What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-05 · 151 added, 107 removed, 178 unchanged (59% of the section changed)

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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.

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 or manufacture of 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.

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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:

Our biologic products include approved therapies Crysvita® (burosumab), 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.

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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.

In Brazil, Colombia, 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.

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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

developed world.

MPS VII is one of the rarest MPS disorders, affecting an estimated 200 patients in the 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.

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.

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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.

Initiation of a pediatric Phase 2/3 study is expected in the second half of 2021 and a separate study is currently being planned for adults with OI.

Our small molecule products include the approved therapy Dojolvi® (triheptanoin):

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GSDIa is the most common genetically inherited glycogen storage disease, with an estimated 6,000 patients in the developed world affected by GSDIa.

A Pediatric Investigation Plan, or PIP , was accepted by EMA.

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.

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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.

The study is currently on hold in the U.S.

while discussions are ongoing with the FDA.

The study is expected to begin enrollment later this year.

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.

UX053 was granted Orphan Drug Designation in the United States and EU.

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.

Crysvita for the treatment of X-Linked Hypophosphatemia (XLH)

In July 2021, our collaboration partner KKC, announced that the European Commission (EC) approved Crysvita for self-administration as a treatment option when recommended by the treating physician, for pediatric and adult patients with XLH.

In July 2021, Crysvita was approved by Colombia’s Instituto Nacional de Vigilancia de Medicamentos y Alimentos, or INVIMA, for treatment of XLH in adult and pediatric patients one year of age and older.

GTX-102 for the treatment of Angelman Syndrome, partnered with GeneTx

In the second quarter of 2021, we announced that Health Canada (HC) cleared a protocol amendment and that the U.K.

Medicines and Healthcare Products Regulatory Agency (MHRA) approved a Clinical Trial Application (CTA) to begin treating patients in Canada and the U.K.

with Angelman syndrome.

Following a productive meeting with the FDA, we submitted an amended protocol.

We have received feedback on the amended protocol and will make additional revisions in order to resume the study in the U.S.

Clinical data from newly treated patients in the U.K.

and Canada are currently expected to be presented before the end of 2021.

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.

At the American Society of Gene & Cell Therapy (ASGCT) Annual Meeting in May 2021 we presented additional long-term clinical data demonstrating a durable response lasting more than 2.5 years following treatment with DTX401 in patients with GSDIa.

We are currently in the process of initiating a Phase 3 study with a 48-week primary efficacy analysis period and plan to enroll approximately 50 patients 8 years of age and older, randomized 1:1 to DTX401 (1.0 x 10^13 GC/kg dose) or placebo.

The coprimary endpoints are the reduction in oral glucose replacement with cornstarch while maintaining and improved glucose control assessed by continuous glucose monitoring.

The first patient in the Phase 3 study is currently expected to be dosed 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.

At the ASGCT Annual Meeting in May 20201 we presented additional long-term clinical data showing durable metabolic control and sustained responses lasting more than three years following treatment with DTX301 in patients with OTC deficiency.

We are currently in the process of initiating a Phase 3 study that will include a 64-week primary efficacy analysis period and plan to 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 the percentage of patients who achieve a response as measured by discontinuation or reduction in baseline disease management and the 24-hour plasma ammonia levels.

The first patient in the Phase 3 study is currently expected to be dosed in the second half of 2021.

UX701 for the treatment of Wilson Disease

We are currently in the process of initiating a seamless, single-protocol Phase 1/2/3 study.

The first part of the study is expected to enroll approximately 27 patients (nine per cohort), randomized 2:1 to DTX701, manufactured using the company’s proprietary HeLa 2.0 producer cell line (PCL) process at the 2,000 liter scale, or placebo.

The dose cohorts will be enrolled sequentially using ascending doses.

The patients will be followed for 52 weeks before transitioning to long-term follow-up and selecting a pivotal dose.

The dose will be determined based on the safety profile, changes in biomarkers of copper metabolism, and the reduction in the use of the current standard of care.

The first patient in the Phase 1/2/3 study is expected to be dosed in the second half 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.

In June 2021, UX053 was granted Orphan Drug Designation (ODD) in the U.S.

by the FDA and in July 2021, ODD was granted by the European Commission (EC).

Enrollment in a Phase 1/2 study is currently expected to begin in the second half of 2021.

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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.

Our net loss was $122.4 million and $258.6 million for the three and six months ended June 30, 2021, respectively.

Our net income was $25.3 million for the three months ended June 30, 2020 and our net loss was $93.7 million for the six months ended June 30, 2020.

