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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Ultragenyx Pharmaceutical Inc    RARE

ULTRAGENYX PHARMACEUTICAL INC (RARE)
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ULTRAGENYX PHARMACEUTICAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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11/06/2018 | 12:11pm CET
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the accompanying unaudited
consolidated financial statements and related notes in Item 1 and with the
audited consolidated financial statements and the related notes included in our
Annual Report on Form 10-K for the year ended December 31, 2017 (the "Annual
Report").

Overview

We are a biopharmaceutical company focused on the identification, acquisition,
development, and commercialization of novel products for the treatment of
serious rare and ultra-rare genetic diseases. We target diseases for which the
unmet medical need is high, the biology for treatment is clear, and for which
there are no currently approved therapies. Our strategy, which is predicated
upon time- and cost-efficient drug development, allows us to pursue multiple
programs in parallel with the goal of delivering safe and effective therapies to
patients with the utmost urgency.

Approved Therapies and Clinical Product Candidates


Our current approved therapies and clinical-stage pipeline consist of three
product categories: biologics, small-molecule substrate replacement therapies,
and gene therapy product candidates. Enzymes are proteins that the body uses to
process materials needed for normal cellular function, and substrates are the
materials upon which enzymes act. When enzymes or substrates are missing, the
body is unable to perform its normal cellular functions, often leading to
significant clinical disease. Several of our therapies are intended to replace
deficient enzymes or substrates. Gene therapy is a therapeutic approach in which
an isolated gene sequence or segment of DNA is administered to a patient, most
commonly for the purpose of treating a genetic disease that is caused by
mutations. Gene therapy aims to address the disease-causing effects of absent or
dysfunctional genes by delivering functional copies of the gene to the patient's
cells, offering the potential for durable therapeutic benefit.

Our biologic products include approved therapies Crysvita® (burosumab) and Mepsevii™ (vestronidase alfa):

• Crysvita is an antibody targeting fibroblast growth factor 23, or FGF23,

developed for the treatment of X-linked hypophosphatemia, or XLH, a rare,

hereditary, progressive and lifelong musculoskeletal disorder characterized

by renal phosphate wasting caused by excess FGF23 production. Crysvita is

approved in the United States for the treatment of XLH in adult and

pediatric patients one year of age and older. In Europe, Crysvita is

conditionally approved for the treatment of XLH with radiographic evidence

of bone disease in children one year of age and older and adolescents with

growing skeletons. A filing to expand the label to include adults with XLH

is also planned in Europe.

Crysvita is also being developed for the treatment of tumor-induced osteomalacia, or TIO. TIO results from typically benign tumors that produce excess levels of FGF23, which can lead to severe hypophosphatemia, osteomalacia, fractures, fatigue, bone and muscle pain, and muscle weakness.

We are collaborating with Kyowa Hakko Kirin, or KHK, and Kyowa Kirin International, or Kyowa Kirin, a wholly owned subsidiary of KHK, on the development and commercialization of Crysvita globally.

• Mepsevii is an intravenous, or IV, enzyme replacement therapy, developed for

the treatment of Mucopolysaccharidosis VII, also known as MPS VII or Sly

syndrome, a rare lysosomal storage disease that often leads to multi-organ

dysfunction, pervasive skeletal disease, and death. Mepsevii is approved in

the United States for the treatment of children and adults with MPS VII. In

Europe, Mepsevii is approved under exceptional circumstances for the

treatment of non-neurological manifestations of MPS VII. In Brazil, Mepsevii

is approved for the treatment of MPS VII for patients of all ages.



Our substrate replacement therapy pipeline includes UX007, which is in clinical
development for the treatment of long-chain fatty acid oxidation disorders, or
LC-FAOD:

• UX007 is a synthetic triglyceride with a specifically designed chemical

composition being studied for the treatment of LC-FAOD, which is a set of

rare metabolic diseases that prevents the conversion of fat into energy and

can cause low blood sugar, muscle rupture, and heart and liver disease. The

U.S. Food and Drug Administration, or FDA, has accepted our most recent

proposal to submit a New Drug Application, or NDA, for UX007 for the

treatment of LC-FAOD based on existing Phase 2 study data. We expect to hold

a pre-NDA meeting with the FDA before the end of 2018. We also continue to

have discussions with EMA about a potential filing based on the current data

and expect additional clarity from these conversations by the end of 2018.

