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 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, 2020 (the "Annual Report"). OverviewUltragenyx Pharmaceutical Inc. (we or the Company) is a biopharmaceutical company focused on the identification, acquisition, development, and commercialization of novel products for the treatment of serious rare and ultra-rare genetic diseases. We target diseases for which the unmet medical need is high, the biology for treatment is clear, and for which there are typically no approved therapies treating the underlying disease. Our strategy, which is predicated upon time- and cost-efficient drug development, allows us to pursue multiple programs in parallel with the goal of delivering safe and effective therapies to patients with the utmost urgency.
Impact of COVID-19 Pandemic
Our business operations have been and continue to be affected by the COVID-19 pandemic. In addition to some impact on our preclinical manufacturing activities and certain regulatory interactions, we have experienced interruptions to our clinical trial activities, primarily due to delays or disruptions to patient enrollment and dosing as a result of shelter-in-place orders or quarantines, and certain data from our gene therapy product candidates was delayed as a result of the COVID-19 pandemic. The continuing outbreak has caused delays in delivery of ancillary clinical trial materials as certain of our third-party manufacturers or suppliers have prioritized and allocated more resources and capacity to supply drug product or raw materials to other companies engaged in the study or manufacture of treatments or vaccinations for COVID-19. Social distancing measures and travel limitations in response to the pandemic have also made it difficult for us to identify new patients for our commercialized products, which may result in loss of revenue. We have also restricted access to our facilities to personnel and third parties who perform critical activities that must be performed on-site and as a result, most of our personnel currently work remotely. Such remote working policies may negatively impact productivity and disrupt our business operations. As the COVID-19 global pandemic continues, we may experience lower revenue and increased expenses as a result of disruptions to our clinical trial, commercialization and regulatory activities, in addition to delays or shortages of drug product and raw materials. The magnitude and extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are very uncertain and cannot be predicted with confidence. As a result, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our financial statements in 2021 and beyond. See Item 1A: "Risk Factors" for additional details.
Approved Therapies and Clinical Product Candidates
Our current approved therapies and clinical-stage pipeline consist of four product categories: biologics, small molecules, gene therapy, and nucleic acid product candidates. See section entitled "Recent Program Updates" below for a description of recent updates to certain of our approved therapies and clinical-stage pipeline products.
Our biologic products include approved therapies Crysvita® (burosumab), Mepsevii® (vestronidase alfa) and UX143 in clinical development:
• Crysvita is an antibody administered via subcutaneous injection that targets
fibroblast growth factor 23, or 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
adult and pediatric patients six months of age and older. In the European
Union, or the EU, and the
treatment of XLH with radiographic evidence of bone disease in children one
year of age and older, adolescents, and adults. In
patients one year of age and older. We have submitted regulatory filings in
various other Latin American countries.
Crysvita is also approved inthe United States 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 the United States for the treatment of
children and adults with MPS VII. In the EU
21
--------------------------------------------------------------------------------
and the
for the treatment of non-neurological manifestations of MPS VII for patients
of all ages. In
MPS VII for patients of all ages.
• UX143 (setrusumab), which is subject to our collaboration agreement with
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 and inhibits the activity of
bone-forming cells. Setrusumab is being studied for the treatment of
osteogenesis imperfecta (OI) and has received orphan drug designation from
the FDA and European Medicines Agency (EMA), rare pediatric diseasedesignation 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. Initiation of a pediatric Phase 2/3 study is expected
in the second half of 2021 and a separate study is currently being planned
for adults with OI.
Our small molecule products include the approved therapy Dojolvi® (triheptanoin):
• Dojolvi is a highly purified, synthetic, 7-carbon fatty acid triglyceride
specifically designed to provide medium-chain, odd-carbon fatty acids as an
energy source and metabolite replacement for people with long-chain fatty
acid oxidation disorders, or LC-FAOD, which is a set of rare metabolic
diseases that prevents the conversion of fat into energy and can cause low
blood sugar, muscle rupture, and heart and liver disease. Dojolvi is
approved and commercially available in
source of calories and fatty acids for the treatment of pediatric and adult
patients with molecularly confirmed LC-FAOD. We have submitted Dojolvi to
the Brazilian Health Regulatory Agency (ANVISA) seeking marketing
authorization. There are approximately 8,000 to 14,000 patients in the
developed world with LC-FAOD.
