Ultragenyx Pharmaceutical Inc. (RARE)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report.

This discussion and analysis generally covers our financial condition and results of operations for the year ended December 31, 2024, including year-over-year comparisons versus the year ended December 31, 2023. Our Annual Report on Form 10-K for the year ended December 31, 2023 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2022 in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

Ultragenyx Pharmaceutical Inc., we or the Company, is a biopharmaceutical company committed to bringing novel products to patients for the treatment of serious rare and ultrarare genetic diseases. We have built a diverse portfolio of approved therapies and product candidates aimed at addressing diseases with high unmet medical need and clear biology for treatment, for which there are typically no approved therapies treating the underlying disease. Our strategy is predicated upon time- and cost-efficient drug development, with the goal of delivering safe and effective therapies to patients with the utmost urgency.

Approved Therapies and Clinical Product Candidates

Our current approved therapies and clinical-stage pipeline consist of four product categories: biologics, small molecules, AAV gene therapy, and nucleic acid product candidates. We have four commercially approved products, consisting of Crysvita® (burosumab) for the treatment of X-linked hypophosphatemia, or XLH, and tumor-induced osteomalacia, or TIO, Mepsevii® (vestronidase alfa) for the treatment of mucopolysaccharidosis VII, or MPSVII or Sly Syndrome, Dojolvi® (triheptanoin) for the treatment of long-chain fatty acid oxidation disorders, or LC-FAOD, and Evkeeza® (evinacumab) for the treatment of homozygous familial hypercholesterolemia, or HoFH. Please see “Item 1. Business” above for a description of our approved products and our clinical stage pipeline products.

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, revenues from our commercial products, the sale of certain future royalties, and strategic collaboration arrangements.

We have incurred net losses in each year since inception. Our net losses were $569.2 million and $606.6 million for the years ended December 31, 2024 and 2023, respectively. 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 year ended December 31, 2024, our total revenues increased to $560.2 million, compared to $434.2 million for the same period in 2023. The increase in revenue was driven by higher demand for our approved products.

As of December 31, 2024, we had $745.0 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 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. We periodically review our estimates as a result of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate. Our significant accounting policies are more fully described in “Note 2. Summary of Significant Accounting Policies” to our financial statements included elsewhere in this Annual Report.

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We define our critical accounting policies as those GAAP accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows:

Accrued Research and Development, and Research and Development Expenses

As part of the process of preparing consolidated financial statements, we are required to estimate and accrue expenses, the largest of which is related to accrued research and development expenses. This process involves reviewing contracts and purchase orders, identifying services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual costs.

We record accruals for estimated costs of research, preclinical and clinical studies, and manufacturing development. These costs are a significant component of our research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers. We accrue the costs incurred under our agreements with these third parties based on actual work completed in accordance with agreements established with these third parties. We determine the actual costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party vendors.

Research and development costs are expensed as incurred and consist of salaries and benefits, stock-based compensation, lab supplies, materials and facility costs, as well as fees paid to other nonemployees and entities that conduct certain research and development activities on our behalf. Amounts incurred in connection with collaboration and license agreements are also included in research and development expense. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

To date, there have been no material differences from our accrued estimated expenses to the actual clinical trial expenses; however, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities.

Revenue Recognition

Product Sales

We sell our approved products through a limited number of distributors. Under Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, revenue from product sales is recognized at the point in time when control is transferred to these distributors. We also recognize revenue from sales of certain products on a “named patient” basis, which are allowed in certain countries prior to the commercial approval of the product. Prior to recognizing revenue, we make estimates of the transaction price, including any variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Product sales are recorded net of estimated government-mandated rebates and chargebacks, estimated product returns, and other deductions.

Provisions for returns and other adjustments are provided for in the period the related revenue is recorded, as estimated by management. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are reviewed periodically and adjusted as necessary. Our estimates of government mandated rebates, chargebacks, estimated product returns, and other deductions depends on the identification of key customer contract terms and conditions, negotiated pricing, as well as estimates of sales volumes to different classes of payors. If actual results vary, we may need to adjust these estimates, which could have a material effect on earnings in the period of the adjustment.

Collaboration, License and Royalty Revenue

We have certain license and collaboration agreements that are within the scope of ASC 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. Generally, the classification of the transactions under the collaborative arrangements is determined based on the nature of contractual terms of the arrangement, along with the nature of the operations of the participants. We record our share of collaboration revenue, net of transfer pricing related to net sales in the period in which such sales occur, if we are considered as an agent in the arrangement. We are considered an agent when

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the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product. Funding received related to research and development services and commercialization costs is generally classified as a reduction of research and development expenses and selling, general and administrative expenses, respectively, in the Consolidated Statement of Operations, because the provision of such services for collaborative partners are not considered to be part of our ongoing major or central operations.

We also record royalty revenues under certain of our license or collaboration agreements in exchange for license of intellectual property.

We utilize certain information from our collaboration partners to record collaboration revenue, including revenue from the sale of the product, associated reserves on revenue, and costs incurred for development and sales activities. For the periods covered in the financial statements presented, there have been no material changes to prior period estimates of revenues and expenses.

We sold the right to receive certain royalty payments from net sales of Crysvita in certain territories to RPI Finance Trust, or RPI, an affiliate of Royalty Pharma, and to OCM LS23 Holdings LP, an investment vehicle for Ontario Municipal Employees Retirement System, or OMERS, as further described in “Liabilities for Sales of Future Royalties” below.

We record the royalty revenue from the net sales of Crysvita in the applicable territories on a prospective basis as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the applicable arrangement.

The terms of our collaboration and license agreements may contain multiple performance obligations, which may include licenses and research and development activities. We evaluate these agreements under ASC 606, Revenue from Contracts with Customers, to determine the distinct performance obligations. We analogize to ASC 606 for the accounting for distinct performance obligations for which there is a customer relationship. Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Total consideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration.

If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on our relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. We estimate the efforts needed to complete the performance obligations and recognize revenue by measuring the progress towards complete satisfaction of the performance obligations using input measures.

Inventory

We expense costs associated with the manufacture of our products prior to regulatory approval. Typically, capitalization of such costs begins when we have received the regulatory approval of the product. Prior to the approval of our products by the U.S. Food and Drug Administration, or FDA, manufacturing and related costs are expensed. As of December 31, 2024, we do not hold a material amount of previously expensed inventory for our approved products.

Inventory that is manufactured after regulatory approval is valued at the lower of cost and net realizable value and cost is determined using the average-cost method.

We periodically review our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to the estimated net realizable value.

Liabilities for Sales of Future Royalties

In December 2019, we entered into a Royalty Purchase Agreement with RPI. Pursuant to the agreement, RPI paid us $320.0 million in consideration for our right to receive royalty payments on the net sales of Crysvita in the European Union, or the EU, the UK, and Switzerland, effective January 1, 2020, under the terms of our Collaboration and License Agreement with Kyowa Kirin Co., Ltd., or KKC. The agreement with RPI will automatically terminate, and the payment of royalties to RPI will cease, in the event aggregate royalty payments received by RPI are equal to or greater than the capped amount of $608.0 million prior to December 31, 2030, or in the event aggregate royalty payments received by RPI are less than $608.0 million prior to December 31, 2030, when aggregate royalty payments received by RPI are equal to $800.0 million.

In July 2022, we entered into a Royalty Purchase Agreement with OMERS. Pursuant to the agreement, OMERS paid $500.0 million to us in consideration for the right to receive 30% of the future royalty payments due to us from KKC based on net sales of Crysvita in the U.S. and Canada under the terms of the KKC Collaboration Agreement. The calculation of royalty payments to OMERS

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is based on net sales of Crysvita beginning in April 2023 and continuing until expiration, which is the earlier of the date on which aggregate payments received by OMERS equals $725.0 million or the date the final royalty payment is made to us under the KKC Collaboration Agreement. Proceeds from these transactions were recorded as liabilities (specifically, liabilities for sales of future royalties on the Consolidated Balance Sheets). We are amortizing $320.0 million and $500.0 million, net of transaction costs of $5.8 million and $9.1 million for RPI and OMERS, respectively.

We record the royalty revenue arising from the net sales of Crysvita in the applicable territories as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the arrangements. Our effective annual interest rates were 6.2% and 7.5%, for RPI and OMERS, respectively, as of December 31, 2024.

There are a number of factors that could materially affect the amount and timing of royalty payments from KKC in the applicable territories, most of which are not within our control. Such factors include, but are not limited to, the success of KKC’s sales and promotion of Crysvita, changing standards of care, macroeconomic and inflationary pressures, the introduction of competing products, pricing for reimbursement in various territories, manufacturing or other delays, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of Crysvita, significant changes in foreign exchange rates as the royalty payments are made in U.S. dollars, or USD, while significant portions of the underlying sales of Crysvita are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from sales of Crysvita, all of which would result in a reduction of non-cash royalty revenue and the non-cash interest expense over the life of the arrangement. Conversely, if sales of Crysvita in the relevant territories are more than expected, the non-cash royalty revenue and the non-cash interest expense recorded by us would be greater over the term of the arrangements.

Stock-Based Compensation

Stock-based compensation costs related to equity awards granted to employees are measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. We estimate the grant date fair value of options, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. We expect to continue to grant equity awards in the future, and to the extent that we do, our actual stock-based compensation expense will likely increase. The Black-Scholes option-pricing model requires the use of certain subjective assumptions which determine the estimated fair value of stock-based awards.

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Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the midpoint between the vesting date and the end of the contractual term).

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Expected Volatility— The expected volatility is based on historical volatility over the look-back period corresponding to the expected term.

Strike price for options, including performance stock options, or PSOs, is equal to the closing market value of our common stock on the date of grant.

In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the stock-based compensation for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms, and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis and will revise in subsequent periods, if actual forfeitures differ from those estimates.

For restricted stock units, or RSUs, and performance stock units, or PSUs, the fair value is based on the market value of our common stock on the date of grant, except for certain PSUs with a market vesting condition, for which fair value is estimated using a Monte Carlo simulation model. Stock-based compensation expense for RSUs is recognized on a straight-line basis over the requisite service period. PSUs are subject to vest only if certain specified criteria are achieved and the employees’ continued service with the Company. For certain PSUs, the number of PSUs that may vest are also subject to the achievement of certain specified criteria, including both performance conditions and market conditions. Compensation expense for PSUs is recognized only after the achievement of the specified criteria is considered probable and recognized on a straight-line basis between the grant date and the expected vest date, with a catch-up for previously unrecognized expense, if any, recognized in the period the achievement criteria is deemed probable.

For the years ended December 31, 2024, 2023, and 2022, stock-based compensation expense was $158.1 million, $135.2 million, and $130.4 million, respectively. As of December 31, 2024, we had $256.8 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, which we expect to recognize over a weighted-average period of 2 years.

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Income Taxes

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

We recognize benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

As of December 31, 2024, our total gross deferred tax assets were $1,213.7 million. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards. Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership percentage change rules provided by the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization.

Results of Operations

Comparison of Years Ended December 31, 2024 and 2023

Revenues (dollars in thousands)

Our product sales increased $105.0 million for the year ended December 31, 2024, compared to the same period in 2023. The increase was primarily due to an increase in demand for Crysvita in Latin America resulting from an increase in the number of patients on therapy, ongoing launch of Evkeeza in Japan and in Europe, Middle East and Africa territories, or EMEA, and continued increase in demand for our other approved products.

Our Crysvita royalty revenue and collaboration revenue in the Profit-Share Territory increased by a net $22.5 million for the year ended December 31, 2024, compared to the same period in 2023; this increase in Crysvita revenue is primarily due to an increase in the number of patients on therapy. We transitioned commercial responsibilities to KKC in the Profit-Share Territory in April 2023. Post transition, we recognize our revenue share for Crysvita sales in the Profit-Share Territory as royalty revenue, which was recorded as collaboration revenue prior to the transition.

