Ascendis Pharma A/S Q4 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Q4 2021 Ascendis Pharma Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is recorded. I would now like to hand the conference over to your speaker today, Mr. Tim Lee, Senior Director of Investor Relations. So Lee, the floor is yours.

Thank you, operator. Thank you, everyone, for joining our full year 2021 financial results conference call today. I'm Tim Lee, Senior Director, Investor Relations of Ascendis Pharma. Joining me on today's call is Jan Mikkelsen, President and Chief Executive Officer; Scott Smith, Senior Vice President and Chief Financial Officer; Jesper Hoiland, Global Chief Commercial Officer; Dr. Dana Pizzuti, Head of Development Operations and Chief Medical Officer; Dr. Juha Punnonen, Head of Oncology; and Dr. Stina Singel, Head of Clinical Development Oncology. Before we begin, I would like to remind you that this conference call will contain forward-looking statements that are intended to be covered under the safe harbor provided by the Private Securities Litigation Reform Act. Examples of such statements may include, but are not limited to, our U.S. commercialization and continued development of SKYTROFA for the U.S. market. Our progress on our pipeline candidates and our expectations with respect to their continued progress, statements regarding our strategic plans, our goals regarding our clinical pipeline, statements regarding the U.S. market potential for SKYTROFA and our pipeline product candidates as well as statements regarding our regulatory filings. These statements are based on information that is available to us today. Actual results and events could differ materially from those in the forward-looking statements, and we may not achieve our goals, carry out our plans or intentions meet expectations or projections disclosed in our forward-looking statements, and you should not place undue reliance on these statements. Our forward-looking statements do not reflect the potential impact of any licensing agreements, acquisitions, mergers, dispositions, joint ventures or investments that we may enter into or terminate. We assume no obligation to update these statements as circumstances change, except as required by law. For additional information concerning the factors that could cause actual results to differ materially, please see our forward-looking statements section in today's press release and the Risk Factors section of our most recent annual report on Form 20-F. TransCon Human Growth Hormone or TransCon hGH, is approved by the FDA in the U.S. under the brand name SKYTROFA for the treatment of pediatric patients one year and older who weigh at least 11.5 kilograms and have growth failure due to inadequate secretion of endogenous growth hormone. In addition, the European Commission has granted a marketing authorization for lonapegsomatropin, Ascendis Pharma developed under the name TransCon hGH as a once weekly subcutaneous injection for the treatment of children and adolescents ages 3 to 18 years with growth failure due to insufficient secretion of endogenous growth hormone. In general, we refer to this product as TransCon hGH unless we are referring to the product in the context of a particular jurisdiction, such as the United States or the European Union. SKYTROFA was approved by the FDA in August 2021 for the treatment of pediatric patients one year or older who weigh at least 11.5 kilograms and have growth failure due to inadequate secretion of endogenous growth hormone. Otherwise, please note that our product candidates are investigational product candidates and not approved for commercial use. As investigational products, the safety and effectiveness of the product candidates have not been reviewed or approved by any regulatory agency, and none of the statements made on the conference call regarding our product candidates shall be viewed as promotional. On today's call, we will discuss our full year 2021 financial results and provide further business updates. Following some prepared remarks, we will then open up the call for questions. I will now turn the call over to Jan Mikkelsen, President and Chief Executive Officer.

