Ultragenyx Pharmaceutical Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Ultragenyx is a rare-disease biopharmaceutical company with approved therapies Crysvita and Mepsevii and a clinical-stage pipeline. Amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $36.3 million | $18.2 million |
| Operating loss | $120.7 million | $99.2 million |
| Net loss | $119.0 million | $96.8 million |
| Net loss per share, diluted | $2.05 | $1.82 |
| Cash used in operating activities | $95.2 million | $95.8 million |
- Revenue comprised $27.2 million of collaboration and license revenue, $6.5 million of product sales, and $2.6 million of non-cash royalty revenue. Crysvita collaboration revenue in the profit-share territory was $27.2 million; Mepsevii sales were $3.4 million and Crysvita product sales were $1.6 million.
- R&D expense was $113.0 million, up 45%; SG&A was $47.5 million, up 22%. The operating loss widened as spending growth exceeded revenue growth.
- Cost of sales was a $3.5 million credit, principally reflecting a $4.6 million manufacturing credit for inventory batches that failed quality standards. The filing cautions that reported product gross margin is affected by previously expensed pre-approval manufacturing costs and expects margin percentage to decline as inventory is replenished at full manufacturing cost.
- At March 31, cash and cash equivalents were $298.2 million and short- and long-term investments totaled $406.8 million. Management reported $705.0 million of available cash, cash equivalents, and available-for-sale investments, versus $760.4 million at December 31, 2019, and said resources should fund projected requirements for at least 12 months.
- Investing cash outflow was $95.1 million and financing cash inflow was $55.6 million. The financing inflow chiefly reflected $55.3 million net proceeds from Daiichi Sankyo’s share purchase. The $125.0 million Daiichi Sankyo license-payment receivable was collected in April 2020.
- No conventional borrowing balance is identified in the supplied statements. Significant obligations include a $320.8 million liability from the sale of future Crysvita royalties and $42.4 million of lease liabilities. Total liabilities were $624.0 million; stockholders’ equity was $609.1 million.
Material changes versus the prior-year quarter
- Revenue doubled year over year. Crysvita profit-share revenue increased 128%, reflecting continuing demand; product sales rose 65%, with growth across Crysvita, Mepsevii, and UX007.
- R&D rose $34.9 million, including a $25.0 million GeneTx option-extension payment recorded as in-process R&D and increased translational research spending. SG&A rose $8.7 million, largely due to personnel, commercialization, and professional-services costs.
- Net loss increased $22.3 million. A $7.7 million non-cash gain from remeasuring Arcturus securities partly offset operating costs; $8.1 million of non-cash interest expense accrued on the royalty-sale liability.
- Cash and investments declined from $760.4 million at year-end to $705.0 million. A large Daiichi Sankyo payment receivable and matching contract liabilities were recorded before the cash receipt and technology-transfer work began.
Outlook, risks, and unusual items
- Management expects annual losses to continue and R&D and SG&A to rise as programs advance and commercial infrastructure expands. It expects to require additional capital over time; future financing may be unavailable or dilutive or require surrendering rights or future revenue.
- COVID-19 had disrupted clinical-trial enrollment and patient visits, with potential delays to gene-therapy data, commercialization, regulatory activity, and supply. Some suppliers had prioritized COVID-19-related work; the company was seeking alternative supply. Management could not reliably estimate the pandemic’s financial impact beyond Q1.
- Key stated milestones included an FDA target date of June 18, 2020 for Crysvita in TIO and July 31, 2020 for UX007 in LC-FAOD. Management expected DTX301 cohort-four data in the second half of 2020, while dosing was on hold; DTX401 expansion-cohort data were expected in Q2, subject to pandemic-related delays. Preliminary GTX-102 study data were expected in the first half of 2021.
- The $320.0 million gross royalty-sale proceeds from RPI relate to European Crysvita royalties; the capped arrangement has an estimated effective annual interest rate of approximately 10.2%. Royalty performance, sales, timing, and foreign exchange movements can change the associated non-cash revenue and interest expense.
- The $7.7 million Arcturus fair-value gain is market-sensitive and may fluctuate. The filing also identifies manufacturing concentration and quality risks, rare-disease patient identification and enrollment challenges, regulatory and reimbursement uncertainty, and gene-therapy safety and development risks.
- The CFO planned to resign by the earlier of her successor’s start date or September 2, 2020, followed by a transition period. The company reported no material legal proceedings and stated disclosure controls were effective.
Important facts for investors to verify
- Whether Crysvita demand and product sales continue to grow, and how much reported revenue is recurring, collaboration-based, or non-cash.
- Whether Daiichi Sankyo’s technology transfer progresses on schedule, including the additional $25.0 million milestone and recognition of the recorded contract liabilities.
- How COVID-19 affects clinical enrollment, data timing, supply continuity, product access, and cash requirements.
- Whether upcoming regulatory decisions and pipeline milestones occur as anticipated, particularly given the stated holds and pandemic caveats.
- The impact of full-cost manufacturing and inventory replacement on future product gross margins, and the volatility of the Arcturus investment and royalty-sale accounting.
- Whether available liquidity remains adequate as losses continue and whether additional financing or dilution becomes necessary.