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 biologics 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 ,Mexico ,Chile ,Peru , andArgentina , 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 ,Canada , andPeru 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.
•
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 ,Mexico , andJapan , 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 21 --------------------------------------------------------------------------------
diet and other therapies to lower low-density lipoprotein cholesterol (LDL-C) to treat adults and adolescents aged 12 years and older with HoFH. There are approximately 3,000 to 5,000 HoFH patients in countries outside the
•
UX143 (setrusumab) 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). Setrusumab is subject to our collaboration agreement withMereo Biopharma 3 (Mereo), and the lead clinical asset in our bone endocrinology franchise. There are an estimated 60,000 patients in the developed world affected by 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 product line includes UX111, DTX401, DTX301 and UX701:
•
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 (RMAT), Fast Track, Rare Pediatric Disease, and Orphan Drug designations in theU.S. , and PRIME and Orphan Medicinal Product designations in the EU.
•
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. The DTX401 program has received RMAT, Fast Track, and Orphan Drug designations in theU.S. , and PRIME and Orphan Medicinal Product designations in the EU.
•
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.
•
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 has received Orphan Drug Designation in theU.S. and in the EU.
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 has received Fast Track designation, Orphan Drug Designation and Rare Pediatric Disease Designation from the FDA.
•
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 has received Orphan Drug Designation in theU.S. and in the EU. 22 --------------------------------------------------------------------------------
The following table summarizes our approved products and our pipeline of clinical product candidates:
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Recent Developments: Clinical Product Candidates
GTX-102 for the treatment of Angelman Syndrome
InJuly 2022 , we exercised our option to acquireGeneTx Biotherapeutics LLC (GeneTx) and closed on the acquisition for an option exercise price of$75.0 million plus net working capital adjustments and transaction expenses of$0.6 million and future milestone and royalty payments as further described above in Note 6. InJuly 2022 , we also provided an interim data update on patients treated inCanada , theU.K. , and theU.S. under each region's amended protocol for the phase 1/2 study of GTX-102. As of the data cut-off for this update, 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 23 --------------------------------------------------------------------------------
and some statistically significant changes in quantitative measures appear to show a dose-dependent effect that will require continued follow-up of these patients in the maintenance phase.
As of the date of this filing, 13 patients have received cumulative doses of 20 mg or higher, and 14 patients have over 132 days of exposure to treatment, which was the minimum cumulative dose and maximum exposure after the first dose that led to the lower extremity weakness seen in the five patients treated in theU.S. under the original study protocol in 2020. As of the date of this filing, there have been no treatment-related serious adverse events of any type or adverse events related to lower extremity weakness observed to date in these patients. No clinically-significant elevations of cerebrospinal fluid protein level have been observed as of the date of this filing. Two of the five patients treated in theU.S. under the original protocol in 2020 have now restarted treatment inCanada and have received two or more doses with no treatment-related serious adverse events of any type or adverse events related to lower extremity weakness observed in these patients to date. Dosing in theU.K. andCanada is ongoing under a protocol amendment approved inMay 2022 to add dose-selection cohorts at incrementally higher starting doses based on age, followed by two, larger expansion cohorts (n = 20) in each age range. Discussions with the FDA to harmonize the three regions are currently ongoing.
We currently expect to begin enrollment of the expansion cohorts in the first half of 2023. We also hope to provide the next data update when we have substantive data on a larger number of patients in the program.
DTX401 for the treatment of glycogen storage disease type Ia or GSDIa
In
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. The last patient is expected to be enrolled in the baseline screening phase of the Phase 3 study of DTX401 around the end of the year.
DTX301 for the treatment of ornithine transcarbamylase deficiency or OTC
We continue to be 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 around the end of 2022, after which they are expected to receive a single dose of DTX301 or placebo.
UX701 for the treatment of Wilson’s disease
We are currently enrolling and dosing patients with Wilson’s 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. A protocol amendment for stage 1 has been approved that removes the use of placebo from this stage of the study. 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, we expect that all patients will receive long term follow up in stage 3.
Enrollment in Stage 1 is expected to be completed in mid-2023 with data on safety and early signs of clinical activity expected in late 2023 or early 2024.