Thanks, Tim, and good afternoon. 2021 was an extraordinary year for Ascendis. The regulatory approvals of TransCon growth hormone in the U.S. and Europe were a key milestone in achieving our Vision 3x3. The approvals of TransCon growth hormone in the U.S. and Europe were a validation of the TransCon technology platform. Validation of our algorithm for product innovation and validation of our infrastructure and capabilities to achieve approvals in the U.S. and Europe offer combination product, including biological manufacturing. We believe these successes confirm that we have the right strategy and the people and capabilities in place to achieve our Vision 3x3 and to build a sustainable, profitable, leading global biopharma company, but we didn't stop here. In 2021, we also realized significant advances in other areas essential to our Vision 3x3. These include embarking upon important studies for the TransCon PTH program in adult hypoparathyroidism, and progressing our TransCon CNP program in achondroplasia. Both of the programs are central to our goal of achieving regulatory approvals for three independent endocrinology rare disease products. To achieve our goal of global market leadership for each of our products, we continue expanding our global clinical reach and label expansion in the endocrinology rare disease spaces this year. In our second therapeutic area, oncology, we have two highly differentiated cancer immunotherapy programs being advanced through clinical development. We believe we can transform the treatment in immuno-oncology with our products. Lastly, for our third independent therapeutic area, we are conducting research using our TransCon technologies and the Ascendis algorithm for product innovation to create a pipeline of independent product candidates addressing major unmet medical needs. As for all our established product candidates, we have the same high expectation for each of the product candidates in our third therapeutic area to achieve global leadership and create a multibillion dollar product opportunity. A key element in our Vision 3x3 is sustainable growth. We intend to continue developing new product candidates using the TransCon technologies and the Ascendis algorithm for product innovation. We plan to continue to build our organizational capability with the aim to bring safe, highly differentiated products to patients as quickly as possible across multiple therapeutic areas, indications, and geographies. I expect that 2022 will be another unforgettable year. You can expect us to share data and regulatory milestones across our five independent clinical programs throughout the year that demonstrate solid progress towards long-term growth. Equally important, we plan to provide you with updates related to the commercial launch of SKYTROFA in the U.S. and the planned launch for commercialization in Europe as we expand access to this important treatment option for pediatric growth hormone deficiency. In the area of growth hormone, we are here to build a leading global brand. Today, SKYTROFA is the only approved once weekly growth hormone on the U.S. market. In the four short months since its launch, our commercial teams leveraged their endocrinology experience and relationships to meet the target prescribers, maximize awareness of SKYTROFA through multiple channels and events, and provide patient treatment and support through our Ascendis Signature Access Program. Because of the industry knowledge and efforts, physician interest and adoption of SKYTROFA continues to grow. As of February 28, 708 SKYTROFA prescriptions have been written by 259 prescribers. 44% of prescribing physicians have written prescriptions for more than one of their patients. In November 2021 in Europe, we received a positive CHMP opinion for TransCon growth hormone for pediatric growth hormone deficiency followed quickly by the European Commission approval in mid-January 2022. As a Danish company, Europe is an important market for us and the unmet medical need for pediatric growth hormone deficient patients is just as great. But because the market opportunity for growth hormone and timelines to secure reimbursement varies from country to country, we plan to establish direct sales capabilities in some European countries and establish distribution partnerships in others. In this way, we look forward over time to maximize value and intend to bring a broad portfolio of TransCon based products to European physicians and patients. Moving to the adult growth hormone deficient indication, we expect TransCon growth hormone to make a meaningful difference for adults suffering from adult growth hormone deficiency. We expect by releasing unmodified somatropin, TransCon Growth Hormone may be able to address the many different aspects of the disease and restore overall endocrine benefit. In addition, during the second quarter of 2022, we plan to submit a protocol to the FDA relative to the chromosomal disorder affecting development in growth rates. We are pursuing this label expansion to help more patients and create a market-leading brand in growth hormone therapy. Turning now to TransCon PTH. We believe 2022 will be a very important year for patients living with hypoparathyroidism, who face significant challenges in both health and quality of life. Today, hypoparathyroidism remains the last large classical hormone deficiency for which the hormone replacement therapy is not yet available. Conventional therapy with calcium supplements and active vitamin D aims at maintaining serum calcium in the normal range with the hope of reducing short-term symptoms, and is not able to address the underlying disease. In addition, these conventional therapies can lead to long-term complications that include severe diseases such as chronic kidney disease, renal and other calcifications, cardiovascular complications, and bone damage. Numerous publications have reported that despite being on conventional therapies, patients continue to experience short-term symptoms, often resulting in hospital stays and emergency department visits. Finally, patients with hypoparathyroidism report below normal quality of life at the same or worse levels than many other chronic diseases, significantly impacting daily activities. With this in mind, we designed TransCon PTH to restore physiological levels of parathyroid hormone (PTH). Later this month, we look forward to sharing top-line results from our Phase 3 pathway trial. As a reminder, this is a six months randomized, double-blinded, placebo-controlled clinical trial in North America and Europe investigating the safety, tolerability, and efficacy of TransCon PTH in adults with hypoparathyroidism. We believe that all chronic hypoparathyroidism patients could benefit from a restoration of physiological levels of PTH. We believe that TransCon PTH, if approved, could become an important treatment option for these patients. We are often asked how does TransCon PTH differ from other PTH therapies that have been in the market. First, TransCon PTH allows the release of predictable levels of PTH in the physiological range across the 24-hour period. Second, we designed TransCon PTH to be a first-line hormone replacement therapy, potentially eliminating the requirement for conventional therapies by restoring calcium homeostasis and quality of life. Let me recap the Phase 2 data that gave us the initial insight into the potential for this important product candidate. In the open-label extension part of the study, at month six, 86% of the subjects had normal serum calcium when on conventional therapy with activated vitamin D and taking less than 600 milligrams per day of calcium. These are the same parameters being used as our primary endpoint in the Phase 3 trial. In addition, subjects reported normalized quality of life scores in all summary and sub-domains. Importantly, subjects randomized to TransCon PTH demonstrated a statistically significant improvement compared to placebo after four weeks in the blinded portion of the trial and continued normalization from week six to month six. We believe that these improvements in quality of life could be one of the main reasons why 57 out of 59 patients continue to participate in the open-label extension study, even now after two years. As you know, we remain excited about the data we have seen so far. And we think TransCon PTH could introduce a paradigm shift in how hypoparathyroidism is treated. Assuming the Phase 3 results are positive, we plan to submit an NDA for TransCon PTH to the FDA in the third quarter of 2022, followed by an MAA submission to EMA in the fourth quarter. In Japan, where the PaTHway Japanese Phase 3 study of TransCon PTH is underway, we expect top line results in the third quarter. Because hypoparathyroidism can affect all ages, we also plan to initiate a study of TransCon PTH in children with idiopathic hypoparathyroidism during the fourth quarter of 2022. With an estimated more than 200,000 patients suffering from hypoparathyroidism in the U.S., Europe, and Japan alone and the lack of options to treat the underlying disease, we believe TransCon PTH, if approved, could become our largest endocrine rare disease product. We think and believe TransCon PTH could potentially be the only product to fully address this plus €5 billion market opportunity. I would like to update you on TransCon CNP for achondroplasia. Continuous exposure of CNP has shown to counteract the growth inhibition effect of FGFR3 mutation associated with achondroplasia and to stimulate growth. We are investigating TransCon CNP’s ability to provide prolonged exposure in CNP, allowing for penetration into the target growth plates at predictable levels or time to rebalance the pathway that can improve growth. In the fourth quarter of 2022, we expect to share top line data from the ACcomplisH trial, our Phase 2 randomized, double-blinded, placebo-controlled clinical trial of TransCon CNP in North America, Europe, and a few other countries including New Zealand and Australia, with children aged from two to 10 years with achondroplasia. In the ACcomplisH trial, 42% of the subjects are in the age group from two to five years. We are truly thrilled by the blinded safety data reported last December at our R&D update, and we're looking forward to sharing the top line results in the fourth quarter of this year. Given the serious and adverse early impact of this disease, we also planned during the second quarter of this year to file an IND application or similar for the ACcomplisH Infant trial in the patient age zero to two years. Switching now to oncology, we believe our product candidates have the potential to transform cancer immunotherapy. Initial data from the TransCon TLR7/8 Agonist first-in-human dose escalation trial has been promising, and we expect to see further validation of our technology and process in oncology later this year. For TransCon TLR7/8 Agonist, enrollment continues in transcendIT-101, a Phase 1/2 study of TransCon TLR7/8 Agonist with or without checkpoint inhibitors in patients with advanced and metastatic solid tumors. We expect top line dose escalation data for TransCon TLR7/8 Agonist monotherapy and in combination therapy with checkpoint inhibitors in the third quarter of 2022. For TransCon IL-2 beta/gamma, we expect top line monotherapy data from the IL-βelieγe trial in the fourth quarter of 2022. During the fourth quarter of 2022, we plan to submit an IND or similar for Phase 2 cohort expansion to investigate TransCon TLR7/8 Agonist and TransCon IL-2 beta/gamma as a combination therapy. We took a major step in 2021 by progressing towards our Vision 3x3. We believe we are moving towards becoming a viable, sustainable, and profitable biopharmaceutical company. We estimate that our first therapeutic area of endocrinology rare disease alone represents a combined US$10 billion global market opportunity. We also have a highly differentiated oncology pipeline, and we plan to add a third therapeutic area. I look forward to updating you further as the year progresses. I will now turn the call over to Scott for a financial review before we open up for questions.

