The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited Condensed 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 endedDecember 31, 2021 ("Annual Report"). OverviewUltragenyx Pharmaceutical Inc. (we or the Company) is 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 typically no approved therapies treating the underlying disease. 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.
Impact of COVID-19 Pandemic
Our business operations have been and continue to be affected by the COVID-19 pandemic. In addition to some impact on our preclinical manufacturing activities and certain regulatory interactions, we have experienced interruptions to our clinical trial activities, primarily due to delays or disruptions to patient enrollment and dosing as a result of the diversion of clinic and hospital staff and resources to COVID-19 patients. The continuing outbreak has caused delays in delivery of ancillary clinical trial materials as certain of our third-party manufacturers or suppliers prioritized and allocated more resources and capacity to supply drug product or raw materials to other companies engaged in the study or manufacture of treatments or vaccinations for COVID-19. Staffing shortages and other effects from the pandemic have also made it difficult for us to identify new patients for our commercialized products, which may result in loss of revenue. As the COVID-19 global pandemic continues, we may experience lower revenue and increased expenses as a result of disruptions to our clinical trial, commercialization and regulatory activities, in addition to delays or shortages of drug product and raw materials. The magnitude and extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are very uncertain and cannot be predicted with confidence. As a result, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our financial statements in 2022 and beyond. See Item 1A: "Risk Factors" for additional details.
Approved Therapies and Clinical Product Candidates
Our current approved therapies and clinical-stage pipeline consist of four product categories: biologics, small molecules, gene therapy, and nucleic acid product candidates. See section entitled "Recent Program Updates" below for a description of recent updates to certain of our approved therapies and clinical-stage pipeline products.
Our biologic products include approved therapies Crysvita® (burosumab), Mepsevii® (vestronidase alfa), and Evkeeza® (evinacumab) and UX143 in clinical development:
•
Crysvita is an antibody administered via subcutaneous injection that targets fibroblast growth factor 23 (FGF23), developed for the treatment of XLH, a rare, hereditary, progressive and lifelong musculoskeletal disorder characterized by renal phosphate wasting caused by excess FGF23 production. There are approximately 48,000 patients with XLH in the developed world, including approximately 36,000 adults and 12,000 children. Crysvita is the only approved treatment that addresses the underlying cause of XLH. Crysvita is approved in theU.S. andCanada for the treatment of XLH in adult and pediatric patients six months of age and older. In theEuropean Union , or the EU, and theUnited Kingdom , Crysvita is approved for the treatment of XLH with radiographic evidence of bone disease in children one year of age and older, adolescents, and adults. InBrazil ,Colombia , andMexico , Crysvita is approved for treatment of XLH in adult and pediatric patients one year of age and older. We have submitted regulatory filings in various other Latin American countries. Crysvita is also approved in theU.S. andCanada for the treatment of FGF23-related hypophosphatemia in tumor-induced osteomalacia, or TIO, associated with phosphaturic mesenchymal tumors that cannot be curatively resected or localized in adults and pediatric patients 2 years of age and older. TIO can lead to severe hypophosphatemia, osteomalacia, fractures, fatigue, bone and muscle pain, and muscle weakness. We are collaborating with Kyowa Kirin Co., Ltd., or KKC (formerly Kyowa Hakko Kirin Co., Ltd., or KHK), and Kyowa Kirin, a wholly owned subsidiary of KKC, on the development and commercialization of Crysvita globally. 20 --------------------------------------------------------------------------------
•
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. MPS VII is one of the rarest MPS disorders, affecting an estimated 200 patients in the developed world. Mepsevii is approved in theU.S. for the treatment of children and adults with MPS VII. In the EU and theUnited Kingdom , Mepsevii is approved under exceptional circumstances for the treatment of non-neurological manifestations of MPS VII for patients of all ages. InItaly , Mepsevii received reimbursement approval for the treatment of pediatric and adult patients with MPS VII. InBrazil andMexico , Mepsevii is approved for the treatment of MPS VII for patients of all ages.
