ULTRAGENYX PHARMACEUTICAL INC. 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.
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. InJuly 2022 , we sold 30% of our royalty interest in Crysvita in theU.S. andCanada to OMERS for$500.0 million , subject to a cap. Royalty payments to OMERS under the agreement will be based on net sales of the product beginning fromApril 2023 , upon transfer of commercial responsibilities in the applicable North American territories to KKC.
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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.
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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 20 --------------------------------------------------------------------------------
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.
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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):
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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 UX111, DTX401, DTX301, DTX201 and UX701:
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UX111 (formerly ABO-102) is an adeno-associated virus 9, or AAV9, gene therapy product candidate for the treatment of patients with Sanfilippo syndrome type A (MPS IIIA), a rare lysosomal storage disease with no approved treatment that primarily affects the central nervous system (CNS). There are approximately 3,000 to 5,000 patients in the developed world affected by Sanfilippo syndrome type A. The UX111 program has received Regenerative Medicine Advanced Therapy, Fast Track, Rare Pediatric Disease, and Orphan Drug designations in theU.S. , and PRIME and Orphan Medicinal Product designations in the EU. Patients have been dosed with UX111 and are currently being followed in the ongoing, pivotal Transpher A Study.
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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 currently being enrolled and dosed in the Phase 3 study of DTX401.
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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 the second half of 2022, after which they would receive a single dose of DTX301 or placebo.
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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.
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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. and EU. Patients with Wilson disease are currently being enrolled and dosed in the first stage of the Cyprus2+study of UX701. 21 --------------------------------------------------------------------------------
Our clinical-stage nucleic acid pipeline includes GTX-102 for the treatment of Angelman syndrome, and UX053 for the treatment of GSDIII:
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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 an ongoing Phase 1/2 clinical study in theU.S. ,Canada , and theU.K.
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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. and EU. The single-dose portion of a Phase 1/2 study of UX053 is currently ongoing.
The following table summarizes our approved products and clinical product candidate pipeline:
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--------------------------------------------------------------------------------Clinical Product Candidates
GTX-102 for the treatment of Angelman Syndrome
InJuly 2022 , we exercised our option to acquire GeneTx and closed on the acquisition for a purchase price of$75.0 million plus future milestone and royalty payments. Additional milestones include$30.0 million upon achievement of the earlier of a Phase 3 clinical study start or product approvals inCanada and theU.K. We also owe tiered royalty payments ranging from a mid-single to low double-digit percentage based on worldwide annual net sales. InJuly 2022 , we provided an interim data update on patients treated inCanada and theU.K. and theU.S. under each region's amended protocol for the phase 1/2 study of GTX-102. Under these amended protocols, 14 patients have begun treatment with GTX-102, ten under theU.K. andCanada protocol, and four under theU.S. protocol. Of these, seven patients have received cumulative doses over 20 mg, and 13 patients have over 147 days of exposure to treatment. There have been no treatment-related serious adverse events of any type nor adverse events related to lower extremity weakness observed in these patients. Cerebrospinal fluid (CSF) protein levels have remained stable throughout the course of the study consistent with absence of inflammation. As of the data cut-off inJune 2022 , a total of 11 patients had reached at least the Day 128 evaluation, with three patients reaching the Day 170 Pre-Maintenance Dose (PMD) evaluation. We evaluated patients across various clinical measurements, including AS Change Scale, AS Severity Scale, the Bayley Scales of Infant andToddler Development (Bayley-4), the Vineland-3 adaptive behavior scale, and the Observed Reported Communication Ability (ORCA). Early and some statistically, significant quantitative measures suggest a dose dependent effect that will require continued follow-up of these patients in the maintenance phase. In theU.K. andCanada , we submitted a protocol amendment that was approved inMay 2022 to add additional dose-selection cohorts that will sequentially enroll new patients at incrementally higher starting doses based on age. A younger Cohort 6 will begin dosing at 7.5 mg and an older Cohort 7 at 10 mg. Once clinically sufficient efficacy is observed, two expansion cohorts will enroll 20 patients in each age range using the starting dose determined from the dose-selection cohorts. The first patient under this amendment has been dosed and enrollment for both Cohorts 6 and 7 is ongoing. Re-dosing of patients from the first threeU.S. cohorts (Original 5) was approved in the Canadian protocol. As of the date of this filing, one of the Original 5 patients has been dosed under this protocol, with no reported safety issues.
