Ultragenyx Pharmaceutical Inc.
Ultragenyx Pharmaceutical Inc. (Form: 10-Q, Received: 05/05/2017 06:09:05)

 

 

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, 2017

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 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         NO  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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      NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

(Do not check if a smaller reporting company)

  

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 1, 2017, the registrant had 42,312,906 shares of common stock issued and outstanding.

 

 

 

 

 


ULTRAGENYX PHARMACEUTICAL INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2017

INDEX

 

 

 

 

 

 

  

Page

 

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

  

1

 

 

 

 

 

Part I –

 

Financial Information

  

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements – Unaudited

  

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

  

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

  

3

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

  

4

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

  

5

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

  

6

 

 

 

 

 

 

 

 

 

Item 2.

 

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

  

13

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

21

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

  

21

 

 

 

 

 

Part II –

 

Other Information

  

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

  

22

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

  

22

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

50

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

  

50

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

  

50

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

  

51

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

  

51

 

 

 

 

 

 

 

 

 

Signatures

 

 

  

52

 

 

 

 


C AUTIONARY 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,” “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 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 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 financial performance and the 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 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 discussed 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. FINANCIA L INFORMATION

Item 1. Financial Statements

 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

159,501

 

 

$

161,120

 

Short-term investments

 

265,689

 

  

 

219,028

 

Restricted cash

 

271

 

 

 

1,411

 

Prepaid expenses and other current assets

 

19,224

 

 

 

20,136

 

Total current assets

 

444,685

 

 

 

401,695

 

Property and equipment, net

 

16,517

 

 

 

17,055

 

Restricted cash

 

1,996

 

 

 

2,076

 

Long-term investments

 

80,862

 

 

 

117,963

 

Other assets

 

1,762

 

 

 

1,837

 

Total assets

$

545,822

 

 

$

540,626

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

8,345

 

 

$

5,364

 

Accrued liabilities

 

42,773

 

 

 

54,554

 

Deferred rent—current portion

 

637

 

 

 

341

 

Total current liabilities

 

51,755

 

 

 

60,259

 

Other liabilities

 

5,589

 

 

 

6,393

 

Total liabilities

 

57,344

 

 

 

66,652

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock — 25,000,000 shares authorized; nil outstanding as of March 31, 2017 and

 

 

 

 

 

 

 

      December 31, 2016

 

 

 

 

 

Common stock — 250,000,000 shares authorized; 42,273,429 and 41,240,230 shares issued

 

 

 

 

 

 

 

      and outstanding as of March 31, 2017 and December 31, 2016, respectively

 

42

 

 

 

41

 

Additional paid-in capital

 

1,087,028

 

 

 

1,003,561

 

Accumulated other comprehensive income

 

231

 

 

 

905

 

Accumulated deficit

 

(598,823

)

 

 

(530,533

)

Total stockholders’ equity

 

488,478

 

 

 

473,974

 

Total liabilities and stockholders’ equity

$

545,822

 

 

$

540,626

 

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,

 

 

 

2017

 

 

2016

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

$

51,269

 

 

$

40,415

 

 

General and administrative

 

18,685

 

 

 

13,207

 

 

Total operating expenses

 

69,954

 

 

 

53,622

 

 

Loss from operations

 

(69,954

)

 

 

(53,622

)

 

Other income (expense), net:

 

 

 

 

 

 

 

 

Interest income

 

1,082

 

 

 

984

 

 

Other income (expense), net

 

582

 

 

 

(119

)

 

Total other income (expense), net

 

1,664

 

 

 

865

 

 

Net loss

$

(68,290

)

 

$

(52,757

)

 

Net loss per share, basic and diluted

$

(1.63

)

 

$

(1.35

)

 

Shares used in computing net loss per share, basic and diluted

 

41,841,612

 

 

 

38,970,151

 

 

See accompanying notes.

 

 

 

3


ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

Net loss

$

(68,290

)

 

$

(52,757

)

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(648

)

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

(26

)

 

 

960

 

 

Other comprehensive income (loss):

 

(674

)

 

 

960

 

 

Total comprehensive loss

$

(68,964

)

 

$

(51,797

)

 

See accompanying notes.

 

 

 

4


ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(68,290

)

 

$

(52,757

)

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

 

 

 

 

 

 

 

Stock-based compensation

 

14,499

 

 

 

10,217

 

Amortization of premium on investment securities, net

 

549

 

 

 

1,828

 

Depreciation and amortization

 

1,161

 

 

 

544

 

Foreign currency remeasurement gain

 

(648

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

930

 

 

 

(4,028

)

Other assets

 

75

 

 

 

(1,468

)

Accounts payable

 

2,989

 

 

 

2,638

 

Accrued liabilities and other liabilities

 

(12,470

)

 

 

(1,869

)

Net cash used in operating activities

 

(61,205

)

 

 

(44,895

)

Investing activities:

 

 

 

 

 

 

 

Purchase of property and equipment

 

(485

)

 

 

(1,477

)

Purchase of investments

 

(87,527

)

 

 

(118,130

)

Proceeds from the sale of investments

 

12,415

 

 

 

11,494

 

Proceeds from maturities of investments

 

64,977

 

 

 

131,431

 

(Increase) decrease in restricted cash

 

1,220

 

 

 

(1,543

)

Net cash provided by (used in) investing activities

 

(9,400

)

 

 

21,775

 

Financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock in connection with at-the-market offering, net

 

67,591

 

 

 

 

Proceeds from issuance of common stock from equity awards, net

 

1,378

 

 

 

314

 

Net cash provided by financing activities

 

68,969

 

 

 

314

 

Effect of exchange rate changes on cash

 

17

 

 

 

 

Net decrease in cash and cash equivalents

 

(1,619

)

 

 

(22,806

)

Cash and cash equivalents at beginning of period

 

161,120

 

 

 

93,569

 

Cash and cash equivalents at end of period

$

159,501

 

 

$

70,763

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

5


ULTRAGENYX PHARMACEUTICAL INC.

Notes to Condensed Consolidated Financial Statements

 

1.

Organization

Ultragenyx Pharmaceutical Inc. (the Company) is a biopharmaceutical 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 a focus on serious, debilitating genetic diseases. The Company has completed a Phase 3 study of recombinant human beta-glucuronidase (rhGUS) in patients with mucopolysaccharidosis 7 (MPS 7), a rare lysosomal storage disease, and is conducting a Phase 3 study of aceneuramic acid extended-release (Ace-ER) in patients with GNE myopathy, a progressive muscle-wasting disorder; Phase 2 and Phase 3 studies of burosumab (KRN23 or UX023), an antibody targeting fibroblast growth factor 23 (FGF23), in pediatric and adult patients with X-linked hypophosphatemia (XLH) and a Phase 2 study in tumor induced osteomalacia (TIO), both rare diseases that impair bone mineralization; a Phase 3 study for UX007 in patients with glucose transporter type-1 deficiency syndrome (Glut1 DS), a brain energy deficiency, who are experiencing movement disorders; and a Phase 2 clinical study of UX007 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 operates as one reportable segment.

