UroGen Pharma: Jelmyto Sales Growing Steadily, Concerns Remain (URGN)

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UroGen Pharma (shares)NASDAQ:URGNOver the past three-years, ) have lost almost two-thirds their value. 2022 performance is slightly lower at -12%

The market could be worried about cash balance or burn rate, according to devil’s advocateThe company hopes to end 2022 with $100M in the balance sheet, and a quarterly net loss (one year runway) of $25M. Also, this cash is a product from a loan facility with Pharmakon Advisors. I expect a secondary offering in Q1-2023.

These concerns aside, Core Biotech’s attention was drawn to this one due to Jelmyto’s growing sales (up 41% in Q3-$16.1M with peak potential up to $300M in LGUTUC), pivotal data coming to 2023 for UGN102 in LGIR-NMIBC ($500M opportunity), and optionality via RTGel which can carry molecules of any size to reside in target area for extended periods of time.

I look forward sharing my thoughts about this commercial-stage idea with readers. This includes a path to value creation and suggestions for managing key risk factors.

Chart

Weekly Chart

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Figure 1 URGN Weekly chart (Source: Finviz).

Charts can be clearened by looking at different time periods in order to see the important technical levels and gain a sense of what’s happening. As you can see, the share price has risen to the high twenties by early 2021. Jelmyto’s $11.8M sales in the first seven months after it was launched is evident in the weekly chart. In March of that year, RTW Investments gave a vote of confidence by providing $75M of non-dilutive financing in exchange for tiered cash payment on net product sales of Jelmyto as well as UGN-102. These payments will be terminated once RTW has received $300M in total payments. The share price fell to mid-single numbers as sales growth declined, including November’s sharp decline due to Q3 earnings miss. Recent share price rises to the low teens, but then falls back to high single figures (perhaps due to Q3 report balance sheet concerns). Investors interested in this name may be able to enter a small pilot role, but they should wait for more clarity on the balance sheet (financial underhang to be cleared before adding more exposure).

Overview

UroGen Pharma was founded in 2004 and has 195 employees. It currently has an enterprise value of $200M, Q3 cash position $95M, and a runway of just over three quarters.

September’s Presentation at Ladenburg ThalmannThe company’s operations are well-described. Management points out that the company’s origins lie in a urologist who met a chemical chemist at an informal party. The urologist wanted to know how drugs can be gotten into the urinary tract and kept there. This was particularly relevant for bladder cancer and urothelial carcinoma as the bladder is designed to void, which means that therapies such as chemotherapy and other treatments are limited in dwell time. The chemist said he had a solution. It is now called RTGEL (reverse-thermal hydrogel technology). This is a mixture polymers that when cooled turn into a liquid and when warmed, a soft gel which slowly dissolves within a warm wet body cavity. It is a transmitting drug that can be targeted over a long period of time. UroGen started with Jelmyto and has brought a product to the market that is useful in urology. The pipeline also contains additional drug candidates that aim to improve upon these results and address other indications where there is high unmet medical need.

pipeline

Slides for Corporate Use

Figure 2 Pipeline (Source: Corporate presentation)

Urothelial carcinoma is a common malignancy. However, more attention has been paid to metastatic disease since approval of checkpoint inhibitor therapy. Patients with metastatic or locally advanced disease are also approved for SeaGen’s anti-cancer drug conjugate Padcev. UroGen does not compete for these patients. Instead, it is focused on different populations, underserved groups with recurrent bladder tumors who are treated by repetitive surgical (standard of care for older patients averaging 74).

To go back to the beginning, mitomycin is a generic drug used off-label for the treatment of low grade NMIBC following trans-urethral removal of bladder tumors (TURBT). It is also FDA-approved and physicians can use it in their medical practice for this indication. Adjuvant chemotherapy is only used in 15%-30% of eligible patients. Mitomycin is administered by water-based solutions, which have a short dwell period in the bladder. This is limited to first voiding. It can also cause temporary irritation to the urinary tract, including the need to urinate frequently or urgently (doesn’t sound very pleasant). As urine flows, dwell time in the upper bladder is limited to five mins. Active retention by the patient is not possible. In vitro studies have shown that a longer dwell time in the bladder can lead to an increase in the chance of recurrence of urothelial carcinoma. This is likely due to increased cell killing in comparison to aqueous solutions.

