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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from to .

Commission File No. 001-36276

 

ULTRAGENYX PHARMACEUTICAL INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-2546083

(State or other jurisdiction of incorporation or organization)

 

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

 

60 Leveroni Court
Novato, California

94949

(Address of principal executive offices)

(Zip Code)

(415) 483-8800

(Registrant’s telephone number, including area code)

Not Applicable

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

 

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value

RARE

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo

As of April 26, 2024, the registrant had 83,133,341 shares of common stock issued and outstanding.

 


 

ULTRAGENYX PHARMACEUTICAL INC.

FORM 10-Q FOR THE QUARTER ENDED March 31, 2024

INDEX

Page

 

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

1

 

 

 

 

 

Part I –

Financial Information

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

5

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

 

 

 

 

Item 2.

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

20

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

31

 

 

 

 

 

Part II –

Other Information

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

32

 

 

 

 

 

 

 

Item 1A.

Risk Factors

32

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

 

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

68

 

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

68

 

 

 

 

 

 

 

Item 5.

Other Information

68

 

 

 

 

 

 

 

Item 6.

Exhibits

69

 

 

 

 

 

 

 

Signatures

 

70

 

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or 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 fact contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words, or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our commercialization, marketing, and manufacturing capabilities and strategy;
our expectations regarding the timing of clinical study commencements and reporting results from same;
the timing and likelihood of regulatory approvals for our product candidates;
the anticipated indications for our product candidates, if approved;
the potential market opportunities for commercializing our products and product candidates;
our expectations regarding the potential market size and the size of the patient populations for our products and product candidates, if approved for commercial use;
estimates of our expenses, revenue, capital requirements, and our needs for additional financing;
our ability to develop, acquire, and advance product candidates into, and successfully complete, clinical studies;
the implementation of our business model and strategic plans for our business, products and product candidates and the integration and performance of any businesses we have acquired or may acquire;
the initiation, timing, progress, and results of ongoing and future preclinical and clinical studies, and our research and development programs;
the scope of protection we are able to establish and maintain for intellectual property rights covering our products and product candidates;
our ability to maintain and establish collaborations or strategic relationships or obtain additional funding;
our ability to maintain and establish relationships with third parties, such as contract research organizations, contract manufacturing organizations, suppliers, and distributors;
our financial performance and the expansion of our organization;
our ability to obtain supply of our products and product candidates;
the scalability and commercial viability of our manufacturing methods and processes;
developments and projections relating to our competitors and our industry;
stagnating or worsening business and economic conditions and increasing geopolitical instability, including inflationary pressures, general economic slowdown or a recession, high interest rates, foreign exchange rate volatility, financial institution instability, and changes in monetary policy;
the impact of market conditions and volatility on unrealized gains or losses on our nonqualified deferred compensation plan investments and our financial results; and
other risks and uncertainties, including those listed under Part II, Item 1A. Risk Factors.

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

1


 

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 such 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.

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

ASSETS

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

112,250

 

 

$

213,584

 

Marketable debt securities

 

299,830

 

 

 

363,625

 

Accounts receivable, net

 

100,253

 

 

 

73,390

 

Inventory

 

35,907

 

 

 

33,969

 

Other assets

 

47,727

 

 

 

47,616

 

Total current assets

 

595,967

 

 

 

732,184

 

Property, plant, and equipment, net

 

285,111

 

 

 

290,566

 

Marketable debt securities

 

156,581

 

 

 

199,901

 

Intangible assets, net

 

165,045

 

 

 

166,271

 

Goodwill

 

44,406

 

 

 

44,406

 

Other assets

 

59,970

 

 

 

57,685

 

Total assets

$

1,307,080

 

 

$

1,491,013

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

40,972

 

 

$

42,114

 

Accrued liabilities

 

149,133

 

 

 

196,486

 

Lease liabilities

 

12,781

 

 

 

12,595

 

Liabilities for sales of future royalties

 

42,689

 

 

 

29,242

 

Total current liabilities

 

245,575

 

 

 

280,437

 

Lease liabilities

 

27,979

 

 

 

30,574

 

Deferred tax liabilities

 

30,058

 

 

 

30,058

 

Liabilities for sales of future royalties

 

848,725

 

 

 

862,325

 

Other liabilities

 

14,479

 

 

 

12,205

 

Total liabilities

 

1,166,816

 

 

 

1,215,599

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value of $0.001 per share—25,000,000 shares authorized; nil
   outstanding in 2024 and in 2023

 

 

 

 

 

Common stock, par value of $0.001 per share—250,000,000 shares authorized;
  outstanding—
83,094,037 in 2024 and 82,315,590 in 2023

