Ultragenyx Pharmaceutical Inc. (RARE) Q4 2015 Earnings Report, Transcript and Summary

Welcome to the Ultragenyx Fourth Quarter and Full Year 2015 Financial Results and Corporate Update. [Operator Instructions]. I would now like to introduce the host for today's conference, Mr. Ryan Martins, Vice President of Corporate Strategy and Investor Relations at Ultragenyx. You may begin your conference.

Thanks, Beth. Good afternoon and welcome to the Ultragenyx Pharmaceutical Financial Results and Corporate Update Conference Call for the Fourth Quarter and Full Year 2015. We have issued a press release detailing our finance results which you can find on our website at Ultragenyx.com. I am Ryan Martins, Vice President of Strategy and Investor Relations. And I also have with me here, Danielle Keatley, who recently joined the IR team after having spent some time at Amgen and Onyx. With me today also are the following members of the Ultragenyx management team, Emil Kakkis, Chief Executive Officer and President; Shalini Sharp, Chief Financial Officer; Sunil Agarwal, Chief Medical Officer; and Jayson Dallas, our Chief Commercial Officer. We will keep our prepared comments brief in order to allow time for the question-and-answer portion of the call. First, I would like to remind investors that this presentation contains 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 statements regarding the expected release of data from clinical studies and possible presentation of the same at industry conferences; the initiation of additional clinical studies and designs of same; plans regarding ongoing studies for existing programs; the expectation of increased expenses over future quarters; our belief about adequacy of current cash resources to fund our operations; our intent to file conditional marketing approval and the timing of expected decisions regarding approval from regulatory authorities. These forward-looking statements represent our views only as of the date of this call and involve substantial risks and uncertainties that could cause our clinical development programs, future results, performance or achievements to differ significantly from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, the uncertainties inherent in the clinical drug development process, the actions of regulatory authorities, the timing of our regulatory filings and other matters that could affect the availability or commercial potential of our drug candidates. For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in the forward-looking statements, as well as risks relating to our business, see our quarterly report on Form 10-Q for the quarter ended September 30, 2015, filed with the Securities and Exchange Commission on November 10, 2015, our annual report on Form 10-K for the year ended December 31, 2015 that will be filed soon and our subsequent periodic reports filed with the Securities and Exchange Commission. I will now turn the call over to Emil.

Thanks, Ryan and good afternoon, everyone and thank you for joining us this afternoon. I will provide a high-level overview of our recent progress and then Shalini will give you an overview of our fourth quarter and year-end financials and finally Sunil will provide additional details on our clinical development progress, 2015 was a transformative year for the Company with clinical data for multiple programs, the initiation of two Phase 3 studies and the filing of our first product Ace-ER, the conditional marketing approval in Europe. We also initiated a collaboration with Arcturus to further expand the range of addressable rare diseases we completed two major financings that have left the Company well capitalized and we expanded our executive leadership team with some key hires. And finally, near the end of the year we hosted our first R&D day. Since our last quarterly call we announced positive 40-week data from the pediatric Phase 2 KRN23 study in X-linked hypophosphatemia or XLH and which Sunil will review in more detail later in the call. In December we enrolled the first patient in the global Phase 3 study for KRN23 in adults with X-linked hypophosphatemia or XLH. I will now highlight some of our key anticipated milestones for 2016 across our programs. Starting first with KRN23, we expect interim data from the open label proof-of-concept Phase 2 clinical study in TIO in the first half of 2016. We're also expecting 40-week data of 52 patients from the pediatric Phase 2 XLH study in the second half of 2016. We also expect to have 64-week data, including height growth velocity from a subset of these patients at that time. Based on these data, we plan to file for conditional marketing authorization in the EU around the end of 2016. Initiation of a Phase 3 study in pediatric XLH patients is expected in mid-2016. Moving on to rhGUS and MPS7, our pivotal Phase 3, is fully enrolled and we expect data in mid-2016. For UX007, in the second half of the year we expect the 78-week data from our Phase 2 study in long-chain fatty acid disorders. This will include major medical event rate data comparing approximately 18 months before and 18 months after initiating treatment with UX007. A Phase 3 study in patients with LC-FAOD is expected to begin in 2017 and Sunil will provide more detail on the preparation of that study and the plans there. Our Phase 2 seizure study in Glut1 deficiency syndrome patients continues to enroll patients and data are expected in the second half of 2016, subject to enrollment. We're filing an end of Phase 2 meeting with the FDA. We plan to initiate a Phase 3 movement disorder study in Glut1 deficiency syndrome patients in the second half of 2016. For Ace-ER and GNE myopathy, CHMP opinion on the conditional marketing authorization application in Europe is expected in the second half of 2016. We continue to enroll patients in the pivotal Phase 3 study in GNE myopathy and data from that study are expected in 2017. Lastly, we continue to be active in our business development efforts and are following some early stage opportunities as well. I'll now turn the call over to Shalini to provide an overview of our financial results.

