensive | |||||||||||||||||||||
| Shares | Amount | capital | Deficit | income (loss) | Total | |||||||||||||||||||
| Balance as of January 1, 2022 | $ | 61 | $ | $ | ) | $ | ) | $ | ||||||||||||||||
| Changes During the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||
| Exercise of options into ordinary shares | 1,133 | |||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ) | ) | ||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | ) | $ | |||||||||||||||||||
| Changes During the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||
| Exercise of options into ordinary shares | ||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ) | ) | ||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flow
(unaudited; in thousands)
| Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| Cash Flows From Operating Activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustment to reconcile net loss to net cash from operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Inventory Obsolescence |
||||||||
| Accrued financing on prepaid forward obligation |
||||||||
| Amortization (accretion) on marketable securities |
( |
) | ||||||
| Share-based compensation |
||||||||
| Amortization of discount on long-term debt |
||||||||
| Amortization of right of use assets |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Inventory |
( |
) | ( |
) | ||||
| Accounts receivable |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Other non-current assets |
( |
) | ( |
) | ||||
| Accounts payable and accrued expenses |
( |
) | ||||||
| Employee related accrued expenses |
( |
) | ( |
) | ||||
| Other current liabilities |
( |
) | ( |
) | ||||
| Lease liabilities |
( |
) | ( |
) | ||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash Flows From Investing Activities |
||||||||
| Purchases of marketable securities |
( |
) | ( |
) | ||||
| Sales of marketable securities |
||||||||
| Maturities of marketable securities |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Net cash (used in) provided by investing activities |
( |
) | ( |
) | ||||
| Cash Flows From Financing Activities |
||||||||
| Proceeds from prepaid forward arrangement |
||||||||
| Proceeds from exercise of options into ordinary shares |
||||||||
| Proceeds from issuance of long-term debt |
||||||||
| Issuance cost related to at-the-market issuances |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
||||||||
| Increase (Decrease) in Cash and Cash Equivalents |
( |
) | ||||||
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period |
||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period |
$ | $ | ||||||
| Supplemental Disclosures of Non-Cash Activities |
||||||||
| Right of use assets obtained in exchange for new operating lease liabilities |
$ | $ | ( |
) | ||||
| Non-cash issuance cost |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 1 – Business and Nature of Operations
Nature of Operations
UroGen Pharma Ltd. is an Israeli company incorporated in April 2004 (“UPL”).
UroGen Pharma Inc., a wholly owned subsidiary of UPL, was incorporated in Delaware in October 2015 and began operating in February 2016 (“UPI”).
UPL and UPI (together the “Company”) is a biotechnology company dedicated to developing and commercializing innovative solutions that treat urothelial and specialty cancers. Since commencing operations, the Company has devoted substantially all of its efforts to securing intellectual property rights, performing research and development activities, including conducting clinical trials and manufacturing activities, hiring personnel, launching the Company’s first commercial product, Jelmyto (mitomycin) for pyelocalyceal solution, formerly known as UGN-101, clinical development of UGN-102, and raising capital to support and expand these activities.
On April 15, 2020, the U.S. Food and Drug Administration (“FDA”) granted expedited approval for Jelmyto, a first-in-class treatment indicated for adults with low-grade upper tract urothelial cancer (“low-grade UTUC”). Jelmyto consists of mitomycin, an established chemotherapy, and sterile hydrogel, using our proprietary sustained release RTGel technology. It has been designed to enable longer exposure of urinary tract tissue to mitomycin, thereby enabling the treatment of tumors by non-surgical means.
Note 2 – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary for fair statement of its financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. Interim results are not necessarily indicative of results for the full fiscal year. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) on March 21, 2022.
The Company has experienced net losses since its inception and has an accumulated deficit of $
The success of the Company depends on the ability to successfully commercialize its technologies to support its operations and strategic plan. Based on management’s cash flow projections the Company believes that its cash and cash equivalents and marketable securities are sufficient to fund the Company’s planned operations for at least the next 12 months. The Company anticipates that it will need to raise additional capital in the future. There can be no assurances that the Company will be able to secure such additional financing if at all, or on terms that are satisfactory to the Company, and that it will be sufficient to meet its needs. In the event the Company is not successful in obtaining sufficient funding, this could force us to delay, limit, or reduce our product development, commercialization efforts or other operations.
Note 3 – Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of UPL and its subsidiary, UPI. Intercompany balances and transactions have been eliminated during consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results may differ from those estimates. As applicable to the unaudited condensed consolidated financial statements, the critical accounting estimates relate to the fair value of share-based compensation, measurement of revenue, estimate of uncertain tax positions, and measurement of liabilities accounted for under the interest method.
Functional Currency
The U.S. dollar (“Dollar”) is the currency of the primary economic environment in which the operations of the Company are conducted. Therefore, the functional currency of the Company is the Dollar.
Accordingly, transactions in currencies other than the Dollar are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the Dollar are measured using the official exchange rate at the balance sheet date. The effects of foreign currency re-measurements are recorded in the condensed consolidated statements of operations as “Interest and other income, net.”
Cash and Cash Equivalents; Marketable Securities
The Company presents all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents. Cash and cash equivalents generally consist of money market funds and bank money market accounts and are stated at cost, which approximates fair value.
Cash and cash equivalents and marketable securities totaled $
Certain short-term investments are valued using models or other valuation methodologies that use Level 2 inputs. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, default rates, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. The majority of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
For individual debt securities classified as available-for-sale securities where there has been a decline in fair value below amortized cost, the Company determines whether the decline resulted from a credit loss or other factors. The Company records impairment relating to credit losses through an allowance for credit losses, limited by the amount that the fair value is less than the amortized cost basis. Impairment that has not been recorded through an allowance for credit losses is recorded through other comprehensive income, net of applicable taxes.
Restricted cash is related primarily to cash held to secure corporate credit cards; restricted deposits are related to cash held to secure leases.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents and marketable securities. The primary objectives for the Company’s investment portfolio are the preservation of capital and the maintenance of liquidity. The Company does not enter into any investment transaction for trading or speculative purposes.
The Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer. The Company maintains cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation and concentrated within a limited number of financial institutions. The accounts are monitored by management to mitigate the risk.
The Company’s product sales are recognized through the Company's arrangement with a single customer, a third-party national specialty distributor. The Company assesses the need for an allowance for doubtful accounts primarily based on creditworthiness, historical payment experience and general economic conditions. The Company has not experienced any credit losses related to this customer and has not currently recognized any allowance for doubtful accounts.
Income Taxes
The Company provides for income taxes based on pretax income, if any, and applicable tax rates available in the various jurisdictions in which it operates, including Israel and the United States. Deferred taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future.
The Company follows a two-step approach in recognizing and measuring uncertain tax positions. After concluding that a particular filing position can be recognized (i.e., has a more-likely-than-not chance of being sustained), ASC 740-10-30-7 requires that the amount of benefit recognized be measured using a methodology based on the concept of cumulative probability. Under this methodology, the amount of benefit recorded represents the largest amount of tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority that has full knowledge of all relevant information. See Note 16 for further discussion related to income taxes.
Inventory
The Company capitalizes inventory costs related to products to be sold in the ordinary course of business. The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. For Jelmyto, the Company commenced capitalization of inventory at the receipt of FDA approval.