Our gene therapy pipeline includes DTX301 and DTX401 in clinical development for the treatment of two diseases:

• DTX301 is an adeno-associated virus 8, or AAV8, gene therapy product

candidate designed for the treatment of patients with ornithine

transcarbamylase, or OTC, deficiency. OTC is part of the urea cycle, an

enzymatic pathway in the liver that converts excess nitrogen, in the form of

ammonia, to urea for excretion. OTC deficiency is the most common urea cycle

disorder and leads to increased levels of ammonia. Patients with OTC

deficiency suffer from acute hyperammonemic episodes that can lead to

hospitalization, adverse cognitive and neurological effects, and death. We

      have reported positive data from the first and second dose cohorts of the
      Phase 1/2 study, and plan to enroll the first patient in the third dose
      cohort in 2018 with data expected in mid-2019.


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• DTX401 is an AAV8 gene therapy clinical candidate for the treatment of

patients with glycogen storage disease type Ia, or GSDIa, a disease that

arises from a defect in G6Pase, an essential enzyme in glycogen and glucose

metabolism. GSDIa is the most common glycogen storage disease. The three

patients in the first dose cohort of the Phase 1/2 study have been dosed and

we expect data from this cohort around the end of 2018.



The following table summarizes our approved products and advanced product
candidate pipeline:

                               [[Image Removed]]

Recent program updates

Crysvita for the treatment of XLH


In addition to regulatory submissions and approvals of Crysvita in the U.S. and
Europe, we have submitted regulatory filings in Canada, Brazil and Colombia, and
anticipate regulatory decisions in these markets by the end of 2019.

Crysvita for the treatment of TIO


On October 1, 2018, we presented the positive 48-week and 72-week data from an
ongoing Phase 2 study of Crysvita in adults with TIO syndrome at the American
Society for Bone and Mineral Research 2018 Annual Meeting in Montreal. In adults
with TIO, Crysvita was associated with increases in serum phosphorous and
1,25(OH)2D; improvement in osteomalacia; improvement in mobility and vitality;
and reductions in fatigue. Regulatory discussions regarding a potential filing
are ongoing with the FDA.

Mepsevii for the treatment of MPS VII


On August 27, 2018, the European Commission approved under exceptional
circumstances the Marketing Authorization Application, or MAA, for Mepsevii for
the treatment of non-neurological manifestations of MPS VII. Mepsevii is now
approved for use in all 28 European Union, or EU, countries as well as in
Iceland, Liechtenstein and Norway, and recently launched in Germany.

On October 18, 2018, Brazil'sNational Health Surveillance Agency, or ANVISA, approved Mepsevii for the treatment of MPS VII for patients of all ages. Additional regulatory decisions for patients in Columbia and Chile are anticipated by the end of 2019.

UX007 for the treatment of LC-FAOD


The FDA has accepted our most recent proposal to submit an NDA for UX007 for the
treatment of LC-FAOD based on currently available data from our positive 78-week
Phase 2 study, a published retrospective medical record review, emergency IND

                                       15

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cardiomyopathy patients, and a published randomized controlled investigator study. Further details will be forthcoming following a pre-NDA meeting, which we expect to take place by the end of 2018.

We also continue to pursue a potential filing with EMA based on the current data and expect to have further clarity from these discussions before the end of 2018.

UX007 for the treatment of Glut1 DS


In October 2018, we announced that a Phase 3 study evaluating UX007 in patients
with glucose transporter type-1 deficiency syndrome, or Glut1 DS, experiencing
disabling paroxysmal movement disorders did not achieve its primary endpoint of
demonstrating a statistically significant reduction in the frequency of
paroxysmal movement events with UX007 treatment compared to placebo, and did not
demonstrate a meaningful difference between treatment groups. The study also did
not meet its key secondary endpoints. The safety profile observed in this study
was consistent with what has been previously reported with UX007. We plan to
discontinue further clinical development of UX007 for the treatment of Glut1 DS.

