Ultragenyx Pharmaceutical Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 13, 2020. The filing also reports unaudited fourth-quarter results. Ultragenyx is a rare-disease biopharmaceutical company with two approved products, Crysvita and Mepsevii, and clinical-stage drug and gene-therapy programs.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total revenue | $103.7 million | $51.5 million |
| Product sales | $20.2 million | $9.8 million |
| Collaboration and license revenue | $83.5 million | $41.7 million |
| Operating expenses | $527.9 million | $422.9 million |
| Operating loss | $424.2 million | $371.4 million |
| Net loss | $402.7 million | $197.6 million |
| Net loss per share | $7.12 | $3.97 |
| Cash used in operating activities | $345.4 million | $290.6 million |
Revenue increased 101%, reflecting greater Crysvita collaboration revenue and product sales. The 2019 net loss widened substantially in part because 2018 included a $170.3 million gain from selling priority review vouchers. R&D expense rose 22% to $357.4 million and SG&A rose 26% to $161.5 million.
Reported cost of sales was $9.0 million, implying reported gross profit of approximately $94.7 million and gross margin of approximately 91%. This figure is affected by manufacturing costs expensed before product approvals; management expects gross margin to decline as Mepsevii is produced at full manufacturing cost and previously expensed inventory is depleted. A $5.7 million inventory reserve was recorded in 2019 for batches that did not meet quality standards.
Fourth-quarter 2019 revenue was $35.6 million, operating expenses were $130.0 million, net loss was $93.8 million, and loss per share was $1.62.
At year-end, cash, cash equivalents and investments totaled $760.4 million, versus $459.7 million a year earlier; working capital was $747.7 million. Management said existing resources were expected to fund projected operating requirements for at least 12 months, while also anticipating a need for additional capital over time. Financing during 2019 included $330.4 million net from an equity offering, $24.8 million from an at-the-market offering, and $314.2 million net from selling future European Crysvita royalties. The royalty-sale liability was $315.4 million at year-end. No conventional borrowings are identified in the presented balance sheet; lease liabilities totaled approximately $37.0 million.
Material changes and notable items
- Crysvita collaboration revenue in the U.S./Canada profit-share territory increased to $74.9 million from $15.3 million; European royalty revenue increased to $8.1 million from $2.9 million. Product sales of Crysvita and Mepsevii also grew.
- KKC accounted for approximately 80% of total revenue, making the company significantly dependent on its collaboration partner.
- Operating cash use increased by $54.8 million year over year. The company’s net cash increase was supported by equity issuance and the royalty sale, rather than operating cash generation.
- The Arcturus investment generated a $13.4 million fair-value gain, a non-cash item subject to share-price volatility.
- Fourth-quarter disruptions at a third-party supplier affected Mepsevii fill-and-finish activities and inventory; Ultragenyx was identifying an alternative supplier.
Outlook, management commentary and risks
- Management expects continued annual losses and anticipates R&D and SG&A expenses will increase as programs advance and commercial operations expand. No specific revenue or earnings guidance was provided.
- Expected milestones included an FDA decision on UX007 for LC-FAOD by its July 31, 2020 PDUFA date; DTX401 expansion-cohort data in the first half of 2020, with a Phase 3 trial contemplated for 2020 if results supported it; and DTX301 prophylactic-steroid cohort data in the second half of 2020. These are forward-looking expectations, not assured outcomes.
- The company submitted a supplemental application for Crysvita in TIO in December 2019. Its pipeline also included DTX201 with Bayer and GTX-102 with GeneTx; the latter remained subject to an option to acquire GeneTx.
- Key risks include clinical and regulatory uncertainty, rare-disease patient identification and enrollment, reimbursement and pricing, dependence on collaborators and single-source manufacturers, gene-therapy safety and manufacturing challenges, and the possibility of further financing and dilution.
- Ultragenyx sold its European Crysvita royalty stream for $320.0 million gross consideration. It will continue recording the European royalty revenue as non-cash revenue and accrue non-cash interest expense on the related liability; the disclosed effective annual interest rate was approximately 10.1% at year-end.
- The filing reports no material legal proceedings. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether product sales and Crysvita collaboration revenue continue to grow, and how concentrated revenue remains in KKC.
- Whether the Mepsevii manufacturing transfer resolves supply constraints and whether inventory quality reserves or gross-margin pressure recur.
- Regulatory decisions and clinical data for UX007, DTX301, DTX401 and other pipeline programs versus the stated timelines.
- Cash burn, remaining liquidity runway, and the timing, terms and potential dilution of any additional financing.
- How European Crysvita sales, royalty assumptions and the capped Royalty Pharma arrangement affect reported non-cash revenue, interest expense and liability amortization.