We currently expect the next program update will be once we have determined an optimal dose and gathered substantial data from the expansion cohorts.
UX111 for the treatment of Sanfilippo syndrome type A or MPS IIIA
InMay 2022 , we announced an exclusive license agreement with Abeona Therapeutics for UX111 (formerly ABO-102). Under the terms of the agreement, we assumed responsibility for the UX111 program and in return Abeona is eligible to receive tiered royalties of up to 10% on net sales and certain commercial milestone payments following regulatory approval. Abeona previously announced the completion of a successful Type B meeting with theU.S. FDA regarding the pivotal Transpher A trial to support filing and approval for UX111. Interim results from the Transpher A trial presented in an encore presentation at the 2022American Society of Gene & Cell Therapy (ASGCT) conference demonstrated that neurocognitive development was preserved in children treated younger than 2 years or in children older than 2 years with a development quotient (DQ) > 60 (n=10) within normal range of a non-afflicted child after treatment with ABO-102 (3.0 x 10^13 vg/kg). The interim results also showed continued or stabilized cognitive function along with behavioral and developmental progress using standard assessments. Additionally, stabilization or increase in volumes of cortical gray matter, total cerebral, and amygdala was observed. Statistically significant reduction in liver volume was seen with UX111 treatment. Dose-dependent and statistically significant reductions in cerebrospinal fluid and plasma heparan sulfate, demonstrating replacement of enzyme activity consistent with levels required for disease correction in the central nervous system, have been sustained in treated patients for two years after treatment. As of the presentation, there have been no treatment-related serious adverse events and no clinically meaningful adverse events.
DTX401 for the treatment of glycogen storage disease type Ia, or GSDIa
InMay 2022 , additional longer-term safety and durability data from the ongoing Phase 1/2 study presented at the 2022 ASGCT conference showed sustained responses lasting more than 3.5 years following treatment with DTX401. All 12 patients in the study have demonstrated reductions in oral glucose replacement therapy, with a mean total daily reduction of 70% (p-value<0.0001) from baseline to the last available timepoint. Data also showed additional improvements of greater time spent in euglycemia and reduced average daily cornstarch intake, as measured by continuous glucose monitoring were also presented. As ofMay 2022 , across the Phase 1/2 study, there have been no infusion-related adverse events and no treatment-related serious adverse events (SAEs) reported. 23 -------------------------------------------------------------------------------- We are currently enrolling and dosing patients in the Phase 3 GlucoGene 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
InMay 2022 , additional longer-term safety and durability data from the ongoing Phase 1/2 study presented at the 2022 ASGCT conference showed sustained responses lasting more than 4 years following treatment with DTX301. Seven of 11 patients, including four out of the five patients treated at the Phase 3 dose (1.7 x 10^13 GC/kg), have responded, and remain clinically and metabolically stable. Four complete responders have discontinued ammonia-scavenger medications and liberalized their diet within one year. As ofMay 2022 , across all cohorts of the Phase 1/2 study, no treatment-related serious adverse events, infusion-associated reactions or dose-limiting toxicities have been reported. We are currently in the process of initiating the Phase 3 Enh3ance 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 the second half of 2022, after which they are expected to receive a single dose of DTX301 or placebo.
UX701 for the treatment of Wilson Disease
We are currently enrolling and dosing patients with Wilson disease in the first stage of the Cyprus2+ study of UX701.
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. 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.
UX143 (setrusumab) for the treatment of Osteogenesis Imperfecta (OI), in
collaboration with
We are currently 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 follow adult patients who were previously treated in the Phase 2b ASTEROID study that was conducted by Mereo.
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.
