IPO Preview: Ultragenyx Pharmaceutical

Based in Novato, CA, Ultragenyx Pharmaceutical (NASDAQ:RARE) scheduled a $75 million IPO on the Nasdaq with a market capitalization of $436 million at a price range midpoint of $15.50 for Friday, January 31, 2014. RARE recently raised the price range midpoint to $19.50.

The full IPO calendar is available at IPOpremium.com

SEC Documents:

Manager, Joint Managers: J.P. Morgan, Morgan Stanley

Co-Managers: Cowen & Company, Canaccord Genuity

End of lockup (180 days): Wednesday, July 30, 2014

Summary

A biopharmaceutical company, RARE focuses on diseases for which the unmet medical need is high, the biology for treatment is clear, and for which there are no approved therapies.

Since its inception in 2010, RARE has in-licensed potential treatments for five different diseases that are or it expects will be in Phase 1/2 or Phase 2 clinical studies by early 2014.

For one of the products, RARE has a joint development relationship with Kyowa Hakko Kirin Co., Ltd., (KHK), which is different than a collaborative partnership which awards grant monies.

Valuation

Glossary

Valuation Ratios

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annualizing Sept 9 mos '13

Cap (MM)

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Ultragenyx Pharmaceutical

$436

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-13.6

3.5

3.5

17%

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Conclusion

RARE has a number of clinical trials in process, any of which could justify the market capitalization if successful.

RARE doesn't have a collaboration arrangement under which it receives monies, but does have a joint development agreement.

The price-to-book value is 3.5, in range for similar companies. RARE intends on selling only 17% of the company on the IPO, which is a relatively small percentage for a biopharmaceutical IPO, perhaps indicating confidence on the part of the venture capital investors.

The rating on RARE is positive.

To put the conclusions and observations in context, the following is reorganized, edited, and summarized from the full S-1 referenced above:

Business

Founded in 2010, RARE is a development-stage biopharmaceutical company focused on the identification, acquisition, development, and commercialization of novel products for the treatment of rare and ultra-rare diseases, with an initial focus on serious, debilitating metabolic genetic diseases.

RARE focuses on diseases for which the unmet medical need is high, the biology for treatment is clear, and for which there are no approved therapies.

Since its inception in 2010, RARE has in-licensed potential treatments for five different diseases that are or it expects will be in Phase 1/2 or Phase 2 clinical studies by early 2014.

Product categories

RARE's current pipeline consists of two product categories: biologics, including a monoclonal antibody and enzyme replacement therapies; and small-molecule substrate replacement therapies.

Enzymes are proteins that the body uses to process materials needed for normal cellular function, and substrates are the materials upon which enzymes act.

When enzymes or substrates are missing, the body is unable to perform its normal cellular functions, often leading to significant clinical disease. Several of RARE's therapies are intended to replace deficient enzymes or substrates.

In-license agreements

XLH

In August 2013, RARE formed a collaboration with Kyowa Hakko Kirin Co., Ltd., or KHK, to jointly develop and commercialize KRN23 for the treatment of XLH. KHK has conducted one Phase 1, one Phase 1/2 study, and one Phase 1/2 extension study of KRN23 in adults with XLH.

RARE expects to release data for the Phase 1/2 studies in 2014.

Results from the Phase 1 single dose study demonstrated that KRN23 was well-tolerated. The data suggest efficacy in increasing serum phosphate levels, while reducing urinary excretion of phosphate.

RARE expects to continue to develop KRN23 in adults with XLH. In addition, RARE expects to initiate a Phase 2 pediatric study in 2014. Given the high turnover and growth of bone during childhood and the critical role phosphate plays in bone growth, pediatric XLH patients have the highest morbidity and potential for benefit.

rhGUS

RARE licensed exclusive worldwide rights to rhGUS-related know-how and cell lines from Saint Louis University in November 2010.

RARE has conducted preclinical studies to support the chronic IV administration of rhGUS. In December 2013, RARE initiated an open-label, Phase 1/2 study to evaluate the safety, tolerability, efficacy, and dose of IV administration every other week of rhGUS in four to five patients with MPS 7, who are between five and 30 years of age.

The initial 12-week treatment period will be followed by a dose-titration period and a long-term extension study. We expect to receive interim data from this study in 2014. If results from the initial 12-week treatment period from this study are supportive, RARE plan to initiate a pivotal Phase 3 study enrolling at least 12 patients

Triheptanoin

RARE licensed certain intellectual property rights relating to triheptanoin from Baylor Research Institute in September 2012.

Triheptanoin is in an ongoing investigator-sponsored Phase 2 study for the treatment of LC-FAOD. RARE plans to initiate a prospective open-label Phase 2 study of triheptanoin treatment in approximately 30 severely affected LC-FAOD patients in early 2014.

The effects of treatment on clinical and physiologic disease will be assessed in three areas: skeletal myopathy, liver disease, and cardiac disease. A principal goal of the study is to determine the appropriate clinical endpoints and patient population for testing in potential later-stage pivotal studies.