     

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the amounts of the Company and our 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 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 17, 2017 with the United States Securities and Exchange Commission (SEC).

The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017. The condensed consolidated balance sheet as of December 31, 2016 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 consolidated financial statements have been prepared in accordance with GAAP. The preparation of the 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 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, 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.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB), issued Accounting Standards Update (ASU) 2014-09,  Revenue from Contracts with Customers (ASC 606) , to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In March, April, May and December 2016, the FASB issued ASU 2016-08,  Revenue from Contracts with Customers: Principal versus Agent Considerations , ASU 2016-10,  Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing , ASU 2016-12,  Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients to provide supplemental adoption guidance and clarification to ASU 2014-09 ,   and ASU 2016-20,   Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers , respectively. The effective date for these new standards is the same as the effective date and transition requirements for ASU 2014-09. The Company has early adopted the new revenue standard as of January 1, 2017 using a full retrospective application to each prior reporting period presented. Through January 1, 2017, the

6


Company had recorded a cumulative inception to date total of $0.1 million of revenues. The adoption did not have an effect on the Consolidated Financial Statements on the adoption date and no adjustment to prior year consolidated fin ancial statements was required.

 

Product sales revenue

The Company recognizes revenue from sales of rhGUS (UX003) on a “named patient” basis, which is allowed in certain countries prior to the commercial approval of the product in the territory. Under ASC 606, revenue from product sales is recognized at the point in time when the product is shipped to the customer. 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 when the uncertainty associated with the variable consideration is subsequently resolved.

 

License and collaboration revenue

The Company has license and collaboration agreements with Kyowa Hakko Kirin Co., Ltd. (KHK) and Takeda Pharmaceutical Company Limited (Takeda). The license and collaboration agreements are within the scope of ASC 808, Collaborative Agreements , which provides guidance on the presentation and disclosure of collaborative arrangements. Funding received related to research and development services and pre-commercialization costs are classified as a reduction of research and development expenses and general and administrative expenses, respectively in the 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.  

Stock-Based Compensation

In March 2016, the FASB issued ASU 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which simplifies several aspects of the accounting for employee share-based payments, including income tax consequences, application of award forfeitures to expense, classification on the statement of cash flows, and classification of awards as either equity or liabilities. The Company adopted ASU 2016-09 as of January 1, 2017. On January 1, 2017, there was $19.7 million of cumulative unrecognized excess tax benefits which was fully offset by a corresponding increase in the valuation allowance. The adoption did not have any other impact on the Consolidated Financial Statements on the adoption date.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires an entity that is a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. This guidance also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, using a modified retrospective approach, and early adoption is permitted. The Company is evaluating the effect that this guidance will have on its Consolidated Financial Statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory , which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard must be adopted using a modified retrospective transition method which is a cumulative-effective adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is evaluating the effect that this guidance will have on its Consolidated Financial Statements and related disclosures.


7


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 remeasured on a recurring basis based on the three-tier fair value hierarchy (in thousands):

 

 

March 31, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

114,551

 

 

$

 

 

$

 

 

$

114,551

 

 

Corporate bonds

 

 

 

 

232,429

 

 

 

 

 

 

232,429

 

 

Commercial paper

 

 

 

 

13,958

 

 

 

 

 

 

13,958

 

 

Asset-backed securities

 

 

 

 

15,234

 

 

 

 

 

 

15,234

 

 

U.S. Government Treasury and agency securities

 

 

 

 

121,806

 

 

 

 

 

 

121,806

 

 

Total financial assets

$

114,551

 

 

$

383,427

 

 

$

 

 

$

497,978

 

 

 

 

December 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

123,536

 

 

$

 

 

$

 

 

$

123,536

 

 

Corporate bonds

 

 

 

 

207,726

 

 

 

 

 

 

207,726

 

 

Commercial paper

 

 

 

 

11,970

 

 

 

 

 

 

11,970

 

 

Asset-backed securities

 

 

 

 

27,713

 

 

 

 

 

 

27,713

 

 

U.S. Government Treasury and agency securities

 

 

 

 

111,931

 

 

 

 

 

 

111,931

 

 

Total financial assets

$

123,536

 

 

$

359,340

 

 

$

 

 

$

482,876

 

 

 

4.

Balance Sheet Components

Cash Equivalents and Investments

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

 

 

March 31, 2017

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

 

Amortized

Cost

 

 

Gains

 

 

Losses

 

 

Estimated

Fair Value

 

Money market funds

$

114,551

 

 

$

 

 

$

 

 

$

114,551

 

Corporate bonds

 

232,549

 

 

 

29

 

 

 

(149

)

 

 

232,429

 

Commercial paper

 

13,958

 

 

 

 

 

 

 

 

 

13,958

 

Asset-backed securities

 

15,241

 

 

 

 

 

 

(7

)

 

 

15,234

 

U.S. Government Treasury and agency securities

 

122,122

 

 

 

 

 

 

(316

)

 

 

121,806

 

Total

$

498,421

 

 

$

29

 

 

$

(472

)

 

$

497,978

 

8


 

 

December 31, 2016

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

 

Amortized

Cost

 

 

Gains

 

 

Losses

 

 

Estimated

Fair Value

 

Money market funds

$

123,536

 

 

$

 

 

$

 

 

$

123,536

 

Corporate bonds

 

207,909

 

 

 

14

 

 

 

(197

)

 

 

207,726

 

Commercial paper

 

11,970

 

 

 

 

 

 

 

 

 

11,970

 

Asset-backed securities

 

27,712

 

 

 

3

 

 

 

(2

)

 

 

27,713

 

U.S. Government Treasury and agency securities

 

112,166

 

 

 

10

 

 

 

(245

)

 

 

111,931

 

Total

$

483,293

 

 

$

27

 

 

$

(444

)

 

$

482,876

 

 

At March 31, 2017, 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. All marketable securities with unrealized losses at March 31, 2017 have been in a loss position for less than twelve months or the loss is not material and were temporary in nature. The Company does not intend to sell the investments that are in an unrealized loss position before recovery of their amortized cost basis.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Research and clinical study expenses

 

$

14,459

 

 

$

18,593

 

Payroll and related expenses

 

 

10,514

 

 

 

17,226

 

Repayment liability under collaboration agreement

 

 

13,063

 

 

 

13,650

 

Other

 

 

4,737

 

 

 

5,085

 

Total accrued liabilities

 

$

42,773

 

 

$

54,554

 

 

5.