Thank you, Jan. Turning to our financial results for the full year ended December 31, 2021. We reported a net loss of €383.6 million or €7 per basic and diluted share compared to a net loss of €419 million or €8.28 per basic and diluted share during 2020. Let me now run through some components of these results. Total revenues for 2021 were €7.8 million compared to €7 million during 2020. Revenues include U.S. SKYTROFA sales as well as license, clinical supply, and services provided to third parties, primarily VISEN Pharmaceuticals. Reported U.S. SKYTROFA sales for 2021, reflecting the launch in October, were €0.9 million. This was reduced by provisions we made to cover estimated sales deductions and product returns at the term of that initial launch. The majority of SKYTROFA sales in 2021 were related to initial inventory stocking. As a reminder, we recognize revenue upon receipt by our specialty pharmacy and specialty distributor customers, and not upon dispense of the product to the patient. Now turning to operating expenses. Research and development costs for 2021 were €295.9 million compared to €260.9 million during 2020. R&D costs in 2021 reflect continued advancement of our pipeline, with the primary drivers of the increase, including an overall increase in personnel-related costs. For TransCon hGH, R&D costs were lower primarily due to a one-time benefit related to the capitalization of inventory as a result of the FDA approval in the third quarter of TransCon hGH, known by its U.S. trade name of SKYTROFA. This was partially offset by investments to expand our future manufacturing capacity as well as increased clinical trial-related activities to support increased global clinical reach and label expansion. For TransCon PTH, R&D costs were higher primarily due to increased clinical trial-related spending, device development costs, and manufacturing costs, including the successful completion of drug substance PPQ batches as well as initial costs of building commercial inventory. For TransCon CNP, costs were higher primarily due to increased manufacturing and clinical trial-related costs. Finally, for our oncology therapeutic area, R&D costs were higher due to increased manufacturing and clinical trial costs for TransCon TLR7/8 Agonist and also due to increased manufacturing, preclinical, and clinical trial costs for TransCon IL-2 beta/gamma. Selling, general and administrative expenses for 2021 were €160.2 million compared to €76.7 million during 2020. These higher expenses primarily reflect an increase in personnel-related and commercial expenses as well as IT systems and other infrastructure costs as we prepared for and launched SKYTROFA in the U.S. Finance income and expenses in 2021 included a net foreign exchange rate gain of €59 million compared to a net loss of €78.9 million in 2020, primarily related to unrealized gains on the translation of our U.S. dollar holdings of cash and marketable securities to Europe. We ended 2021 with cash, cash equivalents, and marketable securities totaling €789.6 million. Turning to an update on our U.S. launch of SKYTROFA for pediatric growth hormone deficiency. Overall, demand for SKYTROFA has continued to grow since launch in October 2021. Through February 28, 708 SKYTROFA prescriptions have been written by 263 prescribers. Each prescription is usually written for one year. Of those 263 prescribers, 44% have prescribed SKYTROFA to more than one patient. And as of the end of February, 36% of lives were covered per MIT. From a market access perspective, we continue to see more healthcare plans making SKYTROFA available to their members over time, with an increasing percentage of prescriptions approved for reimbursement through the prior authorization or medical exception processes where needed. We are also in active dialogue with major PBMs and other payers to broaden patient access to SKYTROFA. In summary, we continue to be excited by the strong physician and patient interest in SKYTROFA, and we look forward to updating you on our progress in the coming quarters. Turning to 2022, we expect our expenses to increase as we continue to build our commercial capabilities and organization in preparation for additional anticipated product launches in 2023. As we advance our endocrinology rare disease pipeline, expand our activities in oncology, and continue to invest in the TransCon technology platform, including for TransCon Growth Hormone, continued investment in expanding commercial manufacturing capacity to support anticipated future demand geographic expansion for pediatric growth hormone in the European Union, following MAA approval in January 2022, and continued execution of label and geographic expansion in our ongoing clinical trials. For TransCon PTH, key activities will include continued execution of the adult hypopara program, including the Phase 2 PaTH Forward trial in the Phase 3 clinical program including the PaTHway trial and the PaTHway Japan trial. Preparation for the initiation of a Phase 3 pediatric hypopara trial and ongoing manufacturing of PPQ batches and activities to build commercial inventory. For TransCon CNP, key activities include continued execution of our Phase 2 clinical program, which includes two randomized, double-blind, placebo-controlled clinical trials in achondroplasia, the ongoing ACcomplisH trial and the ACcomplisH China trial, which is being coordinated through VISEN Pharmaceuticals. And lastly, in our oncology therapeutic area, key activities include continued execution of the transcendIT-101 clinical trial for our TransCon TLR7/8 Agonist in the IL-βelieγe trial for TransCon IL-2 beta/gamma. In addition to SKYTROFA commercial launch activities in the U.S., we expect other SG&A activities will include TransCon PTH prelaunch activities and continued investments in personnel, systems, and infrastructure to support our rapidly progressing portfolio and growing organization. As Jan noted, we have a lot happening at Ascendis. So let me now provide also an update on our remaining corporate milestones and other key events. For TransCon Growth Hormone, we plan to submit a protocol to the FDA to initiate a trial in Turner syndrome in Q2 2022. Related to the foresiGHt trial, our Phase 3 trial in adult growth hormone deficiency, the invasion of Ukraine has impacted our ability to continue clinical trial activities in Ukraine, Russia, and Belarus. While this may affect our timelines, there is currently no material impact to our business from the situation. For TransCon PTH, we expect to report top line results from our Phase 3 PaTHway trial in North America and Europe this month, followed by an expected NDA submission to FDA in Q3 2022 and an expected MAA submission to EMA in Q4 2022. PaTHway Japan top line results are expected in Q3 this year. And finally, we plan to submit an IND or equivalent for pediatric hypoparathyroidism in Q4 2022. For TransCon CNP, top line data from the Phase 2 accomplished trial are expected in Q4 this year. We plan to file an IND or equivalent for the ACcomplisH infants trial in Q2 2022. Within our oncology therapeutic area for TransCon IL-2 beta gamma, monotherapy top line results are expected in Q4 this year. For TransCon TLR7/8 Agonist, top line monotherapy and combo therapy dose escalation data in the transcendIT-101 clinical trial are expected in Q3 this year. And lastly, for oncology, we expect to submit an IND or equivalent for a Phase 2 cohort expansion for evaluating the combination of TransCon TLR7/8 Agonist and TransCon IL-2 beta gamma therapy in the fourth quarter. Finally, we plan to announce our third therapeutic area in the fourth quarter this year. And with that, operator, we are now ready to take questions.