Our clinical-stage gene therapy pipeline includes DTX401, DTX301, DTX201 and UX701:
• DTX401 is an adeno-associated virus 8, or AAV8, gene therapy clinical
candidate for the treatment of patients with glycogen storage disease type
Ia, or GSDIa, a disease that arises from a defect in G6Pase, an essential
enzyme in glycogen and glucose metabolism. GSDIa is the most common
genetically inherited glycogen storage disease, with an estimated 6,000
patients in the developed world affected by GSDIa. A Pediatric Investigation
Plan, or PIP, was accepted by EMA. DTX401 has been granted Orphan Drug
Designation in both
Advanced Therapy (RMAT) designation and Fast Track designation in the United
States.
• 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
the EU and Fast Track Designation in
• DTX201 is a Factor VIII gene therapy program for the treatment of hemophilia
A that is being developed in collaboration with
Bayer. Hemophilia A is the most common form of hemophilia with approximately
144,000 patients in the developed world. The first three cohorts with two
patients each have been dosed using material from our proprietary HeLa
manufacturing platform. Enrollment of additional dose cohorts in the Phase
1/2 study is currently ongoing.
• 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
Our clinical-stage nucleic acid pipeline includes GTX-102 for the treatment of Angelman syndrome, and UX053 for the treatment of GSDIII:
• GTX-102 is an antisense oligonucleotide, or ASO, that is being developed for
the treatment of Angelman syndrome, a debilitating and rare neurogenetic
disorder caused by loss-of-function of the maternally inherited allele of
the UBE3A gene. There are an estimated 60,000 patients in the developed
world affected by Angelman syndrome. GTX-102 was granted Fast Track
designation, Orphan Drug Designation and Rare Pediatric Disease Designation
from the FDA. GTX-102 is being developed in collaboration with GeneTx
Biotherapeutics LLC (GeneTx) in an ongoing Phase 1/2 clinical study. The
study is currently on hold in the U.S. while discussions are ongoing with
the FDA. The study is expected to begin enrollment later this year.
• 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 the United States and EU.
22
--------------------------------------------------------------------------------
The following table summarizes our approved products and clinical product
candidate pipeline:
[[Image Removed]]
[[Image Removed]]
Recent Program Updates
Crysvita for the treatment of X-Linked Hypophosphatemia (XLH)
InJuly 2021 , our collaboration partner KKC, announced that theEuropean Commission (EC) approved Crysvita for self-administration as a treatment option when recommended by the treating physician, for pediatric and adult patients with XLH.
In
23
--------------------------------------------------------------------------------GTX-102 for the treatment of Angelman Syndrome, partnered with GeneTx
In the second quarter of 2021, we announced thatHealth Canada (HC) cleared a protocol amendment and that theU.K. Medicines and Healthcare Products Regulatory Agency (MHRA) approved a Clinical Trial Application (CTA) to begin treating patients inCanada and theU.K. with Angelman syndrome.
Following a productive meeting with the FDA, we submitted an amended protocol.
We have received feedback on the amended protocol and will make additional
revisions in order to resume the study in the
Clinical data from newly treated patients in the
DTX401 for the treatment of GSDIa
At theAmerican Society of Gene & Cell Therapy (ASGCT) Annual Meeting inMay 2021 we presented additional long-term clinical data demonstrating a durable response lasting more than 2.5 years following treatment with DTX401 in patients with GSDIa. We are currently in the process of initiating a Phase 3 study with a 48-week primary efficacy analysis period and plan to enroll approximately 50 patients 8 years of age and older, randomized 1:1 to DTX401 (1.0 x 10^13 GC/kg dose) or placebo. The coprimary endpoints are the reduction in oral glucose replacement with cornstarch while maintaining and improved glucose control assessed by continuous glucose monitoring. The first patient in the Phase 3 study is currently expected to be dosed in the second half of 2021.
DTX301 for the treatment of OTC deficiency
At the ASGCT Annual Meeting inMay 20201 we presented additional long-term clinical data showing durable metabolic control and sustained responses lasting more than three years following treatment with DTX301 in patients with OTC deficiency. We are currently in the process of initiating a Phase 3 study that will include a 64-week primary efficacy analysis period and plan to enroll approximately 50 patients 12 years of age and older, randomized 1:1 to DTX301 (1.7 x 10^13 GC/kg dose) or placebo. The co-primary endpoints are the percentage of patients who achieve a response as measured by discontinuation or reduction in baseline disease management and the 24-hour plasma ammonia levels. The first patient in the Phase 3 study is currently expected to be dosed in the second half of 2021.