License and Research Agreements

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, as amended, the Company and KHK will collaborate on the development and commercialization of certain products containing burosumab 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 also be the lead party for core development activities conducted in Japan and Korea, for which the core development plan is limited to clinical trials mutually agreed to by the Company and KHK. The Company will share the costs for development activities in the profit share territory and the European territory conducted pursuant to the development plan before the applicable transition date equally with KHK, and KHK shall be responsible for 100% of the costs for development activities in Japan and Korea. On the applicable transition date in the profit share territory and the European territory, KHK will become the lead party and be responsible for the costs of the development activities. 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. If burosumab 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 burosumab in the European territory, and the Company will develop and commercialize burosumab in Latin America.

KHK will manufacture and supply burosumab for clinical use globally and will manufacture and supply burosumab for commercial use in the profit share territory and Latin America. The remaining profit or loss from commercializing products in the profit-share territory, until the applicable transition date, will be shared between the Company and KHK on a 50/50 basis. Thereafter, the Company will be entitled to receive a tiered double-digit revenue share in the mid-to-high 20% range in the profit share territory. The Company will also be entitled to receive a royalty of up to 10% on net sales in the European territory. In Latin America, the Company will pay to KHK a low single-digit royalty on net sales.

The Company’s expenses were reduced by $7.4 million and $4.6 million for the three month periods ended March 31, 2017 and 2016, respectively, for its share of the costs as research and development and were reduced by $0.5 million and $0.3 million for the three month periods ended March 31, 2017 and 2016, respectively, for its share of the costs as general and administrative

9


expenditures.   As of March 31, 2017 and December 31, 2016, the Company had receivables in the amount of $7.9 million and $8.6 million, respectively, for this collaboration arrangement.

 

Takeda License and Collaboration and Purchase Agreements

In June 2016, the Company executed a collaboration and license agreement with Takeda Pharmaceutical Company Limited (Takeda). Pursuant to the agreement, which became effective in July 2016, the Company obtained an exclusive license for a pre-clinical compound from Takeda in a pre-determined field of use, which includes an option to an additional field of use for this product with the terms to be negotiated, and an option to a specified product candidate (identified option product). The Company is responsible for the development costs for the pre-clinical compound and the identified option product pursuant to an initial development plan. Because the license to the pre-clinical compound has no alternative future use, the estimated fair value of $0.7 million was recorded as a research and development expense upon acquisition. Under the license for the pre-clinical compound, the Company may be required to make future milestone payments to Takeda of up to $7.5 million if certain development milestones are met, $75.0 million if certain regulatory milestones are met, and $150.0 million if certain commercial milestones are met, as well as royalties with respect to net sales in the high-single digits to low-teens. Any products resulting from the pre-clinical compound or the identified option product is referred to in this report as the “licensed product.”

As part of the agreement, the Company and Takeda established a five-year research collaboration whereby the parties may mutually agree to add additional option products candidates to the collaboration, in which case the Company will bear the cost of the development activities, with certain exceptions.  

 In July 2016, the Company consummated a common stock purchase agreement, executed in conjunction with the collaboration and license agreement, whereby Takeda purchased 374,590 shares of the Company’s common stock for $40.0 million in cash. The fair market value of the common stock issued to Takeda was $27.3 million, based on the closing stock price of $72.95 on the date of issuance, resulting in a $12.7 million premium paid to the Company. The Company also received a put option to require Takeda to purchase an additional $25.0 million in shares of the Company’s common stock at the then-current 30-day volume-weighted average price (VWAP). The put option was exercised in October 2016, whereby Takeda purchased 352,530 shares of the Company’s common stock for $25.0 million in cash. Takeda is subject to a five-year standstill (subject to customary exceptions or release). The Company estimated the fair value of the put options to be $0.9 million and recorded the put options in additional paid-in capital. The valuation was performed using a Monte Carlo simulation approach using the term of the put options and an equity volatility of approximately 70%.

The Company also granted Takeda an exclusive option for Asian rights, for a limited period, to any licensed products and any additional products resulting from the collaboration, as well as an option to exclusively license one of the Company’s products for development and commercialization in Japan. If Takeda exercises any of its option rights to license a product pursuant to the agreement, Takeda will pay for the development costs within the licensed territory, will share in a portion of the global development costs, and will make a milestone payment upon regulatory approval. Takeda will also owe royalties on net sales in the licensed territory for any licensed product, depending on the development stage when the product is licensed as well as sales levels. The royalties related to the option to license the Company’s product, as well as the additional product are subject to future good faith negotiations at the time that the option is exercised.  

The research and license agreement and the stock purchase agreement are being accounted for as one arrangement because they were entered into at the same time with interrelated financial terms. The Company analogized to  ASC 606 for the accounting for the arrangements. The Company concluded that there are multiple promised goods and services under the collaboration agreement, including obligations related to research and development services with respect to licensed products as well as committee participation, which were determined to represent distinct performance obligations. The total consideration received from Takeda was $14.3 million and was comprised of the $12.7 million premium on the sale of the common stock, the $0.9 million estimated fair value of the put options, and the $0.7 million estimated fair value of the pre-clinical compound.

The Company is responsible for the costs under the initial development plan, which is expected to be performed over a period of approximately one and a half years. A significant portion of this work is expected to be performed by Takeda which has an estimated cost of approximately $10.0 million to $15.5 million and is subject to changes as development activities are adjusted and cost estimates are refined. The Company concluded that the payment to Takeda is not in return for a distinct service that Takeda transfers to the Company, therefore, the payment made to Takeda is accounted for as a reduction in the transaction price. As of March 31, 2017, the Company concluded that the total amount of funding to be returned to Takeda for the development work is uncertain and therefore concluded that the transaction price should be fully constrained. The Company could not conclude it is probable that a significant reversal in the amount recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. When evaluating whether the transaction price should be constrained, the Company evaluated ASC 606-10-32-12 and noted its experience with similar types of contracts is limited, and the contract has a large number and broad range of possible consideration amounts. Therefore, the Company has noted that the qualitative factors in ASC 606-10-32-12 (c) and (e) are both met. Based on the high level of uncertainty in the amount of transaction price that is refundable to Takeda, the Company concluded that the transaction price should be fully constrained through March 31, 2017. Therefore, the total consideration received from Takeda of $14.3 million was recorded as a refund liability. The Company will continue to re-evaluate the application of the constraint to the transaction price at each reporting period end date. The accounting result under ASC 606 was consistent with the conclusions under the prior revenue recognition standard.  

10


Once the transaction price is no longer constrained , any excess of the total consi deration received over the repayment obligation to Takeda will be classified as a contract liability, allocated to the distinct performance obligations on a relative standalone selling price basis, and recognized as a reduction of research and development expenses over time by measuring the progress toward complete satisfaction of the individual performance obligation using an input measure . The performance obligations are estimated to be substantially complete by March 2018. Costs incurred by the Company a ssociated with co-development activities performed under this collaboration are included in research and development expense in the accompanying consolidated statements of operations. As of March 31, 2017, the Company recorded a repayment liability under a collaboration agreement in the amount of $ 13.1 million. The Company acknowledges that the FASB added a project to its agenda in November 2016 to evaluate the interaction between ASC 808 and ASC 606 and some of the conclusions reached by the Company may change if new guidance is provided by FASB.   