Thank you. Our first question comes from Jessica Fye of JPMorgan. Your line is open.

Guys, good afternoon. Thanks for taking my question. Did the 708 prescriptions as of February 28 equate to 708 patients, given what you said about each script usually being written for a year? Or are any of those scripts refills? And to make sure when you say a script is written for a year, are you seeing that’s like a script for the first month of therapy has 11 refills? Or is it the single script really written for like a full year’s worth of product? And I have a follow-up.

Thanks, Jess. I think it’s a good clarification that we wanted to get clear when a prescription is being written because we will be covering for one year. And sure, there are a lot of refills, but it’s still covered under the same prescription. So when we talk about the number 708, we believe that all of them are independent patients. Scott is correcting me, 708.

Okay. Great. Next one is, does the CRL for somatrogon affect your discussions with payers at all? I guess, were any of the payers waiting to see how that FDA decision and potential contracting with that product played out prior to finalizing contracts with Ascendis?

First of all, we are the only approved once-weekly product opportunity in the U.S. market. We have seen how long-acting has not been approved. We have no explanation and knowledge about it. What we are moving forward with is our planned commercial launch strategy, and we really believe that we’re executing as we only had hoped for. So when we saw there was a CRL for this product opportunity, we believed that it was part of our expectations. We have different scenarios, and this was definitely one of the scenarios we were working into our launch strategy. I believe Jesper’s team and the market access team under Jesper are doing an amazing job to get this market access. And I also think the numbers we’ve seen and how we’re obtaining coverage are living up to exactly the plan that we expect it to be at the time we are now. So, to summarize my read about the launch, we believe we will be the leading brand in the U.S. market independent of other product opportunities. We only see whether there will be one more or two more long-acting options in the U.S. market is only about what is the total conversion of the entire market segment over to long-acting and how fast it’s going. We have no doubt when we look at our product profile, we see what we have seen from our label. We believe we have everything built in to build up a leading brand here in the U.S. and do it day by day.

