Ultragenyx Pharmaceutical Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Ultragenyx is a rare-disease biopharmaceutical company with two approved therapies, Crysvita and Mepsevii, and clinical programs including UX007, DTX301, and DTX401. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change / context |
|---|---|---|---|
| Total revenue | $18.2 million | $10.7 million | Up 70% |
| Collaboration and license revenue | $14.2 million | $9.4 million | Up 52%; KHK/Crysvita revenue rose substantially, partly offset by lower Bayer revenue |
| Product sales | $3.9 million | $1.3 million | Up 199%; Mepsevii, Crysvita, and named-patient sales contributed |
| Research and development | $78.1 million | $75.5 million | Up 3%, with higher DTX301 and DTX401 spending largely offset by lower DTX201 spending |
| Selling, general and administrative | $38.8 million | $31.4 million | Up 24%, reflecting personnel, commercialization, stock compensation, and professional-service costs |
| Operating loss | $(99.2) million | $(96.5) million | Operating expenses exceeded revenue in both periods |
| Net income (loss) | $(96.8) million | $30.3 million | Prior-year income included a $130.0 million priority review voucher sale gain |
| Net loss per share | $(1.82) | Net income per diluted share of $0.62 | Q1 2019 diluted share count equaled basic because potential shares were antidilutive |
| Cash used in operating activities | $95.8 million | $89.5 million | Operating cash use increased year over year |
| Cash, cash equivalents, and investments | $715.3 million | — | At March 31, 2019; management said resources were expected to fund requirements for at least 12 months |
Cash and short-term investments were $269.7 million and $445.6 million, respectively, at quarter-end. Financing activities provided $353.6 million, principally from a February public offering ($330.4 million net) and ATM sales ($19.3 million net). The public offering issued 5.83 million shares; 57.3 million shares were outstanding at March 31, versus 50.9 million at December 31, 2018. The filing reports lease liabilities of $28.2 million, including $5.3 million current; the balance sheet lists no borrowing or debt balance. Adoption of the new lease standard in January added right-of-use assets and lease liabilities.
Cost of sales was $0.45 million. Management cautioned that reported product costs are affected by manufacturing costs expensed before product approval and expects cost of sales to rise as inventory produced at full manufacturing cost is sold. A conventional gross margin comparison may therefore be misleading.
Material changes and operating developments
- Crysvita collaboration revenue from KHK was $14.0 million, compared with $15,000 in Q1 2018, reflecting commercialization in the U.S. and Europe. Product sales included $2.7 million of Mepsevii, $0.6 million of Crysvita, and $0.7 million of UX007.
- Bayer collaboration and license revenue decreased to $0.3 million from $9.3 million as development transitioned to Bayer; the related performance obligation was expected to be substantially complete by the end of 2019.
- R&D spending increased for DTX301 ($12.1 million) and DTX401 ($8.8 million), while DTX201 spending fell to $0.8 million from $10.0 million. SG&A growth accompanied the expansion of commercial operations.
- Q1 2018 net income and operating cash flow were materially affected by the $130.0 million priority review voucher sale; the gain did not recur in 2019.
- Ultragenyx raised $330.4 million net through a February 2019 underwritten equity offering and raised an additional $19.3 million net through its ATM program during the quarter.
Outlook, commentary, and risks
- Management expects continuing annual losses for the foreseeable future, with losses potentially increasing as clinical development, commercialization, and infrastructure investment expand. It anticipates needing additional capital over time; financing may not be available on acceptable terms, and failure to raise funds could require delaying or reducing programs.
- Management expected to submit a UX007 NDA for LC-FAOD in mid-2019. The filing also anticipated DTX301 third-cohort data and DTX401 second-cohort data in mid-2019. These are forward-looking expectations, not guaranteed outcomes.
- Management reported positive results from the Crysvita pediatric XLH Phase 3 analysis, positive UX007 extension-study results, and positive initial DTX401 cohort findings. UX007’s extension study included two deaths attributed to disease progression rather than treatment; common treatment-related events included diarrhea, vomiting, and abdominal pain. In DTX401’s first cohort, mild ALT elevations in two patients were treated with tapering steroids.
- Key risks include clinical and regulatory uncertainty, limited rare-disease patient populations, product uptake and reimbursement, reliance on partners and single-source suppliers, gene-therapy manufacturing and safety challenges, and potential dilution from future financing. The company also identified possible patent disputes involving gene-therapy programs. It reported no material legal proceedings and stated disclosure controls were effective.
- No numerical full-year revenue, earnings, or cash-burn guidance was provided in the filing text. Management’s stated liquidity runway was at least 12 months, while also describing likely future financing needs.
Important facts for investors to verify
- Whether Crysvita and Mepsevii sales and KHK collaboration revenue continue to grow, and how much revenue remains dependent on collaboration partners.
- Whether the planned UX007 NDA and mid-2019 DTX301 and DTX401 data milestones occurred, and whether subsequent results support regulatory progress.
- Whether operating cash burn, R&D, and commercial expenses track with available liquidity, given management’s expectation of ongoing losses and potential additional financing.
- How future product cost of sales, manufacturing capacity, and reliance on KHK and other single-source suppliers affect margins and product availability.
- The effects of the February equity offering and future equity issuance on share count and existing stockholders’ ownership.