 

83

 

 

 

82

 

Treasury stock, at cost, 63,575 in 2024 and 9,559 in 2023

 

(3,332

)

 

 

(432

)

Deferred compensation obligation

 

3,332

 

 

 

432

 

Additional paid-in capital

 

3,698,957

 

 

 

3,662,346

 

Accumulated other comprehensive income (loss)

 

(431

)

 

 

647

 

Accumulated deficit

 

(3,558,345

)

 

 

(3,387,661

)

Total stockholders’ equity

 

140,264

 

 

 

275,414

 

Total liabilities and stockholders’ equity

$

1,307,080

 

 

$

1,491,013

 

See accompanying notes.

3


 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share amounts)

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

Product sales

$

62,489

 

 

$

44,229

 

Royalty revenue

 

46,344

 

 

 

4,882

 

Collaboration and license

 

 

 

 

51,385

 

Total revenues

 

108,833

 

 

 

100,496

 

Operating expenses:

 

 

 

 

 

Cost of sales

 

17,533

 

 

 

12,257

 

Research and development

 

178,487

 

 

 

165,698

 

Selling, general and administrative

 

78,160

 

 

 

76,646

 

Total operating expenses

 

274,180

 

 

 

254,601

 

Loss from operations

 

(165,347

)

 

 

(154,105

)

Interest income

 

8,824

 

 

 

6,290

 

Change in fair value of equity investments

 

3,746

 

 

 

(334

)

Non-cash interest expense on liabilities for sales of future royalties

 

(15,847

)

 

 

(15,636

)

Other income (expense)

 

(1,605

)

 

 

308

 

Loss before income taxes

 

(170,229

)

 

 

(163,477

)

Provision for income taxes

 

(455

)

 

 

(495

)

Net loss

$

(170,684

)

 

$

(163,972

)

Net loss per share, basic and diluted

$

(2.03

)

 

$

(2.33

)

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

 

84,286,292

 

 

 

70,368,478

 

See accompanying notes.

4


 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net loss

$

(170,684

)

 

$

(163,972

)

Other comprehensive income (loss):

 

 

 

 

 

Foreign currency translation adjustments

 

129

 

 

 

144

 

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

 

(1,207

)

 

 

2,462

 

Other comprehensive income (loss):

 

(1,078

)

 

 

2,606

 

Total comprehensive loss

$

(171,762

)

 

$

(161,366

)

See accompanying notes.

 

5


 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Treasury

 

 

Deferred Compensation

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Stock

 

 

Obligation

 

 

Equity

 

Balance as of December 31, 2023

 

 

82,315,590

 

 

$

82

 

 

$

3,662,346

 

 

$

647

 

 

$

(3,387,661

)

 

$

(432

)

 

$

432

 

 

$

275,414

 

Stock-based compensation

 

 

 

 

 

 

 

 

36,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,671

 

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

 

 

778,447

 

 

 

1

 

 

 

(60

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(59

)

Deferred compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,900

)

 

 

2,900

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(1,078

)

 

 

 

 

 

 

 

 

 

 

 

(1,078

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(170,684

)

 

 

 

 

 

 

 

 

(170,684

)

Balance as of March 31, 2024

 

 

83,094,037

 

 

$

83

 

 

$

3,698,957

 

 

$

(431

)

 

$

(3,558,345

)

 

$

(3,332

)

 

$

3,332

 

 

$

140,264

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Treasury

 

 

Deferred Compensation

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Stock

 

 

Obligation

 

 

Equity

 

Balance as of December 31, 2022

 

 

70,197,297

 

 

$

70

 

 

$

3,140,019

 

 

$

(6,573

)

 

$

(2,781,022

)

 

$

 

 

$

 

 

$

352,494

 

Stock-based compensation

 

 

 

 

 

 

 

 

30,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,103

 

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

 

 

462,952

 

 

 

1

 

 

 

(751

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(750

)

Deferred compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(356

)

 

 

356

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2,606

 

 

 

 

 

 

 

 

 

 

 

 

2,606

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(163,972

)

 

 

 

 

 

 

 

 

(163,972

)

Balance as of March 31, 2023

 

 

70,660,249

 

 

$

71

 

 

$

3,169,371

 

 

$

(3,967

)

 

$

(2,944,994

)

 

$

(356

)

 

$

356

 

 

$

220,481

 

See accompanying notes.

