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Edited Transcript of RARE earnings conference call or presentation 13-Feb-20 10:00pm GMT

Q4 2019 Ultragenyx Pharmaceutical Inc Earnings Call

Novato Feb 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Ultragenyx Pharmaceutical Inc earnings conference call or presentation Thursday, February 13, 2020 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Danielle Keatley

Ultragenyx Pharmaceutical Inc. - Senior Director of IR & Corporate Communications

* Emil D. Kakkis

Ultragenyx Pharmaceutical Inc. - President, CEO & Director

* Shalini Sharp

Ultragenyx Pharmaceutical Inc. - CFO & Executive VP

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Conference Call Participants

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* Andrea R. Tan

Goldman Sachs Group Inc., Research Division - Research Analyst

* Huidong Wang

Barclays Bank PLC, Research Division - Research Analyst

* Jeff Hung

Morgan Stanley, Research Division - Equity Analyst

* Joon So Lee

SunTrust Robinson Humphrey, Inc., Research Division - VP

* Joori Park

SVB Leerink LLC, Research Division - Associate

* Samantha Lynn Semenkow

Citigroup Inc, Research Division - Senior Associate

* Tazeen Ahmad

BofA Merrill Lynch, Research Division - VP

* Vincent Chen

Sanford C. Bernstein & Co., LLC., Research Division - VP

* Xiaodong Zhang

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Yaron Benjamin Werber

Cowen and Company, LLC, Research Division - MD & Senior Biotechnology Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. And welcome to the Ultragenyx Fourth Quarter and Full Year 2019 Financial Results Conference Call. (Operator Instructions)

I would now like to hand the conference to your speaker today, Danielle Keatley. Please go ahead.

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Danielle Keatley, Ultragenyx Pharmaceutical Inc. - Senior Director of IR & Corporate Communications [2]

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Thank you. Good afternoon, and welcome to the Ultragenyx Pharmaceutical financial results and corporate update conference call for the fourth quarter and full year 2019. We've issued a press release detailing our financial results, which you can find on our website at ultragenyx.com.

I'm Danielle Keatley, Senior Director of Investor Relations. And with me today are Emil Kakkis, Chief Executive Officer and President; and Shalini Sharp, Chief Financial Officer.

I'd like to remind investors that this call will include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to the types of statements identified as forward-looking in our quarterly report on Form 10-Q that was filed on November 6, 2019, our annual report on Form 10-K that will be filed soon and our subsequent periodic reports filed with the SEC, which will all be available on our website in the Investors section.

These forward-looking statements represent our views only as of the date of this call and involve substantial risks and uncertainties, including many that are beyond our control.

Please note that actual results could differ materially from those projected in any forward-looking statement.

For a further description of the risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements as well as risks relating to our business, see our periodic reports filed with the SEC.

I'll now turn the call over to Emil.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [3]

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Thank you, Daniel. I'll start with our commercial performance in the fourth quarter of 2019. Shalini will then summarize our financial results for the quarter and the year. I will come back at the end to discuss the progress across our clinical and preclinical programs and our outlook for the rest of the year.

Starting with Crysvita, which has been the main focus of our commercial efforts and the primary driver of revenue in 2019. Performance in the fourth quarter built on the momentum in the first 5 quarters of launch, this was reflected by continued increases in completed start forms and the number of patients on reimbursed therapy.

In the U.S., we ended the year with approximately 1,590 completed start forms, 160 more than the third quarter. We also ended the year with approximately 1,330 patients on reimbursed therapy, a 200 patient increased versus the end of the third quarter.

As the commercial team continues to work to penetrate the adult market, we believe Crysvita will continue to be one of the most successful rare disease programs launched.

Our 2020 Crysvita revenue guidance of $125 million to $140 million further reflects the confidence we have in Crysvita and our commercial team's ability to execute. Now that the early launch period is over, going forward, we do not plan on providing specific launch metrics, but we'll focus on revenue for Crysvita. To put our launch progress in perspective, we mapped out the top rare disease launches through their first 6 quarters over the last 15 years. We found that Crysvita is one of the top rare disease launches based on top line total product sales. We've also generated the substantial revenue while setting a price that is substantially lower than any of the other top rare disease drugs. As a result, we have successfully ensured that payers view our pricing as responsible, allowing us to reach more patients, especially adult, and achieve a positive financial outcome for the company. This approach is core to our philosophy about improving access and total revenue by moderating rare disease pricing.

Turning to Canada, we are seeing continued prescribing interest from physicians, and the number of reimbursed patients with private insurance has exceeded our expectations. More than half of Canadians have supplemental private insurance today, and the number of pediatric and adult patients who are receiving Crysvita through their private insurance drug plans continues to grow. We also continue to pursue public reimbursement in Canada, which will take more time.

Moving to Latin America. In Argentina and Colombia, the number of patients on reimbursed named-patient treatment continues to increase, and the feedback has been very positive.

In Brazil, the demand has been strong, with a significant number of patients successfully navigating the cumbersome legal process and a few receiving reimbursed treatment to date. We're also seeking pricing and full reimbursement approval by the Ministry of Health to enable more rapid access for patients in Brazil. Ultimately, we believe that there is significant potential for Crysvita in Latin America, with growing demand in multiple countries for the product.

Briefly turning to Mepsevii. The therapy approved in the United States, Europe and Brazil. And the demand continues to build gradually as is typical for enzyme replacement therapies. We are also continuing reimbursement discussions with various government health authorities throughout the world.

With that, I'll turn the call over to Shalini, who will provide a financial update.

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Shalini Sharp, Ultragenyx Pharmaceutical Inc. - CFO & Executive VP [4]

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Thank you, Emil. And good afternoon, everyone. Earlier today, we issued a press release that included a financial update, which I will briefly summarize.

Ultragenyx's total net revenue for the 12-month period ending December 31, 2019, was $103.7 million. And for the fourth quarter of 2019 was $35.6 million. The following is a product-by-product breakdown of these figures.

For Crysvita, during the year ended December 31, 2019, we recognized total revenue of $87.3 million. This includes $74.9 million in collaboration revenue in the U.S. profit share territory in Canada and $8.1 million in royalty revenue in the European territory from our collaboration and license agreement with our partner, Kyowa Kirin or KKC. Net product sales for Crysvita in other regions totaled $4.3 million. Total Crysvita revenue recognized by Ultragenyx for the 3 months ended December 31, 2019, was $29.9 million. This includes $26.1 million in collaboration revenue in the North American profit share territory, $2.2 million in royalty revenue on KKC sales in the European territory and $1.6 million in net product revenue in other regions.

Recall, there was a significant order that was placed on the last day of the third quarter of 2019 which was recognized in the fourth quarter due to shipping terms. Depending on ordering patterns, we continue to expect fluctuations in our quarter-to-quarter revenue recognition from time to time.

In Latin America, full reimbursement takes place on a country-by-country basis and can take some time, which can be further complicated by economic and political instability. Total 2019 Crysvita sales in North America, Europe and Latin America, which are shared with KKC, were approximately $104 million for the fourth quarter and approximately $316 million for the full year 2019.