Other Developments
Partial sale of North America Crysvita royalty
InJuly 2022 , we announced that we sold 30% of our royalty interest in Crysvita in theU.S. andCanada beginning fromApril 2023 to OMERS for$500.0 million , subject to a cap of$725.0 million .
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.
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We have incurred net losses in each year since inception. Our net loss was
$158.2 million and $310.5 million for the three and six months ended June 30,
2022 , respectively, and $122.4 million and $258.6 million for the three and six
months ended June 30, 2021 , respectively. Net loss for the three and six months
ended June 30, 2022 included losses of $10.2 million and $19.5 million ,
respectively, resulting from changes in fair value of our investments in
Arcturus Therapeutics Holdings Inc. (Arcturus) and Solid Biosciences Inc.
(Solid) equity securities. Net losses for the three and six months ended June
30, 2021 , included losses of $31.0 million and $51.7 million , respectively,
resulting from changes in the fair value of our investments in Arcturus and
Solid. 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 and six months ended June 30, 2022 our total revenues were $89.3
million and $169.3 million , respectively, compared to $87.0 million and $186.4
million for the three and six months ended June 30, 2021 , respectively. Revenue
for the three and six months ended June 30, 2022 included $1.5 million and $4.7
million , respectively, from our collaboration and license agreement with Daiichi
Sankyo Co., Ltd. (Daiichi Sankyo), as compared to $22.0 million and $64.7
million for the three and six months ended June 30, 2021 , respectively. 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 six months endedJune 30, 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.
Results of Operations
Comparison of the three and six months ended
Revenue (dollars in thousands)
Three Months Ended June 30, Dollar %
2022 2021 Change Change
Collaboration and license revenue:
Crysvita collaboration revenue in
profit-share
territory $ 51,609 $ 41,756 $ 9,853 24 %
Crysvita royalty revenue in -
European territory 228 (228 ) -100 %
Daiichi Sankyo 1,479 21,956 (20,477 ) -93 %
Total collaboration and license
revenue 53,088 63,940 (10,852 ) -17 %
Product sales:
Crysvita 12,402 2,900 9,502 328 %
Mepsevii 4,933 5,399 (466 ) -9 %
Dojolvi 13,497 10,047 3,450 34 %
Total product sales 30,832 18,346 12,486 68 %
Crysvita non-cash collaboration
royalty revenue 5,423 4,689 734 16 %
Total revenues $ 89,343 $ 86,975 $ 2,368 3 %
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Six Months Ended June 30, Dollar %
2022 2021 Change Change
Collaboration and license revenue:
Crysvita collaboration revenue in
profit-share
territory $ 96,773 $ 78,016 $ 18,757 24 %
Crysvita royalty revenue in -
European territory 228 (228 ) -100 %
Daiichi Sankyo 4,728 64,706 (59,978 ) -93 %
Total collaboration and license
revenue 101,501 142,950 (41,449 ) -29 %
Product sales:
Crysvita 21,796 8,772 13,024 148 %
Mepsevii 9,794 9,006 788 9 %
Dojolvi 25,926 17,081 8,845 52 %
Total product sales 57,516 34,859 22,657 65 %
Crysvita non-cash collaboration 10,261 8,561
royalty revenue 1,700 20 %
Total revenues $ 169,278 $ 186,370 $ (17,092 ) -9 %
For the three and six months ended June 30, 2022 , our share of Crysvita
collaboration revenue in the profit-share territory increased by $9.9 million
and $18.8 million , respectively, as compared to the same periods in 2021. The
increase primarily reflects the continuing increase in demand for Crysvita due
to an increase in the number of patients on therapy.
In March 2020 , we executed a license agreement with Daiichi Sankyo. For the
three and six months ended June 30, 2022 , the collaboration and license revenue
from this arrangement decreased by $20.5 million and $60.0 million ,
respectively, as compared to the same periods in 2021. The decrease in the three
and six months periods ended June 30, 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 of March
31, 2022 .