Other revenue decreased by $1.5 million for the year ended December 31, 2024, compared to the same period in 2023. The decrease was due to the completion of the technology transfer and the technology transfer period related to the Daiichi Sankyo agreement as of March 31, 2023.

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Cost of Sales (dollars in thousands)

Cost of sales increased by $31.5 million for the year ended December 31, 2024, compared to the same period in 2023. The increase in cost of sales was due to an increase in demand for our approved products, primarily Crysvita in Latin America and Evkeeza in EMEA and Japan.

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 and at our gene therapy manufacturing facility, 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.

Clinical programs include study conduct and manufacturing costs related to clinical program candidates. Translational research includes costs for preclinical study work and costs related to preclinical programs prior to IND filing. Upfront license, acquisition, and milestone fees include any significant expenses related to strategic licensing agreements. Approved products include costs for disease monitoring programs for post-marketing clinical studies, medical affairs activities to support scientific discovery efforts on existing programs, and regulatory costs for unapproved regions. Infrastructure costs include direct costs related to laboratory, IT, and equipment depreciation costs, and overhead allocations for human resources, IT, and other allocable costs.

We manage our research and development expenses by identifying the research and development activities we expect to be performed during a given period and then prioritizing efforts based on anticipated probability of successful technical development and regulatory approval, market potential, available human and capital resources, scientific data and other considerations. We regularly review our research and development activities based on unmet medical need and, as necessary, reallocate resources among our research and development portfolio that we believe will best support the long-term growth of our business. We allocate and analyze certain operational expenses by individual product candidates, specifically costs to conduct clinical studies, including expenses incurred with clinical research organizations, direct manufacturing costs, and salaries and benefits. Other operational expenses are not allocated and analyzed by individual product candidates. For instance, costs associated with Chemistry, Manufacturing and Controls, or CMC costs, are primarily purchases of materials for our internal gene therapy manufacturing activities that qualify as research and development expenses at the time of purchase but for which the allocation and consumption of such costs by a specific product candidate is not determined; accordingly, CMC costs for gene therapy programs are generally spread across multiple product candidates. Although we do track and allocate certain operational R&D costs at the individual product candidate level, as described above and as reflected in the table below, we do not fully track and allocate research and development expenses at the individual product candidate level.

The following table provides a breakout of our research and development expenses by individual product candidate under each major clinical program type and other research and development categories:

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Total research and development expenses increased $49.4 million for the year ended December 31, 2024 compared to the same period in 2023. The change in research and development expenses was due to:

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for gene therapy programs, an increase of $25.5 million, primarily related to BLA filing activities for UX111, and continued clinical progress of the other programs, combined with the transition of certain programs to in-house manufacturing which resulted in a decrease in CMC costs and an increase in internal manufacturing costs;

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for biologic and nucleic acid programs, an increase of $31.3 million, primarily related to the continued clinical progress of the UX143 and GTX102 programs and associated clinical development and manufacturing expenses, partially offset by a reduction in development expense on UX053 for the treatment of Glycogen Storage Disease Type III due to cessation of development activities for the program;

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for translational research, a decrease of $26.1 million, primarily related to decreases in manufacturing and headcount expense for early stage and IND-stage projects;

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for upfront license, acquisition, and milestone fees, an increase of $21.5 million, primarily related to the achievement of a clinical enrollment milestone on the GTX-102 program during 2024;

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for approved products, a decrease of $18.0 million, primarily due to reduced reimbursement of Regeneron collaboration expenses with the completion of the pediatric and open label extension trials for Evkeeza and reduced operating expenses for Crysvita post-marketing studies;

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for infrastructure, an increase of $2.1 million, primarily related to depreciation of the gene therapy manufacturing facility, depreciation of laboratory-related leasehold improvements and equipment, and IT-related expenses;

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for stock-based compensation an increase of $12.1 million, primarily related to the increase in total value of stock-based awards granted to employees; and

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for other research and development expenses, an increase of $1.2 million, primarily related to increased staffing to support internal manufacturing, and administrative and general support.

We expect our annual research and development expenses to moderate 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.

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Selling, General and Administrative Expenses (dollars in thousands)

Selling, general and administrative expenses increased $11.8 million for the year ended December 31, 2024, compared to the same period in 2023.

We expect annual selling, general and administrative expenses to increase in the future as we continue to support our existing approved products, multiple clinical-stage product candidates, and planned launches of additional products.

Interest Income (dollars in thousands)

Interest income increased $9.8 million for the year ended December 31, 2024 compared to the same period in 2023, primarily due to higher marketable debt securities balances.

Change in Fair Value of Equity Investments (dollars in thousands)

For the years ended December 31, 2024 and 2023, we recorded a net decrease of $1.1 million and a net increase of $0.4 million, respectively, in the fair value of our equity investments due to unrealized loss and gain, respectively, on our investment in Solid Biosciences Inc., or Solid, common stock.

Non-cash Interest Expense on Liabilities for Sales of Future Royalties (dollars in thousands)

The non-cash interest expense on liabilities for sales of future royalties decreased by $3.0 million for the year ended December 31, 2024, compared to the same period in 2023, primarily due to a reduction in total royalty obligation balances as a result of increased royalties generated from our collaboration partner, KKC. 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 prospectively adjust the effective interest rate.

Other Expense (dollars in thousands)

Other expense increased $3.6 million for the year ended December 31, 2024, compared to the same period in 2023. These changes were primarily due to fluctuations in foreign exchange rates.

(Provision for) Benefit from Income Taxes (dollars in thousands)

For the year ended December 31, 2024, we recognized an income tax provision of $1.6 million attributable to income tax expense of $0.2 million for state tax, and income tax expense of $1.4 million from foreign jurisdictions. For the year ended December 31, 2023, we recognized an income tax benefit of $4.8 million attributable to modifications in our state apportionment

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methodology. We realized no benefit for 2023 losses due to a full valuation allowance against the U.S. net deferred tax assets. The benefit was offset by an income tax expense of $3.0 million from foreign jurisdictions.

Liquidity and Capital Resources

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

As of December 31, 2024, we had $745.0 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 12 months. Our cash, cash equivalents, and marketable debt securities are held in a variety of deposit accounts, interest-bearing accounts, corporate bond securities, commercial paper, 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 June 2024, we completed an underwritten public offering in which 8,782,051 shares of common stock were sold, including the exercise in full by the underwriters of their option to purchase an additional 1,346,153 shares, at a public offering price of $39.00 per share. In connection with the offering, we sold to certain investors pre-funded warrants, in lieu of common stock, to purchase 1,538,501 shares of common stock at a purchase price of $38.999 per pre-funded warrant, which equals the public offering price per share of common stock less the $0.001 exercise price per share of each pre-funded warrant. The total proceeds that we received from the offering were $381.0 million, net of underwriting discounts and commissions.

As of December 31, 2024, none of the pre-funded warrants had been exercised.

In February 2024, we entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, pursuant to which the Company may offer and sell shares of the Company’s common stock having an aggregate offering proceeds up to $350.0 million, from time to time, in ATM offerings through Cowen. No shares were sold under this agreement during the year ended December 31, 2024.

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

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 year ended December 31, 2024 was $414.2 million and primarily reflected a net loss of $569.2 million, partially offset by non-cash items of $141.1 million, net, which consisted primarily of non-cash collaboration royalty revenues, interest expense related to the sale of future royalties to RPI and OMERS, stock-based compensation, amortization of discounts on marketable debt securities, and depreciation and amortization. The change in operating assets and liabilities also reflected a net increase of cash of $13.9 million, primarily due to an increase in accounts payable, accrued, and other liabilities, primarily related to an increase in accrued collaboration and higher revenue reserves from increased sales of our approved products, combined with an increase in inventory, primarily for Mepsevii and Evkeeza, partially offset by a decrease in prepaid expenses and other assets, primarily in prepaid manufacturing.

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Cash used in operating activities for the year ended December 31, 2023 was $474.8 million and primarily reflected a net loss of $606.6 million, partially offset by non-cash items of $146.9 million, net, which consisted primarily of non-cash collaboration royalty revenues, interest expense related to the sale of future royalties to RPI and OMERS, net of amounts capitalized, stock-based compensation, amortization of discounts on marketable debt securities, and depreciation and amortization. The change in operating assets and liabilities also reflected a net use of cash of $15.1 million, primarily due to an increase in accounts receivable primarily related to an increase in sales of our approved products, partially offset by a net decrease in prepaid expenses and other assets, primarily in prepaid manufacturing.

Cash (Used in) Provided by Investing Activities

Cash used in investing activities for the year ended December 31, 2024 was $17.8 million and was primarily related to $12.5 million in payments for intangible assets related to milestones on our commercial products, partially offset by $4.7 million from net activities in marketable debt securities.

Cash provided by investing activities for the year ended December 31, 2023 was $168.0 million and was primarily related to $219.8 million from net activities in marketable debt securities, offset by purchases of property, plant, and equipment of $44.3 million, primarily related to the fit-out of our gene therapy manufacturing facility.

Cash Provided by Financing Activities

Cash provided by financing activities for the year ended December 31, 2024 was $399.2 million and was primarily comprised of $381.0 million in net proceeds from the sale of common stock in our June 2024 underwritten public offering and $11.3 million in proceeds from the issuance of common stock from exercise of warrants and equity plan awards, net.

Cash provided by financing activities for the year ended December 31, 2023 was $388.1 million and was primarily comprised of $326.5 million in net proceeds from the sale of common stock in our October 2023 underwritten public offering and $53.3 million in net proceeds from the issuance of common stock from our ATM.

Funding Requirements

We anticipate that, excluding non-recurring items, we will continue to generate annual losses in the near term as we continue the development of, and seek regulatory approvals for, our product candidates, and continue with commercialization of approved products. We may 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, including future milestone payments thereunder, and to further develop our general infrastructure 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:

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the scope, rate of progress, results and cost of our clinical studies, nonclinical testing, and other related activities;

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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;

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the cost of operating our GMP gene therapy manufacturing facility;

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the number and characteristics of product candidates that we pursue;

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the cost, timing, and outcomes of regulatory interactions and approvals;

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the cost and timing of establishing our commercial infrastructure, and distribution capabilities;

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the impact of macroeconomic conditions, including general economic slowdowns, changing interest rates and inflation on our business operations and operating results; and

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the terms and timing of any collaborative, licensing, marketing, distribution, acquisition and other arrangements that we may establish, including any required upfront milestone, royalty, reimbursements or other payments thereunder.

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

Material contractual obligations arising in the normal course of business primarily consist of operating and finance leases and manufacturing and service contract obligations. See "Note 10. Leases" to the Consolidated Financial Statements for amounts outstanding for operating and finance leases as of December 31, 2024.

Manufacturing and service contract obligations primarily relate to manufacturing of inventory for our approved products, the majority of which are due in the next 12 months. See "Note 16. Commitments and Contingencies" to the Consolidated Financial Statements for these contractual obligations.

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 amount and timing of such obligations are unknown or uncertain. These potential obligations are further described in "Note 9. License and Research Agreements" to the Consolidated Financial Statements.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2024-03.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, requiring public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. We adopted ASU 2023-07 during the year ended December 31, 2024.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report.

This discussion and analysis generally covers our financial condition and results of operations for the year ended December 31, 2023, including year-over-year comparisons versus the year ended December 31, 2022. Our Annual Report on Form 10-K for the year ended December 31, 2022 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2021 in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

Ultragenyx Pharmaceutical Inc., we or the Company, are a biopharmaceutical company committed to bringing novel products to patients for the treatment of serious rare and ultrarare genetic diseases. We have built a diverse portfolio of approved therapies and product candidates aimed at addressing diseases with high unmet medical need and clear biology for treatment, for which there are typically no approved therapies treating the underlying disease. Our strategy is predicated upon time- and cost-efficient drug development, with the goal of delivering safe and effective therapies to patients with the utmost urgency.

