Ultragenyx Pharmaceutical Inc. (RARE) Earnings Call Transcript & Summary

Good morning, everyone. My name is Liisa Bayko. I'm one of the SMID-cap biotech analysts here at Evercore ISI. This is HealthCONx. And I'm just so excited to be talking to the Ultragenyx team. And we're going to dig into some of the programs in the pipeline that I think are super exciting. I know Emil has been hard at work on those things. So thank you all for joining us. Emil, let's start off with a brief overview of Ultragenyx just for those who don't know [indiscernible]

Sure. I'm happy to -- with me today is Howard Horn, our CFO, to introduce him to the crowd as well. So Ultragenyx is found in 2010, we've been on the public market since 2014. In the last 10 years, we've had 4 product approvals with revenue generating $530 million to $550 million revenue this year heading towards profitability, we believe, in a couple of years from now. We have 6 late-stage programs, including probably one of the major value drivers osteogenesis imperfecta program, setrusumab, which is now in Phase III heading toward data readouts next year. In addition to that, we have 2 gene therapies that are heading to filing BLAs, which will go commercial sometime next year or the year after. We have built a [ probe ] company that's really focused on the best approach to identifying high potent biology that can translate rapidly into development generating probably more products in that interval than any rare disease company and certainly more than any in the 2013, '14 IPO class. Combined with that, we also have our approach to commercialization and how we find patients and put them on drug effectively with the kind of service required for high-value and complex diseases. And so we're also leading the future in how we're managing policy, including the acceptance of biomarkers, for example, for Sanfilippo syndrome as well as in other aspects of policy that impact rare diseases. So as a company, we're a commercially successful company heading towards profitability, multiple late-stage programs and a leader in the field of rare diseases.

Can you be profitable, let's say, just with the base business, if you were to do nothing else?

Well, if we have just the base business, you mean the current programs that are approved or you mean with the ones that are...

Approved. I was going to get to that next.

To do that, we would have to cut investment in [ development ]. With the additional programs like the gene therapy programs, certainly, that would take us to profitability. But the setrusumab program is the one that really sets us the store past profitability to drive the next stage of growth for us.

Well, that's why there's so much excitement, I think, on the pipeline. It's OI, Wilsons, Angelman, those are kind of the big, I think, targets are just very sizable diseases with big unmet medical needs that you could possibly address Okay. So I want to turn to some of those programs. There's just so much interest in those. So for OI, walk us just through the rationale for setrusumab and OI.

Well, osteogenesis imperfecta is a defect in collagen, these patients bones are fragile and they fracture. Now it was a long-held belief that the mutated collagen makes the bones reduces their 10 cell strength. And so that's why they're fragile. But we figured out in nonclinical studies, and looking carefully at clinical patients is that, in fact, the bigger problem is not the tensile strength of the bone, but the fact that the mutations in collagen result in excessive resorption and inadequate production bone. Essentially mutations cause dysregulated bone production. These patients have, on average, 2 Z score, 2 standard deviation, low normal bone mineral density, right, like [ 5th ] percentile or below. And that the real reason they're fracturing is they don't make enough bone. With that in mind, the anti-sclerostin approach is simply taking on the body's natural way of controlling bone production. Instead of letting these patients continue to produce inadequate amounts of bone and the dial essentially shifted to resorption. We're dialing up toward more anabolism, more production, less resorption, and that production bone moves their bone mineral density up. And in animal models, you can normalize bone mineral density with OI mutations and get normal bone strength, normal bone strength. That's the data, the scientific data behind it. And what we're showing people were doubting that for humans, but now we've shown they are -- they have minus 2 standard deviation in the population we studied, and we took them within half a standard reach normal and fracture rate dropped by 6% showing, once again, what we saw in the animals is true. That the more important reason why these bones are fracturing is that they're not making enough bone, which allows an anti-sclerostin to be a preferred way to produce new bone and to lay down new bone where the bone is weak. That's how your body's mechanism work. Wherever the bone is unstable or moving attracts the bone cells to lay down and form bone. So that means the new bone they form is at the weakest point and will strengthen their bone much better than a bisphosphonates. So we think the mechanism in animals is proving out in humans. And what it does is open the door a transformative treatment for OI.