UX701 for the treatment of Wilson Disease
We are currently in the process of initiating a seamless, single-protocol Phase 1/2/3 study. The first part of the study is expected to enroll approximately 27 patients (nine per cohort), randomized 2:1 to DTX701, manufactured using the company's proprietary HeLa 2.0 producer cell line (PCL) process at the 2,000 liter scale, or placebo. The dose cohorts will be enrolled sequentially using ascending doses. The patients will be followed for 52 weeks before transitioning to long-term follow-up and selecting a pivotal dose. The dose will be determined based on the safety profile, changes in biomarkers of copper metabolism, and the reduction in the use of the current standard of care. The first patient in the Phase 1/2/3 study is expected to be dosed in the second half of 2021.
UX053 for the treatment of GSDIII
InJune 2021 , UX053 was granted Orphan Drug Designation (ODD) in theU.S. by the FDA and inJuly 2021 , ODD was granted by theEuropean Commission (EC). Enrollment in a Phase 1/2 study is currently expected to begin in the second half of 2021. 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, the sale of certain future royalties, and strategic collaboration arrangements. We have incurred net losses in each year since inception. Our net loss was$122.4 million and$258.6 million for the three and six months endedJune 30, 2021 , respectively. Our net income was$25.3 million for the three months endedJune 30, 2020 and our net loss was$93.7 million for the six months endedJune 30, 2020 . Net loss for the three and six months endedJune 30, 2021 included losses of$31.0 million and$51.7 million resulting from changes in fair value of our investments in Arcturus Therapeutics Holdings Inc. (Arcturus) andSolid Biosciences Inc. (Solid) equity securities. Net income (loss) for the three and six months endedJune 30, 2020 included gains of$95.2 million and$102.9 million , respectively, resulting from changes in the fair value of our investment in Arcturus. 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. 24 -------------------------------------------------------------------------------- For the three months endedJune 30, 2021 , our total revenues increased to$87.0 million , compared to$61.7 million for the same period in 2020 and for the six months endedJune 30, 2021 , increased to$186.4 million , compared to$98.0 million for the same period in 2020. Revenue for the three months endedJune 30, 2021 and 2020 included$22.0 million and$18.9 million , respectively, and for the six months endedJune 30, 2021 and 2020 included$64.7 million and$18.9 million , respectively, in revenue from our collaboration and license agreement with Daiichi Sankyo Co., Ltd. (Daiichi Sankyo) which we executed inMarch 2020 . The remainder of the increase was driven 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 Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes in our critical accounting policies during the six months endedJune 30, 2021 , 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 %
2021 2020 Change Change
Collaboration and license
revenue:
Crysvita collaboration revenue in
profit-share
territory $ 41,756 $ 29,806 $ 11,950 40 %
Crysvita royalty revenue in 228
European territory 1,498 (1,270 ) -85 %
Daiichi Sankyo 21,956 18,857 3,099 16 %
Total collaboration and license
revenue 63,940 50,161 13,779 27 %
Product sales:
Crysvita 2,900 2,549 351 14 %
Mepsevii 5,399 4,185 1,214 29 %
Dojolvi 10,047 1,332 8,715 654 %
Total product sales 18,346 8,066 10,280 127 %
Crysvita non-cash collaboration
royalty revenue 4,689 3,482 1,207 35 %
Total revenues $ 86,975 $ 61,709 $ 25,266 41 %
Six Months Ended June 30, Dollar %
2021 2020 Change Change
Collaboration and license
revenue:
Crysvita collaboration revenue in
profit-share
territory $ 78,016 $ 57,021 $ 20,995 37 %
Crysvita royalty revenue in 228
European territory 1,498 (1,270 ) -85 %
Daiichi Sankyo 64,706 18,857 45,849 243 %
Total collaboration and license
revenue 142,950 77,376 65,574 85 %
Product sales:
Crysvita 8,772 4,159 4,613 111 %
Mepsevii 9,006 7,610 1,396 18 %
Dojolvi 17,081 2,776 14,305 515 %
Total product sales 34,859 14,545 20,314 140 %
Crysvita non-cash collaboration 8,561 6,097
