urov-10q_20181231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number: 001-38667

 

Urovant Sciences Ltd.

(Exact Name of Registrant as Specified in its Charter)

 

 

Bermuda

98-1463899

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

Suite 1, 3rd Floor

11-12 St. James’s Square

London SW1Y 4LB, United Kingdom

Not Applicable

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: +44 (203) 318-9709

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of February 12, 2019, the registrant had 30,322,911 common shares, $0.000037453 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets as of December 31, 2018 and March 31, 2018

2

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2018 and 2017

3

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended December 31, 2018 and 2017

4

 

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) for the Nine Months Ended December 31, 2018 and 2017

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2018 and 2017

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 3.

Defaults Upon Senior Securities

64

Item 4.

Mine Safety Disclosures

64

Item 5.

Other Information

64

Item 6.

Exhibits

65

Signatures

66

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1.Financial Statements (Unaudited)

UROVANT SCIENCES LTD.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

December 31, 2018

 

 

March 31, 2018

 

Assets

 

 

 

 

 

(Note 2)

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

95,613

 

 

$

7,194

 

Restricted cash

 

 

244

 

 

 

 

Prepaid expenses and other current assets

 

 

15,140

 

 

 

5,196

 

Total current assets

 

 

110,997

 

 

 

12,390

 

Furniture and equipment, net

 

 

571

 

 

 

510

 

Restricted cash, net of current portion

 

 

600

 

 

 

 

Other assets

 

 

84

 

 

 

84

 

Total assets

 

$

112,252

 

 

$

12,984

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,696

 

 

$

833

 

Accrued expenses

 

 

6,365

 

 

 

3,595

 

Due to Roivant Sciences Ltd.

 

 

33

 

 

 

1,482

 

Total liabilities

 

 

10,094

 

 

 

5,910

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Common shares, par value $0.000037453 per share, 267,001,308 shares

   authorized, 30,322,911 and 20,025,098 issued and outstanding at

   December 31, 2018 and March 31, 2018, respectively

 

 

1

 

 

 

1

 

Common shares subscribed

 

 

(1

)

 

 

(1

)

Shareholder receivable

 

 

 

 

 

(1,310

)

Accumulated other comprehensive income

 

 

320

 

 

 

7

 

Additional paid-in capital

 

 

248,401

 

 

 

72,562

 

Accumulated deficit

 

 

(146,563

)

 

 

(64,185

)

Total shareholders' equity

 

 

102,158

 

 

 

7,074

 

Total liabilities and shareholders' equity

 

$

112,252

 

 

$

12,984

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


UROVANT SCIENCES LTD.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

 

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development(1)

 

$

21,299

 

 

$

8,046

 

 

$

69,308

 

 

$

15,929

 

General and administrative(2)

 

 

4,862

 

 

 

1,389

 

 

 

12,650

 

 

 

1,942

 

Total operating expenses

 

 

26,161

 

 

 

9,435

 

 

 

81,958

 

 

 

17,871

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

(219

)

 

 

6

 

 

 

(299

)

 

 

(82

)

Loss before provision for income taxes

 

 

(26,380

)

 

 

(9,429

)

 

 

(82,257

)

 

 

(17,953

)

Provision for income taxes

 

 

61

 

 

 

22

 

 

 

121

 

 

 

26

 

Net loss

 

$

(26,441

)

 

$

(9,451

)

 

$

(82,378

)

 

$

(17,979

)

Net loss per common share—basic and diluted

 

$

(0.87

)

 

$

(0.47

)

 

$

(3.51

)

 

$

(1.11

)

Weighted average common shares outstanding—basic and diluted

 

 

30,264,643

 

 

 

20,025,098

 

 

 

23,450,692

 

 

 

16,175,425

 

 

(1)

Includes $0 and $2,230 and $1,492 and $5,874 of costs allocated from RSL during the three and nine months ended December 31, 2018 and 2017, respectively. Also includes share-based compensation expense (see Note 7).

