Ascendis Pharma Takes A Big Price Cut On Skytrofa

Ascendis Pharma ( ASND ) shocked investors with a big Q2 revenue miss , driven by a large net price cut on Skytrofa that management says was necessary to ensure broader access to the drug. The company did not share the exact price cut, but we can calculate from Q2 demand and adjusted net sales numbers that it is approximately 35%.

I am not sure how much of the price cut Ascendis can make up with increased patient numbers, but I am sure that the loss of peak sales on Skytrofa will not be 35%. Even so, I believe we have to assume that peak sales of Skytrofa in the United States will be lower – my best estimate at this point is a range of 15% to 20%.

While this change will hurt in the near-term, due to the negative impact on near-term net sales and cash flow, and also due to loss of trust between Ascendis and some of its investors that will take some time to go back to normal, I believe that the investment thesis on Ascendis is not even close to being broken.

And the good news was that the price of Yorvipath in the U.S. will be much higher than expected and that its U.S. peak sales potential could also be much higher under the assumption of no negative implications on patient access. I am not making changes to my long-term peak sales expectations on Yorvipath until I see that the higher-than-expected price is not negatively impacting access.

Price cut on Skytrofa as competition in the U.S. growth hormone deficiency market heats up

The topline number in the press release looks really bad. Net sales of Skytrofa declined 27% Y/Y and 60% sequentially to $28.1 million (Ascendis reports in euros but I will recalculate all the numbers to U.S. dollars).

However, the numbers look far worse than they are, as the company took a $29 million adjustment in the second quarter due to the significant net price reduction. If we add back the adjustment, actual net sales with the new and lower price in Q2 are $57.1 million.

The price cut was necessary to ensure broader access to Skytrofa as the competition in the weekly growth hormone deficiency market is intensifying – Pfizer’s ( PFE ) Ngenla was recently launched, and Novo Nordisk’s ( NVO ) Sogroya is available for some time now.

The good news is that there is still significant demand for Skytrofa. Y/Y volume growth was 134% and indicates net sales would have been approximately $90 million in Q2 if the net price was the same as last year, and at the high end of my $88-90 million estimate range that I shared in my August article . This also allows us to calculate the net price cut - it is approximately 35%.

Ascendis now expects Skytrofa net sales in 2024 to be in between €220 million to €240 million, or approximately $243-265 million based on the current exchange rates. This implies healthy sequential growth in Q3 and Q4 of this year and net sales could grow back to new highs as soon as Q3, or Q4, depending on seasonality and execution. Taking the mid-point of the new range, and assuming better seasonality in Q4 (and worse in Q3 due to summer holidays), Q3 net sales could approach $70 million and Q4 sales would be nearly $84 million.

Management said on the earnings call that they are not taking into account the potential positive impact from better access and more favorably seasonality that they saw in the last two years, so that implies there is some upside to the new net sales guidance range for 2024.

They also said that the new and lower net price of Skytrofa is expected to stay stable in the following years.

There is still quite a bit of room for growth for Skytrofa, even with a lower net price. The next few quarters will show whether the tradeoff for better access brings results.

I believe that a 35% net price cut does not translate to a 35% reduction in its annual peak sales, as I expect a higher market penetration rate in the long run. It is not easy to quantify the reduction at this point, but my preliminary estimate would be a 15% to 20% reduction in annual peak sales in the U.S.

Management says that Skytrofa’s market share in the U.S. at the end of Q2 was 18% in pediatric growth hormone deficiency (the current labeled indication for Skytrofa) and 10% in the overall growth hormone deficiency market. This leaves a lot of room for growth even at a 35% lower net price, and the company is actively working to expand the label for Skytrofa – the sBLA submission for adult growth hormone deficiency is expected this quarter, the phase 2 results from the Turner syndrome trial are expected in the fourth quarter, and the phase 2 results of Skytrofa in combination with TransCon CNP are now expected in Q2 2025.

Yorvipath’s U.S. price will be much higher than expected

The update on Yorvipath’s price in the U.S. was neglected this week. For good reason, of course, but the potential positive implications here could go well beyond the net price cut for Skytrofa. On the earnings call, management said the U.S. list price of Yorvipath will be $285,000 per patient per year. The net price will probably be 10-15% lower as there is no competition in the hypoparathyroidism market like there is for Skytrofa in the growth hormone deficiency market. The price is much higher than what, I assumed, was going to be a premium of up to 20-30% to the $110,000 per patient per year price in Germany.

The question now is whether the higher price results in higher pushback from payers, and for the time being, I am not making changes to my long-term sales expectations on Yorvipath ($2 billion+ in global annual sales by the end of the decade) until I see how the first few quarters on the market look like. But the math is clear – Yorvipath needs to be taken by approximately 4,000 patients to reach $1 billion in U.S. net sales, or 4% to 6% of the estimated prevalent population.

At the same time, this is the “low-hanging fruit” population as there is between 4,000 and 5,000 patients who were on Takeda’s ( TAK ) Natpara in the last 7–8 years. As a reminder, Takeda is taking Natpara off the market due to its inability to solve some manufacturing issues – it will cease manufacturing by the end of 2024 and from there, it will be available until inventory runs out.

The launch of Yorvipath is still expected in the first quarter of 2025, but it could happen in Q4 of this year if the FDA allows Ascendis to use the existing product supply.

In my August article, I laid out what a successful launch would look like, and I am revising these estimates to account for potentially more difficult access (at least initially):

• Base case - initial patient numbers to exceed 600 patients within three quarters of commercial availability (down from 1,000), and between 1,200 and 1,500 by early 2026 (down from more than 2,000).
• Bullish case – more than 1,000 patients within three quarters of commercial availability (down from 1,500), and more than 2,000 by early 2026 (down from 3,000).

