10-Q 1 rare-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to .

Commission File No. 001-36276

 

ULTRAGENYX PHARMACEUTICAL INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

 

27-2546083

(State or other jurisdiction of incorporation or organization)

 

 

(I.R.S. Employer Identification No.)

 

60 Leveroni Court
Novato, California

 

94949

(Address of principal executive offices)

 

(Zip Code)

(415) 483-8800

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value

RARE

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 2, 2022, the registrant had 69,930,191 shares of common stock issued and outstanding.

 

 


 

ULTRAGENYX PHARMACEUTICAL INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2022

INDEX

 

 

 

 

 

 

 

Page

 

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

1

 

 

 

 

 

Part I –

 

Financial Information

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

3

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

4

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

Part II –

 

Other Information

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

32

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

32

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

69

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

69

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

69

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

69

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

69

 

 

 

 

 

 

 

 

 

Signatures

 

 

 

70

 

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the Quarterly Report) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words, or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our commercialization, marketing, and manufacturing capabilities and strategy;
our expectations regarding the timing of clinical study commencements and reporting results from same;
the timing and likelihood of regulatory approvals for our product candidates;
the anticipated indications for our product candidates, if approved;
the potential market opportunities for commercializing our products and product candidates;
our expectations regarding the potential market size and the size of the patient populations for our products and product candidates, if approved for commercial use;
the impact of the COVID-19 pandemic and related health measures on our business, financial condition and liquidity;
estimates of our expenses, revenue, capital requirements, and our needs for additional financing;
our ability to develop, acquire, and advance product candidates into, and successfully complete, clinical studies;
the implementation of our business model and strategic plans for our business, products and product candidates and the integration and performance of any businesses we have acquired or may acquire;
the initiation, timing, progress, and results of ongoing and future preclinical and clinical studies, and our research and development programs;
the scope of protection we are able to establish and maintain for intellectual property rights covering our products and product candidates;
our ability to maintain and establish collaborations or strategic relationships or obtain additional funding;
our ability to maintain and establish relationships with third parties, such as contract research organizations, contract manufacturing organizations, suppliers, and distributors;
our financial performance and the expansion of our organization;
our ability to obtain supply of our products and product candidates;
the scalability and commercial viability of our manufacturing methods and processes;
developments and projections relating to our competitors and our industry; and
other risks and uncertainties, including those listed under Part II, Item 1A. Risk Factors.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those discussed under Part II, Item 1A. Risk Factors and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report also contains estimates, projections, and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

1


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

153,988

 

 

$

307,584

 

Marketable debt securities

 

444,333

 

 

 

432,612

 

Accounts receivable, net

 

28,369

 

 

 

28,432

 

Inventory

 

17,809

 

 

 

16,231

 

Prepaid expenses and other current assets

 

63,020

 

 

 

71,745

 

Total current assets

 

707,519

 

 

 

856,604

 

Property, plant, and equipment, net

 

177,073

 

 

 

141,247

 

Equity investments

 

25,596

 

 

 

34,925

 

Marketable debt securities

 

215,526

 

 

 

258,933

 

Right-of-use assets

 

32,699

 

 

 

34,936

 

Intangible assets, net

 

159,992

 

 

 

130,788

 

Goodwill

 

44,406

 

 

 

44,406

 

Other assets

 

21,218

 

 

 

20,558

 

Total assets

$

1,384,029

 

 

$

1,522,397

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

23,685

 

 

$

17,138

 

Accrued liabilities

 

126,356

 

 

 

145,555

 

Contract liabilities

 

5,867

 

 

 

7,609

 

Lease liabilities

 

11,323

 

 

 

11,066

 

Total current liabilities

 

167,231

 

 

 

181,368

 

Contract liabilities

 

 

 

 

1,467

 

Lease liabilities

 

28,043

 

 

 

30,904

 

Deferred tax liabilities

 

33,306

 

 

 

33,306

 

Liability related to the sale of future royalties

 

355,633

 

 

 

351,786

 

Other liabilities

 

3,392

 

 

 

1,005

 

Total liabilities

 

587,605

 

 

 

