Ultragenyx Pharmaceutical Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”). Overview Ultragenyx Pharmaceutical Inc. (we or the Company) is a biopharmaceutical company focused on the identification, acquisition, development, and commercialization of novel products for the treatment of serious rare and ultra-rare genetic diseases. We target diseases for which the unmet medical need is high, the biology for treatment is clear, and for which there are typically no approved therapies treating the underlying disease. Our strategy, which is predicated upon time- and cost-efficient drug development, allows us to pursue multiple programs in parallel with the goal of delivering safe and effective therapies to patients with the utmost urgency. Impact of COVID-19 Pandemic Our business operations have been and continue to be affected by the COVID-19 pandemic. In addition to some impact on our preclinical manufacturing activities and certain regulatory interactions, we have experienced interruptions to our clinical trial activities, primarily due to delays or disruptions to patient enrollment and dosing as a result of shelter-in-place orders or quarantines, and certain data from our gene therapy product candidates was delayed as a result of the COVID-19 pandemic. The FDA has also delayed certain key meetings or discussions with us related to one of our product candidates, which has impacted the progression of our clinical study for such product candidate. The continuing outbreak has caused delays in delivery of ancillary clinical trial materials as certain of our third-party manufacturers or suppliers have prioritized and allocated more resources and capacity to supply drug product or raw materials to other companies engaged in the study of potential treatments or vaccinations for COVID-19. Social distancing measures and travel limitations in response to the pandemic have also made it difficult for us to identify new patients for our commercialized products, which may result in loss of revenue. We have also restricted access to our facilities to personnel and third parties who perform critical activities that must be performed on-site and as a result, most of our personnel currently work remotely. Such remote working policies may negatively impact productivity and disrupt our business operations. As the COVID-19 global pandemic continues, we may experience lower revenue and increased expenses as a result of disruptions to our clinical trial, commercialization and regulatory activities, in addition to delays or shortages of drug product and raw materials. The magnitude and extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are very uncertain and cannot be predicted with confidence. As a result, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our financial statements in 2021 and beyond . See Item 1A: "Risk Factors" for additional details. Approved Therapies and Clinical Product Candidates Our current approved therapies and clinical-stage pipeline consist of four product categories: biologics, small molecules, gene therapy, and nucleic acid product candidates. See section entitled “Recent Program Updates” below for a description of recent updates to certain of our approved therapies and clinical-stage pipeline products. Our biologic products include approved therapies Crysvita® (burosumab) and Mepsevii® (vestronidase alfa) and UX143 in clinical development: • Crysvita is an antibody administered via subcutaneous injection that targets fibroblast growth factor 23, or FGF23, developed for the treatment of XLH, a rare, hereditary, progressive and lifelong musculoskeletal disorder characterized by renal phosphate wasting caused by excess FGF23 production. There are approximately 48,000 patients with XLH in the developed world, including approximately 36,000 adults and 12,000 children. Crysvita is the only approved treatment that addresses the underlying cause of XLH. Crysvita is approved in the United States and Canada for the treatment of XLH in adult and pediatric patients six months of age and older. In the European Union, or the EU, and the United Kingdom, Crysvita is approved for the treatment of XLH with radiographic evidence of bone disease in children one year of age and older, adolescents, and adults. In Brazil and Mexico, Crysvita is approved for treatment of XLH in adult and pediatric patients one year of age and older. We have submitted regulatory filings in various other Latin American countries. Crysvita is also approved in the United States for the treatment of 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. TIO can lead to severe hypophosphatemia, osteomalacia, fractures, fatigue, bone and muscle pain, and muscle weakness. We are collaborating with Kyowa Kirin Co., Ltd., or KKC (formerly Kyowa Hakko Kirin Co., Ltd., or KHK), and Kyowa Kirin, a wholly owned subsidiary of KKC, on the development and commercialization of Crysvita globally. • Mepsevii is an intravenous, or IV, enzyme replacement therapy, developed for the treatment of Mucopolysaccharidosis