royalty revenue 2,464 40 %
Total revenues $ 186,370 $ 98,018 $ 88,352 90 %
25
--------------------------------------------------------------------------------
For the three and six months ended
Beginning in 2020, we have recorded the royalty revenue as non-cash royalty
revenues. During the three months ended
InMarch 2020 , we executed a license agreement with Daiichi Sankyo, pursuant to which we granted Daiichi Sankyo a non-exclusive license to intellectual property, including know-how and patent applications, with respect to our HeLa PCL and HEK293 transient transfection manufacturing technology platforms for AAV-based gene therapy products. We will also provide certain technical assistance and technology transfer services during the technology transfer period of three years to enable Daiichi Sankyo to use the technologies for its internal gene therapy programs. For the three and six months endedJune 30, 2021 , the collaboration and license revenue from this arrangement, which is recognized based on the progress toward complete satisfaction of the individual performance obligation using an input measure, increased by$3.1 million and$45.8 million , respectively, as compared to the same periods in 2020. We expect to recognize the remaining revenue allocated to the intellectual property and the transfer services as revenue by the end of 2021. The increases in product sales of$10.3 million and$20.3 million for the three and six months endedJune 30, 2021 , respectively, compared to the same periods in 2020 were primarily due to the commercial launch of Dojolvi inthe United States in the third quarter of 2020, continuing increase in demand for Crysvita and Mepsevii, and an increase in sales of Dojolvi under our named patient program in certain countries. The increases in Crysvita non-cash collaboration royalty revenue of$1.2 million and$2.5 million for the three and six months endedJune 30, 2021 , respectively, compared to the same periods in 2020 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 %
2021 2020 Change Change
Cost of sales $ 3,136 $ 1,803 $ 1,333 74 %
Six Months Ended June 30, Dollar %
2021 2020 Change Change
Cost of sales $ 8,324 $ (1,700 ) $ 10,024 -590 %
Cost of sales increased by $1.3 million and $10.0 million for the three and six
months ended June 30, 2021 compared to the same periods in 2020. The increase in
cost of sales for the three months ended June 30, 2021 compared to the same
period in 2020 was due to an increase in demand for our approved products
including Dojolvi, which launched in the third quarter of 2020. The increase in
cost of sales for the six months ended June 30, 2021 compared to the same period
in 2020 was due to an increase in demand for our approved products including
Dojolvi, which launched in the third quarter of 2020 and a credit for the
manufacturing of future inventory batches of $4.6 million due to certain
inventory batches that did not meet specified quality standards which we
recorded during the six months ended June 30, 2020 . The increase was offset by
additional reserves of $1.7 million for excess inventory write-downs recorded
during the six months ended June 30, 2021 .
Prior to the approval of our products, manufacturing and related costs were
expensed; accordingly, these costs were not capitalized and as a result are not
fully reflected in the costs of sales during the three and six months ended June
30, 2021 and 2020. If manufacturing and related costs were capitalized prior to
the approval period and the $1.7 million in write downs for the six months ended
June 30, 2021 and the credit of $4.6 million for the six months ended June 30,
2020 as noted above were excluded, we estimate that cost of sales for the three
and six months ended June 30, 2021 would have been approximately $3.2 million
and $7.0 million , respectively, and for the three and six months ended June 30,
2020 would have been approximately $1.9 million and $3.1 million , respectively,
for our commercial product sales. We expect our gross margin percentage to
decrease as we produce approved products that reflect the full costs of
manufacturing and as we deplete inventories that we had expensed prior to
receiving approval.