599,836

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock — 25,000,000 shares authorized; nil outstanding as of March 31, 2022 and
   December 31, 2021

 

 

 

 

 

Common stock — 250,000,000 shares authorized; 69,796,940 and 69,344,998 shares issued
   and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

70

 

 

 

69

 

Additional paid-in capital

 

3,028,829

 

 

 

2,997,497

 

Accumulated other comprehensive loss

 

(6,554

)

 

 

(1,404

)

Accumulated deficit

 

(2,225,921

)

 

 

(2,073,601

)

Total stockholders’ equity

 

796,424

 

 

 

922,561

 

Total liabilities and stockholders’ equity

$

1,384,029

 

 

$

1,522,397

 

See accompanying notes.

2


 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

Revenues:

 

 

 

 

 

 

Collaboration and license

$

48,413

 

 

$

79,010

 

 

Product sales

 

26,684

 

 

 

16,513

 

 

Non-cash collaboration royalty revenue

 

4,838

 

 

 

3,872

 

 

Total revenues

 

79,935

 

 

 

99,395

 

 

Operating expenses:

 

 

 

 

 

 

Cost of sales

 

6,100

 

 

 

5,188

 

 

Research and development

 

143,155

 

 

 

147,518

 

 

Selling, general and administrative

 

67,312

 

 

 

53,258

 

 

Total operating expenses

 

216,567

 

 

 

205,964

 

 

Loss from operations

 

(136,632

)

 

 

(106,569

)

 

Interest income

 

494

 

 

 

639

 

 

Change in fair value of equity investments

 

(9,329

)

 

 

(20,619

)

 

Non-cash interest expense on liability related to the sale of future
    royalties

 

(6,584

)

 

 

(8,418

)

 

Other income (expense)

 

289

 

 

 

(795

)

 

Loss before income taxes

 

(151,762

)

 

 

(135,762

)

 

Provision for income taxes

 

(558

)

 

 

(379

)

 

Net loss

$

(152,320

)

 

$

(136,141

)

 

Net loss per share, basic and diluted

$

(2.19

)

 

$

(2.03

)

 

Weighted-average shares used in computing net loss per share,
    basic and diluted

 

69,516,668

 

 

 

67,102,342

 

 

See accompanying notes.

3


 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

Net loss

$

(152,320

)

 

$

(136,141

)

 

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation adjustments

 

(60

)

 

 

(285

)

 

Unrealized loss on available-for-sale securities

 

(5,090

)

 

 

(348

)

 

Other comprehensive loss:

 

(5,150

)

 

 

(633

)

 

Total comprehensive loss

$

(157,470

)

 

$

(136,774

)

 

See accompanying notes.

 

4


 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2021

 

 

69,344,998

 

 

$

69

 

 

$

2,997,497

 

 

$

(1,404

)

 

$

(2,073,601

)

 

$

922,561

 

Stock-based compensation

 

 

 

 

 

 

 

 

29,578

 

 

 

 

 

 

 

 

 

29,578

 

Issuance of common stock under
   equity plan awards, net of tax

 

 

451,942

 

 

 

1

 

 

 

1,754

 

 

 

 

 

 

 

 

 

1,755

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(5,150

)

 

 

 

 

 

(5,150

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(152,320

)

 

 

(152,320

)

Balance as of March 31, 2022

 

 

69,796,940

 

 

$

70

 

 

$

3,028,829

 

 

$

(6,554

)

 

$

(2,225,921

)

 

$

796,424

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2020

 

 

66,818,520

 

 

$

67

 

 

$

2,773,195

 

 

$

689

 

 

$

(1,619,576

)

 

$

1,154,375

 

Stock-based compensation

 

 

 

 

 

 

 

 

24,220

 

 

 

 

 

 

 

 

 

24,220

 

Issuance of common stock under
   equity plan awards, net of tax

 

 

620,957

 

 

 

 

 

 

12,761

 

 

 

 

 

 

 

 

 

12,761

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(633

)

 

 

 

 

 

(633

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(136,141

)

 

 

(136,141

)

Balance as of March 31, 2021

 

 

67,439,477

 

 

$

67

 

 

$

2,810,176

 

 

$

56

 

 

$

(1,755,717

)

 

$

1,054,582

 

See accompanying notes.