Approved Therapies and Clinical Product Candidates

Our current approved therapies and clinical-stage pipeline consist of four product categories: biologics, small molecules, AAV gene therapy, and nucleic acid product candidates. We have four commercially approved products, consisting of Crysvita® (burosumab) for the treatment of X-linked hypophosphatemia, or XLH, and tumor-induced osteomalacia, or TIO, Mepsevii® (vestronidase alfa) for the treatment of mucopolysaccharidosis VII, or MPSVII or Sly Syndrome, Dojolvi® (triheptanoin) for the treatment of long-chain fatty acid oxidation disorders, or LC-FAOD, and Evkeeza® (evinacumab) for the treatment of homozygous familial hypercholesterolemia, or HoFH. Please see “Item 1. Business” above for a description of our approved products and our clinical stage pipeline products.

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, revenues from our commercial products, the sale of certain future royalties, and strategic collaboration arrangements.

We have incurred net losses in each year since inception. Our net losses were $606.6 million and $707.4 million for the years ended December 31, 2023 and 2022, respectively. 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 year ended December 31, 2023, our total revenues increased to $434.2 million, compared to $363.3 million for the same period in 2022. The increase in revenue was driven by higher demand for our approved products.

As of December 31, 2023, we had $777.1 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 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. We periodically review our estimates as a result of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate. Our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report.

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We define our critical accounting policies as those GAAP accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows:

Accrued Research and Development, and Research and Development Expenses

As part of the process of preparing consolidated financial statements, we are required to estimate and accrue expenses, the largest of which is related to accrued research and development expenses. This process involves reviewing contracts and purchase orders, identifying services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual costs.

We record accruals for estimated costs of research, preclinical and clinical studies, and manufacturing development. These costs are a significant component of our research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers. We accrue the costs incurred under our agreements with these third parties based on actual work completed in accordance with agreements established with these third parties. We determine the actual costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party vendors.

Research and development costs are expensed as incurred and consist of salaries and benefits, stock-based compensation, lab supplies, materials and facility costs, as well as fees paid to other nonemployees and entities that conduct certain research and development activities on our behalf. Amounts incurred in connection with collaboration and license agreements are also included in research and development expense. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

To date, there have been no material differences from our accrued estimated expenses to the actual clinical trial expenses; however, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities.

Revenue Recognition

Product Sales

We sell our approved products through a limited number of distributors. Under ASC 606, revenue from product sales is recognized at the point in time when control is transferred to these distributors. We also recognize revenue from sales of certain products on a “named patient” basis, which are allowed in certain countries prior to the commercial approval of the product. Prior to recognizing revenue, we make estimates of the transaction price, including any variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Product sales are recorded net of estimated government-mandated rebates and chargebacks, estimated product returns, and other deductions.

Provisions for returns and other adjustments are provided for in the period the related revenue is recorded, as estimated by management. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are reviewed periodically and adjusted as necessary. Our estimates of government mandated rebates, chargebacks, estimated product returns, and other deductions depends on the identification of key customer contract terms and conditions, negotiated pricing, as well as estimates of sales volumes to different classes of payors. If actual results vary, we may need to adjust these estimates, which could have a material effect on earnings in the period of the adjustment.

Collaboration, License and Royalty Revenue

We have certain license and collaboration agreements that are within the scope of Accounting Standards Codification, or ASC, 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. Generally, the classification of the transactions under the collaborative arrangements is determined based on the nature of contractual terms of the arrangement, along with the nature of the operations of the participants. We record our share of collaboration revenue, net of transfer pricing related to net sales in the period in which such sales occur, if we are considered as an

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agent in the arrangement. We are considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product. Funding received related to research and development services and commercialization costs is generally classified as a reduction of research and development expenses and selling, general and administrative expenses, respectively, in the Consolidated Statement of Operations, because the provision of such services for collaborative partners are not considered to be part of our ongoing major or central operations.

We also record royalty revenues under certain of our license or collaboration agreements in exchange for license of intellectual property.

We utilize certain information from our collaboration partners to record collaboration revenue, including revenue from the sale of the product, associated reserves on revenue, and costs incurred for development and sales activities. For the periods covered in the financial statements presented, there have been no material changes to prior period estimates of revenues and expenses.

We sold the right to receive certain royalty payments from net sales of Crysvita in certain territories to RPI Finance Trust, or RPI, an affiliate of Royalty Pharma, and to OCM LS23 Holdings LP, an investment vehicle for Ontario Municipal Employees Retirement System, or OMERS, as further described in “Liabilities for Sales of Future Royalties” below. We record the royalty revenue from the net sales of Crysvita in the applicable territories on a prospective basis as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the applicable arrangement.

The terms of our collaboration and license agreements may contain multiple performance obligations, which may include licenses and research and development activities. We evaluate these agreements under ASC 606, Revenue from Contracts with Customers, or ASC 606, to determine the distinct performance obligations. We analogize to ASC 606 for the accounting for distinct performance obligations for which there is a customer relationship. Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Total consideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration.

If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on our relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. We estimate the efforts needed to complete the performance obligations and recognize revenue by measuring the progress towards complete satisfaction of the performance obligations using input measures.

Inventory

We expense costs associated with the manufacture of our products prior to regulatory approval. Typically, capitalization of such costs begins when we have received the regulatory approval of the product. Prior to the approval of our products by the U.S. Food and Drug Administration, or FDA, manufacturing and related costs are expensed. As of December 31, 2023, we do not hold a material amount of previously expensed inventory for our approved products.

Inventory that is manufactured after regulatory approval is valued at the lower of cost and net realizable value and cost is determined using the average-cost method.

We periodically review our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to the estimated net realizable value.

Liabilities for Sales of Future Royalties

In December 2019, we entered into a Royalty Purchase Agreement with RPI. Pursuant to the agreement, RPI paid us $320.0 million in consideration for our right to receive royalty payments on the net sales of Crysvita in the European Union, or the EU, the United Kingdom, and Switzerland, effective January 1, 2020, under the terms of our Collaboration and License Agreement with Kyowa Kirin Co., Ltd., or KKC. The agreement with RPI will automatically terminate, and the payment of royalties to RPI will cease, in the event aggregate royalty payments received by RPI are equal to or greater than the capped amount of $608.0 million prior to December 31, 2030, or in the event aggregate royalty payments received by RPI are less than $608.0 million prior to December 31, 2030, when aggregate royalty payments received by RPI are equal to $800.0 million.

In July 2022, we entered into a Royalty Purchase Agreement with OMERS. Pursuant to the agreement, OMERS paid $500.0 million to us in consideration for the right to receive 30% of the future royalty payments due to us from KKC based on net sales of Crysvita in the U.S. and Canada under the terms of the KKC Collaboration Agreement. The calculation of royalty payments to OMERS

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is based on net sales of Crysvita beginning in April 2023 and continuing until expiration, which is the earlier of the date on which aggregate payments received by OMERS equals $725.0 million or the date the final royalty payment is made to us under the KKC Collaboration Agreement.

Proceeds from these transactions were recorded as liabilities (specifically, liabilities for sales of future royalties on the Consolidated Balance Sheets). We are amortizing $320.0 million and $500.0 million, net of transaction costs of $5.8 million and $9.1 million for RPI and OMERS, respectively, using the effective interest method over the estimated life of the applicable arrangement. In order to determine the amortization of the liabilities, we are required to estimate the total amount of future royalty payments to be received by us and paid to RPI and OMERS, subject to the capped amount, over the life of the arrangements. The excess of future estimated royalty payments (subject to the capped amount) to RPI and OMERS, in excess of the net proceeds received of $314.2 million and $491.0 million, respectively, is recorded as non-cash interest expense over the life of the arrangements. Consequently, we estimate an imputed interest on the unamortized portion of the liabilities and record interest expense relating to the transactions. We record the royalty revenue arising from the net sales of Crysvita in the applicable territories as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the arrangements.

We periodically assess the expected royalty payments using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than its original estimates, we will prospectively adjust the amortization of the liabilities and the effective interest rate. Our effective annual interest rates were 6.2% and 7.8%, for RPI and OMERS, respectively, as of December 31, 2023.

There are a number of factors that could materially affect the amount and timing of royalty payments from KKC in the applicable territories, most of which are not within our control. Such factors include, but are not limited to, the success of KKC’s sales and promotion of Crysvita, changing standards of care, macroeconomic and inflationary pressures, the introduction of competing products, pricing for reimbursement in various territories, manufacturing or other delays, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of Crysvita, significant changes in foreign exchange rates as the royalty payments are made in U.S. dollars, or USD, while significant portions of the underlying sales of Crysvita are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from sales of Crysvita, all of which would result in a reduction of non-cash royalty revenue and the non-cash interest expense over the life of the arrangement. Conversely, if sales of Crysvita in the relevant territories are more than expected, the non-cash royalty revenue and the non-cash interest expense recorded by us would be greater over the term of the arrangements.

Stock-Based Compensation

Stock-based compensation costs related to equity awards granted to employees are measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. We estimate the grant date fair value of options, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. We expect to continue to grant equity awards in the future, and to the extent that we do, our actual stock-based compensation expense will likely increase. The Black-Scholes option-pricing model requires the use of certain subjective assumptions which determine the estimated fair value of stock-based awards.

•
Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the midpoint between the vesting date and the end of the contractual term).

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Expected Volatility— The expected volatility is based on historical volatility over the look-back period corresponding to the expected term.

Strike price for options, including performance stock options, or PSOs, is equal to the closing market value of our common stock on the date of grant.

In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the stock-based compensation for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms, and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis and will revise in subsequent periods, if actual forfeitures differ from those estimates.

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For restricted stock units, or RSUs, and performance stock units, or PSUs, the fair value is based on the market value of our common stock on the date of grant, except for certain PSUs with a market vesting condition, for which fair value is estimated using a Monte Carlo simulation model. Stock-based compensation expense for RSUs is recognized on a straight-line basis over the requisite service period. PSUs are subject to vest only if certain specified criteria are achieved and the employees’ continued service with the Company. For certain PSUs, the number of PSUs that may vest are also subject to the achievement of certain specified criteria, including both performance conditions and market conditions. Compensation expense for PSUs is recognized only after the achievement of the specified criteria is considered probable and recognized on a straight-line basis between the grant date and the expected vest date, with a catch-up for previously unrecognized expense, if any, recognized in the period the achievement criteria is deemed probable.

For the years ended December 31, 2023, 2022, and 2021 stock-based compensation expense was $135.2 million, $130.4 million, and $105.0 million, respectively. As of December 31, 2023, we had $219.8 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, which we expect to recognize over a weighted-average period of 2.2 years.

Income Taxes

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

In conjunction with the acquisition of Dimension Therapeutics, or Dimension, in 2017, we recorded a deferred tax liability reflecting the tax impact of the difference between the book basis and tax basis of acquired IPR&D. Such deferred income tax liability was not used to offset deferred tax assets when analyzing our valuation allowance as the acquired IPR&D is considered to have an indefinite life until we complete or abandon development of the acquired IPR&D.

We recognize benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

As of December 31, 2023, our total gross deferred tax assets were $1,041.8 million. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards. Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership percentage change rules provided by the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization.