Mepsevii product revenue for the fourth quarter of 2019 was $4.4 million and was $12.6 million for the year. Due to the rarity of MPS 7, we expect revenues for this product to be somewhat irregular from quarter-to-quarter and to build very gradually as is typical for enzyme replacement therapies.

UX007 named-patient revenue in the fourth quarter was $1.2 million and was $3.3 million for the year. We also recognized $0.1 million in revenue this quarter and $0.5 million for the year from our research agreement with Bayer.

As we have stated previously, we continue to expect revenues from this agreement to be minimal going forward. Our total operating expenses were $130 million for the fourth quarter of 2019. For the past several quarters, up to 20% of our operating expenses, excluding expenses related to business development transactions like GeneTx and Arcturus has consisted of noncash items.

Our research and development costs were $83.1 million. We expect our R&D cost to increase moderately over time as we continue advancing product candidates from early preclinical development into early and pivotal clinical studies.

Our SG&A costs in Q4 were $41.9 million. We expect SG&A to increase moderately over time as we support our commercial programs simultaneously launching across multiple geographies.

Our cost of sales were $5.1 million for the fourth quarter of 2019. This includes a $3.8 million reserve on Mepsevii inventory that did not meet our quality standards.

Recall, in the third quarter of 2019, there was a $1.9 million reserve for a similar issue. We expect that a majority of these reserves will be recovered from our supplier, and we do not currently anticipate any supply interruptions or future reserves related to this issue.

Net loss for the fourth quarter of 2019 was $93.8 million or $1.62 per share, basic and diluted, compared with a net loss of $87.8 million or $1.73 per share, basic and diluted, for the fourth quarter of 2018. For the year ended December 31, 2019, net loss was $402.7 million or $7.12 per share, basic and diluted, compared with a net loss for the same period in 2018 of $197.6 million or $3.97 per share, basic and diluted.

The net loss for the fourth quarter of 2019 and for the year ended December 31, 2019, includes unrealized gains of $1.4 million and $13.4 million, respectively, from their fair value adjustment on the investment in our Arcturus equity securities.

The net loss for the full year ended 2018 was reduced by $170.3 million due to sales of priority review vouchers.

For the year ended December 31, 2019, cash used in operations was $345.4 million. This includes $20 million for the GeneTx upfront payment in the third quarter of 2019, $15.6 million for the amended Arcturus license rights in the second quarter of 2019 as well as adjustments for significant noncash charges, including stock-based compensation expense of $82 million.

We ended the fourth quarter of 2019 with $760.4 million in cash, cash equivalents and available for-sale investments. This includes proceeds of $320 million we received from the sale of the company's royalty interest in Crysvita in the European territory.

Moving to our guidance for 2020. We continue to expect the Crysvita revenue to Ultragenyx in our territories to be between $125 million and $140 million. Those territories include North America, Latin America and Turkey and exclude the EU royalty as this was monetized in the transaction that was completed with Royalty Pharma that was announced in December 2019. We expect the pace of our revenue growth to significantly exceed the pace of expense growth. And therefore, we are projecting a greater than 20% decrease in net cash burn, which includes net cash used in operations as well as capital expenditures.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [5]

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Thank you, Shalini. I'll spend a few minutes on our clinical and preclinical programs before turning to the upcoming catalysts. I'll start with Crysvita for tumor-induced osteomalacia, a rare disease for which approximately half of the patients have tumors that cannot be surgically removed and leaving them with no other current treatment options.

In December of last year, we submitted a supplemental biologic license application ahead of our anticipated timing. We expect to hear back from FDA on submission acceptance and review designation later this month.

Turning to UX007 for LC-FAOD. A devastating set of diseases with a high mortality rate despite newborn screening and current use of MCT oil. The FDA is currently reviewing the new drug application and set a PDUFA date for July 31, 2020. As we've discussed before, the FDA does not currently plan to hold an advisory committee meeting to discuss the application. The review process continues on track, and we expect to review decision by the PDUFA date.

In addition to the progress in U.S., we've also submitted a marketing authorization application to regulatory authorities in Brazil, and we continue discussion with other regulatory authorities in the EU and Canada.

Based on our experiences, we know that there are a lot of patients with LC-FAOD who are not doing well on current treatment of MCT oil and are seeking new treatment options. In France alone, for example, there were originally only a few doctors requesting UX007 via the ATU named-patient program. Now there are approximately 20 physicians treating 34 patients for the LC-FAOD who are using UX007 through that named-patient program. We expect there to be significant interest in the product if approved, but as with many inborn error products, we believe it will build steadily and will take time.

In the developed world, there are approximately 8,000 to 14,000 patients with LC-FAOD and we own the worldwide rights to the product.

Moving to DTX301, our gene therapy program for ornithine transcarbamylase deficiency or OTC deficiency. OTC deficiency is an X-linked urea cycle disorder that limits the body's ability to detoxify ammonia into urea. These patients can quickly deteriorate into full metabolic crisis, causing neurologic deficits, hospitalization, coma and, in some cases, death.

In January, we reported positive data from dose cohort 3 and longer-term data from the first 2 cohorts of our OTC study.

In Cohort 3, we are seeing responses from all 3 patients. 2 of the patients are confirmed responders, and the third patient appears to be responder as well, but we will wait until we have longer-term data to confirm this.

In total, up to 6 of the 9 patients have responded. Importantly, 3 patients have come off their ammonia scavenger medications and liberalized their diet. We consider these patients complete responders and these patients appear to be metabolically cured.

Based on these data and the favorable safety profile, we believe the Cohort 3 1e13 GC per kilogram dose is the appropriate dose level. We're seeing a more consistent response across the patients, and we believe this higher dose has achieved the adequate level of therapeutic effect. From here, we will enroll a fourth cohort at the same dose as Cohort 3, this time using prophylactic steroids rather than reactive steroids. We believe this will enhance the level of expression and also provide more consistent expression. We expect data in the second half of 2020 from this cohort. If positive, we'll proceed to dose 3 more patients and simultaneously discuss the design of the Phase III study and end points with regulators.

Based on our ongoing conversation with the FDA, we expect that ammonia will be a primary endpoint. The FDA considers ammonia a validated clinical endpoint, and they've approved other products based on ammonia.

Switching to DTX401, our gene therapy program in glycogen storage disease type Ia, a disease that leads to severe and sometimes life-threatening hypoglycemia. Patients with GSDIa today have to take cornstarch every 3 to 4 hours, which can keep glucose levels up. But it does not address the disease and its long term consequences. While cornstarch therapy has saved lives and improved health, it is not a normal life by any measure and patients or their parents live in fear of death, if they miss a single dose of cornstarch.

Today, we've shown data from the first 2 cohorts of all 6 patients demonstrating a meaningful clinical response to the therapy at the 2e12 and 6e12 dose levels. This includes improvement in glucose control, shown by timed hypoglycemia reductions in cornstarch requirements for all patients. In the second dose cohort, all patients showed a meaningful reduction in glycogen storage and improvements in metabolism. These data indicate the Cohort 2 dose is showing greater transgene expression and our view that these patients have greatly improved glucose control. They are weaning down their starch requirements, and we think we have a treatment that could change the future for GSDIa patients.

