Ascendis Pharma A/S Q1 FY2023 Earnings Call

Thank you for standing by and welcome to the Q1 2023 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. As a reminder, today's call is being recorded. I would now like to turn the call over to your host Mr. Tim Lee, Senior Director of Investor Relations. Please go ahead, the floor is yours.

Thank you, operator, and thank you everyone for joining our first quarter 2023 financial results conference call. I'm Tim Lee, Senior Director of Investor Relations at Ascendis Pharma. Joining me on the call today is Jan Mikkelsen, President and Chief Executive Officer; Scott Smith, Executive Vice President and Chief Financial Officer; Dr. Stina Singel, Executive Vice President and Head of Clinical Development Oncology; and Joe Kelly, Senior Vice President, Head of Commercial Endocrinology. 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 revenue projections for SKYTROFA, the commercialization of TransCon hGH for the EU market, statements regarding the expected timing of approval and launch of TransCon PTH in the U.S. market, statements regarding the expected timing of the potential approval of TransCon PTH in Europe, statements regarding the potential market size for TransCon PTH, our progress and our pipeline candidates and our expectations with respect to their continued progress, statements regarding our strategic plans, our goals regarding our clinical pipeline, including the timing of clinical results, statements regarding our pipeline product candidates, statements regarding our ongoing and planned regulatory filings, and our expectations regarding the timing and the results of regulatory decisions, our expansion into new therapeutic areas and statements regarding our ability to create a sustainable profitable leading global biopharma company. These statements are based on information that is available to us today. Actual results and events could differ materially from those in our forward-looking statements. And we may not be able to achieve our goals, carry out our plans, our intentions, our expectations, our 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 factor sections of our most recent annual report on Form 20-F, filed February 16, 2023. 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 weighing at least 11.5 kilograms and having growth failure due to inadequate secretion of endogenous growth hormones. In addition, the European Commission has granted a marketing authorization for SKYTROFA to Ascendis Pharma developed under the name TransCon hGH as a once-weekly subcutaneous injection for the treatment of children and adolescents aged 3 to 18 for growth failure due to insufficient secretion of endogenous growth hormone. In general, we refer to this product as TransCon growth hormone unless we're referring to the product in the context of particular jurisdictions such as the United States or the European Union. Otherwise, please note that our product candidates are investigational and are 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. None of the statements made on the conference call regarding our product candidates shall be viewed as promotional. On the call today, we'll discuss our first quarter 2023 financial results and we'll provide further business updates. Following some prepared remarks, we will then open up the call for questions. I'll now turn the call over to Jan Mikkelsen, President and Chief Executive Officer. Jan, to you.