Net loss for the three and six months ended June 30, 2021 included losses of $31.0 million and $51.7 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.

Net income (loss) for the three and six months ended June 30, 2020 included gains of $95.2 million and $102.9 million, respectively, resulting from changes in the fair value of our investment in Arcturus.

Other than changes in the fair value of our investments, 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 June 30 , 2021 , our total revenues increased to $ 87.0 million, compared to $ 61.7 million for the same period in 20 20 and for the six months ended June 30, 2021, increased to $ 186.4 million, compared to $ 98.0 million for the same period in 2020 .

Revenue for the three months ended June 30 , 202 1 and 2020 included $ 22.0 million and $ 18.9 million , respectively, and for the six months ended June 30, 2021 and 2020 included $ 64.7 million and $ 18.9 million, 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.

Th e 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 June 30, 2021, we had $973.8 million in available cash, cash equivalents, and marketable debt securities.

Critical Accounting Policies and Significant Judgments and Estimates

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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

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.

Our estimates are based on our historical experience and on various other 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.

There have been no material changes in our critical accounting policies during the six months ended June 30, 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:

Comparison of the three and six months ended June 30, 2021 to the three and six months ended June 30, 2020:

Revenue (dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Collaboration and license revenue:

Crysvita collaboration revenue in profit-share

Crysvita royalty revenue in European territory

Daiichi Sankyo

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Total revenues

* 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.

Six Months Ended June 30,

Collaboration and license revenue:

Crysvita collaboration revenue in profit-share

Crysvita royalty revenue in European territory

Daiichi Sankyo

Total collaboration and license revenue

Product sales:

Total product sales

Crysvita non-cash collaboration royalty revenue

Total revenues

For the three and six months ended June 30, 2021 , the Company’s share of Crysvita collaboration revenue in the profit-share territory increased by $12.0 million and $21.0 million, respectively, as compared to the same periods in 2020.

The increase primarily reflects the continuing increase in demand for Crysvita due to an increase in the number of patients on therapy.

Beginning in 2020, we have recorded the royalty revenue as non-cash royalty revenues.

During the three months ended June 30, 2021 and 2020, there were changes in the estimates on the revenue reserves, related to sales made prior to January 1, 2020 and as a result, we recorded $0.2 million and $1.5 million, respectively, as royalty revenue in European territory .

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.

For the three and six months ended June 30, 2021 , the collaboration and license revenue from this arrangement, which is recognized based on the progress toward complete satisfaction of the individual performance obligation using an input measure, increased by $3.1 million and $45.8 million, respectively, as compared to the same periods in 2020.

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.

The increases in product sales of $10.3 million and $20.3 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020 were 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 increases in Crysvita non-cash collaboration royalty revenue of $1.2 million and $2.5 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020 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,

Three Months Ended June 30,

Cost of sales

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.

Six Months Ended June 30,

Cost of sales

Cost of sales increased by $1.3 million and $10.0 million for the three and six months ended June 30, 2021 compared to the same periods in 2020.

The increase in cost of sales for the three months ended June 30, 2021 compared to the same period in 2020 was due to an increase in demand for our approved products including Dojolvi, which launched in the third quarter of 2020.

The increase in cost of sales for the six months ended June 30, 2021 compared to the same period in 2020 was due to an increase in demand for our approved products including Dojolvi, which launched in the third quarter of 2020 and a credit for the manufacturing of future inventory batches of $4.6 million due to certain inventory batches that did not meet specified quality standards which we recorded during the six months ended June 30, 2020.

The increase was offset by additional reserves of $1.7 million for excess inventory write-downs recorded during the six months ended June 30, 2021.

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

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.

accordingly, these costs were not capitalized and as a result are not fully reflected in the costs of sales during the three and six months ended June 30, 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 six months ended June 30, 2021 and the credit of $4.6 million for the six months ended June 30, 2020 as noted above were excluded, we estimate that cost of sales for the three and six months ended June 30, 2021 would have been approximately $3.2 million and $7.0 million, respectively, and for the three and six months ended June 30, 2020 would have been approximately $1.9 million and $3.1 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.

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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.

Clinical programs include study conduct and manufacturing costs related to clinical program

Translational research include s 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.