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 an
effective dose based on increases in collagen production using serum P1NP levels
and an acceptable safety profile. A protocol amendment for the Phase 2 study
will remove the placebo arm and continue evaluating the same two dose levels of
setrusumab as in the original protocol. We currently expect to complete
enrollment in this portion of the study in early 2023. Data from the Phase 2
study and determination of the Phase 3 dose is currently expected mid-2023.
Following determination of the dose,
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we 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. Separately, we currently plan to initiate a Phase 2 study of
patients under age five with OI in the first half of 2023.
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 and we currently expect preliminary data from Part 1 of the study in the first half of 2023. Other Developments
Partial North American Royalty Sale Crysvita
InJuly 2022 , we sold 30% of our royalty interest in Crysvita in theU.S. andCanada beginning inApril 2023 to Ontario Municipal Employees Retirement System (OMERS) for$500.0 million , subject to a cap of$725.0 million .
Modification of the Collaboration Agreement with KKC
InSeptember 2022 , we entered into an amendment to the collaboration agreement which clarified the scope of increased participation by KKC in support of our commercial activities prior toApril 2023 and granted us the right to continue to support KKC in commercial field activities in theU.S. throughApril 2024 , subject to the limitations and conditions set forth in the amendment. As a result, KKC will continue to support our commercial field and marketing efforts through a cost share arrangement throughApril 2024 , subject to the limits and conditions set forth in the amendment. AfterApril 2024 , our rights to promote Crysvita in theU.S. will be limited to medical geneticists and we will solely bear the cost of our own expenses related to the promotion of Crysvita in the profit-share territory. 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$245.1 million and$555.6 million for the three and nine months endedSeptember 30, 2022 , respectively, and$73.0 million and$331.6 million for the three and nine months endedSeptember 30, 2021 , respectively. Net loss for the three and nine months endedSeptember 30, 2022 included losses of$1.6 million and$21.1 million , respectively, resulting from changes in fair value of our investments in Arcturus Therapeutics Holdings Inc. (Arcturus) and Solid Biosciences Inc. (Solid) equity securities. In the three and nine months endedSeptember 30, 2021 , we had included a gain of$25.7 million and a loss of$26.0 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 nine months endedSeptember 30, 2022 our total revenues were$90.7 million and$260.0 million , respectively, compared to$81.6 million and$268.0 million for the three and nine months endedSeptember 30, 2021 , respectively. Revenues for the three and nine months endedSeptember 30, 2022 included$1.5 million and$6.2 million , respectively, from our collaboration and license agreement with Daiichi Sankyo Co., Ltd. (Daiichi Sankyo), as compared to$12.1 million and$76.8 million for the three and nine months endedSeptember 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.
From
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 25 -------------------------------------------------------------------------------- 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 nine months endedSeptember 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 nine months ended
Income (dollars in thousands)
Three Months Ended September 30, Dollar %
2022 2021 Change Change
Collaboration and license
revenue:
Crysvita collaboration revenue
in profit-share
territory $ 51,348 $ 42,971 $ 8,377 19 %
Crysvita royalty revenue in -
European territory 16 (16 ) -100 %
Daiichi Sankyo 1,479 12,061 (10,582 ) -88 %
Total collaboration and
license revenue 52,827 55,048 (2,221 ) -4 %
Product sales:
Crysvita 13,184 7,378 5,806 79 %
Mepsevii 6,045 3,918 2,127 54 %
Dojolvi 13,274 10,654 2,620 25 %
Total product sales 32,503 21,950 10,553 48 %
Crysvita non-cash
collaboration royalty revenue 5,373 4,649 724 16 %
Total revenues $ 90,703 $ 81,647 $ 9,056 11 %
Nine Months Ended September 30, Dollar %
2022 2021 Change Change
Collaboration and license
revenue:
Crysvita collaboration revenue
in profit-share
territory $ 148,121 $ 120,987 $ 27,134 22 %
Crysvita royalty revenue in -
European territory 244 (244 ) -100 %
Daiichi Sankyo 6,207 76,767 (70,560 ) -92 %
Total collaboration and
license revenue 154,328 197,998 (43,670 ) -22 %
Product sales:
Crysvita 34,980 16,150 18,830 117 %
Mepsevii 15,839 12,924 2,915 23 %
Dojolvi 39,200 27,735 11,465 41 %
Total product sales 90,019 56,809 33,210 58 %
Crysvita non-cash 15,634 13,210
collaboration royalty revenue 2,424 18 %
Total revenues $ 259,981 $ 268,017 $ (8,036 ) -3 %
For the three and nine months ended September 30, 2022 , our share of Crysvita
collaboration revenue in the profit-share territory increased by $8.4 million
and $27.1 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 nine months ended September 30, 2022 , the collaboration and license
revenue from this arrangement decreased by $10.6 million and $70.6 million ,
respectively, as compared to the same periods in 2021. The decrease was due to
completion of the technology transfer as of March 31, 2022 .
