ASND - Ascendis Pharma Q1 Earnings: Skytrofa Soars PTH Hurdles Yet To Clear

2023-05-02 14:38:18 ET

Summary

• Ascendis reported strong Q1 2023 Skytrofa revenue (EUR 31.6m) and 2023 guidance (EUR 150-160m), but the stock traded down likely due to the FDA's CRL on its PTH drug for manufacturing concerns.
• The FDA did not request additional clinical data, implying the issue may be a simpler CMC concern rather than a more complex clinical data problem.
• The company has >600M cash, a solid runway, and reiterated cash flow breakeven without external funding, avoiding near-term dilution.
• Reiterate buy rating; TransCon PTH approval is likely and Skytrofa's positive Q1 launch supports valuation.

Key thesis update: Q1 '23 earnings and TransCon PTH CRL

Ascendis Pharma ( ASND ) announced a strong Skytrofa print in Q1 2023 (revenue of EUR 31.6m, which grew 85% QoQ) and 2023 guidance (EUR150-€160m) above ~40-50% of the street consensus during the earnings call. However, after the earnings call, the stock traded down, likely because there was no mention of PTH, as investors appear more concerned about potential clinical overhang around the PTH program in the near term.

On May 1st, the company announced that the FDA issued a CRL for their PTH drug. According to the management, the FDA cited concerns regarding manufacturing control of the drug and device combination. However, most importantly, the agency did not ask for additional clinical data, which we believe indicates that the problem may be a relatively simple CMC issue that may be resolved relatively shortly rather than a clinical data issue that needs additional time-consuming and expensive trials (which the market has worried about).

... the agency did not express concerns about the clinical data submitted and did not seek fresh pre-clinical or late-stage trials.

Furthermore, we were pleased to see the management reiterating guidance around cash flow breakeven without external funding. The company holds >$600M cash, which we believe constitutes a solid cash runway moving forward, and we are not worried about near-term dilution through a public offering.

Skytrofa sales expected to accelerate from 2023

Looking at the positive guidance (~50% higher than the consensus), we believe Skytrofa sales should accelerate starting from 2023 and should act as a hedge against upcoming clinical readouts. Using a conservative industry-standard risk-adjusted (100% probability of success since approved) peak sales multiple of 3x, Skytrofa should provide around ~$2Bn of value to the company.

Risks

1. Regulatory hurdles: Potential challenges in obtaining necessary approvals from relevant authorities, which may delay product launches or impact revenue.
2. Competitive landscape: Exposure to intense competition from established pharmaceutical firms and emerging biotech companies, possibly affecting market share and pricing power.
3. Clinical trial uncertainties: Risks of delays, failure to meet endpoints, or adverse events during trials, potentially impacting drug development timelines and costs.
4. Revenue stream unpredictability: Vulnerability to potential competition, regulatory changes, or patent expirations, which could undermine future revenue sources and growth prospects.

Conclusion

We reiterate our buy rating for Ascendis. As we noted in our previous upgrade (from hold to buy), we believe that the approval of TransCon PTH will eventually happen, and the market has overreacted. The key uncertainty is around "when" rather than "will." We see the CRL issued on May 1st as a clearing event that should provide more comfort to investors since the FDA cited no clinical trial data-related deficiencies, and the CRL is likely due to a simple CMC issue that can be resolved relatively shortly. Even though the key short-term focus for investors revolves around TransCon PTH, we believe that the positive launch data for Skytrofa in Q1 2023 should also support the company's valuation moving forward (after the recent sell-off). Furthermore, we are pleased to see the management once again reiterating their commitment to achieving cash flow breakeven without additional external financing, which lowers the risk of potential capital raises and share dilution.

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