•
Evkeeza is a fully human monoclonal antibody that binds to and blocks the function of angiopoietin-like 3 (ANGPTL3), a protein that plays a key role in lipid metabolism. Evkeeza is an approved therapy for the treatment of homozygous familial hypercholesterolemia, or HoFH, a rare inherited condition. HoFH occurs when two copies of the familial hypercholesterolemia (FH)-causing genes are inherited, one from each parent, resulting in dangerously high levels (>400 mg/dL) of LDL-C, or bad cholesterol. Patients with HoFH are at risk for premature atherosclerotic disease and cardiac events as early as their teenage years. Evkeeza is approved in theU.S. , where it is marketed by our partner Regeneron Pharmaceuticals (Regeneron), and the European Economic Area (EEA) as a first-in-class therapy for use together with diet and other low-density lipoprotein-cholesterol (LDL-C) lowering therapies to treat adults and adolescents aged 12 years and older with HoFH. There are approximately 3,000 to 5,000 patients with HoFH in the Ultragenyx key markets.
•
UX143 (setrusumab), which is subject to our collaboration agreement withMereo Biopharma 3 (Mereo), and the lead clinical asset in our bone endocrinology franchise, is a fully human monoclonal antibody that inhibits sclerostin, a protein that acts on a key bone-signaling pathway by inhibiting the activity of bone-forming cells and promoting bone resorption. Setrusumab is being studied for the treatment of osteogenesis imperfecta (OI) and has received orphan drug designation from theU.S. Food and Drug Administration (FDA) andEuropean Medicines Agency (EMA), rare pediatric disease designation from the FDA, and was accepted into the EMA's Priority Medicines program (PRIME). There are an estimated 60,000 patients in the developed world affected by OI. A Phase 2/3 study of setrusumab in pediatric and young adult patients with OI was initiated inApril 2022 and a separate study is currently being planned for younger children and an extension study for adults with OI.
Our small molecule products include the approved therapy Dojolvi® (triheptanoin):
•
Dojolvi is a highly purified, synthetic, 7-carbon fatty acid triglyceride specifically designed to provide medium-chain, odd-carbon fatty acids as an energy source and metabolite replacement for people with long-chain fatty acid oxidation disorders, or 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. Dojolvi is approved and commercially available in theU.S. andCanada as a source of calories and fatty acids for the treatment of pediatric and adult patients with molecularly confirmed LC-FAOD. We have received marketing authorization from theBrazilian Health Regulatory Agency (ANVISA) and are in the process of seeking reimbursement approval. There are approximately 8,000 to 14,000 patients in the developed world with LC-FAOD.
Our clinical-stage gene therapy pipeline includes DTX401, DTX301, DTX201 and UX701:
•
DTX401 is an adeno-associated virus 8, or 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 genetically inherited glycogen storage disease, with an estimated 6,000 patients in the developed world affected by GSDIa. A Pediatric Investigation Plan, or PIP, was accepted by the EMA. DTX401 has been granted Orphan Drug Designation in both theU.S. and in the EU, and Regenerative Medicine Advanced Therapy (RMAT) designation and Fast Track designation in theU.S. Patients are being enrolled and dosed in the Phase 3 study of DTX401.
•
DTX301 is an 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 there are approximately 10,000 patients in the developed world with OTC deficiency, of which we estimate approximately 80% are classified as late-onset, our target population. DTX301 has received Orphan Drug Designation in both theU.S. and in the EU and Fast Track Designation in theU.S. Phase 3 study start-up activities are ongoing with the first patients in theU.S. expected to enter a 4-to 8-week baseline screening period in mid-2022, after which they would receive a single dose of DTX301 or placebo. 21 --------------------------------------------------------------------------------
•
DTX201 is a Factor VIII gene therapy program for the treatment of hemophilia A that is being developed in collaboration withBayer Healthcare LLC , or Bayer. Hemophilia A is the most common form of hemophilia with approximately 144,000 patients in the developed world. A number of patients across multiple cohorts have been dosed with DTX201.