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The following table provides a breakout of our research and development expenses by major program type and business activities:

Three Months Ended March 31,

Three Months Ended June 30,

Commercial programs

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Nucleic acid and other biologic

Translational research

Upfront license and milestone fees

Infrastructure

Stock-based compensation

Other research and development

Total research and development expenses

* not meaningful

Six Months Ended June 30,

Commercial programs

Clinical programs:

Gene therapy programs

Nucleic acid and other biologic

Small molecule programs

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Total research and development expenses

Total research and development expenses increased $34.6 million for the three months ended March 31, 2021 compared to the same period in 2020.

Total research and development expenses increased $32.5 million and $67.1 million for the three and six months ended June 30, 2021, respectively, compared to the same periods 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;

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;

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.

for commercial programs, a decrease of $1.2 million for the three months ended June 30, 2021, primarily related to the capitalization of Dojolvi manufacturing costs in the three months ended June 30, 2021 which were expensed during the three months ended June 30, 2020, and an increase of $6.6 million for the six months ended June 30, 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 $20.7 million and $28.8 million for the three months and six months ended June 30, 2021, respectively, primarily related to the addition of expenses related to UX701 following its IND approval in January 2021 and expense increases related to DTX401 and DTX301 Phase 3 trial preparation ;

for nucleic acid and other biologic programs, an increase of $10.1 million and $18.3 million for the three and six months ended June 30, 2021, respectively, 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 and six months ended June 30, 2021;

for small molecule programs, a decrease of $7.4 million for the six months ended June 30, 2021, primarily related to the classification of expenses for Dojolvi to commercial programs for the six months ended June 30, 2021;

for translational research, an increase of $0.6 million and a decrease of $3.1 million for the three and six months ended June 30, 2021, respectively, primarily related to the classification of expenses for UX053 to nucleic acid and other biologic programs and UX701 to gene therapy programs as a result of their IND approvals net of increased spending on new translational research projects;

for upfront license and milestone fees , a decrease of $1.2 million and a n in crease of $ 16.8 million f or the three and six months ended June 30, 2021, respectively, primarily due to the $50.0 million upfront payment to Mereo in January 202 1, 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 v ectors , both of which occurred during the first quarter of 2020 , and a $1.2 million one-time license fee during the three months ended June 30, 2020;

for infrastructure, an increase of $1.6 million and $4.0 million for the three and six months ended June 30, 2021, respectively, 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 $2.2 million and $4.8 million for the three and six months ended June 30, 2021, respectively, primarily related to an increase in employee headcount as well as the higher valuation of stock-based awards granted to employees;

for other research and development expenses, a decrease of $0.3 million and $1.7 million for the three and six months ended June 30, 2021, respectively, primarily related to higher research and development efforts allocated to the 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.

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Selling, General and Administrative Expenses (dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Selling, general and administrative

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.

Six Months Ended June 30,

Selling, general and administrative

Selling, general and administrative expenses increased $11.2 million and $16.9 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.

We expect selling, general and administrative expenses to continue to increase in the future to support our organizational growth related to our approved products and multiple clinical-stage product candidates.

Interest Income (dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Interest income

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.

Six Months Ended June 30,

Interest income

Interest income decreased $1.4 million and $3.6 million for the three and six months ended June 30, 2021, respectively, compared to the same periods 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,

Three Months Ended June 30,

Change in fair value of equity investments

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.

Six Months Ended June 30,

Change in fair value of equity investments

The fair value of our equity investments decreased by $31.0 million and $51.7 million during the three and six months ended June 30, 2021, respectively, due to decreases in the fair value of Arcturus and Solid common stock, resulting in unrealized losses on our investments in Arcturus common stock of $16.4 million and $21.0 million during the three and six months ended June 30, 2021, respectively and unrealized losses on our investments in Solid common stock of $14.6 million and $30.7 million during the three and six months ended June 30, 2021, respectively.

The fair value of our equity investments increased by $95.2 million and $102.9 million during the three and six months ended June 30, 2020, respectively, due to increases in the fair value of Arcturus equity investments.

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,

Three Months Ended June 30,

Non-cash interest expense on liability related to the

sale of future royalties

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

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.

Six Months Ended June 30,

Non-cash interest expense on liability related to the

sale of future royalties

The non-cash interest expense on liability related to the sale of future royalties increased by $0.1 million and $0.4 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020 due to the increase in the liability related to the sale of future royalties for net sales of Crysvita in the European territory, partially offset by a decrease in the effective interest rate for the three and six months ended June 30, 2021 compared to same periods in 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,

Other expense

Other expense increased by $0.3 million for the three months ended March 31, 2021 compared to the same period in 2020.