Jelmyto is the company’s new sustained-release RTGel based formulation of mitomycin. It was developed for the treatment and prevention of lower-grade UTUC. It is a chemoablation treatment that can potentially save patients from repeat tumor resections and reduce the need for upper urinary tract surgery including kidney removal. This sounds like a real value-add to me. The UTUC is responsible for 5% to 10% in all new cases of urothelial carcinoma. This, along with recurrent cases, results in an annual incidence of up 7,000 cases in the United States. Jelmyto approval in 2020 was the first time that drugs had been approved. The current standard is radical nephroureterectomy, which is a complete removal of the kidneys and upper urinary system. Modern resection technology has allowed physicians to use endoscopic tumor removal (sparing the kidneys) and adjuvant mitomycin treatment in some cases. As mentioned, the anatomy of the upper urinary system can lead to high recurrence rates in patients who have undergone multiple endoscopic procedures. This increases the likelihood of complications like perforation. RNU was performed on 70% to 80% percent of patients. Jelmyto was awarded Breakthrough Therapy Designation. Phase 3 OLYMPUS results showed a complete response rate of 58% (41 out of 71 patients), with 23 of 41 patients remaining CR at the 12-month point.

Satisfaction

Corporate Slides

Figure 3 High satisfaction with key attributes of Jelmyto (Source : Corporate presentation)

Although permanent J-code was launched in January 2021, it was difficult for doctors to launch during a pandemic. Currently, doctors are experiencing increased engagement, doc visits, scientific meetings, and other benefits. Launch is moving forward and more people are using it. Doctors are finding a way to best serve their patients by mixing Jelmyto and standard of care endoscopic therapies (whether they precede or follow). Jelmyto is part of the armamentarium. Independent groups of physicians have published papers detailing how they use it. Management estimates that the market opportunity is 15,000 people, including patients with recurrent diseases and new diagnoses. They had projected revenue of $70M-$80M for this year, but they only made $30M in half the year. (Increasingly unlikely they will meet their guidance, and stock could react negatively).

Patient Starts

Slides for Corporate Use

Figure 4 As an indicator of demand, patient enrollment forms can be used as a first indicator of demand (Source : Corporate presentation)

UGN-102 is a sustained-release formulation for mitomycin that is used to treat NMIBCs of intermediate and low-grade risk. Phase 2b OPTIMA II showed a 65% response rate three months after the start of therapy. 95%, 73%, and 61% of patients who achieved CR remained healthy at six, nine, or twelve months after treatment initiation. Kaplan-Meier analysis found that 72.5% of patients who achieved CR had a sustained response nine months later. They are seeking an indication that reflects the large market opportunity with 80,000 NMIBC patients at low-grade and intermediate risk in the US. Phase 3 ATLAS, which ran from December 2020 to November 2021, evaluated UGN-102 in comparison to standard of care procedure TURBT. The FDA ruled that this was not possible (comparing a drug and surgery). Therefore, a new phase 3 (ENVISION), was initiated to evaluate UGN-102 using a single-arm design (similarly to the OPTIMA study). The primary endpoint is a complete response rate within 3 months. The key secondary endpoint is durability over time in patients who achieve CR. If data is positive, enrollment will be complete by 2022. ATLAS phase 3 data will be shared in 2023 from the stopped study (provides minimal safety data and adds insight to the potential of the treatment). The company has also initiated a phase3b study to show that UGN-102 can easily be administered at home by a qualified home health professional. This will help avoid repeated visits to a healthcare setting. I believe convenience would be a significant win in terms of uptake.

ugn-102

Slides for corporate presentations

Figure 5 UGN-102 could be the first treatment available for LGIR-NMIBC patients (Source : Corporate presentation)

Management also highlighted the 65% CR rate for phase 2 and a durability of over 70% within a year on the Ladenburg call. The ATLAS study was problematic as drugs are not traditionally compared to surgical procedures. The design was complicated and the study was ended. However, they still have data on these people and will share it in 2023 (could prove useful directionally, even though they couldn’t make statistical comparisons because the trial was too weak). Contrary to Jelmyto, there are 80,000 bladder-cancer patients who are eligible for UGN-102 therapy. This is an underserved market in which older people are treated primarily by repetitive surgery. Prevalence is high with many people undergoing therapies. KOL interviews suggest that this 80,000 patient population could be very low.

