Urogen Pharma Ltd. quarterly report, Q1 FY2019

UroGen Pharma Ltd. — Q1 2019 Form 10-Q

Reporting period: Three months ended March 31, 2019. UroGen is a clinical-stage biopharmaceutical company developing therapies for urological conditions, including urothelial cancers. It has no products approved for sale and has not generated product revenue.

Financial results and liquidity

• Q1 2018 revenue of $0.5 million was from RTGel supplied under the Allergan agreement; Q1 2019 had no revenue. Q1 2018 cost of revenue was $0.4 million, leaving $0.1 million gross profit; no gross margin was reported for Q1 2019.
• Management attributed the $2.1 million R&D increase to greater UGN-102 Phase 2b and UGN-101 Phase 3 trial activity and related staffing. The $6.6 million increase in G&A primarily reflected higher share-based compensation, payroll/recruitment and commercial services.
• Finance income was $1.0 million, mainly interest on cash, versus $0.3 million in Q1 2018. The filing lists basic and diluted loss per share as $1.11 for 2019 and $0.88 for 2018 without parentheses, although both periods reported net losses; the sign presentation is unclear in the supplied filing text.
• Cash and cash equivalents were $246.7 million at March 31, 2019, compared with $101.3 million at December 31, 2018. The increase chiefly reflects the January 2019 share offering, which generated approximately $161.4 million net proceeds. Cash, cash equivalents and restricted cash totaled $247.1 million at quarter-end.
• Total liabilities were $12.5 million, including $3.2 million of lease liabilities (current and long-term). The filing reports no borrowings or other financial debt. Accumulated deficit was $144.3 million.

Changes and notable items

• Net loss increased by $8.1 million year over year; operating cash use increased by $8.3 million.
• Shares outstanding rose to 20.76 million from 16.21 million at year-end, principally following the January public offering. Q1 financing cash inflow was $163.5 million, including offering proceeds and option exercises.
• UroGen adopted the new lease accounting standard on January 1, 2019, recognizing right-of-use assets and lease liabilities; the company stated the adoption materially affected the balance sheet but not the income statement.
• New CEO Elizabeth Barrett was appointed in January. She received options and restricted stock units with a combined grant-date fair value of $24.1 million. Share-based compensation expense was $7.4 million, up from $4.5 million a year earlier.

Outlook, risks and contingencies

• Management believes existing cash and cash equivalents will fund its business plans for at least the next 12 months. It expects continued losses and negative operating cash flows, with R&D and G&A expenses expected to rise; additional capital may be needed, and future financing is not assured.
• UroGen is advancing UGN-101 in a pivotal Phase 3 trial for low-grade upper tract urothelial carcinoma and UGN-102 in a Phase 2b trial for low-grade bladder cancer. The company had initiated a rolling NDA submission for UGN-101 and expected to complete the submission in the second half of 2019. Approval, timing and sufficiency of the trial data remain uncertain.
• Clinical, regulatory, manufacturing and commercialization risks include trial outcomes, adverse events, patient enrollment, FDA review, reimbursement and market adoption. The filing describes observed adverse events in UGN-101 studies, including ureteral edema, urinary-flow obstruction, renal effects and urinary symptoms; further safety data were still accruing.
• Supply-chain exposure includes single-source suppliers for mitomycin API and other product components, and reliance on a third party for drug-product manufacturing. The filing notes Teva was undergoing restructuring and that manufacturing validation and scale-up remained to be completed.
• The Allergan collaboration could provide up to $200 million in additional development, regulatory and commercial milestones, plus low-single-digit royalties, but Allergan may terminate the agreement for any reason upon advance notice. UroGen had received $25 million in milestone payments since inception of the agreement.
• Israeli Innovation Authority funding carries royalty and technology-transfer obligations. Maximum royalties payable were stated as $2.1 million, excluding interest and including $0.8 million already paid; transferring funded technology or manufacturing outside Israel may require approval and could trigger increased payments or penalties.
• On April 22, 2019, after quarter-end, UroGen entered an early-stage feasibility evaluation agreement with Janssen; each party will conduct activities and UroGen will bear the cost of its own work. Management reported no material pending legal proceedings and no off-balance-sheet arrangements.

Key facts for investors to verify

1. UGN-101 NDA submission progress, FDA feedback and final pivotal-trial efficacy, durability and safety data.
2. UGN-102 Phase 2b progress, cost and timeline, and how trial results may affect spending plans.
3. Cash burn and runway against management’s stated at-least-12-month funding estimate, including potential financing needs and dilution.
4. Mitomycin and other single-source supply continuity, manufacturing validation and commercial-scale readiness.
5. Terms, progress and potential value of Allergan milestones and royalties, and the scope and costs of the Janssen feasibility work.