Ultragenyx Pharmaceutical Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Ultragenyx is a clinical-stage biopharmaceutical company developing treatments for rare and ultra-rare diseases. All financial figures below are in millions of dollars unless stated otherwise.
Financial results and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0.017 | $0 | $0.017 | $0 |
| Research and development expense | $43.3 | $23.1 | $83.7 | $40.5 |
| General and administrative expense | $14.7 | $7.0 | $27.9 | $11.2 |
| Operating loss | $(58.1) | $(30.1) | $(111.7) | $(51.6) |
| Net loss | $(56.9) | $(29.8) | $(109.7) | $(51.2) |
| Basic and diluted loss per share | $(1.46) | $(0.83) | $(2.81) | $(1.46) |
| Operating cash used | — | $(84.6) | $(34.9) |
Revenue was a nominal amount from European named-patient sales of UX003 (rhGUS); the company reported no significant product-sales revenue. Gross margin and operating margin are not meaningful indicators given the minimal revenue and clinical-stage operations.
At June 30, 2016, cash and cash equivalents were $55.1 million, short- and long-term investments totaled $386.8 million, and available cash, cash equivalents and investments were $441.8 million. Total current assets were $411.1 million versus current liabilities of $32.0 million. Total liabilities were $38.1 million; the filing reports no debt balance. Stockholders’ equity was $443.9 million. Cash and cash equivalents declined $38.5 million in the first half.
Changes versus the prior comparable period
- First-half net loss more than doubled year over year, from $51.2 million to $109.7 million; Q2 net loss increased from $29.8 million to $56.9 million.
- First-half R&D expense rose 107% to $83.7 million, reflecting expanded and later-stage studies, manufacturing and quality work, and other pipeline and preclinical costs. G&A expense increased 150% to $27.9 million, driven by personnel, professional services, stock compensation, and commercial planning.
- Operating cash use increased to $84.6 million from $34.9 million. Stock-based compensation was $21.1 million for the first half, compared with $7.5 million a year earlier.
- Cash and investments available declined from $536.3 million at December 31, 2015 to $441.8 million at June 30, 2016. The company raised only $0.3 million through stock issuance in the first half of 2016, compared with $178.0 million in the first half of 2015.
Outlook, developments and risks
- Management expects losses and R&D spending to increase as programs advance; G&A is also expected to grow to support organizational expansion and potential commercialization. The filing gives no quantified earnings or revenue guidance.
- Pipeline milestones described include the July 2016 announcement that the rhGUS Phase 3 study in MPS 7 met its primary endpoint, reducing urinary GAG excretion by 64.8% at 24 weeks. The company planned regulatory discussions and targeted filings in the first half of 2017; clinical endpoint results were mixed and based on a 12-patient study.
- Phase 3 enrollment was completed in July 2016 for KRN23 in adult XLH and Ace-ER in GNE myopathy. Management expected Ace-ER Phase 3 results in 2017. UX007 Phase 3 studies were planned for LC-FAOD in 2017 and Glut1 DS movement disorder in the second half of 2016, subject to further regulatory discussion and endpoint work.
- Subsequent to quarter-end, Takeda purchased 374,590 shares for $40.0 million in July 2016. The agreement includes potential additional share purchases of $25.0 million and, subject to milestones, $10.0 million. Takeda collaboration terms also include potential development, regulatory and commercial milestone payments of up to $232.5 million, plus tiered royalties on the initial licensed product.
- On July 1, 2016, the company entered an at-the-market sales agreement permitting up to $150.0 million of common-stock sales. These financing arrangements may provide capital but could dilute existing holders.
- Key risks include clinical and regulatory uncertainty, small and difficult-to-identify patient populations, reliance on third-party and often single-source manufacturers, dependence on partners including KHK for KRN23, possible need for additional capital, and potential dilution. The company reported no material legal proceedings and no material changes to contractual commitments during the first half.
- Available-for-sale investments are exposed to interest-rate, credit and market-value risks; management said a hypothetical 100-basis-point interest-rate move would not have materially affected the statements. A hypothetical 10% foreign-exchange move was also not expected to have a material impact. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Progress and full clinical data for rhGUS, KRN23, Ace-ER and UX007, including whether endpoints and small-study results support regulatory filings and eventual approval.
- Actual cash burn, remaining runway, and whether the Takeda proceeds, potential additional Takeda purchases, or ATM sales are used; monitor any resulting share dilution.
- Regulatory feedback and timing for the planned MPS 7 and XLH filings and the European Ace-ER application, including any additional evidence or studies required.
- Manufacturing capacity, supply continuity, and commercial readiness for programs dependent on outside suppliers and partners.
- Whether increasing expenses and clinical investment remain consistent with management’s expectations; no quantified full-year financial guidance is provided in this filing.