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
26
--------------------------------------------------------------------------------
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 %
2021 2020 Change Change
Commercial programs $ 12,641 $ 13,839 $ (1,198 ) -9 %
Clinical programs:
Gene therapy programs 29,735 9,059 20,676 228 %
Nucleic acid and other
biologic 10,571 429 10,142 *
programs
Translational research 16,647 16,067 580 4 %
Upfront license and milestone
fees - 1,200 (1,200 ) -100 %
Infrastructure 14,374 12,787 1,587 12 %
Stock-based compensation 15,094 12,856 2,238 17 %
Other research and development 14,143 14,472 (329 ) -2 %
Total research and development
32,496
expenses 40 %
* not meaningful
Six Months Ended June 30, Dollar %
2021 2020 Change Change
Commercial programs $ 26,302 $ 19,696 $ 6,606 34 %
Clinical programs:
Gene therapy programs 51,097 22,259 28,838 130 %
Nucleic acid and other
biologic 19,595 1,332 18,263 *
programs
Small molecule programs - 7,440 (7,440 ) -100 %
Translational research 29,260 32,372 (3,112 )
Upfront license and milestone
fees 50,000 33,200 16,800 51 %
Infrastructure 29,236 25,200 4,036 16 %
Stock-based compensation 28,583 23,785 4,798 20 %
Other research and development 26,650 28,386 (1,736 ) -6 %
Total research and development $ 260,723 $ 193,670 $ 67,053
expenses 35 %
Total research and development expenses increased $32.5 million and $67.1
million for the three and six months ended June 30, 2021 , respectively, compared
to the same periods in 2020. The change in research and development expenses was
primarily due to:
• for commercial programs, a decrease of
ended
manufacturing costs in the three months ended
expensed during the three months ended
the addition of expenses related to Dojolvi and the TIO indication for
Crysvita following their respective FDA approvals in June 2020 ;
• for gene therapy programs, an increase of
for the three months and six months ended
primarily related to the addition of expenses related to UX701 following
its IND approval in
and DTX301 Phase 3 trial preparation;
• for nucleic acid and other biologic programs, an increase of
and
respectively, primarily related to the addition of expenses related to
UX053 following its IND approval in
a License and Collaboration Agreement with
Mereo, to collaborate on the development of UX143 effective
partially offset by the classification of expenses for the TIO indication
for Crysvita to commercial programs for the three and six months ended June
30, 2021;
• for small molecule programs, a decrease of
ended
for Dojolvi to commercial programs for the six months ended
• for translational research, an increase of
respectively, primarily related to the classification of expenses for UX053
to nucleic acid and other biologic programs and UX701 to gene therapy
programs as a result of their IND approvals net of increased spending on
new translational research projects;
27
--------------------------------------------------------------------------------
• for upfront license and milestone fees, a decrease of
increase of
respectively, primarily due to the
in
payment to GeneTx and the
(
vectors, both of which occurred during the first quarter of 2020, and a
$1.2 million one-time license fee during the three months ended June 30,
2020 ;
• for infrastructure, an increase of
three and six months ended
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
for the three and six months ended
related to an increase in employee headcount as well as the higher
valuation of stock-based awards granted to employees; and
• for other research and development expenses, a decrease of
respectively, primarily related to higher research and development efforts
allocated to the programs represented in the commercial, clinical, and
translational science programs above.
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 %
2021 2020 Change Change
Selling, general and administrative $ 53,410 $ 42,252 $ 11,158 26 %
Six Months Ended June 30, Dollar %
2021 2020
Change Change
Selling, general and administrative
Selling, general and administrative expenses increased$11.2 million and$16.9 million for the three and six months endedJune 30, 2021 , respectively, compared to the same periods in 2020. The increases in selling, general and administrative expenses were primarily due to increases in personnel costs resulting from an increase in the number of employees in support of our commercial activities, commercialization costs, and professional services costs.
We expect selling, general and administrative expenses to continue to increase in the future to support our organizational growth related to our approved products and multiple clinical-stage product candidates.
Interest Income (dollars in thousands)
Three Months Ended June 30, Dollar %
2021 2020 Change Change
Interest income $ 441 $ 1,797 $ (1,356 ) -75 %
Six Months Ended June 30, Dollar %
2021 2020 Change Change
Interest income $ 1,080 $ 4,716 $ (3,636 ) -77 %
Interest income decreased $1.4 million and $3.6 million for the three and six
months ended June 30, 2021 , respectively, compared to the same periods in 2020,
primarily due to lower portfolio yields as a result of a decrease in interest
rates, partially offset by higher balances in our marketable debt securities.
Change in Fair Value of Equity Investments (dollars in thousands)
Three Months Ended June 30, Dollar %
2021 2020 Change Change
Change in fair value of equity
investments $ (31,046 ) $ 95,200 $ (126,246 ) -133 %
28
--------------------------------------------------------------------------------
Six Months Ended June 30, Dollar %
2021 2020 Change Change
Change in fair value of equity
investments $ (51,665 ) $ 102,868 $ (154,533 ) -150 %
The fair value of our equity investments decreased by $31.0 million and $51.7
million during the three and six months ended June 30, 2021 , respectively, due
to decreases in the fair value of Arcturus and Solid common stock, resulting in
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. The fair value of our equity investments increased by $95.2
million and $102.9 million during the three and six months ended June 30, 2020 ,
respectively, due to increases in the fair value of Arcturus equity investments.