Thanks, Tim. Good afternoon everyone. Ascendis continues to execute on the strategy we have laid out in our Vision 3x3 and our commitment to improve patient lives by building a sustainable, profitable leading biopharma company. Based on the strengths of our clinical data for TransCon PTH, including the positive feedback from patients and their physicians and the significant unmet medical needs of patients living with hypoparathyroidism, we remain convinced that TransCon PTH can be approved and become an important new treatment option. We remain dedicated to working with the FDA to bring this product to the U.S. market as quickly as possible. And we are on track in the EU with an expected regulatory decision later this year. In the U.S., our PDUFA date of April 30, 2023, is coming up and we expect to get feedback from the FDA soon on the next steps forward. In height, there are multiple possible scenarios. Our team is well prepared and our belief in the viability of TransCon PTH in the U.S. is unchanged. We launched SKYTROFA with a commercial strategy built on this product's strength with the goal of making it the leading product in value in a growing growth hormone market. With this product, we believe that it is increasingly clear that SKYTROFA is on track to become the U.S. market leader in value in a growing growth hormone market and a blockbuster product. We believe the success of SKYTROFA we are seeing now is driven by the following three factors. First, treatment experience. Many physicians have now had patients with 12 months of real-world experience with SKYTROFA, the time period that is necessary to observe an improvement in linear growth and other endocrine benefits. Second, consolidation of the daily growth hormone market. This consolidation started three to four years ago when daily growth hormone companies began to realize that their existing daily products would be phased out over time as once-weekly treatment came to the market. We saw daily growth hormone companies reduce investment and optimize their businesses in this phase-out period. We believe the current supply challenge of daily growth hormone products is a consequence of this, which further supports the uptick of SKYTROFA. Third, Ascendis' dedication and investment in endocrinology. We are investing in building relationships with physicians, patients, caregivers, and providers through our investment in a dedicated commercial organization and medical affairs team supporting our endocrinology efforts. We are also building a robust supply chain for SKYTROFA, demonstrating to patients, physicians, and providers that we are a trusted partner with a solid supply chain. As a result, first quarter 2023 SKYTROFA revenue grew to €31.6 million. Based on the algorithm we described earlier this year for our 2023 outlook using first quarter sales of €31 million and our goal of adding as many new reimbursed patients in 2023 as we did in 2022, we now expect full-year 2023 SKYTROFA revenue between €150 million and €160 million. Our revised outlook for 2023 provides a new higher foundation for 2024. We are pushing for global market leadership for SKYTROFA through geographic expansion and potential label extension. The SKYTROFA commercial launch in Germany is on track for the third quarter of 2023. In the fourth quarter, we expect top-line results for the Phase 3 foresight trial in adult growth hormone deficiency, which is designed to demonstrate the impact of SKYTROFA on body composition in adult patients, with growth hormone deficiency. Turning now to TransCon PTH. As I mentioned at the start of today's call, we are dedicated to getting TransCon PTH to patients suffering from the serious health and quality of life issues caused by hypoparathyroidism. We know that the patient community shares our goal. We continue to be excited about the potential TransCon PTH could have in addressing the significant unmet medical needs of hypoparathyroidism patients. The open-label extension of our Phase 2 path forward and Phase 3 PaTHway trials for TransCon PTH are ongoing with 145 of 154 of the original clinical trial patients continuing on treatment with TransCon PTH for now up to three years. In addition, in the U.S., our Extended Access Program continues to enroll new patients every week. In Europe, as previously announced, we received the comprehensive Day 120 response from the European Medicines Agency and we are very pleased with the feedback. We anticipate a decision on our MA during the fourth quarter. If approved by the EC, we expect to launch in Germany in early 2024, leveraging our established commercial infrastructure. We also applied to initiate an early access program for TransCon PTH, initially in Germany. Approval for this program we expect to initiate and enroll the first patient in Germany this quarter. Moving to achondroplasia, TransCon CNP. Our clinical data and positive physician feedback continue to differentiate TransCon CNP and reinforce our conviction that it has a potential best-in-class product profile in the four key pillars of drug development: safety, efficacy, tolerability, and convenience. More importantly, we believe TransCon CNP also has a beneficial effect on achondroplasia comorbidities besides promoting increased linear growth. We believe that is why all 57 patients who started in our Phase 2 ACcomplisH trial remain in this open-label extension. Later this year, we will have an R&D event focused on TransCon CNP to share new clinical data and the science that we believe supports its best-in-class profile. Switching to oncology, we have two programs moving ahead with recommended Phase 2 doses in specific indications: TransCon TLR7/8 agonist and TransCon IL-2 beta/gamma. Next month in May, we will hold an oncology R&D event in New York around ASCO to give you an update on these two important programs. At this event, Ascendis and key opinion leaders with experience in our clinical studies plan to share key data from the dose escalation portion of our two first-in-human trials. Finally, I would like to say before that we are managing our business for long-term value creation and continue to aim to achieve cash flow breakeven without the need for additional dilutive equity financing. I will now turn the call over to Scott for a financial review before we open for questions.