The increase in product sales of $10.6 million and $33.2 million for the three
and nine months ended September 30, 2022 , respectively, compared to the same
periods in 2021 was primarily due to an increase in demand for Crysvita in Latin
America due to an increase in the number of patients on therapy, continued
momentum from the commercial launch of Dojolvi in the U.S. , continued increase
in demand for our other approved products, and an increase in sales of our
products under our named patient program in certain countries.
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The increase in Crysvita non-cash collaboration royalty revenue of $0.7 million
and $2.4 million for the three and nine months ended September 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 September 30, Dollar %
2022 2021 Change Change
Cost of sales $ 8,631 $ 4,175 $ 4,456 107 %
Nine Months Ended September 30, Dollar %
2022 2021 Change Change
Cost of sales $ 23,001 $ 12,499 $ 10,502 84 %
Cost of sales increased by $4.5 million and $10.5 million for the three and nine
months ended September 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 for Evkeeza from our license agreement with
Regeneron. The increase in cost of sales was also impacted by excess inventory
write-downs of $0.3 million and $1.6 million recorded for the three and nine
months ended September 30, 2022 , compared to nil and $1.7 million recorded for
the three and nine months ended September 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. 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, acquisition, and milestone fees include any significant expenses related to strategic licensing agreements and acquisitions. 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 breakdown of our research and development expenses by major program type and business activities:
Three Months Ended September 30, Dollar %
2022 2021 Change Change
Commercial programs $ 24,923 $ 12,696 $ 12,227 96 %
Clinical Programs:
Gene therapy programs 34,498 28,039 6,459 23 %
Nucleic acid and other
biologic 26,325 13,137 13,188 100 %
programs
Translational research 22,486 16,101 6,385 40 %
Upfront license, acquisition, 100 %
and milestone fees 75,234 - 75,234
Infrastructure 17,672 14,748 2,924 20 %
Stock-based compensation 20,251 15,366 4,885 32 %
Other research and development 15,908 13,330 2,578 19 %
Total research and development $ 237,297 $ 113,417 $ 123,880
expenses 109 %
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Nine Months Ended September 30, Dollar %
2022 2021 Change Change
Commercial programs $ 54,266 $ 38,998 $ 15,268 39 %
Clinical Programs:
Gene therapy programs 110,521 79,136 31,385 40 %
Nucleic acid and other
biologic 68,651 32,732 35,919 110 %
programs
Translational research 64,128 45,361 18,767 41 %
Upfront license, acquisition,
and milestone fees 75,234 50,000 25,234 50 %
Infrastructure 51,739 43,984 7,755 18 %
Stock-based compensation 57,588 43,949 13,639 31 %
Other research and development 52,854 39,980 12,874 32 %
Total research and development $ 534,981 $ 374,140 $ 160,841
expenses 43 %
Total research and development expenses increased $123.9 million and $160.8
million for the three and nine months ended September 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$12.2 million and$15.3 million for the three and nine months endedSeptember 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$6.5 million and$31.4 million for the three and nine months endedSeptember 30, 2022 , respectively, primarily related to increases in clinical manufacturing and clinical trial expenses for the DTX401 and DTX301 Phase 3 programs and the in-licensing of the UX111 program from Abeona Therapeutics;
•
for nucleic acid and other biologic programs, an increase of$13.2 million and$35.9 million for the three and nine months endedSeptember 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 clinical and other development expenses related to the continued progress of the GTX-102 program;
•
for translational research, an increase in
•
for upfront license, acquisition, and milestone fees, an increase of$75.2 million and$25.2 million for the three and nine months endedSeptember 30, 2022 , respectively, due to$75.2 million recognized from the GeneTx acquisition during the three and nine months endedSeptember 30, 2022 , as compared to nil and$50.0 million recognized from the upfront fee for the Mereo license for the three and nine months endedSeptember 30, 2021 ;
•
for infrastructure, an increase of$2.9 million and$7.8 million for the three and nine months endedSeptember 30, 2022 , respectively, primarily related to increased expenses for support of our clinical and research program pipeline, expansion of laboratory space, depreciation of laboratory-related leasehold improvements and equipment, and IT-related expenses;
•
for stock-based compensation, an increase in
•
for other research and development expenses, an increase of
We expect our annual research and development expenses to moderate 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.