Investors have the option to invest in the remaining pipeline. This is because the beauty of RTGel is that drug to target can be achieved while sidestepping side effects. Because all urologists are familiarized with intravesical therapy, they can leverage doctor knowledge to help them. The uniqueness of this system is the ability to transport molecules of any size to the target space for a prolonged period of time. They can add many different types of items to this and expand to other areas (other warm, wet parts of your body). UGN301 (anti-CTLA-4 anti-zalifrelimab zalifrelimab licensed by Agenus) is currently being used as a combination therapy with multiple agents, including TLR 7 agonist. NMIBC of high-grade could be a good option (over 18,000 US patients are unresponsive to standard care BCG).

ctla-4

Slides for corporate presentations

Figure 6 Encouragement of activity for novel combination agonist/antagonist immunotherapy (Source: Corporate presentation)

Other Information

For the The third quarter of 2022The company reported cash and equivalents of $95.9M, compared to a net loss of $25.8M. This cash position does not include the first tranche of the up-to $100M term loan facility with Pharmakon Advisors (closed March). In terms of stewardship of company resources, the $467M deficit accumulated since inception is quite high.

Research and development expenses increased slightly to $13.1M while SG&A fell slightly at $19.1M. Non-cash financing expenses related to the aforementioned obligation of RTW investments were $4.8M for Q3, and interest expense on loan facility $2.7M. In order to extend runway for another year, it seems clear that the company will need a secondary offering.

Jelmyto revenue grew 41% to $16.1M, as opposed to $11.4M for Q3 202021. As of November 1, there were 930 active sites and repeat accounts, compared to 893 on August 1. The FDA also extended the in-use time for Jelmyto Admixture from 8 to96 hours following reconstitution. This will increase access and allow urologists more flexibility. Recent retrospective analysis published by British Journal of Urology showed that 59% (17 of32) of Jelmyto antegrade administered patients had no evidence of any disease at the primary disease assessment and did not recur at an average follow-up of 13 months. Importantly, ureteral scarring (or stenosis) was only observed in 9% of patients treated with Jelmyto via antegrade. This administration method does not require general sedation.

UGN102 phase 3 ENVISION is expected to be completed at the end November. UGN301 (CTLA-4) continues to enroll NMIBC patients of high-grade in phase 1 and will be evaluated with other immunomodulators like UGN-201, TLR7 agonist.

The Q3 conference callsManagement touches on the improved ease of Jelmyto use due to FDA extension on end-use periods (provides opportunity to physicians who used to do surgeries in the morning because they might not be able to get a mix dose until the afternoon). This will allow them to confirm that they have received the correct dose the day before. Accounts have seen an immediate change, with the product being delivered the day before and the product being administered in the morning. This is a drastic improvement over what was possible a month ago. Management has stated that they don’t expect to reach the $70M to $80M revenue guidance for the full year. Each hurdle to uptake being removed could provide a tailwind (going 8 hours stable to 96, convenience of administration via catheter so physicians don’t have to go into an OR or a surgical center, etc).

The FDA will require a minimum of 12 month follow-up post CR for all patients before they can submit 102 readout. That won’t happen until 2023. UGN-103: They want to keep enrolling patients, have enough monotherapy data to go forward before proceeding with combination trials (should occur next years).

Surprisingly, the last secondary offering in 2019 netted $162M net proceeds (almost equal current market capitalization at price point $41/share; share price has fallen by 80%). I believe they will be able to gain critical momentum by offering a highly dilutive final offering. This would include accelerating Jelmyto sales and the critical UGN-102 readout.

Here are a few nuggets taken from theKOL webinarUGN-102: What role could it play in addressing high unmet demand in LG-IRNMIBC?