The increase in product sales of $12.5 million and $22.7 million for the three
and six months ended June 30, 2022 , respectively, compared to the same periods
in 2021 was primarily due to continued momentum from the commercial launch of
Dojolvi in the U.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 $0.7 million
and $1.7 million for the three and six months ended June 30, 2022 , respectively,
compared to the same periods 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 June 30, Dollar %
2022 2021 Change Change
Cost of sales $ 8,270 $ 3,136 $ 5,134 164 %
Six Months Ended June 30, Dollar %
2022 2021 Change Change
Cost of sales $ 14,370 $ 8,324 $ 6,046 73 %
Cost of sales increased by $5.1 million and $6.0 million for the three and six
months ended June 30, 2022 , respectively, compared to the same periods 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 also impacted by excess inventory write-downs of $1.2 million
and $1.3 million recorded for the three and six months ended June 30, 2022 ,
respectively, compared to nil and $1.7 million recorded for the three and six
months ended June 30, 2021 , respectively.
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.
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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 June 30, Dollar %
2022 2021 Change Change
Commercial programs $ 16,279 $ 12,641 $ 3,638 29 %
Clinical programs:
Gene therapy programs 35,743 29,735 6,008 20 %
Nucleic acid and other biologic 21,852 10,571 11,281 107 %
programs
Translational research 21,315 16,647 4,668 28 %
Infrastructure 17,683 14,374 3,309 23 %
Stock-based compensation 20,430 15,094 5,336 35 %
Other research and development 21,227 14,143 7,084 50 %
Total research and development expenses
$ 41,324 37 % Six Months Ended June 30, Dollar % 2022 2021 Change Change Commercial programs$ 29,343 $ 26,302 $ 3,041 12 % Clinical programs: Gene therapy programs 76,023 51,097 24,926 49 % Nucleic acid and other biologic 42,326 19,595 22,731 116 %
programs
Translational research 41,642 29,260 12,382 42 % Upfront license and milestone fees - 50,000 (50,000 ) -100 % Infrastructure 34,067 29,236 4,831 17 % Stock-based compensation 37,337 28,583 8,754 31 % Other research and development 36,946 26,650 10,296 39 %
Total research and development expenses
14 %
Total research and development expenses increased $41.3 million and $37.0
million for the three and six months ended June 30, 2022 , respectively, compared
to the same periods in 2021. The change in research and development expenses was
primarily due to:
•
for commercial programs, an increase of$3.6 million and$3.0 million for the three and six months endedJune 30, 2022 , respectively, primarily related to collaborative cost sharing with Regeneron for Evkeeza and increased R&D personnel allocations to commercial programs;
•
for gene therapy programs, an increase of$6.0 million and$24.9 million for the three and six months endedJune 30, 2022 , respectively, primarily related to increases in clinical manufacturing expenses for DTX401 and DTX301 and the in-licensing of the UX111 program from Abeona Therapeutics;
•
for nucleic acid and other biologic programs, an increase of$11.3 million and$22.7 million for the three and six months endedJune 30, 2022 , respectively, primarily related to the addition of clinical trial and manufacturing expenses related to UX053, following its IND approval inMarch 2021 ; increased clinical trial and manufacturing expenses related to the continued progress of the UX143 program in collaboration with Mereo; and expenses related to the continued progress of the GTX-102 program through GeneTx;
•
for translational research, an increase of$4.7 million and$12.4 million for the three and six months endedJune 30, 2022 , respectively, 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 six months endedJune 30, 2022 due to no fees incurred for the six months endedJune 30, 2022 , as compared to the$50.0 million upfront fee recognized for the Mereo license for the six months endedJune 30, 2021 ; 27 --------------------------------------------------------------------------------
•
for infrastructure, an increase of$3.3 million and$4.8 million for the three and six months endedJune 30, 2022 , respectively, 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$5.3 million and$8.8 million for the three and six months endedJune 30, 2022 , respectively, primarily related to an increase in employee headcount; and
•
for other research and development expenses, an increase of$7.1 million and$10.3 million for the three and six months endedJune 30, 2022 , respectively, 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.