Pipeline

RARE's biologics pipeline includes the following three product candidates:

KRN23, or UX023, is an antibody targeting fibroblast growth factor 23, or FGF23, intended for the treatment of X-linked hypophosphatemia, or XLH, a rare genetic disease that impairs bone growth. RARE is developing KRN23 pursuant to its collaboration with Kyowa Hakko Kirin Co., Ltd., or KHK. KHK has conducted one Phase 1 study, one Phase 1/2 study, and one Phase 1/2 extension study of KRN23 in adults with XLH. It expects to continue the clinical development of KRN23 in adults as well as initiate pediatric clinical development in 2014.

rhGUS, or UX003, is an enzyme replacement therapy RARE is developing for the treatment of mucopolysaccharidosis 7, or MPS 7, a rare lysosomal storage disease that often leads to multi-organ dysfunction, pervasive skeletal disease, and death. RARE initiated a Phase 1/2 clinical study in MPS 7 in December 2013.

rhPPCA, or UX004, is an enzyme replacement therapy in preclinical development for galactosialidosis, a rare lysosomal storage disease that can cause multi-system clinical disease similar to MPS 7, including enlarged liver, joint disease, abnormal bone development, short stature, and death. RARE plans to continue preclinical development of rhPPCA during 2014.

RARE's substrate replacement therapy pipeline includes the following product candidates in development for three diseases:

Triheptanoin, or UX007, is a synthetic oil with a specifically designed chemical composition being studied in an investigator-sponsored Phase 2 study for the treatment of long-chain fatty acid oxidation disorders, or LC-FAOD. This is a set of rare metabolic diseases that prevent the conversion of fat into energy and can cause low blood sugar, muscle rupture, and heart and liver disease. RARE plans to initiate its own Phase 2 study in LC-FAOD in early 2014.

Triheptanoin is also in an investigator-sponsored Phase 2 study for the treatment of glucose transporter type-1 deficiency syndrome, or Glut1 DS, a rare metabolic disease of brain energy deficiency that can result in seizures, developmental delay, and movement disorder. RARE plans to initiate its own Phase 2 clinical study in Glut1 DS in the first half of 2014.

SA-ER, or UX001, is an extended-release form of sialic acid in a Phase 2 study for the treatment of hereditary inclusion body myopathy, or HIBM, a neuromuscular disorder that causes muscle weakness and wasting. RARE reported 24-week data from its ongoing Phase 2 study in HIBM in July 2013 and reported top line 48-week data in December 2013.

Intellectual property

As of January 10, 2014, RARE owns 11 pending U.S. patent applications and corresponding patents and patent applications internationally.

In addition, as of January 10, 2014, RARE has licensed 10 issued U.S. patents and 13 pending U.S. patent applications as well as corresponding foreign patents and applications from third parties, on an exclusive basis.

With respect to its issued patents in the United States and Europe, RARE is also entitled to obtain a patent term extension to extend the patent expiration date. For example, in the United States, RARE can apply for a patent term extension of up to five years for one of the patents covering a product once the product is approved by the FDA.

Competition

The commercialization of new drugs is competitive, and RARE may face worldwide competition from individual investigators, major pharmaceutical companies, specialty pharmaceutical companies, biotechnology companies, nutraceutical companies, and ultimately biosimilar and generic companies.

RARE's competitors may develop or market therapies that are more effective, safer, or less costly than any that may be commercialized by RARE, or may obtain regulatory approval for their therapies more rapidly than RARE may obtain approval for its therapies.

The acquisition or licensing of pharmaceutical products is also very competitive, and a number of more established companies which have acknowledged strategies to license or acquire products may have competitive advantages, as may other emerging companies taking similar or different approaches to product acquisitions.

These established companies may have a competitive advantage over RARE due to their size, cash flows, and institutional experience.

5% stockholders

TPG Biotechnology Partners III, L.P. 13.2%

Beacon Bioventures Fund II Limited Partnership 13.2%

HealthCap VI, L.P. 11.7%

Adage Capital Partners, L.P. 7.4%

Funds managed by Capital Research Global Investors 6.4%

Entities affiliated with A.M. Pappas Life Science Ventures IV, L.P. 5.9%

Emil D. Kakkis, M.D., Ph.D. 14.1%

Use of proceeds

RARE expects to net $66.8 million from its IPO. Proceeds are allocated as follows:

$9 million to advance its ongoing clinical program for KRN23, net of cost-share reimbursement from its partner KHK;

$23 million to advance its ongoing clinical program for rhGUS;

$41 million to advance its ongoing clinical program for triheptanoin in both LC-FAOD and Glut1 DS;

$15 million to advance its ongoing clinical program for SA-ER;

$4.1 million as a cash dividend to the holders of its preferred stock payable upon conversion of the preferred stock to common stock; and

The remainder for preclinical research, working capital, and other general corporate purposes.

Disclaimer: This RARE IPO report is based on a reading and analysis of RARE's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.