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 %
2021 2020 Change Change
Non-cash interest expense on
liability related to the
sale of future royalties $ (8,517 ) $ (8,429 ) $ (88 ) 1 %
Six Months Ended June 30, Dollar %
2021 2020 Change Change
Non-cash interest expense on
liability related to the
sale of future royalties $ (16,935 ) $ (16,511 ) $ (424 ) 3 %
The non-cash interest expense on liability related to the sale of future
royalties increased by $0.1 million and $0.4 million for the three and six
months ended June 30, 2021 , respectively, compared to the same periods in 2020
due to the increase in the liability related to the sale of future royalties for
net sales of Crysvita in the European territory, partially offset by a decrease
in the effective interest rate for the three and six months ended June 30, 2021
compared to same periods in 2020. To the extent the royalty payments are greater
or less than our initial estimates or the timing of such payments is materially
different than our original estimates, we will prospectively adjust the
effective interest rate.
Other Income (Expense) (dollars in thousands)
Three Months Ended June 30, Dollar %
2021 2020 Change Change
Other income (expense) $ (67 ) $ 217 $ (284 ) -131 %
Six Months Ended June 30, Dollar %
2021 2020 Change Change
Other income (expense) $ (862 ) $ (239 ) $ (623 ) 261 %
Other expense increased by $0.3 million and $0.6 million for the three and six
months ended June 30, 2021 , respectively, compared to the same periods in 2020.
The increase was primarily due to fluctuations in foreign exchange rates.
Provision for Income Taxes (dollars in thousands)
Three Months Ended June 30, Dollar %
2021 2020 Change Change
Provision for income taxes $ (463 ) $ (415 ) $ (48 ) 12 %
Six Months Ended June 30, Dollar %
2021 2020 Change Change
Provision for income taxes $ (842 ) $ (824 ) $ (18 ) 2 %
The provision for incomes taxes increased by a nominal amount for the three and
six months ended June 30, 2021 , respectively, compared to the same periods in
2020.
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.
29
--------------------------------------------------------------------------------
As of June 30, 2021 , we had $973.8 million in available cash, cash equivalents,
and marketable debt securities. We believe that our existing capital resources
will be sufficient to fund our projected operating requirements for at least the
next twelve months. Our cash, cash equivalents, and marketable debt securities
are held in a variety of deposit accounts, interest-bearing accounts, corporate
bond securities, U.S government securities, asset-backed securities, and money
market funds. Cash in excess of immediate requirements is invested with a view
toward liquidity and capital preservation, and we seek to minimize the potential
effects of concentration and credit risk.
In May 2021 , we entered into an Open Market Sale Agreement with 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 offerings through Jefferies. As of June 30, 2021 , we had not sold
any shares under the arrangement.
In March 2020 , we received $75.0 million in cash from the sale of 1,243,913
shares of our common stock to Daiichi Sankyo and in April 2020 , we received
$125.0 million from an upfront payment related to the Daiichi Sankyo License
Agreement. In November 2020 , we completed an underwritten public offering in
which we sold 5,111,110 shares of common stock and received net proceeds of
$435.6 million . In December 2020 , we sold 800,000 shares of Arcturus common
stock and received net proceeds of $79.8 million .