The Company values its inventory at the lower of cost or net realizable value. The Company measures inventory approximating actual cost under a first-in, first-out basis. The Company assesses recoverability of inventory each reporting period to determine any write down to net realizable value resulting from excess or obsolete inventories.
Property and Equipment
Property and equipment are recorded at historical cost, net of accumulated depreciation, amortization and, if applicable, impairment charges. The Company reviews its property and equipment assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Property and equipment are depreciated over the following useful lives (in years):
| Useful Lives | |||
| Computers and software | |||
| Laboratory equipment | |||
| Furniture | |||
| Manufacturing equipment |
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or lease terms. See Note 8 for further discussion regarding property and equipment.
Prepaid Forward Obligation
The Company is party to a transaction with RTW Investments (the “RTW Transaction”) in which the Company received funds to support the continued launch of Jelmyto and the development of UGN-102 in return for tiered, future cash payments based on net sales of Jelmyto and UGN-102, if approved by the FDA. The net proceeds received under the RTW Transaction were recognized as a long-term liability. The subsequent measurement for the liability follows the accounting principles defined in ASC Topic 835-30, “Imputation of Interest”. See Note 9 for further discussion related to the prepaid forward obligation.
Long-Term Debt
The Company is party to a loan agreement with funds managed by Pharmakon Advisors, L.P. (“Pharmakon”). The Company recognizes interest expense in current earnings, and accrued interest within other current liabilities on the condensed consolidated balance sheets. The Company recognizes capitalized financing expenses as a direct offset to the long-term debt on the Company's condensed consolidated balance sheets, and amortizes them over the term of the debt using the effective interest method. See Note 10 for further discussion related to long-term debt.
Leases
The Company is a lessee in several noncancelable operating leases, primarily for office space, office equipment and vehicles. The Company currently has no finance leases.
The Company accounts for leases in accordance with ASC Topic 842, “Leases”. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Operating lease ROU assets are presented as operating lease right-of-use assets on the condensed consolidated balance sheets. The current portion of operating lease liabilities is included in other current liabilities and the long-term portion is presented separately as operating lease liabilities on the condensed consolidated balance sheets.
Lease expense is recognized on a straight-line basis for operating leases. Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expense on the condensed consolidated statements of operations in the same line item as expense arising from fixed lease payments.
The Company’s lease terms may include options to extend the lease. The lease extensions are included in the measurement of the right-of-use asset and lease liability when it is reasonably certain that it will exercise that option.
Because most of the Company’s leases do not provide an implicit rate of return, an incremental borrowing rate is used based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
ROU assets for operating leases are periodically reviewed for impairment losses under ASC 360-10, “Property, Plant, and Equipment”, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.
Revenue
Product sales from Jelmyto are recognized as revenue under ASC 606 at the point in time that control of the product has been transferred to the customer, generally at the point the product has been delivered to the treating physician. All product sales of Jelmyto are recognized through the Company's arrangement with a single customer, a third-party national specialty distributor. Net revenue recognized include management’s estimate of returns, consideration paid to the customer, chargebacks relating to differences between the wholesale acquisition cost and the contracted price offered to the end consumer, chargebacks relating to 340b drug pricing programs, Medicaid drug rebate programs, and the Company’s copay assistance program, which are estimated based on industry benchmarking studies as well as the Company’s historical experience.
Research and Development Expenses
Research and development costs are expensed as incurred and consist primarily of the cost of salaries, share-based compensation expense, payroll taxes and other employee benefits, subcontractors and materials used for research and development activities, including nonclinical studies, clinical trials, manufacturing costs and professional services. The costs of services performed by others in connection with the research and development activities of the Company, including research and development conducted by others on behalf of the Company, shall be included in research and development costs and expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from its external service providers. The Company adjusts its accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the milestone payment obligations are expensed when such development milestone results are achieved.
Selling General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs (including share-based compensation related to directors, employees and consultants). Other significant costs include commercial, medical affairs, external professional service costs, facility costs, accounting and audit services, legal services, and other consulting fees. Selling, general and administrative costs are expensed as incurred, and the Company accrues for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from its service providers and adjusting its accruals as actual costs become known.
Share-Based Compensation
Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the required service period, which is equal to the vesting period. The fair value of options is determined using the Black-Scholes option-pricing model. The fair value of a restricted stock unit (“RSU”) equaled the closing price of the Company’s ordinary shares on the grant date. The Company accounts for forfeitures as they occur in accordance with ASC Topic 718, “Compensation—Stock Compensation”.
The Company elected to recognize compensation costs for awards conditioned only on continued service that have a graded vesting schedule using the straight-line method and to value the awards based on the single-option award approach.
Net Loss per Ordinary Share
Basic net loss per share is computed by dividing the net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding. Diluted net loss per share is computed similarly to basic net loss per share except that the denominator is increased to include the number of additional ordinary shares that would have been outstanding if the potential ordinary shares had been issued and if the additional ordinary shares were dilutive.
For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive.
Recently Issued Accounting Pronouncements
The Company has reviewed the Accounting Standards Updates recently issued by the Financial Accounting Standards Board, and determined that they are not applicable to the Company.
Note 4 – Other Financial Information
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Accounts payable |
$ | $ | ||||||
| Accrued sales reserves |
||||||||
| Accrued clinical expenses |
||||||||
| Accrued research and development expenses |
||||||||
| Accrued selling, general and administrative expenses |
||||||||
| Accrued other expenses |
||||||||
| Total accounts payable and accrued expenses |
$ | $ | ||||||
Interest and Other Income, Net
Interest and other income, net consisted of the following as of September 30, 2022 and 2021 (in thousands):
| Nine Months Ended September 30, |
||||||||
| 2022 |
2021 |
|||||||
| Interest income |
$ | $ | ||||||
| Other income (expense), net |
( |
) | ||||||
| Interest and other income, net |
$ | $ | ||||||
Note 5 – Inventories
Inventories consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Raw materials (1) |
$ | $ | ||||||
| Finished goods |
||||||||
| Total inventories |
$ | $ | ||||||
|
|
(1) $ |
Note 6 – Fair Value Measurements
The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
| Level 1: |
Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| Level 2: |
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
| Level 3: |
Unobservable inputs that reflect the reporting entity’s own assumptions. |
The carrying amounts of the Company’s cash, restricted cash, other current assets, accounts payable and accrued liabilities are generally considered to be representative of their fair value because of the short-term nature of these assets and liabilities.
The carrying value of the prepaid forward obligation (See Note 9 - Prepaid Forward Obligation) approximates its fair value. The Company estimated the fair value of the prepaid forward obligation using Level 3 inputs, including internally developed financial forecasts and management's estimate of probability of success related to product candidates, and determined that the effective interest rate in the obligation approximates market rates for loans with similar terms and risk characteristics.
The Company estimated the fair value of long-term debt (see Note 10 - Long-Term Debt) using the income approach with Level 3 inputs. The Company estimated future floating rate interest payments using a forward curve of a three-month benchmark rate, and estimated fair value based on publicly available data reported in the financial statements of publicly traded venture lending companies. Based on a reasonable range of yields for debt instruments of similar tenor in a similar industry, the Company determined that the carrying value of the long-term debt on the Company's balance sheet approximates its fair value.
No transfers between levels have occurred during the periods presented.