Thank you. Our next question comes from Tazeen Ahmad of Bank of America. Your line is open.

Hi. Good afternoon. Thanks for taking my questions. Maybe a point of clarification around gross to net. Can you give us a sense, it’s very early days of where you’re starting out and where you might think it will flatten out as the year progresses? And then as far as the quarter goes, did you see any kind of heightened impact from Omicron particularly in December? We just want to get a sense of any kind of additional variability to expect from COVID going forward. Thank you.

I think Scott will take the first question. And yes, we can explain how the commercial infrastructure has adapted to all different kinds of scenarios and how they’re adapting to the change in COVID.

Tazeen, on your question about gross to net, so products sold through at this point is, I would say, with minimal discount, and we’re not specifically disclosing where we expect it to go. We did take a provision, as you can see in the financial statements, to reduce reported net sales that accounts for the initial launch phase that we’re in now and the fact that you might have product returns, you might have other prompt pay discounts, and chargebacks and rebates. But I would say, I wouldn’t necessarily look at that as any forward-looking guidance.

Jesper?

Yes. If I can add, we are very pleased with where we are right now. When we were conducting the launch, we did anticipate COVID to be in place. Of course, we have seen pediatric centers being locked down in terms of our representatives not being able to do face-to-face calls. That has then transformed into virtual calls with them. However, as we speak, we are certainly seeing the market, i.e., the hospitals opening up and giving us access for face-to-face calls, which is, of course, a preference for us. So in short, we had anticipated this in our expectations. And certainly, we anticipate to see the market opening up now as spring is coming and also, hopefully, COVID is going to be behind us.

Okay. Thanks, Jesper. Just to jump back to Scott for a second. Can you just clarify on gross to net? Are you saying that you did not discount in this first quarter? I just want to understand that a little bit better.

So we have a specialty pharmacy and specialty distributor network that’s set up. There’s on-invoice discounts that are, I would say, fairly minimal, single digits in the aggregate. And we also, on top of that, booked a provision that you could see in the financials to reflect the start-up phase that reduced our net sales down from the on-invoice price. That provision was about €1.2 million.

Thank you. Our next question comes from Michelle Gilson of Canaccord Genuity. Your line is open.

Hi. Thank you for taking my question. I guess to start one for Scott. You mentioned that the revenue recognition is to the specialty distributor. Can you maybe help us understand how much is in the channel? And then one on PTH for me too, can you remind us what kind of regulatory discussions you’ve had around PTH? And to what extent the FDA had some input in the Phase 3 trial design and the primary endpoint? And then what really needs to be shown within the Phase 3 data set to get a label as a PTH replacement therapy versus an adjunctive therapy in that differentiation from NATPARA in the labeling in terms of what regulators want to see to differentiate, I guess, the two programs?

Michelle, that was many questions. But I think Dana and I can combine to take the second part. But I think we should let Scott get some speaking time. So he will be first.

Michelle, so the question I believe was what inventories are in the channel versus what’s sold through. As of December 31, as I think we said on the prepared remarks, the initial sales were largely stocking as of that period. But separately, of course, we reported the same launch metrics that we gave you at JPMorgan through the end of February. So you can see how patient demand overall has grown.

Michelle, going back to you and I will start, and then I will turn it over to Dana, and she will explain how the interaction is on. But let us just go back and look at why are we aiming to establish a hormone replacement therapy? And what does it really mean for this composite endpoint we have. First of all, we have some of the same metrics in our primary endpoint that you basically have seen in an adjunct labeling. Normalization of the patient taking away vitamin D, taking away calcium supplement. But then everything comes back to what is really the definition of success for each single parameter. And just taking something like serum calcium, we need to be higher than 8.3% because we believe that is normal serum calcium. If you go into adjunct labeling, then you say, I'm highly successful if I just reduce it by 50%. What we do, for example, is taking activated vitamin D away completely because no normal person, to my knowledge, takes activated vitamin D. If you go to the adjunct labeling, you need to reduce it by 50% of the calcium supplement. So if you take 8 grams of calcium supplement, which is not unnatural for an HP patient, then if you take it down to 3.9 grams per day you’re successful in an adjunct labeling. We need to take it down to the level where you take with a multivitamin tablet because we cannot expect people to take a multivitamin tablet. So you can see, even if we have the same parameter, what our primary endpoint is really reflecting is a hormonal replacement therapy, where you go in and you basically take our TransCon PTH on a daily treatment, and then you basically get a normal serum calcium, and don’t take activated vitamin D and just take the same amount of a normal vitamin - multivitamin tablet. That is what a hormone replacement therapy is. And that is why we’re discussing that with the regulatory agencies. Dana, you can comment about our interaction, how we’re progressing, how we have discussed it, how we have basically agreed on everything concerning the Phase 3 endpoints.

