Ultragenyx Pharmaceutical Inc. quarterly report, Q1 FY2021

Ultragenyx Pharmaceutical Inc. — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021; filed May 4, 2021. Ultragenyx is a rare-disease biopharmaceutical company with three marketed products: Crysvita, Mepsevii and Dojolvi. All amounts below are in U.S. dollars.

Financial results and liquidity

Metric	Q1 2021	Q1 2020
Total revenue	$99.4 million	$36.3 million
Operating expenses	$206.0 million	$157.0 million
Operating loss	$106.6 million	$120.7 million
Net loss	$136.1 million	$119.0 million
Net loss per share, diluted	$2.03	$2.05
Cash used in operating activities	$159.3 million	$95.2 million

• Revenue comprised $79.0 million of collaboration and license revenue, $16.5 million of product sales and $3.9 million of non-cash Crysvita royalty revenue. Product sales were Crysvita $5.9 million, Mepsevii $3.6 million and Dojolvi $7.0 million.
• Revenue less reported cost of sales implies a simple gross margin of approximately 94.8% in Q1 2021; the filing does not present a gross-margin measure. Q1 2020 cost of sales was a credit of $3.5 million, so the periods are not directly comparable. Q1 2021 cost of sales included $1.7 million of excess-inventory write-downs.
• At March 31, cash and cash equivalents were $383.8 million and marketable debt securities were $663.2 million, totaling $1.047 billion in available cash, cash equivalents and marketable securities. This compares with $1.212 billion at December 31, 2020. Cash, cash equivalents and restricted cash declined $329.9 million during the quarter.
• Total liabilities were $543.2 million. These included a $340.2 million liability from the sale of future Crysvita royalties and $46.1 million of lease liabilities. The filing reports no conventional borrowings in the presented balance sheet.
• Management said existing capital resources were expected to fund projected operating requirements for at least 12 months, while also anticipating continued annual losses and likely need for additional capital to execute its plans.

Material changes versus Q1 2020

• Revenue increased 174%, primarily reflecting $42.8 million recognized under the Daiichi Sankyo license arrangement, higher Crysvita collaboration revenue and increased product sales. Product sales rose 155%; Crysvita profit-share revenue increased 33%.
• Operating expenses increased 31%. Research and development rose 31% to $147.5 million, including a $50.0 million upfront payment to Mereo for setrusumab rights. Selling, general and administrative expense increased 12% to $53.3 million.
• Net loss widened despite a lower operating loss, primarily because the company recorded a $20.6 million loss on the fair value of its Arcturus and Solid equity investments, compared with a $7.7 million gain in Q1 2020. The per-share loss improved slightly as weighted-average shares increased.
• Operating cash use increased by $64.2 million, in part reflecting payment timing and a $41.5 million decrease in contract liabilities as Daiichi Sankyo-related revenue was recognized. The 2020 comparison included a large contract-liability increase under that arrangement.

Outlook, commentary and risks

• Management expected R&D expense to continue increasing as programs advance and SG&A to rise to support organizational growth and commercialization. The filing gives no numerical revenue or earnings guidance.
• Clinical milestones then expected included Phase 3 starts for DTX401 and DTX301 in the second half of 2021; a Phase 1/2/3 study of UX701 expected to begin in the early part of that half; and UX053 Phase 1/2 enrollment expected in the second half. These are forward-looking expectations, not completed milestones.
• The GTX-102 Angelman syndrome Phase 1/2 study was on U.S. clinical hold following a serious adverse event of lower-extremity weakness. The company was pursuing regulatory discussions and anticipated possible resumption in 2021.
• COVID-19 had disrupted clinical enrollment and dosing, regulatory interactions, supply of clinical materials and commercial patient identification. The company said the pandemic’s future impact could not be reliably estimated.
• Other significant risks include continued operating losses and potential financing needs; dependence on third-party manufacturers and suppliers, including KKC for Crysvita; uncertain clinical and regulatory outcomes; rare-disease patient identification and reimbursement; and volatility in its publicly traded equity investments. A hypothetical 10% decline in Arcturus and Solid share prices would reduce investment value by $13.4 million.
• Potential contractual commitments shown totaled $80.5 million, primarily leases, manufacturing and service contracts, and building construction; the table excludes uncertain future milestone obligations. The company reported no material legal proceedings and no off-balance-sheet arrangements.

Important facts for investors to verify

• How much future Daiichi Sankyo revenue remains to be recognized, and whether the technology-transfer schedule and associated milestones remain on track.
• Whether product-sales growth, particularly Dojolvi and Crysvita, continues and how reported cost of sales and inventory write-downs affect underlying product economics.
• Cash consumption, restricted cash, and the timing and amount of any additional financing; also track the royalty-sale liability and its estimated effective interest burden.
• Clinical and regulatory progress, especially the GTX-102 hold and the anticipated DTX401, DTX301, UX701 and UX053 milestones, against the stated timelines.
• Changes in the fair value of Arcturus and Solid investments, which can materially affect reported net loss without corresponding operating cash flows.