Ultragenyx Pharmaceutical Inc. annual report, FY2020

Ultragenyx Pharmaceutical Inc. — 2020 Form 10-K

Reporting period: Fiscal year ended December 31, 2020; filed February 11, 2021. The filing reports full-year results and unaudited quarterly data, including Q4 2020. Amounts below are in U.S. dollars.

Business context

Ultragenyx is a biopharmaceutical company focused on rare and ultra-rare genetic diseases. It had three commercially approved products—Crysvita, Mepsevii and Dojolvi—and clinical programs spanning gene therapy, biologics and nucleic-acid therapies. The company operates as one reportable segment. More than half of 2020 revenue was generated under its Kyowa Kirin collaboration.

Financial results and liquidity

Metric	FY2020	FY2019
Total revenue	$271.0 million	$103.7 million
Product sales	$38.7 million	$20.2 million
Operating expenses	$601.1 million	$527.9 million
Operating loss	$(330.1) million	$(424.2) million
Net loss	$(186.6) million	$(402.7) million
Net loss per share, diluted	$(3.07)	$(7.12)
Cash, cash equivalents and marketable debt securities at year-end	$1,212.0 million	$760.4 million

• Revenue increased 161%. Collaboration and license revenue was $219.3 million, including $128.6 million from Crysvita in the U.S./Canada profit-share territory, $89.2 million from Daiichi Sankyo and $13.0 million of non-cash Crysvita royalty revenue. Product sales comprised Crysvita $10.4 million, Mepsevii $15.3 million and Dojolvi $13.0 million.
• Research and development expense rose 15% to $412.1 million; selling, general and administrative expense rose 13% to $182.9 million. Management expects both development and commercial investment to continue increasing.
• Net loss narrowed substantially, but results included a $170.4 million non-cash gain from changes in fair value of Arcturus and Solid equity investments. The gain was volatile and reduced reported net loss; it is not recurring product operating income.
• Cash used in operating activities was $132.2 million, versus $345.4 million in 2019. Cash provided by financing was $600.3 million, principally including $435.6 million net proceeds from an October public offering, $55.3 million from shares issued to Daiichi Sankyo and $20.4 million from the ATM offering. The ATM facility was fully used by June 2020.
• Working capital was $1,105.7 million. Current assets were $1,295.3 million and current liabilities $189.6 million. No conventional funded borrowing balance is reported in the supplied financial statements; the balance sheet includes a $335.7 million liability for sold future royalties and $48.2 million of lease liabilities.
• Reported cost of sales was $6.1 million, but it included a $4.6 million manufacturing credit and reflects that certain pre-approval manufacturing costs had previously been expensed. Management cautioned that gross margin may decline as fully capitalized post-approval inventory is sold; the reported cost of sales is not a normalized margin basis.

Q4 2020: Revenue was $91.5 million, operating expenses $187.6 million and net loss $24.0 million. A $79.1 million quarterly fair-value gain on equity investments materially affected the result. The filing’s quarterly table reports Q2 net income of $25.3 million, also reflecting investment fair-value movements.

Material changes versus 2019

• Revenue grew by $167.3 million, reflecting the Daiichi Sankyo arrangement, greater Crysvita collaboration revenue, product growth and the U.S. Dojolvi launch in Q3 2020.
• Product sales increased 91%; Dojolvi sales rose to $13.0 million, including named-patient sales, while Crysvita and Mepsevii sales also increased.
• Operating expenses increased $73.3 million, chiefly from higher R&D and commercial investment. R&D growth included translational research and a $13.2 million Solid license-related in-process R&D charge.
• Cash and marketable debt securities increased by $451.6 million. The company raised equity capital and entered into the Daiichi Sankyo technology arrangement; it also sold Crysvita European royalty rights in 2019, which are recorded as a liability and generate non-cash interest expense.

Outlook, commentary and key risks

• Management said existing capital resources were expected to fund projected operating requirements for at least the next 12 months, while also stating the company would likely need additional capital to complete development, commercialize products and build infrastructure. It anticipates annual losses for the foreseeable future.
• Planned milestones included a DTX401 Phase 3 study in approximately 50 patients, expected to begin in the first half of 2021; a DTX301 Phase 3 study, expected to begin in the second half of 2021; and a pediatric UX143 (setrusumab) Phase 2/3 study, also expected in the second half of 2021. These were plans, subject to regulatory discussions and other uncertainties.
• GTX-102’s Phase 1/2 study was on FDA clinical hold following reports of lower-extremity weakness in five treated patients at higher doses. The events resolved; the company proposed an amended dosing plan and anticipated possible resumption in the first half of 2021, subject to FDA approval.
• COVID-19 disrupted trial enrollment, dosing, data timing, regulatory interactions, patient identification and supplier deliveries. Management said the financial impact in 2021 and beyond could not be reliably estimated.
• Manufacturing concentration is material: Crysvita supply depends on Kyowa Kirin; other products also rely on limited or single-source suppliers. Mepsevii fill-and-finish activities were being transferred after prior supply disruption. Construction of a Bedford, Massachusetts gene-therapy facility had begun, with completion anticipated in 2023.
• In January 2021, after year-end, Ultragenyx closed its Mereo collaboration for setrusumab and paid $50 million. The agreement also provides for up to $254 million in clinical, regulatory and commercial milestone payments, global development costs and royalties.
• Other principal risks include clinical and regulatory failure, adverse events, limited rare-disease patient populations, reimbursement and pricing constraints, competition, intellectual-property and licensing risks, dilution from further equity financing, and volatility in equity-investment values. The company reported no material legal proceedings and effective disclosure and internal financial controls.

Important facts for investors to verify

• How much of revenue growth and the reduced net loss reflects sustainable product demand versus collaboration timing, non-cash royalties and the $170.4 million investment fair-value gain.
• Underlying product-level sales, patient starts and persistence, reimbursement access, and the impact of COVID-19 on commercialization.
• Whether GTX-102’s clinical hold was resolved and whether the revised dosing approach controls safety risk while preserving clinical activity.
• Progress, regulatory alignment, enrollment and funding needs for DTX401, DTX301 and other pipeline programs against stated timelines.
• Whether Mepsevii supply transfer and the Bedford manufacturing build proceed on schedule and within expected cost; assess dependence on Kyowa Kirin and other suppliers.
• Cash burn, future financing requirements and potential dilution; review the royalty-sale liability, associated accretion expense and the assumptions underlying forecast European Crysvita royalties.
• Terms and future cash commitments for the Mereo agreement, including development spending, milestones and royalties.