5


 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

Net loss

$

(152,320

)

 

$

(136,141

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Stock-based compensation

 

29,396

 

 

 

24,254

 

Amortization of premium on marketable debt securities, net

 

1,894

 

 

 

940

 

Depreciation and amortization

 

4,088

 

 

 

3,367

 

Change in fair value of equity investments

 

9,329

 

 

 

20,619

 

Non-cash collaboration royalty revenue

 

(4,838

)

 

 

(3,872

)

Non-cash interest expense on liability related to the sale of future royalties

 

6,584

 

 

 

8,418

 

Other

 

35

 

 

 

325

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

33

 

 

 

(1,993

)

Inventory

 

(1,475

)

 

 

474

 

Prepaid expenses and other assets

 

9,126

 

 

 

(10,656

)

Accounts payable, accrued, and other liabilities

 

(16,164

)

 

 

(23,602

)

Contract liabilities

 

(3,209

)

 

 

(41,479

)

Net cash used in operating activities

 

(117,521

)

 

 

(159,346

)

Investing activities:

 

 

 

 

 

Purchase of property, plant, and equipment

 

(32,184

)

 

 

(16,414

)

Purchase of marketable debt securities

 

(203,710

)

 

 

(405,230

)

Proceeds from sale of marketable debt securities

 

39,422

 

 

 

14,980

 

Proceeds from maturities of marketable debt securities

 

188,990

 

 

 

224,240

 

Purchase of mutual funds related to nonqualified deferred compensation plan

 

(2,458

)

 

 

 

Payment for intangible asset

 

(30,000

)

 

 

 

Other

 

2,578

 

 

 

 

Net cash used in investing activities

 

(37,362

)

 

 

(182,424

)

Financing activities:

 

 

 

 

 

Proceeds from the issuance of common stock from equity plan awards, net

 

1,755

 

 

 

12,761

 

Other

 

(143

)

 

 

(112

)

Net cash provided by financing activities

 

1,612

 

 

 

12,649

 

Effect of exchange rate changes on cash

 

(108

)

 

 

(771

)

Net decrease in cash, cash equivalents and restricted cash

 

(153,379

)

 

 

(329,892

)

Cash, cash equivalents and restricted cash at beginning of period

 

309,585

 

 

 

726,294

 

Cash, cash equivalents and restricted cash at end of period

$

156,206

 

 

$

396,402

 

 

 

 

 

 

 

Supplemental disclosures of non-cash information:

 

 

 

 

 

Acquired lease liabilities arising from obtaining right-of-use assets

$

132

 

 

$

 

Non-cash interest expense on liability related to the sale of future royalties capitalized into ending property, plant and equipment

$

2,101

 

 

$

 

See accompanying notes.

6


 

ULTRAGENYX PHARMACEUTICAL INC.

Notes to Condensed Consolidated Financial Statements

 

1. Organization

Ultragenyx Pharmaceutical Inc. (the Company) is a biopharmaceutical company incorporated in Delaware.

The Company is focused on the identification, acquisition, development, and commercialization of novel products for the treatment of serious rare and ultra-rare genetic diseases. The Company operates as one reportable segment. The Company has four commercially approved products.

Crysvita® (burosumab) is approved in the United States (U.S.) by the U.S. Food and Drug Administration (FDA) and in Canada for the treatment of X-linked hypophosphatemia (XLH) in adult and pediatric patients one year of age and older, and is approved in the European Union (EU) and the United Kingdom, for the treatment of XLH with radiographic evidence of bone disease in children one year of age and older, adolescents, and adults. In Brazil, Colombia, and Mexico, Crysvita is approved for treatment of XLH in adult and pediatric patients one year of age and older. Crysvita is also approved in the U.S. by the FDA for the treatment of fibroblast growth factor 23 (FGF23)-related hypophosphatemia in tumor-induced osteomalacia (TIO), associated with phosphaturic mesenchymal tumors that cannot be curatively resected or localized in adults and pediatric patients 2 years of age and older.

