UroGen Pharma Ltd. Stock Compensation Disclosure
NOTE 16 – SHARE-BASED COMPENSATION
In October 2010, the Board approved a share option plan (the “2010 Plan”) for grants to Company employees, consultants, directors, and other service providers. Subsequently, in March 2017, the Board adopted the 2017 Equity Incentive Plan (the "2017 Plan" and, together with the 2010 Plan, the "Plans"), which was approved by the shareholders in April 2017. The 2017 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, RSU awards, performance share awards, performance cash awards, and other forms of share awards to the Company's employees, directors and consultants.
The grant of options to Israeli employees under the Plans is subject to the terms stipulated by Section 102 of the Israeli Income Tax Ordinance (“Section 102”). The option grants are subject to the track chosen by the Company, either the “regular income” track or the “capital gains” track, as set out in Section 102. The Company registered the Plans under the capital gains track, which offers more favorable tax rates to the employees. As a result, and pursuant to the terms of Section 102, the Company is not allowed to claim as an expense for tax purposes the amounts credited to the employees in respect of options granted to them under the Plans, including amounts recorded as salary benefits in the Company’s accounts, with the exception of the work-income benefit component, if any, determined on grant date. For non-employees and for non-Israeli employees, the Plans is subject to Section 3(i) of the Israeli Income Tax Ordinance.
Employees are typically granted stock options and/or RSUs, upon commencement of employment. Also, eligible employees may receive an annual grant of options, RSUs and/or PSUs. Non-employee members of the Board typically receive a grant of stock options upon initial appointment to the Board, and/or stock options annually. The term of any option granted under the Plans cannot exceed 10 years. Options shall not have an exercise price less than 100% of the fair market value of the Company’s ordinary shares on the grant date, and generally vest over a period of years. If the individual possesses more than 10% of the combined voting power of all classes of equity of the Company, the exercise price shall not be less than 110% of the fair market value of an ordinary share on the date of grant.
The Company’s RSU and option grants provide for accelerated or continued vesting in certain circumstances as defined in the Plans and related grant agreements, including a termination in connection with a change in control. RSUs generally vest in a 33% increment upon the first anniversary of grant, and in either equal quarterly or annual amounts for the years following the one-year anniversary of the grant date. Options generally vest in a 33% increment upon the first anniversary of the grant date, and in either equal quarterly or annual amounts for the two years following the one-year anniversary of the grant date. The Company also grants PSUs to certain employees. The PSU’s currently outstanding vest based on either the earlier of obtaining regulatory approval for the Company’s lead product candidate UGN-102 or the occurrence of a change in control, or for certain other awards, the achievement of the first commercial sale of UGN-102 in the United States following UGN-102's receipt of regulatory approval. In June 2024, the Company amended certain RSU and PSU awards granted to the chief executive officer to defer vesting until the end of 2025. The Company accounted for the modification as a Type I probable-to-probable modification under ASC 718. As the modification did not result in any incremental fair value at the modification date, the Company continues to recognize the original grant-date fair value ratably over the original service period or expected performance period.
The maximum number of ordinary shares that was initially authorized for issuance under the 2017 Plan was 1,400,000. On January 1, 2018, the share reserve increased by 250,167 shares to 1,650,167 shares. On October 12, 2018, the Company increased the number of ordinary shares authorized for issuance under the 2017 Plan by 1,900,000 shares to 3,550,167 shares. On June 8, 2020, the Company’s shareholders approved an increase to the number of ordinary shares authorized for issuance under the 2017 Plan by 400,000 shares to a total share reserve of 3,950,167 shares. On June 7, 2021, the Company’s shareholders approved an increase to the number of ordinary shares authorized for issuance under the 2017 Plan by 400,000 shares to a total share reserve of 4,350,167 shares. On June 8, 2022, the Company's shareholders approved an increase to the number of ordinary shares authorized for issuance under the 2017 Plan by 400,000 shares to a total share reserve of 4,750,167 shares. On September 7, 2023, the Company's shareholders approved an increase to the number of ordinary shares authorized for issuance under the 2017 Plan by 450,000 shares to a total share reserve of 5,200,167 shares. On August 6, 2024, the Company's shareholders approved an increase to the number of ordinary shares authorized for issuance under the 2017 Plan by 800,000 shares to a total of 6,000,167 shares.
