UroGen Pharma Ltd. (URGN) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the historical consolidated financial statements and the notes thereto included in “Financial Statements and Supplementary Data”. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Annual Report. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

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.

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 without compromising the safety of the patient or interfering with the natural flow of fluids in the urinary tract.

Jelmyto

Jelmyto is our novel sustained-release RTGel-based formulation of mitomycin that we have developed for the treatment of low-grade UTUC. 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 through 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).

The FDA evaluated the Jelmyto NDA under Priority Review, which is reserved for medicines that may represent significant improvements in safety or efficacy in treating serious conditions. Jelmyto was also granted Breakthrough Therapy Designation by the FDA, which was created to expedite the development and review of drugs developed for serious or life-threatening conditions with high unmet need.

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In June 2020, we initiated our commercial launch of Jelmyto in the United States. We have staffed, trained and prepared a customer-facing team comprising territory business managers with deep experience in both urology and oncology. These territory business managers are led by seven regional business managers. 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 includes seven 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 representatives.

We are committed to helping patients access Jelmyto. Our market access teams have laid the foundation for coverage and reimbursement, meeting multiple times with payers. The majority of large commercial plans have policies in place, 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 pharmacy under which the pharmacy, following receipt of a patient prescription, prepares and dispenses the Jelmyto admixture on our behalf. 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 are also launching a registry to capture data and evaluate real world outcomes in patients with 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.

UGN-102

We are evaluating the safety and efficacy of UGN-102, our novel sustained-release formulation of mitomycin 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. We initiated the Phase 3 ATLAS trial in December 2020 and until November 2021, were enrolling patients in this trial assessing UGN-102 with or without TURBT compared 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.

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We initiated the Phase 3 ATLAS trial in December 2020 and until recently had been enrolling patients in this trial assessing UGN-102 with or without TURBT compared to standard of care. In parallel, we continued to engage in discussions with the FDA and, based on this dialogue, have designed an alternative trial in order to demonstrate the efficacy and safety of UGN-102. This new streamlined 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 this new Phase 3 ENVISION trial will be similar to our Phase 2 OPTIMA II trial in that the patient population will have the same clinical characteristics, receive the same treatment regimen and undergo the same efficacy and safety assessments and qualitative follow-up, but with different endpoints. Study participants will receive 6 once-weekly intravesical instillations of UGN-102. The planned primary endpoint is the complete response rate at three months after the first instillation, and the key secondary endpoint will be 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. As a result of the FDA's acceptance of a single arm approach, we have 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 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. 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 the ease and convenience of home instillation has the potential to transform care and facilitate alternative access to treatment.

UGN-301

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. UGN-301, an immune checkpoint inhibitor, is delivered using our proprietary RTGel technology , which has been designed to significantly improve the effectiveness of intravesical therapy.

Our initial nonclinical studies involve the sequential use of UGN-201 (imiquimod), a TLR 7 agonist, and UGN-301 (zalifrelimab), an anti-CTLA-4 antibody, as an investigational treatment for high-grade NMIBC. Toll-like receptors are pattern recognition receptors whose importance in stimulating innate and adaptive immunity has been established by recent studies. Toll-like receptors are able to sense microbial components as well as host-derived endogenous molecules released by injured tissues and play a critical role in defending against invading pathogens. Imiquimod, in its topical formulation, is FDA approved for several indications, including superficial basal cell carcinoma. UGN-201 is a liquid formulation of imiquimod for intravesical administration that has been optimized for delivery in the urinary tract. UGN-201 does not use our RTGel technology. We believe that UGN-201 may elicit an adaptive immune response in the presence of released bladder cancer antigens, which may translate into a long lasting acquired immune response.

Our Research and Development and License Agreements

Allergan/AbbVie Agreement

In October 2016, we entered into an exclusive license agreement (the "Allergan/AbbVie Agreement") with Allergan Pharmaceuticals International Limited ("Allergan"), a wholly owned subsidiary of Allergan plc, which is now a part of AbbVie Inc. ("AbbVie") and granted Allergan an exclusive worldwide license to research, develop, manufacture and commercialize pharmaceutical products that contain RTGel and clostridial toxins including BOTOX. The license granted the exclusivity for the RTGel and clostridial toxins including BOTOX alone or in combination with certain other active ingredients, referred to as the Licensed Products, which are approved for the treatment of adults with overactive bladder ("OAB") who cannot use or do not adequately respond to anticholinergics.

In October 2017, Allergan commenced a Phase 2 clinical trial of BOTOX/RTGel for the treatment of OAB, with the potential to evolve from multiple injections of BOTOX into the bladder to a single instillation of the novel formulation. In August 2020, we announced that the Phase 2 APOLLO trial did not meet the primary endpoint. The data suggested that this result may have been due to BOTOX not effectively permeating the urothelium. Over the past year, we have been in discussions with AbbVie to determine whether other products in their portfolio would be complementary with RTGel. Based on this review, there was limited interest to pursue combinatorial products, and therefore, in November 2021 the Allergan/AbbVie Agreement was terminated.