Assets measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of September 30, 2022 are as follows (in thousands):
| Fair Value Measurements Using |
||||||||||||
| Quoted Prices |
Significant |
|||||||||||
| in Active |
Other |
|||||||||||
| Balance as of |
Markets for |
Observable |
||||||||||
| September 30, |
Identical Assets |
Inputs |
||||||||||
| 2022 |
(Level 1) |
(Level 2) |
||||||||||
| Marketable securities |
||||||||||||
| US government |
||||||||||||
| Corporate bonds |
||||||||||||
| Commercial paper |
||||||||||||
| Certificates of deposit |
||||||||||||
| Total marketable securities |
||||||||||||
Assets measured at fair value on a recurring basis based on Level 1 and Level 2 fair value measurement criteria as of December 31, 2021 are as follows (in thousands):
| Fair Value Measurements Using |
||||||||||||
| Quoted Prices |
Significant |
|||||||||||
| in Active |
Other |
|||||||||||
| Balance as of |
Markets for |
Observable |
||||||||||
| December 31, |
Identical Assets |
Inputs |
||||||||||
| 2021 |
(Level 1) |
(Level 2) |
||||||||||
| Assets: |
||||||||||||
| Cash equivalents |
||||||||||||
| Money market funds |
$ | $ | $ | |||||||||
| Marketable securities |
||||||||||||
| US government |
||||||||||||
| Corporate bonds |
||||||||||||
| Commercial paper |
||||||||||||
| Certificates of deposit |
||||||||||||
| Total marketable securities |
||||||||||||
| Total assets at fair value |
$ | $ | $ | |||||||||
Note 7 – Investments
The following table summarizes the Company’s investments as of September 30, 2022 (in thousands):
| Amortized |
Unrealized |
Unrealized |
||||||||||||||
| Cost Basis |
Gains |
Losses |
Fair Value |
|||||||||||||
| Marketable securities: |
||||||||||||||||
| US government |
$ | $ | $ | ( |
) | $ | ||||||||||
| Corporate bonds |
( |
) | ||||||||||||||
| Commercial paper |
( |
) | ||||||||||||||
| Certificates of deposit |
( |
) | ||||||||||||||
| Total marketable securities |
$ | $ | $ | ( |
) | $ | ||||||||||
The Company classifies its investments as available-for-sale and they consist entirely of debt securities. As of September 30, 2022, the amortized cost of investments included an immaterial amount of accrued interest. As of September 30, 2022, marketable securities were in a net unrealized loss position. Unrealized gains and losses on available-for-sale debt securities are included as a component of comprehensive loss.
As of September 30, 2022, the aggregate fair value of investments held by the Company in an unrealized loss position was $
The Company’s investments as of September 30, 2022 mature at various dates through August 2023. The fair values of investments by contractual maturity consist of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Maturities within one year |
$ | $ | ||||||
| Maturities after one year through three years |
||||||||
| Total investments |
$ | $ | ||||||
Note 8 – Property and Equipment
Property and equipment, consists of the following as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Laboratory equipment |
$ | $ | ||||||
| Computer equipment and software |
||||||||
| Furniture |
||||||||
| Leasehold improvements |
||||||||
| Manufacturing equipment |
||||||||
| Less: accumulated depreciation and amortization |
( |
) | ( |
) | ||||
| Property and equipment, net |
$ | $ | ||||||
Depreciation and amortization expense was $
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 $
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)
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 $
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 |
$ | |||
| Capitalized closing costs |
( |
) | ||
| Financing on prepaid forward obligation |
||||
| Amounts paid and payable |
( |
) | ||
| Carrying value of prepaid forward obligation as of December 31, 2021 |
||||
| Financing on prepaid forward obligation |
||||
| Amounts paid and payable |
( |
) | ||
| Carrying value of prepaid forward obligation as of September 30, 2022 |
$ |
Note 10 – Long-Term Debt
On March 7, 2022, the Company entered into a loan agreement with Pharmakon for a senior secured term loan of up to $
The Company incurred financing expenses of $
The following table shows the activity with respect to the carrying value of the long-term debt, in thousands:
| Long-term debt at closing of Pharmakon loan |
$ | |||
| Capitalized costs and discounts |
( |
) | ||
| Interest expense |
||||
| Amounts paid and payable |
( |
) | ||
| Carrying value of Pharmakon loan as of September 30, 2022 |
$ |
Note 11 – Leases
Operating Leases
The Company had the following office and laboratory facility leases as of September 30, 2022:
| • |
In April 2016, UPL signed an addendum to its November 2014 lease agreement for the Company’s offices located in Israel, in order to increase the office space rented and to extend the rent period until 2019. In March 2019, UPL utilized the agreement extension option and extended the rent period for an additional three years until August 2022. In July 2022, the Company signed a lease extension agreement for the Company’s offices located in Israel, extending the term of the lease through September 2025. The Company's remaining contractual obligation under this lease is approximately $ |
| • |
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 $ |
| • |
In November 2019, UPI entered into a new lease agreement for an office in Princeton, New Jersey, which the Company now uses as its headquarters. The lease commencement date was November 29, 2019, with an original lease term of |
In addition, the Company has other operating office equipment and vehicle leases. The Company’s operating leases may require minimum rent payments, contingent rent payments adjusted periodically for inflation, or rent payments equal to the greater of a minimum rent or contingent rent. The Company’s leases do not contain any residual value guarantees or material restrictive covenants. The Company’s leases expire at various dates from 2022 through 2026, with varying renewal and termination options.
The components of lease cost for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Operating lease cost |
$ | $ | $ | $ | ||||||||||||
| Sublease income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Variable lease cost |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The amounts recognized as of September 30, 2022 and December 31, 2021 were as follows (in thousands):
| September 30, |
December 31, |
|||||||
| 2022 |
2021 |
|||||||
| Right of use assets |
$ | $ | ||||||
| Long-term lease liabilities |
||||||||
| Other current liabilities |
||||||||
As of September 30, 2022, no impairment losses have been recognized to date.