DTX301 for the treatment of Ornithine Transcarbamylase (OTC) Deficiency


On September 27, 2018, we announced data from the second dose cohort of the
Phase 1/2 study of DTX301 showing that a second patient in the study (Cohort 2,
Patient 4) demonstrated normalization of ureagenesis to 104 percent at Week 24.
The other two patients in Cohort 2 (study patients 5 and 6) did not show
clinically meaningful changes in rate of ureagenesis at 12 weeks. In addition,
we announced that the first patient in the study (Cohort 1, Patient 1) completed
the initial 52-week study period, and demonstrated a further increased level of
ureagenesis at 52 weeks as well as ongoing clinical stability seven months after
discontinuing all alternate pathway medication and recent liberalization of a
protein-restricted diet. As of the cutoff date of September 12, 2018 there have
been no infusion-related adverse events and no serious adverse events reported
in the study. All adverse events have been Grade 1 or 2. The only
treatment-related adverse events were mild, clinically asymptomatic elevations
in ALT in two patients in Cohort 1 and one patient in Cohort 2, which have all
been controlled with standard tapering courses of steroids. These ALT elevations
were mild and similar to what has been observed in other programs using AAV gene
therapy. All patients have remained clinically and metabolically stable. The
Data Monitoring Committee completed its review of Week 12 data from Cohort 2 and
recommended that we proceed to the third dose (1.0 × 10^13 GC/kg) cohort of the
study. The first patient in Cohort 3 has been enrolled, and data from the cohort
are expected in mid-2019.

DTX401 for the treatment of GSDIa

All three patients in the lowest dose Cohort 1 of the Phase 1/2 study have been dosed and we expect data from this cohort around the end of 2018.

Financial Operations Overview

We are a biopharmaceutical company with a limited operating history. To date, we have invested substantially all of our efforts and financial resources in identifying, acquiring, and developing our products and product candidates, including conducting clinical studies and providing selling, general and administrative support for these operations. To date, we have funded our operations primarily from the sale of equity securities.


We have incurred net losses in each year since inception. Our net loss was $87.3
million and $79.2 million for the three months ended September 30, 2018 and
2017, respectively, and $109.8 million and $220.4 million for the nine months
ended September 30, 2018 and 2017, respectively. Substantially all of our net
losses have resulted from costs incurred in connection with our research and
development programs and from selling, general and administrative costs
associated with our operations.

Critical Accounting Policies and Significant Judgments and Estimates


Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these consolidated
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, as well as the
reported expenses incurred during the reporting periods. Our estimates are based
on our historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. There have been no
significant and material changes in our critical accounting policies during the
nine months ended September 30, 2018, as compared to those disclosed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies and Significant Judgments and
Estimates" in our Annual Report other than those noted.


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Revenue Recognition

Collaboration and License Revenue


We have certain collaboration and license arrangements in the scope of ASC
808, Collaborative Agreements. Generally, the classification of the transactions
under the collaborative arrangements is determined based on the nature of
contractual terms of the arrangement, along with the nature of the operations of
the participants. We record our share of collaboration revenue, net of transfer
pricing related to net sales in the period in which such sales occur, if we are
considered as an agent in the arrangement. We are considered an agent when the
collaboration partner controls the product before transfer to the customers and
has the ability to direct the use of and obtain substantially all of the
remaining benefits from the product. Funding received related to research and
development services and commercialization costs of such agreements is
classified as a reduction of research and development expenses and selling,
general and administrative expenses, respectively, in the consolidated statement
of operations because the provision of such services for collaborative partners
is not considered to be part of the our ongoing major or central operations.

We also receive royalty revenues under certain of our license or collaboration
agreements in exchange for license of intellectual property. If we do not have
any future performance obligations under these license or collaborations
agreements, revenue is recorded as sales occur as part of collaboration and
license revenue.