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Results of Operations

Comparison of Years Ended December 31, 2023 and 2022

Revenues (dollars in thousands)

Our product sales increased $61.5 million for the year ended December 31, 2023, compared to the same period in 2022. The increase was primarily due to an increase in demand for Crysvita in Latin America resulting from an increase in the number of patients on therapy, continued increase in demand for our other approved products, and increases in revenue under our named patient programs.

Our Crysvita collaboration revenue in the Profit-Share Territory and royalty revenue increased by a net $15.6 million for the year ended December 31, 2023, compared to the same period in 2022; this increase in Crysvita revenue is primarily due to an increase in the number of patients on therapy. We transitioned commercial responsibilities to KKC in the Profit-Share Territory in April 2023. Post transition, we recognize our revenue share for Crysvita sales in the Profit-Share Territory as royalty revenue, which was recorded as collaboration revenue prior to the transition.

Our revenue from the Daiichi Sankyo arrangement decreased by $6.2 million for the year ended December 31, 2023, compared to the same period in 2022. The decrease was due to the completion of the technology transfer and the technology transfer period as of March 31, 2023.

Cost of Sales (dollars in thousands)

Cost of sales increased by $16.9 million for the year ended December 31, 2023, compared to the same period in 2022. The increase in cost of sales was due to increased demand for our approved products, partially offset by a decrease in the Crysvita transfer price on sales of the product in Latin America from 35% prior to December 31, 2022, to 30% in 2023.

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 and at our gene therapy manufacturing facility, 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.

Clinical programs include study conduct and manufacturing costs related to clinical program candidates. Translational research includes costs for preclinical study work and costs related to preclinical programs prior to IND filing. Upfront license, acquisition, and milestone fees include any significant expenses related to strategic licensing agreements. Approved products include costs for disease monitoring programs for post-marketing clinical studies, medical affairs activities to support scientific discovery efforts on

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existing programs, and regulatory costs for unapproved regions. 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:

Total research and development expenses decreased $57.3 million for the year ended December 31, 2023 compared to the same period in 2022. The change in research and development expenses was due to:

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for gene therapy programs, an increase of $15.0 million, primarily related to the addition of the development costs for the UX111 program acquired from Abeona Therapeutics in May 2022, and an increase in production materials purchases for internal manufacturing, partially offset by decreases in external clinical manufacturing expenses for DTX401;

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for biologic and nucleic acid programs, an increase of $11.6 million, primarily related to the continued clinical progress of the UX143 and GTX102 programs and associated clinical development and manufacturing expenses, partially offset by a reduction in development expense on UX053 for the treatment of Glycogen Storage Disease Type III;

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for translational research, a decrease of $9.6 million, primarily related to decreases in manufacturing and headcount expense for IND-stage projects;

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for upfront license, acquisition, and milestone fees, a decrease of $66.0 million, due to $9.0 million related to payment for achievement of a clinical enrollment milestone for the UX143 program recognized during the year ended December 31, 2023, as compared to $75.0 million recognized from the GeneTx acquisition for the year ended December 31, 2022;

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for approved products, a decrease of $22.2 million, primarily due to transition of Crysvita commercialization responsibilities in North America to KKC and realized cost efficiencies for Dojolvi, partially offset by reimbursement of Regeneron collaboration expenses and increased personnel and launch costs for Evkeeza;

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for infrastructure, an increase of $7.3 million, primarily related to increased expenses for support of our clinical and research program pipeline, expansion of laboratory space, depreciation of laboratory-related leasehold improvements and equipment, and IT-related expenses; and

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for other research and development expenses, an increase of $6.6 million, primarily related to increased staffing and material costs to support internal manufacturing and increased administrative and general support.

We expect our annual research and development expenses to continue to moderate 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)

Selling, general and administrative expenses increased $31.7 million for the year ended December 31, 2023, compared to the same period in 2022. The increases in selling, general and administrative expenses were primarily due to increases in commercialization costs, and professional services costs, as well as a one-time legal settlement of $6.2 million for the year ended December 31, 2023.

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We expect selling, general and administrative expenses to continue to moderate in the future as we continue to support our approved products and multiple clinical-stage product candidates, with expected decreases in commercial activities due to transition of Crysvita commercial responsibilities to our partner in the Profit-Share Territory.

Interest Income (dollars in thousands)

Interest income increased $15.6 million for the year ended December 31, 2023 compared to the same period in 2022, primarily due to increases in interest rates.

Change in Fair Value of Equity Investments (dollars in thousands)

For the year ended December 31, 2023, we recorded a net increase in the fair value of our equity investments of $0.4 million due to an increase in the fair value of our investments in Solid Biosciences Inc., or Solid, common stock for the period.

For the year ended December 31, 2022, we recorded a net decrease in the fair value of our equity investments of $19.3 million. The fair value of our investments in Arcturus Therapeutics Holdings Inc., or Arcturus, and Solid common stock decreased by $8.4 million and $10.9 million, respectively, for the period. The change in fair value of Arcturus included a realized gain on the sale of all our remaining shares of common stock for net proceeds of $10.1 million. As of December 31, 2022, we had sold all our remaining equity investments in Arcturus.

Non-cash Interest Expense on Liabilities for Sales of Future Royalties (dollars in thousands)

Our non-cash interest expense on liabilities for sales of future royalties increased by $23.0 million for the year ended December 31, 2023, compared to the same period in 2022. This was primarily due to the partial sale of North American Crysvita royalties to OMERS in July 2022, with a full year of interest expense in 2023. 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 prospectively adjust the effective interest rate.

Other Expense (dollars in thousands)

Other expense decreased $1.2 million for the year ended December 31, 2023, compared to the same period in 2022. These changes were primarily due to fluctuations in foreign exchange rates.

Benefit from (provision for) income taxes

For the year ended December 31, 2023, we recognized an income tax benefit of $4.8 million attributable to modifications in our state apportionment methodology. We realized no benefit for current year losses due to a full valuation allowance against the U.S. net deferred tax assets. The benefit was offset by an income tax expense of $3.0 million from foreign jurisdictions.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the right to deduct research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to be amortized over five and fifteen tax years, respectively. Due to this required capitalization of research and

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development expenditures and the significant taxable income generated as a result of our sale of royalties in July 2022, we recorded a one-time discrete tax expense of $6.1 million for the year ended December 31, 2022. The discrete tax expense is for state taxes we anticipate paying as a result of statutory limitations on our ability to offset expected taxable income with net operating loss carry forwards in certain states. We realized no benefit for current year losses due to a full valuation allowance against the U.S. net deferred tax assets.

Liquidity and Capital Resources

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

As of December 31, 2023, we had $777.1 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, commercial paper, 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 October 2023, we completed an underwritten public offering in which 9,833,334 shares of common stock were sold, including the exercise in full by the underwriters of their option to purchase an additional 1,500,000 shares, at a public offering price of $30.00 per share. In connection with the offering, we sold to certain investors pre-funded warrants, in lieu of common stock, to purchase 1,666,722 shares of common stock at a purchase price of $29.999 per pre-funded warrant, which equals the public offering price per share of common stock less the $0.001 exercise price per share of each pre-funded warrant. The total proceeds that we received from the offering were $326.5 million, net of underwriting discounts and commissions.

In May 2021, we entered into an Open Market Sale Agreement with Jefferies LLC, or 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, or ATM, offerings through Jefferies. There were 1,175,584 shares sold under this arrangement for the year ended December 31, 2023, for net proceeds of $53.3 million. No shares were sold under this arrangement for the year ended December 31, 2022. As of December 31, 2023, net proceeds from shares sold under the arrangement were $132.2 million.

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

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 year ended December 31, 2023 was $474.8 million and primarily reflected a net loss of $606.6 million, partially offset by non-cash items of $146.9 million, net, which consisted primarily of non-cash collaboration royalty revenues, interest expense related to the sale of future royalties to RPI and OMERS, net of amounts capitalized, stock-based compensation, amortization of discounts on marketable debt securities, and depreciation and amortization. The change in operating assets and liabilities also reflected a net use of cash of $15.1 million, primarily due to an increase in accounts receivable primarily related to an increase in sales of our approved products, partially offset by a net decrease in other assets primarily in prepaid manufacturing.

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Cash used in operating activities for the year ended December 31, 2022 was $380.5 million and reflected a net loss of $707.4 million partially offset by non-cash items of $266.7 million, net, which consisted primarily of non-cash collaboration royalty revenues, interest expense related to the sale of future royalties to RPI and OMERS, net of amounts capitalized, stock-based compensation, acquired in-process research and development relating to our acquisition of GeneTx, the change in fair value of equity investments, primarily for the net change in fair value of equity investments from Arcturus and Solid, and depreciation and amortization. The change in operating assets and liabilities also reflected net cash provided of $60.2 million, primarily due to an increase in accounts payable, accrued, and other liabilities, primarily due to timing of payments and receipt of invoices, as well as an increase in manufacturing accruals related to manufacturing and clinical expenses, an increase in accrued bonus due to an increase in headcount, and an increase in accrued development costs owed to a collaboration partner, partially offset by an increase in accounts receivable primarily related to an increase in sales of our approved products.

Cash Provided by (Used in) Investing Activities

Cash provided by investing activities for the year ended December 31, 2023 was $168.0 million and was primarily related to $219.8 million from net activities in marketable debt securities, offset by purchases of property, plant, and equipment of $44.3 million, primarily related to the fit-out of our gene therapy manufacturing facility.

Cash used in investing activities for the year ended December 31, 2022 was $291.7 million and was primarily related to purchases of property, plant, and equipment of $116.1 million, primarily related to the construction of our gene therapy manufacturing facility, the acquisition of GeneTx for $75.0 million, net of cash acquired, $79.8 million from net activities in marketable debt securities, and the payment to Regeneron for intangible assets of $30.0 million, offset by proceeds from the sale of Arcturus common stock of $10.1 million.

Cash Provided by Financing Activities

Cash provided by financing activities for the year ended December 31, 2023 was $388.1 million and was primarily comprised of $326.5 million in net proceeds from the sale of common stock in our October 2023 underwritten public offering and $53.3 million in net proceeds from the issuance of common stock from our ATM.

Cash provided by financing activities for the year ended December 31, 2022 was $501.2 million and was primarily comprised of $491.0 million in net proceeds from the partial sale of future North America Crysvita royalties to OMERS and $10.8 million in net proceeds from the issuance of common stock upon the exercise of stock options, net of taxes withheld from the vesting of restricted stock units.

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 may 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, including future milestone payments thereunder, and to further develop our general infrastructure 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:

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the scope, rate of progress, results and cost of our clinical studies, nonclinical testing, and other related activities;

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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;

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the cost of operating our GMP gene therapy manufacturing facility;

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the number and characteristics of product candidates that we pursue;

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the cost, timing, and outcomes of regulatory interactions and approvals;

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•
the cost and timing of establishing our commercial infrastructure, and distribution capabilities;

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the impact of macroeconomic conditions, including the general economic slowdown, inflationary pressure, high interest rates, a potential U.S. federal government shutdown, and potential recessionary environment on our business operations and operating results, as described in “Part I, Item IA. Risk Factors " and

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the terms and timing of any collaborative, licensing, marketing, distribution, acquisition 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, revenue from our commercial products, and a 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

Material contractual obligations arising in the normal course of business primarily consist of operating and finance leases and manufacturing and service contract obligations. See Note 9 to the Consolidated Financial Statements for amounts outstanding for operating and finance leases on December 31, 2023.

Manufacturing and service contract obligations primarily relate to manufacturing of inventory for our approved products, the majority of which are due in the next 12 months. See Note 15 to the Consolidated Financial Statements for these contractual obligations.

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 amount and timing of such obligations are unknown or uncertain. These potential obligations are further described in Note 8 to the Consolidated Financial Statements.

Recent Accounting Pronouncements

None.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report.