Supplemental information related to leases for the nine months ended September 30, 2022 and 2021 is as follows (in thousands):
| Nine Months Ended | ||||||||
| September 30, |
||||||||
| 2022 |
2021 |
|||||||
| Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
| Operating cash flows from operating leases |
||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities |
||||||||
| Weighted-average remaining lease term of operating leases (in years) |
||||||||
| Weighted-average discount rate of operating leases |
% | % | ||||||
As of September 30, 2022, maturities of lease liabilities were as follows (in thousands):
| Operating |
||||
| Leases |
||||
| Years ending December 31, |
||||
| Remainder of 2022 |
$ | |||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| 2026 and thereafter |
||||
| Total future minimum lease payments |
$ | |||
| Less: Interest |
( |
) | ||
| Present value of lease liabilities |
$ | |||
Subleases
As of September 30, 2022, undiscounted cash flows to be received under the Company’s operating sublease on an annual basis were as follows (in thousands):
| Operating Leases |
||||
| Years ending December 31, |
||||
| Remainder of 2022 |
$ | |||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| 2026 and thereafter |
||||
| $ | ||||
Sublease income is recognized net within operating expenses. Sublease income for the three and nine months ended September 30, 2022 and 2021 was as follows (in thousands):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Sublease income from fixed lease payments |
$ | $ | $ | $ | ||||||||||||
Note 12 – Revenue From Product Sales
Net product sales consist of the following for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Jelmyto |
$ | $ | $ | $ | ||||||||||||
Net revenue recognized includes management’s estimate of returns, consideration paid to the customer, chargebacks relating to differences between the wholesale acquisition cost and the contracted price offered to the end consumer, chargebacks relating to 340b drug pricing programs, Medicaid drug rebate programs, and the Company’s copay assistance program, which are estimated based on industry benchmarking studies as well as the Company’s historical experience. Reserves related to items that are contractually able to be net settled are recognized as contra accounts receivables. The following table shows the activity with respect to sales reserves for period ended of September 30, 2022 (in thousands):
| Reserves related to government sponsored programs |
Other reserves |
Total accrued sales reserves |
||||||||||
| Balance as of December 31, 2021 |
$ | $ | $ | |||||||||
| Accruals |
||||||||||||
| Utilizations |
( |
) | ( |
) | ( |
) | ||||||
| Balance as of September 30, 2022 |
$ | $ | $ | |||||||||
Note 13 – License and Collaboration Agreements
Agenus Agreement
In November 2019, the Company entered into a license agreement with Agenus Inc., pursuant to which Agenus granted to the Company an exclusive, worldwide (not including Argentina, Brazil, Chile, Colombia, Peru, Venezuela and their respective territories and possessions), royalty-bearing, sublicensable license under Agenus’s intellectual property rights to develop, make, use, sell, import, and otherwise commercialize products incorporating a proprietary monoclonal antibody of Agenus known as AGEN1884 (zalifrelimab), an anti-CTLA-4 antagonist, for the treatment of cancers of the urinary tract via intravesical delivery. Initially, the Company plans to develop AGEN1884 in combination with UGN-201 for the treatment of high-grade NMIBC.
Pursuant to the license agreement, the Company paid Agenus an upfront fee of $
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)
MD Anderson Agreement
In January 2021, the Company announced that it entered into a -year strategic research collaboration agreement with MD Anderson focusing on the sequential use of UGN-201 and UGN-301 as an investigational treatment for high-grade NMIBC. Under the terms of the agreement, MD Anderson and the Company will collaborate on the design and conduct of non-clinical and clinical studies with oversight from a joint steering committee. The Company will provide funding, developmental candidates, and other support. Pursuant to the agreement, the Company makes bi-annual payments to MD Anderson to fund the collaboration. As of September 30, 2022, the Company has made payments to MD Anderson totaling $
Note 14 – Shareholders’ Equity
The Company had
Note 15 – Share-Based Compensation
In October 2010, the Board approved a share option plan (the "2010 Plan") for grants to Company employees, consultants, directors, and other service providers. Subsequently, in March 2017, the Board adopted the 2017 Equity Incentive Plan (the "2017 Plan" and, together with the 2010 Plan, the "Plans"), which was approved by the shareholders in April 2017. The 2017 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, RSU awards, performance share awards, performance cash awards, and other forms of share awards to the Company's employees, directors and consultants.
The grant of options to Israeli employees under the Plans is subject to the terms stipulated by Section 102 of the Israeli Income Tax Ordinance (“Section 102”). The option grants are subject to the track chosen by the Company, either the “regular income” track or the “capital gains” track, as set out in Section 102. The Company registered the Plans under the capital gains track, which offers more favorable tax rates to the employees. As a result, and pursuant to the terms of Section 102, the Company is not allowed to claim as an expense for tax purposes the amounts credited to the employees in respect of options granted to them under the Plans, including amounts recorded as salary benefits in the Company’s accounts, with the exception of the work-income benefit component, if any, determined on grant date. For non-employees and for non-Israeli employees, the Plans are subject to Section 3(i) of the Israeli Income Tax Ordinance.
Employees are typically granted stock options and/or restricted stock units ("RSUs"), upon commencement of employment. Also, eligible employees may receive an annual grant of options or RSUs. Non-employee members of the Board typically receive a grant of stock options upon initial appointment to the Board, and stock options annually. The term of any option granted under the Plans cannot exceed
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
The expected volatility is based on a mix of the Company’s historical volatility, and the historical volatility of comparable companies with similar attributes to the Company, including industry, stage of life cycle, size and financial leverage. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted. The expected term is the length of time until the expected dates of exercising the options and is estimated for employees using the simplified method due to insufficient specific historical information of employees’ exercise behavior, and for non-employees, and directors using the contractual term.
The maximum number of ordinary shares that was initially authorized for issuance under the 2017 Plan was
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
As of September 30, 2022,
The following table illustrates the effect of share-based compensation on the condensed consolidated statements of operations (in thousands):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Research and development expenses |
$ | $ | $ | $ | ||||||||||||
| Selling, general and administrative expenses |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The total unrecognized compensation cost of options and RSUs at September 30, 2022 is $
Note 16 – Income Taxes
UroGen Pharma Ltd. is taxed under Israeli tax laws. As of September 30, 2022, the Company continues to maintain a full valuation allowance against deferred tax assets for all jurisdictions. In evaluating the need for a valuation allowance, the Company considers all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing temporary differences, forecasts of future taxable income, and tax planning strategies. The Company has cumulative global pretax losses for the years ended 2021, 2020 and 2019, and for the nine months ended September 30, 2022. The Company will continue to assess the extent to which its deferred tax assets may be realized in the future and will adjust the valuation allowance as needed.
The Company has a liability for uncertain tax positions of $
The Company operates on a global basis and is subject to tax laws and regulations in the United States and Israel. The estimate of the Company’s tax liabilities relating to uncertain tax positions requires management to assess uncertainties and to make judgments about the application of complex tax laws and regulations, expectations regarding the outcome of tax authority examinations, as well as the ultimate measurement of potential liabilities.
The uncertain tax positions are reviewed quarterly and adjusted as events occur that could affect potential liabilities for additional taxes, including lapsing of applicable statutes of limitations, correspondence with tax authorities, proposed assessments by tax authorities, identification of new issues, and issuance of new legislation or regulations. The Company believes that adequate amounts of tax have been provided in income tax expense for any adjustments that may result from its uncertain tax positions. Based upon the information currently available, the Company does not reasonably expect changes in its existing uncertain tax positions in the next 12 months and has recorded the gross uncertain tax positions as a long-term liability.
Note 17 – Related Parties
There were no related party transactions for the nine months ended September 30, 2022 or 2021.
Note 18 – Commitments and Contingencies
In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service providers. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown as of September 30, 2022 and December 31, 2021. The Company does not anticipate recognizing any significant losses relating to these arrangements.
Leases
See Note 11 for further discussion regarding lease commitments.
Note 19 – Subsequent Events
On October 21, 2022, the Company requested the advance of the second tranche (the "Tranche B Loan") under the Pharmakon loan agreement in the amount of $
The Company has evaluated and determined there were no further subsequent events.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report and the audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”), which was filed with the SEC on March 21, 2022. The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, trends, seasonality, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
Overview
We are a biotechnology company dedicated to developing and commercializing innovative solutions that treat urothelial and specialty cancers. We have developed RTGel® reverse-thermal hydrogel, a proprietary sustained release, hydrogel-based technology that has the potential to improve therapeutic profiles of existing drugs. Our technology is designed to enable longer exposure of the urinary tract tissue to medications, making local therapy a potentially more effective treatment option. Our approved product Jelmyto® (mitomycin) for pyelocalyceal solution, and our investigational candidate, UGN-102 (mitomycin) for intravesical solution, are designed to ablate tumors by non-surgical means and to treat several forms of non-muscle invasive urothelial cancer, including low-grade upper tract urothelial cancer (“low-grade UTUC”) and low-grade intermediate risk non-muscle invasive bladder cancer (“low-grade intermediate risk NMIBC”), respectively. In addition, our immuno-uro-oncology pipeline includes UGN-301 (zalifrelimab), an anti-CTLA-4 antibody, which we intend to study as a combination therapy with multiple potential agents.