Selling, General and Administrative Expenses (dollars in thousands)
Three Months Ended June 30, Dollar %
2022 2021 Change Change
Selling, general and administrative $ 68,137 $ 53,410 $ 14,727 28 %
Six Months Ended June 30, Dollar %
2022 2021
Change Change
Selling, general and administrative
Selling, general and administrative expenses increased by
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 June 30, Dollar %
2022 2021 Change Change
Interest income $ 899 $ 441 $ 458 104 %
Six Months Ended June 30, Dollar %
2022 2021 Change Change
Interest income $ 1,393 $ 1,080 $ 313 29 %
Interest income increased by $0.5 million and $0.3 million , for the three and
six months ended June 30, 2022 , respectively, compared to the same periods in
2021, primarily due to fluctuations in interest rates.
Change in Fair Value of Equity Investments (dollars in thousands)
Three Months Ended June 30, Dollar %
2022 2021 Change Change
Change in fair value of equity
investments $ (10,184 ) $ (31,046 ) $ 20,862 -67 %
Six Months Ended June 30, Dollar %
2022 2021 Change Change
Change in fair value of equity
investments $ (19,513 ) $ (51,665 ) $ 32,152 -62 %
For the three and six months ended June 30, 2022 , we recorded a net decrease in
the fair value of our equity investments of $10.2 million and $19.5 million ,
respectively, due to unrealized losses on our investments in Arcturus common
stock of $5.6 million
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and $10.6 million during the three and six months ended June 30, 2022 ,
respectively, and unrealized losses on our investments in Solid common stock of
$4.6 million and $8.9 million during the three and six months ended June 30,
2022 , respectively.
For the three and six months ended June 30, 2021 , we recorded a net decrease in
the fair value of our equity investments of $31.0 million and $51.7 million ,
respectively, due to unrealized losses on our investments in Arcturus common
stock of $16.4 million and $21.0 million during the three and six months ended
June 30, 2021 , respectively, and unrealized losses on our investments in Solid
common stock of $14.6 million and $30.7 million during the three and six months
ended June 30, 2021 , respectively.
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 June 30, Dollar %
2022 2021 Change Change
Non-cash interest expense on
liability related to the
sale of future royalties $ (6,052 ) $ (8,517 ) $ 2,465 -29 %
Six Months Ended June 30, Dollar %
2022 2021 Change Change
Non-cash interest expense on
liability related to the
sale of future royalties $ (12,636 ) $ (16,935 ) $ 4,299 -25 %
The non-cash interest expense on liability related to the sale of future
royalties decreased by $2.5 million and $4.3 million for the three and six
months ended June 30, 2022 , respectively, 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 Expense (dollars in thousands)
Three Months Ended June 30, Dollar %
2022 2021 Change Change
Other expense $ (930 ) $ (67 ) $ (863 ) *
* not meaningful
Six Months Ended June 30, Dollar %
2022 2021 Change Change
Other expense
Other expense increased by
Provision for Income Taxes (dollars in thousands)
Three Months Ended June 30, Dollar %
2022 2021 Change Change
Provision for income taxes $ (302 ) $ (463 ) $ 161 -35 %
Six Months Ended June 30, Dollar %
2022 2021 Change Change
Provision for income taxes $ (860 ) $ (842 ) $ (18 ) 2 %
The provision for incomes taxes decreased and increased by a nominal amount for
the three and six months ended June 30, 2022 , respectively, compared to the same
periods in 2021.
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.
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As of June 30, 2022 , we had $706.1 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.
In July 2022 , we sold 30% of our royalty interest in Crysvita in the U.S. and
Canada to OMERS for $500.0 million , subject to a cap, beginning in April 2023
upon the transfer of commercial responsibilities in the applicable North
American territories to KKC.
In May 2021 , we entered into an Open Market Sale Agreement with Jefferies 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 of June 30, 2022 , net
proceeds from shares sold under the arrangement were approximately $78.9
million . No shares were sold under this arrangement for the three and six months
ended June 30, 2022 .