In order to record the collaboration revenue, we utilize certain information
from our collaboration partners, including revenue from the sale of the product,
associated reserves on revenue, and costs incurred for development and sales
activities. For the periods covered in the financial statements presented, there
were no significant or material changes to prior period estimates of revenues
and expenses.

We have certain collaboration and license arrangements in the scope of ASC
606, Revenue from Contract with Customers. The terms of these agreements may
contain multiple performance obligations, which may include licenses and
research and development activities. We analogize to ASC 606 for the accounting
for distinct performance obligations for which there is a customer relationship.
Prior to recognizing revenue, we make estimates of the transaction price,
including variable consideration that is subject to a constraint. Amounts of
variable consideration are included in the transaction price to the extent that
it is probable that a significant reversal in the amount of cumulative revenue
recognized will not occur and when the uncertainty associated with the variable
consideration is subsequently resolved. Variable consideration may include
nonrefundable upfront license fees, payments for research and development
activities, reimbursement of certain third-party costs, payments based upon the
achievement of specified milestones, and royalty payments based on product sales
derived from the collaboration.

If there are multiple distinct performance obligations, we allocate the
transaction price to each distinct performance obligation based on its relative
standalone selling price. The standalone selling price is generally determined
based on the prices charged to customers or using expected cost plus margin. We
recognize license and collaboration revenue for these arrangements by measuring
the progress toward complete satisfaction of the performance obligations using
an input measure.

Product sales

We sell our approved products through a limited number of distributors. Revenue
from product sales is recognized at the point in time when the delivery is made
and when title and risk of loss transfers to these distributors. We also
recognize revenue from sales of certain products on a "named patient" basis,
which are allowed in certain countries prior to the commercial approval of the
product. Prior to recognizing revenue, we make estimates of the transaction
price, including variable consideration that is subject to a constraint. Amounts
of variable consideration are included in the transaction price to the extent
that it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the
variable consideration is subsequently resolved. We estimate reserves for
rebates payable under government mandated programs, chargebacks, distribution
fees, estimated product returns and other deductions and record as a reduction
of revenue at the time product revenues are recorded.

We provide for returns and other adjustments in the period the related revenue
is recorded based on our best estimate. Limited historical data is available for
use in developing estimates of the amount of the reduction for reserve in gross
revenue. We review the estimates applied periodically and adjust as necessary.
To date we have not made material adjustments to our revenue reserves.

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Results of Operations

Comparison of the three and nine months ended September 30, 2018 to the three and nine months ended September 30, 2017:

Revenue (dollars in thousands)



                                      Three Months Ended September 30,            Dollar          %
                                        2018                      2017            Change       Change
Collaboration and license
revenue:
KHK (Crysvita)                   $             5,401         $             -     $   5,401           *
Bayer                                          3,614                       -         3,614           *
Total collaboration and license
revenue                                        9,015                       -         9,015           *
Product sales:
Crysvita                                         268                       -           268           *
Mepsevii                                       2,127                     198         1,929           *
UX007                                            353                       -           353           *
Total product sales                            2,748                     198         2,550           *
Total revenues                   $            11,763         $           198     $  11,565           *




                                       Nine Months Ended September 30,            Dollar          %
                                        2018                      2017            Change       Change
Collaboration and license
revenue:
KHK (Crysvita)                   $             6,993         $             -     $   6,993           *
Bayer                                         21,903                       -        21,903           *
Total collaboration and license
revenue                                       28,896                       -        28,896           *
Product sales:
Crysvita                                         294                       -           294           *
Mepsevii                                       5,253                     198         5,055           *
UX007                                            791                       -           791           *
Total product sales                            6,338                     198         6,140           *
Total revenues                   $            35,234         $           198     $  35,036           *
* not meaningful


We recognized $5.4 million and $7.0 million in profit sharing and royalty
revenue from our collaboration and license agreement with KHK for the three and
nine months ended September 30, 2018, respectively, as a result of the approval
of Crysvita in Europe in November 2017 and in the U.S. in April 2018.