6


 

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

Net loss

$

(170,684

)

 

$

(163,972

)

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

 

 

 

 

 

Stock-based compensation

 

36,926

 

 

 

31,952

 

Amortization of discount on marketable debt securities, net

 

(3,756

)

 

 

(2,994

)

Depreciation and amortization

 

8,845

 

 

 

5,236

 

Change in fair value of equity investments

 

(3,746

)

 

 

334

 

Non-cash royalty revenue

 

(18,063

)

 

 

(4,882

)

Non-cash interest expense on liabilities for sales of future royalties

 

15,847

 

 

 

15,636

 

Other

 

(77

)

 

 

187

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(24,908

)

 

 

(2,508

)

Inventory

 

(2,124

)

 

 

150

 

Other assets

 

6,553

 

 

 

(519

)

Accounts payable, accrued, and other liabilities

 

(35,540

)

 

 

(35,487

)

Net cash used in operating activities

 

(190,727

)

 

 

(156,867

)

Investing activities:

 

 

 

 

 

Purchase of property, plant, and equipment

 

(3,211

)

 

 

(25,034

)

Purchase of marketable debt securities

 

(21,928

)

 

 

(62,024

)

Proceeds from sale of marketable debt securities

 

2,845

 

 

 

10,715

 

Proceeds from maturities of marketable debt securities

 

128,794

 

 

 

191,598

 

Payment for intangible asset

 

(10,000

)

 

 

 

Other

 

(2,065

)

 

 

(3,951

)

Net cash provided by investing activities

 

94,435

 

 

 

111,304

 

Financing activities:

 

 

 

 

 

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

 

(58

)

 

 

(750

)

Other

 

 

 

 

28

 

Net cash used in financing activities

 

(58

)

 

 

(722

)

Effect of exchange rate changes on cash

 

(679

)

 

 

211

 

Net decrease in cash, cash equivalents and restricted cash

 

(97,029

)

 

 

(46,074

)

Cash, cash equivalents and restricted cash at beginning of period

 

219,399

 

 

 

137,601

 

Cash, cash equivalents and restricted cash at end of period

$

122,370

 

 

$

91,527

 

 

 

 

 

 

 

Supplemental disclosures of non-cash information:

 

 

 

 

 

Stock-based compensation capitalized into ending inventory

$

2,786

 

 

$

2,276

 

Costs of property, plant and equipment included in accounts payable, accrued, and other liabilities

$

1,280

 

 

$

9,137

 

Non-cash interest expense on liabilities for sales of future royalties capitalized during the year into ending property, plant and equipment

$

 

 

$

3,820

 

See accompanying notes.

7


 

ULTRAGENYX PHARMACEUTICAL INC.

Notes to Condensed Consolidated Financial Statements

 

1. Organization

Ultragenyx Pharmaceutical Inc., or the Company, is a biopharmaceutical company incorporated in Delaware.

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

Crysvita® (burosumab) is approved in the United States, or U.S., the European Union, or EU, and certain other regions for the treatment of X-linked hypophosphatemia, or XLH, in adult and pediatric patients one year of age and older. Crysvita is also approved in the U.S. and certain other regions for the treatment of fibroblast growth factor 23, or FGF23-related hypophosphatemia in tumor-induced osteomalacia, or TIO, associated with phosphaturic mesenchymal tumors that cannot be curatively resected or localized in adults and pediatric patients 2 years of age and older.

Mepsevii® (vestronidase alfa) is approved in the U.S., the EU and certain other regions, as the first medicine for the treatment of children and adults with mucopolysaccharidosis VII, or MPS VII, also known as Sly syndrome.

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

Evkeeza® (evinacumab) is approved in the U.S. and the European Economic Area, or EEA, for the treatment of homozygous familial hypercholesterolemia, or HoFH. The Company has exclusive rights to commercialize Evkeeza® (evinacumab) outside of the U.S.

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

UX111 (formerly ABO-102) is an AAV9 gene therapy product candidate for the treatment of patients with Sanfilippo syndrome type A, or MPS IIIA, a rare lysosomal storage disease;
DTX401 is an adeno-associated virus 8, or AAV8, gene therapy product candidate for the treatment of patients with glycogen storage disease type Ia, or GSDIa;
DTX301 is an AAV8 gene therapy product candidate in development for the treatment of patients with ornithine transcarbamylase, or OTC deficiency, the most common urea cycle disorder;
UX143 (setrusumab), which is subject to the Companys collaboration agreement with Mereo BioPharma 3, or Mereo, is a fully human monoclonal antibody that inhibits sclerostin, a protein that acts on a key bone-signaling pathway and inhibits the activity of bone-forming cells for the treatment of patients with osteogenesis imperfect, or OI;
GTX-102 is an antisense oligonucleotide, or ASO for the treatment of Angelman syndrome, a debilitating and rare neurogenetic disorder caused by loss-of-function of the maternally inherited allele of the UBE3A gene.; and
UX701 is an adeno-associated virus 9, or AAV9, gene therapy designed to deliver stable expression of a truncated version of the ATP7B copper transporter following a single intravenous infusion to improve copper distribution and excretion from the body and reverse pathological findings of Wilson liver disease;