Mepsevii® (vestronidase alfa) is approved by the FDA as the first medicine for the treatment of children and adults with mucopolysaccharidosis VII (MPS VII), also known as Sly syndrome. In the European Union and the United Kingdom, Mepsevii is approved under exceptional circumstances for patients of all ages for the treatment of non-neurological manifestations of MPS VII. In Brazil, Mepsevii is approved for the treatment of MPS VII for patients of all ages.

Dojolvi® (triheptanoin) is approved in the U.S., Canada, and Brazil for the treatment of pediatric and adult patients severely affected by long-chain fatty acid oxidation disorders (LC-FAOD).

On January 7, 2022, the Company announced a collaboration with Regeneron Pharmaceuticals (Regeneron) to commercialize Evkeeza® (evinacumab) outside of the U.S. Evkeeza is approved in the U.S. and the European Economic Area (EEA) for the treatment of homozygous familial hypercholesterolemia (HoFH).

In addition to the approved products, the Company has the following ongoing clinical development programs:

DTX401 is an adeno-associated virus 8 (AAV8) gene therapy product candidate for the treatment of patients with glycogen storage disease type Ia (GSDIa);
DTX301 is an AAV8 gene therapy product candidate in development for the treatment of patients with ornithine transcarbamylase (OTC) deficiency, the most common urea cycle disorder;
UX143 (setrusumab), which is subject to the Company's collaboration agreement with Mereo BioPharma 3 (Mereo), 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 for the treatment of patients with osteogenesis imperfect (OI);
GTX-102 is an antisense oligonucleotide (ASO), which the Company is collaborating on the development with GeneTx Biotherapeutics LLC (GeneTx) 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;
UX701 is an AAV type 9 gene therapy designed to deliver stable expression of a truncated version of the ATP7B copper transporter following a single intravenous infusion to improve copper distribution and excretion from the body and reverse pathological findings of Wilson liver disease; and
UX053 is a messenger RNA (mRNA) product candidate designed for the treatment of patients with Glycogen Storage Disease Type III (GSDIII), a disease caused by a glycogen debranching enzyme (AGL) deficiency that results in glycogen accumulation in the liver and muscle.

The Company has sustained operating losses and expects such annual losses to continue over the next several years. The Company’s ultimate success depends on the outcome of its research and development and commercialization activities, for which it expects to incur additional losses in the future. Management recognizes that the Company will likely need to raise additional capital to fully implement its business plans. Through March 31, 2022, the Company has relied primarily on its sale of equity securities, its revenues from commercial products, its sale of future royalties, and strategic collaboration arrangements to finance its operations.

The Company will likely raise additional capital through the issuance of equity, borrowings, or strategic alliances with partner companies. However, if such financing is not available at adequate levels, the Company would need to reevaluate its operating plans.

 

7


 

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the preceding fiscal year contained in the Company’s Annual Report on Form 10-K filed on February 15, 2022 (Annual Report) with the United States Securities and Exchange Commission (the SEC).

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022. The Condensed Consolidated Balance Sheet as of December 31, 2021 has been derived from audited financial statements at that date, but does not include all of the information required by GAAP for complete financial statements.

Use of Estimates

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of expenses in the Condensed Consolidated Financial Statements and the accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to clinical trial accruals, fair value of assets and liabilities, income taxes, stock-based compensation, revenue recognition, and the liability related to the sale of future royalties. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

Restricted cash primarily consists of money market accounts used as collateral for the Company’s obligations under its facility leases and the gene therapy building construction project. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows (in thousands):

 

 

March 31,

 

 

2022

 

 

2021

 

Cash and cash equivalents

$

153,988

 

 

$

383,794

 

Restricted cash included in prepaid expenses and
    other current assets

 

217

 

 

 

10,687

 

Restricted cash included in other assets

 

2,001

 

 

 

1,921

 

Total cash, cash equivalents, and restricted cash
    shown in the statements of cash flows

$

156,206

 

 

$

396,402

 

 

Credit Losses

The Company is exposed to credit losses primarily through receivables from customers and collaborators and through its available-for-sale debt securities. For trade receivables and other instruments, the Company uses a forward-looking expected loss

8


 

model that generally results in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses are recognized as allowances rather than as reductions in the amortized cost of the securities.

