Ultragenyx Pharmaceutical(RARE) - 2021 Q3 - Quarterly Report

Part I – Financial Information Financial Statements The company reported a net loss of $73.0 million for the third quarter of 2021 and $331.6 million for the nine months ended September 30, 2021. Total assets decreased to $1.48 billion from $1.76 billion at year-end 2020, primarily due to a decrease in cash and cash equivalents. Total revenues for the nine-month period increased to $268.0 million from $179.5 million year-over-year, driven by growth in product sales and collaboration revenue Condensed Consolidated Balance Sheets As of September 30, 2021, the company's total assets were $1.48 billion, a decrease from $1.76 billion at December 31, 2020. This was primarily driven by a significant reduction in cash and cash equivalents from $713.5 million to $197.5 million. Total liabilities decreased slightly to $551.1 million, and total stockholders' equity declined to $933.7 million from $1.15 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $197,538 | $713,526 | | Total current assets | $846,884 | $1,295,304 | | Total assets | $1,484,801 | $1,759,555 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $135,933 | $189,609 | | Total liabilities | $551,127 | $605,180 | | Total stockholders' equity | $933,674 | $1,154,375 | | Total liabilities and stockholders' equity | $1,484,801 | $1,759,555 | Condensed Consolidated Statements of Operations For the three months ended September 30, 2021, total revenues were $81.6 million, nearly flat compared to $81.5 million in Q3 2020, with a net loss of $73.0 million. For the nine months ended September 30, 2021, total revenues grew 49% to $268.0 million, up from $179.5 million in the prior year period. The nine-month net loss widened to $331.6 million from $162.6 million, driven by a significant increase in R&D expenses and a negative swing in the fair value of equity investments Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $81,647 | $81,470 | $268,017 | $179,488 | | Research and development | $113,417 | $87,314 | $374,140 | $280,984 | | Selling, general and administrative | $53,883 | $42,123 | $160,551 | $131,891 | | Loss from operations | ($89,828) | ($50,315) | ($279,173) | ($234,035) | | Change in fair value of equity investments | $25,702 | ($11,520) | ($25,963) | $91,348 | | Net loss | ($72,998) | ($68,845) | ($331,567) | ($162,555) | | Net loss per share, diluted | ($1.08) | ($1.13) | ($4.91) | ($2.73) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash used in operating activities was $284.4 million, a significant increase from $69.8 million in the same period of 2020. Net cash used in investing activities was $264.4 million, mainly for purchases of marketable securities and property. Net cash provided by financing activities was $32.8 million, primarily from the issuance of common stock under equity plans. This resulted in a net decrease in cash of $516.8 million Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($284,351) | ($69,768) | | Net cash used in investing activities | ($264,429) | ($277,022) | | Net cash provided by financing activities | $32,827 | $110,561 | | Net decrease in cash, cash equivalents and restricted cash | ($516,755) | ($235,990) | Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies and provide further information on financial statement components. Key areas include the company's focus on rare genetic diseases with three approved products (Crysvita®, Mepsevii®, Dojolvi®) and a pipeline of clinical candidates. The notes also elaborate on revenue recognition, significant license and collaboration agreements with partners like Kyowa Kirin and Daiichi Sankyo, and the accounting for the sale of future royalties - The company focuses on developing and commercializing products for serious rare and ultra-rare genetic diseases. It has three commercially approved products: Crysvita®, Mepsevii®, and Dojolvi®[27][28][29] - The company's clinical development pipeline includes gene therapies (DTX401, DTX301, UX701), a monoclonal antibody (UX143), an antisense oligonucleotide (GTX-102), and an mRNA candidate (UX053)[30] - The company has sustained operating losses and expects them to continue, acknowledging the need to raise additional capital to fully implement its business plans[29] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the impact of COVID-19 on operations, recent program updates, and financial results. Total revenues for the nine months ended Sep 30, 2021, increased 49% YoY to $268.0 million, driven by Crysvita collaboration revenue and strong growth in product sales, particularly Dojolvi. R&D expenses rose 33% to $374.1 million due to advancing clinical programs and a $50 million upfront payment to Mereo. The company ended the quarter with $941.4 million in cash, cash equivalents, and marketable securities, which is expected to fund operations for at least the next twelve months Overview and Impact of COVID-19 The company is a biopharmaceutical firm focused on rare and ultra-rare genetic diseases. The COVID-19 pandemic has continued to affect business operations, causing interruptions in clinical trial enrollment and dosing, delays in receiving clinical trial materials, and difficulties for commercial teams in identifying new patients. The full future impact remains uncertain - The COVID-19 pandemic has caused disruptions to clinical trial activities, including patient enrollment and dosing, due to travel restrictions and the diversion of hospital resources[116] - The pandemic has also caused delays in the delivery of clinical trial materials and made it difficult for commercial teams to identify new patients for approved products[116] Approved Therapies and Clinical Product Candidates The company's portfolio includes approved biologics (Crysvita®, Mepsevii®), a small molecule (Dojolvi®), and a clinical pipeline across four categories. Key clinical candidates include UX143 (OI), gene therapies DTX401 (GSDIa), DTX301 (OTC), and UX701 (Wilson Disease), and nucleic acid therapies GTX-102 (Angelman syndrome) and UX053 (GSDIII). Several late-stage trials are expected to initiate around the end of 