Thank you, Emil and good afternoon to everyone. We issued a press release earlier that included a financial update which I will briefly summarize. Total net loss for 2015 was $145.6 million or $3.96 per share basic and diluted, compared to $59.8 million or $2.25 per share basic and diluted in 2014. This reflected cash used in operations of $106 million in the year ended December 31, 2015, compared to $44.6 million in the same period of 2014. Net loss for 2015 included a one-time upfront payment to Arcturus of $10 million, as well as approximately $31.9 million in noncash charges, with stock-based compensation of $24.9 million and amortization of premiums on investment securities and depreciation amortization. In particular, stock compensation expenses have continued to increase significantly over time. Our 2015 results included total operating expenses of $147.7 million. Research and development costs accounted for $114.7 million or 78% of our operating expenses. Our Phase 3 programs, Ace-ER and rhGUS accounted for the greatest proportion of R&D costs in 2015. The largest increases in these expenses compared to 2014 related to clinical programs we're seeing for KRN23 in XLH, Ace-ER and rhGUS. Expenses also increased for both triheptanoin programs, LC-FAOD and Glut1 deficiency syndrome, as compared with 2014. As a reminder, we share KRN23 development costs 50-50 with our collaborative partner, Kyowa Hakko Kirin. Costs for our preclinical translational research programs also increased substantially over 2014. OpEx increased significantly in 2015 due to the conduct of multiple late-stage clinical studies, manufacturing costs related to clinical supply of multiple programs, increased regulatory activity across the programs, investments in our commercial infrastructure and patient identification efforts, general and administrative expenses to support these activities and increases in stock-based compensation expenses. As we invest in advancing multiple product candidates into Phase 3 clinical studies, begin to build a global presence and drive forward preclinical stage programs, we anticipate that our expenses will continue to increase in 2016. Having raised $461.2 million in net proceeds in two follow-on offerings in 2015, we ended the year with $536.3 million in cash, cash equivalents and investments on the balance sheet. We believe that this level of funding is sufficient to fund all of our current clinical programs, our Phase 3 trials and potential launches. We do not have any debt outstanding. I will now hand it over to Sunil to provide the development update.

