UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended March 31, 2014

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)

 

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 and 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.     YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).     YES  x    NO  ¨

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of May 7, 2014, the registrant had 30,035,894 shares of common stock issued and outstanding.

 

 

 

 

 


ULTRAGENYX PHARMACEUTICAL INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2014

INDEX

 

 

 

 

 

 

  

Page

 

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

  

 

 

 

 

 

 

Part I –

 

Financial Information

  

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Condensed Financial Statements – Unaudited

  

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Balance Sheets

  

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Operations

  

3

 

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Comprehensive Loss

  

4

 

 

 

 

 

 

 

 

 

 

 

Condensed Statements of Cash Flows

  

5

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Financial Statements

  

6

 

 

 

 

 

 

 

 

 

Item 2.

 

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

  

15

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

24

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

  

24

 

 

 

 

 

Part II –

 

Other Information

  

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

  

25

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

  

25

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

52

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

  

52

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

  

52

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

  

52

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

  

53

 

 

 

 

 

 

 

 

 

Signatures

 

 

  

54

 

 

 

 


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “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 expectations regarding the timing of commencing our clinical studies and reporting results from same;

·

the timing and likelihood of regulatory approvals for our product candidates;

·

the potential market opportunities for commercializing our product candidates;

·

our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved for commercial use;

estimates of our expenses, future 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 and product candidates;

·

the initiation, timing, progress, and results of future preclinical studies 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 product candidates;

·

our ability to maintain and establish collaborations or obtain additional funding;

·

our ability to maintain and establish relationships with third parties, such as contract research organizations, suppliers and distributors;

·

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

·

our financial performance and expansion of our organization;

·

our ability to obtain supply of our product candidates;

·

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 on Form 10-Q 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 listed under Part II, Item 1A. Risk Factors and discussed elsewhere in this Quarterly Report on Form 10-Q. 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 on Form 10-Q 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


ULTRAGENYX PHARMACEUTICAL INC.

(A Development Stage Company)

CONDENSED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

March 31,

 

 

December 31,

 

 

2014

 

 

2013

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

55,447

 

 

$

7,427

 

Short-term investments

 

109,950

 

  

 

45,950

 

Prepaid expenses and other current assets

 

4,239

 

 

 

1,848

 

Total current assets

 

169,636

 

 

 

55,225

 

Property and equipment, net

 

1,777

 

 

 

1,325

 

Restricted cash

 

744

 

 

 

451

 

Other assets

 

550

 

 

 

2,648

 

Total assets

$

172,707

 

 

$

59,649

 

 

 

 

 

 

 

 

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

3,495

 

 

$

1,437

 

Accrued liabilities

 

3,238

 

 

 

4,406

 

Deferred rent—current portion

 

78

 

 

 

78

 

Total current liabilities

 

6,811

 

 

 

5,921

 

Convertible preferred stock warrant liability

 

 

 

 

3,419

 

Other liabilities

 

182

 

 

 

200

 

Total liabilities

 

6,993

 

 

 

9,540

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A redeemable convertible preferred stock, par value of $0.001 per share—nil and

   35,377,566 shares authorized; nil and 34,349,894 shares issued and outstanding as of

   March 31, 2014 and December 31, 2013

 

 

 

 

51,001

 

Series B convertible preferred stock, par value of $0.001 per share—nil and 27,081,680 shares

   authorized, issued and outstanding as of March 31, 2014 and December 31, 2013

 

 

 

 

73,929

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

Preferred stock, par value of $0.001 per share—25,000,000 shares authorized; nil

   outstanding as of March 31, 2014 and December 31, 2013

 

 

 

 

 

Common stock, par value of $0.001 per share—250,000,000 shares authorized;

   30,049,650 and 3,766,289 shares issued and outstanding as of March 31, 2014 and

   December 31, 2013

 

30

 

 

 

4

 

Additional paid-in capital

 

258,599

 

 

 

 

Accumulated other comprehensive income (loss)

 

(46

)

 

 

11

 

Deficit accumulated during the development stage

 

(92,869

)

 

 

(74,836

)

Total stockholders’ equity (deficit)

 

165,714

 

 

 

(74,821

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

$

172,707

 

 

$

59,649

 

See accompanying notes.