(2)

Includes $21 and $1,700 and $311 and $680 of costs allocated from RSL during the three and nine months ended December 31, 2018 and 2017, respectively. Also includes share-based compensation expense (see Note 7).

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


UROVANT SCIENCES LTD.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(26,441

)

 

$

(9,451

)

 

$

(82,378

)

 

$

(17,979

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

216

 

 

 

(7

)

 

 

313

 

 

 

74

 

Total other comprehensive income (loss)

 

 

216

 

 

 

(7

)

 

 

313

 

 

 

74

 

Comprehensive loss

 

$

(26,225

)

 

$

(9,458

)

 

$

(82,065

)

 

$

(17,905

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


UROVANT SCIENCES LTD.

Condensed Consolidated Statements of Shareholder’s Equity (Deficit)

(in thousands, except share data)

 

 

 

Common Shares

 

 

Common

Shares

 

 

Shareholder

 

 

Additional

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Subscribed

 

 

Receivable

 

 

Paid-in Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity (Deficit)

 

Balance at March 31, 2018

 

 

20,025,098

 

 

$

1

 

 

$

(1

)

 

$

(1,310

)

 

$

72,562

 

 

$

(64,185

)

 

$

7

 

 

$

7,074

 

Capital contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,500

 

 

 

 

 

 

 

 

 

18,500

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

320

 

 

 

 

 

 

 

 

 

320

 

Capital contribution – share-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

486

 

 

 

 

 

 

 

 

486

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(220

)

 

 

(220

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,295

)

 

 

 

 

 

(31,295

)

Balance at June 30, 2018

 

 

20,025,098

 

 

 

1

 

 

 

(1

)

 

 

(1,310

)

 

 

91,868

 

 

 

(95,480

)

 

 

(213

)

 

 

(5,135

)

Capital contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,744

 

 

 

 

 

 

 

 

 

21,744

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

895

 

 

 

 

 

 

 

 

 

895

 

Capital contribution – share-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

94

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

317

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,642

)

 

 

 

 

 

(24,642

)

Balance at September 30, 2018

 

 

20,025,098

 

 

 

1

 

 

 

(1

)

 

 

(1,310

)

 

 

114,601

 

 

 

(120,122

)

 

 

104

 

 

 

(6,727

)

Capital contributions

 

 

 

 

 

 

 

 

 

 

 

1,310

 

 

 

36

 

 

 

 

 

 

 

 

 

1,346

 

Issuance of common shares in initial

   public offering, net of commissions

   and offering costs of $11.3 million

 

 

10,297,813

 

 

 

 

 

 

 

 

 

 

 

 

132,931

 

 

 

 

 

 

 

 

 

132,931

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

833

 

 

 

 

 

 

 

 

 

833

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

216

 

 

 

216

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,441

)

 

 

 

 

 

(26,441

)

Balance at December 31, 2018

 

 

30,322,911

 

 

$

1

 

 

$

(1

)

 

$

 

 

$

248,401

 

 

$

(146,563

)

 

$

320

 

 

$

102,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 

 

Common

Shares

 

 

Shareholder

 

 

Additional

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Subscribed

 

 

Receivable

 

 

Paid-in Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity (Deficit)

 

Balance at March 31, 2017

 

 

2,670,013

 

 

$

 

 

$

 

 

$

 

 

$

31,046

 

 

$

(27,111

)

 

$

(25

)

 

$

3,910

 

Capital contributions

 

 

 

 

 

 

 

 

 

 

 

(1,810

)

 

 

1,845

 

 

 

 

 

 

 

 

 

35

 

Issuance of common shares to Roivant

   Sciences Ltd.