Great. Thank you, Shalini. I will now provide an update on our clinical pipeline starting with KRN23. In early December 23, we announced positive interim 40-week data from the first 36 patients in the pediatric Phase 2 study in XLH. Data from this interim analysis will also be presented in an oral session by Dr. Tom Carpenter at the ENDO Conference in April of this year. In this study, 35 of 36 patients had previously been on standard of care which is oral phosphate and vitamin D therapy for an average of approximately 6.6 years. Rickets were evaluated via two independent and validated scoring systems, the Rickets Severity Scoring System, RSS and the Radiographic Global Impression of Change, RGIC. There were 18 patients in the biweekly dosing group and 18 patients in the monthly dosing group. Additionally, half of the patients in each dosing group were pre-specified as having greater bone disease defined as a baseline total RSS score of greater than or equal to 1.5. The data demonstrated that KRN23 may substantially reduce rickets beyond what can be achieved with standard of care particularly in patients with more severe disease at baseline. The data also demonstrated KRN23 may substantially improve other important clinical features based on the six-minute walk test and PRO measurement independent of their baseline bone disease severity. The full data were discussed at the R&D day in December, thus, I will only review the biweekly dosing data, since this is the dose we intend to move forward with in the Phase 3 pediatric program. There was a 44% reduction in mean total RSS score with a 59% reduction in the higher severity subset. The mean improvement in RGIC score was plus 1.56 and in the higher severity subset the mean improvement was plus 2.00 at 40 weeks. To remind everyone, per the RGIC scoring system, a score change of plus 2 is considered substantial healing. Additionally in the predefined higher severity group, 8 of the 9 patients or 89%, responded based on a pre-specified definition using either the RSS method or the RGIC method. From a safety perspective, the most common treatment-related adverse event reported by preferred adverse event reported by preferred term was injection site reaction in 39% of patients which were all considered mild in severity. All other treatment-related adverse events were also considered mild. There was one serious adverse event considered possibly treatment-related which resolved without [indiscernible] and this patient continues in the study. There have been no deaths or discontinuations from this study. In the second half of 2016, we expect to have 40-week data from all 52 patients enrolled in the study which includes the original 36 patients and an additional 16 patients with higher baseline bone disease. In addition, we will also have 64-week data from a subset of these patients at that time. The week 64 data will include additional x-ray data, growth velocity data, other efficacy measures and of course, safety and tolerability information. Based on these data, we plan to file for conditional marketing authorization in the EU around the end of the year. We also plan to proceed with the start of the pediatric Phase 3 study in mid-2016. The study will likely utilize RGI-C as the primary endpoint and will include a standard of care control arm. This study is expected to be required for potential approval in the U.S. and could serve as a confirmatory study in the EU if conditional marketing authorization is granted. We also continue to develop KRN23 for adults with XLH. In December we initiated a Phase 3 international randomized, double blind, placebo-controlled study in approximately 120 adult XLH patients. The primary endpoint is serum phosphorus levels through 24 weeks with a brief pain inventory question 3 which is the pain at its worst in the last 24 hours at week 24 as a key secondary endpoint among other endpoints. We're also currently enrolling patients in a 48-week open label bone quality study in approximately 10 adult patients to evaluate the effect of KRN23 on the underlying osteomalacia. Lastly with KRN23, we completed enrollment of six adult patients in the open label dose-finding Phase 2 study in tumor-induced osteomalacia. We expect interim early safety, PK and PD data from the first two patients in the first half of 2016. Now turning to UX007 or triheptanoin. In October 2015, we reported positive interim data through 24 weeks of UX007 and were being evaluated in a Phase 2 open label study in patients with long-chain fatty acid oxidation disorders. This analysis evaluated the acute effects of UX007 on the musculoskeletal aspects of the disease. We discussed these data at our R&D day in December, so I will not go into great detail here. To summarize, improvements were observed in both key measures of exercise tolerance which included cycle ergometry and a 12-minute walk test. Improvements in patients reported quality of life scores, specifically the SF-12, were reporting adult patients who also demonstrated improvement in exercise capacity. Overall, 18 of the 39 patients had treatment-related adverse events, most of which were mild to moderate in nature. Four of the 29 enrolled patients discontinued prior to week 8 and there have been no discontinuations beyond these four to date. There have been no deaths. As a reminder, patients will be treated for a total of 78 weeks and rates a major medical event, such as rhabdomyolysis, hypoglycemia and cardiac events on UX007 will be compared to rates for approximately 18 months prior to treatment with UX007. We expect 78-week data from this study in the second half of 2016. Based on the interim Phase 2 data, we plan to initiate a Phase 3 study in long-chain FAOD patients in 2017. We continue to carefully evaluate our Phase 2 data to help our endpoint development to ensure that we optimizes our Phase 3 trial designs and endpoints prior to our discussions with the regulators. We will provide further details on the design of the study after completing discussions with the regulatory authorities. For UX007 in patients with Glut1 deficiency syndrome, as part of the recently updated development program, we plan to initiate a Phase 3 study in patients with a movement disorder phenotype in the second half of this year. As we have said previously, the Phase 3 movement disorder study is intended to be a randomized double blind, placebo-controlled, double crossover study. The primary endpoint will be an assessment of the impact of UX007 on movement disorder events as recorded by a patient diary that will be further refined in discussions with the FDA. In addition, our ongoing Phase 2 study in patients with the seizure phenotype will continue to enroll up to 40 patients as the movement disorder study progresses. If the data are positive, the two studies are intended to support an NDA filing for the treatment of Glut1 DS patients. We're also on track with rhGUS Phase 3 study in MPS7 patients. Top line data from the pivotal, blinded, placebo-controlled 48-week study are expected in mid-2016. As a reminder, the primary endpoint for the EMA is a reduction in uGAG excretion after 24 weeks of treatment. There is no primary endpoint for the FDA, as they will consider the totality of the data and the data on a patient-by-patient basis. Pediatric patients with MPS7 including some with nonimmune hydrops fetalis, a severe infantile presentation of the disease, continue to receive rhGUS treatment via Phase 2 open label study in patients under five years old and on an expanded access basis. I will finish with ACR. We continue to enroll patients in the randomized, double blind, placebo-controlled, 48-week pivotal Phase 3 study of ACR in approximately 80 patients with GNE myopathy. Data from this Phase 3 study are expected in 2017. We're also expecting a CHMP opinion on our conditional marketing authorization application for ACR in the treatment of adults with GNE myopathy in the second half of 2016. Data from the completed Phase 2 ACR study in GNE myopathy was recently published in the Journal of Neuromuscular Diseases, these data from the primary clinical data for our conditional marketing authorization application. With the significant progress we have made across all programs in 2015 and a number of key milestones upcoming in 2016, I look forward to providing further updates as we reach these milestones. I will now turn the call back to Emil.

