Novato Aug 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Ultragenyx Pharmaceutical Inc earnings conference call or presentation Thursday, July 30, 2020 at 9:00:00pm GMT

* Camille L. Bedrosian

Ultragenyx Pharmaceutical Inc. - Chief Medical Officer & Executive VP

* Emil D. Kakkis

Ultragenyx Pharmaceutical Inc. - President, CEO & Director

Ultragenyx Pharmaceutical Inc. - Executive VP & Chief Commercial Officer

Ultragenyx Pharmaceutical Inc. - CFO & Executive VP

* Andrea R. Tan

* Swapnil A. Malekar

Sanford C. Bernstein & Co., LLC., Research Division - VP

Ladies and gentlemen, thank you for standing by, and welcome to the Ultragenyx Second Quarter of 2020 Financial Results and Corporate Update Conference Call. (Operator Instructions)

And without further ado, I would like to hand the conference over to Mr. Joshua Higa. Thank you. Please go ahead, sir.

Good afternoon, and welcome to the Ultragenyx Financial Results and Corporate Update Conference Call for the Second Quarter 2020. We have issued a press release detailing our financial results, which you can find on our website at ultragenyx.com. I am Joshua Higa, Director of Investor Relations. Joining me on this call are Emil Kakkis, Chief Executive Officer and President; Shalini Sharp, Chief Financial Officer; Camille Bedrosian, Chief Medical Officer; and Erik Harris, Chief Commercial Officer.

I would like to remind investors that this call will include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the types of statements identified as forward-looking in our 2019 annual report on Form 10-K that was filed on February 14, 2020, our quarterly report on Form 10-Q that will be filed soon and our subsequent periodic reports filed with the SEC, which will all be available on our website in the Investors section. These forward-looking statements represent our views only as of the date of this call and involve substantial risks and uncertainties, including many that are beyond our control. Please note the actual results could differ materially from those projected in any forward-looking statement. For a further description of the risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements as well as risks related to our business, see our periodic reports filed with the SEC.

I will now turn the call over to Emil.

Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [3]

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Good afternoon, and thank you, everyone, for joining us on today's call. I'll start with our -- our call with a general update on our progress, and then turn it over to Erik, Shalini and Camille to provide more detailed updates on their

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Second quarter was highly productive for Ultragenyx. In the span of just 2 weeks in June, we received our third and fourth FDA approval in our first 10 years as a company. The first was Crysvita for tumor-induced osteomalacia, or TIO, which is now the second indication of the product after its approval for XLH in 2018. The second was Dojolvi for long-chain fatty acid oxidation defect or LC-FAOD, a group of 6 distinct inborn errors of metabolism. These are the first approved treatments for either of these debilitating diseases. In both cases, we were able to secure full FDA approval based on our Phase II study, supplemented by data from expanded access programs. This significantly reduced the time to develop for these therapies for patients with no other FDA options.

Our established approved products continued to perform well, Crysvita in XLH, and Mepsevii continued to grow as we enter the third year post approval. We've developed a great team and strong relationships in both medical genetics and in endocrinology fields with these earlier launches, and this will enable efficient launches in both TIO and LC-FAOD, despite some expected impact from COVID-19.

Moving to our gene therapy platform and programs. There have been significant recent clinical data updates for all 3 programs. At ASGCT, we presented data on both our GSDIa and OTC deficiency program. For GSDIa, all patients across all 3 cohorts in the Phase I/II study have responded to DTX401 gene therapy with the patients in the latest cohort more rapidly tapering their use of cornstarch and oral glucose replacement therapy that is enabled now by the expression of the transgene in our vector.

For OTC, we've now confirmed that 6 out of 9 patients in the study are responders to DTX301 gene therapy, including all 3 of the patients in the highest dose cohort. These updates further solidify our confidence in both programs as Phase III planning continues.

The third gene therapy update was for hemophilia A program led by our partner, Bayer. The [PI] on the ongoing Phase I/II presented data at ISTH on the third cohort from the study. As with prior cohorts, these latest data show sustained and clinically meaningful Factor VIII increases competitive with other hem A program and a near complete reduction in spontaneous bleeds. As a reminder, the Bayer program is our first partner gene therapy program and first-to-use material from our large-scale HeLa producer cell line system.

In the first quarter of this year, we initiated a gene therapy platform partnership with Daiichi Sankyo, in which they have nonexclusive access to our HeLa and HEK293 manufacturing system. Technology transfer related to that license has since been initiated, and we will receive $25 million in milestone payments when it is complete.

