UroGen Pharma Ltd. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
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, approved for adults with low-grade upper tract urothelial cancer (UTUC). UGN-102 is in Phase 3 development for low-grade intermediate-risk non-muscle-invasive bladder cancer (NMIBC); UGN-301 is in an early-stage program for recurrent NMIBC.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $16.6 | $13.0 | $30.2 | $20.5 |
| Gross profit | $14.8 | $11.6 | $26.8 | $18.2 |
| Gross margin | 88.9% | 89.1% | 88.8% | 88.7% |
| Operating loss | $(18.7) | $(22.8) | $(40.7) | $(48.9) |
| Net loss | $(26.7) | $(26.2) | $(55.1) | $(52.2) |
| Net loss per share, basic and diluted | $(1.18) | $(1.17) | $(2.43) | $(2.34) |
- Revenue was entirely from Jelmyto product sales. Management attributed the increases to higher sales volume.
- Six-month operating cash use was $48.2, versus $46.3 in 2021. Investing activities provided $13.4, while financing activities provided $70.7, mainly from the new loan.
- At June 30, cash and cash equivalents were $80.7 and marketable securities were $31.7, or $112.4 combined. Current assets were $139.6 and current liabilities $18.0. Accumulated deficit was $522.4, and shareholders’ equity was a deficit of $40.9.
- Long-term debt had a carrying value of $71.2. The separate RTW prepaid forward obligation was $93.5. The filing reports no current portion of long-term debt on the balance sheet.
Material changes and unusual items
- Q2 operating loss narrowed by $4.1 from the prior-year quarter, largely as gross profit increased and total operating expenses declined. For the first half, operating loss improved by $8.3, but net loss increased by $2.9, reflecting higher financing expense and new debt interest.
- Research and development expense rose to $25.3 for the first half, primarily due to the UGN-102 ENVISION trial and Jelmyto ingredient scale-up and production-efficiency work. Selling and marketing expense increased to $26.2, while general and administrative expense fell to $15.9, primarily due to lower share-based compensation.
- RTW financing expense was $11.7 for the first half, compared with $3.1 in 2021; the obligation is accounted for using imputed interest and its expense can vary with estimated future payments. The applicable rate on Jelmyto sales up to $200 million was 13.0% for the first half of 2022. RTW receives tiered payments on eligible product sales, subject to an aggregate payment cap of $300 million.
- In March 2022, UroGen borrowed $75.0 under a senior secured Pharmakon facility of up to $100.0, with an optional additional $25.0 tranche subject to conditions and a December 31, 2022 deadline. Interest is floating at three-month LIBOR (1.25% floor) plus 8.25%; interest-only payments apply for the first 48 months. The loan is secured by substantially all credit-party assets, subject to exceptions, and has no financial covenants.
- Jelmyto manufacturing costs include inventory costs expensed before FDA approval; management expected this to affect cost of revenue through Q1 2023. The company recorded $0.3 of inventory obsolescence in the first half.
Outlook, risks and contingencies
- Management believes cash, cash equivalents and marketable securities will fund planned operations for at least the next 12 months. It also expects to need additional capital in the future; financing may be unavailable or dilutive, and insufficient funding could force reductions or delays in development or commercialization.
- Management expected selling and marketing and general and administrative expenses for the remainder of 2022 to remain relatively consistent with the first half. Research and development spending is expected to remain significant and increase as programs advance. No revenue or earnings guidance was provided.
- ENVISION was expected to enroll approximately 220 patients, with enrollment completion targeted by year-end 2022; assuming positive results, the company anticipated an NDA submission for UGN-102 in 2024. The company stopped enrolling in the ATLAS Phase 3 study after FDA discussions; patients already in the study continue to be followed. A small Phase 3b home-administration study was expected to enroll up to 10 patients by year-end 2022. UGN-301’s Phase 1 study was actively enrolling, with first-arm completion targeted in approximately 12 months.
- In July 2022, UroGen notified MD Anderson that it would conclude the collaboration in 2022 after achieving its objectives; it will continue existing joint projects and has no further fixed biannual funding payments. The filing also reports a July extension of the Israel office lease through September 2025, with approximately $0.9 of base rent over three years.
- Key risks include dependence on Jelmyto commercialization and a single specialty-distributor customer; clinical and regulatory uncertainty for pipeline candidates; reliance on single-source suppliers; coverage, reimbursement and physician-adoption uncertainty; COVID-19-related operational disruption; and financing, floating-rate debt and RTW payment obligations. The company reported difficulty following some ATLAS patients in Ukraine and Russia amid the war.
- The company reported no legal proceedings considered likely to have a material adverse effect and no material changes in internal control over financial reporting during the quarter. Management concluded disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Jelmyto sales growth, prescribing and reimbursement trends, product returns and sales-reserve assumptions.
- ENVISION enrollment progress and timeline, the status and follow-up of ATLAS patients, and UGN-301 study progress.
- Cash burn and runway against management’s plan, including whether the optional Pharmakon tranche is drawn and what additional financing may be required.
- Pharmakon’s floating interest cost, security and repayment terms, and the effect of the RTW sales-linked obligation on future cash flows.
- Continuity and capacity of single-source suppliers, manufacturing costs and inventory recoverability; potential effects of geopolitical and COVID-19 disruptions.