VII, also known as MPS VII or Sly syndrome, a rare lysosomal storage disease that often leads to multi-organ dysfunction, pervasive skeletal disease, and death. MPS VII is one of the rarest MPS disorders, affecting an estimated 200 patients in the 19 developed world. Mepsevii is approved in the United States for the treatment of children and adults with MPS VII. In the EU and the United Kingdom, Mepsevii is approved under exceptional circumstances for the treatment of non-neurological manifestations of MPS VII for patients of all ages. In Brazil and Mexico, Mepsevii is approved for the treatment of MPS VII for patients of all ages. • UX143 (setrusumab), which is subject to our collaboration agreement with Mereo and the lead clinical asset in our bone endocrinology franchise, 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. Setrusumab is being studied for the treatment of osteogenesis imperfecta (OI) and has received orphan drug designation from the FDA and European Medicines Agency ( EMA), rare pediatric disease designation from the FDA, and was accepted into the EMA’s Priority Medicines program (PRIME). There are an estimated 60,000 patients in the developed world affected by OI. Initiation of a pediatric Phase 2/3 study is expected in the second half of 2021 and a separate pivotal study is currently being planned for adults with OI. Our small molecule products include the approved therapy Dojolvi® (triheptanoin): • Dojolvi is a highly purified, synthetic, 7-carbon fatty acid triglyceride specifically designed to provide medium-chain, odd-carbon fatty acids as an energy source and metabolite replacement for people with long-chain fatty acid oxidation disorders, or LC-FAOD, which is a set of rare metabolic diseases that prevents the conversion of fat into energy and can cause low blood sugar, muscle rupture, and heart and liver disease. Dojolvi is approved and commercially available in the United States and Canada as a source of calories and fatty acids for the treatment of pediatric and adult patients with molecularly confirmed LC-FAOD. We have submitted Dojolvi to the Brazilian Health Regulatory Agency (ANVISA) seeking marketing authorization. There are approximately 8,000 to 14,000 patients in the developed world with LC-FAOD. Our clinical-stage gene therapy pipeline includes DTX401, DTX301, DTX201 and UX701: • DTX401 is an adeno-associated virus 8, or AAV8, gene therapy clinical candidate for the treatment of patients with glycogen storage disease type Ia, or GSDIa, a disease that arises from a defect in G6Pase, an essential enzyme in glycogen and glucose metabolism. GSDIa is the most common genetically inherited glycogen storage disease, with an estimated 6,000 patients in the developed world affected by GSDIa. DTX401 has been granted Orphan Drug Designation in both the United States and in the EU , Regenerative Medicine Advanced Therapy (RMAT) designation and Fast Track designation in the United States. • DTX301 is an AAV8 gene therapy product candidate designed for the treatment of patients with ornithine transcarbamylase, or OTC, deficiency. OTC is part of the urea cycle, an enzymatic pathway in the liver that converts excess nitrogen, in the form of ammonia, to urea for excretion. OTC deficiency is the most common urea cycle disorder, and there are approximately 10,000 patients in the developed world with OTC deficiency, of which we estimate approximately 80% are classified as late-onset, our target population. DTX301 has received Orphan Drug Designation in both the United States and in the EU and Fast Track Designation in the United States. • DTX201 is a Factor VIII gene therapy program for the treatment of hemophilia A that is being developed in collaboration with Bayer Healthcare LLC, or Bayer. Hemophilia A is the most common form of hemophilia with approximately 144,000 patients in the developed world. The first three cohorts with two patients each have been dosed using material from our proprietary HeLa manufacturing platform. Enrollment of additional dose cohorts in the Phase 1/2 study is currently ongoing. • UX701 is an AAV type 9 gene therapy product candidate designed to deliver stable expression of a truncated version of the ATP7B copper transporter following a single intravenous infusion to patients with Wilson disease. Wilson disease affects more than 50,000 individuals in the developed world. UX701 was granted Orphan Drug Designation in the United States and EU. Our clinical-stage nucleic acid pipeline includes GTX-102 for the treatment of Angelman syndrome, and UX053 for the treatment of GSDIII: • GTX-102 is an antisense oligonucleotide, or ASO, that is being developed 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. There are an estimated 60,000 patients in the developed world affected by Angelman syndrome. GTX-102 was granted Fast Track designation, Orphan Drug Designation and Rare Pediatric Disease Designation from the FDA. GTX-102 is being developed in collaboration with GeneTx Biotherapeutics LLC (GeneTx) in an ongoing Phase 1/2 clinical study. The study is currently on clinical hold in the United States. • UX053 is an mRNA product candidate designed for the treatment of patients with GSDIII, a disease caused by a glycogen debranching enzyme (AGL) deficiency that results in glycogen accumulation in the liver and muscle. GSDIII affects more than 10,000 patients in the developed world. 