The Company has sustained operating losses and expects such annual losses to continue over the next several years. The Companys ultimate success depends on the outcome of its research and development and commercialization activities. Through March 31, 2024, the Company has relied primarily on its sale of equity securities, its revenues from commercial products, its sale of future royalties, and strategic collaboration arrangements to finance its operations. The Company may need to raise additional capital to fully implement its business plans through the issuance of equity, borrowings, or strategic alliances with partner companies. However, if such financing is not available at adequate levels, the Company would need to reevaluate its operating plans.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles, or 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

8


 

Condensed Consolidated Financial Statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the preceding fiscal year contained in the Company’s Annual Report on Form 10-K filed on February 21, 2024, or Annual Report, with the United States Securities and Exchange Commission, or the SEC.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024. The Condensed Consolidated Balance Sheet as of December 31, 2023 has been derived from audited financial statements at that date, but does not include all of the information required by GAAP for complete financial statements.

Use of Estimates

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

Cash, Cash Equivalents and Restricted Cash

Restricted cash primarily consists of money market accounts used as collateral for the Company’s obligations under its facility leases and to guarantee the fulfillment of certain sales orders to certain government-sponsored customers. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows (in thousands):

 

 

March 31,

 

 

2024

 

 

2023

 

Cash and cash equivalents

$

112,250

 

 

$

85,768

 

Restricted cash included in other current assets

 

6,304

 

 

 

1,964

 

Restricted cash included in other non-current assets

 

3,816

 

 

 

3,795

 

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

$

122,370

 

 

$

91,527

 

Credit Losses

The Company is exposed to credit losses primarily through receivables from customers and collaborators and through its available-for-sale debt securities. For trade receivables and other instruments, the Company uses a forward-looking expected loss model that generally results in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses are recognized as allowances rather than as reductions in the amortized cost of the securities.

The Company’s expected loss allowance methodology for the receivables is developed using historical collection experience, current and future economic market conditions, a review of the current aging status and financial condition of the entities. Specific allowance amounts are established to record the appropriate allowance for customers that have a higher probability of default. Balances are written off when determined to be uncollectible. The Company’s expected loss allowance methodology for the debt securities is developed by reviewing the extent of the unrealized loss, the size, term, geographical location, and industry of the issuer, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. There were no material credit losses recorded for receivables and available-for-sale debt securities which were attributable to credit risk for the three months ended March 31, 2024 and 2023.

9


 

Revenue Recognition

Product Sales

The Company sells its approved products through a limited number of distributors. Under ASC 606, revenue from product sales is recognized at the point in time when control is transferred to these distributors. The Company also recognizes revenue from sales of certain products on a “named patient” basis, which are allowed in certain countries prior to the commercial approval of the product. Prior to recognizing revenue, the Company makes estimates of the transaction price, including any variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Product sales are recorded net of estimated government-mandated rebates and chargebacks, estimated product returns, and other deductions.

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

Collaboration, License, and Royalty Revenue

The Company has certain license and collaboration agreements that are within the scope of Accounting Standards Codification, or ASC, 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. Generally, the classification of the transactions under the collaborative arrangements is determined based on the nature of contractual terms of the arrangement, along with the nature of the operations of the participants. The Company records its share of collaboration revenue, net of transfer pricing related to net sales in the period in which such sales occur, if the Company is considered as an agent in the arrangement. The Company is considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product. Funding received related to research and development services and commercialization costs is generally classified as a reduction of research and development expenses and selling, general and administrative expenses, respectively, in the Condensed Consolidated Statements 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.

The Company utilizes certain information from its collaboration partners to record collaboration revenue, including revenue from the sale of the product, associated reserves on revenue, and costs incurred for development and sales activities. For the periods covered in the financial statements presented, there have been no material changes to prior period estimates of revenues and expenses. The Company also records royalty revenues under certain of the Company’s license or collaboration agreements in exchange for licensing of intellectual property.