This discussion and analysis generally covers our financial condition and results of operations for the year ended December 31, 2022, including year-over-year comparisons versus the year ended December 31, 2021. Our Annual Report on Form 10-K for the year ended December 31, 2021 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2020 in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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.

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. We have four commercially approved products, consisting of Crysvita® (burosumab) for the treatment of X-linked hypophosphatemia, or XLH, and tumor-induced osteomalacia, or TIO, Mepsevii® (vestronidase alfa) for the treatment of mucopolysaccharidosis VII, or MPSVII or Sly Syndrome, Dojolvi® (triheptanoin) for the treatment of long-chain fatty acid oxidation disorders, or LC-FAOD, and Evkeeza® (evinacumab) for the treatment of homozygous familial hypercholesterolemia, or HoFH. Please see “Item 1. Business” above for a description of our approved products and our clinical stage pipeline products.

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, revenues from our commercial products, the sale of certain future royalties, and strategic collaboration arrangements.

We have incurred net losses in each year since inception. Our net losses were $707.4 million and $454.0 million for the years ended December 31, 2022 and 2021, respectively. Net loss for the years ended December 31, 2022 and 2021 included losses of $19.3 million and $42.1 million, respectively, resulting from changes in fair value of our investments in Arcturus Therapeutics Holdings Inc., or Arcturus, and Solid Biosciences Inc., or Solid, equity securities. 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 year ended December 31, 2022, our total revenues increased to $363.3 million, compared to $351.4 million for the same period in 2021. The increase was driven by higher Crysvita collaboration revenue in the profit-share territory, increase in revenue for our approved products, and an increase in collaboration royalty revenue, partially offset by a decrease in collaboration and license revenue from the Daiichi Sankyo arrangement.

As of December 31, 2022, we had $896.7 million in available cash, cash equivalents and marketable debt securities.

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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 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. We periodically review our estimates as a result of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate. Our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report.

We define our critical accounting policies as those GAAP accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows:

Accrued Research and Development, and Research and Development Expenses

As part of the process of preparing consolidated financial statements, we are required to estimate and accrue expenses, the largest of which is related to accrued research and development expenses. This process involves reviewing contracts and purchase orders, identifying services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual costs.

We record accruals for estimated costs of research, preclinical and clinical studies, and manufacturing development. These costs are a significant component of our research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers. We accrue the costs incurred under our agreements with these third parties based on actual work completed in accordance with agreements established with these third parties. We determine the actual costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party vendors.

Research and development costs are expensed as incurred and consist of salaries and benefits, stock-based compensation, lab supplies, materials and facility costs, as well as fees paid to other nonemployees and entities that conduct certain research and development activities on our behalf. Amounts incurred in connection with collaboration and license agreements are also included in research and development expense. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

To date, there have been no material differences from our accrued estimated expenses to the actual clinical trial expenses; however, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities.

Revenue Recognition

Collaboration and License Revenue

We have certain license and collaboration agreements that are within the scope of Accounting Standards Codification, or ASC, 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. Generally, the classification of the transactions under the collaborative arrangements is determined based on the nature of contractual terms of the arrangement, along with the nature of the operations of the participants. We record our share of collaboration revenue, net of transfer pricing related to net sales in the period in which such sales occur, if we are considered as an agent in the arrangement. We are considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product. Funding received related to research and development services and commercialization costs is generally classified as a reduction of research and development expenses and selling, general and administrative expenses, respectively, in the Consolidated Statement of

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Operations, because the provision of such services for collaborative partners are not considered to be part of our ongoing major or central operations.

We also record royalty revenues under certain of our license or collaboration agreements in exchange for license of intellectual property. If we do not have any future performance obligations for these license or collaboration agreements, royalty revenue is recorded as the underlying sales occur.

In order to record collaboration revenue, we utilize certain information from our collaboration partners, including revenue from the sale of the product, associated reserves on revenue, and costs incurred for development and sales activities. For the periods covered in the financial statements presented, there have been no material changes to prior period estimates of revenues and expenses.

We sold the right to receive certain royalty payments from net sales of Crysvita in certain territories to RPI Finance Trust, or RPI, an affiliate of Royalty Pharma, and to OCM LS23 Holdings LP, an investment vehicle for Ontario Municipal Employees Retirement System, or OMERS, as further described in “Liabilities for Sales of Future Royalties” below. We record the royalty revenue from the net sales of Crysvita in the applicable territories on a prospective basis as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the applicable arrangement.

The terms of our collaboration and license agreements may contain multiple performance obligations, which may include licenses and research and development activities. We evaluate these agreements under ASC 606, Revenue from Contracts with Customers, or ASC 606, to determine the distinct performance obligations. We analogize to ASC 606 for the accounting for distinct performance obligations for which there is a customer relationship. Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Total consideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration.

If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on our relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. We estimate the efforts needed to complete the performance obligations and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligations using input measures.

Product Sales

We sell our approved products through a limited number of distributors. Under ASC 606, revenue from product sales is recognized at the point in time when the delivery is made and when title and risk of loss transfers to these distributors. We also recognize revenue from sales of certain products on a “named patient” basis, which are allowed in certain countries prior to the commercial approval of the product. Prior to recognizing revenue, we make estimates of the transaction price, including any variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Product sales are recorded net of estimated government-mandated rebates and chargebacks, estimated product returns, and other deductions.

Provisions for returns and other adjustments are provided for in the period the related revenue is recorded, as estimated by management. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are reviewed periodically and adjusted as necessary. Our estimates of government mandated rebates, chargebacks, estimated product returns, and other deductions depends on the identification of key customer contract terms and conditions, as well as estimates of sales volumes to different classes of payors. If actual results vary, we may need to adjust these estimates, which could have a material effect on earnings in the period of the adjustment.

Inventory

We expense costs associated with the manufacture of our products prior to regulatory approval. Typically, capitalization of such costs begins when we have received the regulatory approval of the product. Prior to the FDA approval of our products, manufacturing and related costs were expensed; accordingly, these costs were not capitalized and as a result are not reflected in the costs of sales after the regulatory approval date. As of December 31, 2022, we do not hold a material amount of previously expensed inventory for our approved products.

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Inventory that is manufactured after regulatory approval is valued at the lower of cost and net realizable value and cost is determined using the average-cost method.

We periodically review our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to the estimated net realizable value.

Liabilities for Sales of Future Royalties

In December 2019, we entered into a Royalty Purchase Agreement with RPI. Pursuant to the agreement, RPI paid us $320.0 million in consideration for our right to receive royalty payments on the net sales of Crysvita in the EU, the United Kingdom, and Switzerland, effective January 1, 2020, under the terms of our Collaboration and License Agreement with KKC. The agreement with RPI will automatically terminate, and the payment of royalties to RPI will cease, in the event aggregate royalty payments received by RPI are equal to or greater than the capped amount of $608.0 million prior to December 31, 2030, or in the event aggregate royalty payments received by RPI are less than $608.0 million prior to December 31, 2030, when aggregate royalty payments received by RPI are equal to $800.0 million.

In July 2022, we entered into a Royalty Purchase Agreement with OMERS. Pursuant to the agreement, OMERS paid $500.0 million to us in consideration for the right to receive 30% of the future royalty payments due to us from KKC based on net sales of Crysvita in the U.S. and Canada under the terms of the KKC Collaboration Agreement. The calculation of royalty payments to OMERS will be based on net sales of Crysvita beginning in April 2023 and will expire upon the earlier of the date on which aggregate payments received by OMERS equals $725.0 million or the date the final royalty payment is made to us under the KKC Collaboration Agreement.

Proceeds from these transactions were recorded as liabilities (specifically, liabilities for sales of future royalties on the Consolidated Balance Sheets). We are amortizing $320.0 million and $500.0 million, net of transaction costs of $5.8 million and $9.1 million for RPI and OMERS, respectively, using the effective interest method over the estimated life of the applicable arrangement. In order to determine the amortization of the liabilities, we are required to estimate the total amount of future royalty payments to be received by us and paid to RPI and OMERS, subject to the capped amount, over the life of the arrangements. The excess of future estimated royalty payments (subject to the capped amount), in excess of the net proceeds received of $314.2 million and $491.0 million, respectively, is recorded as non-cash interest expense over the life of the arrangements. Consequently, we estimate an imputed interest on the unamortized portion of the liabilities and record interest expense relating to the transactions. We record the royalty revenue arising from the net sales of Crysvita in the applicable territories as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the arrangements.

We periodically assess the expected royalty payments using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than its original estimates, we will prospectively adjust the amortization of the liabilities and the effective interest rate. Our effective annual interest rate was approximately 9.3% and 8.4%, for RPI and OMERS, respectively, as of December 31, 2022.

There are a number of factors that could materially affect the amount and timing of royalty payments from KKC in the applicable territories, most of which are not within our control. Such factors include, but are not limited to, the success of KKC’s sales and promotion of Crysvita, changing standards of care, delays or disruptions related to the COVID-19 pandemic, macroeconomic and inflationary pressures, the introduction of competing products, pricing for reimbursement in various territories, manufacturing or other delays, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of Crysvita, significant changes in foreign exchange rates as the royalty payments are made in U.S. dollars, or USD, while significant portions of the underlying sales of Crysvita are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from sales of Crysvita, all of which would result in a reduction of non-cash royalty revenue and the non-cash interest expense over the life of the arrangement. Conversely, if sales of Crysvita in the relevant territories are more than expected, the non-cash royalty revenue and the non-cash interest expense recorded by us would be greater over the term of the arrangements.

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Stock-Based Compensation

Stock-based compensation costs related to equity awards granted to employees are measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. We estimate the grant date fair value of options, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. We expect to continue to grant equity awards in the future, and to the extent that we do, our actual stock-based compensation expense will likely increase. The Black-Scholes option-pricing model requires the use of certain subjective assumptions which determine the estimated fair value of stock-based awards.

•
Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the midpoint between the vesting date and the end of the contractual term).

•
Expected Volatility— The expected volatility is based on historical volatility over the look-back period corresponding to the expected term.

Strike price for options, including performance stock options, or PSOs, is equal to the closing market value of our common stock on the date of grant.

In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the stock-based compensation for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms, and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis and will revise in subsequent periods, if actual forfeitures differ from those estimates.

For restricted stock units, or RSUs, and performance stock units, or PSUs, the fair value is based on the market value of our common stock on the date of grant, except for certain PSUs with a market vesting condition, for which fair value is estimated using a Monte Carlo simulation model. Stock-based compensation expense for RSUs is recognized on a straight-line basis over the requisite service period. PSUs are subject to vest only if certain specified criteria are achieved and the employees’ continued service with the Company after achievement of the specified criteria. For certain PSUs, the number of PSUs that may vest are also subject to the achievement of certain specified criteria, including both performance conditions and market conditions. Compensation expense for PSUs is recognized only after the achievement of the specified criteria is considered probable and recognized on a straight-line basis between the grant date and the expected vest date, with a catch-up for previously unrecognized expense, if any, recognized in the period the achievement criteria is deemed probable.

For the years ended December 31, 2022, 2021, and 2020 stock-based compensation expense was $130.4 million, $105.0 million, and $85.7 million, respectively. As of December 31, 2022, we had $229.4 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, which we expect to recognize over a weighted-average period of 2.28 years.

Income Taxes

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

In conjunction with the Dimension acquisition in 2017, we recorded a deferred tax liability reflecting the tax impact of the difference between the book basis and tax basis of acquired IPR&D. Such deferred income tax liability was not used to offset deferred tax assets when analyzing our valuation allowance as the acquired IPR&D is considered to have an indefinite life until we complete or abandon development of the acquired IPR&D.

We recognize benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

As of December 31, 2022, our total gross deferred tax assets were $900.7 million. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards. Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to

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historical or future ownership percentage change rules provided by the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization.