Yes. Sure, Michelle. Thanks for the question. We’ve had numerous interactions with the FDA. Actually, before we even started the Phase 3 trial and even sent them the protocol, we talked with them about our Phase 2 data and the fact that we wanted to be a replacement therapy. We designed a fairly rigorous trial. So as soon as the protocol was done before we started to enroll people, we sent the agency the protocol, and they sent back comments. We’ve had several interactions as we enroll patients and as patients progress through the trial. And right up until the last few months, we talked with them about our analysis plan before we hit the end of the double-blind period; we had to finalize that, send that to the FDA before we do anything. So we think we’re in a pretty good place, and we’ve acknowledged the FDA input and are planning to analyze the data consistent with what their advice has been. So it’s been an ongoing collaboration with them.

So we really pride ourselves on having the data coming out in the next week.

Thank you. Our next question comes from Josh Schimmer of Evercore. Your line is open.

Thanks so much for taking the questions. I guess first on the schedule for launch. Why are you already noting provisions for product returns? It seems a little bit early. Have you been seeing any product returns thus far and why? And then for the PTH program, what do you see as the primary barriers to broader adoption of PTH replacement? It looks like Takeda was trying to promote some of the quality of life benefits of NATPARA and the cardiorenal benefits of NATPARA. They did have some supportive data, but didn’t seem like they were gaining much traction to a broader hypoparathyroidism audience. And last question as we think about the decision tree for TransCon CNP at the end of the year, are there certain Phase 2 outcomes that you think could support filing for accelerated approval? And if so, what might they be? Thank you.

Thanks. Yes. We will say more questions. So – but I think I will let Scott start first.

Josh, related to the question, are you seeing product returns. To my knowledge, no, although it is early, so the base is small. The reason we took a provision is from an accounting perspective, based on the experience we have commercializing, we take a conservative position and just account for the fact that there’ll be a number of chargebacks, returns, rebates, write-offs, things like that. Over time, of course, we would expect the provision to bleed off if none of those things are realized.

Thanks, Scott. Related to the PTH question. And as I understood you right, just is that you’re asking the basic why some of the shorter acting PTH have not really penetrated the market properly. But it goes back to how you use the best optimal way the short acting. You open the cartridges, take the content, and take it into an infusion pump. So, you can give it into the physiological level 24 hours, seven days a week. That is what is happening with a lot of that. If you give a short-acting, the best case you can see is that you can get a past normalization of calcium serum levels. Parting with the adoption of activated vitamin D, partly adoption of calcium supplements. You’re not seeing the expected 24-hour urinary calcium capture benefit. You’re not seeing any kind of statistical effect related to quality of life. So, when you compare these short-acting PTH products with the target product profile or what we’re aiming to show in our Phase 3 clinical trial that’s coming up in the coming next week that we are indeed a true hormone replacement therapy, and this is how Dana just explained how she has built up in interaction with regulatory agencies what the meaning of a hormone replacement therapy is. There is the same thing to think about hormone replacement therapy. Will it not be unbelievable to think any type 1 diabetes patient should not have insulin? Why is it so difficult to believe that when you can have a physiological level of PTH for patients that lack sufficient endogenous PTH? This is what we want to show in all our clinical trials. Everything from the primary endpoint, which discusses urinary calcium that could reflect the overall treatment impact, including quality of life, etc. So, I actually believe the package we’re building now related to our TransCon CNP is unique, not only for achondroplasia but for many other growth disorders because we believe CNP could be an important compound.

Thank you. Our next question comes from Vikram Purohit of Morgan Stanley.

Great. Thanks for taking my question. So, I had two on SKYTROFA. First, of the prescriptions that you’ve seen written so far, could you comment on how many have been for treatment-naïve patients versus for patients that are being switched over from a previous daily growth hormone? And then secondly, from any conversations you may have had with doctors prescribing the therapy since launch, how have they described the authorization process where that’s been applicable in terms of how long it took to get their patients approved? And how much of an administrative burden the discussions with insurers have posed to their staff? Thank you.

Thanks a lot. I think I will start, and then both Jesper and Scott can help me in adding in some facts I might forget. What we see is a development in the ratio between what I call naïve patients compared to switched patients. From the beginning, the vast majority of patients were switch patients, because they didn’t need to wait for the lengthy procedure of the right diagnosis which involves multiple tests including a growth hormone stimulation test. So what we saw from the initial part of this is mainly switch patients. We see now more and more it’s switching over to naïve patients from that. And one of the things I was most surprised about was just after one week, we got our first commercial patient. But I think Jesper in a general perspective can explain what our effort is really to ensure we are converting as fast as possible as many over to commercial patients. And we have a unique setup to our hub that really serves as the foundation in getting this done. Jesper?

Absolutely, Jan. Basically, what we have is the ASAP program that I’m sure you have seen, Vikram. That is very common to have also normally called a Fast Start program. You will anticipate that it takes anywhere between two weeks to six weeks for the standard prior authorization, which is the typical routine that all growth hormone patients go through. The prior authorization is a common standard for drugs that cost more than $1,000 a month, which is, of course, what we are dealing with here. In case of a rejection, we are going forward and calling for medical exceptions and there is paperwork involved, but doctors see it as an opportunity to help their patients transitioning from what you could say, hard work of once-daily treatment to transferring patients onto once-weekly and thereby getting much better compliance from the patients in terms of remembering to take the injections. So all in all, that’s the scheme that the patients go through. And we are certainly focusing, as Jan said, first on the switch patients because they were in the queue to get transferred. Then, of course, as time goes by, we will also see naïve patients and new patients coming on board.

