Ultragenyx Pharmaceutical Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise. The company develops and commercializes treatments for rare and ultra-rare diseases, with approved therapies Crysvita and Mepsevii and clinical-stage programs including UX007 and gene therapy candidates.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Total revenue | $12.8m | $0 | $23.5m | $0 |
| Research and development | $76.8m | $58.4m | $152.3m | $109.7m |
| Selling, general and administrative | $30.7m | $20.0m | $62.2m | $38.7m |
| Operating loss | $(94.9)m | $(78.4)m | $(191.4)m | $(148.4)m |
| Net loss | $(52.7)m | $(72.9)m | $(22.5)m | $(141.2)m |
| Basic and diluted loss per share | $(1.06) | $(1.72) | $(0.46) | $(3.35) |
- Q2 revenue included $10.5m collaboration and license revenue—$8.9m from Bayer and $1.6m from KHK—and $2.3m product sales, principally Mepsevii ($2.0m). First-half revenue was $19.9m from collaborations and licenses and $3.6m in product sales.
- Q2 cost of sales was $0.1m; first-half cost of sales was $0.4m. These reported amounts do not reflect all manufacturing costs because certain costs incurred before Mepsevii approval were expensed rather than capitalized. The company expects cost of sales to rise as those inventories are depleted.
- Other income included gains on priority review voucher (PRV) sales of $40.3m in Q2 and $170.3m in the first half. The first-half amount reflects the Mepsevii voucher sale for $130.0m and the company’s half of the Crysvita voucher’s $80.6m net proceeds.
- At June 30, cash and cash equivalents were $110.9m and short-term investments were $436.3m; total cash, cash equivalents and investments were $547.1m. Current assets were $604.7m and current liabilities $66.0m. The balance sheet presents no borrowings or other debt balance.
- Stockholders’ equity was $704.0m, compared with $383.5m at year-end 2017. The company completed a public offering that generated $271.0m net and raised $11.8m net through its at-the-market program during the first half. Shares issued and outstanding were 50.1m at June 30, versus 44.2m at December 31, 2017.
- First-half operating cash use was $165.6m, investing cash use was $123.1m, and financing cash inflow was $299.6m. Cash, cash equivalents and restricted cash increased $10.3m to $113.3m. Operating cash use included the reversal of the $170.3m PRV gain from net loss in the cash-flow reconciliation.
Changes, outlook and risks
- Revenue began in 2018 following product approvals and collaboration activity; comparable 2017 periods had no reported revenue. Operating expenses increased substantially: first-half R&D rose 39% and SG&A rose 61% year over year. R&D growth included the Dimension-acquired gene therapy programs; reduced Ace-ER spending partly offset increases.
- Although net loss improved year over year, the PRV gains were unusual and nonrecurring. Operating loss widened in both the quarter and first half, so the net-loss comparison does not reflect improved operating performance.
- Management expects continuing annual losses, excluding nonrecurring items, and expects R&D and SG&A to increase as programs advance and commercial operations expand. It said current capital resources should fund projected operating requirements for at least the next 12 months, while also stating that additional capital will likely be needed to fund operations, studies and commercialization. Financing may not be available on acceptable terms.
- Management expected key updates in the second half of 2018: Phase 2 TIO data for Crysvita; Phase 3 movement-disorder data for UX007 in Glut1 DS; DTX301 cohort data; DTX401 first-cohort data; and completion of FDA/EMA discussions on whether existing UX007 LC-FAOD data could support filings or whether another study would be required. These were expectations, not guarantees.
- Business and development risks include uncertain clinical outcomes and regulatory decisions; the FDA’s stated concern that UX007 LC-FAOD data were confounded by changes in dietary care and insufficient to support an NDA; limited rare-disease patient pools; gene-therapy safety and manufacturing challenges; reliance on third-party and single-source suppliers, including KHK for Crysvita; reimbursement, pricing and commercialization uncertainty; and potential need for further financing.
- The company reported no material legal proceedings, no material changes to contractual obligations, and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of June 30, 2018 and reported no material change in internal control over financial reporting during Q2.
Important facts for investors to verify
- Whether product sales and recurring collaboration or royalty revenue grow enough to support operations, separately from one-time PRV proceeds.
- Actual operating cash burn and the adequacy of liquidity against expanding clinical, manufacturing and commercialization costs.
- Upcoming clinical and regulatory milestones, especially UX007’s LC-FAOD filing pathway and the expected second-half 2018 data updates.
- Progress in Crysvita commercialization and the terms, economics and performance of the KHK collaboration and Bayer agreement.
- Manufacturing and supply capacity, and any changes to development timelines, costs or financing plans.