The Company’s expected loss allowance methodology for the receivables is developed using historical collection experience, current and future economic market conditions, a review of the current aging status and financial condition of the entities. Specific allowance amounts are established to record the appropriate allowance for customers that have a higher probability of default. Balances are written off when determined to be uncollectible. The Company’s expected loss allowance methodology for the debt securities is developed by reviewing the extent of the unrealized loss, the size, term, geographical location, and industry of the issuer, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. There were no material credit losses recorded for receivables and available-for-sale debt securities for the three months ended March 31, 2022 and 2021.

 

Revenue Recognition

Collaboration and license revenue

The Company has certain license and collaboration agreements that are within the scope of Accounting Standards Codification (ASC) 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. Generally, the classification of the transactions under the collaborative arrangements is determined based on the nature of contractual terms of the arrangement, along with the nature of the operations of the participants. The Company records its share of collaboration revenue, net of transfer pricing related to net sales in the period in which such sales occur, if the Company is considered as an agent in the arrangement. The Company is considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product. Funding received related to research and development services and commercialization costs is generally classified as a reduction of research and development expenses and selling, general and administrative expenses, respectively, in the Condensed Consolidated Statement of Operations, because the provision of such services for collaborative partners are not considered to be part of the Company’s ongoing major or central operations.

In order to record collaboration revenue, the Company utilizes certain information from its collaboration partners, including revenue from the sale of the product, associated reserves on revenue, and costs incurred for development and sales activities. For the periods covered in the financial statements presented, there have been no material changes to prior period estimates of revenues and expenses.

The Company sold the right to receive certain royalty payments from net sales of Crysvita to RPI Finance Trust (RPI), an affiliate of Royalty Pharma, as further described in Note 7. The Company records the royalty revenue from the net sales of Crysvita in the applicable European territories on a prospective basis as non-cash royalty revenue in the Condensed Consolidated Statements of Operations over the term of the arrangement.

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

If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. The Company estimates the efforts needed to complete the performance obligations and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligations using input measures.

Product sales

The Company sells its approved products through a limited number of distributors. Under ASC 606, revenue from product sales is recognized at the point in time when the delivery is made and when title and risk of loss transfers to these distributors. The Company also recognizes revenue from sales of certain products on a “named patient” basis, which are allowed in certain countries prior to the commercial approval of the product. Prior to recognizing revenue, the Company makes estimates of the transaction

9


 

price, including any variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Product sales are recorded net of estimated government-mandated rebates and chargebacks, estimated product returns, and other deductions.

Provisions for returns and other adjustments are provided for in the period the related revenue is recorded, as estimated by management. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are reviewed periodically and adjusted as necessary. The Company’s estimates of government mandated rebates, chargebacks, estimated product returns, and other deductions depends on the identification of key customer contract terms and conditions, as well as estimates of sales volumes to different classes of payors. If actual results vary, the Company may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.

 

3. Financial Instruments

Financial assets and liabilities are recorded at fair value. The carrying amount of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company determines the fair value of its equity investments in Arcturus Therapeutics Holdings Inc. (Arcturus) and Solid Biosciences Inc. (Solid) by using the quoted market prices, which are Level 1 fair value measurements.

The following tables set forth the fair value of the Company’s financial assets remeasured on a recurring basis based on the three-tier fair value hierarchy (in thousands):

 

March 31, 2022

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds

$

113,600

 

 

$

 

 

$

 

 

$

113,600

 

Certificate of deposits and time deposits

 

 

 

 

27,101

 

 

 

 

 

 

27,101

 

Corporate bonds

 

 

 

 

384,474

 

 

 

 

 

 

384,474

 

Commercial paper

 

 

 

 

120,685

 

 

 

 

 

 

120,685

 

Asset-backed securities

 

 

 

 

12,875

 

 

 

 

 

 

12,875

 

U.S. Government Treasury and agency securities

 

7,172

 

 

 

106,344

 

 

 

 

 

 

113,516

 

Debt securities in government-sponsored entities

 

 

 

 

19,328

 

 

 

 

 

 

19,328

 

Investments in Arcturus and Solid common stock

 

22,871