Results of Operations

Comparison of Years Ended December 31, 2022 and 2021

Revenues (dollars in thousands)

For the year ended December 31, 2022, our share of Crysvita collaboration revenue in the profit-share territory increased by $43.8 million, as compared to the same period in 2021. The increase was primarily due to continued increase in demand for Crysvita due to an increase in the number of patients on therapy.

For the year ended December 31, 2022, the collaboration and license revenue from our license agreement with Daiichi Sankyo decreased by $77.3 million, as compared to the same period in 2021. The decrease was due to the completion of the technology transfer as of March 31, 2022.

The increase in product sales of $41.9 million for the year ended December 31, 2022, compared to the same period in 2021 was primarily due to an increase in demand for Crysvita in Latin America due to an increase in the number of patients on therapy, continued momentum from the commercial launch of Dojolvi in the U.S., continued increase in demand for our other approved products, and an increase in sales of our products under our named patient program in certain countries.

The increase in Crysvita non-cash collaboration royalty revenue of $3.7 million for the year ended December 31, 2022, compared to the same period in 2021, was primarily due to 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)

Cost of sales related to our approved products increased by $12.3 million for the year ended December 31, 2022, compared to the same period in 2021. The increase was due to increased demand for our approved products and amortization of the intangible asset for Evkeeza from our license agreement with Regeneron, which began in January 2022.

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.

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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 includes costs for preclinical study work and costs related to preclinical programs prior to IND filing. Upfront license, acquisition, and milestone fees include any significant expenses related to strategic licensing agreements and acquisitions. 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:

Total research and development expenses increased $208.6 million for the year ended December 31, 2022 compared to the same period in 2021. The change in research and development expenses was due to:

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for commercial programs, an increase of $23.7 million, primarily related to the cost sharing for ongoing clinical trials with Regeneron for Evkeeza, new Evkeeza regulatory and medical affairs support activities, and increased R&D personnel allocations to commercial programs;

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for gene therapy programs, an increase of $45.5 million, primarily related to increases in clinical manufacturing and clinical trial expenses for our Phase 3 programs for DTX401 and DTX301 and development costs related to the UX111 program from Abeona Therapeutics;

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for nucleic acid and other biologic programs, an increase of $46.6 million, primarily related to the addition of clinical trial expenses related to UX053, following its IND approval in March 2021; increased clinical trial and manufacturing expenses related to the continued progress of the UX143 program in collaboration with Mereo; and clinical and other development expenses related to the continued progress of the GTX-102 program;

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for translational research, an increase of $19.2 million, primarily related to IND-enabling development costs for multiple research projects;

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for upfront license, acquisition, and milestone fees, an increase of $25.0 million, primarily due to $75.0 million recognized from the GeneTx acquisition for the year ended December 31, 2022, as compared $50.0 million recognized from the upfront fee for the Mereo license for the year ended December 31, 2021;

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for infrastructure, an increase of $12.4 million, primarily related to increased expenses for support of our clinical and research program pipeline, expansion of laboratory space, depreciation of laboratory-related leasehold improvements and equipment, and IT-related expenses;

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for stock-based compensation, an increase of $15.4 million, primarily related to the increased employee headcount; and

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for other research and development expenses, an increase of $20.9 million, primarily related to increased staffing to support internal manufacturing, increased travel, and increased administrative and general support.

We expect our annual research and development expenses to moderate 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.

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Selling, General and Administrative Expenses (dollars in thousands)

Selling, general and administrative expenses increased $58.2 million for the year ended December 31, 2022, compared to the same period in 2021. 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 to support our commercial activities, commercialization costs, and professional services costs.

We expect selling, general and administrative expenses to moderate in the future as we continue to support our approved products and multiple clinical-stage product candidates, with expected decreases in commercial activities due to transition of Crysvita to our partner in the profit-share territory.

Interest Income (dollars in thousands)

Interest income increased $9.1 million for the year ended December 31, 2022 compared to the same period in 2021, primarily due to increases in interest rates and higher average marketable debt securities balances.

Change in Fair Value of Equity Investments (dollars in thousands)

For the year ended December 31, 2022, we recorded a net decrease in the fair value of our equity investments of $19.3 million. The fair value of our investments in Arcturus and Solid common stock decreased by $8.4 million and $10.9 million, respectively, for the period. The change in fair value of Arcturus included a realized gain on the sale of all our remaining shares of common stock for net proceeds of $10.1 million.

For the year ended December 31, 2021, we recorded a net decrease in the fair value of our equity investments of $42.1 million. The fair value of our investment in Solid common stock decreased by $45.6 million for the period. This was offset by an increase in the fair value of our investment in Arcturus common stock of $2.9 million for the period, which included a realized gain on the sale of a portion of Arcturus common stock for net proceeds of $79.8 million, as well as an increase of $0.6 million related to the conversion of the convertible note in a private pharmaceutical company to its preferred shares, resulting in a net decrease in the fair value of equity investments of $42.1 million.

Given the historic volatility of the publicly traded stock price of 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 Liabilities for Sales of Future Royalties (dollars in thousands)

Our non-cash interest expense on liabilities for sales of future royalties increased by $13.6 million for the year ended December 31, 2022, compared to the same period in 2021. This was primarily due to the partial sale of North American Crysvita royalties to OMERS in July 2022, which resulted in an increase in liabilities for sales of future royalties by $491.0 million and higher interest expense, partially offset by an increase of $6.7 million in the capitalization of interest related to the construction-in-progress for the gene therapy manufacturing plant, compared to the same period in 2021. To the extent 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.

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Other Expense (dollars in thousands)

Other expense decreased $0.1 million for the year ended December 31, 2022, compared to the same period in 2021. These changes were primarily due to fluctuations in foreign exchange rates.

Provision for income taxes

The provision for incomes taxes increased by $4.7 million for the year ended December 31, 2022, compared to the same period in 2021. Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the ability to deduct research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to be amortized over five and fifteen tax years, respectively. Due to this required capitalization of research and development expenditures and the significant taxable income generated as a result of our sale of royalties in July 2022, we have recorded a one-time discrete state tax expense of $6.1 million for the year ended December 31, 2022. The discrete tax expense is for state taxes we anticipate paying as a result of statutory limitations on our ability to offset expected taxable income with net operating loss carry forwards in certain states. We realized no benefit for current year losses due to a full valuation allowance against the U.S. net deferred tax assets.

Liquidity and Capital Resources

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

As of December 31, 2022, we had $896.7 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, commercial paper, U.S government securities, asset-backed securities, debt securities in government-sponsored entities, 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 May 2021, we entered into an Open Market Sale Agreement with Jefferies LLC, or 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, or ATM, offerings through Jefferies. As of December 31, 2022, net proceeds from shares sold under the arrangement were approximately $78.9 million. No shares were sold under this arrangement for the year ended December 31, 2022.

In July 2022, we received net proceeds of $491.0 million from the sale of certain future royalties to OMERS.

For the year ended December 31, 2022, we sold all of our remaining 500,000 shares of Arcturus common stock for net proceeds of $10.1 million.

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

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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 year ended December 31, 2022 was $380.5 million and primarily reflected a net loss of $707.4 million and $21.7 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI, offset by non-cash charges of $130.4 million for stock-based compensation, $75.0 million for acquired in-process research and development expense, $2.7 million for the amortization of the premium paid on marketable debt securities, $18.2 million for depreciation and amortization, $19.3 million primarily for the net change in fair value of equity investments from Arcturus and Solid, and $43.0 million for non-cash interest expense incurred on the liabilities for sales of future royalties to RPI and OMERS, net of capitalized interest. Cash used in operating activities also reflected a $12.1 million decrease due to an increase in accounts receivable primarily related to an increase in sales of our approved products, a $9.7 million decrease due to an increase in inventory for Mepsevii and Dojolvi, a decrease of $7.6 million in contract liabilities, net, related to the revenue recognized from the license agreements with Daiichi Sankyo, and a decrease of $1.6 million due to a decrease in deferred tax liabilities, related to certain changes in tax law requiring capitalization of research and development expenses combined with taxable income generated by our sale of future royalties to OMERS. These decreases were offset by a $3.8 million increase in prepaid expenses and other assets primarily due to a decrease in prepaid fixed assets, and a $87.4 million increase in accounts payable, accrued liabilities, and other liabilities primarily due to timing of payments and receipt of invoices, as well as an increase in manufacturing accruals related to manufacturing and clinical expenses, an increase in accrued bonus due to an increase in headcount, and an increase in accrued development costs owed to a collaboration partner.

Cash used in operating activities for the year ended December 31, 2021 was $338.7 million and primarily reflected a net loss of $454.0 million and $18.0 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI, offset by non-cash charges of $105.0 million for stock-based compensation, $13.2 million for depreciation and amortization, $6.6 million for the amortization of the premium paid on marketable debt securities, $42.1 million primarily for the net change in fair value of equity investments from Arcturus and Solid, and $29.4 million for non-cash interest expense incurred on the liability for sales of future royalties to RPI, net of capitalized interest. Cash used in operating activities also reflected a $5.4 million decrease due to an increase in accounts receivable primarily related to higher revenues, a $3.1 million decrease due to an increase in inventory for Dojolvi, a $29.5 million decrease due to an increase in prepaid expenses and other assets primarily due to an increase in prepaid manufacturing expenses, prepaid clinical expenses, and prepaid fixed assets as well as an increase in receivables from our collaboration partner, and a decrease of $57.5 million in contract liabilities, net, related to the revenue recognized from the license agreements with Daiichi Sankyo. These decreases were offset by a $32.3 million increase in accounts payable, accrued liabilities, and other liabilities primarily due to an increase in accruals related to manufacturing expenses, compensation related expenses, collaboration expenses and income taxes payable.

Cash Used in Investing Activities

Cash used in investing activities for the year ended December 31, 2022 was $291.7 million and was primarily related to purchases of property, plant, and equipment of $116.1 million, primarily related to the construction of our gene therapy manufacturing facility, the acquisition of GeneTx for $75.0 million, net of cash acquired, purchases of marketable debt securities of $614.7 million, and the payment to Regeneron for intangible assets of $30.0 million offset by the sale of marketable debt securities of $84.3 million, proceeds from the sale of Arcturus common stock of $10.1 million, and proceeds from maturities of marketable debt securities of $450.7 million.

Cash used in investing activities for the year ended December 31, 2021 was $195.4 million and was primarily related to purchases of property, plant, and equipment of $73.1 million and purchases of marketable debt securities of $1,012.2 million, offset by the sale of marketable debt securities of $92.9 million, proceeds from the sale of Arcturus common stock of $79.8 million, and proceeds from maturities of marketable debt securities of $718.1 million.

Cash Flows Provided by Financing Activities

Cash provided by financing activities for the year ended December 31, 2022 was $501.2 million and was comprised of $491.0 million in net proceeds from the partial sale of future North America Crysvita royalties to OMERS and $10.8 million in net proceeds from the issuance of common stock upon the exercise of stock options, net of taxes withheld from the vesting of restricted stock units.

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Cash provided by financing activities for the year ended December 31, 2021 was $118.6 million and was comprised of $78.9 million in net proceeds from the issuance of common stock from our ATM offering and $40.1 million in net proceeds from the issuance of common stock upon the exercise of stock options, net of taxes withheld from the vesting of restricted stock units.