  • Standard of care for urothelial carcinomas is invasive and complex surgery. Because of anatomical limitations and the inability to deliver medicines long enough to make a meaningful impact in the cavity, it’s difficult for doctors to treat. Patients undergo repeated, risky surgeries that can lead to the loss of kidneys or other organs. This can also increase the risk of death in elderly patients.
  • UGN-102, which is intended for NMIBCs of low-grade and intermediate risk, delivers mitomycin that is similar to Jelmyto. If approved, 102 will be the only primary intravesical chemotherapy ablative treatment. 96% of urologists polled said they would use UGN102 within two years.
  • Phase 3 OLYMPUS study on Jelmyto for a similar cancer showed a 58% response rate and 82% duration. UGN-102 in Phase 2 showed a 55% CR rate, and 72.5% duration. This tells us that they work together. Molecular profiling has shown that LG-UTUC as well as LG-IR-NMIBC are very closely related. Commercially, there are synergies as the Jelmyto and UGN102 prescriber bases are 95%. There are some differences. The ratio of medicine and volume is different for 102. Administration for 102 is simpler than Jelmyto. It doesn’t require the use of upper tract manipulation (simpler administration). This can be done in a clinic by a doctor or nurse or extender. The market for bladder carcinoma is larger (10x) than that of upper tract ($3B across all cases), with 80k patients in America alone, 60k of them recurrent.
  • TURBT can be used to treat bladder cancers in the beginning, no matter how severe or low-grade. TURBT involves inserting a metal tube through the bladder into the urethra and using an instrument to remove the tumor. This must be done under anesthesia. The hot electrified loop at one end of the instrument is used to shave down the bladder. Patients over 65 and those with a medical condition must go to the operating room. TURBT is associated with the risk of complications, including pain and symptoms such as bleeding. There are also risks of infection and injury to the bladder. These patients need to be monitored for life and treated frequently. Up to 60% of them have recurrences within one year, and up to 80% within five years.
  • The group of interest focuses on NMIBC patients at intermediate risk. They are more likely to recur within one year or to have larger tumors than 3cm, which is low grade. Unmet needs provide them with additional treatment options in addition to repeated surgeries. They also have a lower chance of recurrence.
  • Q&A is provided by the surgeons. They point out that 102 would be a great option if older patients have recurrences (a very common patient population physicians are familiar with). Surgeons say that TURBT, which is a surgical procedure that can only be performed on older patients with a lot of medical complications, is something they do not want to perform. The vast majority of doctors are employed outside their primary practice. Urologists believe it is more economical to treat these patients in the clinic (which will become more common as the healthcare system evolves). It is important to note that all urologists are well-versed in intravesical therapy (giving BCG), and that 102 is much easier to administer than Jelmyto. However, the issue was how to properly instill it. Finally, nephrostomy tub ended up being a better option for patients suffering from upper tract disease. Instillation of 102 does not require a physician’s presence. This can all be done by nurses and the patient is out and back in less than 20 minutes.

As for Institutional investors of noteRTW Investments holds approximately 857,000 shares, while Opaleye Management owns a smaller share of 397,000 shares. BlackRock and Wildcat Capital Management, major holders, have been reducing their stakes. This may not be a good sign. Insider salesThe past year has not been encouraging, even though Liz Barrett, CEO, owns 300,000. Arie Belldegrun, an Israeli-American urologic surgeon, owns more than 400,000 shares. This seems to add credibility considering his background in the space. Belldegrun is also well-known as the founder and CEO at Kite Pharma, which was sold to Gilead for $11.9B in 2017.

President and CEO Liz Barrett joined the company in 2019. Her experience and leadership skills are a plus. Liz was previously CEO of Novartis oncology, and prior to that Global President of Oncology at Pfizer. Jeff Bova, Chief Commercial Officer, was previously VP of Oncology Sales at Bayer Healthcare. He also managed the highly successful launch of Xofigo for prostate cancer. Arie Belldegrun was briefly mentioned in my previous post, but I didn’t mention that he is also Chairman of the Board of Directors. It is interesting to note that a second Kite heavy hitter is on the board. Cynthia Butitta was Kite’s Chief Operation Officer. UroGen has had Ran Nussbaum as its director since 2013. He is the Pontifax Group’s Managing Partner.

The cash portion of CEO salary is a bit high at over $700k. A small-cap company looking to save cash should pay a lot less. Fair enough, the number of options awards and non-equity incentive levels for other leaders seems more than reasonable.