 

 

 

2


ULTRAGENYX PHARMACEUTICAL INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

Three Months Ended March 31,

 

 

Period from April 22, 2010 (Inception) Through March 31,

 

 

2014

 

 

2013

 

 

2014

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

8,353

 

 

$

5,664

 

 

$

54,499

 

General and administrative

 

1,986

 

 

 

1,083

 

 

 

11,916

 

Total operating expenses

 

10,339

 

 

 

6,747

 

 

 

66,415

 

Loss from operations

 

(10,339

)

 

 

(6,747

)

 

 

(66,415

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

93

 

 

 

26

 

 

 

314

 

Interest expense

 

 

 

 

 

 

 

(318

)

Other expense, net

 

(3,384

)

 

 

(14

)

 

 

(6,770

)

Total other income (expense), net

 

(3,291

)

 

 

12

 

 

 

(6,774

)

Net loss

$

(13,630

)

 

$

(6,735

)

 

$

(73,189

)

Net loss attributable to common stockholders

$

(18,438

)

 

$

(8,205

)

 

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

$

(0.85

)

 

$

(2.84

)

 

 

 

 

Shares used in computing net loss per share attributable to common stockholders,

   basic and diluted

 

21,582,435

 

 

 

2,893,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

3


ULTRAGENYX PHARMACEUTICAL INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

Period from
April 22, 2010
(Inception)
Through
March 31,

 

 

2014

 

 

2013

 

 

2014

 

Net loss

$

(13,630

)

 

$

(6,735

)

 

$

(73,189

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

(57

)

 

 

 

 

 

(46

)

Total comprehensive loss

$

(13,687

)

 

$

(6,735

)

 

$

(73,235

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

4


(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)(In thousands)

 

 

Three Months Ended March 31,

 

 

Period from
April 22, 2010
(Inception)
Through
March 31,

 

 

2014

 

 

2013

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(13,630

)

 

$

(6,735

)

 

$

(73,189

)

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

117

 

 

 

124

 

 

 

914

 

Noncash interest expense

 

 

 

 

 

 

 

318

 

Amortization of premium (discount) on investment securities

 

479

 

 

 

(6

)

 

 

1,892

 

Stock-based compensation

 

795

 

 

 

191

 

 

 

2,597

 

Revaluation of convertible preferred stock warrant liability

 

3,324

 

 

 

(2

)

 

 

6,540

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

(2,391

)

 

 

(776

)

 

 

(4,239

)

Other assets

 

2,098

 

 

 

(96

)

 

 

(550

)

Accounts payable

 

2,058

 

 

 

1,339

 

 

 

3,495

 

Accrued liabilities and other liabilities

 

(1,186

)

 

 

(332

)

 

 

3,498

 

Net cash used in operating activities

 

(8,336

)

 

 

(6,293

)

 

 

(58,724

)

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

(569

)

 

 

(177

)

 

 

(2,691

)

Purchase of investments

 

(87,998

)

 

 

(14,923

)

 

 

(151,951

)

Proceeds from maturities of investments

 

23,462

 

 

 

 

 

 

40,063

 

Increase in restricted cash

 

(293

)

 

 

 

 

 

(744

)

Net cash used in investing activities

 

(65,398

)

 

 

(15,100

)

 

 

(115,323

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from issuance of convertible preferred stock

 

 

 

 

 

 

 

103,888

 

Net proceeds from issuance of common stock

 

126,100

 

 

 

1

 

 

 

126,402

 

Proceeds from issuance of promissory notes

 

 

 

 

 

 

 

3,550

 

Payment of preferred stock dividend

 

(4,346

)

 

 

 

 

 

(4,346

)

Net cash provided by financing activities

 

121,754

 

 

 

1

 

 

 

229,494

 

Net increase (decrease) in cash and cash equivalents

 

48,020

 

 

 

(21,392

)

 

 

55,447

 

Cash and cash equivalents at beginning of period

 

7,427

 

 

 

86,190

 

 

 

 

Cash and cash equivalents at end of period

$

55,447

 

 

$

64,798

 

 

$

55,447

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing information:

 

 

 

 

 

 

 

 

 

 

 

Issuance of convertible preferred stock warrants

$

 

 

$

 

 

$

202

 

Issuance of Series A redeemable convertible preferred stock in lieu

 

 

 

 

 

 

 

 

 

 

 

of cash dividend

$

 

 

$

 

 

$

2,070

 

Reclassification of warrant liability to equity upon conversion to

 

 

 

 

 

 

 

 

 

 

 

common stock warrants

$

6,743

 

 

$

 

 

$

6,743

 

Conversion of interest accrued on promissory notes into Series A

 

 

 

 

 

 

 

 

 

 

 

redeemable convertible preferred stock

$

 

 

$

 

 

$

114

 

Conversion of promissory notes into Series A redeemable

 

 

 

 

 

 

 

 

 

 

 

convertible preferred stock

$

 

 

$

 

 

$

3,550

 

Conversion of Series A and Series B preferred stock to common stock

$

129,360

 

 

$

 

 

$

129,360

 

 

See accompanying notes.

 

 

 

5


 

ULTRAGENYX PHARMACEUTICAL INC.