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Agenus Agreement

In November 2019, we entered into a license agreement with Agenus Inc. (“Agenus”). Pursuant to the agreement, Agenus granted us an exclusive, worldwide license (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 antibody of Agenus known as AGEN1884 for the treatment of cancers of the urinary tract via intravesical delivery. AGEN1884 is an anti-CTLA-4 antagonist that is currently being evaluated by Agenus as a monotherapy in PD-1 refractory patients and in combination with Agenus’ anti-PD-1 antibody (AGEN2034) in solid tumors. UGN-301 is a formulation of RTGel and zalifrelimab (AGEN1884) that is in early-stage development for high-grade NMIBC.

MD Anderson Agreement

Based on nonclinical studies conducted by us, UGN-201 in combination with anti-CTLA-4 antagonists have shown encouraging results for the potential treatment of high-grade NMIBC. In January 2021, we announced that we entered into a three-year strategic research collaboration agreement with MD Anderson focusing on sequential use of UGN-201 and UGN-301 as an investigational treatment for high-grade NMIBC. Under the agreement, MD Anderson and UroGen will collaborate on the design and conduct of nonclinical and clinical studies with oversight from a joint steering committee. UroGen will provide funding, developmental candidates, and other support.

For additional information regarding our research and development and license agreements, see Note 12 to our financial statements appearing elsewhere in this Annual Report.

Impact of COVID-19 Pandemic

In the event of continuing disruptions related to COVID-19 variants, there could be detrimental impact to 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 the end of January 2022, over 75% of the U.S. population has had at least one dose of the COVID-19 vaccine, and over 64% are fully vaccinated. However, as circumstances evolve, in particular related to the emergence of variants, it will be important to understand potential impacts to patients and the hospital system, and the ability for patients to access Jelmyto. Throughout 2021, we have experienced reduced or limited access to surgery centers and clinics, particularly in regions of the U.S. that have continued to be heavily impacted by COVID-19. While it is difficult to predict the impact of the ongoing COVID-19 pandemic, including associated variants, 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 related government response may have on our business.

Components of Operating Results

Revenues

During the year ended December 31, 2021 and December 31, 2020, we recognized $48.0 million and $11.8 million of revenues, respectively, from sales of our product, Jelmyto, which we launched in June 2020.

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Cost of Revenues

Cost of revenues consist primarily of inventory and related costs associated with the manufacturing, distribution, warehousing and preparation of Jelmyto. 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 consist primarily of:

We expense all research and development costs as incurred. We estimate nonclinical study and clinical trial expenses 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 expenses 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 the milestone results are achieved.

We have received grants under the Israeli Law for the Encouragement of Industrial Research, Development and Technological Innovation, 5754-1984 (the “R&D Law”), from the Israel Innovation Authority in Israel (the “IIA”), an independent and impartial public entity, for some of our development programs. Through December 31, 2021, we had received grants in the aggregate amount of $2.1 million. On January 12, 2020, the IIA approved the Company’s request to unwind its obligation to the IIA regarding grants that were loaned to the Company between January 2004 and September 2016. The total payment under the IIA approval, net of the royalties already paid, amounts to $6.6 million, which was fully paid during the first quarter of 2020. See Note 18 to the Consolidated Financial Statements included in this report for additional information.

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 expenses 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:

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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 is still in clinical development and our other product candidates are in nonclinical 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 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, formerly known as UGN-101.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs (including share-based compensation related to directors, employees and consultants). Other significant costs include medical affairs services, external professional service costs, facility costs, accounting and audit services, legal services, and other consulting fees.

Financing on prepaid forward obligation

Financing on prepaid forward obligation is comprised of financing expense related to the RTW Transaction, as defined in Note 3 to the Consolidated Financial Statements.

Interest and Other Income, Net

Interest and other income, net, consisted primarily of interest income, net losses on foreign exchange and bank commissions.

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Income Taxes

We have yet to generate 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 Consolidated Financial Statements for further information.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table sets forth our results of operations for the years ended December 31, 2021 and 2020.

Revenues

Revenues were $48.0 million and $11.8 million for the years ended December 31, 2021 and 2020, respectively. The increase of $36.2 million reflects the increased volume of sales of our product Jelmyto following its approval by the FDA in April 2020 commercial launch which commenced in June 2020.

Cost of Revenues

Cost of revenues were $5.2 million and $1.0 million for the years ended December 31, 2021 and 2020, 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 revenues through the second quarter of 2023 as we produce Jelmyto at costs reflecting the full costs of manufacturing and as we deplete inventories that we had expensed prior to receiving FDA approval. Gross margin was 89.3% and 91.4% for the years ended December 31, 2021 and 2020, respectively.