 

 

17,355,085

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital contribution – share-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

884

 

 

 

 

 

 

 

 

884

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

144

 

 

 

144

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,615

)

 

 

 

 

 

(3,615

)

Balance at June 30, 2017

 

 

20,025,098

 

 

 

1

 

 

 

(1

)

 

 

(1,810

)

 

 

33,775

 

 

 

(30,726

)

 

 

119

 

 

 

1,358

 

Capital contributions

 

 

 

 

 

 

 

 

 

 

 

500

 

 

 

4,500

 

 

 

 

 

 

 

 

 

5,000

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Capital contribution – share-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

880

 

 

 

 

 

 

 

 

880

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63

)

 

 

(63

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,913

)

 

 

 

 

 

(4,913

)

Balance at September 30, 2017

 

 

20,025,098

 

 

 

1

 

 

 

(1

)

 

 

(1,310

)

 

 

39,162

 

 

 

(35,639

)

 

 

56

 

 

 

2,269

 

Capital contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,000

 

 

 

 

 

 

 

 

 

11,000

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

187

 

 

 

 

 

 

 

 

 

187

 

Capital contribution – share-based

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

476

 

 

 

 

 

 

 

 

476

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,451

)

 

 

 

 

 

(9,451

)

Balance at December 31, 2017

 

 

20,025,098

 

 

$

1

 

 

$

(1

)

 

$

(1,310

)

 

$

50,825

 

 

$

(45,090

)

 

$

49

 

 

$

4,474

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5


UROVANT SCIENCES LTD.

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended December 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(82,378

)

 

$

(17,979

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

132

 

 

 

 

Share-based compensation expense

 

 

2,628

 

 

 

2,434

 

Unrealized foreign currency translation adjustment

 

 

313

 

 

 

74

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(9,944

)

 

 

(89

)

Due to Roivant Sciences Ltd.

 

 

(1,449

)

 

 

82

 

Accounts payable

 

 

2,863

 

 

 

400

 

Accrued expenses

 

 

2,770

 

 

 

1,867

 

Net cash used in operating activities

 

 

(85,065

)

 

 

(13,211

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of furniture and equipment

 

 

(193

)

 

 

 

Net cash used in investing activities

 

 

(193

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from capital contributions from Roivant Sciences Ltd.

 

 

41,590

 

 

 

16,035

 

Proceeds from issuance of common shares in initial public offering, net of offering costs

 

 

132,931

 

 

 

 

Net cash provided by financing activities

 

 

174,521

 

 

 

16,035

 

Net change in cash and restricted cash

 

 

89,263

 

 

 

2,824

 

Cash and restricted cash—beginning of period

 

 

7,194

 

 

 

4,767

 

Cash and restricted cash—end of period

 

$

96,457

 

 

$

7,591

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Shareholder receivable for the sale of intellectual property rights in China

   recorded as a deemed capital contribution (see Note 5[B])

 

$

 

 

$

1,310

 

Supplemental disclosure of cash paid:

 

 

 

 

 

 

 

 

Income taxes

 

$

174

 

 

$

20

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6


 

UROVANT SCIENCES LTD.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1—Description of business and liquidity

[A] Description of business:

Urovant Sciences Ltd. and its subsidiaries (collectively, the “Company”) is a clinical-stage biopharmaceutical company focused on developing and commercializing innovative therapies for urologic conditions. The Company’s lead product candidate, vibegron, is an oral, once-daily, small molecule beta-3 agonist. The Company is currently developing vibegron for the treatment of overactive bladder, or OAB. The Company is also developing vibegron for the treatment of two additional potential indications: OAB in men with benign prostatic hyperplasia and abdominal pain due to irritable bowel syndrome. The Company’s second product candidate, URO-902 (formerly known as hMaxi-K), is a novel gene therapy that the Company is developing for patients with OAB who have failed oral pharmacological therapy. There are no currently available FDA-approved gene therapy treatments for OAB. The Company was founded on January 27, 2016 as a Bermuda Exempted Limited Company and a wholly owned subsidiary of Roivant Sciences Ltd. In November 2016, the Company incorporated as its wholly owned subsidiaries (1) Urovant Holdings Ltd. (“UHL”), a private limited company incorporated under the laws of England and Wales, (2) Urovant Sciences GmbH (“USG”), a company with limited liability formed under the laws of Switzerland and (3) Urovant Sciences, Inc. (“USI”), a Delaware corporation based in the United States of America.

