RARE - Ultragenyx: Despite OI Trial Doubts This Is A Robust Rare Disease Company

2023-05-22 08:53:35 ET

Summary

• Ultragenyx has a healthy rare disease product and pipeline.
• There are some issues with its next emerging catalyst.
• Despite those doubts, the company, as a whole, is very healthy.

In November, I said that although I like Ultragenyx ( RARE ), the stock is stagnant. Since then, the stock is up 42%, which seems pretty good. I used to hold the stock in the period between 2021 and 2022, and I made some decent profits. However, in January, during my portfolio recalibration, I let go of RARE, mainly because it was stagnant. Given January prices, it is, still, stagnant overall, but it went down badly in March, and has now recovered strongly. Since I have a basic liking for rare disease companies, let's find out what has been happening at Ultragenyx while we were away. But first, a brief intro.

Ultragenyx is a developer of rare disease medicines. They have four approved therapies in five indications. With a 70% success rate from clinic to approval, they now have 7 clinical programs, five of them pivotal. This is their pipeline:

That is one very impressive pipeline. Just going by this pipeline and the 70% approval rate, one would expect that this company is going to get huge in the next decade.

The five approved products are:

And the 7 clinical programs:

If you look at the above chart and compare it with last year, DTX201 for hemophilia A has been replaced with ABO-102 for MPS IIIA, which they acquired from Abeona Therapeutics in May.

As to catalysts, they have phase 2 data readout for UX143 in Osteogenesis Imperfecta in mid-2023. DTX401 phase 3 data readout is in Q1 2024 for GSDIa. GTX-102 for Angelman syndrome has a phase 1/2 data readout by the end of 2023.

About the UX143 indication, two opposing articles came out in February, one bullish, followed by the bearish one. UX143 is licensed from Mereo Biopharma ( MREO ), another stock I once used to own; RARE paid $50mn to MREO, and is responsible for all development work and has rights in the US.

Osteogenesis Imperfecta or OI is a rare disease caused by a problem in forming type I collagen, which causes bone fracture, decreased bone mass and strength. OI has no approved treatments, although there are 60k patients globally. An earlier phase 2 trial showed a dose-dependent increase in bone formation, density and strength in adults with OI.

Now, the bullish UX143 article is brief, but the bearish one is quite long. Citing RARE’s JPM presentation , the key point in the bullish article is that UX143 can normalize bone mass and strength in brittle OI mice even if collagen is still mutated. What all this fails to note is that the ASTEROID trial actually failed one of its co-primary endpoints. Here are the primary endpoints as they appear on the registry :

• Change From Baseline in Radial Trabecular Volumetric Bone Mineral Density (Tr vBMD) at Month 12 [ Time Frame: Baseline, Month 12 (end of treatment [EOT]) ] Assessed by high resolution peripheral quantitative computed tomography (HRpQCT). HRpQCT scans were performed on the participant's distal non-dominant arm. In cases of an arm that had been supported with rods or had significant deformity, the dominant limb was selected. Data presents the ratio of the means between the visit and Baseline from analysis of covariance (ANCOVA).

• Change From Baseline in Radial Bone Strength (Failure Load) at Month 12 [ Time Frame: Baseline, Month 12 (EOT') ] Assessed by finite element analysis (FEA) of models generated from HRpQCT images of the distal radius.

• Change From Baseline in Radial Bone Strength (Stiffness) at Month 12 [ Time Frame: Baseline, Month 12 (EOT') ] Assessed by FEA of models generated from HRpQCT images of the distal radius.

The first endpoint is Tr vBMD, or bone mineral density in the wrist bone. Not all of the wrist bone, but the inner bone, called the trabecular bone. HRpQCT is the test that measures this Tr vBMD. The function of the trabecular bone is to “provide strength and transfer external load away from the joint and toward the cortical bone.” This bone contains marrow and fat, and acts as shock absorbers and shock distributors. The cortical bone, on the other hand, is more load bearing. Both sorts of bones provide strength, but their presence varies; there’s more trabecular in the vertebra, and more cortical in the hips, femurs and wrists. It is not as easy as has been discussed in the articles to determine which bone is more important, or which primary endpoint is more primary. The ultimate test is in the rate of fractures.

The ASTEROID trial met the other primary endpoint, radial bone strength. Secondary endpoints included a couple of dozen other outcomes, some of which the trial met successfully. These include, without exhaustion, lumbar spine BMD, total hip BMD, femoral neck BMD, and various bone markers in serum.UX143 appeared fairly safe, with no serious AEs. Romosozumab, Amgen’s sclerostin inhibitor, approved for osteoporosis but only in phase 1 trial in OI, comes with a boxed warning of CV risks which sort of precludes its off-label use in OI.

As fellow contributor Stepher Ayers rightly noted, one issue with this trial was the sudden and unexplained switch of patients from placebo to the highest 20mg dose after 5 months of treatment. The other issue, also rightly pointed out, is the imbalance is distribution (by gender) across the trial; as is well recognized, women, especially of a certain age, are more prone to fractures, so this will tend to skew results, and this sort of imbalance is more likely to happen in smaller trials.

The takeaway from this brief discussion is that the ASTEROID trial is indeterminate, and the larger ORBIT trial, a pivotal phase 2/3 trial that is currently ongoing, will need to confirm the hypothesis. This trial’s phase 3 portion has the right primary endpoint - “Annualized Rate of all Radiographically-confirmed Fractures, Excluding Morphometric Vertebral Fractures, During the Double-blind Treatment Period” - so we can expect it to be conclusive.

Financials

RARE has a market cap of $3.65bn and a cash balance of $715mn. Last quarter revenue was $100mn, with Crysvita revenue of $76.0 million and Dojolvi revenue of $14.3 million. Guidance for the full year is between $425mn and $450mn. R&D expenses were $166mn and G&A expenses were $77mn. Net loss was $163mn. At that rate, and with the increasing revenue, the company has more than enough cash to last them through 2024.

Bottom line

OI is iffy, admittedly, but it is not the only game in town for RARE. It is important, and if the fracture data does not work out, RARE will be in temporary decline. But there are other catalysts, and increasing revenue, so it will not stay down forever. I will consider re-entering at some point in the next few months.

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