Ultragenyx Pharmaceutical Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Ultragenyx is a biopharmaceutical company focused on rare and ultrarare genetic diseases, with four commercially approved products: Crysvita, Mepsevii, Dojolvi and Evkeeza, and a clinical-stage pipeline.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $108.3 million | $89.3 million | $208.8 million | $169.3 million |
| Operating loss | $148.0 million | $141.6 million | $302.1 million | $278.2 million |
| Net loss | $159.8 million | $158.2 million | $323.8 million | $310.5 million |
| Net loss per share, diluted | $2.25 | $2.26 | $4.58 | $4.45 |
| Operating cash used | Not separately provided | Not separately provided | $273.0 million | $194.8 million |
Q2 revenue comprised $42.2 million of product sales, $46.3 million of Crysvita royalty revenue and $19.8 million of collaboration and license revenue. Product sales rose 37% year over year; the main individual increases included Mepsevii (+71%), Crysvita (+36%) and Dojolvi (+22%). Crysvita royalty revenue increased substantially following the April 2023 transfer of North American commercialization responsibilities to Kyowa Kirin (KKC). Collaboration and license revenue fell 63%, primarily reflecting that transition and completion of Daiichi Sankyo technology transfer.
Q2 research and development expense was $164.9 million, up 7%; selling, general and administrative expense was $81.4 million, up 19%. The six-month R&D increase included a $9.0 million UX143 clinical milestone expense. SG&A growth reflected personnel, commercialization and professional-services costs, and a one-time legal accrual; its amount is not clearly specified. The filing does not provide a clear operating margin measure.
Liquidity, cash flow and obligations
- At June 30, cash, cash equivalents and marketable debt securities totaled $618.4 million, versus $896.7 million at December 31, 2022. Current assets were $702.1 million and current liabilities $244.4 million.
- Six-month operating cash use was $273.0 million; investing activities provided $210.7 million, financing activities provided $32.3 million, and cash, cash equivalents and restricted cash decreased $29.9 million to $107.7 million.
- Property, plant and equipment purchases were $39.0 million in the first half, primarily related to the gene therapy manufacturing facility. The company completed construction of that facility during Q2.
- Liabilities for sales of future Crysvita royalties totaled $904.7 million at June 30, including $23.7 million classified as current. Related non-cash interest expense was $15.4 million in Q2 and $31.0 million in the first half. These are royalty-sale liabilities, not conventional borrowings.
- Contractual commitments included $51.7 million of future lease payments, $28.6 million of manufacturing and service obligations, and $9.9 million of building construction and improvement obligations.
- The company raised $28.5 million net through its at-the-market stock offering in the first half. Shares outstanding were 71.5 million at June 30.
Material changes, outlook and risks
- Management said existing capital resources should fund projected operating requirements for at least the next 12 months, but expects annual losses for the foreseeable future and anticipates needing additional capital to execute its plans. Financing may require equity, debt, collaborations or royalty transactions; unavailable or unfavorable financing could force delays or reductions to programs.
- Management expects R&D expenses to moderate as candidates advance and SG&A to decrease as Crysvita commercial responsibilities transition to KKC. These are directional expectations, not quantified earnings guidance.
- KKC assumed Crysvita commercialization in the U.S. and Canada in April 2023. Ultragenyx may support U.S. field and marketing activity through April 2024 under a cost-share arrangement; after that, its U.S. promotion rights are limited to medical geneticists. The company remains dependent on KKC for Crysvita supply and commercialization in key markets.
- Clinical updates: the Phase 3 DTX401 study completed dosing, with results expected in the first half of 2024; the Phase 3 DTX301 study was enrolling and dosing; and UX701 dose escalation continued, with interim safety and potentially initial activity data expected in the first half of 2024. Setrusumab Phase 3 studies began dosing in July 2023; early Phase 2 data showed increased bone-formation markers and bone mineral density, with no treatment-related serious adverse events reported as of the stated cutoff. GTX-102 expansion enrollment was ongoing, with an interim update expected in October 2023 and additional data expected in the first half of 2024.
- Notable supply risk: the Dojolvi drug-product supplier announced closure of its manufacturing site at the end of 2023; Ultragenyx was seeking and qualifying an alternative supplier.
- Other material risks include clinical, regulatory and manufacturing uncertainty; reliance on third parties and single-source suppliers; pricing and reimbursement pressures; and possible need for further financing. Management reported effective disclosure controls and no material legal proceedings. The filing describes an ongoing governmental review of a sponsored genetic-testing program’s compliance with fraud-and-abuse laws.
Investor verification priorities
- Track revenue composition after Crysvita’s transition to royalty reporting, including actual sales growth and KKC performance.
- Monitor cash burn, liquidity and financing needs against management’s stated at-least-12-month funding view; assess the increasing royalty-sale liability and related non-cash interest expense.
- Verify clinical timelines and results for setrusumab, DTX401, DTX301, UX701 and GTX-102 against the filing’s expectations.
- Check progress qualifying an alternative Dojolvi manufacturer and the operational ramp-up of the gene therapy facility.
- Assess the effect of the one-time legal accrual and the governmental review of the genetic-testing program as further information becomes available.