•
UX701 is an AAV type 9 gene therapy product candidate designed to deliver stable expression of a truncated version of the ATP7B copper transporter following a single intravenous infusion to patients with Wilson disease. Wilson disease affects more than 50,000 individuals in the developed world. UX701 was granted Orphan Drug Designation in theU.S. andEU . Patients with Wilson disease are currently being enrolled and dosed in the seamless Phase 1/2/3 study of UX701, the Cyprus2+study.
Our clinical-stage nucleic acid pipeline includes GTX-102 for the treatment of Angelman syndrome, and UX053 for the treatment of GSDIII:
•
GTX-102 is an antisense oligonucleotide, or ASO, that is being developed for the treatment of Angelman syndrome, a debilitating and rare neurogenetic disorder caused by loss-of-function of the maternally inherited allele of the UBE3A gene. There are an estimated 60,000 patients in the developed world affected by Angelman syndrome. GTX-102 was granted Fast Track designation, Orphan Drug Designation and Rare Pediatric Disease Designation from the FDA. GTX-102 is being developed in collaboration withGeneTx Biotherapeutics LLC (GeneTx) in an ongoing Phase 1/2 clinical study in theU.S. ,Canada , and theU.K.
•
UX053 is an mRNA product candidate designed for the treatment of patients with GSDIII, a disease caused by a glycogen debranching enzyme (AGL) deficiency that results in glycogen accumulation in the liver and muscle. GSDIII affects more than 10,000 patients in the developed world. UX053 was granted Orphan Drug Designation in theU.S. andEU . The single-dose portion of a Phase 1/2 study of UX053 is ongoing. 22 --------------------------------------------------------------------------------
The following table summarizes our approved products and clinical product candidate pipeline:
[[Image Removed: img215001706_0.jpg]]
Recent Program Updates
Evkeeza for the treatment of HoFH
In
23 --------------------------------------------------------------------------------
Clinical Product Candidates
DTX401 for the treatment of glycogen storage disease type Ia, or GSDIa
We are enrolling and dosing patients in the Phase 3 study of DTX401. The Phase 3 study has a 48-week primary efficacy analysis period and we plan to enroll approximately 50 patients eight years of age and older, randomized 1:1 to DTX401 (1.0 x 10^13 GC/kg dose) or placebo. The primary endpoint is the reduction in oral glucose replacement with cornstarch while maintaining glucose control.
DTX301 for the treatment of ornithine transcarbamylase, or OTC, deficiency
We are currently in the process of initiating a Phase 3 study that will include a 64-week primary efficacy analysis period and plan to enroll approximately 50 patients 12 years of age and older, randomized 1:1 to DTX301 (1.7 x 10^13 GC/kg dose) or placebo. The co-primary endpoints are the percentage of patients who achieve a response as measured by discontinuation or reduction in baseline disease management and the 24-hour plasma ammonia levels. The first patients in theU.S. are expected to enter an approximate 4-to 8-week baseline screening period in mid-2022, after which they are expected to receive a single dose of DTX301 or placebo.
UX701 for the treatment of Wilson Disease
We are enrolling and dosing patients with Wilson disease in the seamless Phase 1/2/3 study of UX701, or the Cyprus2+ study.
During the first stage of the study, the safety and efficacy of up to three dose levels of UX701 will be evaluated over the course of 52 weeks and a dose will be selected for further evaluation in stage 2. In this first stage, 27 patients will be randomized into three cohorts in a 2:1 ratio per cohort to receive UX701 at the dose level assigned for the cohort or a placebo. The sequential doses to be evaluated are 5.0 x 10^12 GC/kg, 1.0 x 10^13 GC/kg, and 2.0 x 10^13 GC/kg. In stage 2, a new cohort of patients will be randomized 2:1 to receive the selected dose of UX701 or placebo. The primary safety and efficacy analyses will be conducted at Week 52 of stage 2. The primary efficacy endpoints are change in 24-hour urinary copper concentration and percent reduction in standard of care medication by Week 52. After the initial 52-week study period, all patients will receive long term follow up in stage 3. Patients randomized to placebo in stages 1 and 2 will become eligible to receive UX701 in stage 3.