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Selling, general and administrative expenses (dollars in thousands)
Three Months Ended September 30, Dollar %
2022 2021 Change Change
General and administrative salesman
$ 15,958 30 % Nine Months Ended September 30, Dollar % 2022 2021 Change Change
General and administrative salesman
$ 44,739 28 % Selling, general and administrative expenses increased by$16.0 million and$44.7 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods 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 SG&A to moderate in the future to support our approved products and multiple clinical-stage product candidates.
Interest income (dollars in thousands)
Three Months Ended September 30, Dollar %
2022 2021 Change Change
Interest income $ 3,483 $ 408 $ 3,075 754 %
Nine Months Ended September 30, Dollar %
2022 2021 Change Change
Interest income $ 4,876 $ 1,488 $ 3,388 228 %
Interest income increased by $3.1 million and $3.4 million , for the three and
nine months ended September 30, 2022 , respectively, compared to the same periods
in 2021, primarily due to increases in interest rates and higher average
marketable debt securities balances.
Change in fair value of equity investments (dollars in thousands)
Three Months Ended September 30, Dollar %
2022 2021 Change Change
Change in fair value of equity
investments $ (1,626 ) $ 25,702 $ (27,328 ) -106 %
Nine Months Ended September 30, Dollar %
2022 2021 Change Change
Change in fair value of equity
investments $ (21,139 ) $ (25,963 ) $ 4,824 -19 %
For the three and nine months ended September 30, 2022 , we recorded a net
decrease in the fair value of our equity investments of $1.6 million and $21.1
million , respectively, due to unrealized losses on our investments in Arcturus
common stock of $0.5 million and $11.1 million during the three and nine months
ended September 30, 2022 , respectively, and unrealized losses on our investments
in Solid common stock of $1.1 million and $10.0 million during the three and
nine months ended September 30, 2022 , respectively.
For the three months ended September 30, 2021 , we recorded a net increase in
fair value of equity investments of $25.7 million . The fair value of our
investment in Arcturus common stock increased by $35.6 million during the
period, which included a realized gain on the sale of a portion of common stock
for net proceeds of $43.2 million . This increase was partially offset by a $9.9
million decrease in fair value of our investment in Solid common stock,
resulting in a net increase of $25.7 million .
For the nine months ended September 30, 2021 , we recorded a net decrease in fair
value of equity investments of $26.0 million . The fair value of our investment
in Arcturus common stock increased by $14.7 million during the period, which
included a realized gain on the sale of a portion of common stock for net
proceeds of $43.2 million . The increase was offset by $40.6 million decrease in
fair value of our investment in Solid common stock resulting in a net decrease
of $26.0 million .
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.