  

6 .

Stock-Based Awards

The 2014 Incentive Plan (the 2014 Plan) provides for automatic annual increases in shares available for grant, beginning on January 1, 2015 through January 1, 2024. As of March 31, 2017, there were 1,892,354 shares reserved under the 2014 Plan for the future issuance of equity awards. The Company also had 1,844,853 shares reserved for the 2014 Employee Stock Purchase Plan, for which no shares had been issued.

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,

 

 

 

2017

 

 

2016

 

 

Research and development

$

8,543

 

 

$

6,575

 

 

General and administrative

 

5,956

 

 

 

3,642

 

 

Total stock-based compensation

$

14,499

 

 

$

10,217

 

 

 

 

7 .

Net Loss Per Share

Basic net loss per share has been computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock and potential dilutive securities outstanding during the period.

 

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

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Options to purchase common stock and restricted stock units

 

5,303,718

 

 

 

4,041,073

 

Employee stock purchase plan

 

24,590

 

 

 

 

Common stock warrants

 

149,700

 

 

 

149,700

 

 

 

5,478,008

 

 

 

4,190,773

 

 

11


8 .

Equity Transactions

In July 2016, the Company entered into an At-The-Market, or ATM, sales agreement, with Cowen and Company, LLC (Cowen), whereby the Company could sell up to $150.0 million in aggregate proceeds of common stock from time to time, through Cowen as its sales agent. During the three months ended March 31, 2017, the Company sold 912,351 shares of common stock, resulting in net proceeds of approximately $67.6 million, after commissions and other offering costs, which completed the sales of the total amount authorized in the agreement.

 

9.

Accumulated Other Comprehensive Income (Loss)

Total accumulated other comprehensive income (loss) consisted of the following (in thousands):

 

 

 

Three Months Ended March 31, 2017

 

 

 

Unrealized Gain (Loss) on Securities Available-for-Sale

 

 

Foreign Currency Translation Adjustments

 

 

Accumulated Other Comprehensive Income (Loss)

 

December 31, 2016

 

$

(417

)

 

$

1,322

 

 

$

905

 

Current period other comprehensive

    loss

 

 

(26

)

 

 

(648

)

 

 

(674

)

March 31, 2017

 

$

(443

)

 

$

674

 

 

$

231

 

 

 

 

Three Months Ended March 31, 2016

 

 

 

Unrealized Gain (Loss) on Securities Available-for-Sale

 

 

Foreign Currency Translation Adjustments

 

 

Accumulated Other Comprehensive Income (Loss)

 

December 31, 2015

 

$

(868

)

 

$

 

 

$

(868

)

Current period other comprehensive

     income

 

 

960

 

 

 

 

 

 

960

 

March 31, 2016

 

$

92

 

 

$

 

 

$

92

 

 

 


12


I tem 2.  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, 2016 (the “Annual Report”).

Overview

We are a clinical-stage biopharmaceutical company focused on the identification, acquisition, development, and commercialization of novel products for the treatment of serious rare and ultra-rare diseases, with a focus on serious, debilitating genetic diseases. We target diseases for which the unmet medical need is high, the biology for treatment is clear, and for which there are no currently approved therapies. Since our inception in 2010, we have in-licensed potential treatments for multiple rare genetic disorders. 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.

Clinical Product Candidates

Our current clinical-stage pipeline consists of two product categories: biologics (including a monoclonal antibody and an enzyme replacement therapy) 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 product candidates in clinical development for the treatment of three diseases:

 

Burosumab (KRN23 or UX023) is an antibody targeting fibroblast growth factor 23, or FGF23, in development for the treatment of X-linked hypophosphatemia, or XLH, a rare genetic disease that impairs bone growth. We are developing burosumab pursuant to our collaboration with Kyowa Hakko Kirin Co., Ltd., or KHK. We announced positive 64-week data from a Phase 2 study in pediatric patients in April 2016, and we have an ongoing Phase 3 pediatric study with data expected in 2018. We also announced positive topline data from a Phase 3 study in adult XLH patients in April 2017. In January 2017, we and Kyowa Kirin International PLC, a wholly owned subsidiary of KHK, announced that we filed a Marketing Authorization Application, or MAA, for the conditional marketing authorization of burosumab for the treatment of XLH based on the Phase 2 data, and that the EMA validated the application. An opinion from the Committee for Medicinal Products for Human Use, or CHMP, is expected by the end of 2017. We plan to submit a biologics license application, or BLA, to the FDA for burosumab in the second half of 2017. Based on discussions with the FDA, our understanding is that the pediatric Phase 3 study is currently not expected to be required for a U.S. filing. We continue to discuss the details of the planned submission with the FDA.

 

Burosumab is also being developed for the treatment of tumor-induced osteomalacia, or TIO. TIO results from typically benign tumors that produce excess levels of FGF23, which can lead to severe hypophosphatemia, osteomalacia, fractures, fatigue, bone and muscle pain, and muscle weakness. We expect data from a Phase 2 study of burosumab in adult inoperable TIO patients in the second half of 2017.

 

Recombinant human beta-glucuronidase, or rhGUS or UX003, is an enzyme replacement therapy we are developing for the treatment of mucopolysaccharidosis 7, or MPS 7, a rare lysosomal storage disease that often leads to multi-organ dysfunction, pervasive skeletal disease, and death. We announced positive 24-week data from a pivotal Phase 3 study in July 2016. Based on the positive Phase 3 results announced in July 2016, we met with the FDA and the EMA and are on track for US and EU regulatory filings in the first half of 2017.

Our substrate replacement therapy pipeline includes the following product candidates in clinical development for the treatment of three diseases:

 

UX007 is a synthetic triglyceride with a specifically designed chemical composition being studied in an open-label Phase 2 study for the treatment of long-chain fatty acid oxidation disorders, or LC-FAOD. LC-FAOD is a set of rare metabolic diseases that prevents the conversion of fat into energy and can cause low blood sugar, muscle rupture, and heart and liver disease. We continue to plan for discussions with regulatory authorities regarding the Phase 3 study.

13


 

UX007 is also being studied for the treatment of glu cose transporter type-1 deficiency syndrome, or Glut1 DS, a rare metabolic disease of brain energy deficiency that is characterized by seizures, developmental delay, and movement disorder. T opline data from the Phase 2 seizure study , which we announced in the first quarter of 2017 , indicated that the study did not meet the primary endpoint of reducing the frequency of the total number of observable and absence seizures among patients treated from baseline to Week 8 with UX007 compared to placebo. When evalu ating seizure type independently, UX007 treatment did reduce absence seizures captured on EEG, but not observable seizures captured by diary. Based on these results, we are evaluating our plans in the seizure indication. We also screened the first patient in a Phase 3 study in movement disorders in April 2017. If positive, the movement disorder study could serve as the basis for regulatory submissions.