We recognized $3.6 million and $21.9 million in collaboration and license
revenue from our research arrangement with Bayer for the three and nine months
ended September 30, 2018, respectively. The increase is due to our acquisition
of Dimension Therapeutics, Inc., or Dimension, resulting in the assumption of
the Bayer agreement.

The increase in product sales of $2.6 million and $6.1 million for three and nine months ended September 30, 2018, respectively, is primarily due to the approval of Mepsevii in November 2017.

Cost of Sales (dollars in thousands)



                         Three Months Ended September 30,         Dollar        %
                             2018                    2017         Change      Change
         Cost of sales $             273           $       -     $    273          *




                          Nine Months Ended September 30,         Dollar        %
                             2018                    2017         Change      Change
         Cost of sales $             639           $       -     $    639          *


We recognized $0.3 million and $0.6 million in cost of sales related to our
approved products for the three and nine months ended September 30, 2018,
respectively, which includes a reserve of $0.2 million for excess inventory for
the nine months ended September 30, 2018 and none for the three months ended
September 30, 2018. No cost of sales was recognized for the three and nine
months ended September 30, 2017. Prior to the approval of our approved products,
manufacturing and related costs were expensed; accordingly, these costs were not
capitalized and as a result are not fully reflected in the costs of sales during
the current period. If manufacturing and related costs were capitalized prior to
the approval period, we expect that cost of sales for the three and nine months
ended September 30, 2018 would have been approximately $0.4 million and $1.3
million, respectively, for our commercial product sales, which includes a
reserve of $0.2 million for excess inventory for the nine months ended September
30, 2018. We expect

                                       18
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cost of sales to increase in relation to product revenues as we deplete these
previously expensed inventories and in turn, the inventory cost will increase as
we produce and then sell the product that has an inventory cost that reflects
the full cost of manufacturing similar biologic products.

Research and Development Expenses (dollars in thousands)



                                   Three Months Ended September 30,          Dollar             %
                                      2018                  2017             Change           Change
Crysvita                         $        11,358$        10,828$       530                5 %
Mepsevii                                   6,068                 8,606          (2,538 )            -29 %
UX007                                     10,793                 9,136           1,657               18 %
DTX301                                     4,209                     -           4,209                *
DTX401                                     3,549                     -           3,549                *
DTX201                                     4,367                     -           4,367                *
Ace-ER                                     1,236                13,008         (11,772 )            -90 %
Other research costs and                  28,461                18,834
preclinical costs                                                                9,627               51 %
Total research and development   $        70,041$        60,412$     9,629
expenses                                                                                             16 %




                                     Nine Months Ended September 30,           Dollar             %
                                       2018                   2017             Change           Change
Crysvita                         $         34,618       $         31,220     $     3,398               11 %
Mepsevii                                   19,431                 26,250          (6,819 )            -26 %
UX007                                      34,085                 28,732           5,353               19 %
DTX301                                     12,386                      -          12,386                *
DTX401                                     13,646                      -          13,646                *
DTX201                                     23,707                      -          23,707                *
Ace-ER                                      6,345                 30,194         (23,849 )            -79 %
Other research costs and                   78,162                 53,721
preclinical costs                                                                 24,441               45 %

Total research and development $ 222,380$ 170,117

 $    52,263
expenses                                                                                               31 %




Research and development expenses increased $9.6 million and $52.3 million for
the three and nine months ended September 30, 2018, respectively, compared to
the same periods in 2017. The increase in research and development expenses is
primarily due to:

• for Crysvita, an increase of $0.5 million and $3.4 million for the three

and nine months ended September 30, 2018, respectively, related to patient

diagnosis efforts, medical and scientific education expense, and regulatory

filing preparation costs, net of KHK reimbursement;

• for Mepsevii, a decrease of $2.5 million and $6.8 million for the three and

nine months ended September 30, 2018, respectively, related to the

post-approval capitalization of manufacturing expenses and reduced clinical

trial activity with the progressive completion of our extension studies;

• for UX007, an increase of $1.7 million and $5.4 million for the three and

nine months ended September 30, 2018, respectively, primarily related to

the conduct of our Phase 3 movement disorder study and regulatory filing

preparation activities;