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Non-cash Interest Expense on Liabilities Related to the Sale of Future Royalties
(dollars in thousands)
Three Months Ended September 30, Dollar %
2022 2021 Change Change
Non-cash interest expense on
liabilities related to the
sale of future royalties $ (14,505 ) $ (8,683 ) $ (5,822 ) 67 %
Nine Months Ended September 30, Dollar %
2022 2021 Change Change
Non-cash interest expense on
liabilities related to the
sale of future royalties $ (27,141 ) $ (25,618 ) $ (1,523 ) 6 %
The non-cash interest expense on liabilities related to the sale of future
royalties increased by $5.8 million and $1.5 million for the three and nine
months ended September 30, 2022 , respectively, compared to the same periods in
2021. This was primarily due to the partial sale of North American Crysvita
royalty to OMERS in July 2022 , which resulted in an increase in liabilities
related to the sale of future royalties by $491.0 million and higher interest
expense, partially offset by the capitalization of interest related to the
construction-in-progress for the gene therapy manufacturing plant. To the extent
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 expenses (dollars in thousands)
Three Months Ended September 30, Dollar %
2022 2021 Change Change
Other expense $ (1,105 ) $ (415 ) $ (690 ) 166 %
Nine Months Ended September 30, Dollar %
2022 2021 Change Change
Other expense $ (1,746 ) $ (1,277 ) $ (469 ) 37 %
Other expense increased by $0.7 million and $0.5 million , respectively, for the
three and nine months ended September 30, 2022 , compared to the same periods in
2021. These changes were primarily due to fluctuations in foreign exchange
rates.
Provision for Income Taxes (dollars in thousands)
Three Months Ended September 30, Dollar %
2022 2021 Change Change
Provision for income taxes $ (6,287 ) $ (182 ) $ (6,105 ) *
* not meaningful
Nine Months Ended September 30, Dollar %
2022 2021 Change Change
Provision for income taxes $ (7,147 ) $ (1,024 ) $ (6,123 ) 598 %
The provision for income taxes increased by $6.1 million for the three and nine
months ended September 30, 2022 , compared to the same periods in 2021. Beginning
in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the right to deduct
research and development expenditures for tax purposes in the period the
expenses were incurred and instead requires all U.S. and foreign research and
development expenditures to be amortized over five and fifteen tax years,
respectively. Due to this required capitalization of research and development
expenditures and the significant taxable income generated as a result of our
sale of royalties in July 2022 , we have recorded a one-time discrete tax expense
of $5.9 million for the three and nine months ended September 30, 2022 . The
discrete tax expense is for state taxes we anticipate paying as a result of
statutory limitations on our ability to offset expected taxable income with net
operating loss carry forwards in certain states. We realized no benefit for
current year losses due to a full valuation allowance against the U.S. net
deferred tax assets.
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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 ofSeptember 30, 2022 , we had$996.2 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 ofSeptember 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 nine months endedSeptember 30, 2022 . InJuly 2022 , we received net proceeds of$491.0 million from the sale of certain future royalties to OMERS. The following table summarizes our cash flows for the periods indicated (in thousands): Nine Months Ended September 30, 2022 2021 Cash used in operating activities$ (290,123 ) $ (284,351 ) Cash used in investing activities (120,053 ) (264,429 ) Cash provided by financing activities 499,326 32,827 Effect of exchange rate changes on cash (2,427 ) (802 )
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 86,723
Cash used in operating activities
Our primary use of cash is to fund operating expenses, which consist primarily of research and development and commercial expenditures. Due to our significant research and development expenditures, we have generated significant operating losses since our inception. Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Cash used in operating activities for the nine months endedSeptember 30, 2022 was$290.1 million and primarily reflected a net loss of$555.6 million and$15.6 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$101.0 million for stock-based compensation,$75.2 million for acquired in-process research and development expense,$4.3 million for the amortization of the premium paid on purchased marketable debt securities,$13.3 million for depreciation and amortization,$21.1 million for a change in fair value of equity investments in Arcturus and Solid, and$27.1 million for non-cash interest incurred on the liabilities related to the sale of future royalties to RPI and OMERS. Cash used in operating activities also reflected a$3.0 million decrease due to an increase in accounts receivable primarily related to order timing, a$5.5 million decrease due to an increase in inventory primarily for Mepsevii and Dojolvi, and a decrease of$6.1 million in contract liabilities, net, related to the revenue recognized from the license agreements with Daiichi Sankyo, offset by a$52.4 million increase in accounts payable, accrued liabilities, and other liabilities primarily due to timing of payments and receipt of invoices, as well as an increase