UX143 (setrusumab) for the treatment of Osteogenesis Imperfecta (OI), in
collaboration with
We are dosing patients in a pediatric and young adult Phase 2/3 study. The objective of the Phase 2/3 study will first focus on determining the optimal dose based on increases in collagen production using serum P1NP levels and an acceptable safety profile. Following determination of the dose, we currently intend to adapt the study into a pivotal Phase 3 stage, evaluating fracture reduction over an estimated 15 to 24 months as the primary endpoint, subject to regulatory review. We currently expect a separate Phase 2 study of patients under age five with OI to start in the second half of 2022. We will also continue to evaluate adult patients who were previously treated in the Phase 2b ASTEROID study that was conducted by Mereo.
GTX-102 for the treatment of Angelman Syndrome, partnered with GeneTx
InJanuary 2022 , we provided an initial update on the first four patients treated inCanada and theU.K. under the amended protocol for the phase 1/2 study of GTX-102. As of the update, all four patients had received multiple doses of GTX-102 with no treatment-related serious adverse events of any type nor adverse events related to lower extremity weakness. As ofJanuary 2022 , three patients had received a preliminary assessment of clinical response and all have shown early signs of clinical activity. The data safety monitoring board (DSMB) for Cohort 4 recommended dose escalation for the first two patients and enrollment of the additional four patients in this cohort. Later inJanuary 2022 , the DSMB for Cohort 5 met and also recommended dose escalation and expansion of that cohort.
As of
We plan to provide an additional update on patients in Cohorts 4 and 5 in
UX053 for the treatment of glycogen storage disease type III, or GSDIII
We are dosing patients in a Phase 1/2 study of UX053 for the treatment of GSDIII. Part 1 of the study is open label with single-ascending doses. Part 2 is double-blind and will evaluate repeat doses at escalating levels. We currently expect preliminary data from Part 1 of the study and to initiate Part 2 of the study in the second half of 2022. 24 --------------------------------------------------------------------------------
Other Development
InApril 2022 , we announced the appointment ofAmrit Ray , M.D., M.B.A. to the company's Board of Directors, effectiveApril 19, 2022 .Dr. Ray currently serves as ChiefPatient Officer atBiohaven Pharmaceuticals . He is also currently a member of the board of directors ofCorEvitas, LLC and a member of the board of directors atEveryLife Foundation for Rare Diseases .
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 our equity securities, revenues from our commercial products, the sale of certain future royalties, and strategic collaboration arrangements. We have incurred net losses in each year since inception. Our net loss was$152.3 million and$136.1 for the three months endedMarch 31, 2022 and 2021, respectively. Net loss for the three months endedMarch 31, 2022 and 2021 included losses of$9.3 million and$20.6 million , respectively, resulting from changes in fair value of our investments in Arcturus Therapeutics Holdings Inc. (Arcturus) and Solid Biosciences Inc. (Solid) equity securities. Other than changes in the fair value of our investments, 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. For the three months endedMarch 31, 2022 our total revenues were$79.9 million , compared to$99.4 million for the same period in 2021. Revenue for the three months endedMarch 31, 2022 included$3.2 million from our collaboration and license agreement with Daiichi Sankyo Co., Ltd. (Daiichi Sankyo), as compared to$42.8 million for the same period in 2021. The decrease in collaboration revenue with Daiichi Sankyo was partially offset by higher revenue from Crysvita collaboration revenue in the profit-share territory, an increase in revenue for our approved products, and an increase in collaboration royalty revenue.
