Ultragenyx Pharmaceutical Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; filed May 7, 2018. Amounts below are in U.S. dollars. Ultragenyx develops and commercializes treatments for rare and ultra-rare diseases. Mepsevii was FDA-approved during 2017; Crysvita received European conditional authorization in February 2018 and U.S. FDA approval on April 17, 2018, after the quarter ended.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Collaboration and license revenue | $9.4 million | None reported |
| Product sales | $1.3 million | None reported |
| Total revenue | $10.7 million | None reported |
| Research and development expense | $75.5 million | $51.3 million |
| Selling, general and administrative expense | $31.4 million | $18.7 million |
| Loss from operations | $(96.5) million | $(70.0) million |
| Net income (loss) | $30.3 million | $(68.3) million |
| Net income (loss) per diluted share | $0.62 | $(1.63) |
| Cash used in operating activities | $(89.5) million | $(61.2) million |
Q1 2018 net income principally reflects a one-time $130.0 million gain from the sale of the Mepsevii-related Rare Pediatric Disease Priority Review Voucher (PRV). The reported profit therefore does not reflect underlying operating profitability. The company’s agreement provides for PRV proceeds to be shared equally with Kyowa Hakko Kirin.
Revenue included $9.3 million of collaboration and license revenue, primarily from the Bayer research arrangement, and $1.3 million of Mepsevii and UX007 sales. Cost of sales was $0.2 million; management said it included an excess-inventory reserve and that costs should rise as previously expensed inventory is depleted. The filing does not provide a meaningful established commercial gross-margin trend.
Research and development expense increased 47% and SG&A increased 68% year over year, reflecting expanded programs, the acquired Dimension gene-therapy programs, commercial preparation, personnel and stock-based compensation. The operating loss widened despite new revenue. No material debt balance is reported; disclosed liabilities are primarily accounts payable, accrued liabilities, deferred taxes and other liabilities.
At March 31, 2018, cash and cash equivalents were $226.7 million, short- and long-term investments totaled $344.5 million, and cash, cash equivalents and investments available to fund operations were $571.3 million. Current assets were $581.6 million versus current liabilities of $57.6 million. The company raised net proceeds of $271.0 million in a January public offering and $11.8 million through its at-the-market offering. Management stated existing capital resources should fund projected operating requirements for at least the next 12 months.
Material changes and operating developments
- Total operating expenses rose to $107.2 million from $70.0 million. R&D increases included DTX201, DTX301 and DTX401 programs acquired with Dimension; SG&A growth reflected commercial planning, professional services and staffing.
- Cash used in operations increased to $89.5 million from $61.2 million. Financing cash flow was $286.4 million, mainly from the January equity offering.
- Shares outstanding increased to 49.7 million at March 31, 2018 from 44.2 million at year-end 2017, primarily reflecting the public and ATM offerings.
- The company adopted the restricted-cash cash-flow presentation standard retrospectively and early adopted a simplified goodwill-impairment standard; neither adoption materially affected the financial statements.
Outlook, commentary and risks
- Management expects annual losses to continue for several years, with R&D and commercial costs likely to increase. It anticipates needing additional capital over time; financing may require further equity issuance, debt, collaborations or licensing and may not be available on acceptable terms.
- Expected 2018 milestones included pediatric XLH Phase 3 data and UX007 Glut1 DS Phase 3 data in the second half; UX007 LC-FAOD Phase 3 initiation planned for the second half; DTX301 higher-dose cohort data and initial DTX401 study data also expected in the second half. These are forward-looking expectations, not assured outcomes.
- For UX007 in LC-FAOD, FDA had not determined whether the Phase 2 results could support an early filing. The company was providing further information to address whether observed improvement could be attributed to UX007 rather than dietary or other regimen changes; a Phase 3 study was also being prepared.
- DTX301’s first low-dose cohort showed a substantial ureagenesis increase in one of three patients; the other two showed no clinically meaningful change at their reported follow-up. Two patients had mild ALT elevations treated with corticosteroids. The monitoring committee permitted progression to the higher-dose cohort.
- Key risks include uncertain clinical efficacy and safety, regulatory and trial delays, small and difficult-to-identify patient populations, pricing and reimbursement uncertainty, reliance on collaborators and single-source manufacturers, gene-therapy manufacturing and immune-response risks, and intellectual-property challenges. The filing disclosed no material legal proceedings. No material changes to contractual obligations were reported, and the company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Separate recurring operating performance from the $130.0 million PRV gain, including the impact of sharing proceeds with Kyowa Hakko Kirin.
- Track product-sales growth, reimbursement and launch execution for Mepsevii and newly U.S.-approved Crysvita, alongside collaboration revenue and partner economics.
- Monitor cash burn against the stated 12-month funding outlook, planned R&D and commercialization spending, and potential dilution from further financing.
- Review upcoming trial data and regulatory discussions, especially UX007’s potential early filing and the mixed patient-level DTX301 results.
- Assess supply continuity and manufacturing readiness, particularly dependence on partners and single-source suppliers for key products and candidates.