So with multiple collaborations in place, 3 products demonstrating positive clinical results, our gene therapy platform is on very solid footing as a source of multiple potential treatments.

I'll now turn the call over to Erik to go into more detail on the launches of Dojolvi in LC-FAOD and Crysvita in TIO as well as progress with our other commercial programs.

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Erik Harris, Ultragenyx Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [4]

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Thank you, Emil. I will start with recapping our launch plans for Dojolvi then cover Crysvita. As you saw last week, Dojolvi is now commercially available to U.S. patients with LC-FOAD. Dojolvi is the first approved therapy for LC-FAOD, which is a severe, lifelong and life-threatening disease. We have initiated the process of working with commercial and government payers to ensure that Dojolvi is accessible for all LC-FAOD patients as indicated in the broad FDA label.

In the first week of launch, we received start forms from multiple doctors and centers of excellence, and we have shipped commercial therapy to our first patients. Just this week, the first reimbursements were approved for patients. We also had one newborn already prescribed Dojolvi whose older sibling had died at a very young age with FAOD. It is important to recognize that the reimbursement process does take time as various payers establish their new market policies. As a result, we expect the Dojolvi launch to build gradually over time and most of our 2020 revenue for the product to come from EU-named patient sales.

In the early stages of the U.S. launch, we are focused on transitioning the approximately 80 patients currently on clinical drug in the U.S. to reimburse commercial therapy. Our team has started conversations with these physicians at our clinical sites to provide information about these transitions, which we expect to complete in the upcoming months, dependent on payers' new-to-market coverage policies. Overall, we estimate that there are approximately 2,000 to 3,500 patients with LC-FAOD. The vast majority of these patients are seen at approximately 160 metabolic genetic centers. We are very familiar with these centers and their physicians based on our experiences with Mepsevii, Crysvita and our OTC and GSDIa programs. As a result, our incremental commercial investment will be minimal for this new launch.

And while launching in the midst of the COVID-19 pandemic is not ideal, the work that we have done to adapt to the current situation for Mepsevii and Crysvita will be extremely helpful as we launch Dojolvi. These adaptations, coupled with the patient's ability to take Dojolvi at home since it is an oral therapy, along with a high unmet need, give us confidence that we will be able to have a successful launch.

Turning now to Crysvita, which we are also launched -- currently launching it in U.S. for tumor-induced osteomalacia, or TIO, and have begun to treat our first commercial TIO patients. Many of the potential prescribers are the same group of endocrinology specialists that have become familiar with Crysvita for XLH over the last couple of years, so we are able to leverage our current commercial infrastructure. TIO, however, is much less common than XLH, affecting about 500 to 1,000 Americans, and it can take a long time to diagnose. Our initial focus is on conversion of clinical trials and compassionate use patients.

Similar to Dojolvi, we expect payers to update their policies for Crysvita to add the TIO indication over time. Good news is that the J-code for Crysvita remains the same for both XLH and TIO indications, which will simplify the buy-and-bill process for payers. To date, we have had multiple starts and patient reimbursements for Crysvita in TIO. We expect a gradual and steady revenue build in this new approved indication.

Crysvita for XLH continues to do well in spite of COVID-19-related challenges. Our patient support services team has reached out proactively to all of our existing patients individually to ensure continuity of care. Since the COVID-19 pandemic, we continue to receive new start forms and increase the number of patients on reimbursed therapy. Our field teams have done a noteworthy job in adjusting to this environment with our ATPs and have started to effectively use virtual platforms to engage with them. We expect to further build momentum as the country begins to reopen.

Across Latin America, there is a strong patient community that has driven a lot of awareness and demand for Crysvita. In Brazil, the region's largest market, this is seen in the steadily growing numbers of injunctions that are being granted and funded by both state and federal governments. Similarly, in Colombia and Argentina, the number of patients on reimbursed named patient treatment increases. Over time, we expect Latin America to provide a more meaningful contribution to revenue as the launch in this region progresses.

Because of the team's efforts to maintain continuity of care while also finding new and creative ways to reach patients, Crysvita's performance through the second quarter of 2020 has been strong. We are maintaining our revenue guidance of $125 million to $140 million for Crysvita revenue in the Ultragenyx territories. As a reminder, this range includes Crysvita and XLH and TIO and covers both profit share, revenue in North America as well as product sales in other regions.

With that, I'll turn the call over to Shalini who will walk through our financial results.

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Shalini Sharp, Ultragenyx Pharmaceutical Inc. - CFO & Executive VP [5]

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Thank you, Erik, and good afternoon, everyone. We issued a press release earlier today that included a financial update, which I will briefly summarize.

