Ultragenyx Pharmaceutical Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed February 21, 2018. The filing also reports unaudited fourth-quarter results. Ultragenyx is a rare-disease biotechnology company that received its first U.S. product approval during 2017.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $2.6 million | $0.1 million |
| Research and development expense | $231.6 million | $183.2 million |
| Selling, general and administrative expense | $99.9 million | $64.9 million |
| Operating loss | $328.9 million | $248.0 million |
| Net loss | $302.1 million | $245.9 million |
| Net loss per share, basic and diluted | $7.12 | $6.21 |
| Cash, cash equivalents and investments at year-end | $244.5 million | $498.1 million |
| Cash used in operating activities | $253.8 million | $161.0 million |
Revenue comprised $0.5 million of Mepsevii product sales and $2.1 million of collaboration and license revenue. Cost of sales was reported as $1,000; the filing says pre-approval manufacturing costs had been expensed, so reported cost of sales does not reflect the full manufacturing cost of the product. Meaningful operating margins are not informative given minimal revenue and substantial development and commercialization spending.
Fourth-quarter 2017 revenue was $2.4 million, operating expenses were $99.2 million, and net loss was $81.7 million, versus revenue of $5,000, operating expenses of $70.6 million, and net loss of $71.3 million in fourth-quarter 2016.
Year-end total assets were $490.8 million and total liabilities were $107.3 million. The company had repaid the $4.9 million note payable assumed in the Dimension acquisition by December 2017; the balance sheet reports no note payable at year-end. Working capital was $198.6 million. The company financed operations primarily through equity offerings, including $132.0 million of net ATM proceeds in 2017.
After year-end, Ultragenyx reported $11.8 million of additional ATM proceeds, $130.0 million from selling its Mepsevii priority review voucher, and approximately $271.0 million of net proceeds from a January 2018 stock offering. These subsequent proceeds are not included in December 31, 2017 cash and investments.
Material changes and business developments
- FDA approved Mepsevii (vestronidase alfa) in November 2017 for children and adults with MPS VII, the first approved therapy for the disease. U.S. product sales began, while European review remained ongoing.
- Revenue remained very small relative to losses. Net loss increased by $56.3 million year over year, while R&D expense rose 26% and SG&A expense rose 54%.
- The November acquisition of Dimension Therapeutics expanded the gene-therapy portfolio. Ultragenyx paid approximately $152.3 million in cash; total acquisition consideration was approximately $164.1 million. It recorded $129.0 million of acquired in-process R&D, a $13.5 million Bayer collaboration contract asset, and $44.4 million of goodwill.
- Cash, cash equivalents and investments declined by $253.6 million from year-end 2016, reflecting operating cash use, the acquisition, and investment activity, partly offset by equity financing.
- Ultragenyx discontinued Ace-ER development after its Phase 3 GNE myopathy study failed to meet its primary and key secondary endpoints. The Phase 2 UX007 seizure study in Glut1 deficiency also missed its primary endpoint.
Outlook, management commentary and key risks
- Management expected continued annual losses and rising expenses as it advanced clinical programs, prepared for commercialization, and expanded its organization. It stated that additional capital would likely be required; funding availability and terms were uncertain.
- Burosumab: the U.S. BLA for pediatric and adult XLH had an April 17, 2018 action date. The European committee recommended conditional authorization for certain pediatric patients, with a European Commission decision expected in February 2018. The company expected pediatric Phase 3 data in the second half of 2018. These were expectations at the filing date, not reported outcomes.
- Mepsevii: the European application was under review, with a committee opinion expected in the first half of 2018. The company completed the $130.0 million voucher sale in January 2018.
- UX007 for LC-FAOD: after FDA discussions, the company was preparing additional information to determine whether an early filing based on Phase 2 results might be feasible; it was also planning a randomized Phase 3 study. FDA acceptance of an early filing was not assured.
- DTX301 for OTC deficiency: interim first-cohort results were mixed, with one patient showing increased ureagenesis, another showing no clinically meaningful change, and a third not yet at the 12-week assessment. Further dosing depended on safety review.
- Key risks include clinical and regulatory uncertainty, small and difficult-to-identify patient populations, pricing and reimbursement constraints, dependence on partners and single-source manufacturers, gene-therapy safety and manufacturing risks, and patent challenges. A European opposition to an in-licensed AAV8 patent was in its early stages; the company could not estimate its outcome.
- The filing reports no material legal proceedings and no off-balance-sheet arrangements. Management and the auditor reported effective internal control over financial reporting, but Dimension’s controls were excluded from the 2017 assessment while integration was underway.
Important facts for investors to verify
- Whether Mepsevii achieves meaningful commercial uptake, reimbursement, and sales beyond its initial $0.5 million of 2017 revenue.
- The outcomes and timing of the burosumab U.S. and European regulatory reviews, and whether confirmatory studies meet requirements.
- Whether FDA accepts an early UX007 LC-FAOD filing, and results from its planned Phase 3 study and the Glut1 movement-disorder study.
- Further DTX301 safety and efficacy data, including whether higher-dose testing proceeds, and the development progress of Dimension-acquired programs.
- Cash burn, remaining liquidity, and financing needs, considering the substantial 2017 operating cash use and the subsequent January 2018 financing proceeds.
- Manufacturing continuity and partner dependence, especially for burosumab and Mepsevii, and the status of the AAV8 patent opposition.