 

Aceneuramic acid extended-release, or Ace-ER or UX001, is an extended-release form of aceneuramic acid in a fully enrolled Phase 3 study for the treatment of GNE myopathy, a neuromuscular disorder that causes muscle weakness and wasting. Data from the Phase 3 study are expected in the second half of 2017.

The following table summarizes our current clinical-stage product candidate pipeline:

Recent program updates

Burosumab for the treatment of XLH

In April 2017, we announced positive 64-week data from a 52-patient pediatric Phase 2 randomized, multicenter, open-label, dose-finding study of burosumab for the treatment of XLH in children aged five to 12 years of age. Patients demonstrated increases in mean serum phosphorus, renal phosphate reabsorption (TmP/GFR) and serum 1,25 dihydroxy vitamin D levels through 64 weeks of treatment.

14


Rickets severity was assessed using the RSS scoring system. There was a statistically significant improvement in rickets scores in all gr oups at 64 weeks, with the greatest improvements in patients with higher baseline rickets scores (RSS ≥1.5) who receive d bi-weekly dosing of burosumab. Overall, patients (n=52) had a 51% reduction in RSS score (p < 0.0001). Patients with higher baseline ri ckets scores (n=34) had a 59% reduction in RSS score (p < 0.0001). Patients who were dosed bi-weekly (n=26) had a 58% reduction in RSS score (p < 0.0001). Patients with higher baseline rickets scores who were dosed bi-weekly (n=17) had a 62% reduction in R SS score (p < 0.0001). The change in the severity of rickets was assessed by the RGI-C score. Data show significant improvement in rickets in all groups at 64 weeks. Overall, all patients (n=52) experienced a mean improvement in RGI-C score of +1.57 (p< 0. 0001) and those patients with higher baseline rickets scores (n=34) experienced a mean improvement of +1.98 (p< 0.0001). Within the higher severity subset, 77% (26/34) experienced substantial healing (score > 2). Overall, all p atients who were dosed bi-week ly (n=26) experienced a mean improvement in RGI-C score of +1.62 (p< 0.0001). Patients with higher baseline rickets scores who were dosed bi-weekly (n=17) showed a mean improvement of +2.08 (p< 0.0001) (substantial healing) , 82% experienced substantial hea ling (score > 2) . Patients with higher baseline rickets scores showed more growth impairment (baseline height percentile= 5.84), and these patients demonstrated greater improvement in growth. Among all patients (n=52), growth velocity improved by a mean of +0.55 cm/year (p=0.0376), and there was 0.15 change in height z-score (p<0.0001). Patients with higher baseline rickets scores had a +0.86 cm/year improvement in growth velocity (p=0.0175) and a 0.17 change in height z-score (p=0.0016). Patients who were d osed bi-weekly (n=26) experienced a +0.73 cm/year change in growth velocity (p=0.0160) and a 0.18 change in height z-score (p=0.0002). Patients with higher baseline rickets scores who were dosed bi-weekly (n=17) had a +1.11 cm/year change in growth velocit y (p=0.0076) and a 0.18 change in height z-score (p=0.0063).

Patients with walking impairment at baseline (defined by < 80% predicted normal walk distance in 6MWT) in the bi-weekly dosing group (n=14) achieved a mean increase of 85 meters (p<0.0001). Functional disability scores were measured with the Pediatric Orthopedic Society North America/Pediatric Outcome Data Collection Instrument (POSNA/PODCI). When evaluating the Global score of all five domains in those patients with substantial impairment at baseline (n= 28), defined as baseline scores < 40, or one standard deviation below the normalized score of 50), a mean improvement of +14.1 (p< 0.0001) was observed. Though the magnitude of these changes in functional measurements are substantial, any conclusions must be tempered by the fact that these data are from an uncontrolled, open-label study.

Approximately 65% of patients had injection site reactions, all of which were considered mild. There was one previously reported serious adverse event considered possibly treatment-related. This was a patient with fever and muscle pain who improved without complication and is still in the study. There have been no deaths or discontinuations from the study. No clinically meaningful changes were observed in mean serum calcium, urinary calcium and in serum intact parathyroid hormone. None of the patients had serum phosphorus levels above the upper limit of normal at any time point. No clinically significant changes were observed in renal ultrasounds pre- and post-treatment.

In April 2017, we also announced interim 24-week data from a separate pediatric Phase 2 study in patients aged one to five years. The 64-week study is assessing the safety, pharmacodynamics, and efficacy of burosumab administered every 2 weeks at a starting dose of 0.8mg/kg, which can be increased to 1.2mg/kg at any time during the study. Patients demonstrated increases in mean serum phosphorus, and maintained levels in the low normal range through 24 weeks of treatment. Patients also demonstrated increases in serum 1,25 dihydroxy vitamin D levels, and significant decreases in alkaline phosphatase levels. Adverse events were consistent with what has been previously observed for burosumab for the treatment of XLH. Approximately 23% of patients had injection-site reactions, all of which were considered mild. There have been no deaths or discontinuations from the study.

In April 2017, we announced positive 24-week data from the randomized, double-blind, placebo-controlled Phase 3 study of burosumab in adults with X-linked hypophosphatemia (XLH). The study enrolled 134 patients, randomized 1:1 to burosumab at a dose of 1 mg/kg or placebo every four weeks for 24 weeks. The study met the primary endpoint of increasing serum phosphorus levels as 94% of patients treated with burosumab (n=68) achieved serum phosphorus levels above the lower limit of normal and maintained levels in the low normal range through 24 weeks, compared to 8% in the placebo arm (n=66; p<0.0001).

There were three pre-specified key secondary endpoints, including stiffness and physical function, both measured by the Western Ontario and McMaster Universities Osteoarthritis Index (WOMAC®), and pain measured by the Brief Pain Inventory Question 3 (BPI Q3; pain at its worst in the last 24 hours). At week 24, stiffness improved by a mean score of 7.87 points for patients treated with burosumab compared to a 0.25 point worsening among patients in the placebo group (mean difference of 8.12; p=0.0122). Physical function improved by 3.11 points for patients treated with burosumab compared to a 1.79 point worsening among patients in the placebo group (mean difference of 4.90 points; p=0.0478). Pain score improved by 0.79 for patients treated with burosumab compared to a 0.32 improvement among patients in the placebo group (mean score difference of 0.46 points; p=0.0919). Results were directionally consistent towards improvement across all three key secondary endpoints. After pre-planned multiplicity adjustment, the improvement in stiffness among patients treated with burosumab remained statistically significant at the less than the 0.0167 threshold, while physical function and pain scores demonstrated strong trends.