Total revenue for the 3 months ending June 30, 2020, was $61.7 million. For the quarter ended June 30, 2020, Crysvita revenue in the Ultragenyx territories was $32.4 million. This includes $29.8 million in collaboration revenue in the North American profit share territory and net product sales in other regions of $2.5 million.

Total royalty revenue related to the sales of Crysvita in the European territory was $5 million, which includes $1.5 million for sales in the region prior to January 1, 2020, from a change in estimate and release of reserves by our collaboration partner.

Mepsevii products revenue for the second quarter of 2020 was $4.2 million, and UX007 named patient revenue was $1.3 million. We also recognized $18.9 million of revenue related to the collaboration and license agreement with Daiichi Sankyo that was executed in March of 2020.

Our total operating expenses were $124.8 million for the second quarter of 2020, which includes research and development expenses of $80.7 million and SG&A expenses of $42.3 million. We expect our R&D costs to continue increasing over time as we advance additional product candidates from preclinical development into early and pivotal clinical studies. We also expect SG&A to modestly increase over the coming quarters as we support the expansion of our existing commercial programs and the launch of Dojolvi for LC-FAOD and Crysvita for TIO. We expect the split of R&D versus SG&A expense to remain fairly consistent.

In 2020 to date, approximately 17% of our operating expenses are noncash.

In the second quarter of 2020, we reported net income of $25.3 million or $0.42 per basic share and $0.41 per diluted share. This compares to a net loss of $93.7 million or $1.59 per share basic and diluted for the second quarter of 2019. The net income for the second quarter of 2020 includes a $95.2 million unrealized gain from the fair value adjustment on the investment in the Arcturus equity and the $18.9 million of collaboration revenue related to our agreement with Daiichi Sankyo. These were partially offset by $8.4 million in noncash interest expense on the liability related to the sale of future royalties.

Recall in the second quarter, we exercised our option to purchase 600,000 shares of Arcturus common stock at $16 per share. Upon completion of the additional equity purchase, Ultragenyx owns 3 million shares and continues to be Arcturus' largest shareholder.

For the first half of 2020, cash use in operations was $7.8 million, which includes $134.9 million of operating cash received from Daiichi Sankyo related to the collaboration and license agreement. We ended the second quarter of 2020 with $817.5 million in cash, cash equivalents and available for sale investments.

Moving to our guidance for 2020. We are currently maintaining the guidance range that we shared at the beginning of the year and affirmed on our first quarter earnings call. We anticipate Crysvita revenue to Ultragenyx in our territories to be between $125 million and $140 million. Those territories include North America, Latin America and Turkey and exclude the European royalty, as this was monetized in the transaction that was completed with Royalty Pharma that was announced in December of 2019. We continue to monitor the situation as the COVID pandemic persists.

I would now like to turn the call to Camille who will provide an update on our clinical programs.

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Camille L. Bedrosian, Ultragenyx Pharmaceutical Inc. - Chief Medical Officer & Executive VP [6]

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Thank you, Shalini, and good afternoon, everyone. I will review our 2 new FDA approvals and progress with our Angelman syndrome program before handing back to Emil to provide more detail on our recent gene therapy clinical updates.

Starting with Dojolvi for long-chain fatty acid oxidation disorders, or LC-FAOD, a devastating disease with significant morbidities despite newborn screening and use of available management options. On June 30, we received the first-ever FDA approval of a treatment for patients with LC-FAOD. The approval spans all 6 types of LC-FAODs and applies to both pediatric and adult patients. As Erik's team works to make Dojolvi broadly available to patients living with this debilitating and dangerous disorder, the clinical and regulatory teams will be focused on 2 areas of next steps for the program.

First, we are seeking approval for Dojolvi in other regions around the world. We had previously submitted a marketing application to Anvisa in Brazil and more recently made a new drug submission in Canada where we have been granted priority review. Our discussions with the European Medicines Agency are ongoing. And in the meantime, we will continue to make the product available to the more than 70, 7-0, patients with LC-FAOD, who are receiving it based on requests from physicians seeking the product for reimbursed named patient treatment in France and Italy.

The development team's other area of focus going forward for Dojolvi is the implementation of our disease monitoring program or DMP. As a reminder, the DMP is a long-term, fully sponsored observational study of Dojolvi in LC-FAOD in at least 300 patients for a target of 10 years. The DMP will encompass all post-marketing requirements from the FDA in the single study.