Thanks, Sunil and so over the course of 2015, we continued to execute on our clinical programs, as you've heard. We also continue to build out our teams for our growing business across all functions, including beginning to build out our commercial presence in the U.S. and EU. With the five Phase 3 programs expected in 2016 and other ongoing clinical studies, we look forward to keeping you updated on our progress throughout the year. With that, I will end my comments and we can move to your questions. Operator, please provide the instructions for the Q&A portion of the call.

[Operator Instructions]. And our first question comes from Eric Schmidt from Cowen and Company. Your line is open.

I guess on triheptanoin, long-chain fatty acid oxidation disorder, MOA, I thought you were going to meet with the FDA to discuss the potential pivotal study design in the first half of this year. Is there a delay in that meeting? Maybe the question is what might be taking so long to the launch of the Phase 3 and I think you've got it at 2017.

So, there has been a shift in the timeline there primarily because, as you know, we presented the top line data, but our goal is, over time now is looking at all the data. Our belief in the positive data has not changed. Our thinking is we want to make sure we're as robust as possible thinking through the right primary and key secondary endpoints to understand the benefit of UX007 in this patient population. We also had an advisory board with the key experts to review the data with them and they were also encouraged by these data to help us think through the design. So, our plan is to have the FDA meeting as soon as we can, but there has been a shift in the timelines, but our goal is to ensure that since we have this one study, we wanted to make it as successful as possible. So, we thought a small delay to increase our chances of success was a good decision to make.

So, that delay is really for the purpose of just gathering longer term data from the Phase 2?

No, so sorry if I wasn't clear. It is continuing to understand all of the data from the week 24 analysis, have the discussions with our advisors and define the best study possible. Emil, do you want to add anything to that?

Yes, we're collecting some other information from the population at large to try to understand disease burden and because we have some PRO data that was positive as well. So, we want to make sure we match the quality of the study and take a little more time to understand. This was the first study ever conducted in -- actually, there was one other, but it's the first study we're actually looking at these endpoints. We want to take a little bit more time and that's what Sunil mentioned.

Okay and then just a quick one for Shalini. I guess I hear you on the directionality of the R&D expense line, but can you give any kind of specific guidance or should we look at Q4 spending in R&D as a run rate, of which you're going to grow at a steady pace? How do we think about 2016?

That's a great question, Eric. As you know, to date we've been really quite extraordinarily efficient on our expenditures, having spent roughly $200 million through Q3 last year from the inception of the Company, really and that is to bring in and advance all of these compounds. You know, six different diseases into Phase 3 at this point, essentially but as we talked about at R&D day, we're investing now in multiple late-stage trials this year. We have multiple preclinical programs and we're starting to expand into the ex-U.S. territories in terms of our infrastructure, so we do expect the cost to continue to increase. And given the number of different scenarios that we're currently modeling internally, we have elected not to provide specific cash burn guidance for the year. Now, I think you can look at last year and look at sort of the run rate of increases quarter-to quarter as a starting point, but for this year, as I said, we have a lot of different scenarios that we're modeling internally. So, it's hard for us to give you more specific guidance other than to tell you kind of in a broader context of the expenditures.

Okay. But there was a big, big boost in R&D in Q4. Is there anything special about Q4 or should that be deemed sort of the new level of spending?

Well, as I mentioned in my comments and as we've said in the press release, Q4 did include $10 million in the upfront payment for Arcturus for that license agreement still have a little bit of R&D cost associated with that program, the programs we're developing with Arcturus, so that is a onetime type of event.

And our next question comes from the line of Gena Wang from Jefferies. Your line is open.

So, just wondering for KRN23, Phase 3 pediatric trial design, what will be your assumption for RGIC scores for both standard of care and also [indiscernible] and also did the FDA give you feedback on trial design?

So, we're still finalizing the design of that study and again, we'll start mid or second half, excuse me, of 2016. We have had discussions with the agencies around the design and the primary discussions have been around -- we will have a standard of care control arm. We will obviously going against rickets as the primary endpoint. Our plan as of now is to use RGIC and when we think about clinically meaningful effect size, we anchor in the power to a plus 2 change which is substantial healing. So, we're working through more details of that, but hopefully that answers your questions.