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, including future milestone payments thereunder, 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:

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the scope, rate of progress, results and cost of our clinical studies, nonclinical testing, and other related activities;

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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;

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the number and characteristics of product candidates that we pursue;

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the cost, timing, and outcomes of regulatory approvals;

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the cost and timing of establishing our commercial infrastructure, and distribution capabilities;

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the magnitude and extent to which the COVID-19 pandemic impacts our business operations and operating results, as described in “Part I, Item IA. Risk Factors " and

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the terms and timing of any collaborative, licensing, marketing, distribution, acquisition 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, revenue from our commercial products, and a 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

Material contractual obligations arising in the normal course of business primarily consist of operating and finance leases, and manufacturing and service contract obligations. See Note 9 to the Consolidated Financial Statements for amounts outstanding for operating and finance leases on December 31, 2022.

Manufacturing and service contract obligations primarily relate to manufacturing of inventory for our approved products, the majority of which are due in the next 12 months. See Note 15 to the Consolidated Financial Statements for these contractual obligations.

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 amount and timing of such obligations are unknown or uncertain. These potential obligations are further described in Note 8 to the Consolidated Financial Statements.

Recent Accounting Pronouncements

None.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report.

This discussion and analysis generally covers our financial condition and results of operations for the year ended December 31, 2021, including year-over-year comparisons versus the year ended December 31, 2020. Our Annual Report on Form 10-K for the year ended December 31, 2020 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2019 in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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 the diversion of clinic and hospital staff and resources to COVID-19 patients. The continuing outbreak has caused delays in delivery of ancillary clinical trial materials as certain of our third-party manufacturers or suppliers 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.

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 2022 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. We have four commercially approved products, consisting of Crysvita® (burosumab) for the treatment of X-linked hypophosphatemia, or XLH, and tumor-induced osteomalacia, or TIO, Mepsevii® (vestronidase alfa) for the treatment of mucopolysaccharidosis VII, or MPSVII or Sly Syndrome, Dojolvi® (triheptanoin) for the treatment of long-chain fatty acid oxidation disorders, or LC-FAOD, and Evkeeza® (evinacumab) for the treatment of homozygous familial hypercholesterolemia (HoFH) and we anticipate having six product candidates in the clinical pipeline in 2022. Please see “Part I. Item 1. Business” above for a description of our approved products and our clinical stage pipeline products.

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, revenues from our commercial products, the sale of certain future royalties, and strategic collaboration arrangements.

We have incurred net losses in each year since inception. Our net losses were $454.0 million and $186.6 for the years ended December 31, 2021 and 2020, respectively. Net loss for the years ended December 31, 2021 and 2020 included a $42.1 million loss and a $170.4 million gain, respectively, resulting from changes in fair value of our investments in Arcturus Therapeutics Holdings Inc. (Arcturus) and Solid Biosciences Inc. (Solid) equity securities. 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.

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For the year ended December 31, 2021, our total revenues increased to $351.4 million, compared to $271.0 million for the same period in 2020. The increase was driven by higher Crysvita collaboration revenue in the profit-share territory, increase in revenue for our approved products, and an increase in collaboration royalty revenue.

As of December 31, 2021, we had $999.1 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 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. We periodically review our estimates as a result of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate. Our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report.

We define our critical accounting policies as those GAAP accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows:

Valuation of Acquired Intangible Assets

Intangible assets with definite useful lives are amortized over their estimated useful lives or other systematic basis and reviewed for impairment if certain events occur.

Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment. Impairment testing is performed at least annually in the fourth quarter or when a triggering event occurs that could indicate a potential impairment. If the carrying value of the assets is not expected to be recovered, the assets are written down to their estimated fair values with the related impairment charge recognized in our Consolidated Statements of Operations in the period in which the impairment occurs. When development of the project is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets are deemed finite-lived and are amortized over a period that best reflects the economic benefits provided by these assets.

If projects are not successfully developed, our sales and profitability may be adversely affected in future periods. Additionally, the value of the acquired intangible assets, including IPR&D, may become impaired if the underlying projects do not progress as we initially estimated. We believe that the assumptions used in developing our estimates of intangible asset values were reasonable at the time of the acquisition. However, the underlying assumptions used to estimate expected project sales, development costs, profitability, or the events associated with such projects, such as clinical results, may not occur as we estimated at the acquisition date.

Accrued Research and Development, and Research and Development Expenses

As part of the process of preparing consolidated financial statements, we are required to estimate and accrue expenses, the largest of which is related to accrued research and development expenses. This process involves reviewing contracts and purchase orders, identifying services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual costs.

We record accruals for estimated costs of research, preclinical and clinical studies, and manufacturing development. These costs are a significant component of our research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers. We accrue the costs incurred under our agreements with these third parties based on actual work completed in accordance with agreements established with these third parties. We determine the actual costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party vendors.

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Research and development costs are expensed as incurred and consist of salaries and benefits, stock-based compensation, lab supplies, materials and facility costs, as well as fees paid to other nonemployees and entities that conduct certain research and development activities on our behalf. Amounts incurred in connection with collaboration and license agreements are also included in research and development expense. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

To date, there have been no material differences from our accrued estimated expenses to the actual clinical trial expenses; however, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities.

Revenue Recognition

Collaboration and License Revenue

We have certain license and collaboration agreements that are within the scope of Accounting Standards Codification (ASC) 808, Collaborative Agreements, which provides guidance on the presentation and disclosure of collaborative arrangements. Generally, the classification of the transactions under the collaborative arrangements is determined based on the nature of contractual terms of the arrangement, along with the nature of the operations of the participants. We record our share of collaboration revenue, net of transfer pricing related to net sales in the period in which such sales occur, if we are considered as an agent in the arrangement. We are considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product. Funding received related to research and development services and commercialization costs is generally classified as a reduction of research and development expenses and selling, general and administrative expenses, respectively, in the Consolidated Statement of Operations, because the provision of such services for collaborative partners are not considered to be part of our ongoing major or central operations.

We also record royalty revenues under certain of our license or collaboration agreements in exchange for license of intellectual property. If we do not have any future performance obligations for these license or collaboration agreements, royalty revenue is recorded as the underlying sales occur.

In order to record collaboration revenue, we utilize certain information from our collaboration partners, including revenue from the sale of the product, associated reserves on revenue, and costs incurred for development and sales activities. For the periods covered in the financial statements presented, there have been no material changes to prior period estimates of revenues and expenses.

We sold the right to receive certain royalty payments from net sales of Crysvita to RPI Finance Trust (RPI), an affiliate of Royalty Pharma, as further described in “Liability Related to the Sale of Future Royalties” below. We record the royalty revenue from the net sales of Crysvita in the applicable European territories on a prospective basis as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the arrangement.

The terms of our collaboration and license agreements may contain multiple performance obligations, which may include licenses and research and development activities. We evaluate these agreements under ASC 606, Revenue from Contracts with Customers (ASC 606), to determine the distinct performance obligations. We analogize to ASC 606 for the accounting for distinct performance obligations for which there is a customer relationship. Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Total consideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration.

If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on our relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. We estimate the efforts needed to complete the performance obligations and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligations using input measures.

Product sales

We sell our approved products through a limited number of distributors. Under ASC 606, revenue from product sales is recognized at the point in time when the delivery is made and when title and risk of loss transfers to these distributors. We also recognize revenue from sales of certain products on a “named patient” basis, which are allowed in certain countries prior to the commercial approval of the product. Prior to recognizing revenue, we make estimates of the transaction price, including any variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Product sales are recorded net of estimated government-mandated rebates and chargebacks, estimated product returns, and other deductions.

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Provisions for returns and other adjustments are provided for in the period the related revenue is recorded, as estimated by management. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are reviewed periodically and adjusted as necessary. Our estimates of government mandated rebates, chargebacks, estimated product returns, and other deductions depends on the identification of key customer contract terms and conditions, as well as estimates of sales volumes to different classes of payors. If actual results vary, we may need to adjust these estimates, which could have a material effect on earnings in the period of the adjustment.

Inventory

We expense costs associated with the manufacture of our products prior to regulatory approval. Typically, capitalization of such costs begin when we have received the regulatory approval of the product. Prior to the FDA approval of Mepsevii in November 2017, Crysvita in April 2018, and Dojolvi in June 2020, manufacturing and related costs were expensed; accordingly, these costs were not capitalized and as a result are not reflected in the costs of sales after the regulatory approval date. As of December 31, 2021, we do not hold a material amount of previously expensed inventory for our approved products.

Inventory that is manufactured after regulatory approval is valued at the lower of cost and net realizable value and cost is determined using the average-cost method.

We periodically review our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to the estimated net realizable value.

Liability Related to the Sale of Future Royalties

In December 2019, we entered into a Royalty Purchase Agreement with RPI. Pursuant to the agreement, RPI paid us $320.0 million in consideration for the Company’s right to receive royalty payments on the net sales of Crysvita in the European Union, the United Kingdom, and Switzerland, effective January 1, 2020, under the terms of our Collaboration and License Agreement with KKC. The agreement with RPI will automatically terminate, and the payment of royalties to RPI will cease, in the event aggregate royalty payments received by RPI are equal to or greater than the capped amount of $608.0 million prior to December 31, 2030, or in the event aggregate royalty payments received by RPI are less than $608.0 million prior to December 31, 2030, when aggregate royalty payments received by RPI are equal to $800.0 million.

Proceeds from the transaction was recorded as a liability related to sale of future royalties on the balance sheet. We will amortize $320.0 million, net of transaction costs of $5.8 million using the effective interest method over the estimated life of the arrangement. In order to determine the amortization of the liability, we estimate the total amount of future royalty payments to be received by us and paid to RPI, subject to the capped amount, over the life of the arrangement. The aggregate future estimated royalty payments, less the $314.2 million of net proceeds, will be recorded as non-cash interest expense over the life of the arrangement. Consequently, we estimate an imputed interest on the unamortized portion of the liability and record interest expense relating to the transaction. We will continue to record the royalty revenue arising from the net sales of Crysvita in the applicable European territories as non-cash royalty revenue in our Consolidated Statements of Operations over the term of the arrangement.

We periodically assess the expected royalty payments using a combination of historical results, internal projections and forecasts from external sources. To the extent future expected royalty payments are greater or less than our initial estimates or the timing of such payments is materially different than its original estimates, we will prospectively adjust the amortization of the liability and the effective interest rate. Our effective annual interest rate was approximately 9.6% as of December 31, 2021.

There are a number of factors that could materially affect the amount and timing of royalty payments from KKC in the applicable European territories, most of which are not within our control. Such factors include, but are not limited to, the success of KKC’s sales and promotion of Crysvita, changing standards of care, the introduction of competing products, pricing for reimbursement in various European territories, manufacturing or other delays, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of Crysvita, significant changes in foreign exchange rates as the royalty payments are made in U.S. dollars (USD) while significant portions of the underlying European sales of Crysvita are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from European sales of Crysvita, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the arrangement. Conversely, if sales of Crysvita in Europe are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by us would be greater over the term of the arrangement.

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Stock-Based Compensation

Stock-based compensation costs related to equity awards granted to employees are measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. We estimate the grant date fair value of options, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. We expect to continue to grant equity awards in the future, and to the extent that we do, our actual stock-based compensation expense will likely increase. The Black-Scholes option-pricing model requires the use of certain subjective assumptions which determine the estimated fair value of stock-based awards.

•
Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the midpoint between the vesting date and the end of the contractual term).

•
Expected Volatility— The expected volatility is based on historical volatility over the look-back period corresponding to the expected term.

In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the stock-based compensation for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms, and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis and will revise in subsequent periods, if actual forfeitures differ from those estimates.

For restricted stock units (RSUs) and performance stock units (PSUs), the fair value is based on the market value of our common stock on the date of grant, except for certain PSUs with a market vesting condition, for which fair value is estimated using a Monte Carlo simulation model. Stock-based compensation expense for RSUs is recognized on a straight-line basis over the requisite service period. PSUs are subject to vest only if certain specified criteria are achieved and the employees’ continued service with the Company after achievement of the specified criteria. For certain PSUs, the number of PSUs that may vest are also subject to the achievement of certain specified criteria, including both performance conditions and market conditions. Compensation expense for PSUs is recognized only after the achievement of the specified criteria is considered probable and recognized on a straight-line basis between the grant date and the expected vest date, with a catch-up for previously unrecognized expense, if any, recognized in the period the achievement criteria is deemed probable.