20 The following table summarizes our approved products and clinical product candidate pipeline: Recent Program Updates Dojolvi for the treatment of LC-FAOD On February 17, 2021 we announced that Health Canada approved Dojolvi as a source of calories and fatty acids for the treatment of adult and pediatric patients with LC-FAOD. On March 31, 2021, Dojolvi was made commercially available to patients with LC-FAOD in Canada. DTX701 for the treatment of Wilson disease In January 21, 2021, we announced that the FDA has cleared the Investigational New Drug (IND) application for UX701. On February 11, 2021, we announced UX701 received Fast Track Designation from the FDA. This allows for early and frequent communication throughout the entire drug development and review process and reflects the serious, unmet need for patients with Wilson disease. We currently expect enrollment in a seamless single-protocol Phase 1/2/3 study to begin in the early part of the second half of 2021. 21 DTX401 for the treatment of GSDIa We have completed the Scientific Advice process with the EMA and the End-of-Phase 2 meeting with the FDA to discuss the Phase 2 data, the Phase 3 design, and endpoints. We have submitted the Phase 3 study design to the FDA and are currently finalizing the endpoints for the study with regulators. The Phase 3 study is currently expected to initiate early in the second half of 2021. DTX301 for the treatment of OTC deficiency On April 22, 2021, we announced the successful completion of an End-of-Phase 2 meeting with the FDA. The meeting focused on the discussion of the Phase 1/2 data and alignment on Phase 3 design and endpoints. The Phase 3 study will include a 64-week primary efficacy analysis period and enroll approximately 50 patients 12 years of age and older, randomized 1:1 to DTX301 (1.7 x 10^13 GC/kg dose) or placebo. The co-primary endpoints are change in 24-hour plasma ammonia levels and the percent of patients who achieve a response as measured by discontinuation or reduction in baseline disease management. The Phase 3 study is currently expected to initiate in the second half of 2021. GTX-102 for the treatment of Angelman Syndrome, partnered with GeneTx A pre-application meeting with a national regulatory agency in Europe was held in which we reviewed efficacy and safety data as well as our proposal for dosing and administration in the Phase 1/2 study. Based on our discussion, the authority agreed in principle on the expansion of the trial to Europe using a proposed modified study design, dosing and administration strategy, pending review of the application. The application to enroll clinical studies in this region was recently submitted. In Canada, an amendment to the open clinical trial agreement was submitted and included the additional data and updated protocol and is pending review. Discussions with the FDA are continuing and a request for a meeting has been granted and will take place in the second quarter 2021. The meeting will review additional clinical data requested by the FDA regarding the previously treated patients that confirm that the serious adverse event in the previously treated patients has fully reversed as well as an amended dosing plan for the previously treated patients. The Phase 1/2 study is currently expected to resume in 2021, with clinical data on some patients still available before the end of 2021. UX053 for the treatment of GSDIII On March 8, 2021, we announced that the FDA cleared the IND application for UX053, an investigational mRNA therapy being evaluated for the treatment of GSDIII. Enrollment in a Phase 1/2 study is currently expected to begin in the second half of 2021. Financial Operations Overview We are a biopharmaceutical company with a limited operating history. To date, we have invested substantially all of our efforts and financial resources in identifying, acquiring, and developing our products and product candidates, including conducting clinical studies and providing selling, general and administrative support for these operations. To date, we have funded our operations primarily from the sale of our equity securities, the sale of certain future royalties, and strategic collaboration arrangements. We have incurred net losses in each year since inception. Our net loss was $136.1 million and $119.0 million for the three months ended March 31, 2021 and 2020, respectively. Net loss for the three months ended March 31, 2021 included a loss of $20.6 million resulting from changes in fair value of our investments in Arcturus Therapeutics Holdings Inc. (Arcturus) and Solid Biosciences Inc. (Solid) equity securities. Net loss for the three months ended March 31, 2020 included a gain of $7.7 million resulting from changes in the fair value of our investment in Arcturus. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. For the three months ended March 31, 2021, our total revenues increased to $99.4 million, compared to $36.3 million for the same period in 2020. Revenue for the three months ended March 31, 2021 and 2020 included $42.8 million and none, respectively, in revenue from our collaboration and license agreement with Daiichi Sankyo Co., Ltd. (Daiichi Sankyo) which we executed in March 2020. The remainder of the increase was driven by higher revenue from Crysvita collaboration revenue in the profit-share territory, an increase in revenue for our approved products and an increase in collaboration royalty revenue. As of March 31, 2021, we had $1,047.0 million in available cash, cash equivalents, and marketable debt securities. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other 22 factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes in our critical accounting policies during the three months ended March 31, 2021 , as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report. Results of Operations Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020: Revenue (dollars in thousands) Three Months Ended March 31, Dollar % 2021 2020 Change Change Collaboration and license revenue: Crysvita collaboration revenue in profit-share territory $ 36,260 $ 27,215 $ 9,045 33 % Daiichi Sankyo 42,750 — 42,750 * Total collaboration and license revenue 79,010 27,215 51,795 190 % Product sales: Crysvita 5,872 1,610 4,262 265 % Mepsevii 3,607 3,425 182 5 % Dojolvi 7,034 1,444 5,590 387 % Total product sales 16,513 6,479 10,034 155 % Crysvita non-cash collaboration royalty revenue 3,872 2,615 1,257 48 % Total revenues $ 99,395 $ 36,309 $ 63,086 174 % * Not meaningful For the three months ended March 31, 2021 , the Company’s share of Crysvita collaboration revenue in the profit-share territory increased by $9.0 million as compared to the same period in 2020. The increase primarily reflects the continuing increase in demand for Crysvita due to an increase in the number of patients on therapy. In March 2020, we executed a license agreement with Daiichi Sankyo, pursuant to which we granted Daiichi Sankyo a non-exclusive license to intellectual property, including know-how and patent applications, with respect to our HeLa PCL and HEK293 transient transfection manufacturing technology platforms for AAV-based gene therapy products. We will also provide certain technical assistance and technology transfer services during the technology transfer period of three years to enable Daiichi Sankyo to use the technologies for its internal gene therapy programs. For the three months ended March 31, 2021 , we recognized $42.8 million as collaboration and license revenue from this arrangement. We expect to recognize the remaining revenue allocated to the intellectual property and the transfer services as revenue by the end of 2021. The increase in product sales of $10.0 million for the three months ended March 31, 2021, compared to the same period in 2020 was primarily due to the commercial launch of Dojolvi in the United States in the third quarter of 2020, continuing increase in demand for Crysvita and Mepsevii, and an increase in sales of Dojolvi under our named patient program in certain countries. The increase in Crysvita non-cash collaboration royalty revenue of $1.3 million primarily reflects the launch progress by our collaboration partner in European countries and an increase in the number of patients on therapy. Cost of Sales (dollars in thousands) Three Months Ended March 31, Dollar % 2021 2020 Change Change Cost of sales $ 5,188 $ (3,503 ) $ 8,691 -248 % Cost of sales related to our approved products increased by $8.7 million for the three months ended March 31, 2021 compared to the same period in 2020. The cost of sales for the three months ended March 31, 2021 included additional reserves of $1.7 million for excess inventory write downs. The cost of sales for the three months ended March 31, 2020 included a credit for the manufacturing of future inventory batches with an estimated value of $4.6 million and was agreed to during the period with one of our manufacturers due to certain inventory batches that did not meet specified quality standards. The increase in cost of sales for the three months ended March 31, 2021 compared to the same period in 2020 was due to the manufacturing credit recorded in 2020, an increase in demand for our approved products, product costs related to sales of Dojolvi, which launched in the third quarter of 2020, and the reserves for excess inventory. Prior to the approval of our products, manufacturing and related costs were expensed; accordingly, these costs were not capitalized and as a result are not fully reflected in the costs of sales during the three months ended March 31, 2021 and 2020 . If manufacturing and related costs were capitalized prior to the approval period and the $1.7 million in write downs