Did the FDA give you feedback on the trial design?

Yes, they did. And again the primary feedback was around having a control arm or standard of care and they were accepting RGIC as the primary methodology for rickets. So, we have had good discussions with them and we're on track to get that study started.

And also, for the 64 week data, you reported height growth velocity. Just wondering how do you measure growth velocity? Would that be a truth growth interest or growth percentile and how much do we know about natural history? And also what kind of magnitude of improvement do you think will be meaningful?

So, we will have a subset of patients at week 64, so that's one thing I want to make sure it's understood. It won't be the 36 or the 52; it will be a subset. We absolutely will look at growth velocity in multiple different ways, as percentage of the score, as an example. With respect to what is clinically meaningful on the changes, as a pediatrician, in talking to others who take care of these patients, to remind you, these are patients that have been on standard of care at the best institutions and if we see an improvement in growth velocity, that by definition means these patients are getting taller. So, I think any improvement is meaningful for these patients to gain height and that's what we believe and that's what our advisors in the study believe as well.

If I may, just one last question, general question on pricing. Emil, you mentioned before you are willing to sacrifice price to reach high penetration. So, could you give us a sense, like, what would be the reasonable price range for KRN23 and the triheptanoin?

I think I wouldn't use the word sacrifice price. What we want to do when we look at pricing and actually Jayson is here with us. We want to make sure that we're looking at the total picture of penetration of both the pediatric and the adult population to pick an optimal price that creates the best revenue. And we think the price is [indiscernible] of how you manage that, but also penetration, response of payers, etc. Jayson is helping us do this work. Jayson, I don't know if you want to add something specific, because you are here.

So, we're right in the middle of our pricing research at the moment. I think it's clear that what we want to make certain is that our pricing is as little a barrier as possible to uptake and that we get as many patients on our meds as possible over time. To some extent, price, though, depends on value and that value depends on what you get out of your clinical trials at the end of the day. So, we're not going to be finalizing our thinking on this until we see what the clinical trial data is, both from the extension of the Phase 2 study, but also, actually, from the Phase 3 programs.

And our next question comes from the line of Cory Kasimov. Your line is open.

This is Brittany on for Cory. Thanks for taking the question. With TIO data expected, can you frame expectations what we'll be seeing and what you consider to be clinically meaningful?

Sure. Again, this is our first look at TIO patients and to remind people, it's a six-patient open label study, so we expect some data from the first few patients. Approximately up to week 24 in one patient and the other couple a little bit less. It will primarily be -- of course it's our first look, so safety and tolerability, phosphate control, pharmacokinetics, pharmacodynamics again, so that should be what you would expect, is looking at how the dose and how the phosphate control compares in TIO so we can compare it to what we've seen in XLH.

And our next question comes from the line of Adam Walsh. Your line is open.

Just a quick follow-on to Brittany's question. When would we see for the KRN23 TIO study the radiographic data?

Well, I think we're talking about having some data here, so maybe we can provide a little more detail.

Yes. So, to remind people about the design, we do look at several bone different endpoints and those bone endpoints, the first time point is week 24 and that includes looking at x-rays. If you had pseudofractures to begin with, that includes bone scans, looking at bone metabolism and DXA scans, looking at bone density. So, the first time we look at that is at week 24. So, in this first look you should not expect much data, if any, on that information. That will come at a later time point after we look at the first information. So, we haven't really discussed when the next time points will be beyond that. I think the focus here in the first half is getting the PK/PD and dosing understood and then later we will have some efficacy bone data, but I wouldn't expect a lot of it, if any of it in the first half of this year except potentially one patient at week 24.

And then in the triheptanoin seizure study, can you just comment on the pace of enrollment there and also what percentage reduction in seizure frequency would we need to see in the study to be comparable to the ketogenic diet? Thanks.