As of
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance withU.S. generally accepted accounting principles, or GAAP. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes in our critical accounting policies during the three months endedMarch 31, 2022 , as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report. 25 --------------------------------------------------------------------------------
Results of Operations
Comparison of the three months ended
Revenue (dollars in thousands)
Three Months Ended March 31, Dollar % 2022 2021 Change Change Collaboration and license revenue: Crysvita collaboration revenue in profit-share territory$ 45,164 $ 36,260 $ 8,904 25 % Daiichi Sankyo 3,249 42,750 (39,501 ) -92 % Total collaboration and license revenue 48,413 79,010 (30,597 ) -39 % Product sales: Crysvita 9,394 5,872 3,522 60 % Mepsevii 4,861 3,607 1,254 35 % Dojolvi 12,429 7,034 5,395 77 % Total product sales 26,684 16,513 10,171 62 % Crysvita non-cash collaboration royalty revenue 4,838 3,872 966 25 % Total revenues$ 79,935 $ 99,395 $ (19,460 ) -20 % For the three months endedMarch 31, 2022 , our share of Crysvita collaboration revenue in the profit-share territory increased by$8.9 million , as compared to the same period in 2021. The increase primarily reflects the continuing increase in demand for Crysvita due to an increase in the number of patients on therapy. InMarch 2020 , we executed a license agreement with Daiichi Sankyo. For the three months endedMarch 31, 2022 , the collaboration and license revenue from this arrangement decreased by$39.5 million , as compared to the same period in 2021. The decrease in the three months period endedMarch 31, 2022 was related to the relative progress toward complete satisfaction of the individual performance obligation using an input measure of the technology transfer period, which was completed as ofMarch 31, 2022 . The increase in product sales of$10.2 million for the three months endedMarch 31, 2022 , compared to the same period in 2021 was primarily due to continued momentum from the commercial launch of Dojolvi in theU.S. , continuing increase in demand for our other approved products, and an increase in sales of our products under our named patient program in certain countries. The increase in Crysvita non-cash collaboration royalty revenue of$1.0 million for the three months endedMarch 31, 2022 , compared to the same period in 2021 primarily reflects the launch progress by our collaboration partner in European countries and an increase in the number of patients on therapy.
Cost of Sales (dollars in thousands)
Three Months Ended March 31, Dollar % 2022 2021 Change Change
Cost of sales
Cost of sales increased by$0.9 million for the three months endedMarch 31, 2022 , compared to the same period in 2021. The increase was due to increased demand for our approved products, and amortization of the intangible asset related to our license from Regeneron for Evkeeza. This was offset by lower reserves for excess inventory write-downs with$0.1 million recorded for the three months endedMarch 31, 2022 , compared to$1.7 million recorded for the same period in 2021.
Research and Development Expenses (dollars in thousands)
Research and development expenses include internal and external costs incurred for research and development of our programs and program candidates and expenses related to certain technology that we acquire or license through business development transactions. These expenses consist primarily of clinical studies performed by contract research organizations, manufacturing of drug substance and drug product performed by contract manufacturing organizations, materials and supplies, fees from collaborative and other arrangements including milestones, licenses and other fees, personnel costs including salaries, benefits and stock-based compensation, and overhead allocations consisting of various support and infrastructure costs. 26 -------------------------------------------------------------------------------- Commercial programs include costs for disease monitoring programs and certain regulatory and medical affairs support activities for programs after commercial approval. Clinical programs include study conduct and manufacturing costs related to clinical program candidates. Translational research includes costs for preclinical study work and costs related to preclinical programs prior to IND filing. Upfront license and milestone fees include any significant expenses related to strategic licensing agreements. Infrastructure costs include direct costs related to laboratory, IT, and equipment depreciation costs, and overhead allocations for human resources, IT and other allocable costs.