for the three months 23 ended March 31, 2021 and the credit of $4.6 million for the three months ended March 31, 2020 as noted above were excluded , we estimate that cost of sales for the three months ended March 31, 2021 and 2020 would have been approximately $ 3.7 million and $ 1.3 million, respectively, for our commercial product sales. We expect our gross margin percentage to decrease as we produce approved products that reflect the full costs of manufacturing and as we deplete inventories that we had expensed prior to receiving approval. Research and Development Expenses (dollars in thousands) Research and development expenses include internal and external costs incurred for research and development of our programs and program candidates and expenses related to certain technology that we acquire or license through business development transactions. These expenses consist primarily of clinical studies performed by contract research organizations, manufacturing of drug substance and drug product performed by contract manufacturing organizations, materials and supplies, fees from collaborative and other arrangements including milestones, licenses and other fees, personnel costs including salaries, benefits and stock-based compensation, and overhead allocations consisting of various support and infrastructure costs. Commercial programs include costs for disease monitoring programs and certain regulatory and medical affairs support activities for programs after commercial approval. Clinical programs include study conduct and manufacturing costs related to clinical program candidates. Translational research include costs for preclinical study work and costs related to preclinical programs prior to IND filing. Upfront license and milestone fees include any significant expenses related to strategic licensing agreements. Infrastructure costs include direct costs related to laboratory, IT, and equipment depreciation costs, and overhead allocations for human resources, IT and other allocable costs. The following table provides a breakout of our research and development expenses by major program type and business activities: Three Months Ended March 31, Dollar % 2021 2020 Change Change Commercial programs $ 13,661 $ 5,857 $ 7,804 133 % Clinical programs: Gene therapy programs 21,362 13,200 8,162 62 % Nucleic acid and other biologic programs 9,024 903 8,121 899 % Small molecule programs — 7,440 (7,440 ) -100 % Translational research 12,613 16,305 (3,692 ) -23 % Upfront license and milestone fees 50,000 32,000 18,000 56 % Infrastructure 14,862 12,413 2,449 20 % Stock-based compensation 13,489 10,929 2,560 23 % Other research and development 12,507 13,914 (1,407 ) -10 % Total research and development expenses $ 147,518 $ 112,961 $ 34,557 31 % Total research and development expenses increased $34.6 million for the three months ended March 31, 2021 compared to the same period in 2020. The change in research and development expenses was primarily due to: • for commercial programs, an increase of $7.8 million for the three months ended March 31, 2021 primarily related to the addition of expenses related to Dojolvi and the TIO indication for Crysvita following their respective FDA approvals in June 2020; • for gene therapy programs , an increase of $8.2 million for the three months ended March 31, 2021 primarily related to the addition of expenses related to UX701 following its IND approval in January 2021 ; • for nucleic acid and other biologic programs, an increase of $8.1 million for the three months ended March 31, 2021 primarily related to the addition of expenses related to UX053 following its IND approval in March 2021 and UX143 as we entered into a License and Collaboration Agreement with Mereo BioPharma 3 Limited, or Mereo, to collaborate on the development of UX143 effective January 2021; partially offset by the classification of expenses for the TIO indication for Crysvita to commercial programs for the three months ended March 31, 2021; • for small molecule programs, a decrease of $7.4 million for the three months ended March 31, 2021 primarily related to the classification of expenses for Dojolvi to commercial programs for the three months ended March 31, 2021; • for translational research, a decrease of $3.7 million for the three months ended March 31, 2021 primarily related to the classification of expenses for UX053 to clinical programs as a result of its IND approval; • for upfront license and milestone fees, an increase of $18.0 million for the three months ended March 31, 2021 primarily due to the $50.0 million upfront payment to Mereo in January 2021, partially offset by the $25.0 million option extension payment to GeneTx and the $7.0 million upfront payment to REGENXBIO, Inc. (REGENEX) pursuant to the license agreement for REGENX’s NAV AAV8 and AAV9 vectors, both of which occurred during the first quarter of 2020; 24 • for infrastructure , a n in crease of $ 2.4 million f or the three months ended March 31, 2021 primarily related to increased expenses for support