Ascendis Pharma A/S Q3 FY2023 Earnings Call

Hello, and welcome to Ascendis Pharma Third Quarter 2023 Earnings Conference Call and Webcast. Following the prepared remarks, there will be a question-and-answer period, instructions will be given at that time. I would now like to hand the conference over to Tim Lee, Investor Relations of Ascendis Pharma A/S. Sir, you may begin.

Thank you, operator, and thank you, everyone, for joining our third quarter 2023 financial results conference call. I'm Tim Lee, Senior Director, Investor Relations of 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; and Dr. Stina Singel, Executive Vice President and 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. and European market, as well as our expectations for 2023 SKYTROFA revenue, the expected timing of the approval and launch of TransCon PTH in the U.S. and the EU. Our pipeline candidates and our expectations with respect to their continued progress and potential commercialization our strategic plans, our goals regarding our clinical pipeline, including the timing of clinical results, our ongoing and planned regulatory filings and our expectations regarding the timing and the results of regulatory decisions, our expansion into new therapeutic areas, our progress toward Vision 3x3 and our ability to become cash flow positive and create a sustainable, profitable and leading global pharma company. These statements are based on information that is available to us today. Actual results and events can differ materially from those in our forward-looking statements, and you should not place undue reliance on these statements. We assume no obligation to update these statements as circumstances change that has changed except as required by law. For additional information concerning the factors that can 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 filed February 16, 2023. TransCon Human Growth Hormone or TransCon hGH is approved in the U.S. by FDA and the EU has received MAA authorization from the European Commission for the treatment of pediatric growth hormone deficiency. Otherwise, please note that our product candidates are investigational 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. None of the statements during the conference call regarding our product candidates shall be viewed as promotional. On the call today, we will discuss our third quarter 2023 financial results and will provide further business updates. Following some prepared remarks, we will then open up the call for questions. And with that, let me hand it over to Jan.