Thank you, Jan. I will quickly touch on a few points surrounding our financial results. For further details, please refer to our Form 6-K filed today. As Jan noted, SKYTROFA revenue for the first quarter of 2023 was €31.6 million. Revenue in Q1 would have been €1.4 million higher, excluding a negative foreign currency impact compared to the fourth quarter of 2022. Total revenue was €33.6 million, including SKYTROFA revenue as well as license, clinical supply, and services provided to third parties primarily VISEN Pharmaceuticals. During the quarter, we continued to demonstrate our cost discipline, offsetting seasonally higher employee costs in Q1. Total operating expenses were €173 million for the first quarter, up 5% sequentially from the fourth quarter of 2022. Overall, R&D costs declined 2% sequentially, primarily driven by lower endocrinology-related costs partly offset by an increase in oncology-related costs. SG&A expenses grew 18% sequentially, primarily due to increased support for SKYTROFA commercialization and pre-launch activities for TransCon PTH. Overall, our operating loss declined sequentially by 3% to €144 million for the first quarter from €147 million in the fourth quarter of 2022. Our main 2023 commercial product manufacturing campaigns, which are capitalized rather than expensed, are expected to be completed in the first half of 2023, which would further reduce cash expenses in the second half. Finally, we ended the first quarter with cash, cash equivalents, and marketable securities totaling €586 million. Based on Q1 results, we are on track to exceed the current Ascendis compiled 2023 consensus estimate of €98 million for SKYTROFA. Using the algorithm as Jan laid out in his remarks, SKYTROFA revenue is expected to reach €150 million to €160 million for the full year 2023. Supporting our goal of achieving cash flow breakeven without additional dilutive equity financing, we are implementing additional cost controls and productivity improvements, which we anticipate will be realized starting in Q3 and beyond. Let me now also provide an update on selected key 2023 corporate milestones. For TransCon growth hormone, we are on track to launch SKYTROFA in Germany in Q3 and we expect to report top-line data from the global Phase 3 foresight trial in adult GHD, our second indication in Q4. For TransCon PTH in the U.S., our PDUFA date is April 30, so we expect additional clarity on our NDA application in the coming days. We expect the European Commission decision in Q4, and if approved, we plan TransCon PTH as our second product launch in Germany in early 2024. For TransCon CNP, we are on track to complete enrollment of the Phase 2b ApproaCH trial in achondroplasia in Q2. And later this year, we will share long-term follow-up data from patients on 100 micrograms from our open-label extension of our Phase 2 ACcomplisH trial. Within our oncology therapeutic area, as Jan mentioned in his remarks, we'll host a research event on May 31st in New York to review the science underlying our oncology portfolio. Review initial data on TransCon IL-2 beta/gamma and hear from KOLs who have clinical experience with both of our oncology product candidates. As you know, the PDUFA date for our NDA for TransCon PTH is this Sunday, April 30, and we expect to receive a response from the FDA by then. Given the proximity to the PDUFA date for the NDA for TransCon PTH, we will not be providing additional details regarding this NDA at this time. With that, operator, we are now ready to take questions.

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

Great. Good afternoon. Thanks for taking my question. I know it’s difficult to comment in advance of the PTH PDUFA, but at a minimum, can you just say if you now know the deficiencies that the FDA has regarding the PTH NDA? I believe those were not previously outlined in the letter. Do you know them now?

I can say no to your question and have no further comments.

Okay. And then when you talk about managing the business to achieve the goal of cash flow breakeven without the need for dilutive equity financing, can you elaborate just on like what your expectations are for PTH that are kind of embedded in that breakeven assumption?

It’s a – we are dealing with a lot of different scenarios because as we indicated before, we do not know the exact nature of the deficiency. And we are working with what we call the best and worst-case scenarios. We are looking at our Vision 3x3. We still want to fulfill that. We want to build up a leading biopharma that is both sustainable and profitable. We can continue to do this. From our perspective, we are taking into consideration that we are launching SKYTROFA in Germany in Q3. We are also taking into assumption that we are launching TransCon PTH in Germany and Europe in the beginning of 2024. We are building that SKYTROFA in the U.S. is going to meet the assumptions we laid out in 2023 and will continue that growth in 2024. Even from the worst case to the best case, we can align the two aspects and still fulfill our Vision 3x3.