We estimate that the annual treatable patient population of low-grade UTUC in the United States is approximately 6,000 to 7,000; the estimated annual treatable population of low-grade intermediate risk NMIBC is approximately 80,000.
RTGel is a novel proprietary polymeric biocompatible, reverse thermal gelation hydrogel, which, unlike the general characteristics of most forms of matter, is liquid at lower temperatures and converts into gel form when warmed to body temperature. We believe that these characteristics promote ease of delivery into and retention of drugs in body cavities, including the bladder and the upper urinary tract, forming a transient reservoir of drug that disintegrates over time while preventing rapid excretion, providing for increased dwell time. RTGel leverages the physiologic flow of urine to provide a natural exit from the body.
We believe that RTGel, when formulated with an active drug, may allow for the improved efficacy of treatment of various types of urothelial and specialty cancers and urologic diseases without compromising the safety of the patient or interfering with the natural flow of fluids in the urinary tract. RTGel achieves this by:
| • |
increasing the exposure of active drugs in the bladder and upper urinary tract by significantly extending the dwell time of the active drug while conforming to the anatomy of the bladder and the upper urinary tract, which allows for enhanced drug tissue coverage. For example, the average dwell time of the standard mitomycin water formulation, currently used as adjuvant treatment, in the upper urinary tract is approximately five minutes, compared to up to six hours when mitomycin is formulated with RTGel; |
| • |
administering higher doses of an active drug than would otherwise be possible using standard water-based formulations. For instance, it is only possible to dissolve 0.5 mg of mitomycin in 1 mL of water while it is possible to formulate up to 8 mg of mitomycin with 1 mL of RTGel; and |
| • |
maintaining the active drug’s molecular structure and mode of action. |
These characteristics of RTGel enable sustained release of mitomycin in the urinary tract for both Jelmyto and UGN-102. Further, RTGel may be particularly effective in the bladder and upper urinary tract where tumor visibility and access are challenging, and where there exists a significant amount of urine flow and voiding. We believe that these characteristics of RTGel may prove useful for the local delivery of active drugs to other bodily cavities in addition to the bladder and upper urinary tract.
Jelmyto
On April 15, 2020, the FDA approved our new drug application (“NDA”) for Jelmyto (mitomycin) for pyelocalyceal solution, formerly known as UGN-101, for the treatment of adult patients with low-grade UTUC. Jelmyto consists of mitomycin, an established chemotherapy, and sterile hydrogel, using our proprietary sustained release RTGel technology. It has been designed to prolong exposure of urinary tract tissue to mitomycin, thereby enabling the treatment of tumors by non-surgical means. New product exclusivity for Jelmyto exists through April 15, 2023, Orphan Drug exclusivity through April 15, 2027, as well as a composition of matter patent set to expire in early 2031. The main patents that protect Jelmyto in the United States are set to expire on January 20, 2031. These patents were listed in the FDA's Orange Book (Approved Drug Products with Therapeutic Equivalence Evaluations).
Low-grade UTUC is a rare cancer that develops in the lining of the upper urinary tract, ureters and kidneys. In the United States, there are approximately 6,000 - 7,000 new or recurrent low-grade UTUC patients annually. It is a challenging condition to treat due to the complex anatomy of the urinary tract system. Prior to Jelmyto, the current standard of care included endoscopic resection(s) and radical nephroureterectomy, which involves the removal of the renal pelvis, kidney, ureter and bladder cuff. Treatment is further complicated by the fact that low-grade UTUC is most commonly diagnosed in patients over 70 years of age, who may already have compromised kidney function and may suffer further complications as a result of a major surgery. We are focused on changing the way urothelial cancers are treated, an area in which there has been no significant advancements in recent years. Jelmyto is the first drug therapy of its kind, providing an alternative to endoscopic resection(s) and/or radical nephroureterectomy.
The FDA approval is based on results from our Phase 3 OLYMPUS trial showing Jelmyto achieved clinically significant disease eradication in adults with low-grade UTUC. Findings from the final study results include:
| • |
Complete response (“CR”) (primary endpoint) of 58% (41/71) in the intent-to-treat population and in the sub-population of patients who were deemed not capable of surgical removal at diagnosis. |
| • |
At the 12-month time point for assessment of durability, 23 patients remained in CR of a total of 41 patients, eight had experienced recurrence of disease and ten patients were unable to be evaluated. |
| • |
Durability of response was estimated to be 81.8% at 12 months by Kaplan-Meier analysis. The median duration of response was not reached. |
| • |
The most commonly reported adverse events (≥ 20%) were ureteric obstruction, flank pain, urinary tract infection, hematuria, abdominal pain, fatigue, renal dysfunction, nausea, dysuria and vomiting. Most adverse events were mild to moderate and manageable using well established treatments. No treatment-related deaths occurred. |
In June 2020, we initiated our commercial launch of Jelmyto in the United States. We have staffed, trained and prepared a customer-facing team that includes territory business managers with deep experience in both urology and oncology. These territory business managers are led by seven regional business directors. Each region is additionally supported by one to two clinical nurse educators to provide education and training around instillation, as well as a field reimbursement manager to help ensure access and reimbursement for appropriate patients. In addition, our organization currently includes several medical science liaisons who appropriately engage with physicians interested in learning more about UroGen, Jelmyto and our technology, both in person and virtually. In total, our customer-facing team comprises approximately 80 colleagues.
We are committed to helping patients access Jelmyto. Our market access teams have laid the foundation for coverage and reimbursement, meeting multiple times with payors. All Medicare patients are covered and the vast majority of commercial plans have policies in place, in whole covering over 150 million lives. In addition to reimbursement and access, we have also been focused on ensuring seamless integration into physician practices. We have implemented processes to help make Jelmyto preparation and administration safe and seamless for practitioners and patients, including entering into an agreement with a major national specialty pharmacy under which the pharmacy, following receipt of a patient prescription, prepares the Jelmyto admixture on our behalf. In September 2022, the FDA authorized an extension of the in-use period for Jelmyto admixture from eight hours to 96 hours (four days) following reconstitution of the product, adding convenience and flexibility in managing patient care. In October 2020, a Medicare C-Code was issued for Jelmyto. The Centers for Medicare & Medicaid Services established a permanent and product-specific J-code for Jelmyto that took effect on January 1, 2021, and replaced the C-Code. We have also launched a registry to capture data and evaluate real world outcomes in patients with low-grade UTUC that have been or will be treated with Jelmyto. The purpose of the registry is to study the use of Jelmyto in clinical practice in the United States and address specific clinical questions.