Research and Development Expenses

Research and development expenses increased by $0.3 million to $47.6 million in the year ended December 31, 2021 from $47.3 million in the year ended December 31, 2020. The increase is primarily attributable to higher research and development expense in 2021 related to the Phase 3 ATLAS study for UGN-102 which was initiated at the end of 2020, partially offset by the one-time payment in the prior year of $6.6 million to unwind our obligation to the IIA, and a decrease in personnel costs within research and development departments.

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Selling and Marketing Expenses

Selling and marketing expenses were $47.6 million and $46.5 million for the years ended December 31, 2021 and 2020, respectively. The increase in selling and marketing expenses of $1.1 million resulted primarily attributable to higher field sales force expenses related to the launch and commercialization of Jelmyto.

General and Administrative Expenses

General and administrative expenses were $39.9 million and $43.7 million for the years ended December 31, 2021 and 2020, respectively. The decrease in general and administrative expenses of $3.8 million resulted primarily from a decrease in consulting and personnel costs in 2021.

Financing on Prepaid Forward Obligation

Financing on prepaid forward obligation was $17.3 million and $0 for the years ended December 31, 2021 and 2020, respectively, related to the closing of the RTW agreement.

Interest and Other Income, Net

Interest and other income, net was income of $0.2 million and income of $1.6 million for the years ended December 31, 2021 and 2020, respectively. The decrease of $1.4 million was primarily due to a decrease in our cash and cash equivalents and marketable securities.

Liquidity and Capital Resources

As of December 31, 2021, we had $89.8 million in cash and cash equivalents and marketable securities. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation, and is held primarily in U.S. dollars. Based on our cash flow projections, we believe that our existing cash and cash equivalents and marketable securities, in addition to our recently announced Loan Agreement (see Note 19 to the Consolidated Financial Statements for additional details) are sufficient to fund our planned operations for at least the next 12 months.

Through December 31, 2021, we funded our operations primarily through public equity offerings, private placements of equity securities and our funding arrangement with RTW.

During the second quarter of 2020 we sold 700,000 ordinary shares under the ATM Sales Agreement, for gross proceeds of approximately $16.6 million. The net proceeds to us after deducting sales commissions to Cowen and other issuance expenses were approximately $15.8 million. The remaining capacity under the ATM Sales Agreement is approximately $83.4 million.

In March 2021, we entered into the Forward Contract with RTW, pursuant to which RTW agreed to provide us with an upfront cash payment of $75.0 million to support the launch of Jelmyto and the development of UGN-102, and we agreed to provide RTW with tiered future payments based on global annual net product sales of Jelmyto and UGN-102, if approved. In May 2021, following the receipt of necessary regulatory approvals, we received the $75.0 million prepaid forward payment ($72.4 million net of transaction costs) from RTW. As of December 31, 2021, the amounts paid and payable to RTW amounted to $4.0 million.

On March 7, 2022, we entered into the Loan Agreement, pursuant to which the Lenders agreed to make the Term Loans to Borrower in an aggregate principal amount of up to $100 million to be funded in two tranches: (i) Tranche A Loan was advanced in the amount of $75 million ($72.6 million net of transaction costs) in March, 2022, and (ii) the Tranche B Loan of $25 million will be advanced at the Borrower's election, subject to the customary bring down conditions and deliverables, and in no event later than December 31, 2022. See Note 19 to the Consolidated Financial Statements for additional details.

We have incurred losses since our inception and negative cash flows from our operations, and as of December 31, 2021 we had an accumulated deficit of $467.3 million. We anticipate that we will continue to incur losses for the reasonably foreseeable future. Our primary uses of capital are, and we expect will continue to be, commercialization activities, research and development expenses, including third-party clinical research and development services, laboratory and related supplies, clinical costs, including manufacturing costs, legal and other regulatory expenses and general and administrative costs, partially offset by proceeds from sales of Jelmyto.

We cannot estimate the actual amounts necessary to successfully commercialize any approved products, including Jelmyto, 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.There can be no assurances that we will be able to secure such additional financing if at all, or on terms that are satisfactory to us, and that it will be sufficient to meet its needs. In the event we are not successful in obtaining sufficient funding, this could force us to delay, limit, or reduce our product development, commercialization efforts or other operations.

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Cash Flows

The following table sets forth the significant sources and uses of cash for the periods set forth below:

Operating Activities

Net cash used in operating activities was $84.9 million during the year ended December 31, 2021, compared to $105.9 million used in operating activities during the year ended December 31, 2020. The $21.0 million decrease was attributable primarily to the decrease of $17.7 million in the net loss driven by revenue from sales of our product Jelmyto during 2021, as well as lower personnel related costs and the payment to the IIA during 2020.