Thanks, Tim. Good afternoon, everyone. Our dedication to the values of patients, science, and passion remains the foundation for us to create long-term value for all stakeholders. In the U.S., we achieved market value leadership for SKYTROFA within two years by sticking to our belief that a premium product deserves a premium price. Following the same strategy in Germany, we launched SKYTROFA in September and also expect to launch TransCon PTH in January 2024 if approved by the European Commission in November. In select other European countries, we will use the same direct sales model to launch our portfolio as we have in the U.S. and Germany. We call this EU Direct. In other markets, we will commercialize our portfolio through sales and distribution partners who are local experts in rare diseases. We refer to this as international indirect markets. In Japan, we intend to partner our endocrinology rare disease products. We believe we have the organization and the manufacturing capacity to support expected launches of three independent endocrinology rare disease products by 2025. Driving further growth, we aim to continue to work to create highly differentiated TransCon product candidates, expanding into additional endocrinology rare disease indications. Last quarter, we announced the expansion of our TransCon platform, a new type of carrier platform specifically designed to support new product opportunities in diseases with large patient populations. I look forward to sharing more information with you about this in the near future. Let me provide more details on each of our programs. For TransCon commercialized at SKYTROFA, we reported strong revenue growth, finishing the third quarter with €47 million, including initial revenue from Germany. We now expect full-year 2023 SKYTROFA revenue to be between €170 million and €175 million. To drive differentiation and market leadership, we continue to build out the science and data behind SKYTROFA. We recently announced results from our long-term extension trial showing that the majority of patients treated with TransCon growth mix or exceeded average parental height at the time of their treatment completion or last visit. The data also demonstrated the long-term safety of SKYTROFA in patients treated up to six years. In adult growth hormone deficiency, we expect to share top-line results during the fourth quarter from our global Phase III foresight trial. Today, we estimate less than 4% of adult patients suspected of having growth hormone deficiency are treated with growth hormone, making this an opportunity to both expand SKYTROFA's label and expand the overall growth hormone market. In addition, we plan to launch SKYTROFA in certain markets in our international indirect region with initial revenue contribution expected to begin in 2024. Turning to TransCon PTH, in the European Union, EMEA, CHMP adopted a positive opinion in September, recommending approval of TransCon PTH as a replacement therapy for adults with chronic hypoparathyroidism. We expect the European Commission's final decision on our marketing authorization application this month. If approved, we plan to launch TransCon PTH in Germany in January 2024. In Germany alone, while the annual cost for currently approved PTH treatment is around per patient, our target population is 22,000 chronic hypoparathyroidism patients out of the overall patient population of around 17,000 patients. Our sales team in Germany is ready to launch TransCon PTH if approved. The EU approval will also provide the basis for marketing authorization and initiation of commercial activities for TransCon PTH in addition to markets in our international market segment where we expect launches to start in 2024. And further launches in the EU Direct model in 2025, following standard price and reimbursement pathways. By following our algorithm for product innovation, we will have taken TransCon PTH from idea to expected regulatory approval all in about seven years. In the U.S., all documents have been finalized and we expect to resubmit the NDA for TransCon PTH for the hypoparathyroidism indication within a week. We expect to know whether the FDA has accepted our risk submitted NDA within 30 days from the resubmission date. If accepted, we expect the FDA to notify us at the time whether the resubmission is class I or class II and provide a new PDUFA date. Besides this information, we will not comment further on the resubmission. As this unfolds, we continue to build the science and data behind TransCon PTH. In September, we announced a post hoc analysis of Phase II and Phase III data demonstrating a substantial increase in estimated DFR in adults with hypoparathyroidism treated with TransCon PTH. These data suggest that treatment with TransCon PTH can reverse impaired kidney function in patients with hypoparathyroidism. Turning to TransCon CNP, this is our third endocrine rare disease product candidate. Following our end of Phase II meeting with U.S. and EU regulatory agencies, we have lined up the pathway to potential regulatory approvals in the U.S. and EU. We expect top-line results from our Phase III Approach trial, which completed enrollment in Q3, in the second half of 2024. We continue to have strong patient retention in our trials. And during the fourth quarter, we will provide an update and share with you one-year follow-up data with the open-label extension portion. We believe the strong retention in our clinical trial is a result of additional benefits of TransCon CNP in addition to height improvements. As we have further evaluated the science behind achondroplasia and our own data, we now believe that achondroplasia is a disease of both skeletal growth and muscle function and that the continuous exposure to CNP enabled by TransCon CNP may be able to address both elements. At our upcoming update, we will disclose this additional potential benefit of TransCon CNP in addition to height. If we are correct that achondroplasia is influenced by both skeletal growth and muscle function, this means that TransCon CNP could potentially offer value for adults living with achondroplasia, who experience muscle fatigue and other medical and quality of life impacts that may be addressable with continuous exposure to CNP. We are in a constructive dialogue with regulators on how best to evaluate the potential impact of TransCon CNP on comorbidities, quality of life, and other important aspects of achondroplasia, in addition to height to support an indication for treatment of achondroplasia. While our key focus in the treatment of achondroplasia is to address the comorbidities that are associated with this disease, we believe an even more effective way to address height, if needed or desired, could be CNP in combination with growth hormone. We believe that this combination therapy may provide greater analyte hypervelocity than growth hormone alone while also addressing the comorbidities of achondroplasia. Our previously presented preclinical data demonstrate the additive effect of combining TransCon CNP and growth hormone in animal models, consistent with stimulation of different growth-promoting signal pathways. Supporting this idea, a group out of Osaka University in Japan presented data during last month's ASBMR, showing that a group of 41 achondroplasia patients treated with the combination demonstrated a first-year annualized height velocity of around 7.4 centimeters with sustained growth benefit over five years of treatment. To support this concept, we plan to submit an IND amendment or similar to initiate a combination trial of TransCon CNP and SKYTROFA by the end of this year. Moving to oncology, for TransCon IL-2 beta/gamma, we recently reported new data from the IL-Believe trial of TransCon IL-2 beta/gamma as monotherapy and in combination with chemotherapy at ESMO. These data confirm that TransCon IL-2 beta/gamma dosed every three weeks demonstrated clinical activity as monotherapy or combination therapy in multiple tumor types, particularly in late-line heavily pretreated patients. Further strengthening our confidence in its best-in-class potential, in two out of three small lung cancer patients treated with combination therapy in the trial, confirmed partial response and unconfirmed complete response in the first tumor assessment were observed. We believe these data are intriguing despite the very small sample size considering the treatment history of the responders and the substantial unmet medical needs. Enrollment is ongoing in the indication-specific cohort of IL-Believe, where we are now enrolling 20 to 40 patients in each indication, and we expect interim results in the second half of 2024. In summary, with growing revenue and strengthening our pipeline, we continue to progress toward our goal of becoming profitable. With our Vision 3x3 on track to be achieved in 2025, we are preparing for our next vision for growth to 2030. In our next vision, which I look forward to sharing with you at the beginning of 2024, we will work to leverage our fully integrated capability to become the leading endocrinology rare disease company, taking products from concept to patients on a global scale with a highly productive organization. In other areas where we believe TransCon can deliver best-in-class product candidates, as we have in oncology and ophthalmology, we plan to pursue partnerships or business models to take our product candidates from late-stage development to commercialization. Such future partnerships in oncology and ophthalmology, along with the maturation of our endocrinology program, should result in lower expenses in the coming years. By staying focused on achieving valued market leadership globally for our endocrinology rare disease portfolio, we believe Ascendis will deliver sustainable value over the long term for patients, shareholders, and society. I will now turn the call over to Scott for a financial review before we open for questions.