(A Development Stage Company)

Notes to Condensed Financial Statements

 

1.

Organization

Ultragenyx Pharmaceutical Inc. (the Company) is a development stage biotechnology company and was incorporated in California on April 22, 2010. The Company subsequently reincorporated in the state of Delaware in June 2011.

The Company is focused on the identification, acquisition, development, and commercialization of novel products for the treatment of rare and ultra-rare diseases, with an initial focus on serious and debilitating metabolic genetic diseases. The Company is currently conducting a Phase 2 extension study of sialic acid, extended release (SA-ER) in patients with hereditary inclusion body myopathy (HIBM), a progressive muscle-wasting disorder; a Phase 1/2 study of recombinant human beta-glucuronidase (rhGUS) in patients with mucopolysaccharidosis 7, or MPS 7, a rare lysosomal storage disease; a Phase 2 clinical study for triheptanoin for the treatment of patients with glucose transporter type-1 deficiency syndrome (Glut1 DS), a brain energy deficiency; and a Phase 2 clinical study of triheptanoin, in patients severely affected by long-chain fatty acid oxidation disorders (LC-FAOD), a genetic disorder in which the body is unable to convert long chain fatty acids into energy. The Company has also entered into a collaboration and license agreement with Kyowa Hakko Kirin Co., Ltd. (KHK) for KRN23, an antibody targeting fibroblast growth factor 23, or FGF23, intended for the treatment of X-linked hypophosphatemia, or XLH, a rare genetic disease that impairs bone growth.

On January 30, 2014, the Company’s registration statements on Form S-1 (File Nos. 333-192244 and 333-193675) relating to its initial public offering (IPO) of its common stock were declared effective by the Securities and Exchange Commission (SEC). The shares began trading on The NASDAQ Global Select Market on January 31, 2014. The public offering price of the shares sold in the offering was $21.00 per share. The IPO closed on February 5, 2014 and included 6,624,423 shares of common stock, which included 864,054 shares of common stock issued pursuant to the over-allotment option granted to the underwriters. The Company received total proceeds from the offering of $129.4 million, net of underwriting discounts and commissions of $9.7 million. After deducting offering expenses of approximately $3.3 million and a cash dividend of $4.3 million, which was paid to the preferred stockholders on the closing date, net proceeds were approximately $121.7 million. Upon the closing of the IPO, all shares of convertible preferred stock then outstanding converted into 19,598,486 shares of common stock and the Series A convertible preferred stock warrants were converted into warrants to purchase common stock.

Upon the effectiveness of the Amended and Restated Certificate of Incorporation of the Company on February 5, 2014, the number of shares of capital stock the Company is authorized to issue was increased to 275,000,000 shares, of which 250,000,000 shares are common stock and 25,000,000 shares are preferred stock. Both the common stock and preferred stock have a par value of $0.001 per share. There are no shares of preferred stock outstanding at March 31, 2014.

 

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. general accepted accounting principles (“U.S. 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 generally accepted accounting principles for complete financial statements. The unaudited interim 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 March 24, 2014 with the SEC.

The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014. The condensed balance sheet as of December 31, 2013 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

Reverse Stock Split

In January 2014, the Company’s board of directors and its stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock on a 1-for-3.1345 basis (the “Reverse Stock Split”). The par values and the authorized shares of the common and convertible preferred stock were not adjusted as a result of the Reverse Stock Split, nor were the outstanding shares of preferred stock. All issued and outstanding common stock and related per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented. A proportional adjustment to the conversion ratio for each series of convertible preferred stock was also effected in connection with the Reverse Stock Split. The Reverse Stock Split was effected on January 17, 2014.

6


 

Use of Estimates

The preparation of condensed financial statements in conformity with U.S. 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 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, convertible preferred stock and related warrants, common stock, income taxes and stock-based compensation. 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 and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts.

Short-Term Investments

All investments have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments in debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Unrealized gains and losses are excluded from earnings and were reported as a component of comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest income and other expense, respectively. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest income.

Deferred Offering Costs

Deferred offering costs, which primarily consist of direct incremental accounting, legal and printing fees relating to the IPO, were initially capitalized. The deferred offering costs of $3.3 million were subsequently offset against IPO proceeds upon the completion of the IPO in February of 2014. As of December 31, 2013, $2.3 million of deferred offering costs were capitalized and included in prepaid and other current assets on the balance sheet.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, and marketable securities. The Company’s cash, cash equivalents, and short-term investments are held by financial institutions that management believes are of high credit quality. The Company’s investment policy limits investments to fixed income securities denominated and payable in U.S. dollars such as U.S. government obligations, money market instruments and funds, corporate bonds, and asset-backed securities and places restrictions on maturities and concentrations by type and issuer. Such deposits may, at times, exceed federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents and its accounts are monitored by management to mitigate risk. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents and corporate bond issuers to the extent recorded in the balance sheets.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.