We've now moved to a confirmatory cohort of 3 patients at the same dose and are simultaneously having discussions with the FDA about the Phase III study. We expect to have data from the confirmatory cohort in the first half of 2020. And we could be in a position then to begin Phase III in the second half of 2020.

I will also touch on our agreement with the GeneTx Biotherapeutics to advance GTX-102, an antisense oligonucleotide for the treatment of Angelman syndrome. Angelman is a devastating neurologic disease that affects approximately 60,000 patients worldwide, and there are no approved treatment options today. The disease is not neurodegenerative. So there is potential to reverse some disease symptoms, which include speech, cognitive impairment, seizures, ataxia and sleep dysfunction. As a result, we think Angelman is one of the diseases in neurology that could benefit most from a treatment. The disease mechanism is well understood, and ASOs are a well dialed-in class that can target the disease directly. We believe that the team at GeneTx has developed a very potent and specific differentiated antisense oligonucleotide, and we are excited to partner with this group.

The IND for this program is now active, and GeneTx has received IRB or Institutional Review Board approval for the first study site. We expect enrollment in the Phase I/II study to begin in the coming months. Following the acceptance of the IND, we paid a $25 million milestone to obtain the option -- to maintain the option to acquire the company until the earlier of 30 months after the first patient is dosed or 90 days after the results are available from the Phase I/II study.

The last program I'll discuss is DTX201 for hemophilia A. Our program is partnered with Bayer and using material from our proprietary HeLa manufacturing platform.

At the European Association of Hemophilia and Allied Disorders meeting last week, Bayer presented data on the first 2 low dose cohorts of the Phase I/II study. All 4 patients showed a response, with 3 of the 4 patients showing clinically meaningful increases in Factor VIII levels. One patient in Cohort 1 achieved clinically meaningful Factor VIII levels and has experienced only 4 bleeds post-treatment compared to 99 bleeds the prior year. Both patients in dose Cohort 2 achieved clinically meaningful Factor VIII levels up to 24 and 30 weeks.

Patient 4 in Cohort 2 has been bleed-free and treatment-free for up to 7 months of the data cutoff. The same patient had a mild ALT/AST elevation that were managed with a short tapering course of steroids, and the other patients have not required steroids at all. A third high-dose cohort has been dosed, and we expect to see additional updates this year.

While Bayer is responsible for the clinical execution of the program, we are pleased to see that our HeLa manufacturing platform validated and looked forward to continued progress with the program. As a reminder, we are eligible to receive milestones and royalty payments from Bayer for this program.

I'll spend a few minutes now discussing a number of important milestones in the coming months that will continue to drive our progress, and then we can move to Q&A.

For Crysvita, in 2020, we expect revenue between $125 million to $140 million across North America, Latin America and Turkey, representing a 58% to 77% increase versus 2019 in the same territories. This will be driven by continued strong performance in the U.S. and expansion of our reach in Latin America through named-patient sales and pending regulatory decisions as well as growth in Canada. With our [reg] transmission for Crysvita for the treatment of TIO, we are looking to expand Crysvita to this additional patient population. While there are fewer patients with TIO, there's often a very urgent need for treatment. If approved in this indication, we believe Crysvita therapy will be adopted over phosphate therapy.

For UX007, we will continue to work with the FDA. They'll review our NDA, working towards a PDUFA date of July 31, 2020. The review is progressing well, and we look forward to being able to provide this treatment to many more patients with LC-FAOD. For the gene therapy programs, we have shown strong data for our 2 programs in GSDIa and OTC, and in both [states], we believe we had found the appropriate dose.

The GSDIa program will have a data readout from the confirmatory cohort in the first half, and the OTC program will read out in the second half. We are simultaneously having discussions with FDA about the Phase III studies for both programs.

The Bayer hemophilia A program is providing us with the first clinical data using material from our proprietary HeLa platform. Our Wilson disease program will use this HeLa manufacturing system when it enters the clinic, and we are targeting an IND for this program by the end of 2020. We'll also provide more updates on the GTX102 ASO program for Angelman as the program begins to enroll patients.

To summarize briefly, our commercial team continues to execute at an extremely high level, making Crysvita one of the top rare disease launches. The continued efforts with Crysvita and Mepsevii as well as 2 more potential launches this year set us up to grow -- substantially grow our commercial business.

In 2019, we had annual revenue exceeding $100 million for the first time, with substantial growth expected in 2020. We are now well capitalized with $760 million in cash and equivalents. When you combine that with the financial discipline we are applying and expect to reduce net cash burn in 2020, this puts us in good position to drive our clinical programs forward.

Our gene therapy programs are advancing to a confirmatory dose cohort through Phase III studies. And the Angelman and Wilson disease programs are both large indication opportunities that are nearing the clinic with a diverse set of early-stage product candidates to follow. We have become a diversified rare disease company, we'll continue to grow. We're constantly innovating and adapting rare disease drug development strategies, trial designs and endpoints, working with regulators to establish a more efficient model for rare disease drug development as well as evolving the way we commercialize product in these indications and efficiently manage the cost structure. These are just some of the things we do each day, and we have a foundation where we've built an exceptional rare disease company.

With that, let's move to your questions. Operator, can you please provide the instructions for the Q&A portion of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from the line of Gena Wang from Barclays.

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Huidong Wang, Barclays Bank PLC, Research Division - Research Analyst [2]

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I wanted to congratulate you on the great quarter. I have 2 questions. The first one is regarding the Crysvita 2020 revenue guidance. Just wondering, the 58% to 77% growth is that mainly driven by U.S. growth or geographic expansion? And how much growth assumption was built in for Latin America?

My second question is regarding the Angelman syndrome. Could you walk through the Phase I trial design in terms of initial dose? And how would you dose escalate? And what kind of data will lead your decision to acquire GeneTx?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [3]

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Great. So on the Crysvita launch growth, Shalini do you want to answer that particular one, how the numbers...

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Shalini Sharp, Ultragenyx Pharmaceutical Inc. - CFO & Executive VP [4]

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Sure. Yes. No, thanks for the question, Gena. And as has been the case so far, North America is the vast majority of our revenue expectations. And that continues to be the case during 2020, although we expect the other territories to start to become more and more significant over time.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [5]

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Very good. So on the Angelman program, I don't think I can go through the entire clinical protocol on the call today. It just would take too much time. But what I can describe for you is that the design, basically, will take children up to 4 to 17. And basically, they're going to start at a low dose and then be able to titrate each patient up quickly to therapeutic dose levels within just a few doses. And as the first cohort gets through and looks safe, then the next cohort will start at a higher dose and the next cohort at a higher dose. It will be about 20 patients in these dose cohorts, but all the patients will probably end up on one of 2 therapeutic dose levels. And we'll be able to evaluate, then, both therapy efficacy as well as safety at those 2 therapeutic dose levels. So it will be a very -- a more rapid adaptive design, which is certainly our preference and, frankly, was supported and requested to some degree by the FDA as well. The GeneTx team has done an excellent job of putting that plan together. And we're excited to see the site open and things beginning.

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Operator [6]

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And our next question comes from the line of Yaron Werber from Cowen.