Disease monitoring programs are just one development in innovation we are employing at Ultragenyx. For example, the DMP we initiated for XLH in 2018 has enrolled very rapidly. As a reminder, patients in the LC-FAOD DMP may or may not be receiving Dojolvi. Those patients who receive therapy in our DMPs all receive commercial reimbursed drug. This enables us to minimize post-marketing requirement costs while generating robust, high-quality data from these very large and very long-term studies.

Moving on to Crysvita for tumor-induced osteomalacia, or TIO, a rare debilitating disease for which approximately half of patients have tumors that cannot be surgically removed, leaving them with no other current treatment options. We've received FDA approval of the Crysvita supplemental BLA less than 2 weeks before the Dojolvi approval. The FDA approval for both pediatric and adult patients was based on data from 2 single-arm Phase II study that followed 27 patients with TIO for up to 144 weeks. In these studies, Crysvita was associated with increases in serum phosphorus and improvements in osteomalacia and healing of bone lesions. Similar to our other approved therapies, we will be implementing a long-term, fully sponsored observational DMP that will enroll at least 20 patients and who will be followed for over a 10-year period.

Shifting to Crysvita for X-linked hypophosphatemia, or XLH, which is approved by the U.S. FDA and Health Canada for the treatment of adult and pediatric patients 6 months of age and older with this rare bone disease. Recall also that Crysvita is approved in Brazil with a slightly different indication. Our partner, Kyowa Kirin, recently announced a positive opinion from the Committee for Medicinal Products for Human Use, or CHMP, in Europe to expand the XLH European approval to now include adults and, therefore, is labeled now for all patients at least 1 year of age. The initial EU approval only covered pediatric and adolescent patients who are still growing. Kyowa Kirin expects a final European Commission decision in the second half of this year.

Our first approved therapy, Mepsevii, which is approved for the treatment of mucopolysaccharidosis type 7 or Sly Syndrome occurring in approximately 200 pediatric and adult patients around the world, recently received a positive opinion from the CHMP on the type 2 variation. This variation would expand the EMA approval information to include long-term effects of Mepsevii on the reduction of urinary glycosaminoglycans, or uGAGs, and improvements in the multi-domain Clinical Responder Index as well as 6-minute walk test. We anticipate a formal decision from the European Commission in the second half of 2020.

I will now turn to our program with GeneTx Biotherapeutics to advance GTX-102, an antisense oligonucleotide for the treatment of Angelman syndrome. Angelman syndrome, as you know, affects approximately 60,000 patients worldwide and is a devastating neurogenetic disorder with a broad spectrum of disease manifestations, including speech and cognitive impairment, ataxia or balance issues, sleep dysfunction and seizures. There are no approved treatment options. This disease is a neurodevelopmental disorder and not neurodegenerative. So there is the possibility to reverse some of the manifestations.

Our partner GeneTx initiated the Phase I/II study of GTX-102 earlier this year, marking the first ASO to move into the clinic for Angelman syndrome. The first 2 cohorts have been fully enrolled, and patients have received multiple doses. Safety and efficacy data from the first 2 dose-escalating cohorts are currently being evaluated, and enrollment and dosing at the next dose levels are expected to resume shortly. To

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all we have achieved so far in 2020, and we will drive continued progress for the programs going forward. I want to commend our internal teams for successfully pushing through 2 concurrent FDA reviews as well as the joint team with GeneTx for its impressive progress with a potential therapy for Angelman syndrome. And importantly, I want to again thank the patients, families, caregivers and physicians who participated in the clinical program in LC-FAOD and TIO and those currently participating in the Angelman program, particularly in light of COVID-19.

I will now turn it back to Emil who will provide more detail on our gene therapies in development.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [7]

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Thank you, Camille. As mentioned in my opening remarks, we had important data read outs from all 3 clinical gene therapy programs during Q2. Starting with DTX401 for Glycogen Storage Disease Type Ia. GSDIa is a life-threatening disease that requires patients to take cornstarch every 3 to 4 hours to avoid severe hypoglycemia and the risk of death as well as long-term complications. We presented at ASGCT the first data from a confirmatory cohort 3 on 6e12 dose as well as longer-term data from the earlier cohort. All cohort 3 patients responded to DTX401, as we saw in the earlier cohort. Cohort 3 patients, though, reduced their cornstarch usage at a faster rate by an average of 57% at week 12 versus 38% and 14%, at the same time point for the other 2 cohorts.

