Ultragenyx Pharmaceutical Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unless stated otherwise, figures are in millions of U.S. dollars. Ultragenyx develops and commercializes treatments for rare and ultra-rare genetic diseases; it reported four approved products: Crysvita, Mepsevii, Dojolvi and Evkeeza.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $90.7 | $81.6 | $260.0 | $268.0 |
| Operating loss | ($225.1) | ($89.8) | ($503.3) | ($279.2) |
| Net loss | ($245.1) | ($73.0) | ($555.6) | ($331.6) |
| Net loss per share, diluted | ($3.50) | ($1.08) | ($7.96) | ($4.91) |
| Operating cash used | — | ($290.1) | ($284.4) | |
| Investing cash used | — | ($120.1) | ($264.4) | |
| Financing cash provided | — | $499.3 | $32.8 |
Q3 operating margin was approximately (248%), compared with approximately (110%) a year earlier; nine-month operating margin was approximately (194%), compared with (104%). The filing reports sustained operating losses and does not report a conventional positive profit margin.
- Revenue mix: Q3 product sales were $32.5 million, up 48%; collaboration and license revenue was $52.8 million, down 4%. Nine-month product sales rose 58% to $90.0 million, while collaboration and license revenue fell 22% to $154.3 million.
- Cash and liquidity: At September 30, cash and cash equivalents were $391.7 million and marketable debt securities totaled $604.6 million, or $996.2 million combined. Current assets were $1,012.7 million versus current liabilities of $227.4 million.
- Royalty-sale obligation: Liabilities related to sales of future royalties were $862.1 million, including the RPI and OMERS arrangements. This is a royalty-linked financing liability; the filing does not present conventional borrowings as a separate debt balance.
- Other balance-sheet items: Total assets were $1,618.5 million and stockholders’ equity was $468.8 million. The nine-month cash balance increased by $86.7 million, substantially supported by the royalty transaction.
Changes versus the prior comparable periods
- Q3 revenue increased 11%, chiefly from higher Crysvita collaboration revenue and higher product sales. Nine-month revenue declined 3%, as growth in products and Crysvita royalties was more than offset by lower Daiichi Sankyo revenue.
- Daiichi Sankyo revenue declined to $1.5 million for Q3 and $6.2 million for nine months, from $12.1 million and $76.8 million, respectively, as technology transfer was completed by March 31, 2022.
- Research and development expense rose 109% in Q3 to $237.3 million and 43% for nine months to $535.0 million. Q3 included $75.2 million of acquired in-process R&D expense related to GeneTx.
- Selling, general and administrative expense increased 30% in Q3 to $69.8 million and 28% for nine months to $205.3 million. Cost of sales rose to $8.6 million in Q3 and $23.0 million for nine months, reflecting higher product demand, Evkeeza intangible amortization and inventory write-downs.
- Net loss widened materially. Alongside higher operating expenses, Q3 included a $1.6 million loss from equity investment fair-value changes, compared with a $25.7 million gain in Q3 2021. Nine-month fair-value losses were $21.1 million versus $26.0 million in 2021.
Outlook, management commentary, risks and unusual items
- Management believes existing capital resources will fund projected operating requirements for at least the next 12 months. It also expects annual losses for the foreseeable future and says additional capital will likely be needed; financing may involve equity, debt, royalty sales, collaborations or other arrangements.
- Management expects R&D and SG&A expenses to moderate in the future, but their timing and amount depend on clinical results, regulatory requirements, manufacturing costs and commercial needs. No specific full-year revenue or earnings guidance is provided in the filing text.
- Pipeline milestones included expected enrollment of the last DTX401 Phase 3 patient in baseline screening around year-end 2022; expected initial DTX301 Phase 3 U.S. screening around year-end 2022; GTX-102 expansion-cohort enrollment expected in the first half of 2023; UX053 preliminary Part 1 data expected in the first half of 2023; and UX701 Stage 1 enrollment completion expected mid-2023, with data expected around year-end 2023 or early 2024. These are forward-looking expectations, not assured outcomes.
- In July 2022, the company received $500.0 million gross, or $491.0 million net, from OMERS for 30% of future U.S. and Canadian Crysvita royalties beginning in April 2023, subject to a $725.0 million payment cap. The transaction increased royalty-sale liabilities and non-cash interest expense.
- In July, Ultragenyx acquired GeneTx for $91.2 million total consideration, including the $75.0 million option price, and recorded $75.2 million of in-process R&D expense. Up to $190.0 million in milestone payments, tiered royalties and a potential priority-review-voucher payment may also be due.
- The company recorded a $5.9 million discrete tax expense, citing required capitalization of R&D expenditures for tax purposes and taxable income from the royalty sale, along with state limitations on use of net operating losses.
- KKC is to assume Crysvita commercialization responsibilities in the U.S. and Canada in April 2023. Under a September amendment, Ultragenyx may continue supporting U.S. commercial field activities through April 2024, subject to conditions; its promotion rights thereafter will be limited to medical geneticists.
- Key risks include clinical-trial uncertainty and rare-disease patient recruitment; gene-therapy manufacturing and supply constraints; reliance on KKC and other third parties; competition, pricing and reimbursement; royalty receipts affected by Crysvita sales and foreign exchange; and the possibility that further financing may be unavailable on acceptable terms. The company reported no material legal proceedings and said disclosure controls were effective.
Important facts for investors to verify
- Whether product-sales growth, particularly for Crysvita and Dojolvi, continues to offset the decline in collaboration revenue.
- Cash burn and the company’s funding needs beyond management’s stated minimum 12-month liquidity horizon.
- The effective cost and future payment profile of the RPI and OMERS royalty-sale liabilities, including actual Crysvita sales versus estimates.
- Progress, safety and enrollment against the stated clinical timelines, especially for GTX-102 and the Phase 3 gene-therapy programs.
- Execution of the Crysvita commercial transition to KKC and the impact on revenue share, costs and field-force arrangements.
- Further R&D spending, acquisition-related milestones and any changes to tax, manufacturing or reimbursement assumptions.