Ascendis Pharma's TransCon hGH Works Better Than Investors Expected

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About: Ascendis Pharma A/S (ASND)
by: ONeil Trader
Summary

Ascendis Pharma surged last week after reporting better-than-expected TransCon hGH phase 3 results.

Based on the results, it appears TransCon hGH is not only a more convenient but also a superior treatment option for pediatric growth hormone deficiency patients.

Showing superiority over daily growth hormone increases TransCon hGH's peak sales potential.

Positive phase 3 results of TransCon hGH also provide validation of the TransCon technology, which is where the significant additional value of the company is.

Shares of Ascendis Pharma (ASND) surged last week after the company reported better-than-expected phase 3 results of TransCon hGH in pediatric growth hormone deficiency. The best-case scenario happened - TransCon hGH was not only numerically superior to daily growth hormone (Pfizer's (NYSE:PFE) Genotropin) but also achieved statistically significant superiority. TransCon hGH was also well tolerated with a safety profile similar to Genotropin. I believe the results support a strong market uptake scenario with superior efficacy, similar safety, and significantly improved convenience. I expect TransCon hGH to generate higher peak sales than I originally envisioned and am increasing my estimate range from $1-1.2 billion to $1.5-2 billion. And although the stock is up significantly since I bought it and wrote about it for the first time, I believe Ascendis has more room to run in the following years and there is no shortage of catalysts in the next few years.

TransCon GH achieves superiority over daily growth hormone

The phase 2 results suggested TransCon hGH could achieve superiority over daily growth hormone, but I didn't expect the superiority to reach statistical significance. To put this in simple terms, numerical superiority is not a label claim - to have that claim, you need that superiority to show statistical significance. Having achieved statistically significant superiority over Genotropin makes TransCon hGH not just a weekly version of the daily growth hormone, but a better weekly version of the daily growth hormone. This means that in addition to potential improvements in patient compliance and adherence, TransCon hGH also leads to better outcomes.

One additional thing worth mentioning here is that the superior results were achieved with similar adherence of TransCon hGH and Genotropin. The real world difference should be even greater due to the expected improvements in adherence to TransCon hGH compared to daily growth hormone products. Improved adherence to therapy alone should lead to substantially improved outcomes for growth hormone deficient children and now, we have a bonus of higher growth velocity at comparable doses of TransCon hGH and daily growth hormone. I really can't see a reason why TransCon hGH would not become the standard of care in pediatric growth hormone deficiency.

Let's briefly go over phase 3 results (emphasis added):

  • The trial met its primary outcome, demonstrating that TransCon hGH was non-inferior, and additionally, superior to daily growth hormone. The annualized height velocity ('AHV') at 52 weeks was 11.2 cm/year compared to 10.3 cm/year with a treatment difference of 0.86 cm/year. The statistical significance for superiority was reached with a p-value of 0.0088.
  • The incidence of poor responders (AHV less than 8 cm/year) was 4% and 11% in the TransCon hGH and daily hGH arms.
  • No serious adverse events related to study drug were observed in either arm.
  • One serious adverse event was observed in each arm, representing 1% of TransCon hGH and 1.8% for daily hGH, both determined to be unrelated to study drug.
  • No treatment-emergent adverse events leading to discontinuation of study drug in either arm.
  • No neutralizing antibodies detected, and low level (less than 10%) of low-titer non-neutralizing antibodies was similar between the two arms.
  • Height standard deviation score ('SDS') at 52 weeks increased over baseline by 1.05 for TransCon hGH and by 0.94 for the daily hGH with the treatment difference increased at each visit over 52 weeks.
  • Body mass index ('BMI') SDS was stable over 52 weeks.
  • Mean hemoglobin A1c values were generally stable over the course of the trial and remained within the normal range for both arms.

The IGF-1 data made the readout imperfect, but there are no major concerns there:

  • Observed peak and trough insulin-like growth factor-1 (IGF-1) SDS values were 1.3 and -0.5 over 52 weeks, respectively for TransCon hGH compared to an approximate average IGF-1 SDS of 0.0 for the daily hGH at week 52.
  • Consecutive IGF-1 SDS values greater than 2 were uncommon (less than 10% of subjects) and IGF-1 SDS greater than 3 were rare (less than 3% of subjects).
  • Adverse events leading to dose reduction (IGF-1 level or clinical symptoms) occurred twice in the TransCon hGH arm (1.9%) and once in the daily hGH arm (1.8%).

Too high IGF-1 is a theoretical concern and we actually want to see IGF-1 higher which means the therapy is working but we don't want to see it too high because it could theoretically lead to acromegaly (gigantism). Management addressed this on the investor call, saying that it is not unexpected to see higher IGF-1 in TransCon hGH patients because of more consistent exposure and that the observed excursions above 2 and 3 were rare and transient. The company also hospitalized 11 patients for intense monitoring purposes, making robust assessments what happens over the course of one week and there were no concerning findings. What is also important to note here is that IGF-1 goes back to the normal range soon after the excursions.