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Yaron Benjamin Werber, Cowen and Company, LLC, Research Division - MD & Senior Biotechnology Analyst [7]

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Maybe I have a couple. Shalini, maybe just for you, just so we know and we get the models right. So it looks like the European royalty will still be recorded but as a non-revenue -- I'm sorry, noncash revenue. So is it still contributing to earnings in that point? And would you then sort of show us a GAAP to non-GAAP adjustment? And then, I have a follow-up as well.

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Shalini Sharp, Ultragenyx Pharmaceutical Inc. - CFO & Executive VP [8]

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Sure. So that's correct. It is considered a noncash revenue item going forward. It will technically be part of our net income, net loss, EPS, all of those calculations, but it is a noncash item. Our guidance for 2020 did not include the EU royalty because it's a noncash item. So because we're not actually receiving cash-based revenues for it, we're no longer providing that as part of the guidance going forward. So hopefully, that's helpful.

In terms of our plans, in terms of how to make this more clear going forward. We are planning to segregate the noncash interest and noncash revenue on the income statement. So that would be very obvious to you where those items are coming from. And as we go forward throughout the year, we will evaluate whether it makes sense to provide more different kinds of key performance metrics that might be helpful to The Street.

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Yaron Benjamin Werber, Cowen and Company, LLC, Research Division - MD & Senior Biotechnology Analyst [9]

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Okay. Got it. And then, Emil, for you, I mean, the guidance does include TIO? And maybe give us a little bit of a sense how many TIO patients are currently diagnosed in the U.S. so we have an assessment of how big that market could be?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [10]

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Well, I'll tell you the exact number of TIO is hard to say. But we've talked about it being 1,000, 2,000 and perhaps half of them being excisable. But I would say to you, those are soft numbers, and a true exact number is hard to know. All I can say is we have been getting a lot of interest and inquiries about TIO. And so we think -- but I would just -- being clear that the size of the market, clearly, a relatively small fraction of what you see with Crysvita. On the plus side, the patients often are really sick. And so the urgency to treat will be higher. So hopefully, that gives you a rough idea, but I would say, our confidence around the exact number is less, but it's in that ballpark.

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Yaron Benjamin Werber, Cowen and Company, LLC, Research Division - MD & Senior Biotechnology Analyst [11]

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Okay. And maybe just a final question on Angelman now that, that program is in the clinic. And this is really a super interesting program. That preclinical data looks really good. And so the question is, in terms of the clinical assessment, and this is obviously a Phase I/II, but what's the latest thinking about how to put together some kind of either a composite or a disease-based metric or sort of a multi-scale domain assessment for Angelman?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [12]

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Well, I agree with you that Angelman is an incredible opportunity, and I think the science has been really solid. And so when you look across what happens in Angelman patients, it covers really 5 different domains of function. And so the strategy is how would you figure out when you have a variable set of domains for this disease. And we've certainly pioneered the use of multi-domain responder disease as one way to do that. That would involve looking at 5 different endpoints, let's say, sleep, speech, cognition, gait, seizures. As each individual domain, the patients respond in a domain, they score a win or if they get worse and they score a decline, and you basically add up the wins across the patients. We've shown the strategy can allow you to look at heterogeneous diseases and gain substantially more power. So it may be an approach we would use. We're still talking with our GeneTx colleagues about the exact strategy for a pivotal study. I think the first thing we need to learn from Phase I/II is, is the drug safe, does it help patients in a fundamental way. And if we learn from that, we'll be able to go forward. But we think it's important to treat as many or all of the major manifestations. And -- but at this point, we can't be sure what will happen until we get some more data. But we're excited to see it happening. And the prospect of a change in future Angelman syndrome being part of that is very exciting to all of us here at Ultragenyx.

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Operator [13]

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And our next question will come from the line of Joseph Schwartz from SVB Leerink.

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Joori Park, SVB Leerink LLC, Research Division - Associate [14]

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I'm Joori Park dialing in for Joseph Schwartz. Our first question has to do with your operating expense. It's encouraging that you are able to -- you're expecting to reduce your operating expense this year as compared to last year. Could you provide any color to help us understand how you'll be able to achieve this while you expand your development and marketing initiatives in a variety of territories?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [15]

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Thank you. It is amazing, isn't it? But let's just be clear. We're -- what we talked about is net cash, and I'll let Shalini speak to it different, but I would point out to you, there is some fundamental things we do that are unique to us. So I'll just touch on that. For example, that our whole post-marketing programs are based on a single study called the disease monitoring program. The reason that's important is both Crysvita and Mepsevii R&D costs are falling precipitously following the approval of the program because the cost of the DMP is more modest but importantly and well spent, but we've eliminated the need for multiple other programs. Because most companies have rising R&D expenses for a product after approval, that ends up causing a problem in how you manage OpEx. By that falling, it allows us to reallocate resources and to manage our burn. But I'll let Shalini then explain a little more of what we said about OpEx versus cash net usage.

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Shalini Sharp, Ultragenyx Pharmaceutical Inc. - CFO & Executive VP [16]

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Right. So we have not said that operating expenses are expected to decrease in 2020. What we have said is that, they are expected to increase modestly in 2020 but that the pace of revenue growth will far exceed the pace of OpEx growth. And therefore, the net cash burn expected for 2020 should be more than 20% lower than in 2019. So we have not said that OpEx will be decreasing this year. And I think what Emil described to you is on a per program basis. For commercial programs, we are able to reduce the operating expenses, particularly on the R&D side. And as a result of that, we're able to absorb more new R&D programs without increasing operating expense in total. But in total, across all of our programs and across R&D and SG&A, we do expect modest increases during 2020 in operating expense.

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Joori Park, SVB Leerink LLC, Research Division - Associate [17]

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Okay, great. That's very helpful. And then my follow-up question has to do with DTX401. Is there a standardized protocol to decrease cornstarch in Cohort 3? We ask because it seems like cornstarch reduction is mainly up to the discretion of the trial site physician. And so we were just wondering if there will be a more standardized protocol to decrease cornstarch to have a more consistent result across all sites.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [18]

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Thank you. I think it's important to understand that the cornstarch reduction is a new thing. And by the way, when the trial was started, they weren't necessarily expecting that would decrease it, thought they were just going to help the patients have more steady glucose. But it's pretty clear, they can reduce their cornstarch. And so far, there is not a defined protocol that we've used. We've let each investigator titrate each patient on a case-by-case basis. And it's a little hard to have a protocol because each patient has different amounts of starch, taking it different ways and has various other aspects to how they do it. So it actually is very -- would be challenging to have a single protocol. But your point is well taken. I think, as we look through our Phase II data, we will look at when to start titrating starch and to try to create some parameters around that progression and, particularly, what target glucoses would you want to hit before titrating. I think that's one thing we can kind of try to standardize so that the progression to our reduction in starch is consistent across patients and groups. What I can say that we're pleased with at least the earliest cohorts have titrated down, and we're pleased with the fact that we're able to greatly reduce cornstarch usage and still retain euglycemia for patients. But you're -- it's a good point. We're continuing to look at that, but we don't -- we have not regimented it currently in the Phase II study.

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Operator [19]

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And our next question comes from the line of Tazeen Ahmad from Bank of America.