• for DTX301, $4.2 million and $12.4 million for the three and nine months

ended September 30, 2018, respectively, related to the conduct of the Phase

       1/2 study and clinical manufacturing expense; as the program costs are
       reflected only after the acquisition of Dimension in November 2017, there
       is no previous year basis of comparison;

• for DTX401, $3.5 million and $13.6 million for the three and nine months

ended September 30, 2018, respectively, related to clinical manufacturing

       expense, IND filing preparation expense, and conduct of our Phase 1/2
       clinical study; as the program costs are reflected only after the
       acquisition of Dimension in November 2017, there is no previous year basis
       of comparison;

• for DTX201, $4.4 million and $23.7 million for the three and nine months

ended September 30, 2018, respectively, primarily related to clinical

manufacturing expense, IND filing preparation expense, and amortization of

the intangible asset related to our Bayer collaboration agreement; as the

       program costs are reflected only after the acquisition of Dimension in
       November 2017, there is no previous year basis of comparison;

• for Ace-ER, a decrease of $11.8 million and $23.8 million for the three and

nine months ended September 30, 2018, respectively, due to a reduction in

       our spend on the Ace-ER program as a consequence of our decision to
       terminate the program in August 2017; and


                                       19

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• an increase of $9.6 million and $24.4 million for the three and nine months

ended September 30, 2018, respectively, in other research and development

costs including operating expenses related to our research stage programs

and research collaborations (including programs acquired with the Dimension

acquisition), general expenses in support of our clinical and research

program pipelines, and certain cost allocations.



We expect our research and development expenses to increase in the future as we
advance our product candidates through clinical development. The timing and
amount of expenses incurred will depend largely upon the outcomes of current or
future clinical studies for our product candidates as well as the related
regulatory requirements, manufacturing costs, and any costs associated with the
advancement of our preclinical programs.

Selling, General and Administrative Expenses (dollars in thousands)



                                      Three Months Ended September 30,          Dollar            %
                                         2018                  2017             Change         Change
Selling, general and administrative $        31,095$        23,499$    7,596              32 %




                                       Nine Months Ended September 30,          Dollar            %
                                         2018                  2017             Change         Change
Selling, general and administrative $        93,248$        62,189$   31,059              50 %


Selling, general and administrative expenses increased $7.6 million and $31.1
million for the three and nine months ended September 30, 2018, respectively,
compared to the same periods in 2017. The increase in selling, general and
administrative expenses was primarily due to increases in commercialization
costs, professional services costs, stock-based compensation, and personnel
costs resulting from an increase in the number of employees in support of our
activities.

We expect selling, general and administrative expenses to increase to support our organizational growth and for our expected staged build out of our commercial organization over the next several years related to our approved products and multiple late-stage product candidates.

Interest Income (dollars in thousands)



                         Three Months Ended September 30,          Dollar         %
                           2018                     2017           Change       Change
     Interest income $          2,730         $          1,117     $ 1,613          144 %




                          Nine Months Ended September 30,          Dollar         %
                           2018                     2017           Change       Change
     Interest income $          6,915         $          3,350     $ 3,565          106 %




Interest income increased $1.6 million and $3.6 million for the three and nine
months ended September 30, 2018, respectively, compared to the same periods in
2017, primarily due to an increase in the balance of our invested funds and due
to an increase in yields on our investment portfolio.

Gain from Sale of Priority Review Vouchers (dollars in thousands)



                                   Nine Months Ended September 30,         Dollar           %
                                      2018                 2017            Change        Change
Gain from sale of priority review
vouchers                          $    170,322         $           -     $  170,322             *




The gain from the sale of the Priority Review Vouchers, or PRVs, of $170.3
million for the nine months ended September 30, 2018 was due to the completion
of the sales of the PRVs we received from the FDA in connection with the
approval of Crysvita and Mepsevii. The Mepsevii PRV was sold in January 2018 for
net proceeds of $130.0 million, and the Crysvita PRV was sold in April 2018 for
net proceeds of $80.6 million, which was shared equally with KHK.