15


There was no difference in the overall frequency of treatment emergent adverse eve nts, treatment related adverse events and serious adverse events bet ween the two treatment groups. The most common (>10%) adverse events in patients treated with either burosumab or placebo were back pain (burosumab 15%, placebo 9%), nasopharyngitis (buros umab 13%, placebo 9%), tooth abscess (burosumab 13%, placebo 8%), injection site reactions (burosumab 12%, placebo 12%), headache (burosumab 12%, placebo 8%), restless legs syndrome (burosumab 12%, placebo 8%), dizziness (burosumab 10%, placebo 6%), nausea (burosumab 10%, placebo 9%), arthralgia (burosumab 9%, placebo 24%), pain in extremity (burosumab 7%, placebo 15%) , and oropharyngeal pain (burosumab 2%, placebo 11%). There was no evidence of hypersensitivity reactions to injections. There were two serio us adverse events in each treatment group, none of which were considered treatment-related. No differences between groups were observed in serum intact parathyroid hormone levels or ectopic mineralization as assessed by renal ultrasounds or echocardiograms . Of the 134 patients enrolled in the study, one patient in the burosumab arm discontinued treatment during the 24-week double-blind treatment period due to consent withdrawal. There have been no deaths in the study .

UX007 for the treatment of Glut1 DS

In March 2017, we announced topline data from the Phase 2 global, randomized, double-blind, placebo-controlled, parallel-group clinical study of UX007 for the treatment of Glut1DS patients with seizures. The study enrolled 36 patients who were not fully compliant with ketogenic diet and continued to have seizures. Patients treated with UX007 (n=25) demonstrated a reduction of 13.4% in overall seizure frequency (p=0.41) relative to placebo (n=11), which did not meet the primary endpoint of reducing the frequency of total number of observable and absence seizures among patients treated from baseline to Week 8 with UX007 compared to placebo. For the pre-specified secondary analysis of the primary endpoint, patients with absence seizures (n=19) demonstrated a 47.3% reduction (p=0.009) in seizure frequency after eight weeks of treatment with UX007, compared to baseline. While clinically significant, this did not meet the statistical significance threshold of 0.005 using the pre-defined multiplicity adjustment. Patients with observable seizures (n=17) demonstrated a 9.1% reduction (p=0.29) in seizure frequency following treatment. Among UX007 treated patients with any absence seizures (with or without observable seizures; n=19), 42% were responders (50% or greater reduction in seizure frequency). Of those with absence seizures on EEG at baseline (n=10), 80% were responders. Of the patients who had absence seizures as determined by EEG (without observable seizures; n=8), 88% were responders and no patients were assigned to placebo. There was no difference in cognitive function as assessed by CANTAB in patients treated with UX007 compared to placebo. Two of the 36 enrolled patients discontinued treatment during the eight-week placebo-controlled period, and 12 patients have discontinued during the extension period to date. Two patients discontinued due to adverse events, four patients due to tolerability reasons, and eight patients due to compliance or study burden issues. There were no deaths, and no treatment-related serious adverse events. During the placebo-controlled period, 18 patients (72%) in the UX007 arm had treatment-related adverse events (AEs) and five patients (45%) in the placebo arm had treatment-related AEs. Most AEs were mild-to-moderate GI events including vomiting, diarrhea, and abdominal pain. Some gastrointestinal events were managed by adjusting dosing or dosing with food. Based on these data, we are continuing to evaluate our plans in the seizure indication.

In April 2017, we screened the first patient in the Phase 3 study of UX007 for the treatment of Glut1 DS patients with the movement disorder phenotype. The study is a randomized, double-blind, placebo-controlled, cross-over study designed to assess the efficacy and safety of UX007 in approximately 40 patients who are experiencing disabling paroxysmal movement disorders associated with Glut1 DS. Movement disorder events are defined as disabling if they affect or limit a patient's ability to perform activities of daily living. Eligible patients are randomized in a 1:1 ratio to one of two treatment sequences. Patients in the first group will begin a two-week titration period followed by an eight-week treatment period on UX007. Patients will then begin a 2-week washout period, followed by a 2-week titration period and 8-week period on placebo. Patients in the second group will follow the same schedule but will start with placebo and then cross over to UX007. The primary endpoint compares the frequency of disabling paroxysmal movement disorder events during the 8-week treatment period with UX007, to the frequency of disabling movement disorder events during the 8-week placebo treatment period as recorded by a daily electronic diary. Secondary endpoints include the duration of disabling paroxysmal movement disorder events; walking capacity and endurance measured by the 12-minute walk test; patient-reported health-related quality of life assessments of physical function, mobility, upper extremity function, fatigue and pain; cognitive function and safety. Following the 22-week blinded crossover study period, patients may roll into the open-label extension period to continue on UX007 treatment.

 

Preclinical Pipeline

rhPPCA (UX004) for the treatment of galactosialidosis

Recombinant human protective protein cathepsin-A, or rhPPCA, which we in-licensed from St. Jude Children’s Research Hospital, or St. Jude, in September 2012, is in preclinical development as an enzyme replacement therapy for galactosialidosis, a rare lysosomal storage disease for which there are no currently approved drug therapies. Similar to MPS patients, patients with galactosialidosis present with both soft tissue storage in the liver, spleen, and other tissues, as well as connective tissue (bone and cartilage) related disease. As with MPS 7, an enzyme deficiency results in accumulation of substrates in the lysosomes, causing skeletal and organ dysfunction, and death. We are continuing preclinical development of rhPPCA. Please see “—License and Collaboration Agreements—St. Jude Children’s Research Hospital” in our Annual Report for a description of our license agreement with St. Jude.

16


Collaboration with Arcturus Therapeutics, Inc. for mRNA therapeutics

We signed a research collaboration and license agreement with Arcturus Therapeutics, Inc. to develop mRNA therapeutics for select rare disease targets in October 2015. The Arcturus collaboration may help us address a wider range of rare diseases than possible with current approaches. As part of the collaboration, Arcturus will utilize its UNA Oligomer™ chemistry and LUNAR™ nanoparticle delivery platform to initially design and optimize mRNA therapeutics for two targets selected by us; we also have the option to add up to eight additional targets during the collaborative research period.

Collaboration with Takeda Pharmaceutical Company Limited

We entered into a strategic partnership with Takeda Pharmaceutical Company Limited, or Takeda, to develop and commercialize therapies to treat rare genetic diseases in June 2016. As part of the collaboration, we received an exclusive license to one preclinical Takeda product candidate in a pre-determined field of use, and we have an exclusive option to co-develop and co-commercialize the product candidate in additional therapeutic areas. We have also established a five-year research collaboration with Takeda in which we will have the option to license up to five additional Takeda product candidates for rare diseases.

Other preclinical programs

We continue to work on other compounds in various preclinical stages of development.