The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

7


 

Net Loss per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. The net loss attributable to common stockholders is calculated by adjusting the net loss of the Company for the accretion on the Series A convertible preferred stock and cumulative dividends paid on Series A and B convertible preferred stock. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since the effects of potentially dilutive securities are antidilutive.

 

3.

Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The carrying amount of certain financial instruments, including cash and cash equivalents, 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 following tables set forth the fair value of the Company’s financial assets and liabilities remeasured on a recurring basis based on the three-tier fair value hierarchy (in thousands):

 

 

March 31, 2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

33,842

 

 

$

 

 

$

 

 

$

33,842

 

Commercial paper

 

 

 

 

5,985

 

 

 

 

 

 

5,985

 

Corporate bonds

 

 

 

 

118,231

 

 

 

 

 

 

118,231

 

U.S. Government securities

 

 

 

 

2,998

 

 

 

 

 

 

2,998

 

Total financial assets

$

33,842

 

 

$

127,214

 

 

$

 

 

$

161,056

 

 

 

 

December 31, 2013

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

6,847

 

 

$

 

 

$

 

 

$

6,847

 

Commercial paper

 

 

 

 

1,000

 

 

 

 

 

 

1,000

 

Corporate bonds

 

 

 

 

44,950

 

 

 

 

 

 

44,950

 

Total financial assets

$

6,847

 

 

$

45,950

 

 

$

 

 

$

52,797

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock warrant liability

$

 

 

$

 

 

$

3,419

 

 

$

3,419

 

Total financial liabilities

$

 

 

$

 

 

$

3,419

 

 

$

3,419

 

The convertible preferred stock warrant liability was classified as a Level 3 liability. As of December 31, 2013, the Company determined the estimated fair value of the warrants using an option-pricing method to allocate the equity value of the Company to the warrants based on the Company’s capital structure. The equity value was estimated using the back-solve method, whereby the equity value was derived from a recent transaction involving the Company’s own securities. The key inputs used to determine value of the warrants was an estimated fair value of the Company’s common stock of $12.14 per share, expected volatility of 70%, the expected time to liquidity event of 0.43 years and risk-free interest rate of 0.11%. The significant unobservable input used in the fair value measurement of the convertible preferred stock warrant liability was the equity value of the Company. Generally, increases (decreases) in the equity value of the Company would result in a directionally similar impact to the fair value measurement of the preferred stock warrant liability.

8


 

As of January 30, 2014, the Company determined the estimated fair value of the warrants using the Black-Scholes option-pricing model. Inputs used to determine the fair value included the value of the Company’s common stock upon closing of the IPO of $21.00, the remaining contractual term of the warrants of 7.0 years, risk-free interest rate of 2.19% and expected volatility of 70%. The preferred stock warrants were converted to common stock warrants upon the completion of the IPO and are no longer subject to remeasurement.

The following table sets forth a summary of the changes in the estimated fair value of the Company’s convertible preferred stock warrants, which were measured at fair value on a recurring basis until their conversion to common stock warrants and related reclassification to additional paid-in capital (in thousands):

 

 

Three Months Ended March 31,

 

 

2014

 

 

2013

 

Fair value, beginning of period

$

3,419

 

 

$

518

 

Change in fair value recorded as a loss in other expense, net

 

3,324

 

 

 

(2

)

Reclassification of warrant liability to additional paid-in capital

 

(6,743

)

 

 

 

Fair value, end of period

$

 

 

$

516

 

 

4.

Balance Sheet Components

Cash Equivalents and Short-term Investments

The fair values of cash equivalents and short-term investments classified as available-for-sale securities, consisted of the following:  

 

 

March 31, 2014

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

 

Amortized

Cost

 

 

Gains

 

 

Losses

 

 

Estimated

Fair Value

 

Money market funds classified as cash equivalents

$

33,842

 

 

$

 

 

$

 

 

$

33,842

 

Corporate bonds classified as cash equivalents

 

17,263

 

 

 

2

 

 

 

(1

)

 

 

17,264

 

Commercial Paper classified as short-term investments

 

5,985

 

 

 

 

 

 

 

 

 

5,985

 

Corporate bonds classified as short-term investments

 

101,017

 

 

 

18

 

 

 

(68

)

 

 

100,967

 

U.S Government securities classified as short-term investments

 

2,995

 

 

 

3

 

 

 

 

 

 

2,998

 

Total

$

161,102

 

 

$

23

 

 

$

(69

)

 