In May 2019, the Company adopted the UroGen Pharma Ltd. 2019 Inducement Plan (the “Inducement Plan”). Under the Inducement Plan, the Company is authorized to issue up to 900,000 ordinary shares pursuant to inducement awards. The only persons eligible to receive grants under the Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq Marketplace Rule 5635(c)(4) and the related guidance under Nasdaq IM 5635-1, including individuals who were not previously an employee or director of the Company or are following a bona fide period of non-employment, in each case as an inducement material to such individual’s agreement to enter into employment with the Company. In December 2021, the Board approved an increase to the number of shares authorized for issuance under the Inducement Plan of 300,000 shares. In June 2024, the Board approved an increase to the number of shares authorized for issuance under the Inducement Plan of 600,000 shares to a total of 1,800,000 shares.
As of December 31, 2024, 4,119,671 ordinary shares are subject to outstanding awards under the Company's share-based compensation plans and 1,654,692 ordinary shares remain available for future awards.
Options granted:
Set forth below are grants made by the Company as of December 31, 2024. The majority of options vest over years and expire on the anniversary of the date of grant. During 2024, the Company granted 238,614 options with exercise prices ranging from $13.11 to $15.16 per share.
The weighted average fair value of options granted during 2024 and 2023 was $2.5 million and $4.3 million, respectively.
The total unrecognized compensation cost of options as of December 31, 2024 was $3.1 million, which is expected to be recognized over a weighted average period of 1.75 years.
The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:
| 2024 | 2023 | |||||||
| Value of ordinary shares | 13.11-15.16 | 8.84-17.94 | ||||||
| Dividend yield | 0% | 0% | ||||||
| Expected volatility | 81.00%-89.12% | 67.21%-81.00% | ||||||
| Risk-free interest rate | 3.61%-4.42% | 3.47%-4.42% | ||||||
| Expected term (in years) | 6.0-10 years | 6.0-10 years | ||||||
The expected volatility is based on a mix of the Company's historical volatility and the historical volatility of comparable companies with similar attributes to the Company, including industry, stage of life cycle, size and financial leverage. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted. The expected term is the length of time until the expected dates of exercising the options and is estimated for employees using the simplified method due to insufficient specific historical information of employees’ exercise behavior, and for non-employees, and directors using the contractual term.
The following table summarizes the number of employee and non-employee options outstanding under the Plans for the years ended December 31, 2024 and 2023, and related information:
| Number of | Weighted | Weighted | Aggregate | |||||||||||||
| Outstanding as of December 31, 2023 | 2,685,796 | $ | 25.35 | 7.37 | $ | 5,131 | ||||||||||
| Granted | 238,614 | 13.80 | ||||||||||||||
| Forfeited | (277,901 | ) | 24.05 | |||||||||||||
| Exercised | (34,666 | ) | 9.25 | |||||||||||||
| Outstanding as of December 31, 2024 | 2,611,843 | $ | 24.65 | 5.80 | $ | 1,092 | ||||||||||
| Vested and expected to vest, December 31, 2024 | 2,611,843 | $ | 24.65 | 5.80 | $ | 1,092 | ||||||||||
| Exercisable, December 31, 2024 | 2,051,867 | $ | 28.24 | 5.04 | $ | 743 | ||||||||||
The intrinsic value of stock options exercised was $0.2 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively.
The following table summarizes information about RSU activity as of December 31, 2024:
| Outstanding Restricted Stock Units | ||||
| Outstanding as of December 31, 2023 | 1,098,684 | |||
| Granted | 964,369 | |||
| Vested and released | (385,065 | ) | ||
| Forfeited | (170,160 | ) | ||
| Outstanding as of December 31, 2024 | 1,507,828 | |||
The fair value of RSUs granted during 2024 and 2023 was $14.5 million and $10.4 million, respectively. The total unrecognized compensation cost of RSUs as of December 31, 2024 is $12.1 million with a weighted average recognition period of 2.00 years.
The following table illustrates the effect of share-based compensation on the Statements of Operations:
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Research and development expenses | $ | 2,235 | $ | 1,905 | ||||
| Selling, general and administrative expenses | 10,873 | 7,439 | ||||||
| Total share-based compensation expense | $ | 13,108 | $ | 9,344 | ||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.