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Tazeen Ahmad, BofA Merrill Lynch, Research Division - VP [20]

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Emil, I just wanted to get a little bit more color. You mentioned in your prepared remarks about pursuing Wilson disease as part of your collaboration. Can you just give us a little bit more color on when that study will start? And if we should expect to see any data on that in 2020? And then I have a follow-up.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [21]

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Yes, the Wilson program is not a collaboration, though. It is our wholly-owned program. And the gene -- the program is currently in the manufacturing scale-up stage in order to prepare the product using the HeLa cell system, and we would expect to hit the IND toward the end of this year and start the clinical program. So that's kind of the general time line. But we're in complete control of that program. It's ours fully. And at this point, we're looking to try to manage the development program. We'll be meeting with the agency, and we're trying to figure out the optimal combination of endpoints. But we will be looking for a streamlined development path since that's something the agency has indicated they would support. And that will -- something we'll have to talk through as we work through the year, but we're excited about the potential to treat Wilson disease, particularly because it's such a large indication.

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Tazeen Ahmad, BofA Merrill Lynch, Research Division - VP [22]

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Okay. I thought that was part of your license agreement with REGENX? Maybe I was just mistaken about that?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [23]

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Oh, it was [REGENX]. You mean the capsid?

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Tazeen Ahmad, BofA Merrill Lynch, Research Division - VP [24]

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Yes.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [25]

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Well, they license the capsid to us, yes, but it's not really a -- I thought you were talking about a partnership like the Bayer with EMA thing. We do have a REGENX license to the capsids for all of REGENX capsids for Wilson disease. So we have all of them based on the original dimension license that we exercised.

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Tazeen Ahmad, BofA Merrill Lynch, Research Division - VP [26]

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Okay. And then as it relates to the 301 program in OTC, can you just talk about where you are with recruitment for the prophylactic steroid cohort? What's the gating factor in recruiting these patients?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [27]

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Well, we -- from the -- toward the end of last year, we were actually lining up patients for recruitment in the next cohort. But we do have to get through the DMC review and FDA review. And so those are some regulatory steps that are ongoing. But we have lined up patients, and we believe the recruitment will go faster this time. We had a slow period last year recruiting Cohort 3. And we've ramped up the forces in our patient diagnosis program to tee up a lot more OTC patients earlier on. So I feel we'll be able to handle that enrollment when the protocol is approved and ready to run.

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Tazeen Ahmad, BofA Merrill Lynch, Research Division - VP [28]

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Okay. And then a quick last one, if I may. For FAOD, how should we be thinking about the size of the sales force? And do you plan to expand beyond which you already have right now? How many sales people do you currently have?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [29]

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Well, our Crysvita team will be staying dedicated to Crysvita, they won't be spending a lot of time. This will be a separate team that will involve a small sales team and likely a small [local] coordinator team, which would be dietitian typed group. Because the number of targets for FOAD are more in the range of 160 metabolic centers versus more than 1,000 for Crysvita. We think the scale of the field team could be scaled similarly. So we expect it to be a relatively small incremental step for us from a sales team standpoint. And from an infrastructure standpoint, like the Ultracare team that handles reimbursement and all that, that we'll be able to leverage our investment in that and the supply chain and other things that we've already created. So I think it'll be a reasonably efficient addition to our portfolio and would not be an entirely new set of people for all aspects of commercialization.

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Tazeen Ahmad, BofA Merrill Lynch, Research Division - VP [30]

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And you've not said how big your current sales force is, have you?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [31]

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Well, the current field for us is around 36, but there have been a few extras because we've added some special 4 more. So it's probably closer to 40 now. And that's the current UCL team, but there's also a patient diagnosis team on the medical affairs side, which is around 30 people. And then we have MSLs as well, which we haven't really talked much about, but the UCL, we would normally think of the field team of 36 for Crysvita or 40.

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Operator [32]

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And our next question will come from the line of Maury Raycroft from Jefferies.

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Unidentified Analyst, [33]

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This is (inaudible) filling in for Maury. So for hemophilia A program, can you contextualize how your program differentiates from other Hem A programs? And how do you view this strategic opportunity? For instance, like the BioMarin could be the first-in-class, so forth?.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [34]

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So the question is, how does our Hem A program differentiate itself from the others? Yes, our program is better, that's why. So the -- I think the thing we're -- that's different about ours is the AV that's being used is an AV8 [clad E] variant. And it has a relatively efficient capsid for delivery to the liver. And we think we're seeing therapeutic levels achieved at 5e12 and e13, right? Which is substantially lower than what you're seeing with the BioMarin AV5 capsid, which is known not to be as an efficient a capsid. The Spark program is running at 2e12, 1e12 lower, but it's had more inflammation. So the one differentiator I would see right now is that we're having, at moderate titers, clinically meaningful Factor VIII produced with actually only one out of 4 patients needing steroids, so without inflammation. So we think there is some differentiation in terms of the combination of safety and dose that we're seeing. And I think it puts it in position to be a credible opportunity. That, notwithstanding BioMarin and their program is certainly well ahead of this program, but we think Factor VIII and hemophilia is a very large opportunity. We also think that it will take time, that patients will not immediately jump to do gene therapy and that there'll be plenty of time for an entrant with an excellent safety and efficacy profile to be competitive in the space.

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Unidentified Analyst, [35]

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That's helpful. And provided the UX007 is approved. So what would be the sales force and commercialization effort look like, a little bit a similar multi-pronged approach as Crysvita?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [36]

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Well, yes. So there are some assets that will be the same, for FAOD, we will have -- the patient diagnosis program will operate. However, because it's a more narrow set of target sites that manage newborn screening and see these patients, the MSLs may take some of the load of patient diagnosis. And so the PDLs that are out in the field could also find patients as they're out doing their work. So we will have a little bit of the PDLs helping. The MSLs will be doing a lot of the patient diagnose work as well. So that part is somewhat similar to Crysvita. The field team will be significantly smaller because it doesn't need to be as large, scaled more appropriately to the number of targets. But I think the overall structure of those teams, of our UltraCare guides, which are the people that handle reimbursement and do the personalized care for both patients and physicians, that will be the same, and the quality of that team, I think, is extremely important at taking care of patients at their most fragile moment when they've got a bad disease and are trying to get treated. So we think a lot of it will leverage our expertise that we've put together. And it's one of the great things of having Crysvita first, it allowed us to build out a lot of these efforts and create a situation in which we can begin to leverage our experience and infrastructure for launching the FAOD product. The other thing, the advantage was that FAOD and Mepsevvi are actually the same doctors as well. And those are the same doctors as treat GSDIa as well as OTC. So with 4 programs now in the same doctor pool, we're going to start gaining a lot of leverage in our patient diagnosis, the MSL functions as well as the sales functions going forward. And I think that will be a valuable part of creating an accretive business prospect with the -- as each additional approval comes through.

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Operator [37]

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And our next question will come from the line of Adam Walsh from Stifel.