$

161,056

 

 

 

December 31, 2013

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

 

Amortized

Cost

 

 

Gains

 

 

Losses

 

 

Estimated

Fair Value

 

Money market funds classified as cash equivalents

$

6,847

 

 

$

 

 

$

 

 

$

6,847

 

Commercial Paper classified as short-term investments

 

1,000

 

 

 

 

 

 

 

 

 

1,000

 

Corporate bonds classified as short-term investments

 

44,939

 

 

 

17

 

 

 

(6

)

 

 

44,950

 

Total

$

52,786

 

 

$

17

 

 

$

(6

)

 

$

52,797

 

 

At March 31, 2014, the remaining contractual maturities of available-for-sale securities were less than two years. There have been no significant realized gains or losses on available-for-sale securities for the periods presented.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2014

 

 

2013

 

Research and clinical trial expenses

$

1,372

 

 

$

1,886

 

Payroll and related expenses

 

1,557

 

 

 

2,360

 

Other

 

309

 

 

 

160

 

Total accrued liabilities

$

3,238

 

 

$

4,406

 

 

 

9


 

5.

License and Research Agreements

Nobelpharma License Agreement

In September 2010, the Company entered into a collaboration and license agreement with Nobelpharma Co., Ltd. (Nobelpharma). Under the terms of this collaboration and license agreement, each party granted the other party a worldwide exclusive license under certain of that party’s intellectual property related to the compound identified as N-acetylneuraminic acid, also known as sialic acid, to develop, manufacture, and commercialize products. Nobelpharma’s licensed territory includes Japan and certain other Asian countries, and the Company’s licensed territory includes the rest of the world.

Under the collaboration and license agreement, the Company paid Nobelpharma $110,500 (10 million Yen) for the license, which was recorded as research and development expense in 2010, and also issued 76,567 shares of common stock to Nobelpharma with a minimal value. The Company is required to pay Nobelpharma royalties based on net sales upon product sales commencement. In addition, the Company is required to make certain payments to Nobelpharma based upon achievement of certain development and approval milestones. The Company paid $495,000 in development milestone payments from inception through March 31, 2014. The remaining total aggregate payments, if all milestones are achieved by Nobelpharma, would be 200 million Yen (approximately $1.9 million based on the exchange rate at March 31, 2014). The Company will pay a high single digit royalty on net sales in the Company’s territory and will receive a mid-single digit royalty on net sales in the Nobelpharma territory, excluding Japan, if such product sales are ever achieved. Net sales, as defined in the collaboration and license agreement, represent the net sales of products whereby the licensed compound is the active ingredient. If the products include other active ingredients, the portion of the net sales allocated to the licensed compound would be used in determining the royalty payments.

Saint Louis University License Agreement

In November 2010, the Company entered into a license agreement with Saint Louis University (SLU). Under the terms of this license agreement, SLU granted the Company an exclusive worldwide license to make, have made, use, import, offer for sale, and sell therapeutics related to SLU’s beta-glucuronidase product for use in the treatment of human diseases.

Under the license agreement, the Company paid SLU an up-front fee of $10,000, which was recorded as research and development expense in 2010. The Company will be required to make a milestone payment of $100,000 upon approval of a glucuronidase-based enzyme therapy for treatment of MPS 7. Additionally, upon reaching a certain level of cumulative worldwide sales of the product, the Company will be required to pay to SLU a low single-digit royalty on net sales of the licensed products in any country or region, if such product sales are ever achieved.

AAI Pharma License Agreement

In March 2011, the Company entered into a license agreement with AAI Pharma Services Corp. (AAI Pharma). Under the terms of this license agreement, AAI Pharma granted the Company a fully paid-up, royalty-free, exclusive, perpetual, and irrevocable license to research, develop, make, have made, use, import, offer for sale, and sell products incorporating AAI Pharma’s controlled release matrix solid dose oral tablet. Under the license agreement, the Company will pay a mid-single digit percentage of any sublicense revenue received by Ultragenyx related to the sublicense of AAI Pharma technology that had been initially licensed by Ultragenyx.

HIBM Research Group License Agreement

In April 2012, the Company entered into an exclusive license agreement with HIBM Research Group (HRG). Under the terms of this license agreement, HRG granted the Company an exclusive worldwide license to certain intellectual property related to the treatment of HIBM. Under the license agreement, the Company paid HRG an up-front fee of $25,000 which was recorded as research and development expense during the year ended December 31, 2012. The Company may make future payments that aggregate up to $300,000 and that are contingent upon attainment of various development and approval milestones. Additionally, the Company will pay to HRG a royalty of less than 1% of net sales of the licensed products in the licensed territories, if such product sales are ever achieved.