Thank you, Jan. As Jan noted, we believe we are making significant progress towards our goal of becoming cash flow positive with SKYTROFA revenue growing in each quarter combined with diligent expense control. I will touch on some key points surrounding our financial results, but for further details please refer to our Form 6-K filed today. Total revenue for the third quarter of 2023 was €48 million. SKYTROFA revenue for the third quarter was €47 million compared to €35.9 million reported in the second quarter and €12.3 million reported in the same period last year. The sequential growth in SKYTROFA revenue was primarily driven by increased demand in the U.S. with minimal foreign currency impact of around €100 million. Exiting the third quarter, we estimate we have low double-digit penetration into the U.S. pediatric GHD patient population, and we see a large opportunity in front of us to grow our patient share in pediatric GHD, which we estimate to be only half of the addressable U.S. growth hormone market. Turning to expenses, R&D costs in the third quarter totaled €111.4 million, up 6% sequentially from the second quarter of 2023, primarily driven by higher endocrine rare disease related costs, including clinical expansion and PPQ manufacturing costs related to TransCon CNP, partially offset by lower oncology related costs. SG&A expenses declined 9% sequentially to €63 million compared to the second quarter of 2023, primarily related to lower commercial and G&A external costs. Total operating expenses were €175 million for the third quarter, less sequentially from the second quarter of 2023. Overall, our operating loss declined sequentially by 5% to €134 million for the third quarter from €141 million in the second quarter of 2023. We ended the third quarter with cash, cash equivalents, and marketable securities totaling €455 million, including proceeds from the previously announced $150 million royalty funding agreement. Looking ahead, with continued momentum for SKYTROFA in the U.S., we are increasing full-year 2023 SKYTROFA revenue expectations to €170 million to €175 million. Let me now also provide a review of selected key program milestones. For TransCon Growth Hormone, we expect to report top line data from the global Phase III Foresight trial in adult GHD in December, potentially opening an opportunity to both expand SKYTROFA's label as well as expand the overall growth hormone market. For TransCon PTH, as Jan noted, we are on track to resubmit our NDA for TransCon PTH for adults with hypoparathyroidism before mid-November. We expect a European Commission decision on TransCon PTH this month. If approved, we plan TransCon PTH as our second product launch in Germany starting in January 2024. For TransCon CNP, we expect to submit an IND amendment or similar for a new clinical trial evaluating TransCon CNP in combination with TransCon Growth Hormone in children with achondroplasia. We plan to share follow-up data from the open-label extension of our Phase II ACcomplisH trial later this quarter. And as a reminder, we expect to report top-line results from ApproaCH, our Phase III trial of TransCon CNP, in the second half of 2024. Within our oncology therapeutic area, enrollment continues in the Phase II portion of our IL-Believe trial of TransCon IL-2 beta/gamma in indication-specific cohorts. We expect initial data from indication-specific cohorts in the second half of 2024. With that, operator, we are now ready to take questions.

Our first question comes from Jessica Fye with JPMorgan.

This is Nick on for Jess. Can you talk to us a bit more around your strategy with the oncology and ophthalmology programs and kind of what that means in terms of OpEx over the near-term and maybe more so over the long-term and how likely to change?

