Ultragenyx Pharmaceutical Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Filed August 13, 2015. Ultragenyx is a clinical-stage rare-disease biopharmaceutical company with no product revenue and one reportable segment.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $23.1 million | $11.2 million | $40.5 million | $19.6 million |
| General and administrative expense | $7.0 million | $2.4 million | $11.2 million | $4.4 million |
| Net loss | $29.8 million | $13.6 million | $51.2 million | $27.2 million |
| Net loss per share, basic and diluted | $0.83 | $0.45 | $1.46 | $1.25 |
| Operating cash used | Not separately stated | Not separately stated | $34.9 million | $21.2 million |
- At June 30, cash and cash equivalents were $52.4 million and short-term investments were $273.7 million; combined available cash, cash equivalents and short-term investments were $326.0 million. Total assets were $343.0 million and total liabilities were $23.7 million.
- Current assets of $336.5 million compared with current liabilities of $23.0 million. The filing reports no debt balance; debt is not identified as a material funding source.
- Six-month investing cash outflow was $115.1 million, mainly reflecting net purchases of investments and $1.1 million of property and equipment. Financing provided $178.0 million, primarily from common-stock issuance.
- In July 2015, after quarter-end, the company raised approximately $286.6 million net from an offering of 2.53 million shares at $120 per share. This is a subsequent event, not included in June 30 balances.
- Margins are not meaningful because the company had no revenue and no cost of revenue.
Changes versus prior period
- Q2 operating expenses rose 121% to $30.1 million; R&D increased 106% and G&A increased 191%. For the six-month period, operating expenses increased 115% to $51.6 million.
- Q2 net loss more than doubled year over year, primarily reflecting higher clinical, manufacturing, personnel and stock-based compensation costs. Six-month net loss increased 88%.
- Six-month operating cash use increased by $13.8 million year over year as operating activity expanded. Financing cash inflow was higher, supporting a $28.0 million increase in cash and cash equivalents.
- Six-month 2014 other expense included a $3.3 million loss from remeasurement of preferred-stock warrants. Those warrants had converted to common-stock warrants after the IPO, so no corresponding remeasurement expense occurred in 2015.
Business, outlook and key risks
- Pipeline milestones reported included initiation of a Phase 3 Ace-ER study for GNE myopathy in May 2015 and full enrollment of the Phase 3 rhGUS study for MPS 7 in June 2015. Ace-ER is also in a Phase 3 study; rhGUS results were expected in mid-2016.
- KRN23 is in development for XLH and TIO. Management reported encouraging early pediatric XLH biomarker and interim bone findings, but these were from small, ongoing studies; additional pediatric data were expected in Q4 2015. Planned adult XLH Phase 3 studies were expected to begin in the second half of 2015.
- Triheptanoin studies continued for LC-FAOD and Glut1 DS. LC-FAOD interim data were expected in the second half of 2015; slower-than-expected Glut1 DS enrollment led to amended enrollment criteria, with interim data anticipated around year-end 2015 or early 2016.
- Management expected R&D and G&A expenses to increase as programs advance. It anticipated continued losses for the foreseeable future and stated that additional capital might be needed; future financing may be unavailable or dilutive.
- Principal risks include clinical or regulatory failure, delays and difficulty enrolling rare-disease patients, dependence on third-party manufacturers and collaborators, single-source supply exposure, uncertain market size and reimbursement, and limited intellectual-property protection for some candidates. The company has no approved products and may never achieve profitability.
- Other updates: in August 2015, Nobelpharma amended the Ace-ER-related license to reduce royalty rates from high-single digits to mid-single digits. Management reported no material legal proceedings. Disclosure controls were considered effective; ERP implementation was ongoing and required further controls testing.
Most important facts for investors to verify
- Whether clinical results and regulatory pathways support approval, especially for the pivotal Ace-ER and rhGUS programs and the developing KRN23 studies.
- Trial enrollment, timing and complete safety and efficacy data, including whether interim findings are confirmed in larger or controlled studies.
- Cash runway and spending against the June 30 liquidity position, accounting for the substantial July offering proceeds and rising operating costs.
- Manufacturing capacity, quality and continuity for candidates dependent on third-party or single-source suppliers.
- Applicable royalty, collaboration and supply economics, including KRN23 arrangements and the amended Nobelpharma royalty terms.
- Potential dilution from equity financing and stock awards, and the status of internal controls as ERP implementation continues.