St. Jude Children’s Research Hospital License Agreement

In September 2012, the Company entered into a license agreement with St. Jude Children’s Research Hospital (St. Jude). Under the terms of this license agreement, St. Jude granted the Company an exclusive license under certain know-how to research, develop, make, use, offer to sell, import, and otherwise commercialize and exploit St. Jude’s protective protein, cathepsin, a protein product to treat, prevent, and/or diagnose galactosialidosis and other monogenetic diseases.

Under the license agreement, the Company paid St. Jude an up-front fee of $10,000 which was recorded as research and development expense during the year ended December 31, 2012. Additionally, the Company will pay to St. Jude a royalty of less than 1% on net sales of the licensed products in the licensed territories, if such product sales are ever achieved.

10


 

Baylor Research Institute License Agreement

In September 2012, the Company entered into a license agreement with Baylor Research Institute (BRI). Under the terms of this license agreement, BRI exclusively licensed to the Company certain intellectual property related to triheptanoin for North America. Under the license agreement, the Company paid BRI an up-front fee of $250,000 which was recorded as research and development expense during the year ended December 31, 2012. In June 2013, the Company notified BRI that it was exercising its option pursuant to the agreement to license the rights to triheptanoin in all territories outside of the United States, Canada and Mexico and paid the option exercise fee of $750,000.

The Company may make future payments of up to $10.5 million contingent upon attainment of various development milestones and $7.5 million contingent upon attainment of various sales milestones. Additionally, the Company will pay to BRI a mid-single digit royalty on net sales of the licensed product in the licensed territories, if such product sales are ever achieved.

Kyowa Hakko Kirin Collaboration and License Agreement

In August 2013, the Company entered into a collaboration and license agreement with Kyowa Hakko Kirin Co., Ltd. (KHK). Under the terms of this collaboration and license agreement, the Company and KHK will collaborate on the development and commercialization of certain products containing KRN23, an antibody directed towards FGF23, in the field of orphan diseases in the United States and Canada, or the profit share territory, and in the European Union, Switzerland, and Turkey, or the European territory, and the Company will have the right to develop and commercialize such products in the field of orphan diseases in Mexico and Central and South America, or Latin America. In the field of orphan diseases, and except for ongoing studies being conducted by KHK, the Company will be the lead party for development activities in the profit share territory and in the European territory until the applicable transition date. The Company will share the costs for development activities in the profit share territory and European territory conducted pursuant to the development plan before the applicable transition date equally with KHK. On the applicable transition date in the relevant territory, KHK will become the lead party and be responsible for these costs. However, the Company will continue to share the costs of the studies commenced prior to the applicable transition date equally with KHK. The Company has the primary responsibility for conducting certain research and development services. The Company is obligated to provide assistance in accordance with the agreed upon development plan as well as participate on various committees. If KRN23 is approved, the Company and KHK will share commercial responsibilities and profits in the profit share territory until the applicable transition date, KHK will commercialize KRN23 in the European territory and the Company will develop and commercialize KRN23 in Latin America. KHK will manufacture and supply KRN23 for clinical use globally and will manufacture and supply KRN23 for commercial use in the profit share territory and Latin America.

The Company is accounting for the agreement as a collaboration arrangement as defined in ASC 808, Collaborative Agreements; accordingly, the Company recognized $710,000 for its share of the costs as research and development expenses for the three months ended March 31, 2014. For the period from April 22, 2010 (Inception) through March 31, 2014, the Company recognized $1,514,000 for its share of the costs as research and development expenses.

 

 

6.

Convertible Preferred Stock Warrants and Common Stock Warrants

Upon the closing of the Company’s IPO, the Convertible Preferred Stock warrants were converted into warrants to purchase common stock.

As of March 31, 2014, outstanding common stock warrants consisted of the following:

 

Common Stock Warrants:

 

Number of Warrants

 

 

Date Issued

 

Term

 

Exercise Price

 

Common stock

 

 

83,167

 

 

June 2010

 

10 years

 

$

3.006

 

Common stock

 

 

203,759

 

 

February 2011

 

10 years

 

 

3.006

 

Common stock

 

 

66,533

 

 

June 2011

 

10 years

 

 

3.006

 

Total common stock warrants

 

 

353,459

 

 

 

 

 

 

 

 

 

 

As of December 31, 2013, outstanding preferred stock warrants consisted of the following:

 

Convertible Preferred Stock Warrants:

 

Number of Warrants

 

 

Date Issued

 

Term

 

Exercise Price

 

Series A

 

 

241,803

 

 

June 2010

 

10 years

 

$

1.034

 

Series A

 

 

592,417

 

 

February 2011

 

10 years

 

 

1.034

 

Series A

 

 

193,442

 

 

June 2011

 

10 years

 

 

1.034

 

Total convertible preferred stock warrants

 

 

1,027,662

 

 

 

 

 

 

 

 

 

11


 

The fair value of the warrants was estimated to be $6.7 million and $3.4 million as of January 30, 2014 (pricing date of IPO) and December 31, 2013, respectively.

