Urogen Pharma Ltd. quarterly report, Q1 FY2023

UroGen Pharma Ltd. — Q1 2023 Form 10-Q

Reporting period: Three months ended March 31, 2023. Unaudited results; financial statement amounts below are in U.S. dollars unless noted.

Business context

UroGen is a biotechnology company developing and commercializing treatments for urothelial and specialty cancers using its RTGel drug-delivery technology. Its only marketed product is Jelmyto for adults with low-grade upper tract urothelial cancer (UTUC). UGN-102, for low-grade intermediate-risk non-muscle-invasive bladder cancer (NMIBC), and UGN-301, for high-grade NMIBC, remain investigational.

Financial results and liquidity

All Q1 2023 revenue was from Jelmyto. Revenue growth reflected higher sales volume. Cost of revenue rose to $2.3 million from $1.5 million, attributed to higher sales and depletion of inventory costs previously expensed as R&D. Selling and marketing expense increased mainly on brand marketing and commercial training; general and administrative expense increased mainly on advisory services, compensation and IT managed services. R&D expense was slightly lower, including lower ENVISION-related costs, partly offset by higher UGN-301 Phase 1 costs.

At March 31, cash and cash equivalents were $36.5 million and marketable securities were $38.7 million, for a combined $75.2 million. Current assets were $96.0 million and current liabilities $25.2 million. Total liabilities were $229.5 million, including $97.9 million of long-term debt and a $101.9 million prepaid forward obligation to RTW. Shareholders’ deficit was $116.6 million. The Pharmakon loan carries interest at 8.25% plus a floating benchmark rate, with interest-only payments for the first 48 months and principal payments thereafter. The RTW obligation requires tiered payments based on product sales and is secured by product-related assets.

Material changes and operating developments

• Jelmyto revenue increased approximately 27% year over year, while gross margin declined by about 2 percentage points.
• Interest expense on long-term debt rose to $3.6 million from $0.3 million, largely because the Pharmakon loan was outstanding for the full quarter in 2023 but closed in March 2022. Financing expense on the RTW obligation declined to $5.2 million from $5.8 million.
• Cash and cash equivalents fell from $55.4 million at year-end 2022 to $36.5 million; combined cash and marketable securities declined from approximately $100.0 million to $75.2 million. Operating activities used $25.8 million of cash; investing activities provided $6.3 million, mainly reflecting security maturities net of purchases; financing activities provided $0.7 million, principally from option exercises.
• ENVISION, the Phase 3 UGN-102 trial, completed target enrollment of 220 patients in December 2022. Enrollment in the ATLAS trial was stopped following FDA discussions, though eligible patients already in screening could continue into the study.

Outlook, risks and contingencies

Management estimates that existing resources and projected revenue will fund planned operations only until midway through Q1 2024. The company says it will require significant additional financing within 12 months and that, without sufficient financing, it will not have enough resources to fund operations beyond one year from issuance of the financial statements. Management identifies these conditions as raising substantial doubt about the company’s ability to continue as a going concern. Failure to obtain financing could require delaying, limiting or reducing development and commercialization activities. The filing provides no formal revenue or earnings guidance.

Assuming positive findings and FDA agreement on the submission, UroGen anticipated submitting an NDA for UGN-102 in 2024. Preliminary results from an eight-patient UGN-102 home-administration study were reported in February 2023; 75% achieved complete response, but the small study is not definitive. Management also noted that Jelmyto revenue may fluctuate quarter to quarter and that a seasonal pattern observed in prior years is not yet established.

Key risks include dependence on Jelmyto commercialization and UGN-102 development; uncertain clinical and regulatory outcomes; additional capital needs and potential shareholder dilution; secured debt and RTW payment obligations and associated restrictions; reliance on single-source suppliers and contract manufacturers; reimbursement and market-adoption uncertainty; and geopolitical and operating risks in Israel. Jelmyto’s Medicare pass-through status was expected to expire in Q4 2023, which the company said could affect access and revenue. The filing reports no legal proceedings that management believes are likely to have a material adverse effect and no subsequent events. Management concluded disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

• Whether Jelmyto sales growth and gross margin hold up in subsequent quarters, including the effect of reimbursement and Medicare pass-through status.
• Available financing, cash burn and runway; the company’s stated runway estimate is only to midway through Q1 2024.
• UGN-102 ENVISION results, FDA alignment on the evidence and pathway, and the feasibility of the anticipated 2024 NDA submission.
• Debt and RTW terms, including floating-rate interest, sales-based payments, collateral and restrictions on additional financing.
• Clinical, manufacturing and supply risks, including the company’s reliance on single-source suppliers.