Let me answer the second part first, about the seizure frequency and what would be meaningful. As with all rare diseases, it's interesting, we've been learning more about it and providing that information to caregivers and to the regulatory authorities. And one thing we're learning is, like many therapies that are standard of care, the effect sizes may be variable. And when we look at the ketogenic diet, depending on who you talk to, you get ranges from anywhere from 50% effective to in the 90% range. So, I think it is a variable range of effectiveness with the ketogenic diet, that is obviously one point. So, our belief is again with tripheptanoin, we're looking at a couple things. Of course we're looking at seizures and if we think we're in that range which is a wide range, that would be clinically meaningful to patients and their caregivers and that's what we're hearing from them. The other thing, of course, is the movement disorder side and that is another significant unmet medical need and to remind folks we had over 90% reduction from the Fanny Mochel dataset and we will, of course, do the Phase 3 trial. So, one of the things we're doing is looking at across phenotypes o triheptanoin, looking at the effect size of seizures and the effect size of movement disorders. Now, going back to your first question about enrollment, we don't obviously declare our enrollment timelines, but we can say the enrollment is ongoing. It has picked up since last year and right now the goal is 40 patients and providing that data by end of year. Things are going well there. Hopefully, that answered your questions.

And our next question comes from the line of Chris Raymond from Raymond James. Your line is open.

This is Laura Chico in for Chris Raymond today. A quick follow-up question on the TIO interim data. I think you started talking a little bit about it being 24 weeks for one person. Should we assume that we will be primarily still in the dose titration phase in terms of people receiving maintenance or treatment dose at this point?

Yes, you should assume that we do a titration phase as we did in XLH, because this is our first assessment in this patient population. But that does not mean you would not see potential PD benefit on serum phosphorus or other measures because as you know in XLH we saw that benefit pretty early on in the dose titration phase. We haven't looked at the data yet.

And I guess following up on that, do you have any sense of how maybe FGF23 expression compares in these patients versus XLH? I guess thinking about if we have tumors or disease that are inoperable, could FGF23 expression continue to increase over time? And if so, I guess, how do you handle KRN23 dosing in that scenario?

Sunil again and another good question. And as you can imagine it's not well characterized in the literature because it is a pretty rate condition. But what we do know from the literature from FGF23 expression, it appears to be more in the range of like a severe adult XLH type patient. So, that is what we have seen from the literature. Again, we'll do the study and start learning about what actually is truth, but based on our dosing strategy, we should be able to cover, if there is any over-expression, to cover that with KRN23 effectively.

And I guess one last question. I think I might have missed this in the earlier first questions on the triheptanoin program. Are you also waiting for the 78-week data to inform on the Phase 3 design or is it just the data that you've collected thus far?

Just to answer that and then make sure people understand my first answer as well. So, the answer is no, we're not waiting for the event-driven week 78 data to inform this study. And Emil said it well on the first question about why the timeline has shifted on the Phase 3 study and it's primarily driven by understanding the disease state better against these types of endpoints in addition to of course, understanding our own Phase 2 data from week 24. So, we're not waiting for week 78 data and we're going aggressively forward.

And our next question comes from the line of Heather Behanna from Wedbush Securities. Your line is open.

Most of mine have been answered. Just a little bit more on color on the KRN23 Phase 3 study in peds. When you think about timing for primary endpoint and how much time you think it would probably be reasonable to see the response that you want in RGI, what should we think about?

Sure. So, you should think about a design that is very similar to the Phase 2 study. To remind folks and everybody, at week 40 we saw substantial differences on x-rays for rickets on two scoring systems. So, we also are looking at week 64, as I mentioned and it was a question before we had any Phase 2 data. These are heavily pretreated patients and would we be able to see an effect side that is meaningful within less than a year or would it take almost a year and a half? So, we've been very encouraged to see a very meaningful effect size within week 40. So, you should expect a design and the timeline that is comparable to the Phase 2 program for Phase 3.

And then for the GNE program, just a question on if you could give us any color if the clock is still stopped and if you're working on the 120-day questions to get back to the CHMP?

So, Sunil again. Another good question. So, we're just in the process. As the process works on and we expect to have a CHMP opinion in the second half of this year.

And our next question comes from the line of Arlinda Lee from Canaccord. Your line is open.

I had maybe shifting a little bit to commercialization and the growth of the Company. We got some questions about or sorry, we're understanding that OpEx is going to go up, but can you maybe give us an idea of how the stock options might also be -- should we think about that as going up proportionately over time? And then, secondly, on commercialization, can you maybe provide an update on how that's going and what the progress is on some of these named patient sales applications? Thank you.

Well, to start with, stock compensation expense, I think I tried to make this point particularly in the script in that we've historically exceeded stock compensation expense forecast from our analyst group. And so I just want to point that out, because it has historically been the trend. Now, forecasting stock compensation expense obviously very difficult because it is stock price dependent. So, there is some element of guesswork for everybody who is trying to forecast stock-based compensation. But I will tell you, what we know is historically it has increased significantly from period-to-period and has been underestimated externally by the analyst community. So, hopefully that helps you a little bit on stock compensation expense. And in terms of named patient sales, I think we've said before we're working on those programs. We have some patients on named patient treatment with rhGUS, MPS7. However, we expect those revenues to be negligible for 2016, because of the small number of patients. We also do not recognize revenue until we receive payment for named patient sales.