The Company recorded ($3.3 million), $2,000, and ($6.5 million) to other income (expense) for three months ended March 31, 2014 and 2013 and for the period from April 22, 2010 (Inception) through March 31, 2014, representing the change in fair value of the warrants for the respective period.

 

7.

Convertible Preferred Stock

The holders of the Series A and Series B convertible preferred stock were entitled to receive cumulative dividends at the rate of $0.062 per share per annum, payable in the form of cash. Dividends accrued from day to day, whether or not declared, but were paid only when, as, and if declared by the Board of Directors. During 2012, $2.1 million of dividends were declared and paid to holders of Series A convertible preferred stock in the form of additional Series A convertible preferred stock. Dividends in arrears as of December 31, 2013 were $4.0 million for both series of preferred stock. Upon the closing of the IPO in February 2014, all shares of convertible preferred stock then outstanding automatically converted in 19,598,486 shares of common stock. In connection with the conversion of the convertible preferred stock, all accrued and outstanding dividends in the amount of $4.3 million were paid.

The Company initially recorded the Series A and Series B convertible preferred stock at their issuance price, which represents the carrying value. The Series A convertible preferred stock was redeemable at any time after June 16, 2017 once a written request to redeem such stock was received by the Company from holders of not less than seventy-five percent of the then outstanding Series A convertible preferred stock. As only the passage of time was required for the Series A convertible preferred stock to become redeemable, the difference in the initial carrying value of the Series A convertible preferred stock and their total redemption value was being accreted from the issuance date through the first redemption date of June 16, 2017. The Company recorded accretion of $4.4 million and $1.1 million for the three months ended March 31, 2014 and 2013, respectively. As a result of the conversion of the preferred stock to common stock in connection with the Company’s IPO, the Company is no longer accreting the Series A convertible preferred stock to its previously calculated redemption value.

 

8.

Stock-Based Compensation

2011 Equity Incentive Plan

In 2011, the Company adopted the 2011 Equity Incentive Plan (the 2011 Plan). The 2011 Plan provides for the granting of stock-based awards to employees, directors, and consultants under terms and provisions established by the Board of Directors. Under the terms of the 2011 Plan, options may be granted at an exercise price not less than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive stock options must be at least 110% of fair market of the common stock on the grant date, as determined by the Board of Directors. The terms of options granted under the 2011 Plan may not exceed ten years. Options granted generally vest over a period of four years. Typically, the vesting schedule for option grants to newly hired employees provides that 1/4 of the grant vests upon the first anniversary of the employee’s date of hire, with the remainder of the shares vesting monthly thereafter at a rate of 1/48 of the total shares subject to the option. All other employee options typically vest in equal monthly installments over the four-year vesting schedule. In connection with the Company’s IPO, no further grants will be made under this plan and all remaining shares available for grant were transferred to the 2014 Incentive Plan.

2014 Incentive Plan

In 2014, the Company adopted the 2014 Incentive Plan (the 2014 Plan), which became effective upon the closing of the Company’s IPO in February 2014. The 2014 Plan had 2,250,000 shares of common stock available for future issuance at the time of its inception, which included 655,038 shares available under the 2011 Plan, which were transferred to the 2014 Plan upon adoption. The 2014 Plan provides for automatic annual increases in shares available for grant, beginning on January 1, 2015 through January 1, 2024. The 2014 Plan provides for the granting of stock-based awards to employees, directors, and consultants under similar terms, conditions and provisions as the 2011 Plan.

Founder’s Stock

In connection with the Series A preferred stock financing, the Company entered into a stock repurchase agreement with the founder on June 16, 2011, whereby 2,552,241 shares of common stock previously owned by the founder were subject to repurchase by the Company at the original issuance price in the event that the founder’s employment is terminated either voluntarily or involuntarily. The repurchase rights lapsed over a period of two years from June 16, 2011. The Company calculated the estimated fair value of these restricted shares at the time the restriction was added to the shares as $1,199,000 and recorded this amount as stock-based compensation ratably over the period that the repurchase rights lapsed. Stock-based compensation expense pertaining to the founder’s stock was $0, $149,000, and $1,199,000 for the three months ended March 31, 2014 and 2013 and for the period from April 22, 2010 (Inception) through March 31, 2014, respectively.