The following table summarizes our cash flows for the periods indicated (in
thousands):
Six Months Ended June 30,
2022 2021
Cash used in operating activities $ (194,778 ) $ (224,702 )
Cash provided by (used in) investing activities 41,806 (223,670 )
Cash provided by financing activities 7,449 25,277
Effect of exchange rate changes on cash (1,346 ) (323 ) Net decrease in cash, cash equivalents and restricted cash$ (146,869 )
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 six months endedJune 30, 2022 was$194.8 million and primarily reflected a net loss of$310.5 million and$10.3 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$65.3 million for stock-based compensation,$3.4 million for the amortization of the premium paid on purchased marketable debt securities,$8.6 million for depreciation and amortization,$19.5 million for a change in fair value of equity investments in Arcturus and Solid, and$12.6 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$8.9 million decrease due to an increase in accounts receivable primarily related to order timing, a$4.7 million decrease due to an increase in inventory primarily for Dojolvi and Mepsevii, a$6.8 million decrease due to an increase in prepaid expenses and other assets primarily due to an increase in prepaid manufacturing, partially offset by a decrease in receivables due from collaboration partners, and a decrease of$4.6 million in contract liabilities, net, related to the revenue recognized from the license agreements with Daiichi Sankyo, offset by a$41.3 million increase in accounts payable, accrued, and other liabilities primarily due to an increase in manufacturing and 2022 annual bonus accruals and an increase in accounts payable due to timing of payments, partially offset by the payout of the 2021 annual bonuses. Cash used in operating activities for the six months endedJune 30, 2021 was$224.7 million and reflected a net loss of$258.6 million and$8.6 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI, offset by non-cash charges of$51.3 million for stock-based compensation,$2.5 million for the amortization of the premium paid on purchased marketable debt securities,$6.5 million for depreciation and amortization,$51.7 million for a change in fair value of equity investments from Arcturus and Solid, and$16.9 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$1.7 million decrease due to an increase in accounts receivable primarily related to higher revenues, a$2.2 million decrease due to an increase in inventory, a$9.0 million decrease due to an increase in prepaid expenses and other current assets primarily due to an increase in prepaid subscriptions, prepaid clinical studies, and prepaid fixed assets, a$11.5 million decrease in accounts payable, accrued liabilities, and other liabilities primarily due to the payout of 2020 annual bonuses, and a decrease of$62.7 million in contract liabilities, related to the revenue recognized from the license agreements with Daiichi Sankyo.
Cash Provided by (Used in) Investing Activities
Cash provided by investing activities for the six months endedJune 30, 2022 was$41.8 million and was primarily related to proceeds from the sale of marketable debt securities of$43.0 million and maturities of marketable debt securities of$297.3 million , 30 --------------------------------------------------------------------------------
offset by purchases of property, plant, and equipment of
Cash used in investing activities for the six months endedJune 30, 2021 was$223.7 million and related to purchases of property, plant, and equipment of$36.5 million and purchases of marketable debt securities of$664.3 million , offset by proceeds from the sale of marketable debt securities of$70.5 million and maturities of marketable debt securities of$406.6 million .
Cash Provided by Financing Activities
Cash provided by financing activities for the six months endedJune 30, 2022 was$7.4 million and was primarily comprised of$7.7 million in net proceeds from the issuance of common stock pursuant to equity plan awards. Cash provided by financing activities for the six months endedJune 30, 2021 was$25.3 million and was primarily comprised of$25.5 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 "Risk Factors - Risks Related to Our Business Operations;" and
•
the terms and timing of any collaborative, licensing, marketing, distribution, acquisition, and other arrangements that we may establish, including any required upfront milestone, royalty, reimbursements or other payments thereunder.
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--------------------------------------------------------------------------------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, royalty sales, 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. As ofJune 30, 2022 , we had obligations of approximately$35.6 million , of which$34.9 million are due within one year. 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.
See Note 12 for information regarding our acquisition of GeneTx in
Other than the update in manufacturing and service contract obligations and our acquisition of GeneTx noted above, there have been no material changes in our contractual obligations and commitments 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
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