Since its inception, the Company has devoted substantially all of its efforts to organizing and staffing the Company, acquiring its product candidates, vibegron and URO-902, and preparing for and advancing vibegron into clinical development. Vibegron was licensed from Merck Sharp & Dohme Corp. (“Merck”), a subsidiary of Merck & Co., in February 2017. URO-902 was licensed from Ion Channel Innovations, LLC (“ICI”) in August 2018. The Company has determined that it has one operating and reporting segment as it allocates resources and assesses financial performance on a consolidated basis.

[B] Liquidity:

The Company has not historically been capitalized with sufficient funding to conduct its operations. Certain other costs of conducting the Company’s operations prior to the Company’s initial public offering, which was completed in October 2018, were paid by Roivant Sciences Ltd., inclusive of its wholly owned subsidiaries (“RSL”), and were reimbursed by the Company including amounts pursuant to services agreements with Roivant Sciences, Inc. (“RSI”) and Roivant Sciences GmbH (“RSG”).

The Company has incurred and expects to continue to incur significant and increasing operating losses and negative cash flows for at least the next several years. To date, the Company has not generated any revenues and does not anticipate generating any revenues unless and until it successfully completes development and obtains regulatory approval for one of its product candidates. The Company currently believes its existing cash will be sufficient to fund its committed operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of these consolidated financial statements. This estimate is based on the Company’s current assumptions, including assumptions relating to its ability to manage its’ spend, and that the Company could use its available capital resources sooner than currently expected. These funds will not be sufficient to enable the Company to complete all necessary development activities and commercially launch vibegron or URO-902. Accordingly, the Company will seek to obtain additional capital through equity financings, the sale of debt or other arrangements. However, there can be no assurance that the Company will be able to raise additional capital when needed or under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares. Issued debt securities may contain covenants and limit the Company’s ability to pay dividends or make other distributions to shareholders. If the Company is unable to obtain such additional financing, operations would need to be scaled back or discontinued.

The Company’s future operations are highly dependent on a combination of factors, including (1) the timely and successful completion of any additional financing; (2) the success of its research and development programs; (3) the development of competitive therapies by other biotechnology and pharmaceutical companies; (4) the Company’s ability to manage growth of the organization; (5) the Company’s ability to protect its technology and products; and, ultimately (6) regulatory approval and market acceptance of vibegron, URO-902 or any future product candidate.

7


 

Note 2—Summary of significant accounting policies

[A] Basis of presentation:

The Company’s fiscal year ends on March 31. The accompanying interim condensed consolidated balance sheet as of December 31, 2018, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended December 31, 2018 and 2017, the condensed consolidated statements of cash flows for the nine months ended December 31, 2018 and 2017 and the condensed consolidated statements of shareholders’ equity (deficit) for each of the quarters within the nine months ended December 31, 2018 and 2017 are unaudited. The accompanying interim unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements as certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2018 included in the Company’s final prospectus dated September 26, 2018 filed with the Securities and Exchange Commission (“SEC”) on September 27, 2018.

The condensed consolidated balance sheet at March 31, 2018 has been derived from the audited consolidated financial statements at that date. In the opinion of management, the interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated financial position and its results of operations and cash flows for the interim periods presented. The results for the three and nine months ended December 31, 2018 are not necessarily indicative of the results to be expected for the year ending March 31, 2019 or for any future period.

Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the accounts of USL and UHL, USG, and USI, USL’s wholly owned subsidiaries. USL has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

On September 11, 2018, the Company’s board of directors approved a 1-for-3.7453 reverse share split of the Company’s authorized and issued and outstanding common shares. The reverse share split increased par value to $0.000037453. The reverse split became effective on September 13, 2018. The accompanying unaudited condensed consolidated financial statements and notes to the condensed consolidated financial statements give retroactive effect to the reverse share split for all periods presented.

