Business context and reporting period
Ultragenyx Pharmaceutical Inc. filed this Form 10-K for the fiscal year ended December 31, 2016. The company is a clinical-stage biopharmaceutical developer focused on rare and ultra-rare genetic diseases. It had no products approved for commercial sale; 2016 revenue came from named-patient sales of UX003 (rhGUS) in Europe. The filing also provides unaudited quarterly data, including the quarter ended December 31, 2016.
Financial and operating performance
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $0.1 million | None |
| Research and development expense | $183.2 million | $114.7 million |
| General and administrative expense | $64.9 million | $33.0 million |
| Net loss | $245.9 million | $145.6 million |
| Net loss per share, basic and diluted | $6.21 | $3.96 |
| Cash, cash equivalents and investments at year-end | $498.1 million | $536.3 million |
| Cash used in operating activities | $161.0 million | $106.0 million |
Operating expenses totaled $248.1 million, up 68% from 2015, reflecting advancement of clinical programs, manufacturing and regulatory work, and organizational growth. Revenue was immaterial relative to expenses, so a meaningful operating margin is not applicable. The company reported $473.97 million of stockholders’ equity and $66.65 million of total liabilities at year-end; the filing does not report outstanding borrowings or debt. Working capital was $341.4 million. No cash-flow guidance or explicit cash-runway estimate is provided.
Financing activities provided $138.7 million in 2016, including $79.5 million net proceeds from an at-the-market stock offering and $51.4 million from stock sales to Takeda. The company used $10.2 million for property and equipment. Cash and investments declined year over year despite these proceeds, while operating cash use increased.
Material changes and development highlights
- Net loss increased by $100.3 million year over year; R&D expense rose 60%, and G&A expense rose 97%.
- KRN23 (burosumab) for XLH: the pediatric Phase 2 study reported improvements in rickets and growth, but was open-label and uncontrolled. A pediatric Phase 3 study began in October 2016; the adult Phase 3 study enrolled 134 patients, with results expected in the first half of 2017. An EU MAA was filed and validated in January 2017; a U.S. BLA was planned for the second half of 2017, subject to FDA discussions.
- rhGUS (UX003) for MPS 7: the Phase 3 study met its urinary GAG endpoint, showing a 64.8% reduction after 24 weeks. Regulatory filings were planned for the first half of 2017. The study was small (12 patients); clinical secondary outcomes were less conclusive.
- UX007 for LC-FAOD: an open-label Phase 2 study reported a 48.1% reduction in annualized major clinical event rate at 78 weeks versus the pre-treatment period. A Phase 3 design was still being developed.
- UX007 for Glut1 DS: enrollment in the Phase 2 study was completed; data were expected in the first quarter of 2017, with a Phase 3 study planned.
- Ace-ER for GNE myopathy: the company withdrew its EU conditional-approval application in November 2016 after regulators said Phase 2 evidence was insufficient. The 89-patient Phase 3 study was fully enrolled, with results expected in the second half of 2017.
Outlook, risks and unusual items
Management expected operating losses and expenses to continue rising as programs advanced and commercialization preparations expanded. The company anticipated needing additional capital to complete development and commercialize its candidates, although its year-end liquidity was substantial. In January–February 2017 it sold additional shares under its ATM program, raising $48.4 million net.
Key risks include clinical failure or delays, uncertain regulatory standards and endpoints in very small patient populations, limited patient identification and enrollment, pricing and reimbursement uncertainty, competition, and reliance on third parties for manufacturing and clinical work. KRN23 supply and commercialization depend significantly on Kyowa Hakko Kirin. Several candidates rely on single-source or specialized suppliers. The company had no material legal proceedings and reported effective disclosure controls and internal control over financial reporting.
Unusual financing and collaboration items include a Takeda collaboration and equity purchase arrangement. At year-end, the company recorded a $14.3 million monetary liability associated with the arrangement and uncertain development-cost repayment; accrued liabilities included a $13.65 million collaboration repayment liability. In January 2017, Ultragenyx terminated its option to an identified Takeda product, also ending a related potential $10 million stock-purchase option. Potential development, regulatory and commercial milestones under licenses are excluded from the contractual-obligations table because their timing or amount was uncertain.
Most important facts for investors to verify
- Whether the 2017 KRN23 adult Phase 3 results and FDA filing plans supported the proposed regulatory path, and the status of the EU application.
- Whether rhGUS’s small Phase 3 dataset supported approval, including regulators’ assessment of clinical outcomes and any required confirmatory studies.
- Whether UX007 and Ace-ER Phase 3 programs met their endpoints and whether planned timelines changed.
- Cash use, subsequent ATM issuance and share dilution, and the company’s updated cash runway and funding needs.
- Terms and accounting for the Takeda collaboration liability, repayment obligation and terminated option, along with contingent license milestones.
- Manufacturing capacity and backup suppliers for clinical and potential commercial supply, especially for KRN23 and other single-source products.