Ultragenyx Pharmaceutical Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022. Ultragenyx develops and commercializes treatments for rare and ultra-rare genetic diseases and reports as one segment. It had four approved products: Crysvita, Mepsevii, Dojolvi, and Evkeeza.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $100.5 million | $79.9 million | +$20.6 million; 26% |
| Product sales | $44.2 million | $26.7 million | +$17.5 million; 66% |
| Research and development | $165.7 million | $143.2 million | +$22.5 million; 16% |
| Selling, general and administrative | $76.6 million | $67.3 million | +$9.3 million; 14% |
| Operating loss | $(154.1) million | $(136.6) million | Loss increased $17.5 million |
| Net loss | $(164.0) million | $(152.3) million | Loss increased $11.7 million |
| Net loss per share | $(2.33) | $(2.19) | |
| Cash used in operating activities | $(156.9) million | $(117.5) million | Use increased $39.3 million |
Revenue growth reflected higher product sales—especially Crysvita and Mepsevii—and increased Crysvita collaboration revenue in the profit-share territory. Daiichi Sankyo collaboration revenue declined as its technology-transfer period concluded. Interest income rose to $6.3 million from $0.5 million, largely because of higher interest rates. Non-cash interest expense on future-royalty liabilities rose to $15.6 million from $6.6 million, principally following the 2022 OMERS transaction. The filing does not provide a clear consolidated gross-margin figure.
Financial position and liquidity
- Cash and cash equivalents were $85.8 million; marketable debt securities totaled $628.8 million. Together, available cash, cash equivalents, and marketable debt securities were $714.6 million at March 31, 2023, down from $896.7 million at December 31, 2022.
- Total assets were $1.383 billion, total liabilities $1.163 billion, and stockholders’ equity $220.5 million. Accumulated deficit was $2.945 billion.
- Liabilities for sales of future royalties were $890.0 million, up from $875.4 million at year-end. These liabilities relate to the RPI and OMERS royalty-sale arrangements; they are not presented as conventional borrowings in the supplied filing text.
- Investing activities provided $111.3 million, mainly from maturities of marketable securities, while the overall decrease in cash, cash equivalents, and restricted cash was $46.1 million.
- Management said existing capital resources were expected to fund projected operating requirements for at least 12 months. The company nevertheless expects continued annual losses and says additional capital will be needed to execute its plans.
Material changes and business developments
- Product sales increased 66% year over year. Crysvita sales were $21.2 million versus $9.4 million; Mepsevii sales were $8.5 million versus $4.9 million; and Dojolvi sales were $14.3 million versus $12.4 million. Evkeeza sales were $0.2 million, compared with none in the prior-year quarter.
- R&D spending increased 16%, with higher costs for nucleic-acid and other biologic programs, infrastructure, and other R&D; gene-therapy program costs decreased. SG&A rose 14%, mainly due to staffing, commercialization, and professional-services costs.
- In April 2023, after quarter-end, Crysvita commercialization responsibilities in the U.S. and Canada transitioned to Kyowa Kirin (KKC). Ultragenyx is entitled to a tiered revenue share, and will continue specified U.S. commercial support through April 2024 under a cost-sharing arrangement.
- Management reported that the last patient had been dosed in the DTX401 Phase 3 study in May 2023, with results expected in the first half of 2024. UX143 Phase 2 data were expected mid-2023; the next GTX-102 data update was expected in the second half of 2023; and UX701 Stage 1 enrollment completion was expected in the second half of 2023.
- Ultragenyx completed the single-ascending-dose stage of UX053’s Phase 1/2 study and chose not to enroll the multiple-ascending-dose cohorts at that time, citing focus on later-stage and larger-indication programs. Single-dose data were expected in Q2 2023.
Outlook, risks, and unusual items
- Management expects annual losses to continue for the foreseeable future. It expected R&D expenses to moderate over time and SG&A to decrease as Crysvita commercial responsibilities transition to KKC; spending and results remain dependent on clinical progress, regulatory requirements, manufacturing needs, and commercialization.
- Funding needs could exceed available resources or financing may not be available on acceptable terms. Management noted that failure to obtain funding could require delaying, reducing, or ending studies or other activities. The company had an at-the-market equity program with up to $350 million of aggregate offering proceeds; no shares were sold under it in Q1 2023.
- Manufacturing and supply remain important risks. Haupt Pharma announced it would close its Wolfratshausen site, which produces Dojolvi drug product, at the end of 2023; Ultragenyx said it must identify, qualify, and transfer to an alternative supplier. The company also cited reliance on third parties and KKC for product supply.
- Other disclosed risks include clinical and regulatory uncertainty, patient recruitment, product acceptance and reimbursement, competition, intellectual-property disputes, foreign-exchange exposure, and macroeconomic and financial-market conditions. A hypothetical 100-basis-point interest-rate change was not expected to have a material effect on portfolio fair value; a hypothetical 10% foreign-exchange change was also not expected to have a material financial-statement impact.
- Contractual obligations included approximately $55.0 million of future minimum lease payments, $25.4 million of manufacturing and service commitments, and $9.9 million of building construction and improvement commitments. Potential development, regulatory, and commercial milestone payments are additional and uncertain.
- The company reported no material legal proceedings, effective disclosure controls as of March 31, 2023, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether product-revenue growth continues and how the April 2023 Crysvita transition affects reported revenue, costs, and commercial contribution.
- Cash consumption, the reported 12-month funding assessment, and the timing and terms of any additional financing.
- The carrying value and future non-cash interest expense associated with the $890.0 million future-royalty liability, including the RPI and OMERS payment caps and estimates.
- Clinical data and timelines for UX143, GTX-102, DTX401, DTX301, and UX701, including whether projected milestones are achieved.
- Whether an alternative Dojolvi drug-product supplier can be qualified and the transfer completed before the current supplier’s planned site closure.
- Customer concentration in receivables: one collaboration partner represented 40% of accounts receivable and another customer 26% at March 31, 2023.