There have been no significant changes in the Company's accounting policies from those disclosed in its final prospectus filed with the SEC on September 27, 2018.      

[B] Use of estimates:

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets, liabilities, costs, expenses and compensation expense allocated to the Company under its services agreements with RSI and RSG, as well as share-based compensation, research and development costs and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

[C] Financial instruments:

The Company applies a fair value framework in order to measure and disclose its financial assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Fair values are determined by utilizing quoted prices for similar assets and liabilities in active markets or other market observable inputs such as interest rates and yield curves.

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  

8


 

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s financial instruments consist of cash, restricted cash, accounts payable, accrued expenses and amounts due to and from RSL. These financial instruments are stated at their respective historical carrying amounts, which approximates fair value due to their short-term nature.

[D] Restricted cash:

Restricted cash consists of non-interest-bearing money market deposit accounts. Restricted cash classified as a current asset consists of a money market deposit account relating to the Company’s corporate credit card agreement. Restricted cash classified as a long-term asset consists of a money market deposit account related to an irrevocable standby letter of credit connected to an office lease entered into in November 2018 with an expiration date in 2026 (see Note 8).

[E] Deferred initial public offering costs:

Deferred offering costs, which consisted of direct costs related to the Company’s initial public offering of its common shares, were capitalized in other current assets until the consummation of the initial public offering. These offering costs were reclassified to additional paid-in capital upon the closing of the Company’s initial public offering on October 1, 2018.

[F] Net loss per common share:

Basic net loss per common share is computed by dividing net loss applicable to common shareholder by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss applicable to common shareholder by the diluted weighted-average number of common shares outstanding during the period calculated in accordance with the treasury stock method. In periods in which the Company reports a net loss, all common share equivalents are deemed anti-dilutive such that basic net loss per common share and diluted net loss per common share are equal. Potentially dilutive common shares have been excluded from the diluted net loss per common share computations in all periods presented because such securities have an anti-dilutive effect on net loss per common share due to the Company’s net loss. There are no reconciling items used to calculate the weighted-average number of total common shares outstanding for basic and diluted net loss per common share data.

At December 31, 2018 and 2017, potentially dilutive securities were as follows:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

Options

 

 

2,866,666

 

 

 

1,507,219

 

Restricted stock units (unvested)

 

 

5,000

 

 

 

 

Total

 

 

2,871,666

 

 

 

1,507,219

 

 

[G] Recently issued accounting pronouncements:

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”), which is a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The core principle of ASU No. 2016-02 will require lessees to present the assets and liabilities that arise from leases on their consolidated balance sheets. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company plans to adopt this standard as of April 1, 2019. ASU No. 2016-02 is expected to impact the Company’s consolidated financial statements as the Company has certain operating lease arrangements for which the Company is the lessee. The Company has implemented a process to identify its outstanding lease portfolio and is currently evaluating its outstanding leases to determine the impact the new standard will have on its consolidated financial statements. The Company expects that the adoption of this standard will result in the recognition of an asset for the right to use a leased facility on the Company’s consolidated balance sheet, as well as the recognition of a liability for the lease payments remaining on the lease. While the consolidated balance sheet presentation is expected to change, the Company does not expect a material change to the consolidated statements of operations and comprehensive loss or cash flows.

9


 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230), (“ASU No. 2016-18”) which requires that restricted cash be added to cash and cash equivalents when reconciling the beginning and ending amounts on the condensed consolidated statements of cash flows. The guidance also requires entities that report cash and cash equivalents and restricted cash separately on the condensed consolidated balance sheets to reconcile those amounts to the condensed consolidated statements of cash flows. ASU No. 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017 and early adoption is permitted. Entities must apply the guidance retrospectively to each period presented. As a result, the Company added restricted cash to the ending amounts on the condensed consolidated statement of cash flows for the nine months ended December 31, 2018. The following table provides a reconciliation of the amount of cash reported on the condensed consolidated balance sheets to the total of cash and restricted cash shown on the condensed consolidated statements of cash flows (in thousands):