For the years ended December 31, 2021, 2020, and 2019 stock-based compensation expense was $105.0 million, $85.7 million, and $82.0 million, respectively. As of December 31, 2021, we had $200.0 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, which we expect to recognize over a weighted-average period of 2.33 years.

Income Taxes

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

In conjunction with the Dimension acquisition in 2017, we recorded a deferred tax liability reflecting the tax impact of the difference between the book basis and tax basis of acquired IPR&D. Such deferred income tax liability was not used to offset deferred tax assets when analyzing our valuation allowance as the acquired IPR&D is considered to have an indefinite life until we complete or abandon development of the acquired IPR&D.

We recognize benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

As of December 31, 2021, our total gross deferred tax assets were $709.6 million. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards. Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership percentage change rules provided by the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization.

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Results of Operations

Comparison of Years Ended December 31, 2021 and 2020

Revenues (dollars in thousands)

For the year ended December 31, 2021, our share of Crysvita collaboration revenue in the profit-share territory increased by $42.6 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.

Beginning in 2020, we recorded the Crysvita royalty revenue from sales in the European territory as non-cash royalty revenues. During the years ended December 31, 2021 and 2020, there were changes in the estimate of 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 the 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 PCL and HEK293 transient transfection manufacturing technology platforms for AAV-based gene therapy products. Pursuant to the agreement, we are also continuing to 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 year ended December 31, 2021, the collaboration and license revenue from this arrangement decreased by $4.2 million as compared to the same period in 2020, due to the relative progress toward complete satisfaction of the individual performance obligation using an input measure as we near the completion of the technology transfer. The remaining revenue allocated to the intellectual property and the technology transfer services is expected to be recognized in the first quarter of 2022.

The increase in product sales of $38.3 million for the year ended December 31, 2021 compared to the same period in 2020 was primarily due to the commercial launch of Dojolvi in the U.S. in the third quarter of 2020, the continued increase in demand for our approved products, and an increase in sales of our products under our named patient program in certain countries.

The increase in Crysvita non-cash collaboration royalty revenue of $5.0 million for the year ended December 31, 2021 compared to the same period 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)

Cost of sales related to our approved products increased by $9.9 million for the year ended December 31, 2021, compared to the same period in 2020. The increase in cost of sales for the year ended December 31, 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 was recorded during the year ended December 31, 2020. The increase in cost of sales was partially offset by lower reserves of $1.8 million for excess inventory write-downs recorded during the year ended December 31, 2021, compared to $3.0 million recorded during the year ended December 31, 2020.

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Research and Development Expenses (dollars in thousands)

Research and development expenses increased $85.1 million for the year ended December 31, 2021 compared to the same period in 2020. The increase in research and development expenses was primarily due to:

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for commercial programs, an increase of $7.2 million, primarily related to the continued launch of Dojolvi and the TIO indication for Crysvita following their respective FDA approvals in June 2020;

•
for clinical gene therapy programs, an increase of $29.9 million, primarily related to the addition of clinical study start-up expenses for UX701 following its IND approval in January 2021 and increases in expenses related to DTX401 and DTX301 Phase 3 trial preparation;

•
for clinical nucleic acid and other biologic programs, an increase of $40.5 million, primarily related to the addition of expenses related to UX053 following its IND approval in March 2021 and UX143 due to entry 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 subsequent to its approval in June 2020;

•
for clinical small molecule programs, a decrease of $7.4 million, primarily related to the classification of expenses for Dojolvi to commercial programs subsequent to its approval in June 2020;

•
for translational research, a decrease of $16.0 million, 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 in March 2021 and January 2021, respectively, net of increased spending on new translational research projects;

•
for upfront license and milestone fees, an increase of $16.8 million, primarily due to the $50.0 million upfront payment to Mereo for the year ended December 31, 2021, as compared to payments for the year ended December 31, 2020 related to the $25.0 million option extension to GeneTx and the $8.2 million in license payments to REGENXBIO, Inc. pursuant to a license agreement;

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for infrastructure, an increase of $8.8 million, 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 $11.1 million, 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 $5.8 million, primarily related to increased research and development allocations to the programs represented in the commercial, clinical, and translational science programs

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)

Selling, general and administrative expenses increased $37.0 million for the year ended December 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

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resulting from an increase in the number of employees to support our commercial activities, commercialization costs, and professional services.

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)

Interest income decreased $5.1 million for the year ended December 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 average balances of marketable debt securities.

Change in Fair Value of Equity Investments (dollars in thousands)

For the year ended December 31, 2021, we recorded a net decrease in the fair value of our equity investments of $42.1 million. The fair value of our investment in Solid common stock decreased by $45.6 million for the period. This was offset by an increase in the fair value of our investment in Arcturus common stock of $2.9 million for the period, which included a realized gain on the sale of a portion of Arcturus common stock for net proceeds of $79.8 million, as well as an increase of $0.6 million related to the conversion of the convertible note in a private pharmaceutical company to its preferred shares, resulting in a net decrease in the fair value of equity investments of $42.1 million.

For the year ended December 31, 2020, we recorded a net increase in the fair value of our equity investments of $170.4 million. The fair value of our investment in Arcturus common stock increased by $137.9 million for the period, which included a realized gain on the sale of a portion of Arcturus common stock for net proceeds of $79.8 million. The fair value of our investment in Solid common stock increased by $32.5 million during the same period.

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)

The decrease in the non-cash interest expense on liability related to the sale of future royalties of $3.9 million for the year ended December 31, 2021, compared to the same period in 2020 was due to the capitalization of interest related to the construction-in-progress for the gene therapy manufacturing plant, slightly offset by the increase in the liability related to the sale of future royalties for net sales of Crysvita in the European territory. 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 Income (Expense) (dollars in thousands)

Other expense increased $2.3 million for the year ended December 31, 2021, compared to the same period in 2020. The fluctuations were primarily due to fluctuations in foreign exchange rates.

Provision for income taxes

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The provision for incomes taxes decreased by a nominal amount for the year ended December 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, revenue from our commercial products, the sale of certain future royalties, and strategic collaboration arrangements.

As of December 31, 2021, we had $999.1 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, commercial paper, U.S government securities, asset-backed securities, debt securities in government-sponsored entities, 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 May 2021, we entered into an Open Market Sale Agreement with Jefferies LLC, (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 (ATM) offerings through Jefferies. For the year ended December 31, 2021, the Company sold 1,050,372 shares under the arrangement, resulting in net proceeds of approximately $78.9 million. As of December 31, 2021, $269.5 million remained available under our ATM facility.

For the year ended December 31, 2021, we sold 1,700,000 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):

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 year ended December 31, 2021 was $338.7 million and primarily reflected a net loss of $454.0 million and $18.0 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI, offset by non-cash charges of $105.0 million for stock-based compensation, $13.2 million for depreciation and amortization, $6.6 million for the amortization of the premium paid on marketable debt securities, $42.1 million primarily for the net change in fair value of equity investments from Arcturus and Solid, and $29.4 million for non-cash interest incurred on the liability related to the sale of future royalties to RPI, net of capitalized interest. Cash used in operating activities also reflected a $5.4 million decrease due to an increase in accounts receivable primarily related to higher revenues, a $3.1 million decrease due to an increase in inventory for Dojolvi, a $29.5 million decrease due to an increase in prepaid expenses and other assets primarily due to an increase in prepaid manufacturing expenses, prepaid clinical expenses, and prepaid fixed assets as well as an increase in receivables from our collaboration partner, and a decrease of $57.5 million in contract liabilities, net, related to the revenue recognized from the license agreements with Daiichi Sankyo. These decreases were offset by a $32.3 million increase in accounts payable, accrued liabilities, and other liabilities primarily due to an increase in accruals related to manufacturing and clinical expenses.

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Cash used in operating activities for the year ended December 31, 2020 was $132.2 million and reflected a net loss of $186.6 million, $170.4 million for a net change in fair value of equity investments from Arcturus and Solid, and $13.0 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI, offset by non-cash charges of $85.7 million for stock-based compensation, $12.3 million for depreciation and amortization, $0.8 million for the amortization of the premium paid on marketable debt securities, and $33.3 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 $1.3 million decrease due to an increase in inventory for Mepsevii and Dojolvi. These decreases were offset by a $9.8 million increase due to a decrease in accounts receivable primarily related to change in the timing of billing to a collaboration partner, a $2.7 million increase due to decrease in prepaid expenses and other assets primarily related to a change in the timing of billing to a collaboration partner, a $26.9 million increase in accounts payable, accrued liabilities primarily due to an increase in annual accrued bonus due to higher employee headcount and attainment of company goals, and an increase of $66.6 million in contract liabilities, net, related to the license agreements with Daiichi Sankyo.

Cash Used in Investing Activities

Cash used in investing activities for the year ended December 31, 2021 was $195.4 million and was primarily related to purchases of property, plant, and equipment of $73.1 million and purchases of marketable debt securities of $1,012.2 million, offset by the sale of marketable debt securities of $92.9 million, proceeds from the sale of Arcturus common stock of $79.8 million, and proceeds from maturities of marketable debt securities of $718.1 million.

Cash used in investing activities for the year ended December 31, 2020 was $179.1 million and was primarily related to purchases of property, plant, and equipment of $43.9 million, purchases of marketable debt securities of $813.2 million, purchases of equity investments of $37.1 million, including $26.8 million for the purchase of Solid shares and $9.6 million for the exercise of the option to purchase additional Arcturus shares, and other activities of $5.6 million, including $3.3 million for the purchase of a convertible notes receivable and the milestone payments of $2.3 million recorded as an intangible asset resulting from the FDA approval of Dojolvi, offset by proceeds from maturities of marketable debt securities of $589.8 million, the sale of Arcturus common stock of $79.8 million, and the sale of marketable debt securities of $51.0 million.

Cash Flows Provided by Financing Activities

Cash provided by financing activities for the year ended December 31, 2021 was $118.6 million and was comprised of $78.9 million in net proceeds from the issuance of common stock from our ATM offering and $40.1 million in net proceeds from the issuance of common stock upon the exercise of stock options, net of taxes withheld from the vesting of restricted stock units.

Cash provided by financing activities for the year ended December 31, 2020 was $600.3 million and was comprised of $435.6 million in net proceeds from the sale of common stock in our underwritten public offering, $55.3 million in net proceeds from the sale of common stock in connection with the license agreement with Daiichi Sankyo in March 2020, $20.4 million in net proceeds from the sale of common stock from our ATM offering, and $89.3 million in net proceeds from the issuance of common stock upon the exercise of warrants and stock options, net of taxes withheld from the vesting of restricted stock units.

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:

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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;

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•
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, 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.”

Contractual Obligations

Material contractual obligations arising in the normal course of business primarily consist of operating and finance leases, manufacturing and service contract obligations and land and building construction obligations. See Note 8 to the Consolidated Financial Statements for amounts outstanding for operating and finance leases on December 31, 2021.

Manufacturing and service contract obligations primarily relate to manufacturing of inventory for our approved products, the majority of which are due in the next 12 months. See Note 14 to the Consolidated Financial Statements for these contractual obligations.

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 amount and timing of such obligations are unknown or uncertain. These potential obligations are further described in Note 7 to the Consolidated Financial Statements.

Recent Accounting Pronouncements

None

Off-Balance Sheet Arrangements

Since our inception in April 2010, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.