The following table provides a breakout of our research and development expenses by major program type and business activities:
Three Months Ended March 31, Dollar % 2022 2021 Change Change Commercial programs$ 13,064 $ 13,661 $ (597 ) -4 % Clinical programs: Gene therapy programs 40,280 21,362 18,918 89 % Nucleic acid and other biologic programs 20,474 9,024 11,450 127 % Translational research 20,327 12,613 7,714 61 % Upfront license and milestone fees - 50,000 (50,000 ) -100 % Infrastructure 16,384 14,862 1,522 10 % Stock-based compensation 16,907 13,489 3,418 25 % Other research and development 15,719 12,507 3,212 26 %
Total research and development
(4,363 ) expenses -3 % Total research and development expenses decreased$4.4 million for the three months endedMarch 31, 2022 , compared to the same period in 2021. The change in research and development expenses was primarily due to:
•
for commercial programs, a decrease of
•
for gene therapy programs, an increase of$18.9 million for the three months endedMarch 31, 2022 , primarily related to increases in clinical manufacturing expenses for DTX401 and DTX301;
•
for nucleic acid and other biologic programs, an increase of$11.5 million for the three months endedMarch 31, 2022 , primarily related to the addition of expenses related to UX053, following its IND approval inMarch 2021 , and UX143 as we entered into a License and Collaboration Agreement withMereo BioPharma 3 Limited, or Mereo, to collaborate on the development of UX143 effectiveJanuary 2021 . The increase was partially offset by the classification of expenses for the TIO indication for Crysvita to commercial programs for the three months endedMarch 31, 2022 ;
•
for translational research, an increase of$7.7 million for the three months endedMarch 31, 2022 , primarily related to IND-enabling development costs for multiple research projects;
•
for upfront license and milestone fees, a decrease of$50.0 million for the three months endedMarch 31, 2022 due to no fees incurred for the three months endedMarch 31, 2022 , as compared to the$50.0 million upfront fee recognized for the Mereo license for the three months endedMarch 31, 2021 ;
•
for infrastructure, an increase of$1.5 million for the three months endedMarch 31, 2022 , primarily related to increased expenses for support of our clinical and research program pipeline, expansion of laboratory space, implementation of COVID-related policies and safety protocols, depreciation of laboratory-related leasehold improvements and equipment, and IT-related expenses;
•
for stock-based compensation, an increase of$3.4 million for the three months endedMarch 31, 2022 , primarily related to an increase in employee headcount; and
•
for other research and development expenses, an increase of$3.2 million for the three months endedMarch 31, 2022 , primarily related to increased staffing to support internal manufacturing, increased travel, and increased administrative and general support. We expect our annual research and development expenses to continue 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. 27 --------------------------------------------------------------------------------
Selling, General and Administrative Expenses (dollars in thousands)
Three Months Ended March 31, Dollar % 2022 2021
Change Change
Selling, general and administrative
26 % Selling, general and administrative expenses increased by$14.1 million for the three months endedMarch 31, 2022 , compared to the same period in 2021. The increases in selling, general and administrative expenses were primarily due to increases in personnel costs resulting from an increase in the number of employees in support of our commercial activities, commercialization costs, and professional services costs.
We expect selling, general and administrative expenses to continue to increase in the future to support our organizational growth related to our approved products and multiple clinical-stage product candidates.