in manufacturing accruals and income taxes payable, partially offset by the payout of the 2021 annual bonuses, and a$0.6 million increase due to a net decrease in prepaid expenses and other assets. Cash used in operating activities for the nine months endedSeptember 30, 2021 was$284.4 million and primarily reflected a net loss of$331.6 million and$13.2 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI, offset by non-cash charges of$78.1 million for stock-based compensation,$4.5 million for the amortization of the premium paid on purchased marketable debt securities,$9.7 million for depreciation and amortization,$26.0 million for a change in fair value of equity investments in Arcturus and Solid, and$25.6 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$2.4 million decrease due to an increase in accounts receivable primarily related to higher revenues, a$2.1 million decrease due to an increase in inventory for Dojolvi, a$7.0 million decrease due to an increase in prepaid expenses and other current assets primarily due to an increase in prepaid subscriptions, prepaid manufacturing and prepaid insurance, and a decrease of$74.4 million in contract liabilities, net, related to the revenue recognized from the license agreements with Daiichi Sankyo, offset by a$1.9 million increase in accounts payable, accrued liabilities, and other liabilities primarily due to an increase in accruals related to the construction of the gene therapy manufacturing plant, partially offset by a decrease in accrued bonus due to the payout of the 2020 annual bonuses. 31 --------------------------------------------------------------------------------
Cash used in investing activities
Cash used in investing activities for the nine months endedSeptember 30, 2022 was$120.1 million and was primarily related to purchases of property, plant, and equipment of$89.2 million , primarily related to purchases for our gene therapy manufacturing plant, the acquisition of GeneTx of$75.4 million , net of cash acquired, purchases of marketable debt securities of$416.2 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$83.0 million and maturities of marketable debt securities of$407.9 million . Cash used in investing activities for the nine months endedSeptember 30, 2021 was$264.4 million and was primarily related to purchases of property, plant, and equipment of$57.0 million and purchases of marketable debt securities of$917.4 million , offset by proceeds from the sale of marketable debt securities of$83.3 million , maturities of marketable debt securities of$584.0 million , and proceeds from the sale of equity investments of$43.2 million .
Cash Provided by Financing Activities
Cash provided by financing activities for the nine months endedSeptember 30, 2022 was$499.3 million and was primarily comprised of$491.0 million in net proceeds from the partial sale of future North America Crysvita royalties to OMERS and$8.8 million in net proceeds from the issuance of common stock pursuant to equity plan awards.
Cash provided by financing activities for the nine months ended
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, including future milestone payments thereunder, 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, non-clinical trials and other related activities;
•
the cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates, products we have begun to commercialize, and any products we may develop in the future, including the construction of our own GMP gene therapy manufacturing facility;
•
the number and characteristics of candidate products we are looking for;
•
the cost, timing and results of regulatory approvals;
•
the cost and timing of establishing our business 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 collaboration, licensing, marketing, distribution, acquisition and other agreements we may enter into, including any required initial milestones, royalties, rebates or other payments thereunder.
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We expect to meet future cash needs through existing capital balances, revenues from our commercial products, and through some combination of public or private equity offerings, debt financing, royalty sales, collaborations, strategic alliances, licensing agreements. and other marketing and distribution agreements. See “Risk Factors: Risks Related to Our Financial Condition and Capital Requirements.”
Contractual Obligations and Commitments
Significant contractual obligations arising in the normal course of business consist primarily of operating and finance leases, manufacturing and service contract obligations, and building construction and improvement agreements.
Future minimum lease payments under non-cancellable leases as ofSeptember 30, 2022 , were approximately$62.2 million , of which$13.7 million are due within one year.
Manufacturing and servicing contract obligations primarily relate to the manufacturing of inventory for our approved products. From
Building construction and improvement agreements relate to the construction and fit-out of the Company's leased properties. As ofSeptember 30, 2022 , we had obligations of approximately$9.9 million , of which$0.1 million are expected to be due within one year. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities. 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.
Off-Balance Arrangements
We have not participated in any off-balance sheet agreements, as contemplated in the rules and regulations of the
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