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Xiaodong Zhang, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [38]

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This is Edwin Zhang on for Adam. Congrats on the successful year of 2019. I have 2 questions on UX007. We know you have a PDUFA date in July with FDA. My first question is, what is your plan for UX007 registration in EU? I know you have patients from U.K. in the trial. But just wondering, if you need to do an additional study to support filing in EU? Then I have a follow-up.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [39]

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We're currently exploring with the EU authorities, individual countries as well as the EMA itself regarding the strategy for filing. So we've had discussions in a number of areas on that topic, and we're trying to explore a way to do it. We also have to develop a pediatric investigational plan that's accepted, which would also be important in allowing us to file in Europe. So that process is still ongoing. We expect we should be able to file. However, there is a process we have to go through, and whether a study would be required is something we'd have to look at over time. I would also point out that, if the U.S. approval occurs, with the U.S. approval, we could take that as we have to Brazil, Canada and many other territories for pressing ahead of a launch globally for the product. So Europe is an important territory, but there's many other territories that will leverage the U.S. approval and drive forward. We believe the product is addressing a very profound need in the FAOD population and that delaying anything for another study is not really appropriate. The FDA agreed with us on that. And we think we should be able to get the EMA to under -- to appreciate that as well and allow us to move forward, but we're still in talks on that topic.

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Xiaodong Zhang, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [40]

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Great. A second question also on UX007. Have you started any discussions with peers? What is the initial feedback, for example, pricing? I believe you have done market research. What is your expectation on the market uptake of UX007 after the potential U.S. approval?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [41]

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Well, we have done some initial work with payers as well as physicians. And I think what we've been hearing is that the reduction in major clinical events is considered an important and meaningful benefit to patients who go on triheptanoin. I think we've gotten universal agreement that's important and a big effect in their mind. So we believe that there's good support from payers for covering the product. We haven't put out what our pricing is at this point. I know The Street, in general, was talking about a price point around $100,000 per year per patient on average. We've guided people to not use the typical type of pricing for this product. I think the key thing to understand about pricing and uptake is the fact that there is a relatively cheaper oil for MCT out there that has an established usage, but certainly, it has a lot of shortcomings we think. But that product is often out-of-pocket for patients, whereas UX007 would be a pharmacy benefit product, not an out-of-pocket -- not a purely out-of-pocket product. So we think those are some benefits. And we're continuing to do our analysis of this. But we caution on the whole inborn error thing is that, all the inborn error products we developed have usually had steady -- slow-steady kind of growth and adoption. We don't expect to be precipitous large crossover to the drug immediately, particularly, in context of another existing established treatment, but we do believe the product will do well over time, but just it will be a steady growth product for us.

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Operator [42]

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And our next question comes from the line of Laura Chico from Wedbush Securities.

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Unidentified Analyst, [43]

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This is Kenneth on for Laura Chico. And we just had a question. One of the objectives that you've talked about is remaining active on the business development front. I guess, I'd be curious to explore if you see the potential in your pipeline given you're looking to advance multiple INDs in 2020 and if there's a need to explore externally at this stage given the breadth of treatment modalities you've accrued?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [44]

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Yes. So we like to stay active in BD because, unfortunately, opportunities show up not when you're ready for them but when they're ready -- when they're ready to show up. So I think it's very important to open your eyes to what's there and do it. I would point out to you that you all like the Crysvita product. But at that time, we had 4 products -- or 3 to 4 products in play, we were very busy, but that showed up, and we could get the deal. We did the deal even though it seemed like an add because it was a great opportunity for us. And of course, it turned out to be quite important. We always keep our minds open to being ready for opportunities when they show up. Similar to the acquisition of Dimension, we weren't planning to do an acquisition but the moment arrived. And I think it's extremely important for a company to be dynamic, and then we'll -- and take the shot. So we actively look at products. There are things out there. There are also technology we have that might be leveraged as well. So there's a lot of ways to do business development to help us. But we're going to be cost-conscious, and we're going to make -- try to make smart moves, and we're not a company that's going to go throwing a lot of money into an auction, that goes crazy and to approach BD that way. It'll be judicious, prudent, smart, and I think find undervalued things that we have a special skill at making -- improving. So we are open for looking at things, but they have to be high value. We're looking for things that are not gene therapy since we've got a lot of investment in gene therapy, and we don't want to be all gene therapy. And so we'll keep our eyes open, and we'll do great deals. I think Angelman was one example. I think it was a deal we should do when it shows up. And we're excited about the prospect of treating that disease given the size of that opportunity.

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Operator [45]

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And our next question comes from the line Salveen Richter from Goldman Sachs.

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Andrea R. Tan, Goldman Sachs Group Inc., Research Division - Research Analyst [46]

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This is Andrea on for Salveen. Maybe a question on your manufacturing for gene therapy. Could you talk a little bit more about the processes in place to transition your GSDIa program to the HeLa production? And then as a follow-up to that, what the transition process might look like as you move to your in-house manufacturing facility and what the associated time lines would be?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [47]

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Yes. So just to remind people, the OTC program and the GSDI are both using triple transfection 293 strategy using suspension transfection type strategy. So those are -- both will be that when they get to commercial. That is what we're planning with GSDIa, we've already created a HeLa system for production of it, have run it, and so we know that it works and can be done. What we've decided to do is transition that to HeLa after approval in post-marketing because we didn't want to introduce another delay in the process of getting approved. So we'll go to market with the triple transfection program assuming we do the Phase III and it's successful. And then we would transition to HeLa sometime after approval. Now the time line for the plant that we are developing, it's -- there's 2 parts of the plant. One is the quality control analytical part, which we've already set up and built the lab and are operating our own analytical laboratory for the GMP test release of gene therapy products, which we think was a very important investment, and that's operating already in the Woburn area, that part of it. That will help shorten the time to drug or product release and puts those critical aspects of product quality in our own hands and our excellent tech ops and quality teams. With regard to the plant itself, we are working on siting and putting it in play. And we'd expect it to take -- be a several year process to identify, build. At that point in time, we will shift our products as necessary into the plant, but I would also say, it doesn't mean we wouldn't use contractors. I think we would be using contractors plus our plant. With time, though, the plant would take on a larger and larger load of our commercial as well as clinical development needs. And the speed with which we can put a new clinical development program into the clinic should increase as we will have the flexibility then to put our programs into manufacturing. And our expectation is that plant would run the HeLa and potentially 293 triple transfection, though, with time, we would try to get all of our programs, to shift to the HeLa platform being that it's larger scale, better cost structure, no use of plasmids. And so far, at least with the Hem A that we have to date, looking very good from a safety and efficacy perspective.

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Operator [48]

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And our next question will be from the line Yigal Nochomovitz from Citi.

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Samantha Lynn Semenkow, Citigroup Inc, Research Division - Senior Associate [49]

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This is Samantha on for Yigal. On DTX301, for the ammonia being used as the Phase III endpoint. I'm curious if you could elaborate, what assay are you planning to use to measure ammonia? And will it be the same assay and protocol to be used at all trial sites? I know that there's some variability with [ammonia] measurements. I'm curious on what you see on technical variability there?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [50]

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Well, ammonia is variable but less about the assay than it is about the sample collection and transport. So the problem with ammonia is the sample -- patient prep, sample collection, sample transport care is where ammonia can go variable. And this is why it's important to what we are doing is a 24-hour area-under-the-curve ammonia. What that means is the patient is in the hospital, not as an outpatient, in the hospital, and they're there for 24 hours and blood tests are taken every few hours, usually through a catheter rather than through a needle stick. The catheter allows you then to have free flowing blood from the vein, allowing you to get more accurate venous blood ammonia levels and those in our assays in the traditional way, but the samples are able to be managed, set up and sent to the proper lab in a prompt time frame. By doing it that way, we've gotten relatively consistent ammonias on visits, and that's the approach we're taking for using it in the clinical program. Does that answer your question?

