Why Ultragenyx Stock Dropped 42% and What Comes Next

Ultragenyx Pharmaceutical has been working on an experimental treatment for brittle-bone disease. (Dreamstime)

Key Points

• Ultragenyx Pharmaceutical’s stock fell 42% after its experimental brittle-bone disease treatment, setrusumab, failed late-stage trials.
• Despite the trial failure, some Wall Street analysts remain optimistic about Ultragenyx stock.
• Setrusumab’s failure to significantly reduce bone fractures in two Phase 3 studies occurred despite observed improvements in patient bone density.

Ultragenyx Pharmaceutical stock has plummeted this week, after its experimental treatment for an uncommon genetic bone disease failed in late-stage trials. But Wall Street analysts say there is still reason to like the stock.

Ultragenyx shares fell 42% on Monday, after the company reported results from two Phase 3 trials of its drug setrusumab, an experimental treatment for brittle-bone disease, or osteoenesis imperfecta.

The stock rebounded on Tuesday, climbing 9.8% in morning trading to $21.66, but was still down 36.6% from its Friday closing price. Mereo BioPharma Group , Ultragenyx’s smaller, London-based partner, fell 88% on Monday and was down 1.9% on Tuesday.

There had been hints that all wasn’t well with the trials of setrusumab. In July, shares of both Ultragenyx and Mereo fell steeply on news that the companies weren’t ending the trials early, meaning that the drug hadn’t quickly shown overwhelming effectiveness.

Analysts, however, had remained optimistic. Earlier data on setrusumab had looked promising, showing substantial improvements in patients’ bone density. Analysts thought the design of the study, designed to measure a reduction in the annual rate of bone fractures among patients, made a positive outcome more likely.

On Monday, however, the companies said that the trial had failed, and Wall Street analysts rolled out the mea culpas.

“We acknowledge this is a call we got wrong,” Cantor analyst Kristen Kluska wrote on Monday. Kluska has had an Overweight rating on Ultragenyx and on Mereo.

Ultragenyx said that in one of the Phase 3 studies, called Orbit, which tested setrusumab against a placebo, there hadn’t been a statistically significant improvement in the annual rate of bone fractures among patients on the drug.

The other study, called Cosmic, which tested setrusumab in children against an approved category of drugs used to improve bone density, also saw no statistically significant improvement in the annual rate of bone fractures.

Patients in both studies did see an improvement in bone density, but in the Orbit study, the improvement wasn’t associated with a reduction in fracture rates. In the Cosmic study, the annualized fracture rate did decline in patients who got the drug, but the reduction wasn’t big enough to reach statistical significance.

That presents something of a puzzle. Denser, stronger bones should fracture less often, but that logic doesn’t seem to have panned out.

Patients with brittle-bone disease suffer from decreased bone density, which leads to more bone fractures. Cantor’s Kluska wondered on Monday if improvements in bone density might be enough for the drug to get approved, even if the trial didn’t show a drop in fractures.

“If the company can show correlation of [bone density] to clinical benefits, is this good enough for a path forward for a rare disease indication with no therapies?” Kluska wrote. “Our level of conviction has lowered substantially, but we’re not ready to throw in the towel yet.”

Ultragenyx said it would continue to examine the results, but that in the meantime, it would “promptly define and implement significant expense reductions.”

The company has four approved products, and analysts expect it to have made $655 million in sales in 2025. It is also anticipating results from a Phase 3 trial of a treatment for Angelman syndrome, another rare genetic disorder.

Setrusumab had been set to become a major product for Ultragenyx. Current FactSet consensus estimates have sales of setrusumab hitting $317 million in 2030, or about 14% of the current forecast for the company’s total sales that year.

Analysts were mixed on whether there was a future for setrusumab, but seemed unwilling to drop their conviction that the stock has room to rise. In a Monday note, TD Cowen analyst Yaron Werber called the selloff a “buying opportunity,” citing drugs in Ultragenyx’s development pipeline, including the Angelman treatment. Data on the Angelman study is expected in the second half of next year.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com