Ultragenyx Pharmaceutical Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts below are in millions of U.S. dollars unless stated otherwise. Ultragenyx develops and commercializes treatments for rare and ultra-rare genetic diseases; it reported four commercially approved products and one operating segment.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $89.3 | $87.0 | $169.3 | $186.4 |
| Operating expenses | $230.9 | $169.8 | $447.5 | $375.7 |
| Operating loss | $(141.6) | $(82.8) | $(278.2) | $(189.3) |
| Net loss | $(158.2) | $(122.4) | $(310.5) | $(258.6) |
| Basic and diluted loss per share | $(2.26) | $(1.81) | $(4.45) | $(3.84) |
| Cash used in operating activities | Not presented for quarter | $(194.8) | $(224.7) |
Q2 revenue rose 3%, while first-half revenue declined 9%. Q2 product sales were $30.8 million, up 68%; first-half product sales were $57.5 million, up 65%. Crysvita collaboration revenue in the U.S./Canada profit-share territory increased 24% in both periods, and Dojolvi sales also grew. These gains were offset by lower Daiichi Sankyo revenue as technology transfer was completed in March 2022.
Research and development expense increased 37% to $154.5 million in Q2 and 14% to $297.7 million in the first half. Selling, general and administrative expense increased 28% to $68.1 million in Q2 and 27% to $135.4 million in the first half. Cost of sales was $8.3 million in Q2 and $14.4 million in the first half; the filing does not present a consolidated gross margin.
Reported net loss included non-cash fair-value losses on Arcturus and Solid equity investments of $10.2 million in Q2 and $19.5 million in the first half. The comparable 2021 losses were $31.0 million and $51.7 million. First-half operating cash use improved year over year, while the company remained loss-making.
Liquidity, assets and obligations
At June 30, 2022, cash and cash equivalents were $159.9 million and marketable debt securities totaled $546.2 million, for combined available cash, cash equivalents and securities of $706.1 million. This compared with $999.1 million at December 31, 2021. Total assets were $1.321 billion; total liabilities were $642.6 million. The balance sheet included a $358.9 million liability related to the prior sale of future European Crysvita royalties. The filing does not report conventional borrowings as a separate debt balance.
Management stated that existing capital resources were expected to fund projected operating requirements for at least 12 months. It also expects annual losses to continue and says additional capital will be needed to execute its plans. Manufacturing and service contract obligations were approximately $35.6 million, of which $34.9 million was due within one year.
Cash, cash equivalents and restricted cash decreased by $146.9 million in the first half. Investing activities provided $41.8 million, including net proceeds from marketable-security maturities and sales, offset by $63.1 million of capital expenditures—primarily for the gene-therapy manufacturing facility—and a $30.0 million Evkeeza-related intangible asset payment.
Material changes, outlook and notable items
- In July 2022, after quarter-end, Ultragenyx received $500.0 million from OMERS for 30% of future U.S. and Canadian Crysvita royalties beginning in April 2023. Payments to OMERS are capped at $725.0 million or end when the underlying KKC royalty ends.
- Also in July, the company acquired GeneTx for $75.0 million, with up to $115.0 million in milestone payments and additional tiered royalties. The acquisition adds GTX-102, an Angelman syndrome candidate.
- Management expects R&D and SG&A expenses to continue increasing as programs advance and the organization expands. No quantified revenue or earnings guidance was provided.
- Clinical updates included ongoing Phase 3 studies of DTX401 and DTX301; management expected DTX301 U.S. screening to begin in the second half of 2022. The company also reported interim GTX-102 observations and planned further dose-selection and expansion work. These are company-reported interim updates, not final trial results.
- Risks highlighted include clinical and regulatory uncertainty, difficulty enrolling rare-disease patients, reliance on third-party and single-source manufacturing, Crysvita dependence on KKC, reimbursement and market-acceptance uncertainty, and potential COVID-19-related disruption. Construction of the gene-therapy facility was expected to finish in 2023, but management cited possible delays and cost overruns.
- The company reported no material legal proceedings and said disclosure controls were effective as of June 30, 2022. It also stated that it had no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether commercial growth in Crysvita and Dojolvi can offset the decline in collaboration revenue and rising operating costs.
- Cash burn, future financing needs, and the impact of the post-quarter $500.0 million royalty sale and $75.0 million GeneTx acquisition, including their longer-term economic costs.
- Progress, safety, durability and regulatory prospects for key clinical programs; distinguish interim data from completed, controlled-study results.
- Execution, cost and timing of the gene-therapy manufacturing facility and dependence on external suppliers and KKC for product supply.
- How Crysvita commercial responsibilities transition to KKC in April 2023 and how the OMERS royalty arrangement affects future receipts.