Thank you.

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

Hi guys, good afternoon. A couple of questions if I can on GHD. You’ve issued sales guidance for the year, I think as recently as the beginning of the year. You might have been more tentative on that prospect. I guess what’s changed during the quarter to make you feel confident that you can project out the rest of the year? And can you tell us some of the major drivers you took into consideration when putting together the sales guidance such as perhaps switch rates versus new patient starts and any assumptions you can share on compliance would be great as well. Thank you.

Thanks for the question. We’re feeling much more confident now when we go to Q1 because we have accumulated a substantial amount of data, which is a mathematical algorithm even I can understand without an MBA. The duration is very, very simple. You have €31 million here in Q1. We have seen and our experience over many months with SKYTROFA confirms that we are not losing patients. So if I multiply the €31 million by 4, and then we just add the same amount of new patients as we did in 2022, we're getting exactly to this number of between €150 million and €160 million. I think it is a very simple agreement built on solid numbers, and this is exactly why I feel I can stand for this year. I have every member of the senior organization to sign off on this. We feel confident that we can fulfill this. This is why I’m feeling we can provide guidance when we feel confident to give you reliable guidance that you can use in your models. So you're feeling that – we feel we are giving you a number that we can stand behind.

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

Well, thank you very much for taking my question. When you look at SKYTROFA into the rest of the year and the dramatic growth you’re expecting, how should we look at that in the U.S. versus Europe?

The guidance we are providing to you is only reflecting U.S. sales. We have not given you guidance related to Europe. There will be additional revenue on top of that.

I got it. And I guess could you just remind us of when we can expect the next TransCon CNP updates and what your expectations are going into that?

The update we will provide for you, as we indicated at the beginning of the fall, likely in Q3, we will host a research event in New York as we do now in oncology here in May, where we will go through the science behind the CNP. Because sometimes it gets forgotten that every product has its own mode of action. The science behind each product decides the clinical outcome, and understanding the clinical outcome is critical. We have always said we are not here merely to address linear growth. We are here to treat the key elements of what patients with achondroplasia require most, which includes the management of comorbidities. I believe that during the research event, we can provide the data and the science that supports our belief in building a best-in-class product opportunity in this disease area.

Thanks for taking my question.

Thank you. Our next question comes from Paul Choi of Goldman Sachs. Your line is open.

Hi, thank you, and good afternoon, and thanks for taking our questions. Jan and team, I guess, one question that investors have with regard to PTH. As you think about your earlier statements where you expect clarification from the FDA shortly, have you since the call a few weeks ago provided additional data updates? Or have there been any other requests from the agency?

I think we need to refer to the statement that Scott clearly wrote up that we will not comment further on any interaction we have with the FDA at this time.

Okay. And then on the commercial side regarding the European launch for growth hormone, can you maybe comment on any preliminary discussions you either have had with IREG or GKSV and just kind of how to think about the reference pricing versus the potential reference pricing in Germany versus some of the other available products in the category?

I believe the dynamics we saw in the U.S. and how we tackled it will happen in the same way in Europe. There are established daily growth hormones facing the same issue that they have here in the U.S. We will come in with treatment regimens that are superior for the patients, and I believe we will have a similarly responsible superior pricing that we do in the U.S. also in Europe.

Okay, thanks. I’ll hop back in queue.

Thank you. Our next question comes from Li Watsek of Cantor. Your line is open.

Hey, thanks for taking our questions. Can you provide some guidance on the OpEx side? Starting in Q3, given that you may have a delay with TransCon PTH, and you mentioned earlier that you have a focus on cost control. Maybe help us understand how should we think about OpEx going forward. And for the early access program in Germany, how many patients will be eligible for this?