12


 

The table below sets forth the functional classification of stock-based compensation expense, net of estimated forfeitures, for the periods presented (in thousands):

 

 

Three Months Ended March 31,

 

 

Period from

April 22, 2010

(Inception) Through

March 31,

 

 

2014

 

 

2013

 

 

2014

 

Research and development

$

705

 

 

$

30

 

 

$

1,156

 

General and administrative

 

90

 

 

 

161

 

 

 

1,441

 

Total stock-based compensation

$

795

 

 

$

191

 

 

$

2,597

 

 

 

9.

Defined Contribution Plan

In March 2013, the Company began to sponsor a 401(k) retirement plan, in which substantially all of its full-time employees are eligible to participate. Eligible participants may contribute a percentage of their annual compensation to this plan, subject to statutory limitations. The Company has not provided any contributions to the plan since its inception through March 31, 2014.

 

10.

Commitments and Contingencies

Commitments

The Company has various manufacturing, clinical, research, and other contracts with vendors in the conduct of the normal course of its business. As of March 31, 2014, the Company had a binding obligation for approximately $850,000 with a manufacturing vendor for the production of a drug substance for one of its product candidates.  All other significant contracts as of March 31, 2014 were terminable, with varying provisions regarding termination. If a contract with a specific vendor were to be terminated, the Company would only be obligated for the products or services that the Company had received at the time the termination became effective.

Contingencies

While there are no legal proceedings the Company is aware of, the Company may become party to various claims and complaints arising in the ordinary course of business. Management does not believe that any ultimate liability resulting from any such claims will have a material adverse effect on its results of operations, financial position, or liquidity. However, management cannot give any assurance regarding the ultimate outcome of such claims, and their resolution could be material to the Company for any particular period, depending upon the level of income or loss for the period, as well as the Company’s balance sheet.

 

 

11.

Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

 

 

Three Months Ended March 31,

 

 

2014

 

 

2013

 

Numerator:

 

 

 

 

 

 

 

Net loss

$

(13,630

)

 

$

(6,735

)

Accretion and dividends on convertible preferred stock

 

(4,808

)

 

 

(1,470

)

Net loss attributable to common stockholders

$

(18,438

)

 

$

(8,205

)

Denominator:

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

21,582,435

 

 

 

3,461,161

 

Less: weighted-average unvested common shares subject to repurchase

 

 

 

 

(567,164

)

Weighted-average shares used to compute net loss per share attributable

   to common stockholders, basic and diluted

 

21,582,435

 

 

 

2,893,997

 

Net loss per share attributable to common stockholders, basic and diluted

$

(0.85

)

 

$

(2.84

)

13


 

 

The following weighted-average outstanding common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:

 

 

Three Months Ended March 31,

 

 

2014

 

 

2013

 

Convertible preferred stock

 

 

 

 

19,598,486

 

Stock options to purchase common stock

 

2,315,345

 

 

 

1,440,154

 

Common stock subject to repurchase

 

 

 

 

567,164

 

Warrants to purchase convertible preferred stock

    (as if converted)

 

 

 

 

353,459

 

Warrants to purchase common stock

 

353,459

 

 

 

 

 

 

2,668,804

 

 

 

21,959,263

 

 

 

 

 

14


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 ended December 31, 2013.

Overview

We are a development-stage biopharmaceutical company focused on the identification, acquisition, development, and commercialization of novel products for the treatment of rare and ultra-rare diseases, with an initial focus on serious, debilitating metabolic genetic diseases. We focus on diseases for which the unmet medical need is high, the biology for treatment is clear, and for which there are no approved therapies. Since our inception in 2010, we have in-licensed potential treatments for five different diseases that are currently in or have completed Phase 1/2 or Phase 2 clinical studies. 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.

Our current pipeline consists of two product categories: biologics, including a monoclonal antibody and enzyme replacement therapies; and small-molecule substrate replacement therapies. Enzymes are proteins that the body uses to process materials needed for normal cellular function, and substrates are the materials upon which enzymes act. When enzymes or substrates are missing, the body is unable to perform its normal cellular functions, often leading to significant clinical disease. Several of our therapies are intended to replace deficient enzymes or substrates.

Our biologics pipeline includes the following three product candidates:

KRN23, or UX023, is an antibody targeting fibroblast growth factor 23, or FGF23, intended for the treatment of X-linked hypophosphatemia, or XLH, a rare genetic disease that impairs bone growth. We are developing KRN23 pursuant to our collaboration with Kyowa Hakko Kirin Co., Ltd., or KHK. KHK has completed one Phase 1 study, one Phase 1/2 study, and one longer-term Phase 1/2 study of KRN23 in adults with XLH. We plan to initiate a Phase 2 pediatric study in 2014. We also expect to continue the clinical development of KRN23 in adults with XLH.