And our next question comes from the line of Carol Werther from H.C. Wainright. Your line is open.

I wanted to ask also a little bit about how you're setting up for the traditional approval in Europe, just in terms of how much you can get done beforehand and how much time after the approval, if it happens that you might be collecting sales revenue?

Obviously, we're still working through the process and we don't really comment on ongoing regulatory discussions. So, we would expect to get an opinion later in the year. And we have been setting up, because not only with our program but for actually all of our programs we have needs in Europe. I thought maybe Jayson, who has been on the ground doing some of that work could highlight sort of the big picture of what we're doing in Europe.

So, obviously, we're preparing in the event of a positive outcome of the filing that we'll be ready to launch in Europe. Of course, launching in Europe means predominantly being ready to launch in Germany, because the rest of the key markets in Europe require submission of reimbursement dossiers that take some time to adjudicate. To that end, we have already declared as we said at our R&D day that our European headquarters will be based in Basel, Switzerland. We've taken some office space in Basel which we will expand later on in the year. We're also about to appoint a head of Ultragenyx Europe to lead that organization as we build it out and we're actively searching at this point to build a Germany organization. We do already have some contract folks in the field in France. We have some about to go into the field in Germany and we have some in the field in Turkey which is an interesting country to us because of the genetics in some of these diseases. So, we're right at the early stage of building that out and should everything go well for us in the second half of the year, we'll be ready to launch in Germany at the time of approval and obviously ready to submit the reimbursement dossiers in the key markets in the rest of the European Union shortly after that so we can commercialize as soon as possible. So, our plan there is to build out infrastructure to commercialize in Europe in time with the approval.

And my other question is more philosophical and I don't know if you are to comment or not. But we have had a number of setbacks with other applications for orphan disease drugs which I don't expect you to comment on, but I didn't know if you have sensed any kind of higher bar at the FDA for orphan disease application?

I think that's an interesting question. I think there have been some challenges for some companies, but I do think there were known or apparent challenges that existed in the dataset. We haven't really noticed a shift at the FDA in general, I would say and I think they've been very collaborative on the programs we've had discussion with, including accepting our choices of endpoints, working with us on design, in fact, follow-up discussions and communications and things. So, right now we're very comfortable with our FDA relationship and I don't think there is a shift. I think there has just been some things that have come up for other programs and just made things difficult, but I think we're always potentially going to have that same situation for us. But so far we've been working well with them.

And our next question comes from the line of Kennen MacKay from Credit Suisse. Your line is open.

A quick one on KRN23 on the standard of care arm that you had mentioned. Is this just going to be physician's choice or vitamin D and oral phosphate or how is that sort of going to be set?

As you know, whenever you run standard of care arms, the question is how much you standardize that care. And we will be providing very clear guidelines on how we do it. Because if you make it too flexible and too open to physician choice, one problem that could happen in the long run, people could critique it and say that patient did not receive appropriate standard of care. So, we want to make sure it's a fair design and that these patients get appropriate standard of care and it's for lack of a better term, homogenized. So at different sites use the same type of standard of care. I hope that answered your question.

Actually, maybe one more for you. The upcoming triheptanoin data, FAOD the 78-week data. In terms of sort of major medical events, do you have any sense of sort of what natural history does here and sort of what kind of delta we should be looking at for an improvement here?

Another great question and a couple things. So, a lot of the natural history data has been a chart review that we've led with a retrospective look at triheptanoin and in that chart review, again, being retrospective, we saw clinically meaningful differences pre- and post-triheptanoin. We don't have an effect size, per se, in mind, because this is our first really prospective look. We're going to be looking at, again, 78 weeks post-triheptanoin comparing it to 18 to 24 months pre-triheptanoin. And so we don't, again, have an effect size in mind, but based on the retrospective data, we're encouraged that we would likely see a single, but to be determined.

And in the 24-week data we had seen sort of a positive trend there, but is there any sort of need to doing a statistical analysis here or would it just be analyzing sort of the, I guess rate?

