Ultragenyx Pharmaceutical Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Ultragenyx develops and commercializes therapies for rare and ultrarare genetic diseases. It reported four commercially approved products and a clinical-stage pipeline spanning gene therapy, biologics and nucleic acid programs.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $98.1 million | $90.7 million | $306.9 million | $260.0 million |
| Operating loss | $145.1 million | $225.1 million | $447.2 million | $503.3 million |
| Net loss | $159.6 million | $245.1 million | $483.4 million | $555.6 million |
| Net loss per share | $2.23 | $3.50 | $6.81 | $7.96 |
| Cash used in operating activities | — | — | $390.9 million | $290.1 million |
- Q3 product sales were $42.3 million, up 30%; nine-month product sales were $128.8 million, up 43%. Q3 product gross profit, calculated as product sales less cost of sales, was approximately $31.4 million, or 74% of product sales. This is not a company-wide gross margin measure.
- Crysvita royalty revenue was $55.7 million in Q3 and $106.9 million for nine months. Total Crysvita revenue, including product sales and other Crysvita revenue, was $74.9 million and $233.9 million, respectively.
- At September 30, cash and cash equivalents were $72.6 million and marketable debt securities totaled $451.6 million, for $524.2 million in available cash, cash equivalents and marketable securities. Total assets were $1.24 billion; current assets were $599.2 million and current liabilities $254.0 million.
- Liabilities for sales of future royalties totaled $905.9 million, including $29.9 million current. These royalty monetization obligations are not presented as conventional borrowings. The filing reports no conventional debt balance in the provided financial statements.
- Stockholders’ equity was $31.7 million, down from $352.5 million at year-end 2022, primarily reflecting the $483.4 million nine-month net loss, partly offset by equity issuances and other changes.
Material changes versus the prior comparable periods
- Revenue grew 8% in Q3 and 18% for the nine-month period. Product sales increased with demand for Crysvita, Dojolvi and other approved products; Mepsevii sales declined 7% in Q3 but rose 42% for nine months. Evkeeza sales began contributing in 2023.
- Crysvita commercialization responsibilities in the U.S. and Canada profit-share territory transitioned to Kyowa Kirin (KKC) in April 2023. Revenue share previously reported as collaboration revenue is now generally recorded as royalty revenue. The reported shift between revenue categories therefore does not represent an equivalent change in underlying Crysvita sales.
- Q3 Crysvita revenue was affected by lower U.S. channel inventory during the transition from Ultragenyx-labeled to KKC-labeled product. Nine-month collaboration and license revenue fell 54%, partly due to the transition and completion of Daiichi Sankyo technology-transfer revenue in March 2023.
- Operating losses narrowed, including because R&D expense fell 34% in Q3 and 9% for nine months. The comparison reflects the absence of the $75.2 million GeneTx acquisition-related R&D charge recorded in 2022; 2023 included a $9.0 million UX143 clinical milestone expense. SG&A rose 7% in Q3 and 13% for nine months, partly due to commercialization and professional-services costs and a one-time legal accrual.
- Operating cash use increased to $390.9 million from $290.1 million for nine months. Investing activities provided $275.0 million in 2023, primarily reflecting marketable-security maturities net of purchases. Financing activities provided $57.5 million, including $53.3 million of net ATM proceeds; 2022 financing included $491.0 million from the sale of future royalties to OMERS.
Outlook, commentary and risks
- Management said existing capital resources at September 30, 2023 were expected to fund projected operating requirements for at least 12 months. It also expects annual losses to continue for the foreseeable future and says additional capital will likely be needed. In October 2023, after quarter-end, the company raised $326.5 million net in an underwritten offering of common shares and pre-funded warrants.
- Management expects R&D expense to moderate as candidates advance and SG&A expense to decrease as Crysvita commercial responsibilities transition to KKC. Actual spending and funding needs depend on clinical outcomes, regulatory requirements, manufacturing costs and commercialization.
- Clinical milestones cited include anticipated DTX401 Phase 3 results in the first half of 2024; expected completion of DTX301 Phase 3 enrollment in the first half of 2024; and expected additional UX143 Phase 2 data and UX701 Stage 1 data in 2024. GTX-102 dose-expansion data were expected in the first half of 2024. These are forward-looking expectations, not reported results.
- October 2023 interim UX143 data reported a 67% reduction in annualized fracture rate across 24 Phase 2 participants after at least six months; the filing cautions that interim clinical data may change. Management also reported preliminary UX701 observations and GTX-102 extension-cohort results.
- Notable risks include clinical-study failure or delay, patient-enrollment challenges, regulatory uncertainty, gene-therapy manufacturing and safety risks, dependence on third-party suppliers and CROs, and reliance on KKC for Crysvita supply and commercialization. Haupt Pharma plans to close its Dojolvi drug-product site by year-end 2023; Ultragenyx was qualifying an alternative supplier.
- Future royalty liabilities generate non-cash interest expense and depend on Crysvita sales and timing. Nine-month non-cash interest expense was $48.7 million. The company also cited macroeconomic, foreign-exchange, reimbursement, intellectual-property and financing risks. It reported no material legal proceedings and effective disclosure controls as of September 30, 2023.
Important facts for investors to verify
- Whether Crysvita sales and royalty receipts sustain growth after the KKC transition, including the effects of channel inventory and the royalty-sale arrangements.
- Cash-burn trajectory and the timing of additional financing needs, taking account of the October offering and continuing operating losses.
- Progress and results of the 2024 clinical milestones, and whether interim findings are confirmed in larger or later-stage studies.
- Qualification and continuity of Dojolvi supply after the planned supplier-site closure, alongside broader single-source manufacturing dependencies.
- Future royalty-liability accretion, potential milestone obligations under collaboration and license agreements, and any dilution from shares, warrants or equity plans.