Investing Activities

Net cash provided by investing activities was $4.1 million during the year ended December 31, 2021, compared to net cash provided by investing activities of $93.2 million during the year ended December 31, 2020. The decrease of $89.1 million is primarily related to a decrease in maturities of marketable securities, in addition to an increase in purchases of marketable securities as compared to the prior year.

Financing Activities

Net cash provided by financing activities was $72.3 million during the year ended December 31, 2021, compared to net cash provided by financing activities of $16.5 million during the year ended December 31, 2020. The increase of $55.8 is primarily due to the receipt of $72.4 million of net proceeds from the RTW Transaction in 2021, as compared to net proceeds received from sales under the ATM Sales Agreement in 2020.

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Funding and Cash Requirements

Our present and future funding and cash requirements will depend on many factors, including, among other things:

Accordingly, we will need to obtain additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

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We may finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of any additional securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, may involve agreements that include covenants that further limit or restrict our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, the terms of the Forward Contract and Loan Agreement limit our ability to take certain actions, including incurring additional indebtedness.

If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

For more information as to the risks associated with our future funding needs, see “Item 1.A – Risk Factors.”We will require additional financing to achieve our goals, and a failure to obtain this capital when needed and on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, commercialization efforts or other operations.

Contractual Obligations and Commitments

In April 2016, the Company signed an addendum to its November 2014 lease agreement for our executive offices located in Israel, in order to increase the office space rented and to extend the rent period until 2019. In March 2019, we utilized the agreement extension option and extended the rent period for an additional three years until August 2022.

In April 2018, we entered into a new lease agreement for an office in Los Angeles, CA. The lease commencement date was July 10, 2018 and terminates in March 2024. In November 2019, we subleased our offices in Los Angeles, CA. The lease commencement date was January 1, 2020 and terminates in March 2024. The subtenants exercised their early access clause and moved into the premises at the end of November 2019.

Also, in November 2019, we entered into a new lease agreement, dated effective October 31, 2019, for an office in Princeton, NJ. The lease commencement date was November 29, 2019 and the lease term is 38 months.

The total obligation for future minimum lease payments under our operating leases is $1.6 million as of December 31, 2021. See Note 10 to the Consolidated Financial Statements for further information.

On March 7, 2022, UroGen Pharma Ltd., the Borrower and the Guarantors party thereto from time to time entered into the Loan Agreement with the Lenders and Collateral Agent pursuant to which the Lenders agreed to make the Term Loans to the Borrower in an aggregate principal amount of up to $100 million to be funded in two tranches: (i) the Tranche A Loan of $75 million was advanced in March, 2022 and (ii) the Tranche B Loan of $25 million will be advanced at Borrowers election, subject to certain conditions, subject to the customary bring down conditions and deliverables, and in no event later than December 31, 2022. The Term Loans will mature on the fifth-year anniversary of the Tranche A Closing Date (the “Maturity Date”). The Term Loans bear interest at 8.25% plus three-month LIBOR per annum with a LIBOR floor of 1.25%. In the event of the cessation of LIBOR, the benchmark governing the interest rate will be replaced with a rate based on the secured overnight financing rate published by the Federal Reserve Bank of New York as described in the Loan Agreement. Interest is payable quarterly in arrears. Repayment of outstanding principal of the Term Loans will be made in four equal quarterly payments of principal commencing after the 17th-quarter anniversary of the Tranche A Closing Date. The obligations of the Borrower under the Loan Agreement are guaranteed on a full and unconditional basis by UroGen Pharma Ltd. and the other Guarantor and are secured by substantially all of the respective Credit Parties’ tangible and intangible assets and property, including intellectual property, subject to certain exceptions.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of these 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 as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, are reflected in our financial statements prospectively from the date of the change in estimate.

We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following are the critical accounting policies used in the preparation of our financial statements.

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Revenues

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 our arrangement with a single customer, a third-party national specialty distributor. Net revenues 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 our co-pay assistance program, which are estimated based on industry benchmarking studies as well as our historical experience.

Research and Development

Research and development costs are expensed as incurred and consist primarily of the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for research and development activities, including nonclinical studies, clinical trials, other manufacturing costs and professional services. The costs of services performed by others in connection with the research and development activities of an entity, including research and development conducted by others on behalf of the entity, shall be included in research and development costs and expensed as the contracted work is performed. 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 its external service providers. We adjust accruals 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 the milestone results are achieved.

The costs of intangibles that are purchased from others for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic values are recognized as research and development expense at the time the costs are incurred.

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 we accrue 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

We account for employees’ and directors’ share-based payment awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite 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. We account for forfeitures as they occur in accordance with ASC Topic 718, “Compensation—Stock Compensation”.

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We 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. Performance based awards are expensed over the requisite service period when the achievement of performance criteria is probable.

Prepaid Forward Obligation

Under the RTW Transaction, we 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.

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 U.S. 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.