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Samantha Lynn Semenkow, Citigroup Inc, Research Division - Senior Associate [51]

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Yes, it does. And just switching gears a bit for TIO. I'm curious, would you leverage the similar past regulatory path that you stated for FOAD in terms of utilizing a potential U.S. approval for Canada and Brazil? And how are you thinking -- would you bother with going into EU given the royalties have been outlined -- or are sold to Royalty Pharma?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [52]

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Well, we sold the royalty, but remember, our partner still has the rights to Europe. So they're probably still going to want to sell it in Europe, I'm assuming. So the TIO, we'll put that product into our -- all of our territories, for sure. We think we can leverage the data because, it is -- builds upon the XLH data in terms of phosphate control, bone fractures and osteomalacia, which are verified at a pathologic and using bone scans in the TIO population. It has already been approved in Japan, by the way by -- our partner has gotten it approved in Japan already. So we think, with the U.S. approval, we'll certainly be able to leverage that and file that elsewhere, as well. And I expect there would be patients globally that will benefit from the TIO -- from treatment in TIO.

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Samantha Lynn Semenkow, Citigroup Inc, Research Division - Senior Associate [53]

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Got it. And then just on UX007, how many formulations are you planning to bring to market? I think I remember, in the past, you mentioned you may have had a powder formulation at one point?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [54]

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Yes. So there are possible ways to make the oil into a powder. The current formulation will be a bottle that patients can measure their quantity out. It's around, let's say, total per day is around 70 CCs, something like that. And they're usually doing it in 4 times a day. There is a potential to make a powder. The one power we tried didn't work out. We could look at other powders or sachets and other variations in the product presentation. And we want to do that, actually, to make it convenient and easy for patients to take this with them to work or to school and other [for] settings. So we're starting with a bottle, a 500 ml bottle that they measure and mix with their food or drink, and we'll probably work on having some other variations over time, but we don't have a powder currently ready to go.

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Samantha Lynn Semenkow, Citigroup Inc, Research Division - Senior Associate [55]

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Understood. And just one quick one for Shalini. How quick do you expect OpEx to flatten? Should we be using the moderate growth based on 4Q numbers?

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Shalini Sharp, Ultragenyx Pharmaceutical Inc. - CFO & Executive VP [56]

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Well, the -- it's not going to be sort of a precipitous drop from one quarter to the next. It's going to be gradually slowing down but still increasing. So the rate of increase will be slowing down over time.

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Operator [57]

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And our next question comes from the line of Joon Lee from SunTrust.

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Joon So Lee, SunTrust Robinson Humphrey, Inc., Research Division - VP [58]

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If I recall correctly, you mentioned before that you need an order-of-magnitude less vector to get the same effect in hemophilia as compared to BioMarin's hemophilia gene therapy product. So is the vector you generate using the new HeLa platform different in quality or just different in terms of improved quantity of production? And if it's different in quality, what are your strategies to bridge from the old to the new GSDIa vector post approval?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [59]

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Sure. Thank you. There are several factors that make it different. One is that it is an AAV8 variant, And so, AAV8 itself is a more efficient capsid than AAV5 in terms of delivery to the liver site is one feature of the improvement, but that's not related to the platform but just the choice of capsid. The platform itself allows us to produce the AAV in a -- using the normal biology and using adenovirus recovery. And that allows the biology, means we get -- it really acts as it normally would in nature and the vector being made has a higher fill rate right off the column -- right off the production, and that allows us to create a better consistent AAV that way. So there is a quality benefit in doing it with Hela system, and I think that could translate into a cleaner product that might have less issues. We know, with plasmid transfection systems, there can be plasmid and managing pre DNA as a factor, and so that's one thing we think the HeLa system would also reduce. So we think that is both a quality effect, and there's also the choice of capsid that are probably going to contribute to the effect of the Hem A program on hemophilia.

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Joon So Lee, SunTrust Robinson Humphrey, Inc., Research Division - VP [60]

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So if it's different in quality, does that complicate the bridging on a post-approval basis? Would you need an extensive new study? Or can you help us understand what the process is?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [61]

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You mean -- so you're talking about bridging in glycogen storage disease type I, if we're going to bridge crossing over.

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Joon So Lee, SunTrust Robinson Humphrey, Inc., Research Division - VP [62]

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No, no. Your -- does it change the quality of the vector that you're using to transduce? And if so, does it change sort of the PK/PD or biology of how the drug works as a product?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [63]

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Yes. Well, the actual product, remember, gets purified, the full versions get purified. And so at the end of the day, you end up with something closer. But remember, if you start with a better quality product right off, the reactor, then purifying it is easier and you get a better -- you get a higher yield. So I don't think that we do not expect -- and we looked at HeLa versus 293, we haven't seen a significant difference in distribution PK/PD as a product. What we're saying is the manufacturability, how much you can make, how much you can get is easier to achieve. And so we think it will be potentially safer. We would expect going from 293 to HeLa, that the -- truly, the drug, which is the DNA, is the same. So the capsid is the same. So it's really the process. So we would expect that we could do the same kind of traditional nonclinical work as well as some limited human bridging work in order to demonstrate similar safety and efficacy in order to move that forward. We would still need to talk with the regulatory authorities about that. But we don't think it's a fundamental change in the vector, and if anything, the quality could be better not worse, and I don't think that entails more -- it doesn't entail more work, generally.

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Joon So Lee, SunTrust Robinson Humphrey, Inc., Research Division - VP [64]

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And I just have one follow-up, sorry. It's a rather naive question. But for the 301 program, can you remind us why prophylactic steroids should lead to improved transduction and improved expression? Is inflammation a function of how much vector you put into the patient? Or is it more of a function of how much actually gets transduced and lead to productive expression of the gene product? And I'm asking this partly because it seems like, based on your most recent data from the OTC program, women were just as well transduced as males. So just curious what your latest thinking is there?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [65]

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Yes. Well, look, capsid quantity or dose does have an effect to inflammation that is, a higher dose, we've gotten more inflammation. That's just normal and expected. But inflammation is a little bit downstream of the problem. With the steroids and prophylactic steroids, we hope, is actually to suppress innate immunity, which is -- reduces the transduction efficiency of the vector, which we think would improve efficacy is what we're trying to do, improve the efficacy. That is the number of liver cells that are expressing your transgene. By suppressing the innate immunity, we expect more of those cells to be -- to overcome their innate immunity on a cell by cell basis and get more cells expressing, which we think will result in more robust treatment. We base that based on some -- on our own nonclinical work and some clinical work of others that it appears that suppressing the immunity through prophylactic steroids does have a significant benefit on expression. That will have the effect of reducing downstream inflammation, but it's really about preventing the silencing of gene copies, which is a common problem you see in nonhuman primates and adults but not so often seen in mice. And that's probably why humans and nonhuman primates are harder to treat with AAV gene therapy than mice are.