In the first two full fiscal years following the initiation of our commercial launch of Jelmyto in June 2020, we have experienced a moderate decline in revenue during the third quarter from the preceding quarter. We believe this result is primarily attributable to the nature of low-grade disease, which does not require immediate treatment and therefore we believe there is an impact in the summer months. However, it is too early to say with confidence whether this seasonality trend will continue in future periods. Moreover, our future Jelmyto revenue will be impacted by various factors and we expect our Jelmyto revenue to fluctuate quarter-to-quarter for the foreseeable future.
UGN-102 (mitomycin) for intravesical solution
UGN-102 is our sustained-release formulation of mitomycin that we are developing for the treatment of low-grade intermediate risk NMIBC.
In October 2021, we reported final data from the Phase 2b OPTIMA II trial. The single-arm, open label trial completed enrollment of 63 patients at clinical sites across the United States and Israel in September 2019. Patients were treated with six weekly instillations of UGN-102 and underwent assessment of CR (the primary endpoint) four to six weeks following the last instillation. Consistent with our previous reports showing that 65%, or 41 out of 63 patients, treated with UGN-102 achieved a complete response three months after the start of therapy. In this subset of patients, 39 (95%), 30 (73%), and 25 (61%) remained disease-free at six, nine, and 12 months after treatment initiation, respectively. The probability of durable response nine months after CR (12 months after treatment initiation) was estimated to be 72.5% by Kaplan-Meier analysis. Thirteen patients had documented recurrences. Fifty-seven of 63 (90%) patients completed all six instillations of UGN-102 according to study protocol. Median duration of response was not reached. The most common adverse events, greater than 10%, were most often reported as mild to moderate in severity and include dysuria, hematuria, urinary frequency, fatigue, urgency and urinary tract infection. The final data was published online in The Journal of Urology in October 2021 and was included in the January 2022 print edition.
Urothelial cancer, which is comprised of bladder cancer and UTUC, affects a large, and what we believe to be, an underserved patient population. Annual expenditures for Medicare alone in the United States for the treatment of urothelial cancer were estimated to be at least $5.0 billion in 2020. The majority of the expenditures are spent on tumor resection surgeries such as transurethral resection of bladder tumor ("TURBT"). The prevalence of bladder cancer in the United States based on most recently published data was approximately 724,000 and estimated 2021 annual incidence of bladder cancer was approximately 85,000. We estimate based upon a review of peer-reviewed literature and publicly available data that there are approximately 80,000 low-grade intermediate risk NMIBC patients in the United States annually. We believe that UGN-102 has the potential to be a new therapeutic option for the treatment of low-grade intermediate risk NMIBC patients.
UGN-102 is administered locally using the standard practice of intravesical instillation directly into the bladder via a catheter. The instillation into the bladder is expected to take place in a physician’s office as a non-operative same-day treatment, in comparison with TURBT or similar surgical procedures, which are operations conducted under general anesthesia and may require an overnight stay. Surgical tumor removal often has limited success due to the inability to properly identify, reach and resect all tumors. We believe that an effective chemoablation agent can potentially provide better eradication of tumors irrespective of the detectability and location of the tumors. In addition, by removing the need for surgery, patients may avoid potential complications associated with surgery.
We initiated the Phase 3 ATLAS trial in December 2020 and until November 2021, were enrolling patients in this trial comparing UGN-102 with or without TURBT to standard of care, TURBT. In parallel, we continued to engage in discussions with the FDA and, based on this dialogue, we designed a trial in order to demonstrate the efficacy and safety of UGN-102. This new Phase 3 ENVISION trial is a single-arm, multinational, multicenter study evaluating the efficacy and safety of UGN-102 as primary chemoablative therapy in patients with low-grade intermediate risk NMIBC. The design for the Phase 3 ENVISION trial is similar to our Phase 2 OPTIMA II trial in that the patient population will have similar clinical characteristics, receive the same treatment regimen and undergo the same efficacy and safety assessments and qualitative follow-up. Study participants will receive six once-weekly intravesical instillations of UGN-102. The planned primary endpoint will evaluate the complete response rate at three months after the first instillation, and the key secondary endpoint will evaluate durability over time in patients who achieve complete response at the three-month assessment.
In February 2022, we announced the initiation of the Phase 3 ENVISION trial, which is expected to enroll approximately 220 patients across 90 sites, with completion of enrollment expected by the end of 2022. Assuming positive findings, we anticipate submitting an NDA for UGN-102 in 2024. In November 2021, as a result of the FDA's acceptance of a single arm approach (the ENVISION Trial), we stopped enrollment of the Phase 3 ATLAS study. However, at the time enrollment was stopped, any patients who had signed an informed consent were able to complete screening, and if eligible were randomized into the trial. Patients continue to be followed in the Phase 3 ATLAS study, and clinical results from these patients are expected to generate additional safety data and other insights in our evaluation of UGN-102 as a primary therapy in the treatment of low-grade intermediate risk NMIBC.
We have also initiated a Phase 3b study with the objective of demonstrating whether UGN-102 can be administered at home by a qualified home health professional, avoiding the need for repeated visits to a healthcare setting for instillation. Patients in the ongoing Phase 3b study will receive six once-weekly intravesical instillations of UGN-102. The Phase 3b study aims to enroll up to 10 patients across four centers, with completion of enrollment anticipated by the end of 2022. The initial treatment visit will occur at the investigative site and instillation will be performed by a qualified physician. Treatment visits two to six will take place at the patient's home and instillation will be performed by a properly trained and qualified home health professional. The primary endpoint of the study is the incidence of treatment-emergent adverse events ("TEAEs"), serious TEAEs, TEAEs of special interest, discontinuations from at home study treatment, and clinically significant abnormalities in laboratory tests (hematology, serum chemistry, and urinalysis). We believe establishing a precedent for a convenient at home solution may facilitate access-to-care and address quality of life issues that certain patients may face with the current standard of care.
UGN-301 (zalifrelimab) intravesical solution
Our immuno-uro-oncology pipeline includes UGN-301, an anti-CTLA-4 monoclonal antibody, which we intend to study as a combination therapy with multiple potential agents. Non-human primate toxicity studies supported the initiation of a multi-arm Phase 1 study of UGN-301 in combination with other agents. We believe that this approach leverages our unique drug delivery technology and provides an opportunity to evaluate intravesical delivery of UGN-301 in combination with other immuno-modulators, chemotherapies, gene therapy and innate immune stimulators.
High-grade NMIBC is a highly aggressive form of bladder cancer. TURBT followed by adjuvant intravesical immunotherapy with Bacillus of Calmette and Guerin ("BCG") is the current standard of care therapy for high-grade NMIBC. However, the high rates of recurrence and significant risk of progression to muscle-invasive tumors are particularly dangerous. Radical cystectomy, or bladder removal is strongly advocated in patients with BCG-unresponsive NMIBC (i.e., patients with BCG-refractory and BCG-relapsing tumors in whom further BCG therapy is not recommended) or for patients who cannot tolerate BCG.
