Ultragenyx Pharmaceutical Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. The interim financial statements are unaudited. Ultragenyx is a clinical-stage biopharmaceutical company developing treatments for rare and ultra-rare diseases; it had no approved products and generated no revenue.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $12.9m | $6.8m | $32.4m | $19.6m |
| General and administrative expense | $3.0m | $1.0m | $7.4m | $3.1m |
| Operating loss | $(15.8)m | $(7.8)m | $(39.8)m | $(22.8)m |
| Net loss | $(15.8)m | $(8.4)m | $(43.1)m | $(23.8)m |
| Net loss per common share, basic and diluted | $(0.50) | $(3.48) | $(1.73) | $(9.70) |
Margins are not meaningful because the company had no revenue. The nine-month net loss attributable to common stockholders was $47.9m, including $4.8m of preferred-stock accretion and dividends; the comparable 2013 amount was $31.6m, including $7.9m of such charges.
- Liquidity: Cash and cash equivalents were $53.4m and short-term investments were $147.8m at September 30, 2014, or approximately $201.2m combined, versus $53.4m at year-end 2013. Current assets were $206.7m and current liabilities $11.1m.
- Debt and liabilities: The filing reports no borrowings. Total liabilities were $11.6m; the filing does not identify any debt balance.
- Cash flow, nine months: Operating activities used $29.9m; investing activities used $106.4m; financing activities provided $182.3m. Cash and cash equivalents increased $46.0m.
- Equity financing: The February IPO generated approximately $121.7m in net proceeds after offering costs and the preferred-stock dividend. The July offering generated approximately $60.2m in net proceeds for the company; existing holders also sold shares in that offering.
Material changes versus prior comparable periods
- Q3 R&D expense rose 90% year over year, and nine-month R&D expense rose 65%, reflecting expanded clinical, manufacturing, and development activity across the pipeline.
- Q3 G&A expense rose 198% and nine-month G&A expense rose 136%, primarily due to professional services, personnel, and stock-based compensation, including public-company costs.
- Net loss increased to $15.8m for Q3 and $43.1m for the first nine months, from $8.4m and $23.8m, respectively, in 2013. Lower loss per share reflects the substantially larger weighted-average share count after the IPO and conversion of preferred stock, not improved profitability.
- During the IPO, all preferred stock converted into common shares; the company paid $4.3m of accrued preferred dividends. Preferred-stock warrant liabilities were reclassified to equity and ceased fair-value remeasurement. The nine-month 2014 other expense included $3.3m of warrant-liability remeasurement before conversion.
Outlook, pipeline, and risks
- Management said existing capital resources were expected to fund current operations through 2016. It expected continuing losses and increasing R&D and G&A expenses, and anticipated needing additional capital to obtain approvals and commercialize candidates. Future financing may be unavailable or dilutive; development could be delayed, reduced, or terminated if funding is insufficient.
- Pipeline updates included a Phase 2 pediatric KRN23 study that reached its target enrollment of 30 patients in November 2014, with interim safety and pharmacodynamic data expected in late 2015. Management planned a pediatric Phase 3 study subject to results and further FDA consultation, and an adult Phase 2b study in parallel.
- For rhGUS in MPS 7, interim Phase 1/2 results showed reduced urinary GAG excretion and reduced liver size in some patients. Management planned to initiate a pivotal Phase 3 study in the coming months. The EMA had indicated that approval under exceptional circumstances could be possible, subject to supportive benefit-risk evidence.
- Management planned to start an SA-ER Phase 3 study by mid-2015 after FDA agreement on the proposed design. It expected preliminary data in 2015 from the triheptanoin studies in LC-FAOD and Glut1 DS.
- Key risks include uncertain clinical and regulatory outcomes; small patient populations and enrollment challenges; reliance on third-party and single-source manufacturers; dependence on Kyowa Hakko Kirin for KRN23 supply and certain development and commercialization activities; intellectual-property limitations; and the need for additional financing.
- There were no material legal proceedings reported. Management concluded disclosure controls were effective and reported no material Q3 change in internal control over financial reporting.
Important facts for investors to verify
- Whether the stated cash runway through 2016 remains achievable as clinical spending rises, and what financing may be needed afterward.
- Progress, enrollment, safety, and efficacy results for KRN23, rhGUS, SA-ER, and both triheptanoin programs, including whether expected study milestones occurred.
- Whether regulatory agencies agree with planned pivotal-study designs and endpoints, and what evidence will be required for approval.
- Availability, quality, and cost of clinical and potential commercial supply, particularly for programs dependent on single-source suppliers or partners.
- Potential dilution from future equity issuance and outstanding equity awards; the filing reported 31,898,677 common shares outstanding as of November 3, 2014.