The question relates to what do we do as a company with a very strong platform technology that basically has applications in nearly every therapeutic area. We at Ascendis will be focused on rare disease endocrinology. This is where we will be integrated from idea stage up to the patient where we are building up all the efforts. We also know that the TransCon technology would provide paradigm shift products, best-in-class products outside our own focus area. We also feel that we need to be part of that value creation to benefit the patients. We will have different business models that will fit exactly to each therapeutic area. In some areas, we will basically out license at an early stage, where the feeling is that it is the optimal thing. It could be potentially large patient indications where we potentially can never succeed with running all the big clinical trials. It can be areas like ophthalmology, where we mature the two states and then we change to give it out either to a spin-out or an out licensing, or a combination of both where we feel that an independent management team really focused on, for example, ophthalmology can greatly mature that segment. It is not the same thing Ascendis will not be continually involved. We will still provide service to this entity and we will benefit from the upside related to royalties, milestone payments, and equity. In areas like oncology, where we feel that we can really make a difference for the patient, we made an investment in it, and we will continue to invest until we can capture the full value. As I see how we progress with this oncology effort, I’m really proud about it.

And maybe can you help set the stage for the update from the Phase II accomplish trial and what you hope to see when you have all the patients on 800 micrograms for the full year?

Yes. What we hope to do is provide you with the elements that we really believe are essential for the patients. We will provide you with the sustainability of how we keep the positive benefit on growth, but we've also come in and tried to give you explanations both from a scientific base but also true data that show how we feel that we are providing a benefit to the treatment besides just providing the analyzed height velocity. We are 100% in the belief that the key element for us is to address the comorbidities associated with this disease and that is our focus on that. This is why we believe that annualized height velocity is an element if it is desired and if the patient really wants to have it, that they can always go into perhaps the most powerful combination of treatment where CNP moves the brake and growth hormone speeds up the accelerator, and you basically will have what we call the desired annualized height velocity compared to the patient's needs.

The next question comes from Paul Choi with Goldman Sachs.

My first question is just with regard to TransCon PTH positioning in the major European markets, specifically, Germany and just how you think position will be particularly given surgical complication rates there, and then just the pace of reimbursement access? And then I had a follow-up question.

You are right. The European and the international market is much more diverse regarding reimbursement. The fastest is Germany where already from January, we expect to launch TransCon PTH and it will be fully reimbursed. The patient population in Germany is actually pretty large compared to the size of the country, mainly driven by higher treatment on head and neck operations. So you are right, it is a post-surgical patient population that is much higher. We believe the addressable element of patient, not the total patient population, is about 22,000. At the same time, we are in a position where the only approved treatment for hypoparathyroidism in Germany is being taken off the market. So we are in intensive discussions with all the key centers on how we can really help more than the 400 patients who are already eyeing this PTH treatment to take one into treatment in 2024? Besides that, for many years, there has been a long layout of patients that want to be on a PTH treatment but have never had the opportunity to do so. This is why the European approval gives us a clear roadmap to start immediately on a full commercial effort in Germany. At the same time, European approval provides us with an application system for addressing patients in the international market. Some markets, we will have an independent application, while in other markets, we can directly refer to our European application. So we are dedicated to really help patients everywhere in the world who have a need for the treatment due to the hypoparathyroidism patient situation that exists today.

And just as a quick follow-up, with competing hGH products approved here in the U.S. Can you maybe just comment on what mix of formulary access might be up for renegotiation this year? And any general comments you've had into the 2024 renegotiation period?

I've been asked in the last 3, 4 months a lot. What is really the impact on having our long-acting product in the U.S. market? And clearly, we have never seen more interest; we have not seen better numbers ever since it got clear that our best-in-class product SKYTROFA has compared to the other products, really building up on what we established in the last two years, how we really are changing the treatment we see in the treatment of pediatric growth hormone deficiency with a better outcome. And that is not going to change with any other long-acting products. It is just providing, I believe for some of them, a lower floor to exceed and overcome.

The next question comes from Joseph Schwartz with Leerink Partners.

So a couple of questions on TransCon CNP, if I could. First of all, I was intrigued by your commentary about achondroplasia being not only a bone disease but having a muscle component. I was curious if you could just talk a bit about how you intend to illustrate the benefit of TransCon CNP on those aspects of the disease. And then also, in terms of TransCon CNP's potential to be combined with TransCon or SKYTROFA as it is now called, I was wondering given I thought a lot of the earlier science suggested that growth hormone supplementation in achondroplasia had just an ephemeral benefit. What are your thoughts on the potential for the combination to show a more sustained response in achondroplasia?

