Ultragenyx: Convincing Investment Thesis For This Stock (NASDAQ:RARE)

Ultragenyx (NASDAQ:RARE) was a very convincing investment for me when I covered it in April this year. The stock is down 30% since then, however I remain upbeat because the stock is fundamentally sound, as is the business. Ultragenyx has a solid revenue stream, a set of rapidly moving pipeline assets targeting various rare diseases, they have a lot of cash, and there have been no major trial failures. Morgan Stanley recently picked it in a list of 45 highest conviction stocks. If you see the healthcare stocks there, Ultragenyx is the only mainstream small pharma in the list. Morgan Stanley says “…the Crysvita launch remains strong with potential upside from greater adoption in adults, families, and Latin America.” I wholeheartedly agree, not just with the bullish sentiment for Crysvita, but for the entire business.

Ultragenyx is a rare disease therapy developer. ​​They have four approved products in 5 indications, which are:

Drug	Disease	Epidemiology	Approval	Revenue ’21
Crysvita	X-Linked Hypophosphatemia (XLH)	50000	2018	$192.6mn
Crysvita	Tumor-Induced Osteomalacia (TIO)	~	2020	~
Mepsevii	Mucopolysaccharidosis 7 (MPS 7)	200	2017	$16mn
Evkeeza (ex-US rights)	Homozygous Familial Hypercholesterolemia (HoFH)	3000-5000	2021	$276mn by 2030 consensus
Dojolvi	Long-Chain Fatty Acid Oxidation Disorders (LC-FAOD)	8000-14000	2020	$39.6mn

Their pipeline:

Drug	Disease	Phase	Epidemiology
UX143 (setrusumab)	Osteogenesis Imperfecta (OI)	2	60,000
DTX401	Glycogen Storage Disease Type Ia (GSDIa)	3	6000
DTX301	Ornithine Transcarbamylase (OTC) Deficiency	3	10000
DTX201	Hemophilia A	2	144,000
UX701	Wilson Disease (WD)	2	50,000
GTX-102	Angelman Syndrome (AS)	1	60,000
UX053	Glycogen Storage Disease Type III (GSDIII)	1	10,000

These are rare diseases with few approved products, and while pipeline competition is strong in some indications, Ultragenyx is a leader in most. They have 7 clinical programs, 5 in pivotal studies across modalities and therapeutic areas, with two that are reporting data in 2022.

In their previous earnings call, Ultragenyx said that they were dosing patients in three of their four pivotal trials and were on track for updated data from the Phase 1/2 for Angelman syndrome in mid-2022. I discussed AS before in my previous article. Angelman syndrome is a debilitating neurogenetic disease with no approved treatments and a multibillion dollar market potential. There have been other molecules which have tried, notably Ovid Therapeutics, but they have seen no success and Ultragenyx with its phase 1/2 interim data is the leader. Earlier, I quoted partner GeneTx about this data:

“We are encouraged by the safety, the initial impressions from the investigators and the improvements observed in the clinical global impression scale from early assessments. The changes in multiple functional domains are encouraging and similar to the reported early changes in the original patients from the initial part of the study at these doses,” said Scott Stromatt, M.D., Chief Medical Officer of GeneTx. “It is still early in the study and we look forward to the full assessments at the completion of the Day 128 study visit.”

This very important trial will produce topline data any day now, and should produce some forward movement in the stock, assuming the data is good. Note the small risk component: this trial was halted in 2020 because all 5 enrolled patients developed lower extremity weakness. However, that issue has not been seen in the last 2 years.

In continuing with its efforts to add to its late stage pipeline, Ultragenyx is acquiring global rights to Abeona Therapeutics’ (NASDAQ:ABEO) AAV gene therapy ABO-102 (now UX111) to treat Sanfilippo syndrome type A (MPS IIIA). This asset has a pivotal trial running in this indication, which is a rare neurodegenerative disease with no approved treatments. Interim data from the pivotal trial showed:

…neurocognitive development was preserved in children treated before 2 years old or with a development quotient (DQ) > 60 (n=10) within normal range of a non-afflicted child after treatment with ABO-102 (3×1013 vg/kg). The interim results also showed continued or stabilized cognitive function and behavioral progress using standard developmental assessments. Some of these patients have reached 24-months post treatment and stabilization or increase in cortical gray matter, total cerebral, and amygdala volumes have been observed. Statistically significant reduction in liver volume was seen with ABO-102 treatment. Dose-dependent and statistically significant reductions in cerebrospinal fluid and plasma heparan sulfate, demonstrating replacement of enzyme activity consistent with levels required for disease correction in the central nervous system, have been sustained in treated patients for two years after treatment.

Financials

RARE has a market cap of $3.55bn and a cash balance of $814mn. R&D expenses were $143mn, G&A was $67mn and COGS was $6mn, and total operating expenses were $216mn. With total revenue of around $80mn, their net loss was $152mn, which gives them a cash runway of 7 quarters.

Breakup of revenues is as follows:

Revenues (dollars in thousands)
	Three Months Ended March 31,
	2022				2021
Crysvita Collaboration and Product Revenues:
North America Collaboration	$	45,164			$	36,260
ROW Product Sales		9,394				5,872
Crysvita in Ultragenyx Territories		54,558				42,132
EU Royalty Revenue		4,838				3,872
Total Crysvita Revenue		59,396				46,004
Dojolvi		12,429				7,034
Mepsevii		4,861				3,607
Daiichi Sankyo		3,249				42,750
Total Revenue	$	79,935			$	99,395

Considering the $40mn higher collaboration revenue last year, Ultragenyx made $20mn more in the first quarter this year from product revenues. Most of this came from increasing Crysvita revenue.

Bottom Line

This article does not offer a major new insight; it simply bolsters the Ultragenyx thesis with revenue and pipeline data. What we see here is solid execution; this company got the drug through, and then commercialized it well. That is one drug, one or two indications. Now they have other assets, many more indications, and their Crysvita execution assures us that they can do it right again.

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