Ascendis Pharma Stock: Translating IP Into A Profitable Business (ASND)

Summary

The TransCon platform is designed to optimize the delivery of known drugs to target tissues. Thus far, management has executed well in the clinic, in the regulatory arena and commercially. The two most advanced assets, Syktrofa and TransCon PTH are best in class medicines. TransCon PTH may be the only hormone replacement therapy available if approved and has a very significant commercial opportunity. Q4 has many catalysts which could reset the valuation as the clinical profile of additional assets becomes clearer and the pipeline expands to a third therapeutic area. Critically, the company is well positioned to become a profitable business and unlikely to need additional capital. Ascendis (ASND) is the rare platform company with a path to replicate their success as well as assets which can generate significant revenue in the near term. This positions Ascendis Pharma as a potentially interesting acquisition target for a large pharma company looking for both revenue and IP which can expand their pipeline.

Background

Ascendis Pharma is headquartered in Denmark and their IP is the “TransCon” technology. This nomenclature stands for transient conjugation- where a drug is transiently covalently bonded to a carrier using a linker. This platform enables drugs to be optimally delivered and released to target tissues using a library of carriers and linkers to produce unique and ideal drug release profiles.

Ascendis Pharma’s platform has a great deal of flexibility because the company has patents on a wide range of linkers and carriers which allows for administration ranging from daily to every six months. Delivery using the TransCon technology can be systemically via a self-administered subcutaneous injection device or locally administered by a physician to target tissues such as tumors. Moreover, antibodies, proteins, peptides and small molecules can all be delivered using Ascendis Pharma’s technology. The prodrugs are new chemical entities and thus eligible for composition of matter patents to protect the company’s investment.

Many known medicines have excellent target engagement but clinical effect is limited due to poor pharmacokinetics. Optimized pharmacokinetics can offer patients better efficacy, better convenience and potentially fewer side effects. The technology has a wide range of applications and to date the company has applied this technology to two therapeutic areas but Ascendis will announce a third therapeutic area by year end. For investors, using known drugs or clinically validated pathways with optimized delivery results in a lower risk pipeline than novel drug discovery.

Syktrofa and TransCon PTH have demonstrated how the technology can result in new medicines with clear advantages over existing treatments. Looking forward, these medicines create a path to profitability and validate the potential for a sustainable business model.

A review of the current assets, commercial positioning and peak sales estimates follows below. In addition, the upcoming catalysts which may fortify investor confidence and reset the valuation will also be addressed.

Skytrofa

Skytrofa was approved in the EU and US for the treatment of growth hormone deficiency. There are various formulations of human growth hormone which are commercially available. This is a highly competitive market with eight approved competitive products. (Ex. Norditropin, Ominitrope)

Skytrofa which was FDA approved in 2021 was the first once-weekly treatment for children with GHD. Launch is expected in Europe in 2023. The phase 3 study enrolled 161 treatment-naive pediatric patients with GHD. In the study, 0.24 mg/kg/week doses of Skytrofa was compared to somatropin and the study met the objective of demonstrating non inferiority in annualized height velocity (AVH). After 52 weeks, Skytrofa treatment resulted in an AHV of 11.2 cm/year compared to 10.3 cm/year for patients treated with daily somatropin (p-value of 0.0088). Adverse events were similar in both groups.

Skytrofa is a user-friendly product when compared to daily injections. The device utilizes a prefilled syringe and has the advantage of being stored at room temperature while other medicines require refrigeration. Skytrofa is premium priced ($6157 per month) and the most expensive of available products. Insurance formulary adoption is ongoing. Ascendis has a US sales force calling on endocrinologists who are prescribers. The strategy has been to utilize a patient access program and later convert these patients to commercial coverage as healthcare plans include Skytrofa on formularies.

ASND reported 3Q22 Skytrofa revenue of €12.3m which was an 180% QoQ increase. While Skytrofa is a best in class medicine, the competitive market may limit peak sales. $1Bn in peak sales is possible given growth hormone is a $4Bn market. Sales growth can result from label expansions (adult GHD and Turner Syndrome) and adoption in ex-US markets including Asia through VISEN Pharmaceuticals, their subsidiary.

TransCon PTH

Hypoparathyroidism is a disease where the body produces abnormally low levels of parathyroid hormone (PTH). PTH is responsible for regulating calcium, vitamin D, and phosphate levels in the blood and bone. Standard therapy includes calcium and vitamin D supplements but does not address the underlying hormone deficit.

TransCon PTH is a hormone replacement therapy for hypoparathyroidism, which is a once-daily prodrug of PTH. It was designed to restore physiologic levels of PTH up to 24 hours a day. The Phase 3 PaTHway trial compared TransCon PTH to placebo in a double-blind study followed by an open-label extension period. The primary endpoints and key secondary endpoints were met. 78.7% patients taking TransCon PTH met the primary endpoint compared to 4.8% of placebo patients (p-value <0.0001). Safety data was also favorable and preclinical and clinical data showed no osteosarcoma risk while Natpara’s label contains a warning.