Interest Income (dollars in thousands)
Three Months Ended March 31, Dollar % 2022 2021 Change Change Interest income $ 494 $ 639$ (145 ) -23 %
Interest income decreased by
Change in Fair Value of Equity Investments (dollars in thousands)
Three Months Ended March 31, Dollar % 2022 2021 Change Change Change in fair value of equity investments$ (9,329 ) $ (20,619 ) $ 11,290 -55 %
For the three months ended
For the three months endedMarch 31, 2021 , we recorded a net decrease in the fair value of our equity investments of$20.6 million . The fair value of our equity investments in Arcturus and Solid decreased by$4.6 million and$16.0 million , respectively, during the period. Given the historic volatility of the publicly traded stock price of Arcturus and Solid, the fair value adjustments of our equity investments may be subject to wide fluctuations which may have a significant impact on our earnings in future periods. Non-cash Interest Expense on Liability Related to the Sale of Future Royalties (dollars in thousands) Three Months Ended March 31, Dollar % 2022 2021 Change Change Non-cash interest expense on liability related to the sale of future royalties$ (6,584 ) $ (8,418 ) $ 1,834 -22 % The non-cash interest expense on liability related to the sale of future royalties decreased by$1.8 million for the three months endedMarch 31, 2022 , compared to the same periods in 2021 due to the capitalization of interest related to the construction-in-progress for the gene therapy manufacturing plant, slightly offset by the increase in the liability related to the sale of future royalties for net sales of Crysvita in the European territory. To the extent the royalty payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will prospectively adjust the effective interest rate.
Other Income (Expense) (dollars in thousands)
Three Months Ended March 31, Dollar % 2022 2021 Change Change Other income (expense)$ 289 $ (795 )$ 1,084 -136 % 28
--------------------------------------------------------------------------------
Other income increased by
Provision for Income Taxes (dollars in thousands)
Three Months Ended March 31, Dollar % 2022 2021 Change Change Provision for income taxes $ (558 ) $ (379 )$ (179 ) 47 %
The provision for incomes taxes increased by a nominal amount for the three
months ended
Liquidity and Capital Resources
To date, we have funded our operations primarily from the sale of our equity securities, revenues from our commercial products, the sale of certain future royalties, and strategic collaboration arrangements. As ofMarch 31, 2022 , we had$813.8 million in available cash, cash equivalents, and marketable debt securities. 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 marketable debt securities are held in a variety of deposit accounts, interest-bearing accounts, corporate bond securities, commercial paper,U.S government securities, asset-backed securities, debt securities in government-sponsored entities, 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. InMay 2021 , we entered into an Open Market Sale Agreement withJefferies LLC , (Jefferies), pursuant to which we may offer and sell shares of our common stock having an aggregate offering proceeds up to$350.0 million , from time to time, in at-the-market (ATM) offerings through Jefferies. As ofMarch 31, 2022 , net proceeds from shares sold under the arrangement were approximately$78.9 million . No shares were sold under this arrangement for the three months endedMarch 31, 2022 . The following table summarizes our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2022 2021 Cash used in operating activities$ (117,521 ) $ (159,346 ) Cash used in investing activities (37,362 ) (182,424 ) Cash provided by financing activities 1,612 12,649 Effect of exchange rate changes on cash (108 ) (771 )
Net decrease in cash, cash equivalents and restricted cash
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 three months endedMarch 31, 2022 was$117.5 million and primarily reflected a net loss of$152.3 million and$4.8 million for non-cash collaboration royalty revenues related to the sale of future royalties toRPI Finance Trust (RPI), an affiliate of Royalty Pharma, offset by non-cash charges of$29.4 million for stock-based compensation,$1.9 million for the amortization of the premium paid on purchased marketable debt securities,$4.1 million for depreciation and amortization,$9.3 million for a change in fair value of equity investments in Arcturus and Solid, and$6.6 million for non-cash interest incurred on the liability related to the sale of future royalties to RPI. Cash used in operating activities also reflected a$1.5 million decrease due to an increase in inventory for Mepsevii, a$16.2 million decrease due to a decrease in accounts payable, accrued liabilities, and other liabilities primarily due to the payout of the 2021 annual bonus, partially offset by an increase in accounts payable and general accrued liabilities related to timing differences, and a decrease of$3.2 million in contract liabilities, net, related to the revenue recognized from the license agreements with Daiichi Sankyo, offset by a$9.1 million increase due to a decrease in prepaid expenses and other assets primarily due to a decrease in receivables due from collaboration partners. Cash used in operating activities for the three months endedMarch 31, 2021 was$159.3 million and reflected a net loss of$136.1 million and$3.9 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI, offset by non-cash charges of$24.3 million for stock-based compensation,$0.9 million for the amortization of the premium paid on purchased marketable debt securities,$3.4 million for depreciation,$20.6 million for a change in fair value of equity investments 29 -------------------------------------------------------------------------------- from Arcturus and Solid, and$8.4 million for non-cash interest incurred on the liability related to the sale of future royalties to RPI. Cash used in operating activities also reflected a$2.0 million decrease due to an increase in accounts receivable primarily related to higher revenues, a$10.7 million decrease in prepaid expenses and other assets primarily due to an increase in prepaid manufacturing, insurance, and subscriptions, a$23.6 million decrease in accounts payable, accrued liabilities, and other liabilities primarily due to the payout of 2020 annual bonuses, and a decrease of$41.5 million in contract liabilities, net primarily related to the revenue recognized from the license agreements with Daiichi Sankyo, offset by a$0.5 million increase due to a decrease in inventory.