Thank you, Jesper. Great.

Thank you. Our next question comes from Joseph Schwartz of SVB Leerink. Your line is open.

Hi, I’m Joori dialing in for Joe. Thank you for taking our questions. I know it’s early days, but when can we expect to see sales guidance for SKYTROFA?

When we’re feeling confident in giving you numbers that reflect how sales are progressing during the first period of time. One of the benchmarks for myself, and this is something we discussed because we have different protocols means everyone. At least, I would like to see at least two full quarters. When we've seen at least two full quarters, we can look at it and think about giving you guidance into a range that is meaningful for you, but really gives you what we call financing modeling guidance. I don’t really care about the first quarter. What I really want to know, and this is one I’m saying to you, Jesper. We are here to build the leading brand. We want to have a plan that we’re executing on, not only to be the most prescribed growth hormone product but also the most valuable growth hormone product. And this is how we are building our strategy; this involves yes from the commercial side, but also in clinical development, even Scott, where we want to go in and be sure that we’re building out the right label expansion so we can address the entire growth hormone market. And this is how we are building a leading brand, not only in the U.S. but on a global basis.

Okay. Great. And then I have a question relating to TransCon CNP. A competitor recently announced that in children less than five, they saw trends favoring their agent compared to placebo on an annualized growth velocity. We haven’t seen the data, but it appears that there could be some differences based on age. I know that you’re studying TransCon CNP in children as young as two and the ACcomplisH trial infants. So, I’m curious what you make of that and if you’re anticipating any differences in younger children. Thank you very much.

Thanks a lot. I think I can comment on some of the facts, and Dana and her team are always looking into the safety and we provided a safety update in our R&D Day. The facts are we have 42% of our children in the ACcomplisH Trial aged between two and five. Also, for many of them, we have more than one year’s safety database. So, Dana, perhaps you can sum up some of what we have seen from a safety perspective and the easiest way for you is to take it on a blinded basis.

Yes. Well, so far, the compound has been extremely safe, and we haven’t seen any problems related to cardiovascular side effects or anything like that. So, we’re very pleased with that. We also feel that the sort of continuous release of CNP is an advantage. I think to your other point, though, we do notice that the younger kids grow faster, right? And so there is an opportunity to potentially have a greater impact on that group once we can unblind the data. But again, even our natural history shows that those are some of the biggest changes that they exhibit in their growth. So, we’re very excited about finally being able to tease it out and break it down by age group, so that we can get a better idea of whether the effects are even more magnified in the younger age group.

Thanks a lot. But I think Scott can also provide you with our link or the slide related to our research and development date that we had in December last year where we provided an extensive safety update of our patient in the ACcomplisH Trial, on a blinded basis. There you can see all the concrete elements we have.

Thank you. Our next question comes from David Lebowitz of Citi. Your line is open.

Thank you very much for taking my questions. I’ve got two for you here. A quick one on SKYTROFA. Given the uptick from earlier in January on prescriptions, how can we think in that in terms of cadence going forward on sales for the drug throughout the year? And flipping over to TransCon PTH, on what basis do physicians typically prescribe for these patients? Is it based on things such as reduction of vitamin D – active vitamin D and calcium because it is more on intangible quality of life type items. And with that in mind, you have two different quality of life type items as secondary endpoints. Could you compare each of those endpoints? And what they mean? And how would these actual endpoints be meaningful to prescribers?

Okay. There was a lot of questions related to PTH. But let us start with SKYTROFA first and think about what is how we read this year. We share three different KPIs with you, but Jesper, he has about 20-40 KPIs he’s looking into week by week to ensure we are making progress and are really going in the right direction. So the KPIs we are using because we don't believe our current state of our initial loans is what we call revenue bases that really predict how this product opportunity will perform inside the U.S. market. This is why we follow these different KPIs. One of the numbers, the 708, is a great number in terms of prescriptions. 708 patients are now under treatment with SKYTROFA in the U.S. I am genuinely proud of this, and I'm proud of the organization that has managed to make this happen. I’m quite sure we will continue to see increases in this number month by month. So when we look at all the different integrated KPIs, we feel we are on a good track as we always strive to do better. The day we stop thinking we can improve, I think we're making a mistake. But from what we have seen until now, this launch is living up to everything we expected. We will see this continue, and I believe the faster we penetrate the market, the quicker we can turn prescriptions into commercial patients. That’s the trend we are seeing.

Yes, and to add to that, we are closely monitoring this every week and are very pleased with where we are right now. So week by week, we are assessing and making judgments. We have received very positive feedback, which is naturally fostering momentum and confidence for the future. We are confident we will be market leaders in the long-acting segment.

Yes. Going back to PTH and I think this is a question that is crucial. In the open-label extension trial, we have seen that the data indicates strong efficacy related to the reconstructed normal physiology of PTH, which enables these patients who had long -term dependency to get back to the normal physiology. Hence, we are confident our product not only addresses these underlying hormonal deficiencies but also improves the quality of life that we can measure in both domains. We’ve clarified our metrics to align with what prescribers will expect to see in their daily practice. More importantly, the adherence and patient satisfaction levels in the ongoing studies corroborate the overall success we expect to achieve in our pivotal clinical studies.