When you say much better than bisphosphonates, what are bisphosphonates doing that's different?

Well, bisphosphonates block resorption only, but they don't drive new bone formation. So they keep the bone mineral density where it is. But if you look at the animal model data in OI, you see bone mineral density getting to normal, but bone strength is not getting normal. Whereas in anti-sclerostin, setrusumab, you get bone density normal and strength to normal, right? So it's the difference in anti-resorption versus anabolism.

We get this question a lot from kind of like the pushback to the story is like, okay, you're making more bone. But if the bone is not good quality bone because you still have the collagen problem, is that really helping the issue? Do I just have more bad bone? And even though my bone mineral density has improved, is it really stronger bone? So that -- like what's your response?

But that is -- I was a medical genesis, so that's the idea that make more bone, bone wouldn't help, but that's actually wrong because bone may not -- it's not bad. It may not be perfect bone or it's actually productive bone. And as I showed you in the animal model, you get normal bone strength. Normal bone strength to 3 points with the abnormal collagen is still there. Because it turns out that the difference in the strength of the bone is only at very tensile strengths -- stretching. In other words, like with a major car accident, you could see a difference. But most of the fractures that are occurring are in daily activities like slipping off the curb, rolling in bed, some people get fractures. Those problems are not because it's a collagen, they're because there's not enough bone. And how do I know? We just treating people. We've been treating people and most of the patients stop having fractures after 3 months or so and 67% median reduction.

Right. Well, there's always the question of there wasn't a placebo, so what's going in the background. So that actually brings my next question. What are you thinking about as sort of the background rate? Should we think about sort of the -- how patients did before they came into the study as the sort of what would happen on sort of placebo and a [indiscernible] What about the impact of being on a trial and all those kind of like things that happen? Maybe you're more careful, maybe you're getting better care, these kinds of things. .

Well, the background rate we're assuming is what they come from their chart, which is around 0.7 events per year, which is of the type of fracture that FDA is restricting us to, right? It's about 0.7. But we know that what's in their chart under ascertains what's actually happening because they don't report everything. So our expectation is the actual rate will be higher. How much higher is one of the uncertainties, how much higher, but it will be higher. In addition, the Phase II patients we had were 17 of the 24 were type 1s and 7 were type 3s and 4s. The 3s and 4s are more severe disease, more fractures. We're closer to the equal numbers in the trial. So that will probably raise the fracture rate. So what happens when you enter a trial. Are you more careful? No, it's actually the opposite because the thing that most OI patients avoid is transport and movement around because that's when accidents happen. Slip falls and things will lead to fractures. So by coming to the clinic every month, in fact, it's more likely to increase fracture rate. This is one of the reasons people were afraid to come in a trial and go on placebo because they're losing the bisphosphonates whatever effect it had. And at the same time, they're going to be doing traveling all the time, which is how accidents happen. And these kids are disabled. Many of them have other issues and the risk of having a fall or a slip or something goes up. So I think actually, it's more likely to go up rather than being more careful. So we're not concerned about that having a meaningful impact, though. The trial size is not like 30, 40 patients, right? It's 159 patients. So it's a very substantial rare disease trial.

We've been getting a lot of questions and Josh has been fielding a lot of them. What to expect for placebo, right? Because that's the biggest unknown, because we didn't have a placebo in Phase II. And I think we can -- we have a decent sense of drug because we saw some pretty impressive data in Phase II. So -- and you've talked a little bit about sort of -- can you talk through, I guess, your expectations for placebo and where is that derived from?