Compensation Table

Proxy Filing

Figure 7 Table of Executive Compensation (Source: Corporate presentation)

Moving on to useful nuggets of information from ROTY community members, DSJ.2018 stated that the following was back in March:

URGN is inexpensive and they have a nice commercial launch going. The company reported Q4 revenues of $16.2M for Jelmyto, and a revenue projection for $80M for 2022. New patient enrollments have increased sharply. Q4 revenues were 43% higher than Q3. Jelmyto is becoming more popular as the only non-surgical treatment for bladder cancer, particularly Low-grade Upper Tract Urothelial Cancer. Jelmyto is administered as a chilled liquid for 6 weeks once weekly with a Uroject12 Syringe Lever, a 5- or7-French Ureteral Catheter or Nephrostomy Tube. It’s much more convenient than having to have a kidney removed. It also has the potential of becoming the SOC for Low-grade Upper Tract Cancer (a market that includes 6,000-8,000 people in the US). Molecular profiling shows LG-NMIBC & LG-UTUC are very similar diseases. UGN102’s data is excellent so far.

EquityMan on the other side highlighted a potential red alert in that Jelmyto revenues were not close enough to covering costs for UGN102 development and noted the company was burning too much cash.

Biotwitter “must follow”Dough referred to an analyst noteMatt Kaplan pointed out that Jelmyto instillations using an antegrade nephrostomy tube (antegrade), have increased from 40% to 50% over the past three months. This tailwind could influence Jelmyto’s sales acceleration over the next quarters (or even years).

Jelmyto enjoys Orphan Drug exclusivity from April 2027 to 2031 and composition patents through 2031. UGN-102 issued patents will expire between 2024-2037. Overall IP portfolio consists 40 granted patents worldwide and more than 45 pending applications. They cover methods, systems and compositions that treat cancer locally as well via intravesical methods (expirations 2031-20204).

You should also review the 10-K filing for any other useful information. Many companies will try to hide undesirable elements. The Allergan/AbbVie Agreement serves as a warning that not every collaboration works out. The agreement was signed in 2016. Both parties worked together on products containing Botox and RTGel for the treatment of overactive bladder. Phase 2 failed to meet its primary endpoint in 2020, and the agreement was terminated in 2021 because they couldn’t find any other suitable applications for RTGel. Agenus Agreement was inked in 2019 for the rights to zalifrelimab to treat high-grade NMIBC. UroGen paid $10M upfront and also received milestone payments and royalties of up to $115M on net sales within the 14% to 20% range.

Final Thoughts

I will conclude by saying that my concerns about UroGen’s balance sheet (cash position roughly equaling debt with an operational runway of 1-year) and how far out the UGN102 pivotal readout are (1H 24), have kept me off the sidelines. Given the current standard in care for repetitive, invasive surgery involving potential complications, I do see market opportunities for Jelmyto and UGN-102 in NMIBC. I like the option for RTGel to carry other molecules (I hope they make a deal with Agenus to differentiate CTLA-4 drug botensilimab).

Jelmyto sales are growing by +40% year-over-year and I believe that this could increase as administration via nephrostomy tubes becomes more accepted (greater convenience). To get to phase 3, I believe the company needs a highly dilutive secondary product.

URGN is a Buy at a current level (sub $9), for those readers who are interested and have done their research. You could purchase a small position in a pilot program, and then wait for the secondary offering to clear financing before you add more exposure on dips.

Core Biotech Perspective (emphasis on the next 3-5 years) I would like the opportunity to purchase the stock sometime in 2023. In the interests of risk management and prudence I will wait until my financing overhang is cleared before I make my first purchase.

Key risks include a weak balance sheet with a high debt load relative to current stock capitalization (could result in highly dilutive financing over the short term), competition for indications targeted (including standard care surgeries like TURBT/RNU), slowing Jelmyto’s sales and binary risk in relation to UGN-102 pivotal readingout (not to forget setbacks in relation to projected timelines). A continued reliance on third-party subcontractors or suppliers could also be a concern (leading to problems in compliance with cGMP, quality system regulation, or supply issues that disrupt clinical studies or product launches).

Author’s Note:I am grateful for your time and I hope you find my work useful. While I research on many companies, I have only 15 or fewer names in ROTY (clinical and commercial stage) portfolios. This allows me to focus on stories with the highest conviction.


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