Other Income (Expense) (dollars in thousands)



                             Three Months Ended September 30,          Dollar         %
                              2018                    2017             Change      Change
  Other income (expense) $         (147 )       $           3,373     $ (3,520 )      -104 %






                                       20
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                              Nine Months Ended September 30,           Dollar         %
                               2018                     2017            Change       Change
  Other income (expense) $          (5,601 )       $         8,368     $ (13,969 )        *


Other income (expense) decreased $3.5 million and $14.0 million for the three
and nine months ended September 30, 2018, respectively, compared to the same
periods in 2017. The decrease in income recognized during the three months ended
September 30, 2018 compared to the same period in 2017 was primarily due to
prior period fluctuations of exchange rates related to intercompany loans with
foreign subsidiaries that are denominated in our reporting currency and the
strengthening of the respective foreign exchange rates. The increase in expense
recognized during the nine months ended September 30, 2018 was primarily due to
the recognition of cumulative foreign currency translation losses related to the
substantial liquidation of subsidiaries with a functional currency other than
the U.S. Dollar during the three months ended March 31, 2018 and prior period
fluctuations of exchange rates related to intercompany loans with foreign
subsidiaries that are denominated in our reporting currency. These recognized
foreign currency losses are substantially offset by the reclassification
adjustment reported as a component of other comprehensive income (loss).

Liquidity and Capital Resources

We have funded our operations primarily from the sale of equity securities.


As of September 30, 2018, we had $503.1 million in available cash, cash
equivalents, and investments. We believe that our existing capital resources
will be sufficient to fund our projected operating requirements for at least the
next twelve months. Our cash, cash equivalents and investments are held in a
variety of deposit accounts, interest-bearing accounts, corporate bond
securities, U.S government securities and money market funds. Cash in excess of
immediate requirements is invested with a view toward liquidity and capital
preservation, and we seek to minimize the potential effects of concentration and
credit risk.

During the three and nine months ended September 30, 2018, the proceeds from our
at-the-market, or ATM, offering were approximately $15.9 million and $27.6
million, respectively, after commissions and other offering costs. At September
30, 2018, we may issue up to $56.5 million in additional common stock under our
ATM offering.

The following table summarizes our cash flows for the periods indicated (in
thousands):



                                                         Nine Months Ended September 30,
                                                           2018                   2017
Cash used in operating activities                    $       (234,713 )$       (172,020 )
Cash used in investing activities                            (106,892 )               (1,909 )
Cash provided by financing activities                         324,611       

71,828

Effect of exchange rate changes on cash                          (617 )                  167
Net decrease in cash, cash equivalents and
restricted cash                                      $        (17,611 )

$ (101,934 )

Cash Used in Operating Activities


Our primary use of cash is to fund operating expenses, which consist primarily
of research and development and commercial expenditures. Due to our significant
research and development expenditures, we have generated significant operating
losses since our inception. Cash used to fund operating expenses is affected by
the timing of when we pay these expenses, as reflected in the change in our
outstanding accounts payable and accrued expenses.

Cash used in operating activities for the nine months ended September 30, 2018
was $234.7 million and reflected a net loss of $109.8 million, $170.3 million
for the gain from sale of the PRVs, and $1.8 million for the amortization of the
discount paid on purchased investments, offset by non-cash charges of $59.0
million for stock-based compensation, $16.6 million for depreciation and
amortization of intangible asset acquired, and $5.9 million of non-cash foreign
currency remeasurement losses in connection with the substantial liquidation of
subsidiaries due to a change in the Company's tax structure and fluctuations of
exchange rates related to intercompany transactions with foreign subsidiaries
that are denominated in our reporting currency. Cash used in operating
activities also reflected a $9.2 million increase in accounts receivable due to
the commercialization of Mepsevii and Crysvita, $20.0 million increase in
prepaid expenses and other current assets primarily due to an increase in
receivables and prepaid manufacturing and build out of inventory as we
commercialize our approved products, a $0.1 million increase in other assets, a
$0.6 million decrease in accounts payable primarily due to the timing of
payments and receipt of invoices, and a $4.3 million decrease in accrued
expenses and other liabilities primarily as a result of a decrease in accrued
expenses due to the timing of the receipt of invoices.