Thank you. Our next question comes from Yaron Werber of Cowen. Your line is open.

This is Gabe on for Yaron. Thanks for taking my questions. So first, you've shared that about 369 prescriptions have been written as of December 31. And so all of those would be at least two months ago. Can you give us a sense of how many of these patients are now on therapy which would also help provide some insight into the success rate of the prior authorization process that I believe was asked about previously? And then I have a follow-up.

I think Jesper indicated that what we have, we have a fast start program in place. So I believe that the majority of all patients are what we call coming into our fast start program. So they will be on treatment, and then during this period they will be converted into commercial patients dependent on the speed as Jesper talked about, where we expect two weeks, and some can take up to eight weeks or so related to the process of converting into a commercial patient.

Okay. Yes, that makes sense. So how many of those patients have been converted among the first 369 as of December 31 since those would be more than eight weeks ago? Or can you provide any insight there just to give us a sense of how the conversion is going?

The conversion is going exactly as what we have expected. The first commercial patient came after one week. So the commercial patients are being treated exactly as we expected them to be based on our knowledge of how the growth hormone market functions and what the treatment patterns look like.

Thank you. Our next question comes from Leland Gershell of Oppenheimer. Your line is open.

Hey, good afternoon. Thanks for the update and for taking my questions. Just a couple on SKYTROFA. Thanks for the update on the 36% of covered lives. Could you comment maybe on how that process is going, or negotiating with payers relative to what your expectations have been? Are there any sources of pushback or challenges that you're encountering? Or is it simply taking the time that it takes? And then I have a follow-up. Thank you.

Very, very interesting question because I believe we are in a good situation. Jesper has the entire market access team behind him. What we're doing with the market access team is building on the strategy we have explained multiple times. The strategy is to build not only the most prescribed growth hormone product, but to establish the most high-value product opportunity. So for us, it’s about optimizing the value of SKYTROFA here in the U.S. We know it’s the best-in-class product opportunity. We’re providing a real benefit to the patient by offering not only a once-weekly treatment but also an improvement in treatment outcome, which is measured by high growth velocity. We saw that in our Phase 3 study. So we're providing real benefits to patients. We are securing the market assets as we wanted to have in the speed we expect to have, but more important, on the right conditions. Because this is how you build a high-value product opportunity, not just to go in and get it as fast as possible. You do it in the right manner. I think this is what Jesper and his team are doing. Do you have any more comments, Jesper?

No. I mean, we're coming in at a point in time where we are negotiating and these things are, of course, ongoing. So far, the access we’re having is quite positive, and also the approval rate that we’re receiving has been good. So all in all, it’s developing according to our plan, which we are pleased with.

And if you look at the numbers, that is Scott. He confirmed earlier, we have 36% of lives covered now. I feel pretty good with that number. Perhaps you can correct me if I'm wrong, Scott.

Yes, 36% of lives covered.

Okay. I heard you right, Scott. 36%.

Thank you. And just a question on PTH. Just with respect to the regulatory process, will the FDA be taking the Phase 2 and the Phase 2 open-label extension data into account and to what extent as they presumably review your application pending the results from the PaTHway?

Yes, you're correct. We are building out, for example, the safety database from both phases. Dana, do you have some further comments about that?

Well, yes, I think the Phase 3 PaTHway trial will be the flagship registrational trial. However, the long-term results from the PaTH Forward will be extremely helpful, not only just to show the durability of the response right? As Jan said, 57 out of 59 are still in the trial, and that will also give us a lot more information about what happens to the bone health, right? And sort of help us to validate the disease-specific quality of life instrument that we've been working on as well. So I think the two trials would be sort of going hand in hand. I mean one is the pivotal registrational trial, and the other one will be strongly supportive. Before we even started the Phase 3 trial, we explained to the FDA what we would have in terms of long-term safety from the Path Forward. I think we didn't even expect we would have such great adherence in that trial, but they were satisfied that the totality of the safety database would be sufficient for them to do their review. So I think both trials are extremely important, and I think the PaTHway trial is the linchpin for the replacement concept as well.

Thanks, Dana.

Thank you. Our next question comes from Anita Dushyanth of Berenberg Capital Markets. Your line is open.

Good afternoon. Thanks for taking my question. Just regarding the number of prescribers for SKYTROFA, I think in the commentary, you mentioned 263. Could you talk about maybe when internally, the team – the sales team to be able to cover the 1,400 prescribers?

I think what we are doing already now and how our launch strategy has been is to do targeting. Yes, be correct me. It’s more 80% of the prescriptions being done in the growth hormone market by only targeting 20% of the prescribers. Typically in the states, we initiated our launch. We covered 80% of all the prescriptions being written in the growth hormone market. Was I wrong in understanding this right?

What we are basically doing is breaking the 1,400 into deciles, and then we, of course, keep targeting the highest prescribers, and that’s where we have, you could say, the best sort of penetration. So we will continue to work on it and expanding it, particularly now that the market opens up that we can do face-to-face calls. We have a match in terms of competitive forces with our size force with the competition of both Novo and Pfizer. So we certainly believe that we can maintain and focus on the market leadership that, of course, we're having right now as we are the only one in the market, but that we're also going to continue to have when we see competition coming on to the market.

Thank you, Anita.

Thank you. I see no further questions in the queue. I want to thank everyone. This concludes today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.