Other Income (Expense) (dollars in thousands)

Three Months Ended June 30,

Other income (expense)

Six Months Ended June 30,

Other income (expense)

Other expense increased by $0.3 million and $0.6 million for the three and six months ended June 30, 2021, respectively, compared to the same periods 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,

Three Months Ended June 30,

Provision for income taxes

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.

Six Months Ended June 30,

Provision for income taxes

The provision for incomes taxes increased by a nominal amount for the three and six months ended June 30, 2021, respectively, compared to the same periods 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.

To date, we have funded our operations primarily from the sale of our equity securities, revenues from our commercial products, the sale of certain future royalties, and strategic collaboration arrangements.

As of June 30 , 2021 , we had $ 973.8 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.

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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 May 2021, we entered into an Open Market Sale Agreement with Jefferies pursuant to which we may offer and sell shares of our common stock having an aggregate offering proceeds up to $350.0 million, from time to time, in at-the-market offerings through Jefferies.

As of June 30, 2021, we had not sold any shares under the arrangement.

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.

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The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Cash used in operating activities

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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

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 operating activities for the six months ended June 30, 2021 was $224.7 million and reflected a net loss of $258.6 million and $8.6 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 $51.3 million for stock-based compensation, $2.5 million for the amortization of the premium paid on purchased marketable debt securities, $6.5 million for depreciation and amortization , $51.7 million for a change in fair value of equity investments from Arcturus and Solid, and $16.9 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 $1.7 million decrease due to an increase in accounts receivable primarily related to higher revenues, a $2.2 million decrease due to an increase in inventory, a $9.0 million decrease due to an increase in prepaid expenses and other current assets primarily due to an increase in prepaid subscriptions, prepaid clinical studies, and prepaid fixed assets, a $11.5 million decrease in accounts payable, accrued liabilities, and other liabilities primarily due to the payout of 2020 annual bonuses, and a decrease of $62.7 million in contract liabilities, related to the revenue recognized from the license agreements with Daiichi Sankyo.

Cash used in operating activities for the six months ended June 30, 2020 was $7.8 million and reflected a net loss of $93.7 million, $0.1 million for the amortization of the discount paid on purchased investments, $102.9 million for changes in the fair value of equity investments from Arcturus, and $6.1 million for non-cash collaboration royalty revenues related to the sale of future royalties to Royalty Pharma , offset by non-cash charges of $42.6 million for stock-based compensation, $6.0 million for depreciation, and $16.5 million for non-cash interest incurred on the liability related to the sale of future royalties to Royalty Pharma .

Cash used in operating activities also reflected a decrease of $6.1 million due to an increase in prepaid expenses and other current assets primarily due to an increase in prepaid manufacturing and a $8.8 million decrease in accounts payable, accrued liabilities, and other liabilities primarily due to a decrease in accrued bonus due to the payout of the 2019 annual bonus, offset by a $9.5 million increase due to a decrease in accounts receivable primarily related to change in the timing of billing to a collaboration partner offset by a $8.5 million receivable related to the license agreement with Daiichi Sankyo in June 2020, a $0.5 million increase due to a decrease in inventory, and an increase of $134.9 million in contract liabilities related to the license agreements 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 used in investing activities for the six months ended June, 2021 was $223.7 million and related to purchases of property, plant, and equipment of $36.5 million and purchases of marketable debt securities of $664.3 million, offset by proceeds from the sale of marketable debt securities of $70.5 million and maturities of marketable debt securities of $406.6 million.

Cash used in investing activities for the six months ended June 30, 2020 was $181.3 million and related to purchases of property, plant, and equipment of $18.2 million, purchases of investments of $456.3 million, and the exercise of the option to purchase

additional Arcturus shares for $9.6 million, offset by proceeds from the sale of investments of $28.9 million and maturities of investments of $ 274.0 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.

Cash provided by financing activities for the six months ended June 30, 2021 was $25.3 million and was primarily comprised of $25.5 million in net proceeds from the issuance of common stock pursuant to equity plan awards.

Cash provided by financing activities for the six months ended June 30, 2020 was $91.4 million and was comprised of $55.3 million from the sale of common stock in connection with the license agreement with Daiichi Sankyo in March 2020, $20.4 million in net proceeds f rom the sale of common stock in our ATM offering, and $15.9 million in net proceeds from the issuance of common stock pursuant to the exercise of warrants and equity plan awards.

Funding Requirements

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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.

We expect to satisfy future cash needs through existing capital balances, revenue from our commercial products, 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.”

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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):

The following table summarizes our significant binding contractual obligations at June 30, 2021 (in thousands):

Payments due by period

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis