2024-01-11 08:33:08 ET
Summary
- Ascendis Pharma outlined its Vision 2030 ahead of and during the J.P. Morgan Healthcare Conference.
- The company expects three endocrinology products to achieve blockbuster status, pipeline to expand in rare disease endocrinology and to mass market indications, and we could see potential spinouts or partnerships.
- Skytrofa exceeds expectations with strong Q4 net sales of €64 million and guidance for 2024 net sales of €320-340 million.
- Yorvipath (TransCon PTH) to launch in Germany this month, with a PDUFA date in the U.S. in mid-May.
- Cash burn is expected to decline considerably and Ascendis expects to reach operating cash flow breakeven in the fourth quarter.
Shares of Ascendis Pharma ( ASND ) rose this week as the company outlined its ambitious Vision 2030 ahead of and during the J.P. Morgan Healthcare Conference. The stock is up approximately 50% since my late November article where I outlined the strong growth of Skytrofa and the necessity of Yorvipath (TransCon PTH) receiving FDA approval, although a large chunk of the strong performance up to this week's update was largely driven by the strong rally of biotech stocks.
The J.P. Morgan Healthcare Conference update includes the three endocrinology products and candidates becoming blockbuster products, the company expanding its rare disease endocrinology pipeline, expanding into mass-market indications with its new TransCon linkers, as well as plans to spin out the ophthalmology division and potentially spin out or partner the oncology pipeline.
Ascendis also reported preliminary net sales of Skytrofa of €64 million ($70.9 million) and guided for full-year 2024 net sales of Skytrofa of €320-340 million ($353-375 million). Both the Q4 net sales and the 2024 guidance exceeded my expectations of $65 million and at least $320 million, respectively, and the company guided for operating cash flow breakeven for Q4 2024.
Overall, it was a strong update and the only piece that is missing is the FDA approval of TransCon PTH for the treatment of hypoparathyroidism patients – the FDA decision is expected on or before May 14.
Skytrofa exceeds expectations in Q4 with a strong 2024 outlook
The recovery of Skytrofa after the soft launch is nothing short of remarkable. This is a comparison chart I have been sharing with Growth Stock Forum subscribers for several quarters now and Skytrofa went from the worst-performing launch to the best one within six quarters.
Earnings reports of companies owning the products in the chart
€64 million in Q4 brought the full-year net sales to €178.4 million, which was above the increased €170-175 million guidance range.
The company’s guidance history provides confidence in the €320-340 million guidance for 2024. As a reminder, management started 2023 with initial guidance of what they described as being comfortable about exceeding the $105 million Street consensus. This became a formal guidance range of €150-160 million in April 2023, €165-170 million in September, and finally €170-175 million in November.
Skytrofa still has ample room to run with several tailwinds:
- Patient market share in the United States in pediatric growth hormone deficiency is still not that high – it was in the low double digits at the end of Q3 of last year.
- International growth. Skytrofa was launched in Germany last September and sales contribution in ex-U.S. markets should grow considerably in the following years.
- Label expansion. The company announced positive topline results in adults with growth hormone deficiency last month with an expected launch in 2025. Turner syndrome is next with phase 2 data expected in the fourth quarter, and the results of the combination of Skytrofa and TransCon CNP in achondroplasia patients are also expected by late 2024. But since these are phase 2 trials, it will take time before we see sales contribution.
- Dose levels. This is a tailwind in the next few years. Skytrofa’s price is weight-based and as patients grow over time, the average price per patient should increase as well.
On the risk side, there is competition from Novo Nordisk’s ( NVO ) Sogroya and Pfizer’s ( PFE ) Ngenla, but neither can claim superiority over daily growth hormone in head-to-head trials (and Skytrofa can) and Ngenla failed in adults with growth hormone deficiency and will only compete in the pediatric setting. I expect the presence of competing long-acting products to only accelerate the growth of this segment and expect Skytrofa to continue to be the market leader.
The significantly improved execution and the above-mentioned long-term growth drivers and tailwinds put Skytrofa in a good position to become the blockbuster product Ascendis claims it can be.
Yorvipath (TransCon PTH) will become commercially available in Germany this month, PDUFA date in the U.S. is in mid-May
Yorvipath is expected to become commercially available in Germany this month. Management said that the launch list price is €105,000 per patient per year and that the net price is expected to be approximately €100,000 per patient per year after mandatory discounts. The price is slightly better than my assumed placeholder net price of $100,000 per patient per year and it seems likely the net price in the U.S. will be somewhat higher.
Management noted that the market in Germany is relatively large with approximately 70,000 patients and that the incidence of hypoparathyroidism is 3-4x higher than in the U.S. where the estimated population is approximately 80,000 patients.
Yorvipath is expected to become available in other major European countries toward the end of 2024 and into 2025 as it will take time for pricing and reimbursement negotiations on a country-by-country basis.
The key update for the asset this year is still the expected FDA approval. The PDUFA date is May 14 as the FDA gave a six-month review versus the potential bullish case of two months. If approved, Ascendis expects to launch the product in the third quarter. Management sounds confident as they claim to have fixed the only issue that led to the FDA rejecting the application last year (manufacturing control strategy).
Given Skytrofa’s turnaround and Yorvipath’s launch in Germany and soon in other countries, another CRL and delayed arrival would not be catastrophic for Ascendis, but it could very well ruin the year for the stock.
TransCon CNP’s accelerated path to market and evolving development strategy
Ascendis reiterated expectations for topline results from the phase 3 trial of TrasnCon CNP in pediatric achondroplasia for Q4 of this year, but there were also three surprises:
- The company expects to submit the NDA (assuming phase 3 results are positive) by the end of the year which would represent a very fast turnaround. I assumed the NDA submission would be in the first half of 2025.
- Phase 2 results of TransCon CNP in combination with Skytrofa are expected in Q4. This is much sooner than I thought since the trial was only recently initiated.
- Ascendis plans to start a phase 2 trial in adults with achondroplasia as the company believes height is only one of the problems for this patient population and that TransCon CNP can also help improve the quality of life of adults with achondroplasia.
Since the late 2022 phase 2 data of TransCon CNP and subsequent updates from Ascendis and competitors, I have been skeptical about its blockbuster potential, but there is the potential for a turnaround in late 2024, similar to the one we have seen after the disappointing commercial launch of Skytrofa. It seems reasonably likely that Skytrofa can add to the height velocity on top of TransCon CNP’s treatment benefit, but we have to wait and see the data and how the combination compares to competing datasets.
Other updates
I was happy to see Ascendis announce the spinout of the ophthalmology division because I was not particularly excited or bullish about the potential differentiation of this part of the pipeline. By spinning out this division, Ascendis will improve its cost structure and retain some upside from the potential success of the new company, through its ownership stake but also royalties on net sales, assuming any product successfully reaches the market.
Q4 2024 could be a make-or-break moment for the oncology pipeline as we will see data from indication-specific dose expansion cohorts from the IL-Believe trial of TransCon IL2 beta-gamma. The data from the oncology pipeline have been underwhelming over the last two years, with some hints of activity a few months ago when the company reported some responses in heavily pretreated patients with solid tumors taking TransCon IL2 monotherapy or in combination with pembrolizumab. My view is the same – I have low expectations and see only upside for the stock.
It also seems likely that Ascendis will either partner or spin out the oncology pipeline. CEO Mikkelsen said at the conference, but also previously, that he does not expect Ascendis to be an oncology-focused company and that these assets would be better off in the hands of partners, or a new company fully dedicated to the TransCon oncology pipeline.
And briefly, Ascendis also said it expects to:
- Expand the rare disease endocrinology pipeline. This would be a natural course of action and a good way to leverage the existing commercial infrastructure.
- Expand into mass market indications with the new, lower-cost linker technology. One of the highlighted candidates was the rapidly expanding incretin market with GLP-1 agonist semaglutide where Ascendis believes it can extend the dosing period and potentially address the side effect profile with continuous drug exposure.
And finally, Ascendis ended the year with approximately €400 million ($440 million) in cash and equivalents. Combined SG&A and R&D expenses will be approximately €600 million ($660 million). Management noted at the conference that the spending campaign to expand global manufacturing of Skytrofa was completed, that R&D spending will decline as some of the big late-stage trials tail off, and we could also see further drops in R&D spending if the ophthalmology and oncology divisions are spun out or partnered.
With the expected spending levels and rapidly growing Skytrofa revenues, Yorvipath’s launch in Germany, other European markets, and potentially in the United States, Ascendis expects to reach operating cash flow breakeven in the fourth quarter. This would be quite an achievement since cash burn in 2023 was nearly $600 million.
Risks
The most important risk in the near term is the FDA decision on Yorvipath. Another delay in its approval is most likely to kill this year's momentum as the United States is by far the most important market for the product and it is perceived by investors (myself included) as the most important growth driver for the stock in the near- and medium-term.
Skytrofa's uptake has significantly improved in the last 12 months, and the risk here is increased competition from Sogroya and Ngenla, and the company would need to repeat the successful launch in the U.S. in other territories. I do expect the presence of other long-acting competitors to expand the market faster, but success is not guaranteed.
On the financial side, the company does expect to achieve operating cash flow breakeven by the end of the year, but if it does not achieve its growth goals, it may need to raise more cash which would dilute the shareholder base.
Other risks are on the pipeline side - the risk of TransCon CNP failing to show a treatment benefit in achondroplasia patients, or demonstrating a benefit that makes it less competitive, and other pipeline assets generating poor efficacy or safety.
These are company-specific risks. On the macro side, we have seen the resurgence of biotech stocks in the last two months after a prolonged negative period, and the share price of Ascendis Pharma has benefited. This was driven by the improved inflation and interest rate outlook to which biotech stocks have been extremely sensitive in the last few years. This is the key macro risk in the near-term - should inflation pick up and the interest rates remain high or if the Federal Reserve is forced to keep rates high or increase them again, biotech stocks could fall and drag the share price of Ascendis Pharma with them.
Conclusion
Ascendis Pharma delivered one of the better updates among biotech companies presenting at the J.P. Morgan Healthcare Conference this year. Skytrofa’s Q4 results and the 2024 outlook are very good and so were the pipeline updates with faster-than-anticipated timelines to the combination data and NDA submission for TransCon CNP, and with an expense and operating cash flow breakeven guidance that investors probably were not expecting.
Vision 2030 appears ambitious but I do see a clear path to blockbuster status for endocrinology products (Skytrofa and Yorvipath), but a still uncertain future for TransCon CNP that can become much clearer after the Q4 combination data with Skytrofa as the height velocity benefit of TransCon CNP monotherapy is not very competitive.
The key catalyst in the near term remains the May 14 PDUFA date for TransCon PTH (I assume it will be called Yorvipath in the U.S. as well) as its commercialization in the U.S. is expected to be the most important near- and medium-term revenue growth driver for the company.
For further details see:
Ascendis Pharma's Ambitious Vision 2030