Yes, let me take the last question first. The program in Germany where we start is different compared to the U.S. program because it’s eligible for all patients with hypoparathyroidism and not as in the U.S. where it is highly restricted to patients with significant PTH experience. So, it will be a broader program. The dynamic is also different; for example, the program terminates automatically the day you get approval, and the patients are automatically converted to reimbursed patients. So it’s a different system than what you have in the U.S. This is why we will have some access functionality for the patients that meet the same unmet medical need, as there are many hundreds of patients on Natpara today who are now restricted under highly constrained conditions because Natpara is disappearing in early 2024. They want to have time to transition these patients over to TransCon PTH. At the same time, we've opened it up for all other patients because there was strong demand from treating physicians to provide this to patients who have never even seen a PTH program before. As for the operations side, we have a simple approach to our finances, we have one bucket of cash and others. We always want to ensure we have a solid amount of cash to feel safe. If we start to run low, we will always have enough to sustain operations.

Okay, got it.

Thank you. One moment please. Our next question comes from the line of Derek Archila of Wells Fargo. Your line is open.

Hey, great. Good afternoon. Thanks for taking the questions. Just two from us. Jan, you mentioned earlier in the call that you’re not commenting on interactions with the FDA, so is it fair to assume that you’ve had some interactions since the deficiency letter that you do not want to comment on? So that’s question number one. Question number two is, you’ve talked about this attrition strategy in the growth hormone market, so kind of expecting these competitors to exit the market maybe because it’s not profitable for them leaving you and maybe one or two other players in the market. So, what catalyst needs to happen for this to play out, and what’s kind of the timing on that? Thank you.

Yes, obvious. It’s easier for me to answer the first question because there’s no explanation. For the second question, I believe someone should write a textbook of what is happening in the go-to-market here in the U.S. This is the first place you saw biosimilars entering, and we saw how the entire market developed. Now we are coming to the next stage. The first thing is that when you have a superior treatment coming into play, you have to consider the established players who cannot follow this treatment regime. They typically optimize their business at that time. Therefore, you will see a reduction in the sales force, promotion, and manufacturing investment. Eventually they terminate manufacturing when their bulk products are set, and they only sell until their exit. This is why we expect that only one or two daily growth hormone providers will manage to remain profitable under this changing landscape.

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

Hey, good afternoon, and thanks for taking my question. Just another question on the SKYTROFA trajectory, obviously a very healthy bump up from the fourth quarter. Can you comment if that is a result of excellent sites at the turn of the year? Were there any aspects related to more favorable reimbursement with the New Year, or changing dynamics of the daily growth hormone space as you had talked about that may have favored SKYTROFA?

I think we had the three pillars we discussed in my part of the script, which illustrates the transition occurring. First is the treatment experience; it actually takes 12 months for physicians to see the real improvement in linear growth and other endocrine benefits from a new product. The second factor is the consolidation of the market; this is a consequence we anticipated. We didn't know precisely when it would happen. The final element involves the investment made by Joe's commercial team in establishing a dedicated salesforce specialized in endocrinology. Joe?

Yes, the commercial team has executed well in this market, where we have disrupted the traditional model of how growth hormone is prescribed and reimbursed. The clinical strength of SKYTROFA, including its efficacy, absence of preservatives, and best-in-class autoinjector, has really motivated healthcare providers to do the appropriate documentation to ensure patients can be approved and remain on our product for their entire course of therapy.

Thanks, Joe.

Thank you. One moment please. Our next question comes from the line of Vikram Purohit of Morgan Stanley. Your line is open.

Hi, good afternoon. Thanks for taking our question. We had one on TransCon hGH. Could you just help us frame expectations for the foresiGHt data expected in adult GHD in the fourth quarter? And also speak a bit about how you’re viewing the commercial potential for hGH for this part of the GHD population versus the pediatric population? Thanks.

The adult growth hormone deficiency trial is intriguing because in many other indications using growth hormone, linear growth is the primary outcome. Here, the primary endpoint in the adult trial is based on change in body composition, which is also a critical aspect in pediatric population management. We have benchmarks related to daily growth hormones. There are indications that Phase 3 trials by competitors did not yield better than placebo and potential for our product to outperform them. We believe SKYTROFA can achieve similar or potentially superior results compared to daily growth hormone based on its unique composition and delivery mechanism. However, we will wait for the data to be conclusive.

