Ultragenyx Pharmaceutical Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Ultragenyx is a rare-disease biopharmaceutical company with commercial products and clinical-stage programs. The filing identifies Crysvita, Mepsevii, and Dojolvi as approved products; Crysvita received U.S. approval for tumor-induced osteomalacia in June 2020, and Dojolvi was approved in June 2020.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $81.5 | $25.8 | $179.5 | $68.1 |
| Operating loss | $(50.3) | $(118.0) | $(234.0) | $(329.7) |
| Net loss | $(68.8) | $(113.0) | $(162.6) | $(308.9) |
| Net loss per share | $(1.13) | $(1.96) | $(2.73) | $(5.50) |
| Operating cash used | Not separately stated | Not separately stated | $(69.8) | $(273.3) |
- Q3 revenue included $32.9 million from the Daiichi Sankyo license arrangement, $34.1 million in Crysvita profit-share revenue, $11.2 million in product sales, and $3.3 million of non-cash Crysvita royalty revenue. Nine-month Daiichi Sankyo revenue was $51.7 million.
- Revenue growth reflected the Daiichi Sankyo arrangement, higher Crysvita collaboration revenue, growth in product sales, and non-cash royalty revenue. Product sales rose to $11.2 million in Q3 from $4.2 million; Dojolvi sales were $3.9 million.
- Operating expenses were $131.8 million in Q3 and $413.5 million for nine months. R&D was $87.3 million and $281.0 million, respectively; SG&A was $42.1 million and $131.9 million.
- Reported cost of sales was $2.3 million in Q3 and $0.6 million for nine months. The nine-month figure includes a $4.6 million manufacturer credit for future inventory batches that did not meet quality standards. Pre-approval manufacturing costs were expensed, so reported product margins are not directly comparable with fully loaded manufacturing costs; management expects gross margin percentage to decline as those costs are reflected.
- Net loss included an $11.5 million Q3 loss from changes in the fair value of Arcturus securities, versus a $91.3 million gain for the first nine months. This investment remeasurement makes reported earnings volatile and is not operating cash generation.
- At September 30, cash and cash equivalents were $197.5 million and short-term investments were $568.0 million; management reported $765.5 million of available cash, cash equivalents, and available-for-sale investments. Total assets were $1.268 billion and stockholders’ equity was $666.2 million.
- Operating cash use improved year over year, partly reflecting a $102.9 million increase in Daiichi Sankyo contract liabilities. Investing activities used $277.0 million and financing activities provided $110.6 million for the first nine months.
- The balance sheet included a $331.0 million liability related to the sale of future Crysvita royalties and $44.5 million in lease liabilities. The filing does not identify conventional borrowings or a separate debt balance.
Material changes and unusual items
- Daiichi Sankyo paid $125.0 million upfront under a manufacturing-technology license and purchased $75.0 million of company shares. The combined license arrangements had a stated transaction price of $183.6 million; $102.9 million remained as contract liabilities at quarter-end. Revenue is recognized as technology-transfer obligations are performed.
- In December 2019, Ultragenyx received $320.0 million for selling rights to certain European Crysvita royalties to Royalty Pharma. The arrangement is recorded as a liability; nine-month non-cash interest expense was $25.1 million, alongside $9.4 million of non-cash royalty revenue.
- Ultragenyx’s Arcturus equity investment was valued at $128.7 million at September 30, 2020, compared with $27.8 million at December 31, 2019, primarily reflecting share-price movements and the exercise of an option to buy additional shares.
- Share count increased to 60.8 million at September 30, 2020 from 57.8 million at year-end 2019, including shares issued in the Daiichi Sankyo transaction and under equity plans.
Outlook, commentary, and risks
- Management said existing capital resources were expected to fund projected operating requirements for at least 12 months from the filing date. It also expects annual losses for the foreseeable future, anticipates R&D and SG&A to increase, and stated that additional capital will likely be needed over time.
- Management expected DTX301 Phase 3 initiation in 2021 and DTX401 Phase 3 initiation in the first half of 2021, subject to study progress and regulatory discussions. Data from ongoing cohorts were expected by year-end 2020.
- GTX-102 interim data showed reported improvements across disease domains, but all five patients at the highest doses experienced serious adverse events of lower-extremity weakness believed related to local inflammation. Enrollment and dosing were paused; the companies planned protocol and administration changes. Further safety and efficacy evidence remains uncertain.
- COVID-19 had disrupted clinical enrollment and dosing, regulatory interactions, patient identification and commercial outreach, and could delay data and create supply constraints or additional costs. The company reported no significant supply interruption to date but was seeking alternative sources.
- Other key risks include reliance on third-party and single-source manufacturers, manufacturing quality and capacity, uncertain regulatory and clinical outcomes, rare-disease patient identification and reimbursement, competition, and the potential need for further financing. Management noted no material legal proceedings and concluded disclosure controls were effective.
- Subsequent to quarter-end, the company announced an October 2020 Solid Biosciences collaboration and a $40.0 million equity investment. The arrangement includes potential milestone payments of up to $255.0 million per product plus royalties; these are contingent commitments, not current-period expenses.
Most important facts for investors to verify
- How much future revenue and cash generation depend on Crysvita demand and the recognition schedule for Daiichi Sankyo’s deferred contract liabilities.
- The timing, amount, and economic cost of future royalties owed to Royalty Pharma, including the assumptions behind the liability’s estimated accretion.
- Whether COVID-19, manufacturing capacity, and clinical or regulatory delays change the stated 12-month liquidity outlook or planned development timelines.
- GTX-102’s revised protocol and subsequent safety findings, and progress toward the planned DTX301 and DTX401 studies.
- The impact of Arcturus share-price changes on reported earnings and the value of the investment, separately from operating performance.