Cash Used in Investing Activities
Cash used in investing activities for the three months endedMarch 31, 2022 was$37.4 million and was primarily related to purchases of property, plant, and equipment of$32.2 million , purchases of marketable debt securities of$203.7 million , purchases of mutual funds related to our nonqualified deferred compensation plan of$2.5 million , and the payment to Regeneron for an intangible asset of$30.0 million , offset by proceeds from the sale of marketable debt securities of$39.4 million and maturities of marketable debt securities of$189.0 million . Cash used in investing activities for the three months endedMarch 31, 2021 was$182.4 million and related to purchases of property and equipment of$16.4 million and purchases of marketable debt securities of$405.2 million , offset by proceeds from the sale of marketable debt securities of$15.0 million and maturities of marketable debt securities of$224.2 million .
Cash Provided by Financing Activities
Cash provided by financing activities for the three months endedMarch 31, 2022 was$1.6 million and was primarily comprised of$1.8 million in net proceeds from the issuance of common stock pursuant to equity plan awards. Cash provided by financing activities for the three months endedMarch 31, 2021 was$12.6 million and was primarily comprised of$12.8 million in net proceeds from the issuance of common stock pursuant to equity plan awards.
Funding Requirements
We anticipate that, excluding non-recurring items, we will continue to generate annual losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our product candidates, and continue with commercialization of approved products. We will require additional capital to fund our operations, to complete our ongoing and planned clinical studies, to commercialize our products, to continue investing in early-stage research capabilities to promote our pipeline growth, to continue to acquire or invest in businesses or products that complement or expand our business, and to further develop our general infrastructure, including construction of our GMP gene therapy manufacturing facility, and such 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, products that we have begun to commercialize, and any products that we may develop in the future, including the construction of our own GMP gene therapy manufacturing plant;
•
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;
•
the magnitude and extent to which the COVID-19 pandemic impacts our business operations and operating results, as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors - Risks Related to Our Business Operations;" and
•
the terms and timing of any collaborative, licensing, marketing, distribution, acquisition (including whether and when we exercise our option to acquire GeneTx pursuant to the terms of our Unitholder Option Agreement with them) and other arrangements that we may establish, including any required upfront milestone, royalty, reimbursements or other payments thereunder. 30 -------------------------------------------------------------------------------- We expect to satisfy future cash needs through existing capital balances, revenue from our commercial products, 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
Material contractual obligations arising in the normal course of business primarily consist of operating and finance leases and manufacturing and service contract obligations.
Manufacturing and service contract obligations primarily relate to manufacturing of inventory for our approved products, the majority of which are due in the next 12 months. The terms of certain of our licenses, royalties, development and collaboration agreements, as well as other research and development activities, require us to pay potential future milestone payments based on product development success. The amount and timing of such obligations are unknown or uncertain. There have been no material changes in our contractual obligations and commitments during the three months endedMarch 31, 2022 , as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in our Annual Report.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet arrangements, as contemplated by
the rules and regulations of the
© Edgar Online, source