TAK - Ascendis Pharma: Skytrofa Net Sales Not The Update Investors Are Waiting For

2023-11-28 12:33:17 ET

Summary

• Ascendis Pharma A/S reported strong sequential growth of Skytrofa and raised its full-year net sales guidance range.
• The NDA resubmission for TransCon PTH is expected by mid-November, with FDA feedback by mid-December and a potential PDUFA date in January or May.
• 2024 should be a good year for top line growth, especially if TransCon PTH receives timely FDA approval.
• Many incremental and important clinical trial updates expected in the next 12 months.

Ascendis Pharma A/S (ASND) reported strong sequential growth of Skytrofa in the third quarter and the company raised the full-year net sales guidance range from €165-170 million to €170-175 million. While Skytrofa's uptake updates are positive and a welcome development after the very slow initial launch, quarterly sales updates are not really what investors (myself included) are waiting for.

Ascendis resubmitted the NDA resubmission TransCon PTH and the assignment of the PDUFA date and the FDA's decision remains the limiting step for the next stage of value creation.

There are also incremental catalysts this quarter - the phase 3 trial results of Skytrofa in adults with growth hormone deficiency and the updated open-label results of TransCon CNP in achondroplasia patients.

Skytrofa performed well in Q3 with a strong outlook

In my Q3 2023 earnings preview article to subscribers, I outlined my expectations:

• $48-50 million in Skytrofa net sales. The company delivered $49.6 million.
• Other revenues of $2-3 million, including negligible sales in Germany. This came up short as it appears there were less than $1 million in other revenues this quarter.
• The strengthening of the U.S. dollar presented a hurdle for the full-year U.S. net sales guidance range for Skytrofa as Ascendis guides in euros and I calculated that even keeping the guidance unchanged would translate to up to a 4% increase in the full-year guidance range. Ascendis ended up raising the guidance range by €5 million at mid-point.

I have to remind myself every quarter that the initial guidance for the year was management being comfortable about exceeding the $105 million consensus for 2023. This became a formal guidance range of €150-160 million in April, €165-170 million in September, and finally €170-175 million in early November.

This is one of the most remarkable launch turnarounds I have seen. Just look at the first three quarters of the launch - $7.8 million in the first three quarters, combined. The Q4 2023 estimate in the chart below is based on the mid-point of the new guidance range and assumes a steady exchange rate.

Granted, Skytrofa has received some help from competitors as the growth hormone market in the United States continues to consolidate, and the consolidation should only accelerate considering the recent launches of Novo Nordisk's ( NVO ) Sogroya and Pfizer's ( PFE ) Ngenla.

Management said that Skytrofa is now the market leader by dollar value in the United States, but that patient share in the pediatric growth hormone deficiency market is only in the low double digits. Pediatric growth hormone deficiency represents approximately half of the total U.S. growth hormone market. So, there is still a lot more room for growth in the United States alone.

Skytrofa was launched in Germany in September and sales in Q3 were immaterial, as expected. The company intends to start selling Skytrofa directly in other EU markets in 2024 and through distributors in other markets.

The phase 3 results of Skytrofa in adults with growth hormone deficiency are expected in December and this would be the first label expansion opportunity for the product. However, the market is quite small compared to the pediatric market and Ascendis estimates that only 4% of growth hormone-deficient adults are being treated with daily growth hormone. If successful (and it should be) it looks like Ascendis will have to build this market from scratch but also without significant competition. Ngenla failed in adults and is only approved for pediatric growth hormone deficiency, and Sogroya is approved but so far not gaining much traction, and it only delivered half the benefit of the daily growth hormone in adults in the phase 3 trial.

Waiting game for TransCon PTH

Ascendis recently delayed the planned NDA resubmission for TransCon PTH for the treatment of adults with hypoparathyroidism from October to mid-November. This eliminated the FDA approval as a potential catalyst this year because even if the FDA grants a 2-month review, the PDUFA date would be in mid-January (although the FDA may act sooner). My base case is a 6-month review period which would put the PDUFA date to mid-May, but if the only issue was what the company described to us when the CRL was received, this review should not take nearly as long. The best case scenario would be the FDA approving TransCon PTH as soon as late December and before the official 2-month PDUFA date in mid-January.

The European Commission approved TransCon PTH with the brand name Yorvipath this month. The launch in Germany is expected in the first quarter of 2024 and management said there are approximately 400 patients on Natpara who could switch to TransCon PTH relatively quickly. Unlike the United States, where there are approximately 4,000 to 5,000 patients previously treated with Natpara, it barely got off the ground in ex-U.S. territories as it was approved nearly 2.5 years later than in the U.S. and the manufacturing issues just started at the time that eventually led to Takeda's ( TAK ) decision to discontinue Natpara.

Other countries will take time to ramp, as Ascendis needs to go through pricing and reimbursement negotiations, and revenues outside of Germany (and the United States, if approved) should be modest until 2025.

Financial overview

Ascendis ended Q3 with approximately $480 million in cash and equivalents. At current burn rates, this only represents about four quarters of runway, but cash burn should go down considerably in the following quarters, due to Skytrofa's strong growth in the United States and increasing contribution of Skytrofa and Yorvipath in Germany, and, most importantly, of TransCon PTH in the United States, assuming it is approved within the next six months.

In the medium term, R&D costs should go down as the company winds down some of the ongoing endocrinology trials and as it plans to either out-license or spin off the oncology pipeline and the ophthalmology pipeline. This could be a source of additional capital, or at least could represent a decent reduction in annual costs.

The new carrier platform that allows low-cost manufacturing at scale should also allow additional partnering opportunities for mass-market drugs, including the recently showcased once-weekly or once-monthly GLP-1 analog.

Either way, I see no reason for concern.

The company says the existing cash position is sufficient to reach profitability, and even if it is not, funding should be readily available and there is unlikely to be significant dilution going forward, and likely no dilution at all other than stock-based compensation.

Conclusion

Ascendis Pharma A/S is exceeding expectations with Skytrofa while we wait for the regulatory resolution for TransCon PTH in the United States. I have not mentioned TransCon CNP until now, and we should see the updated open-label data from the phase 2 trial in achondroplasia patients this quarter. My expectations are low here and I expect to see similar results to those we saw last year and earlier this month when Ascendis' subsidiary from China, Visen Pharmaceuticals reported phase 2 results in Chinese patients with achondroplasia that were consistent with the results reported a year ago.

In December, we will see the updated open-label results of TransCon CNP and the phase 3 results of Skytrofa in adults with growth hormone deficiency, and starting in Q1 2024, we should see a steady stream of commercial launches on top of the ongoing progress of Skytrofa in the United States and Germany:

• Launch of Yorvipath (TransCon PTH) in Germany in Q1 2024.
• Potential launch of Yorvipath in the United States in the first half of 2024.
• Launches of Skytrofa and Yorvipath in other EU states in the following quarters, pending successful pricing and reimbursement negotiations.
• Potential launch of Skytrofa for the treatment of adults with growth hormone deficiency in 2025 (pending positive phase 3 results).
• Potential launch of TransCon CNP for the treatment of achondroplasia patients in 2025 (pending positive phase 3 results in 2024).

There are additional opportunities for Skytrofa and TransCon CNP in the long run, including indications like Turner Syndrome for Skytrofa and potentially combination treatment of Skytrofa and TransCon CNP in achondroplasia patients to potentially boost annualized growth velocity.

Based on all these opportunities and the additional potential shots on goal in oncology, ophthalmology, and more prevalent diseases with the new carrier platform, I see Ascendis Pharma A/S as very well-positioned to deliver long-term shareholder value.

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