of our clinical and research program pipeline , expansion of laboratory space, implementation of COVID-related policies and safety protocols, depreciation of laboratory-related leasehold improvements and equipment, and IT-related expenses ; • for stock-based compensation, an increase of $2.6 million for the three months ended March 31, 2021 primarily related to an increase in employee headcount as well as the higher valuation of stock-based awards granted to employees; and • for other research and development expenses, a decrease of $1.4 million for the three months ended March 31, 2021 primarily related to higher research and development efforts allocated to programs represented in the commercial, clinical, and translational science programs above. We expect our annual research and development expenses to continue to increase in the future as we advance our product candidates through clinical development. The timing and amount of expenses incurred will depend largely upon the outcomes of current or future clinical studies for our product candidates as well as the related regulatory requirements, manufacturing costs, and any costs associated with the advancement of our preclinical programs. Selling, General and Administrative Expenses (dollars in thousands) Three Months Ended March 31, Dollar % 2021 2020 Change Change Selling, general and administrative $ 53,258 $ 47,516 $ 5,742 12 % Selling, general and administrative expenses increased $5.7 million for the three months ended March 31, 2021 compared to the same period in 2020. The increases in selling, general and administrative expenses were primarily due to increases in personnel costs resulting from an increase in the number of employees in support of our commercial activities, commercialization costs, and professional services costs, partially offset by lower travel and related expenses due to travel restrictions in connection with the COVID-19 pandemic. We expect selling, general and administrative expenses to continue to increase in the future to support our organizational growth and for our expected staged build out of our commercial organization over the next several years related to our approved products and multiple clinical-stage product candidates. Interest Income (dollars in thousands) Three Months Ended March 31, Dollar % 2021 2020 Change Change Interest income $ 639 $ 2,919 $ (2,280 ) -78 % Interest income decreased $2.3 million for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to lower portfolio yields as a result of a decrease in interest rates, partially offset by higher balances in our marketable debt securities. Change in Fair Value of Equity Investments (dollars in thousands) Three Months Ended March 31, Dollar % 2021 2020 Change Change Change in fair value of equity investments $ (20,619 ) $ 7,668 $ (28,287 ) -369 % The fair value of our equity investments decreased by $20.6 million during the three months ended March 31, 2021 due to decreases in the fair value of Arcturus and Solid common stock, resulting in unrealized losses on our investments in Arcturus and Solid common stock of $4.6 million and $16.0 million, respectively. The fair value of our equity investments increased by $7.7 million during the three months ended March 31, 2020 due to an increase in fair value of Arcturus common stock. Given the historic volatility of the publicly traded stock price of Arcturus and Solid, the fair value adjustments of our equity investments may be subject to wide fluctuations which may have a significant impact on our earnings in future periods. Non-cash Interest Expense on Liability Related to the Sale of Future Royalties (dollars in thousands) Three Months Ended March 31, Dollar % 2021 2020 Change Change Non-cash interest expense on liability related to the sale of future royalties $ (8,418 ) $ (8,082 ) $ (336 ) 4 % The non-cash interest expense on liability related to the sale of future royalties increased by $0.3 million for the three months ended March 31, 2021 compared to the same period in 2020 due to the increase in the liability related to the sale of future royalties for 25 net sales of Crysvita in the European territory, partially offset by a decrease in the effective interest rate for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. To the extent the royalty payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will prospectively adjust the effective interest rate. Other Expense (dollars in thousands) Three Months Ended March 31, Dollar % 2021 2020 Change Change Other expense $ (795 ) $ (456 ) $ (339 ) 74 % Other expense increased by $0.3 million for the three months ended March 31, 2021 compared to the same period in 2020. The increase was primarily due to fluctuations in foreign exchange rates. Provision for Income Taxes (dollars in thousands) Three Months Ended March 31, Dollar % 2021 2020 Change Change Provision for income taxes $ (379 ) $ (409 ) $ 30 -7 % The provision for incomes taxes decreased by a nominal amount for the three months ended March 31, 2021 compared to the same period in 2020. Liquidity and Capital Resources To date, we have funded our operations primarily from the sale of our equity securities, the sale of certain future royalties, and strategic collaboration arrangements. As of March 31, 2021, we had $1,047.0 million in available cash, cash equivalents, and marketable debt securities. We believe that our existing capital resources will be sufficient to fund our projected operating requirements for at least the next twelve months. Our cash, cash equivalents, and marketable debt securities are held in a variety of deposit accounts, interest-bearing accounts, corporate bond securities, U.S government securities, asset-backed securities, and money market funds. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and credit risk. In March 2020, we received $75.0 million in cash from the sale of 1,243,913 shares of our common stock to Daiichi Sankyo and in April 2020, we received $125.0 million from an upfront payment related to the Daiichi Sankyo License Agreement. In November 2020, we completed an underwritten public offering in which we sold 5,111,110 shares of common stock and received net proceeds of $435.6 million. In December 2020, we sold 800,000 shares of Arcturus common stock and received net proceeds of $79.8 million. The following table summarizes our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2021 2020 Cash used in operating activities $ (159,346 ) $ (95,152 ) Cash used in investing activities (182,424 ) (95,125 ) Cash provided by financing activities 12,649 55,615 Effect of exchange rate changes on cash (771 ) (623 ) Net decrease in cash, cash equivalents and restricted cash $ (329,892 ) $ (135,285 ) Cash Used in Operating Activities Our primary use of cash is to fund operating expenses, which consist primarily of research and development and commercial expenditures. Due to our significant research and development expenditures, we have generated significant operating losses since our inception. Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Cash used in operating activities for the three months ended March 31, 2021 was $159.3 million and reflected a net loss of $136.1 million and $3.9 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI Finance Trust (RPI), an affiliate of Royalty Pharma , offset by non-cash charges of $24.3 million for stock-based compensation, $0.9 million for the amortization of the premium paid on purchased marketable debt securities, $3.4 million for depreciation , $20.6 million for a change in fair value of equity investments from Arcturus and Solid, and $8.4 million for non-cash interest incurred on the liability related to the sale of future royalties to RPI . Cash used in operating activities also reflected a $2.0 million decrease due to an increase in accounts receivable primarily related to higher revenues, a $10.7 million decrease due to an increase in prepaid expenses and other current assets primarily due to an increase in prepaid manufacturing, insurance, and subscriptions, a $23.6 million decrease in accounts payable, accrued liabilities, and other liabilities primarily due to the payout of 2020 annual bonuses, and a decrease of $41.5 million in 26 contract liabilities, primarily related to the revenue recognized from the license agreements with Daiichi Sankyo, offset by a $ 0.5 million increase due to a decrease in inventory . Cash used in operating activities for the three months ended March 31, 2020 was $95.2 million and reflected a net loss of $119.0 million, $0.3 million for the amortization of the discount paid on purchased marketable debt securities, $7.7 million for a change in fair value of equity investments from Arcturus, and $2.6 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI , offset by non-cash charges of $20.2 million for stock-based compensation, $2.9 million for depreciation, and $8.1 million for non-cash interest incurred on the liability related to the sale of future royalties to RPI . Cash used in operating activities also reflected a decrease of $15.1 million due to an increase in prepaid expenses and other assets primarily due to an increase in general receivables, amounts due from a collaboration partner, and amounts owed for a tenant improvement allowance, a decrease of $125.6 million due to a receivable related to the license and technology access agreement with Daiichi Sankyo in March 2020, and a $5.4 million decrease in accounts payable, accrued, and other liabilities primarily due to a decrease in accrued bonus due to the payout of the 2019 annual bonus, offset by $3.5 million increase due to a decrease in accounts receivable as receivables related to the non-cash collaboration royalty revenues were recorded against the liability related to the sale of future royalties to RPI beginning in January 1, 2020, a $0.1 million increase due to a decrease in inventory, and an increase of $145.3 million in contract liabilities related to the license and technology access agreement with Daiichi Sankyo. Cash Used in Investing Activities