 

 

 

December 31, 2018

 

 

March 31, 2018

 

Cash

 

$

95,613

 

 

$

7,194

 

Restricted cash

 

 

844

 

 

 

 

Cash and restricted cash

 

$

96,457

 

 

$

7,194

 

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU No. 2018-07”).  ASU No. 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  ASU No. 2018-07 is effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. Entities must apply the guidance retrospectively with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The Company does not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations and related disclosures.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (“ASU No. 2018-09”), to make changes to a variety of topics to clarify, correct errors in, or make minor improvements to the ASC. Certain items of the amendments in ASU No. 2018-09 will be effective for the Company in annual periods beginning after December 15, 2018. The Company is currently evaluating the new standard and its impact on the Company’s consolidated financial position, results of operations and related disclosures.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of shareholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of shareholders' equity presented in the consolidated balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018. The Company adopted SEC Release No. 33-10532 during the three and nine months ended December 31, 2018 and as a result disclosed in its condensed consolidated statements of shareholders’ equity (deficit) the quarterly activity of each caption of shareholders’ equity within the nine months ended December 31, 2018 and 2017.  The adoption of this release did not have a material impact on the Company’s consolidated financial position and results of operations.  

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU No. 2018-13”) which provides guidance that remove, modify and add to the disclosure requirements related to fair value measurements. The guidance removes the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements. The guidance modifies disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure. The guidance adds requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently evaluating the new standard and its impact on the Company’s consolidated financial position, results of operations and related disclosures.

 

Note 3—License agreement

 

On August 24, 2018, the Company’s wholly owned subsidiary, USG, entered into an exclusive license agreement with ICI (the “ICI Agreement”) for the development and commercialization of URO-902 in exchange for the following consideration:

 

 

An initial one-time, non-refundable, non-creditable payment of $0.25 million;

 

 

Up to an aggregate of $35.0 million upon the achievement of certain development and regulatory milestones;

 

 

Up to an aggregate of $60.0 million upon the achievement of certain annual sales-based milestones; and

 

 

An escalating mid-to-high single-digit royalty on annual net sales of licensed products made by the Company, its affiliates or its sublicensees, subject to certain reductions as set forth in the ICI Agreement. The Company’s royalty obligations apply on a product-by-product and country-by-country basis and end upon the date on which the last valid claim of the licensed patents expires with respect to a given product in a given country.

 

10


 

The exclusive license under the ICI Agreement extends to all countries and territories worldwide.

 

For the consideration above, the Company received certain research and development historical records. The Company did not receive any material inventory of URO-902, did not hire, or receive, any ICI employees working on URO-902, and did not receive any research, clinical or manufacturing equipment. Additionally, the Company did not assume from ICI any contracts, licenses or agreements between ICI and any third party with respect to URO-902. The Company will need to develop independently all clinical processes and procedures for its clinical trials through the use of internal and external resources once appropriate and acceptable resources have been identified and obtained.

 

The Company has evaluated the in-license agreement of URO-902 from ICI based on the applicable guidance in ASC No. 805, Business Combinations, and has determined that the in-process research and development asset (“IPR&D”) licensed did not meet the definition of a business and thus the transaction was not considered a business combination. The Company then evaluated, pursuant to ASC No. 730, Research and Development, whether the IPR&D asset had an alternative future use and concluded it did not. As a result, the Company recorded the initial payment under the license agreement of $0.25 million as research and development expense in the accompanying condensed consolidated statement of operations for the nine months ended December 31, 2018.

Note 4—Accrued expenses

Accrued expenses at December 31, 2018 and March 31, 2018 consist of the following (in thousands):

 

 

 

December 31, 2018

 

 

March 31, 2018

 

Research and development expenses

 

$

4,072

 

 

$

2,482

 

General and administrative expenses

 

 

357

 

 

 

429

 

Bonuses and other compensation expenses

 

 

1,769

 

 

 

549

 

Professional services expenses

 

 

103

 

 

 

90

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