The first combination we are seeking to investigate clinically involves the sequential use of UGN-201 (imiquimod), a toll-like receptor-7 ("TLR 7") agonist, and UGN-301 in high-grade NMIBC ("high-grade NMIBC"). UGN-201 is a liquid formulation of imiquimod for intravesical administration that has been optimized for delivery in the urinary tract. We believe that UGN-201 may elicit an innate immune response in the presence of released bladder cancer antigens, which may translate into a long lasting acquired immune response. We believe the combination of UGN-301 and UGN-201 could elicit an innate as well as adaptive immune response and potentially represent a valid post-TURBT adjuvant treatment of high-grade NMIBC. UGN-301 is delivered using our proprietary RTGel technology, which has been designed to significantly improve the effectiveness of certain intravesical therapy. In November 2019, we entered into a worldwide license agreement with Agenus Inc. to develop and commercialize zalifrelimab via intravesical delivery for the treatment of urinary tract cancers, initially in high-grade NMIBC. We believe that the combination of UGN-301 and UGN-201 makes local therapy a potentially more effective treatment option while minimizing systemic exposure and potential side effects.
In March 2022, we announced FDA clearance of our Investigational New Drug application ("IND") to begin a novel Phase 1 clinical study of UGN-301 in patients with recurrent NMIBC. The novel study design will utilize a Master Protocol that we believe is a more efficient and streamlined approach to development. It will provide more flexibility to add study arms as the trial progresses and is expected to increase efficiency and potentially reduce costs. We expect the Master Protocol will allow the Company to more quickly evaluate safety, tolerability and dosing of UGN-301 in combination with additional immunomodulators and chemotherapies, with the goal of developing optimized treatment regimens for patients. The multi-arm Phase 1 study, which is expected to support the development of UGN-301 in high-grade NMIBC, was initiated in April 2022 and is actively enrolling.
Our Research and Development and License Agreements
Agenus Agreement
In November 2019, we entered into a license agreement with Agenus Inc., pursuant to which Agenus granted us an exclusive, worldwide (not including Argentina, Brazil, Chile, Colombia, Peru, Venezuela and their respective territories and possessions), royalty-bearing, sublicensable license under Agenus’s intellectual property rights to develop, make, use, sell, import, and otherwise commercialize products incorporating a proprietary monoclonal antibody of Agenus known as AGEN1884 (zalifrelimab), an anti-CTLA-4 antagonist, for the treatment of cancers of the urinary tract via intravesical delivery. UGN-301 is a formulation of zalifrelimab administered using RTGel technology that is in Phase 1 clinical development for high-grade NMIBC.
MD Anderson Agreement
In January 2021, we announced that we had entered into a three-year strategic research collaboration agreement with MD Anderson focusing on the sequential use of UGN-201 and UGN-301 as an investigational treatment for high-grade NMIBC. Under the terms of the agreement, we and MD Anderson agreed to collaborate on the design and conduct of non-clinical and clinical studies with oversight from a joint steering committee. We agreed to provide funding, developmental candidates, and other support. Pursuant to the agreement, we have made bi-annual payments to MD Anderson to fund the collaboration, totaling $2.0 million and recognized evenly over the associated period through research and development expenses. In July 2022, we determined that we had achieved the objectives that we established when the agreement was initiated, and notified MD Anderson that we were exercising our right to conclude the collaboration in 2022 as we did not foresee initiating further development activities as part of the collaboration, although we will continue to collaborate on existing joint projects. As a result of this notification, we are not responsible for any further fixed bi-annual funding payments, although we will be responsible for costs related to existing join projects that exceed the payments already made to MD Anderson.
For additional information regarding our research and development and license agreements, see Note 13 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
Impact of COVID-19 Pandemic
COVID-19 could have a detrimental impact on our ongoing and future clinical trials, our ongoing commercial launch and future commercialization activities for Jelmyto, and our ability to access capital markets.
According to the Centers for Disease Control and Prevention, as of October 2022, over 68% of the U.S. population has completed their primary series of vaccination. However, as circumstances evolve, in particular related to the emergence of variants and subvariants, it will be important to understand potential impacts to patients and the hospital system, and the ability for patients to access Jelmyto. While it is difficult to predict the ultimate impact of the ongoing COVID-19 pandemic on our business and the healthcare industry, we continue to monitor the evolving COVID-19 situation, and the potential further impacts that the pandemic and the related government response may have on our business.
Components of Operating Results
Revenue
During the three and nine months ended September 30, 2022 we recognized $16.1 million and $46.3 million of revenue, respectively from sales of our product, Jelmyto.
Cost of Revenue
Cost of revenue consists primarily of inventory and related costs associated with the manufacturing, distribution, warehousing and preparation of Jelmyto, including inventory impairment. In periods prior to receiving FDA approval for Jelmyto, we recognized inventory and related costs associated with the manufacture of Jelmyto as research and development expenses.
Research and Development Expenses
Research and development expenses, net consist primarily of:
| • |
salaries and related costs, including share-based compensation expense, for our personnel in research and development functions; |
| • |
expense incurred under agreements with third parties, including clinical research organizations (“CROs”), subcontractors, suppliers and consultants, nonclinical studies and clinical trials; |
| • |
expense incurred to acquire, develop and manufacture nonclinical study and clinical trial materials; |
| • |
expense incurred to purchase active pharmaceutical ingredient (“API”) in support of R&D activities and other related manufacturing costs; and |
| • |
facility and equipment costs, including depreciation expense, maintenance and allocated direct and indirect overhead costs. |
We expense all research and development costs as incurred. We estimate nonclinical study and clinical trial expense based on the services performed pursuant to contracts with research institutions and contract research organizations that conduct and manage nonclinical studies and clinical trials on our behalf based on actual time and expense incurred by them.
We accrue for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from our external service providers. We adjust our accrual as actual costs become known. Where at risk contingent milestone payments are due to third parties under research and development and collaboration agreements, the milestone payment obligations are expensed when such development milestone results are achieved.
We are currently focused on advancing our product candidates, and our future research and development expenses will depend on their clinical success. Research and development expenses will continue to be significant and will increase over at least the next several years as we continue to develop our product candidates and conduct nonclinical studies and clinical trials of our product candidates.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We do not believe that it is possible at this time to accurately project total expense required for us to reach commercialization of our product candidates. Due to the inherently unpredictable nature of nonclinical and clinical development, we are unable to estimate with certainty the costs we will incur and the timelines that will be required in the continued development and approval of our product candidates. Clinical and nonclinical development timelines, the probability of success and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, if and when such arrangements will be entered into, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect our research and development expenses to increase over the next several years as our clinical programs progress and as we seek to initiate clinical trials of additional product candidates. We also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates.
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
| • |
per patient trial costs; |
| • |
the number of patients that participate in the trials; |
| • |
the number of sites included in the trials; |
| • |
the countries in which the trials are conducted; |
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the length of time required to enroll eligible patients; |
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delays or operational challenges resulting from the ongoing COVID-19 pandemic; |
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the number of doses that patients receive; |
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the drop-out or discontinuation rates of patients; |
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potential additional safety monitoring or other studies requested by regulatory agencies; |
| • |
the duration of patient follow-up; and |
| • |
the efficacy and safety profile of the product candidates. |
In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.
Other than Jelmyto, which was approved by the FDA in April 2020, we have not received approval of any of our product candidates. UGN-102 and UGN-301 are still in clinical development, and the outcome of these efforts is uncertain. As such, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements.
License fees and development milestone payments related to in-licensed products and technology are expensed as incurred or when achieved, in the case of milestones, if it is determined at that point that they have no established alternative future use.