Financial Operations Overview

We are a clinical-stage company and have only a limited operating history. To date, we have invested substantially all of our efforts and financial resources in identifying, acquiring, and developing our product candidates, including conducting clinical studies and providing general and administrative support for these operations. To date, we have funded our operations primarily from the sale of equity securities.

We have never been profitable and have incurred net losses in each year since inception. Our net losses were $68.3 million and $52.8 million for the three months ended March 31, 2017 and 2016, respectively. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies during the three months ended March 31, 2017, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Significant Judgments and Estimates” in our most recent Annual Report on Form 10-K filed with the SEC.


17


Results of Operations

Comparison of the three months ended March 31, 2017 to the three months ended March 31, 2016:

Research and Development Expenses (dollars in thousands)

 

 

Three Months Ended March 31,

 

 

Dollar

 

 

%

 

 

 

2017

 

 

2016

 

 

Change

 

 

Change

 

 

Development candidate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

burosumab

$

9,694

 

 

$

6,743

 

 

$

2,951

 

 

 

44%

 

 

rhGUS

 

8,426

 

 

 

7,085

 

 

 

1,341

 

 

 

19%

 

 

UX007

 

10,743

 

 

 

9,119

 

 

 

1,624

 

 

 

18%

 

 

Ace-ER

 

6,237

 

 

 

7,797

 

 

 

(1,560

)

 

 

-20%

 

 

Other research costs and preclinical costs

 

16,169

 

 

 

9,671

 

 

 

6,498

 

 

 

67%

 

 

Total research and development expenses

$

51,269

 

 

$

40,415

 

 

$

10,854

 

 

 

27%

 

 

 

Research and development expenses increased $10.9 million for the three months ended March 31, 2017, compared to the same period in 2016. The increase in research and development expenses shown above is primarily due to:

 

for burosumab, an increase of $3.0 million for the three months ended March 31, 2017 related to the continued development of our clinical program, the enrollment of our Phase 3 adult and pediatric studies, and other development planning and regulatory activities, net of KHK reimbursement;

 

for rhGUS, an increase of $1.3 million for the three months ended March 31, 2017 related to regulatory filing preparation costs and the timing of manufacturing-related costs;

 

for UX007, an increase of $1.6 million for the three months ended March 31, 2017 primarily related to the initiation of our Phase 3 movement disorder study and support of investigator-sponsored studies across multiple diseases;

 

for Ace-ER, a net decrease of $1.6 million for the three months ended March 31, 2017 primarily related to the timing of manufacturing-related expenses, net of increases for the continued development of our clinical program and the enrollment of our Phase 3 study; and

 

an increase of $6.5 million for the three months ended March 31, 2017 in other research and development costs including expenses in support of our clinical product candidate pipeline, expenses related to our research stage programs and research collaborations, and certain cost allocations, including stock compensation.

We expect our research and development expenses to increase in the future as we advance our product candidates through clinical development. The timing and amount of expenses incurred will depend largely upon the outcomes of current or future clinical studies for our product candidates as well as the related regulatory requirements, manufacturing costs, and any costs associated with the advancement of our preclinical programs.

General and Administrative Expenses (dollars in thousands)

 

 

Three Months Ended March 31,

 

 

Dollar

 

 

%

 

 

2017

 

 

2016

 

 

Change

 

 

Change

 

General and administrative

$

18,685

 

 

$

13,207

 

 

$

5,478

 

 

 

41

%

 

General and administrative expenses increased $5.5 million for the three months ended March 31, 2017 compared to the same period in 2016. The increase in general and administrative expenses was primarily due to increases in commercial planning costs, professional services costs, stock-based compensation, and personnel costs resulting from an increase in the number of employees in support of our activities.

We expect general and administrative expenses to increase to support our organizational growth and for our expected staged build out of our commercial organization over the next several years related to multiple late-stage product candidates.

Interest Income (dollars in thousands)

 

 

Three Months Ended March 31,

 

 

Dollar

 

 

%

 

 

2017

 

 

2016

 

 

Change

 

 

Change

 

Interest income

$

1,082

 

 

$

984

 

 

$

98

 

 

 

10

%

 

Interest income increased $0.1 million for the three months ended March 31, 2017, compared to the same period in 2016, primarily due to an increase in investment yields on our invested funds.

18


Other Income ( Expense ) , net (dollars in thousands)

 

Three Months Ended March 31,

 

 

Dollar

 

 

%

 

2017

 

 

2016

 

 

Change

 

 

Change

Other income (expense), net

$

582

 

 

$

(119

)

 

$

701

 

 

*

* not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net increased $0.7 million for the three months ended March 31, 2017 compared to the same period in 2016. The increase was primarily due to the fluctuations of exchange rates related to intercompany transactions with foreign subsidiaries that are denominated in our reporting currency.

Liquidity and Capital Resources

Since our inception, we have funded our operations primarily with net proceeds from our equity financings and equity sales pursuant to our collaboration and license agreements.  As of March 31, 2017, we had $506.1 million in available cash, cash equivalents, and investments. Our cash, cash equivalents and investments are held in a variety of interest-bearing accounts, corporate debt securities, asset-backed securities, U.S government securities, and money market accounts. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and credit risk.

The following table summarizes our cash flows for the periods indicated (in thousands):

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Cash used in operating activities

$

(61,205

)

 

$

(44,895

)

Cash provided by (used in) investing activities

 

(9,400

)

 

 

21,775

 

Cash provided by financing activities

 

68,969

 

 

 

314

 

Effect of exchange rate changes

 

17

 

 

 

 

Net decrease in cash and cash equivalents

$

(1,619

)

 

$

(22,806

)

Cash Used in Operating Activities

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures. Due to our significant research and development expenditures, we have generated significant operating losses since our inception. Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Cash used in operating activities for the three months ended March 31, 2017 was $61.2 million and reflected a net loss of $68.3 million, offset by non-cash charges of $14.5 million for stock-based compensation, $0.5 million for the amortization of premium paid on purchased investments, and $1.2 million for depreciation and amortization. There was also $0.6 million for a foreign currency remeasurement gain due to an intercompany transaction exposure increase and the strengthening of the respective foreign exchange rates. Cash used in operating activities also reflected a $0.9 million decrease in prepaid expenses and other current assets primarily due to decreases in receivables, prepaid manufacturing and a prepayment related to collaboration activities offset by increases in prepaid insurance and subscriptions, a $3.0 million increase in accounts payable primarily due to the timing of payments and receipt of invoices, offset by a $12.5 million decrease in accrued expenses and other liabilities primarily as a result of a decrease in accrued bonus due to the payout of the 2016 annual bonus and accrued expenses due to the receipt of invoices.