Well, the power estimates for design of the trial was the 0.7 number and we assumed a 50% reduction in treatment effect size for the drug. The actual treatment effect size seems to be more like 67 or somewhere in there. It could be higher if you -- with a larger population and more severe patients, we don't know, but it's certainly up in there. Our expectation though that the actual fracture will be higher. Will it be double? It could be double. We are enrolling patients that have at least 1 fracture and potentially 2 fractures over 2 years. But when you set that as a threshold, usually, Liisa, that's the minimum, right? And so you'll have patients that could have as many as 4, 5 or 8 fractures. What we are doing is stratifying between less than 3 fractures per year versus more than 3 fractures to make sure the groups are comparable in terms of severity because there is a wide range of fracture frequency. The trial wasn't placebo controlled, but the quality of the Phase II data was so strong. It's so profound and that we feel very comfortable that it's reflecting truth. And so we're not concerned about a placebo effect having any impact on what's going on in this trial.

And you did some interesting things in the trial, you sort of changed the end, reduce the size, you actually added these sort of interim analyses. What was the impetus for that?

Well, our original assumption was what the treatment effect size is relatively smaller and fracture rate. And when we got our Phase II data, we saw that we were highly overpowered and we didn't need enroll 195. In fact, you probably don't even need to enroll 100, right? But we didn't want to bring it down that much. We thought we could go a little faster and bring the number down, have an imperceptible effect on power to go from 195 down to 150. We enrolled 159 because, in fact, patients were trying to get in the study, and we want to -- we just -- we got over enrolled because we just couldn't cut people off. There were emotionally convinced to be in the study. So we ended with 159. Knowing now that the fracture rate based on patient report looked like it might be higher than the actual chart-based report. It opened the possibility that if that fracture was double or triple what was being reported then with the treatment effect size that the time needed to separate the 2 groups would be -- could be faster. And because when you look at the bone mineral density response, even at 3 months, they already had separated, it looked like their fracture rates should probably separate even by 3 months and that -- with that level of a treatment effect size, we thought they would probably achieve significance earlier. So depending on the fracture rate and the treatment effect size and the speed of separation and the variation there is a possibility that we could end the study early. And because it's so important, we have a placebo-controlled trial in people's children and they're getting fractures. We felt there was an ethical basis for this, but there's also a business basis for it if we're able to finish the trial earlier and not continue operating, it would allow us to bring in the whole program, which had a substantial value in the business. So with the first interim was set a very stringent criteria because we knew the regulators would be less appreciative of stopping early with regard to body of safety data and so forth. But -- we think we have plenty of exposure information to show the drug safety and a big enough study, 2 studies to tell them about efficacy. They agreed to the 0.01. The next threshold will be at 0.01. That's when everyone has at least 12 months of data. And then final 1 is at 18 months. What that does is it brought us in from 18 months to 2 years and brought in the time line substantially. We saved a little by stopping enrollment earlier and allowed us to bring a product from 2027 to potentially an approval, right, in 2026. We think it's dramatically important for us in terms of value creating for the company. So those are the things we did once we learned our Phase II data. As part of what we call the dynamic development model at Ultragenyx, which is this view that we are constantly learning and adapting to information and not getting stuck by our concepts of what we've seen before. In Rare, you're constantly learning and need to adapt.

I like it. Okay. Just one more point on this that I want to ask about. And we've been trying to do a lot of digging on the connection between bone mineral density and fracture rate in the OI population specifically. We know it's there for osteoporosis and other things. But what is the evidence for that in this disease? Because actually, the bone mineral density change is very compelling. And the question is, is that predictive in some way in this particular population.

It can be, but I think we have to recognize that bone mineral density achieved through different mechanisms has different value, all right. So if you look in the OI brittle mouse model with bisphosphonates, you see normalization or even excess bone mineral density, but the fractures only partially improved. The bone strength is only partially improved. But by operating this mechanism, you see normalization of bone mineral density and normalization of bone strength because when you lay down new bone at the sites of weakness, that bone mineral density is contributing to strength, not just contributing the density. This is the key mechanistic problem. The FDA is also concerned about the relationship. The other thing people have done is looked at like graph of bone mineral density versus fracture frequency. Well, you're not going to see a very clear correlation in that. So you have to look at change in density by which mechanism and change in fractures because all will have different levels of bone mineral density and structure. So if you just look at that, the variation in fractures and bone mineral density, you probably see a big cloud, right? So that's not a way to figure it out. The question is, if I increase bone mineral density by this method, does that predict an outcome? And I think with setrusumab, it will. I think we'll have a lot more data from this Phase III study, which will allow us to demonstrate that.