Cash used in operating activities for the nine months ended September 30,
2017 was $172.0 million and reflected a net loss of $220.4 million, offset by
non-cash charges of $48.5 million for stock-based compensation, $1.5 million for
the amortization of premium paid on purchased investments, and $3.3 million for
depreciation and amortization. There was also $8.4 million of non-cash foreign
currency remeasurement gains due to increases in the balances of intercompany
loans with foreign subsidiaries that are denominated in the reporting currency
and the strengthening of the respective foreign exchange rates. Cash used in
operating activities also reflected a $0.8 million decrease in prepaid expenses
and other current assets, a $0.5 million decrease in other assets, and a $3.9

                                       21

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million increase in accounts payable primarily due to the timing of payments and
receipt of invoices, offset by a $1.5 million decrease in accrued expenses and
other liabilities primarily due to the amortization of deferred rent and timing
of the receipt of invoices.

Cash Used in Investing Activities


Cash used in investing activities for the nine months ended September 30, 2018
was $106.9 million and related to purchases of investments of $500.0 million and
purchases of property and equipment of $2.9 million, offset by proceeds from the
sale of PRVs of $170.3 million, proceeds from maturities of investments of
$218.1 million, and the sale of investments of $7.7 million.

Cash used in investing activities for the nine months ended September 30,
2017 was $1.9 million and related to purchases of investments of $230.5 million
and purchases of property and equipment of $1.9 million, offset by proceeds from
maturities of investments of $202.8 million and the sale of investments of $27.6
million.

Cash Provided by Financing Activities


Cash provided by financing activities for the nine months ended September 30,
2018 was $324.6 million and was comprised of $271.0 million from the sale of
common stock in our underwritten public offering, $27.6 million from the sale of
common stock in our ATM offering, and $26.0 million in net proceeds from the
issuance of common stock pursuant to equity awards.

Cash provided by financing activities for the nine months ended September 30, 2017 was $71.8 million and was comprised of $67.6 million from the sale of common stock in our ATM offering, and $4.2 million in net proceeds from the issuance of common stock pursuant to equity awards.

Funding Requirements


We anticipate, excluding non-recurring items, that we will continue to generate
annual losses for the foreseeable future, and we expect the losses to increase
as we continue the development of, and seek regulatory approvals for, our
product candidates, and continue with commercialization of approved products.
Due to certain non-recurring or infrequent items like the sale of priority
review vouchers, we may have lower levels of losses in the near term in
quarterly periods that may not be indicative of future periods or trends. We
will likely require additional capital to fund our operations, complete our
ongoing and planned clinical studies and commercialize our products, and funding
may not be available to us on acceptable terms or at all.

If we are unable to raise additional capital in sufficient amounts or on terms
acceptable to us, we may be required to delay, limit, reduce the scope of, or
terminate one or more of our clinical studies, research and development
programs, future commercialization efforts, or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.

Our future funding requirements will depend on many factors, including the following:

• the scope, rate of progress, results and cost of our clinical studies,

nonclinical testing, and other related activities;

• the cost of manufacturing clinical supplies, and establishing commercial

supplies, of our product candidates and any products that we may develop;


  • the number and characteristics of product candidates that we pursue;


  • the cost, timing, and outcomes of regulatory approvals;

• the cost and timing of establishing our commercial infrastructure, and

       distribution capabilities; and


    •  the terms and timing of any collaborative, licensing, and other
       arrangements that we may establish, including any required upfront
       milestone and royalty payments thereunder.


We expect to satisfy future cash needs through existing capital balances and
through some combination of public or private equity offerings, debt financings,
collaborations, strategic alliances, licensing arrangements, and other marketing
and distribution arrangements. Please see "Risk Factors-Risks Related to Our
Financial Condition and Capital Requirements."

Contractual Obligations and Commitments


During the nine months ended September 30, 2018, there were no material changes
to our contractual obligations and commitments described under Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2017.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

                                       22

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© Edgar Online, source Glimpses

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