There is a high likelihood of FDA approval given the dataset. An NDA was submitted and currently it is being reviewed by the FDA with an April 30, 2023 PDUFA date. An MAA filing in Europe is expected in Q422.

Recently, Takeda announced that the competitive product, Natpara, will no longer be available commercially due to manufacturing difficulties they were unable to resolve to the satisfaction of FDA. Thus, if approved TransCon PTH will be the only approved hormone replacement therapy for hypoparathyroidism. Given Natpara’s lack of availability there is a significant unmet need.

The main issue for investors is where will TransCon PTH fit into the treatment paradigm if approved. On the recent earnings call, the CEO noted the inclusion of PTH replacement therapy in the treatment guidelines for hypoparathyroidism and TransCon’s potential use, if approved, in symptomatic hypocalcemia, hypophosphatemia, and in patients who are intolerant of large doses of calcium or Vitamin D supplement therapy.

There are ~77,000 adults the US, ~86,000 in the EU and ~25,000 in Japan with PTH. There are additional patients in China where the company may be able to market the product through Vision, their subsidiary.

Natpara’s US price was ~60K per patient. Assuming just a fraction of the ~188K patients are treated, peak sales could reach $2-3B. Goldman Sachs estimates €2.3 billion vs. consensus of €1.4 billion. Peak sales are very difficult to predict given the uncertainty about how many PTH patients will be candidates for treatment but very significant revenue can be expected.

TransCon CNP

A Phase 2 study in achondroplasia in patients ages 2+ using TransCon CNP is set to read out data in a few weeks. PK data suggest it may have a best in class profile. 100% of patients enrolled in the blinded treatment portion entered into the open label extension study suggesting a favorable profile. An overview of the Phase 2 study, the disease and competitors was provided in my previous SA article.

Competitor BMRN’s Voxogo’s has shown rapid adoption and they recently increased full year guidance to $140 million to $170 million. Given these launch dynamics in the first year, there is a clear demand for achondroplasia treatments. Peak sales of several hundred of million for TransCon CNP if it shows a best in class profile and is approved is likely a very conservative estimate.

Oncology

The oncology pipeline candidates remain early stage and high risk. In addition, there is a precedent for a high failure rate with these targets (TLR7/8 agonist and IL-2) so caution is warranted and I assign no significant value currently. Detailed data from the TransCon TLR7/8 agonist study is expected at the upcoming SITC conference in November. Initial Phase 1/2 monotherapy data for TransCon IL-2 is expected in 4Q22.

Risks

There is a high degree of clinical risk for the oncology assets. There is regulatory risk for TransCon PTH albeit limited and likely focused on CMC given the favorable clinical data. Lastly, there is risk that TransCon CNP data will not reveal a best in class profile despite the pharmacokinetics.

Finances

Ascendis Pharma is extremely well positioned and has a path to becoming a profitable enterprise without further capital. The company reported €935.1 million of cash on hand and stated on their earnings call that they do not anticipate requiring additional capital.

Analyst Price Targets

The following are analyst price targets on ASND shares: Credit Suisse $130, Oppenheimer $150, Wedbush $151, Citigroup $163, Goldman Sachs $175 and Morgan Stanley $146.

Conclusion

Ascendis Pharma has a line of sight to profitability. While there remains uncertainty and clinical risk, the company has an approved product, Skytrofa, generating revenue and likely has very significant revenue coming in 2023 from TransCon PTH. Given the unmet need, a quick ramp up of sales of TransCon PTH is likely. While peak sales are difficult to estimate, the full endocrinology franchise is likely to generate billions in peak sales. It is also notable that by concentrating on rare diseases in endocrinology only a small sales force and very limited promotion of their products is required. The low cost to commercialize is extremely attractive.

Within the next six months, Ascendis Pharma may be in a very different position. They may have two approved assets with billions of dollars in peak sales potential and a third asset (TransCon CNP) in phase 3 on track for a 2025 launch. If even one oncology asset moves forward, they will have a full pipeline with large potential market opportunities and an early stage pipeline in a third therapeutic area. As the profile of the company’s assets is clarified, the valuation may reset to reflect de-risking and in anticipation of future profitability.

As the company becomes a commercial enterprise with significant revenue, the value of the platform technology becomes more evident. Moderna made billions with their Covid-19 vaccine, but fundamental to the value of Moderna is the IP that can be applied to develop other vaccines and therapeutics. Similarly, Ascendis Pharma has core technologies which enables the company to discover new, patentable medicines and expand its portfolio. The true value may be that Ascendis has a scalable business. While the company has not suggested they will pursue this, one value of a platform is that the IP can potentially be licensed to other drug developers and create licensing, milestone and royalty revenue.

Moreover, this IP could be very attractive to an acquirer which needs growth without a high level of risk. There are many large companies such as Novartis, Pfizer, Merck, BMY and even Vertex which have a need to fill their pipelines and the cash to do so. It is notable that platform companies (Kite Pharma, Immunomedics, AskBio) appear to command a significant premium when acquired. Regardless of whether Ascendis Pharma continues as an independent company or is acquired, it remains the elusive platform company which has a clear line of sight to profitability and a path to replicate its own success.

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