Cash used in operating activities for the three months ended March 31, 2016 was $44.9 million and reflected a net loss of $52.8 million, offset by non-cash charges of $10.2 million for stock-based compensation, $1.8 million for the amortization of premium paid on purchased investments, and $0.5 million for depreciation and amortization. Cash used in operating activities also reflected a $4.0 million increase in prepaid expenses and other current assets primarily due to an increase in prepaids and other current assets for contract research organization, or CRO, other prepaid clinical costs, and prepaid subscriptions which were partially offset by a decrease in interest receivables. There was also a $1.5 million increase in other assets primarily due to prepaid leasehold improvements, equipment and office furniture, a $2.6 million increase in accounts payable primarily due to higher collaboration and research costs, and a $1.9 million decrease in accrued expenses and other liabilities as a result of the payment of employee bonuses, offset by an increase in clinical study, manufacturing, and related costs as we continued to increase our research and development activities.

Cash Provided by or Used in Investing Activities

Cash used in investing activities for the three months ended March 31, 2017 was $9.4 million and related to purchases of investments of $87.5 million and purchases of property and equipment of $0.5 million, offset by proceeds from maturities of

19


investments of $ 65.0 million, the sale of investments of $ 12.4 million , and a decrease of $ 1.2 million in restricted cash related to line of credit reductions under our current lease agreements.

Cash provided by investing activities for the three months ended March 31, 2016 was $21.8 million and related to purchases of investments of $118.1 million, purchases of property and equipment of $1.5 million, and an increase of $1.5 million in restricted cash for the expansion of the space under our current lease agreement, offset by proceeds from maturities of investments of $131.4 million and the sale of investments of $11.5 million.

Cash Flows Provided by Financing Activities

Cash provided by financing activities for the three months ended March 31, 2017 was $69.0 million and was comprised of $67.6 million from the sale of common stock in our ATM offering, and $1.4 million in net proceeds from the issuance of common stock upon the exercise of stock options.

Cash provided by financing activities for the three months ended March 31, 2016 was $0.3 million and was comprised of net proceeds from the issuance of common stock upon the exercise of stock options.

Funding Requirements

We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We anticipate that we will require additional capital to fund our operations, complete our ongoing and planned clinical studies and commercialize our products, and funding may not be available to us on acceptable terms or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay, limit, reduce the scope of, or terminate one or more of our clinical studies, research and development programs, future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our future funding requirements will depend on many factors, including the following:

 

the scope, rate of progress, results and cost of our clinical studies, nonclinical testing, and other related activities;

 

the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;

 

the number and characteristics of product candidates that we pursue;

 

the cost, timing, and outcomes of regulatory approvals;

 

the cost and timing of establishing our commercial infrastructure, and distribution capabilities; and

 

the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required upfront milestone and royalty payments thereunder.

We expect to satisfy future cash needs through existing capital balances and through some combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations and strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Contractual Obligations and Commitments

We have contractual obligations from our operating leases, manufacturing and service contracts, licenses, royalties, development and collaboration arrangements, and other research and development activities. The following table summarizes our significant binding contractual obligations at March 31, 2017 (in thousands):

 

Payments due by period

 

 

Less than 1 year

 

 

1 to 3 years

 

 

3 to 5 years

 

 

More than 5 years

 

 

Total

 

Operating leases

$

4,470

 

 

$

7,675

 

 

$

5,099

 

 

$

10,854

 

 

$

28,098

 

Manufacturing and Services Contracts

 

5,594

 

 

 

3,758

 

 

 

41

 

 

 

 

 

 

9,393

 

Total

$

10,064

 

 

$

11,433

 

 

$

5,140

 

 

$

10,854

 

 

$

37,491

 

20


Off-Balance Sheet Arrangements

Since our inception in April 2010, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk for changes in interest rates relates primarily to interest earned on our cash equivalents and investments. The primary objective of our investment activities is to preserve our capital to fund operations. A secondary objective is to maximize income from our investments without assuming significant risk. Our investment policy provides for investments in low-risk, investment-grade debt instruments. As of March 31, 2017, we had cash, cash equivalents, and investments totaling $506.1 million which includes bank deposits, money market funds, asset-backed securities, and investment-grade corporate bonds which are subject to default, changes in credit rating, and changes in market value. The securities in our investment portfolio are classified as available for sale and are subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical 100 basis point change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. To date, we have not experienced a loss of principal on any of our investments.

We face foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any forward exchange contracts. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made. An adverse movement in foreign exchange rates could have a material effect on payments made to foreign suppliers and for license agreements.  Our primary exposure to currency risk is related to intercompany balances with our foreign subsidiaries, resulting in the foreign currency translation gains and losses generated on the remeasurement of our intercompany balances with our foreign subsidiaries, which are reported in other income (expense), net. The amount is largely offset by the translation gains (losses) reported in other comprehensive income (loss), resulting in immaterial impact on stockholders’ equity. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements.  

 

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” as of the end of the period covered by this Quarterly Report, pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). In connection with that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms as of March 31, 2017. For the purpose of this review, disclosure controls and procedures means controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our first quarter ended March 31, 2017, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.


21


P ART II. OTHER INFORMATION

 

Item 1.  Legal Proceedings

We are not currently a party to any material legal proceedings. We may, however, in the ordinary course of business face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property rights as well as claims relating to employment matters and the safety or efficacy of our products. Any of these claims could subject us to costly litigation and, while we generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage, may be inadequately capitalized to pay on valid claims, or our policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated operations, cash flows and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business.

 

Item 1A.  Risk Factors  

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks, together with all the other information in this report, including our financial statements and notes thereto, before deciding to invest in our common stock. If any of the following risks actually materializes, our operating results, financial condition, and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment.

The following description of the risk factors associated with our business includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report.

Risks Related to Our Financial Condition and Capital Requirements

We are a clinical-stage company and have a limited operating history on which to assess our business, have incurred significant losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future.

We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred net losses in each year since our inception in April 2010, including net losses of $68.3 million and $52.8 million for the three months ended March 31, 2017 and 2016, respectively.

We have devoted substantially all of our financial resources to identifying, acquiring, and developing our product candidates, including conducting clinical studies, developing manufacturing processes, manufacturing product candidates for clinical studies, and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sale of equity securities. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations, or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Our product candidates are in clinical development, and we may never have a product candidate approved for commercialization. If we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which our product candidates may receive approval, and our ability to achieve sufficient market acceptance, pricing, reimbursement, and adequate market share for our product candidates in those markets. However, even if we obtain adequate market share for our product candidates, because the potential markets in which our product candidates may ultimately receive regulatory approval are very small, and our expenses may be greater than expected, we may never become profitable despite obtaining such market share and acceptance of our products.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

 

continue our research and nonclinical and clinical development of our product candidates;

 

expand the scope of our current clinical studies for our product candidates;

 

advance our programs into more expensive clinical studies;

 

initiate additional nonclinical, clinical, or other studies for our product candidates;

 

pursue preclinical and clinical dev