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Operator [66]

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And our next question will come from the line of Vincent Chen from Bernstein.

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Vincent Chen, Sanford C. Bernstein & Co., LLC., Research Division - VP [67]

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A couple on Crysvita, if I may. I was wondering if you could provide us with a little more color on where Crysvita patient growth in North America is coming from? What -- well, maybe in the U.S. specifically, what's your sense for the balance between adult and pediatric patients? And within the adult portion, what portion of folks who are newly diagnosed compared to folks who are previously known in clinics? And how is this mix trending over time?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [68]

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Very good. Good to talk to you, Vincent. So in Crysvita, we've been seeing some steady shift toward adults with the most recent ratios, 45% adults and 55% peds, and we'd expect that to steadily shift further as we continue to find adults that are -- been lost to follow up. I don't have a breakdown for you on how many are newly diagnosed, and you'd have to define what newly diagnosed means. There's a lot of patients who were diagnosed clinically 20 years ago and told they have a disease, and they know they have a disease, but then we then get them genetically tested and confirm it's XLH. So which -- who diagnosed them. The guy that said you have a bone disease or us that gave you a genetic? So there's a number of patients in that kind of group that were diagnosed, but they were diagnosed at a time when no one knew what the gene was, right? And so we're doing a lot of work on free genetic testing to take those patients diagnosed with rickets that have ongoing problems that are -- turn out in a pretty high fraction to be XLH patients. So that is something that's happening now and finding what I would call those patients. I would say to you that those patients were diagnosed. They had the bone disease, and they know of it. It's just they weren't confirmed as being XLH. And I think, that's a lot of the effort we're doing. What is harder to know is how many adults out there had some disease that weren't really figured out correctly. They're truly undiagnosed as having rickets as a child. I don't know what that number is for sure. What we can say so far, though, is we're pretty confident that our 12,000 patient number for all XLH is probably about right, and that the 9,000 adults, we still have a significant fraction of those adults to work on getting to therapy. And our target is to get at least half of those adults on therapy over time, not next year but over time as we find them. So it's a little less about -- I think it's more about finding the patients who have the medical problems and know they have rickets but are no longer going to those centers that would normally treat it, and that's going to those secondary specialties. And that's what the PDL team is actually out there doing right now. That team is out there calling on those doctors that are out and about who appear to be treating someone with rickets disease or bone disease and helping them finalize that diagnosis.

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Vincent Chen, Sanford C. Bernstein & Co., LLC., Research Division - VP [69]

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I see. And if you think about this population, which, I guess, is the may be known to have disease but newly confirmed, I was wondering if you could give us some sense for how that -- the number of patients that fall into that bucket. Or do you -- may be known, newly confirmed, how is that number trending in terms of like the quarterly clip over time? Is that something -- would you say that's been responsible for driving the last couple of quarters of growth and is sort of proceeding at a similar clip? Or would you say that's sort of trending one way or the other?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [70]

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Well, it's a fraction of the growth. I think there's been a lot of patients that we have diagnosed at centers that were still -- or have been driving the growth for 6 quarters. Ones that were already there are known that are doing it. And over time, those patients are going to be an increasing part of the story. It's finding more and more of those rather than ones that are already kind of known to the clinic. But obviously, you try to focus the launch on the low-hanging fruit that are already in hand. And the PDLs are starting to look -- climb the branches for the other fruit, but -- in this process.

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Vincent Chen, Sanford C. Bernstein & Co., LLC., Research Division - VP [71]

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Is there much more room to run on that sort of low-hanging fruit, the known-to-clinic? Your 6 months into -- or 6 quarters, rather, into the launch, which is usually when things start to peter out, but it sounds like there's actually still more room to run from your comments just now.

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [72]

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There are still more patients out there. There are definitely more patients that we know about that are already in those centers. But there are some centers that have actually written prescriptions for almost every single patient they have. So some of our top prescribers have written 40, 50 scripts or more. So that's a lot of patients. So there's definitely some that have already prescribed everything they have, which I think is actually a testament to their commitment, like their experience commitment that they're going to put every single patient they have on it. But there are some that haven't. And one of the questions is, well, some people think maybe oral phosphates work okay for their kids. Well, in October

we got a label update that says that head-to-head with oral phosphate, Crysvita is way better. And we think that's something we can take out to the docs who may have some have patients who are -- they think are doing okay on oral phosphate and maybe change their mind about the value of switching. And then we have to look at the question for some adult -- some doctors who didn't treat adults for safety reasons and have gotten in the mode of thinking maybe adults don't needed to be treated, and that is where using speaker programs and patient ambassador programs are helping people understand that those adults that may not be complaining that much but are not doing well, and once they get treated they realize how much better they could be. And we're seeing a lot of good stories like that. And that communication is important to get out of the mindset that not treating adults is the right thing when they often have very significant disease. So that piece is the other part where they know the patients that are there, and it's now getting people to understand why really they should put all their patients on or the majority of their adults on drug. And that's another part of the story that we're working on. So far we're impressed that once doctors start prescribing, they then start to prescribing more because the feedback is always really strong and positive and that, that incents them to continue moving forward with putting their patients on Crysvita.

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Operator [73]

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And our next question will come from the line of Jeff Hung from Morgan Stanley.

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Jeff Hung, Morgan Stanley, Research Division - Equity Analyst [74]

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For UX701, you mentioned that it's in the manufacturing scale-up stage, can you talk about what else remains outstanding before you file the IND?

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Emil D. Kakkis, Ultragenyx Pharmaceutical Inc. - President, CEO & Director [75]

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Well, we have done our preliminary talks work. But generally, you want to use the scale-up materials at the final talks because that's some piece. So we've done our preliminaries, so we understand and are comfortable with the talks profile. It looks excellent. So we'll have to do that as well. And we're also working toward our pre-IND and our discussion on the design of a trial that would be a more streamlined design that will allow us to move quickly ahead. And that requires both understanding the trial design, the patient population and the endpoints. Now there are established endpoints for Wilson disease, including free serum copper as well as liver copper by imaging. And while those are established and valid, the question on the gene therapy is how do we -- what do we do to help substantiate the cost and price of gene therapy for -- as a life-changing treatment. That requires also capturing aspects of quality of life, neurologic function, liver injury and other aspects of the disease and making sure that we build a trial that captures the breadth of the efficacy of the treatment and creates the case required if this is transformative and also verify for us that that's true, that the drug is transformative. We think it can be. And so we want to make sure we trial the design of the endpoints, and we're doing a lot of work on survey studies and other things to help develop our clinical study plan, that part is ongoing right now as well. The manufacturing is really controlling the time line. Nonclinical, the clinical study plan, meeting with regulators, and that puts us in a time line toward the end of the year to get IND filed and be ready to go.

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Operator [76]

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And I'm not showing any further questions. I'd like to turn the call back to Daniel Keatley for any closing remarks.

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Danielle Keatley, Ultragenyx Pharmaceutical Inc. - Senior Director of IR & Corporate Communications [77]

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Thank you for joining us today. This will conclude our call, and a replay will be available soon. If you have any questions, please give us a call or you can reach us at ir@ultragenyx.com. Thanks for joining.

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Operator [78]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.