2021 - Recent approvals include Crysvita in Canada for TIO (Sep 2021), Dojolvi in Brazil for LC-FAOD (Aug 2021), and Mepsevii reimbursement in Italy for MPS VII (Sep 2021)[124][125][126] - The company plans to initiate multiple late-stage clinical studies around the end of 2021, including a Phase 2/3 for UX143 (OI), Phase 3 for DTX401 (GSDIa), Phase 3 for DTX301 (OTC), Phase 1/2/3 for UX701 (Wilson Disease), and Phase 1/2 for UX053 (GSDIII)[121][122][123] - The FDA lifted the clinical hold on the GTX-102 (Angelman syndrome) study, allowing dosing of new patients to begin in the U.S. The first patients in Canada were dosed in October 2021[133][137] Results of Operations For the nine months ended Sep 30, 2021, total revenues increased 49% to $268.0 million, driven by a 33% increase in Crysvita profit-share revenue and a 121% increase in total product sales, led by the Dojolvi launch. R&D expenses grew 33% to $374.1 million, primarily from advancing gene therapy and nucleic acid programs and a $50.0 million upfront license fee for the Mereo collaboration. SG&A expenses rose 22% to $160.6 million to support commercial activities. A net loss of $26.0 million was recorded on equity investments, compared to a $91.3 million gain in the prior year Revenue Comparison for Nine Months Ended September 30 (in thousands) | Revenue Source | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Crysvita collaboration revenue (profit-share) | $120,987 | $91,079 | 33% | | Daiichi Sankyo | $76,767 | $51,723 | 48% | | Total Product Sales | $56,809 | $25,760 | 121% | | - Dojolvi | $27,735 | $6,638 | 318% | | Total Revenues | $268,017 | $179,488 | 49% | Operating Expense Comparison for Nine Months Ended September 30 (in thousands) | Expense Category | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Research and development | $374,140 | $280,984 | 33% | | Selling, general and administrative | $160,551 | $131,891 | 22% | - The increase in R&D expenses for the nine-month period was driven by a $50.0 million upfront payment to Mereo, increased spending on gene therapy programs (+$41.9M), and nucleic acid/biologic programs (+$30.8M)[157][158] Liquidity and Capital Resources As of September 30, 2021, the company had $941.4 million in cash, cash equivalents, and marketable debt securities, which management believes is sufficient to fund operations for at least the next twelve months. Funding has primarily come from equity sales, product revenues, and collaborations. In May 2021, an at-the-market (ATM) offering program was established for up to $350.0 million, with no shares sold as of the reporting date. The company anticipates continued annual losses and will require additional capital to fund its long-term plans, including the construction of its GMP gene therapy manufacturing facility - The company had $941.4 million in cash, cash equivalents, and marketable debt securities as of September 30, 2021[170] - In May 2021, the company established an at-the-market (ATM) offering agreement to sell up to $350.0 million in common stock, but no shares had been sold under this program as of September 30, 2021[171] - The company anticipates continued annual losses and will require additional capital to fund operations, complete clinical studies, commercialize products, and build its GMP gene therapy manufacturing facility[182] Contractual Obligations as of September 30, 2021 (in thousands) | Obligation Type | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating and finance leases | $13,429 | $25,208 | $11,468 | $970 | $51,075 | | Manufacturing and service contracts | $13,302 | $867 | — | — | $14,169 | | Building construction agreement | $925 | — | — | — | $925 | | Total | $27,656 | $26,075 | $11,468 | $970 | $66,169 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to three primary market risks: equity risk, interest rate risk, and foreign currency risk. Equity risk stems from its investments in Arcturus and Solid, whose stock price volatility can significantly impact earnings. A hypothetical 10% price decrease in these stocks as of September 30, 2021, would decrease their fair value by $8.6 million. Interest rate risk relates to its $941.4 million portfolio of cash and securities. Foreign currency risk is present but not considered material as a majority of activities are denominated in U.S. dollars - The company holds equity investments in Arcturus and Solid, valued at $66.9 million and $18.7 million, respectively, as of September 30, 2021. The volatility of these stocks presents a significant equity risk to earnings[187] - Interest rate risk exists for the company's $941.4 million in cash, cash equivalents, and marketable debt securities, but a hypothetical 100 basis point change would not have had a material impact[188] - Foreign currency risk is not considered material as the majority of revenue and expense activities are denominated in U.S. dollars[189] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2021. There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[191] - No material changes to the internal control over financial reporting occurred during the third quarter of 2021[192] Part II – Other Information Legal Proceedings The company is not currently a party to any material legal proceedings. However, it acknowledges that it may face various claims in the ordinary course of business - As of the report date, the company is not involved in any material legal proceedings[193] Risk Factors The company outlines significant risks to its business, including financial risks from a history of losses and the need for future capital. Development risks include the lengthy, expensive, and uncertain nature of clinical trials for rare diseases, particularly for novel modalities like gene therapy. The company is heavily reliant on third parties for manufacturing (e.g., KKC for Crysvita) and clinical research. Commercial risks involve market acceptance, reimbursement, competition, and the upcoming transition of Crysvita promotion rights. Intellectual property risks and operational risks, such as the impact of COVID-19 and cybersecurity threats, are also detailed Risks