Thanks for the question. Let me start with your last question about annualized height velocity. We have always known that growth hormone had a positive effect on achondroplasia. Sometimes it has been a little bit unclear what has been the magnitude of that because it typically has been small trials. When we saw the trial coming out from the Japanese group, pretty well controlled, following patients up to five years, the numbers are promising, showing a first-year annualized height velocity of around 7.4. That is more than we’ve seen any kind of TransCon treatment ever provide. And when you have 41 patients, I always feel that it gives me pretty good comfort. It's the best annualized height velocity I have ever seen in any trial with achondroplasia patients. We analyzed 20 publications about all small trials, and it’s clear that we should have known from the literature in-depth, as we could have realized this. So this is not surprising; it is something that could have been underappreciated. But there is no doubt, the best annualized height velocity you can get in this context today is on growth hormone. The problem is addressing the comorbidities associated with achondroplasia; I believe that we can achieve a better outcome by acknowledging that the biology behind achondroplasia involves more than just skeletal growth. In the end, we are just at the beginning of addressing this disease. We need to address those comorbidities. We believe the treatment is potentially moving towards a combination where CNP will address some of the biological systems influencing the achondroplasia condition.

The next question comes from Yaron Werber with TD Cowen.

Maybe one very quick one and the second one is a little bit bigger. Just on the PTH, the refiling is going to be sort of in the next week or so. Can you just comment, did you sort of by this point work out all the analysis that FDA is going to want you to do? Or do you feel like you have good clarity? And then secondly, on the preclinical GLP-1, if the data with some obviously looks interesting on a monthly basis, what are sort of the next steps as you see them before you can start the enabling study? Are you still trying to fine-tune the construct? Or is this potentially something you want to take yourself? Or is it something that you ultimately want to potentially partner?

This is Tim. Let me take the first part. As Jan noted in his prepared remarks, and besides the information that we just discussed, we are not going to comment further on the resubmission process.

Related to the GLP-1, we are in a great space. We came out with the data that demonstrated the interest people could see in it, both as an improved one-week treatment, but also on a once-monthly basis for this important segment. We continue the dialogue with companies that are interested in collaborating.

The next question comes from Li Watsek with Cantor Fitzgerald.

Just first one, we've seen daily products continue to retreat and reduce output in Q3. Can you just talk about how much of a tailwind has been for SKYTROFA and where do you see that trend tracking in the coming quarters?

The question you are addressing is what is happening in the growth hormone market? I think what we are seeing is the results of the consolidation that we had predicted. Four years ago, when we came up with our Phase II data, many established players were scrambling to maintain their relevance in the market. Now we have three players left with a sales force, infrastructure, and other resources. So instead of having six players, you are down to three players, and likely there will be fewer players in the coming years when real consolidation occurs. So in some ways, you are saying that it is a shortage, but the shortage is also indicative of how the consolidation of the market led to it since more companies cannot maintain production capacity. This does not change the fact that SKYTROFA is the leading brand in value, as we are providing best-in-class products that are recognized by physicians, caregivers, patients, and also by the reimbursement systems.

And then maybe just a question on TransCon IL-2. You show some pretty nice data in small cell lung cancer. So is there any plan to add that indication to our expansion cohort?

That's a great question, Li. Yes, we were very encouraged by our initial signal in small cell lung cancer and we are exploring adding additional indication cohorts in lung cancer for both our ongoing studies and potential future ones.

The next question comes from Leland Gershell with Oppenheimer.

Just wanted to ask further on the plans for TransCon CNP for benefits outside of height velocity in terms of other comorbidities. Wondering if you could just maybe go into, beyond muscle? Are there other measures or endpoints that you are contemplating to include in upcoming studies?

We are exploring a lot of different elements. We want, I would like to group it a little bit. One is the patient-reported outcome where you have both our own developed measures and established ways to really catch how one can have a physical benefit from this treatment or not. So this is one, which we call the patient-reported outcome. The other one we are looking for is dedicated comorbidities. Are there any clear patterns where we see less comorbidity over a year period? Because we need to go through some seasonal observations to be sure we are capturing what influences are at play. The other one is more hardcore elements where we have many x-rays of the patients, assessing whether they are really changing their scoliosis or experiencing other changes. These assessments are based on various kinds of bone development issues. When we go to the younger patients, we started more critically evaluating benefits like spinal stenosis. We are analyzing how we can prove all these aspects for our pivotal Phase III trial. We want to ensure we have clarity in our discussions with regulatory agencies when we have unblinded data. Regarding retention rates, we will provide data on all 57 patients after one year, which we believe will give a clear picture of treatment effects over time.

This concludes today's Ascendis Pharma third quarter earnings call. You may disconnect your lines at any time and have a wonderful day.