Cash used in investing activities for the three months ended March 31, 2021 was $182.4 million and related to purchases of property and equipment of $16.4 million and purchases of marketable debt securities of $405.2 million, offset by proceeds from the sale of marketable debt securities of $15.0 million and maturities of marketable debt securities of $224.2 million. Cash used in investing activities for the three months ended March 31, 2020 was $95.1 million and related to purchases of property and equipment of $14.1 million and purchases of marketable debt securities of $285.2 million, offset by proceeds from the sale of marketable debt securities of $16.6 million and maturities of marketable debt securities of $187.6 million. Cash Provided by Financing Activities Cash provided by financing activities for the three months ended March 31, 2021 was $12.6 million and was primarily comprised of $12.8 million in net proceeds from the issuance of common stock pursuant to equity plan awards. Cash provided by financing activities for the three months ended March 31, 2020 was $55.6 million and was comprised of $55.3 million from the sale of common stock in connection with the license and technology access agreement with Daiichi Sankyo in March 2020 and $0.4 million in net proceeds from the issuance of common stock pursuant to the exercise of warrants and equity plan awards. Funding Requirements We anticipate that, excluding non-recurring items, we will continue to generate annual losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our product candidates, and continue with commercialization of approved products. We will require additional capital to fund our operations, to complete our ongoing and planned clinical studies, to commercialize our products, to continue investing in early-stage research capabilities to promote our pipeline growth, to continue to acquire or invest in businesses or products that complement or expand our business, and to further develop our general infrastructure, including construction of our GMP gene therapy manufacturing facility, and such funding may not be available to us on acceptable terms or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay, limit, reduce the scope of, or terminate one or more of our clinical studies, research and development programs, future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our future funding requirements will depend on many factors, including the following: • the scope, rate of progress, results and cost of our clinical studies, nonclinical testing, and other related activities; • the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates, products that we have begun to commercialize, and any products that we may develop in the future, including the construction of our own GMP gene therapy manufacturing plant; • the number and characteristics of product candidates that we pursue; • the cost, timing, and outcomes of regulatory approvals; 27 • the cost and timing of establishing our commercial infrastructure, and distribution capabilities; • the magnitude and extent to which the COVID-19 pandemic impacts our business operations and operating results, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors – Risks Related to Our Business Operations”; and • the terms and timing of any collaborative, licensing, marketing, distribution, acquisition (including whether we exercise our option to acquire GeneTx pursuant to the terms of our Unitholder Option Agreement with them) and other arrangements that we may establish, including any required upfront milestone, royalty, reimbursements or other payments thereunder. We expect to satisfy future cash needs through existing capital balances and through some combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and other marketing and distribution arrangements. Please see “Risk Factors—Risks Related to Our Financial Condition and Capital Requirements.” Contractual Obligations and Commitments We have contractual obligations from our operating and finance leases, manufacturing and service contracts, licenses, royalties, development and collaboration arrangements, and other research and development activities. The following table summarizes our significant binding contractual obligations at March 31, 2021 (in thousands): Payments due by period Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Operating and finance leases $ 12,140 $ 24,224 $ 15,058 $ 2,410 $ 53,832 Manufacturing and service contracts 7,760 1,033 — — 8,793 Building construction agreement 17,744 141 — — 17,885 Total $ 37,644 $ 25,398 $ 15,058 $ 2,410 $ 80,510 The terms of certain of our licenses, royalties, development and collaboration agreements, as well as other research and development activities, require us to pay potential future milestone payments based on product development success. The above table excludes such obligations as the amount and timing of such obligations are unknown or uncertain. Off-Balance Sheet Arrangements We have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.