I'll say two things to that. One is we did emphasize and I just say that the week 24 was preliminary. So, again I think it's too premature to make any definitive conclusions on that data. That is really the longer term data that we'll get that will help us understand that. And yes, we will do statistical analyses because you can run rates pre and post. In other words, 18 to 24 months and you annualize it and then you look at post-triheptanoin and you'll annualize it. So, we'll be doing that from a descriptive perspective primarily, but you absolutely can run statistics around that and we'll do that as well.

And I guess one question on the upcoming Ace-ER commercialization. I was wondering if you could comment at all on sort of how many patients you have in sort of the named patient program and I guess what the subsequent European launches would be after Germany?

Yes, so at this point we don't have any patients on the named patient programs and that's largely because our Phase 3 program is still ongoing and we want to make sure of the recruitment into that program and patients staying within that program once they're recruited isn't impacted by that. But at the point that those studies close up, we're ready to file cohort ATU programs in the countries that are not allow named patient programs. That's the first piece. The second piece is, you know, different countries have different times in terms of how long it takes them to adjudicate reimbursement. So, if you think about the other key markets in Europe, France, Italy and Spain pretty much take about a year to review a reimbursement dossiers. And so it's really important to us that we get those dossiers in very shortly after we get the approval to make sure that we're able to be ready to go in those countries as early as we can. Once that group is done, we'll go and look at other countries within the region and file our reimbursement dossiers, thus we have kind of waves of access across Europe as the brand rolls out.

And just outside of the named patient program, in your patient registry, do you have a sense of how many patients who have had sort of diagnosed there so far?

We haven't really put out any numbers specifically yet. We're still working on our details there, particularly in Europe. I think we have had more effort in the U.S.

And as I alluded to earlier, we're just in the process of putting some actual feet on the ground in most European markets to do primary patient identification. Unlike you guys, we're going off a lot of published data and we want to make sure we validate that with folks on the ground. And we hope by the sort of back end of this year we'll have a much clearer picture of that.

And our next question comes from the line of Matthew Harrison from Morgan Stanley. Your line is open.

This is [indiscernible] in for Matt. Just a real quick question here. The 40-week data from the XLH patients, last quarter you had it coming in mid-2016. I'm just curious, it says in this release it's coming out the second half of the year. Did something change or is that just nomenclature?

Nothing really substantially changed. It's primarily nomenclature.

And our last question comes from the line of Yigal Nochomovitz from Citigroup. Your line is open.

This is [indiscernible] on for Yigal. The question is on the Arcturus deal. Should it be nanoparticle technology in LUNAR? It seems that [indiscernible] beyond mRNA therapeutics which looked like the initial focus on partnership. Is this part of the strategic plan to go for the future targets and go beyond mRNA therapies or are those locked in as mRNA programs for now?

So, the deal is basically folks with mRNA would [indiscernible]. However, Arcturus has programs that are looking at other RNA interferon type of approaches or sRNAs. So, we haven't yet moved in that direction. Our focus has been -- because there are many players in that particular area and my preference in driving the company's BD is to work in areas where there is less competition. We wanted to work on diseases where there was little competition and where there was a particular value to the RNA, in terms of mRNA, in terms of achieving a therapeutic effect for difficult-to-treat disease. So right now we don't have a plan in that space. Obviously, Arcturus has been a great partner so far and we've been doing good work with them. We're comfortable with the strategy and we want to make sure we get some legs under us, get some programs moving and confidence there and then we can think about other things. But they are, I know and they have talked about other programs and other aspects other than mRNA.

The current deal as structured is open-ended enough to allow stuff beyond mRNA if you guys so choose?

No. It's an mRNA deal. It has 10 targets, two are identified and operable and there are eight others that we have opportunity to do. They are all mRNA targets.

And if I could just go real last question just back quick to the TIO program, actually interested in the target FGF23, cancer in general. Is there any specific cancer that's actual growth or progression is associated with FGF23 or making them viable targets for KRN23 or is that just too far-reaching at this point?

I would say there is an explosion of biology about FGF23. You know, FGF was only found in 2001, 2002, so from a scientific perspective it's infancy period and there has been an explosion in literature in all different areas. So, there are some reports on FGF23 and its involvement in growth, but right now we're focused on the genetic disease indications where we think there is really particularly clear biology and our deal with Kirin, KHK, is for orphan indications.

Thank you. And I'm showing no more questions in queue. At this time I would like to return the call back over to Ryan Martins, Vice President of Corporate Strategy and Investor Relations.

Thanks. I want to thank everyone for the questions. A replay of the call will be available shortly. For any additional questions, please contact us at 844-758-7273 or IR at Ultragenyx.com. Thanks, everyone, for joining us.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.