Looking at the longer-term data from cohorts 1 and 2, these patients reduce cornstarch use by an average of 83% with 4 of 6 patients discontinued daytime cornstarch use altogether. 2 patients have completely terminated all cornstarch use. These results suggest that DTX401 is dramatically changing the lives of these patients who, prior to gene therapy, would have been at risk for death with such significant reductions in cornstarch use. We continue to follow all patients in the study and expect to put out additional data on cohort 3 in the second half of this year. We plan to have an end of Phase II meeting with FDA in the same time frame as we gear up for our Phase III study in early 2021, depending on the impact of COVID-19.

Moving on to DTX301, a gene therapy for the treatment of ornithine transcarbamylase deficiency or OTC. OTC is the most common of the urea cycle disorders caused by an inability to detoxify ammonia into urea. And OTC patients can experience metabolic crisis that can result in neurologic issues, hospitalizations and coma. It sometimes results in death. The ASGCT data was an update to the initial cohort 3 data from January. ASGCT included 3 major updates. First, patient 9 is now confirmed as a responder to DTX301, following multiple sustained ureagenesis increases. His volume levels have remained stable at normal range over that time. 6 of 9 patients in the study are now confirmed responders, including all 3 patients in the highest-dose cohort 3.

Second, patient 8, a previous responder, is now along the path of becoming a complete responder after discontinuing scavenger therapy and starting to relax their diet. Third, all 3 of the previously disclosed complete responders remained stable through up to 2 years of follow-up. They remained well despite discontinuation of alternative therapies and the restricted diet for more than 1 year now.

The next step for this program is to treat 3 more patients at the cohort 3 dose with prophylactic steroids. Due to COVID-19, we have not yet dosed a patient in the prophylactic steroid cohort, but we are aiming to have data by the end of 2020. We intend to hold an end of Phase II meeting with the FDA and plan to start the Phase III in the first half of 2021.

In addition to these ASGCT updates, data was presented at the recent ISTH meeting on the hemophilia A gene therapy developed by our partner, Bayer. The new data covered the third dose cohort of 2e13 GC for HeLa in 2 patients in the Phase I/II study. DTX201 led to Factor VIII expression levels of 72% and 12.9% of normal at weeks 28 and 26. Of note, there were no spontaneous bleeds after reaching peak expression, including discontinuation of prophylaxis. One of the patients experienced a traumatic bleed but without the need for Factor VIII replacement therapy.

An update on the first 4 patients treated at the lower dose cohort showed stable Factor VIII expression after up to 16 months of follow-up. This provides further validation of Bayer's hemophilia program, including a relatively low dose, as well as Ultragenyx's HeLa production system. The safety and efficacy is competitive with other hem A programs with good safety so far.

To close out with the prepared remarks, as you can see, we made substantial progress so far in 2020 and expect the same through the second half of the year. I'm proud that the company has been able to make all of this progress in the midst of the ongoing COVID-19 pandemic. The team has adapted and found creative ways to continue working with and supporting patients, their families and their health care providers.

With 4 approved programs, a strong balance sheet and one of the most experienced rare development organizations and an exceptional commercial team globally, Ultragenyx is poised for substantial progress in our development and commercial goals as a next-generation rare disease company. While we have accomplished a great deal in our first decade, we will continue to pursue the smart, efficient and effective development, setting the bar for effective rare disease development and commercialization using the exceptional team and company we've built to bring even more therapies to patients. We will do so with great urgency and dynamic development and commercialization as required to overcome the inevitable challenges, especially in the first-ever treatment for rare diseases.

Thank you for joining us today, and let's move on to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Tazeen Ahmad of Bank of America.

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Tazeen Ahmad, BofA Merrill Lynch, Research Division - VP [2]

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Emil, just a little bit of color on Crysvita for the quarter. It seems like KHK have provided some commentary that COVID had some bit of an effect on new patient adds and might have even had some interruptions for continuing patients. Can you give us a little bit of color on -- to the extent you can on -- the level of impact that we've seen in 2Q? And then as it relates to TIO, how are you thinking about the initial ramp? Or how should we be thinking about expectations as it would still be launching into the COVID environment?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [3]

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Very good. So on Crysvita in the U.S., I think we've been managing it very well. And we did -- we talked a little about the proactive effort, and I'll let Erik finish with that in a moment a little bit about the impact. We are probably not seeing the same impact they're seeing, but our territories are different. And so I think it has to be a factor in thinking through.

TIO is a relatively small indication that is slowly diagnosed, so we expect it's going to take time to build slowly as we continue to add patients.

Erik, maybe you can add a little bit on the Crysvita impact and our management of it in the second quarter.

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