Overall, I believe the results are supportive of TransCon hGH becoming a blockbuster drug. As a reminder, my base case scenario was TransCon hGH showing non-inferiority and numerical superiority to daily hGH. And we have actually seen statistically significant superiority, the importance of which I wrote about earlier in the article.

Based on the strong results, I am increasing my peak sales estimates from $1-1.2 billion to $1.5 billion to $2 billion. The increased estimates are based on the strength of the results, but mainly TransCon hGH showing statistically significant superiority over daily growth hormone. Again, this makes TransCon hGH not only a more convenient version of daily growth hormone but a better version of the daily growth hormone.

As an example, Evaluate pegged TransCon hGH's peak sales potential of $1.37 billion before last week's strong results were reported. I think Street estimates will move closer to my new estimate range in the following weeks.

I also wanted to point out again how the growth hormone deficiency market should grow more significantly with the introduction of TransCon hGH. Improved compliance and persistence alone could significantly increase the addressable market - more patients should take the drug more often.

TransCon's hGH positive phase 3 results provide technology platform validation - the TransCon technology has broad applicability

I already wrote extensively about the TransCon technology platform and the two mid-stage candidates in my initiation article (linked at the beginning of the article) - TransCon PTH for hypoparathyroidism and TransCon CNP for achondroplasia, so I won't spend too much time here again other than saying that I think these two products could end up being more differentiated than TransCon hGH by showing more profound treatment benefits compared to the current standard of care.

TransCon hGH phase 3 results also provide clinical validation of the TransCon technology. And the technology has many applications beyond the three clinical stage products. The company already shared its next therapeutic area target - oncology, but details are scarce at the moment. What we do know is that Ascendis' approach will be to impact all the aspects of the tumor immunity cycle. One example was provided in the company's presentation. TransCon was used to prolong the half-life of a TLR agonist and to provide sustained release over an extended period of time, which resulted in much lower tumor growth in a preclinical model. I am looking forward to more details about the new therapeutic area at the company's R&D day in the second quarter. Oncology is a crowded market, but the rewards can be great. And oncology in Ascendis' case represents a potentially valuable call option.

Source: Ascendis Pharma presentation

Going back to the clinical stage assets, important catalysts are not too far:

  • TransCon PTH phase 2 results are expected in Q4 2019.
  • TransCon CNP phase 2 study will start in Q3 2019 and I would expect to see topline results by mid/late 2020.

Based on the validated mechanism of action of each product candidate and supportive results in healthy volunteers, I have a high degree of confidence both studies will succeed and provide significant clinical de-risking for two additional potential blockbusters.

Risks

Risks to the thesis have decreased with TransCon hGH's phase 3 trial results as they provide both clinical de-risking (approval is almost certain) and TransCon technology de-risking.

The company also announced and priced a $500 million secondary offering last week, which should, along with roughly $300 million at the end of 2018 (estimated based on the company's cash burn in 9M 2018 and end of Q3 2018 cash balance of €310 million or approximately $350 million) provide for a long runway to execute on the pipeline and prepare for the launch of TransCon hGH.

The main risks to the thesis right now are TransCon hGH having a disappointing launch and failing to reach the increased peak sales estimates in the long run and the other two products failing in the clinic or having inferior clinical profiles to the current standard of care or to drugs in development.

I still believe the risk/reward for the long-term investor is still significantly skewed to the long side.

Conclusion

I was initially surprised with the market's reaction to positive TransCon hGH phase 3 results as I anticipated a $10-20 per share increase. But those expectations were based only on TransCon hGH achieving numerical but not statistically significant superiority over daily growth hormone. The results were clearly better than I and the Street anticipated. The positive results also provide additional validation to the TransCon technology. The significantly strengthened balance sheet should help the company focus on expanding the pipeline and preparing for the BLA submission and the eventual launch of TransCon hGH. Upcoming catalysts and milestones:

  • TransCon hGH fliGHt trial top-line results in Q2 2019. This is an open-label trial evaluating TransCon hGH pediatric subjects with growth hormone deficiency who switched from daily growth hormone therapy. This trial should help inform how the switching to TransCon hGH looks like in the real world.
  • R&D day in Q2 2019 where the company will unveil its oncology pipeline and near-term milestones.
  • Phase 2 trial start for TransCon CNP in achondroplasia in Q3 2019.
  • Phase 2 results of TransCon PTH in Q4 2019.
  • BLA submission for TransCon hGH in 1H 2020.
  • Phase 2 results of TransCon CNP sometime in 2020.

Disclosure: I am/we are long ASND. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article reflects the author's personal opinion and should not be regarded as a buy or sell recommendation or investment advice in any way.