Related to Financial Condition and Capital Requirements The company has a history of operating losses which are expected to continue. Future success depends on generating revenue from its few commercial products and advancing its pipeline, but this requires significant additional capital. Failure to raise necessary funds on acceptable terms could force delays or termination of development efforts - The company has a history of operating losses and anticipates they will continue for the foreseeable future due to high R&D and commercialization expenses[201] - The company expects it will need to raise additional capital to fund its activities, and this financing may not be available on acceptable terms, if at all[207] Risks Related to the Discovery and Development of Our Product Candidates Clinical drug development is a long, expensive, and uncertain process, with a high failure rate. The company faces challenges in enrolling patients for rare diseases, and early positive results do not guarantee success in later-stage trials. Novel product candidates, like gene therapies, may cause undesirable side effects (e.g., immune responses, inflammation) that could delay or halt development, and the regulatory pathway for such therapies is less established - Clinical drug development is lengthy and expensive with uncertain outcomes, and early-stage results may not predict future success[211] - The company may face difficulty enrolling patients in clinical studies due to the rarity of the targeted diseases, which could delay or prevent trials[216] - Product candidates, especially gene therapies using AAV vectors, may cause serious side effects like immune responses or inflammation, which could delay or prevent regulatory approval[225] Risks Related to our Reliance on Third Parties The company heavily relies on third parties for critical functions. This includes CROs for clinical studies, and single-source suppliers for manufacturing, such as KKC for Crysvita and Rentschler for Mepsevii. Any failure by these partners to perform, or the loss of a key supplier, could severely disrupt development and commercial supply. The company also faces risks in developing its own gene therapy manufacturing facility, an area where it has no prior experience - The company is dependent on its partner Kyowa Kirin (KKC) for the clinical and commercial supply of Crysvita and for its commercialization in key territories, including the U.S. and Canada after April 2023[242] - The drug substance and drug product for most products and candidates are acquired from single-source suppliers, and the loss of any of these could materially harm the business[251] - The company has no experience developing a manufacturing facility and may face unexpected costs or delays with its new gene therapy plant in Massachusetts[243] Risks Related to Commercialization of Our Products and Product Candidates Commercial success is subject to significant risks. The market opportunities for rare diseases may be smaller than estimated, and intense competition exists from larger, better-resourced companies. Success depends on market acceptance by physicians and payors, and securing adequate insurance coverage and reimbursement is uncertain and challenging, especially for high-cost gene therapies. Furthermore, the company's exclusive right to promote Crysvita in North America expires in 2023, transitioning to KKC - Market opportunities for the company's products may be smaller than estimated, as the target patient populations are small and difficult to identify[254] - The company's exclusive right to promote Crysvita in the U.S. and Canada expires in April 2023, after which its partner KKC will take the lead[260] - Failure to obtain or maintain adequate insurance coverage and reimbursement from government and private payors could limit the ability to market products, a significant risk for high-cost therapies[263] Risks Related to Our Intellectual Property The company's success depends on its ability to obtain and maintain effective patent protection, which is uncertain and complex. It faces risks of patent challenges, potential infringement claims from third parties, and competition from biosimilars and generics. The company also relies on third-party licensors (e.g., KKC, REGENXBIO) for key patent rights, and failure by these partners to maintain or enforce the IP could harm the business - The company relies on patents and trade secrets, but the patent position of biotech companies is highly uncertain, and patents may be challenged, invalidated, or circumvented[268][270] - The company may face competition from biosimilars for its biologic products and generic versions of its small-molecule products, which could materially reduce sales[286][289] - Patent protection for some products, like Crysvita, is dependent on third-party partners such as KKC, and failure by them to maintain or enforce patents could adversely affect the company[292] Risks Related to Our Business Operations The company's operations are subject to significant risks, including material adverse impacts from public health crises like the COVID-19 pandemic, which has disrupted clinical trials, supply chains, and commercial efforts. The business is dependent on retaining its CEO and other key personnel. It also faces risks from potential cybersecurity breaches, system failures, and challenges associated with international expansion - The COVID-19 pandemic has materially impacted and could continue to impact clinical trials, supply chains, regulatory reviews, and commercialization efforts[306][307][308] - The company's future success depends on its ability to retain its Founder, President, and CEO, Dr. Emil D. Kakkis, and other qualified personnel in a competitive industry[313] - The business is vulnerable to computer system failures and cybersecurity breaches, which are increasing in frequency and sophistication and could lead to loss of data, trade secrets, and potential liability[331] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act, and XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1) and Inline XBRL documents (101 series)[357]