Ultragenyx Pharmaceutical Inc. — Q1 2016 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2016, with balance-sheet comparisons to December 31, 2015. Ultragenyx is a clinical-stage biopharmaceutical company focused on rare and ultra-rare diseases. It reported no revenue and operated as one reportable segment.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $0 | $0; no product revenue to date |
| Research and development expense | $40.4 million | $17.4 million; up 133% |
| General and administrative expense | $13.2 million | $4.1 million; up 219% |
| Total operating expenses | $53.6 million | $21.5 million |
| Net loss | $52.8 million; $1.35 per share | $21.4 million; $0.63 per share |
| Operating cash used | $44.9 million | $17.7 million |
| Investing cash provided/(used) | $21.8 million | $(4.1) million |
| Financing cash provided | $0.3 million | $175.4 million |
Gross profit and operating margins are not meaningful because the company had no revenue. Interest income was $1.0 million, versus $0.3 million a year earlier; total other income was $0.9 million.
At March 31, cash and cash equivalents were $70.8 million, short- and long-term investments totaled $417.0 million, and restricted cash was $3.8 million. Management reported $487.8 million of available cash, cash equivalents, and investments. Total assets were $524.2 million, total liabilities $34.4 million, and stockholders’ equity $489.8 million. No borrowings or debt balance is identified in the balance sheet. The company said it expects continued losses and will likely need additional capital to fund operations and development; it did not provide a cash-runway estimate.
Material changes and drivers
- Net loss increased by $31.4 million year over year, reflecting higher development spending and organizational growth.
- R&D expense rose across all major programs, particularly other research and preclinical costs, KRN23 for XLH, rhGUS, UX007 for LC-FAOD, and Ace-ER. The company attributed increases to later-stage trials, enrollment, manufacturing, quality, and regulatory work.
- G&A increased mainly due to commercial planning, professional services, personnel, and stock-based compensation. Total stock-based compensation was $10.2 million, versus $2.4 million.
- Cash and cash equivalents declined $22.8 million from year-end. Cash used in operations increased, while investment maturities and sales generated net investing cash inflows. Q1 2015 financing had included a public offering; Q1 2016 financing was primarily stock-option exercises.
Outlook, pipeline, and risks
- Pipeline milestones: The company expected rhGUS Phase 3 data in mid-2016; additional KRN23 pediatric XLH and TIO data in the second half of 2016; UX007 Glut1 DS Phase 2 data and 78-week LC-FAOD data in the second half of 2016; and Ace-ER Phase 3 data in 2017. It planned an LC-FAOD Phase 3 study in 2017 and a Glut1 DS movement-disorder Phase 3 study in the second half of 2016, subject to further regulatory discussions.
- Regulatory outlook: The EMA review of the Ace-ER conditional marketing application was expected to produce a CHMP opinion in the second half of 2016 and a European Commission decision in the first half of 2017. The company and KHK planned to seek EU conditional authorization for KRN23 based on pediatric data near the end of 2016.
- Clinical evidence and caveats: Interim Phase 2 data for KRN23 in TIO showed six of eight patients achieved normal serum phosphorus after treatment began; the study was small and ongoing. UX007 LC-FAOD interim findings suggested improvements in exercise measures among small subsets, but were open-label and uncontrolled and required confirmation. The company emphasized that earlier or interim findings do not assure success in pivotal studies.
- Management commentary: R&D and G&A expenses were expected to increase as programs advance and commercialization preparations continue. The company may pursue equity or debt financing, collaborations, or licensing; financing may not be available on acceptable terms and could require program delays, reductions, or rights concessions.
- Principal risks: Clinical and regulatory outcomes are uncertain; rare-disease enrollment and endpoint validation may be difficult; manufacturing depends on third parties and, for KRN23, KHK; commercial supply, pricing, reimbursement, market size, and adoption are uncertain; and additional financing may dilute shareholders or impose restrictive terms. Product-related adverse events, competition, intellectual-property challenges, and reliance on collaborators and contract manufacturers also pose risks.
- No material legal proceedings were reported. Management concluded disclosure controls were effective, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, results, and timing of the listed clinical and regulatory milestones, particularly the small-population studies and conditional-approval applications.
- Whether $487.8 million of available cash, cash equivalents, and investments is sufficient for planned trials and commercialization preparations; the filing provides no explicit runway estimate.
- Continued growth in R&D, G&A, and operating cash use, and the potential timing and terms of any additional financing.
- Reliability of interim, open-label, retrospective, or small-sample findings and their relevance to controlled pivotal studies.
- Availability and quality of third-party manufacturing supply, KHK’s responsibilities and collaboration economics, and the company’s ability to secure commercial-scale supply.
- Stock-based compensation and dilution: 38,992,346 shares were outstanding at March 31, 2016; 39,020,576 were issued and outstanding as of May 4, 2016.