Okay. I want to hit briefly on the other 2 programs. We don't have a lot of time but Wilson's disease, what is the data there so far suggest to you?

Well, I think it's pretty clear with 6 out of 15 getting off standard of care that there is ability of this gene therapy to help improve detoxication of copper and certainly evidence in some of the patients of restoration of copper distribution. So it tells us that gene therapy is active and that this version of the transporter can actually achieve an effect in humans. So that's really important. It tells us there's a -- there in terms of gene therapy. What we didn't get is what we want to see the vast majority of patients get off the standard of care, and we want to see them have profound improvements in copper distribution. And we felt like we're seeing activity, but it wasn't enough to feel comfortable that this is a valuable enough gene therapy to take through and invest in a Phase III. We're going to do one more cohort. We think if we tune up the dosing, get more liver cells expressing the transporter and manage the immune response a little bit to make sure we keep all the liver cells that are expressing the transgene that we could achieve the kind of change we're hoping for, and that's where we're going with that.

So when will we see that data?

Well, we're amending the protocol now and putting in place, it's going to be a while. It -- because it's -- not only we have to get the study up amended and enrolled, we also take at least 6 months of time before the transport true effects come through. So that's going to take time.

Okay. So maybe it's a 2026 thing or...

Probably.

Okay. And what level of -- I guess, what level of copper, I guess, control do you want to see? Or how should we think about?

We want to see the vast majority of patients get off standard of care. And that we can prove that, that copper detox effect is clearly. I'd like to see copper distribution improve with [indiscernible] For those patients who have very low [indiscernible] I'd like to see that improve because that tells me we're going to have the kind of benefit in the disease state, which you can't achieve with chelators. Our goal here is not just to replace chelators because the financial model of just replacing a drug with another drug is not what reason to people take gene therapy. They want to be better. So we got to do something better. It's differentiated.

That makes sense. Okay. And then just quickly on Angelman, you're just getting kind of your Phase III up and running. You're focused on cognition and we know there's one other antisense out there that's focusing on expressive communication. There's some hierarchy here. Actually I was talking about that with Josh last couple of days.

We're better than them. Is that what you mean? Not that. I wasn't sure what you meant. The truth is we're looking at all the same kind of domains. We're looking at communication, cognition and everything. We picked cognition because I think it's more of a synthesis of a number of things that are going on because they have to receive communication to understand or respond. They have to pay attention to the behavior has to be improved, and they have to think better, right? And we see the biggest improvement in cognition as a fundamental biological reality and FDA liked that endpoint and did not debate us on it. We see improved express communication, but I think it's also more complex because it takes more development. It's also highly prone to training and testing, right? How much PT/OT are you doing on language. It has a lot of other -- that would impact what's going on is that even across the study. So while I think express communication is important, we think that a lot of domains are important. We're measuring 5 domains in the [ multilane ] responders. So we'll get a big picture. We'll have enough data to compare...

It's always hard because companies are always using different end points. And we always like to compare and contrast, makes it hard whenever...

We have overlapping end points. So I think we should be able to compare.

Okay. And then just on a final point, I know we're out of time, but can you just give us a view on 2025? What are the key events, catalysts that we can look forward to?

Yes. Some of the key catalysts are essentially getting setrusumab interim assessments coming, [ I1 ] beginning of the year, [ I2 ] sometime middle year, if the [ I1 ] doesn't hit towards the end of the year. [indiscernible]. We'll have our filing for MPS IIIA, the Sanfilippo program that should come toward a PDUFA decision towards the -- probably third quarter. We'll be filing for DTX401 for that approval. And Angelman Phase III should get enrolled and proceeding ahead. I think those are some of the major development catalysts. And I think important thing commercial is we'll continue to grow our global commercial base, continue to reduce our burn. Any word on that? That's the plan. Heading toward profitability.

Okay. Great. Thank you.

Thanks.