The following table summarizes our cash flows for the periods indicated (in
thousands):
Six Months Ended June 30,
2021 2020
Cash used in operating activities $ (224,702 ) $ (7,801 )
Cash used in investing activities (223,670 ) (181,264 )
Cash provided by financing activities 25,277 91,426
Effect of exchange rate changes on cash (323 ) (198 ) Net decrease in cash, cash equivalents and restricted cash$ (423,418 )
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, 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 toRPI Finance Trust (RPI), an affiliate of Royalty Pharma, 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 used in operating activities for the six months endedJune 30, 2020 was$7.8 million and reflected a net loss of$93.7 million ,$0.1 million for the amortization of the discount paid on purchased investments,$102.9 million for changes in the fair value of equity investments from Arcturus, and$6.1 million for non-cash collaboration royalty revenues related to the sale of future royalties to Royalty Pharma, offset by non-cash charges of$42.6 million for stock-based compensation,$6.0 million for depreciation, and$16.5 million for non-cash interest incurred on the liability related to the sale of future royalties to Royalty Pharma. Cash used in operating activities also reflected a decrease of$6.1 million due to an increase in prepaid expenses and other current assets primarily due to an increase in prepaid manufacturing and a$8.8 million decrease in accounts payable, accrued liabilities, and other liabilities primarily due to a decrease in accrued bonus due to the payout of the 2019 annual bonus, offset by a$9.5 million increase due to a decrease in accounts receivable primarily related to change in the timing of billing to a collaboration partner offset by a$8.5 million receivable related to the license agreement with Daiichi Sankyo inJune 2020 , a$0.5 million increase due to a decrease in inventory, and an increase of$134.9 million in contract liabilities related to the license agreements with Daiichi Sankyo.
Cash Used in Investing Activities
Cash used in investing activities for the six months ended June, 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 used in investing activities for the six months endedJune 30, 2020 was$181.3 million and related to purchases of property, plant, and equipment of$18.2 million , purchases of investments of$456.3 million , and the exercise of the option to purchase 30
--------------------------------------------------------------------------------
additional Arcturus shares for
Cash Provided by Financing Activities
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. Cash provided by financing activities for the six months endedJune 30, 2020 was$91.4 million and was comprised of$55.3 million from the sale of common stock in connection with the license agreement with Daiichi Sankyo inMarch 2020 ,$20.4 million in net proceeds from the sale of common stock in our ATM offering, and$15.9 million in net proceeds from the issuance of common stock pursuant to the exercise of warrants and equity plan awards.
Funding Requirements
We anticipate that, excluding non-recurring items, we will continue to generate annual losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our product candidates, and continue with commercialization of approved products. We will require additional capital to fund our operations, to complete our ongoing and planned clinical studies, to commercialize our products, to continue investing in early-stage research capabilities to promote our pipeline growth, to continue to acquire or invest in businesses or products that complement or expand our business, and to further develop our general infrastructure, including construction of our GMP gene therapy manufacturing facility, and such funding may not be available to us on acceptable terms or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay, limit, reduce the scope of, or terminate one or more of our clinical studies, research and development programs, future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our future funding requirements will depend on many factors, including the following:
• the scope, rate of progress, results and cost of our clinical studies,
nonclinical testing, and other related activities;
• the cost of manufacturing clinical supplies, and establishing commercial
supplies, of our product candidates, products that we have begun to
commercialize, and any products that we may develop in the future,
including the construction of our own GMP gene therapy manufacturing plant;
• the number and characteristics of product candidates that we pursue; • the cost, timing, and outcomes of regulatory approvals;
• the cost and timing of establishing our commercial infrastructure, and
distribution capabilities;
• the magnitude and extent to which the COVID-19 pandemic impacts our
business operations and operating results, as described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Risk Factors - Risks Related to Our Business Operations"; and
• the terms and timing of any collaborative, licensing, marketing,
distribution, acquisition (including whether we exercise our option toacquire GeneTx pursuant to the terms of our Unitholder Option Agreement
with them) and other arrangements that we may establish, including any
required upfront milestone, royalty, reimbursements or other payments
thereunder.
We expect to satisfy future cash needs through existing capital balances, revenue from our commercial products, and through some combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and other marketing and distribution arrangements. Please see "Risk Factors-Risks Related to Our Financial Condition and Capital Requirements."
Contractual Obligations and Commitments
We have contractual obligations from our operating and finance leases, manufacturing and service contracts, licenses, royalties, development and collaboration arrangements, and other research and development activities. The following table summarizes our significant binding contractual obligations atJune 30, 2021 (in thousands): Payments due by period Less than More than 1 year 1 to 3 years 3 to 5 years 5 years Total Operating and finance leases$ 13,012 $ 25,144 $ 13,816 $ 1,351 $ 53,323 Manufacturing and service contracts 8,768 472 - - 9,240 Building construction agreement 6,411 - - - 6,411 Total$ 28,191 $ 25,616 $ 13,816 $ 1,351 $ 68,974 31
-------------------------------------------------------------------------------- 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 above table excludes such obligations as the amount and timing of such obligations are unknown or uncertain.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet arrangements, as defined in the
rules and regulations of the
© Edgar Online, source