Thank you. One moment please. Our next question comes from the line of Joseph Schwartz from SVB Securities. Your line is open.

Hi, thanks very much. How leverageable is the sales force across the three endocrine indications you're currently pursuing? I know when we look for physicians to speak on these topics, it seems a bit fragmented to us and we almost never find anyone who can speak on two, never mind three of these endocrine conditions. Can you just talk a little bit about how the sales force is currently structured and whether you won't have to actually expand it significantly in order to reach achondroplasia and hypoparathyroidism specialists in addition to growth hormone specialists?

Yes. This is the holistic picture. You basically are saying why did we focus on building up a really strong pipeline of three independent products specifically focused on endocrinology. The first one we have is SKYTROFA, which has pediatric and adult indications. We have pursued the pediatric market, and now we're going for adult. We have TransCon PTH, which mainly targets adults but also has a pediatric aim. We will also pursue the pediatric indication in this space. Finally, we have TransCon CNP, which is primarily linked to pediatric notions. However, we see it as necessary to provide lifelong treatment for achondroplasia. We believe this holistic focus will allow us to reach physicians interested in even broader aspects of endocrinology.

Thank you. One moment please. Our next question comes from the line of Andreas Argyrides of Wedbush. Your line is open.

Yes. Good afternoon. Thanks for taking my question. A quick one here on the TransCon CNP. So looking at the growing achondroplasia market and the competitive landscape, could you expand on what data you are tracking and plan to provide to support TransCon CNP impact outside of high? Did you see a potential to expand into patients or children under two years old, and forgive us if that was already addressed?

No, I believe that is somewhat. What we want to note is that you have linear growth, which is an important aspect we can help with. We can also potentially accelerate this in combination between SKYTROFA and TransCon CNP. The element we are focusing on is addressing achondroplasia-specific comorbidities. In our presentations when we released the contest data, we indicated that we observed an effect on the achondroplasia-specific side effects. We are building on that and have regulatory interactions to enhance our clinical specificity during our Phase 2b trial, which we hope will act as our pivotal study. We are excited to recruit for this trial at full speed and hope to have all patients enrolled this quarter.

Great. Thanks for taking our question.

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

Hi, this is someone filling in for Yaron. Thank you for taking our questions. In the past, you've typically held your Q1 call in early May, and it seems some investors thought the call was moved up this time to coincide with the PDUFA date, hoping for updates on the deficiencies. Could you help clarify this for us? Also, I know you can't share too much, but given the apparent lack of communication with the FDA, are you anticipating a complete response letter? If that occurs, how soon do you expect to refile? Thank you.

Let me take the last question as I said before, we have no knowledge about the deficiencies and cannot comment further on regulatory interaction related to TransCon PTH. I believe our focus has been on optimizing processes to work smarter and faster. I give a lot of credit to Scott and Mads for how they have optimized all our financial processes, making everything more efficient.

Yes, as we reported earlier for the annual report, we will now report earlier for the quarterly report. So, I would say nothing specific to look into it. In fact, if anything, I think next year we’ll probably report the annual even earlier.

I hope to have answered your question. It’s just because we increase productivity and do it faster.

Thank you. Our next question comes from Caroline Palomeque of Berenberg. Your line is open.

Hi, good afternoon. Thanks for taking the question. So were there any material differences in the MAA application in Europe versus the NDA application in the U.S.? Given that, to my understanding, there hasn’t been any feedback from the European Regulatory Agencies. And then a second question is just a follow up on expenses, just given the updated SKYTROFA revenue guidance. Do you also anticipate adjustments in SG&A expenses such as in the sales force? Will you add any more people?

In our regulatory findings between the regions, Europe and the U.S. are based on exactly the same data package that will be filed in both places with different formatting, but the data remains unchanged. Related to the last question, the answer is clear no. We don't anticipate adding more people.

Thank you. I’m showing no further questions at this time. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.