Selling and Marketing Expenses
To date, selling and marketing expenses consist primarily of commercial personnel costs (including share-based compensation) along with pre-commercialization and commercialization activities related to Jelmyto. We anticipate that our selling and marketing expenses will remain relatively consistent for the remainder of 2022.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs (including share-based compensation related to directors, executives, finance, medical affairs, business development, investor relations, and human resource functions). Other significant costs include medical affairs services, external professional service costs, facility costs, accounting and audit services, legal services, and other consulting fees.
We anticipate that our general and administrative expenses will remain relatively consistent for the remainder of 2022, and may increase in the future to support the potential approval and commercialization of our product candidates and our continued research and development programs.
Financing on prepaid forward obligation
Financing on prepaid forward obligation is comprised of financing expense related to the RTW Transaction (see Note 9 to our condensed consolidated financial statements included in this Quarterly Report).
Interest expense
Interest expense is comprised of interest related to our long-term debt with Pharmakon (see Note 10 to our condensed consolidated financial statements included in this Quarterly Report).
Interest and Other Income, Net
Interest and other income, net, consisted primarily of interest income.
Income Taxes
We have yet to generate net taxable income in Israel. We have historically incurred operating losses resulting in carry forward tax losses totaling approximately $335.8 million as of December 31, 2021. We anticipate that we will continue to generate tax losses for the foreseeable future and that we will be able to carry forward these tax losses indefinitely to future taxable years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses. We have provided a full valuation allowance with respect to the deferred tax assets related to these carry forward losses. Income tax expense also consists of our estimate of uncertain tax positions, and related interest and penalties. See Note 16 to the condensed consolidated financial statements for further information.
Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenue and expense incurred during the reported periods. In accordance with GAAP, we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ from these estimates under different assumptions or conditions. We discussed the critical accounting policies used in the preparation of our financial statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report as well as in the Note 3 to the condensed consolidated financial statements included in this Quarterly Report.
Results of Operations
Comparison of the three months ended September 30, 2022 and 2021
The following table sets forth our results of operations for the three months ended September 30, 2022 and 2021.
| Three Months Ended September 30, |
||||||||||||
| 2022 |
2021 |
Change |
||||||||||
| (in thousands) |
||||||||||||
| Revenue |
$ | 16,097 | $ | 11,351 | $ | 4,746 | ||||||
| Cost of revenue |
2,020 | 1,244 | 776 | |||||||||
| Gross profit |
14,077 | 10,107 | 3,970 | |||||||||
| Operating expenses: |
||||||||||||
| Research and development |
13,093 | 11,923 | 1,170 | |||||||||
| Selling and marketing |
11,882 | 12,473 | (591 | ) | ||||||||
| General and administrative |
7,189 | 9,151 | (1,962 | ) | ||||||||
| Total operating expenses |
32,164 | 33,547 | (1,383 | ) | ||||||||
| Operating loss |
(18,087 | ) | (23,440 | ) | 5,353 | |||||||
| Financing on prepaid forward obligation |
(4,819 | ) | (6,828 | ) | 2,009 | |||||||
| Interest expense on long-term debt |
(2,694 | ) | — | (2,694 | ) | |||||||
| Interest and other income, net |
478 | 57 | 421 | |||||||||
| Loss before income taxes |
(25,122 | ) | (30,211 | ) | 5,089 | |||||||
| Income tax expense |
(709 | ) | — | (709 | ) | |||||||
| Net loss |
$ | (25,831 | ) | $ | (30,211 | ) | $ | 4,380 | ||||
Revenue
Revenue was $16.1 million and $11.4 million for the three months ended September 30, 2022 and 2021, respectively. The increase in revenue of $4.7 million reflects the increased volume of sales of our product Jelmyto.
Cost of Revenue
Cost of revenue was $2.0 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively. In periods prior to receiving FDA approval for Jelmyto, we recognized inventory and related costs associated with the manufacture of Jelmyto as research and development expenses. We expect this to continue to impact cost of revenue through approximately the second quarter of 2023 as we produce Jelmyto at costs reflecting the full cost of manufacturing and as we deplete inventories that we had expensed prior to receiving FDA approval. Gross margin would have been approximately 86.9% versus 87.5% for the three months ended September 30, 2022, if we had not sold Jelmyto units that were expensed prior to regulatory approval.
Research and Development Expenses
Research and development expenses were $13.1 million and $11.9 million for the three months ended September 30, 2022 and 2021, respectively. The overall increase of $1.2 million is primarily attributable to the Phase 3 ENVISION study for UGN-102, research into ingredient scale-up and production efficiency for Jelmyto, partially offset by lower stock-based compensation expenses in 2022.
Selling and Marketing Expenses
Selling and marketing expenses were $11.9 million and $12.5 million for the three months ended September 30, 2022 and 2021, respectively. The decrease in selling and marketing expenses of $0.6 million is primarily attributable to lower stock-based compensation expenses in 2022.
General and Administrative Expenses
General and administrative expenses were $7.2 million and $9.2 million for the three months ended September 30, 2022 and 2021, respectively. The decrease in general and administrative expenses of $2.0 million resulted primarily from a decrease in stock-based compensation expenses in 2022.
Financing on Prepaid Forward Obligation
Financing on prepaid forward obligation was $4.8 million and $6.8 million for the three months ended September 30, 2022 and 2021, respectively. The measurement of financing on prepaid forward obligation is an accounting estimate under the "imputed interest method" of accounting (see Note 3 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report) which is affected by estimated future payments to RTW, which are based on a percentage of revenues. The decrease in financing on prepaid forward obligation of $2.0 million was driven primarily by changes in underlying assumptions for remeasuring the effective rate.
Interest Expense on Long-term Debt
Interest expense was $2.7 million and zero for the three months ended September 30, 2022 and 2021, respectively. The cost in 2022 relates to the Pharmakon loan which closed in March 2022.
Interest and Other Income, Net
Interest and other income, net was $0.5 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively. The increase in interest and other income, net was primarily due to minor fluctuations in interest earned on investments and foreign exchange.
Comparison of the nine months ended September 30, 2022 and 2021
The following table sets forth our results of operations for the nine months ended September 30, 2022 and 2021.
| Nine Months Ended September 30, |
||||||||||||
| 2022 |
2021 |
Change |
||||||||||
| (in thousands) |
||||||||||||
| Revenue |
$ | 46,265 | $ | 31,868 | $ | 14,397 | ||||||
| Cost of revenue |
5,391 | 3,568 | 1,823 | |||||||||
| Gross profit |
40,874 | 28,300 | 12,574 | |||||||||
| Operating expenses: |
||||||||||||
| Research and development |
38,429 | 34,560 | 3,869 | |||||||||
| Selling and marketing |
38,075 | 35,418 | 2,657 | |||||||||
| General and administrative |
23,129 | 30,699 | (7,570 | ) | ||||||||
| Total operating expenses |
99,633 | 100,677 | (1,044 | ) | ||||||||
| Operating loss |
(58,759 | ) | (72,377 | ) | 13,618 | |||||||
| Financing on prepaid forward obligation |
(16,478 | ) | (9,948 | ) | (6,530 | ) | ||||||
| Interest expense on long-term debt |
(5,215 | ) | — | (5,215 | ) | |||||||
| Interest and other income, net |
604 | 269 | 335 | |||||||||
| Loss before income taxes |
(79,848 | ) | (82,056 | ) | 2,208 | |||||||
| Income tax expense |
(1,066 | ) | ||||||||||