The Company sold the right to receive certain royalty payments from net sales of Crysvita in certain territories to RPI Finance Trust, or RPI, an affiliate of Royalty Pharma, and to OCM LS23 Holdings LP, an investment vehicle for Ontario Municipal Employees Retirement System, or OMERS, as further described in “Note 8. Liabilities for Sales of Future Royalties.” The Company records the royalty revenue from the net sales of Crysvita in the applicable territories on a prospective basis as non-cash royalty revenue in the Condensed Consolidated Statements of Operations over the term of the applicable arrangement.

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

If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. The Company estimates the efforts needed to complete the

10


 

performance obligations and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligations using input measures.

Deferred Compensation Plan

The Company maintains a nonqualified deferred compensation plan whereby certain employees and members of the board of directors are able to defer certain equity awards and other compensation. Amounts deferred are invested into shares of the Company's common stock, mutual funds, and other investment options. The plan complies with the provisions of Section 409A of the Internal Revenue Code. All of the various mutual funds held in the plan are classified as trading securities and recorded at fair value in other non-current assets in the Condensed Consolidated Balance Sheets with changes in fair value recognized as earnings in the period they occur. The short-term portion of the corresponding liability for the plan is included in accrued expenses. The long-term portion of the liability is included in other non-current liabilities in the Condensed Consolidated Balance Sheets. Certain equity awards deferred under the plan are required to be settled through the issuance of Company stock. These awards are recorded as treasury stock and deferred compensation obligation within stockholders’ equity.

3. Financial Instruments

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

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

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

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

The Company determines the fair value of its equity investment in Solid Biosciences Inc., or Solid, by using the quoted market prices, which are Level 1 fair value measurements.

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

 

March 31, 2024

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

51,029

 

 

$

 

 

$

 

 

$

51,029

 

Certificates of deposit and time deposits

 

 

 

 

17,986

 

 

 

 

 

 

17,986

 

Corporate bonds

 

 

 

 

179,819

 

 

 

 

 

 

179,819

 

Commercial paper

 

 

 

 

21,966

 

 

 

 

 

 

21,966

 

Asset-backed securities

 

 

 

 

546

 

 

 

 

 

 

546

 

U.S. Government Treasury and agency securities

 

58,539

 

 

 

206,809

 

 

 

 

 

 

265,348

 

Investment in Solid common stock

 

6,950

 

 

 

 

 

 

 

 

 

6,950

 

Deferred compensation assets

 

 

 

 

13,105

 

 

 

 

 

 

13,105

 

Total financial assets

$

116,518

 

 

$

440,231

 

 

$

 

 

$

556,749

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation liabilities

$

 

 

$

13,310

 

 

$

 

 

$

13,310

 

 

11


 

 

December 31, 2023

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

162,289

 

 

$

 

 

$

 

 

$

162,289

 

Certificates of deposit and time deposits

 

 

 

 

17,986

 

 

 

 

 

 

17,986

 

Corporate bonds

 

 

 

 

215,166

 

 

 

 

 

 

215,166

 

Commercial paper

 

 

 

 

20,620

 

 

 

 

 

 

20,620

 

Asset-backed securities

 

 

 

 

2,712

 

 

 

 

 

 

2,712

 

U.S. Government Treasury and agency securities

 

57,437

 

 

 

259,605

 

 

 

 

 

 

317,042

 

Investment in Solid common stock

 

3,204

 

 

 

 

 

 

 

 

 

3,204

 

Deferred compensation assets

 

 

 

 

10,220

 

 

 

 

 

 

10,220

 

Total financial assets

$

222,930

 

 

$

526,309

 

 

$

 

 

$

749,239

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation liabilities

$

 

 

$

10,365

 

 

$

 

 

$

10,365

 

 

4. Balance Sheet Components

Cash Equivalents and Marketable Debt Securities

The fair values of cash equivalents and marketable debt securities classified as available-for-sale securities consisted of the following (in thousands):

 

 

March 31, 2024

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

 

Amortized
Cost

 

 

Gains

 

 

Losses

 

 

Estimated
Fair Value

 

Money market funds

 

$

51,029

 

 

$

 

 

$

 

 

$

51,029

 

Certificates of deposit and time deposits

 

 

17,986

 

 

 

 

 

 

 

 

 

17,986

 

Corporate bonds

 

 

179,694

 

 

 

331

 

 

 

(206

)

 

 

179,819

 

Commercial paper

 

 

21,966

 

 

 

 

 

 

 

 

 

21,966

 

Asset-backed securities

 

 

547

 

 

 

 

 

 

(1

)

 

 

546

 

U.S. Government Treasury and agency securities

 

 

265,426

 

 

 

91

 

 

 

(169

)

 

 

265,348

 

Total

 

$

536,648

 

 

$

422