Given the net price difference to my previous assumption, even these lower numbers would translate to higher net sales in both cases – 1,500 to 2,000 patients on Yorvipath in U.S. translate to an annualized net sales run rate of more than $350 million and approximately $500 million, respectively (versus $180-200 million and $250-300 million based on 20-30% net price premium to the German price).

Uptake in Germany and Austria is so far not spectacular, but Ascendis is making progress there. Net sales in those territories were $5.6 million in the second quarter, and the company says there are approximately 250 patients on Yorvipath in the two countries. Initial revenue from France is expected in the fourth quarter.

Phase 3 results of TransCon CNP are expected in the following weeks

Ascendis expects to report the topline results from the phase 3 trial of TransCon CNP in achondroplasia patients in the following weeks. This is slightly sooner than expected, as the previous guidance was for topline results in the fourth quarter.

My expectations are relatively modest here and I expect TransCon CNP’s results to be consistent with those it generated in the two phase 2 trials with annualized height (or growth) velocity (‘AHV’ or ‘AGV’) in the 5.5cm to 6cm range after 52 weeks of treatment. I expect the AHV of the placebo group in the 4cm to 4.5cm range. My base case placebo-adjusted difference is 1cm, a bullish case of 1.5cm+ difference, and a bear case of sub-5.5cm AHV and sub-1cm difference to placebo.

Below are the data from previous trials of TransCon CNP, BioMarin’s ( BMRN ) Voxzogo, and BridgeBio’s ( BBIO ) infigratinib that paint a good picture of the competitive landscape. As a reminder, TransCon CNP shares the mechanism of action with Voxzogo (both are CNP analogs) with TransCon CNP having an advantage of once weekly subcutaneous dosing versus once daily subcutaneous injections for Voxzogo and a potential safety advantage due to lower maximum concentration that may lead to avoidance of hypotension episodes that Voxzogo causes. On the other hand, infigratinib is an oral drug candidate and this could be a significant advantage in a pediatric population, even if it generates similar efficacy and safety to TransCon CNP and Voxzogo.

However, we could see potential additional changes to the treatment landscape in the second half of the decade if the TransCon CNP and Skytrofa combination can drive additional efficacy. The results from the phase 2 trial are now expected in Q2 2025, a slight delay from the previous guidance for Q4 2024.

Other upcoming pipeline updates

We should see the initial results from the phase 2 dose expansion cohort of the combination of TransCon IL-2 β⁄γ (beta-gamma) and chemotherapy in platinum-resistant ovarian cancer later this month at the European Society for Medical Oncology (‘ESMO’) 2024 Congress.

Other potential updates were not mentioned in the Q2 press release, but we should see more mature data across the trials of the two oncology candidates (TransCon IL-2 and TransCon TLR7/8 agonist) in the following quarters which should finally reveal whether this side of the pipeline has long-term potential. There were some promising efficacy signals in prior updates, but overall, I am not impressed, and my expectations are low, and I would love for these two candidates to prove me wrong.

Ascendis secured another $150 million from Royalty Pharma in exchange for 3% royalties on Yorvipath

The significant net price cut on Skytrofa has forced Ascendis to raise some cash again. The company ended Q2 with $277 million in cash and equivalents, a decline of $163 million from the end of 2023. After it raised $150 million last year from Royalty Pharma in exchange for capped royalties on Skytrofa, Ascendis raised another $150 million from Royalty Pharma in exchange for capped royalties on Yorvipath.

Based on the deal terms for each financing round, it seems that Royalty Pharma is acknowledging the much higher peak sales potential of Yorvipath. For the same $150 million, it got a 9.15% royalty on U.S. net sales of Skytrofa, and for Yorvipath, it got a 3% royalty on U.S. net sales. Payments to Royalty Pharma will cease if total payments reach a multiple of 2.0x, or 1.65x if it receives royalties in that amount by December 31, 2029.

Ascendis previously expected to reach cash flow breakeven in Q4 2024, and it now expects this to happen in either Q4 2024 or Q1 2025. The timing depends on when the launch of Yorvipath occurs – it could happen as soon as the next few weeks if the FDA allows the use of existing drug supply, or in Q1 2025 if the FDA requires a new manufacturing batch for the U.S. launch.

I believe the cash on hand before this $150 million deal was likely to be sufficient to get Ascendis to cash flow breakeven, but it is better to be safe, and I too would not have risked to have the cash balance go too low, as there is always the possibility of Yorvipath net sales coming short of expectations.

Conclusion

The second quarter earnings report and the updates around Skytrofa are definitely a hard pill to swallow, but may not have as significant of an impact on Ascendis in the long run. The higher-than-expected price of Yorvipath in the U.S. could actually make this update a significant net-positive in the long run, but let’s see how the commercial uptake in the U.S. looks like in the next few quarters before becoming more bullish on Yorvipath’s long-term peak sales potential.

The phase 3 results of TransCon CNP in achondroplasia are next, but based on the phase 2 data and the competitive landscape, my expectations are modest in terms of its competitive profile and the impact the results could have on Ascendis' share price. I still see TransCon CNP as Ascendis’ third most valuable product (with Yorvipath being first and Skytrofa second), and I think we need my bullish case to hit (6cm AHV and at least 1.5cm placebo-adjusted) for the market to appreciate the results.

I remain as bullish on Ascendis as I was prior to the Q2 results (no changes to conviction or long-term upside expectations), and potentially more bullish based on Yorvipath’s net price (versus the Skytrofa price cut). However, I am acknowledging the near-term issues and negative sentiment caused by Skytrofa’s net price cut, and the possibility that the stock stays in investors' penalty box in the following weeks and months.