Description

This is a lengthy first post, but we wanted to hit all the details to do the idea justice. We believe Ascendis Pharma (NASDAQ: ASND) can be one of the rare compounders in biopharma, and at a price of $153 per share (and an $8.2B market cap), we believe the stock can increase at least 2.2-2.5x over the next five years, with current upside at ~59%.

Executive Summary

The crux of our thesis resides in Ascendis's proprietary TransCon technology. TransCon is a simple three-part system that can increase the half-life of any molecule without altering its innate properties. While efforts over the past three decades have tried and failed to replace the oft-ineffective standard of PEGylation, all have compromised the molecule's efficacy to some degree. TransCon is the first to achieve ~100% bioactivity. The mechanics are elegant: a parent drug is inactivated by a linker, which is attached to a protective coat. As the TransCon carrier approaches the appropriate body pH and temperature conditions, the linker dissolves and releases a completely unaltered drug. Scientists can moderate the rate and speed at which these linkers dissolve, ensuring complete control over the molecule's half-life. Through this method, Ascendis can increase the half-life of certain molecules by over 1000x.

There are two use cases for TransCon. First, it can lengthen the half-life of an existing functional parent drug. Second, TransCon can create first-in-class medicines by targeting non-competitive disease areas where fleeting half-lives have made treatments suboptimal. Both use cases are perfectly suited for endocrinology, where patients must always keep hormone levels steady. The number of specialized endocrinologists in the US is also very low, significantly mitigating SG&A efforts. Ascendis currently has three drugs in its endocrine pipeline – TransCon hGH, TransCon CNP, and TransCon PTH.

TransCon hGH: The first growth hormones were clinically tested in 1981 and the paradigm has not changed since. To receive the full effect, children require daily injections that are inconvenient, painful, and stressful for parents. This adds up to >1400 injections over a child's development.

Today, most patients and physicians do not even question the practicality of a daily injection regimen. This ironically makes for a fascinating value proposition – with TransCon hGH, Ascendis's weekly growth hormone, the number of injections can be reduced by over 1200. Physicians are getting a therapy they never even knew they wanted. For these reasons, we believe long-acting growth hormones (LAGHs) will be the standard of care by 2027.

We believe the LAGH market is currently undervalued. Analysts do not understand that increased compliance to therapy can significantly expand a market. Currently, injection burden causes children to skip ~2 injections a week out of seven. This translates to a 70% rate of compliance. With a once-weekly injection, compliance should increase dramatically to ~90%. Growth hormone is sold by the milligram; the more milligrams sold, the more sales the drug does. With around 30% more milligrams consumed weekly, the GH market is due for an immediate expansion by almost 30%.

Currently, there is another LAGH effort by Pfizer/OPKO seeking approval. While Pfizer is a commercial titan, we believe its threats are being overestimated for the following reasons:

• In non-inferiority trials that compared LAGHs to daily GH, TransCon hGH was found to be clinically superior. OPKO's somatragon was merely non-inferior. While the difference is only a matter of centimeters, the "superiority" label carries great clinical relevance; after all, why use a daily growth hormone when Ascendis offers one that is more convenient and functionally stronger? With such command, Ascendis is positioned to negotiate a price premium – an opportunity it may trade off for a faster revenue ramp against OPKO and the current GH standards.

•  TransCon hGH offers an unmodified growth hormone, while OPKO's is modified. The effects are vast; somatragon only slightly reduced truncal adiposity in critical trials, a metric that physicians rank high on their checklist when selecting LAGHs. Based on preclinical AUC curves and Cmax results, Ascendis should ensure reduction in truncal adiposity consistent with a daily growth hormone.

• Many analysts raise concerns about TransCon hGH's high IGF-1 levels in clinical trials. They seem to forget that IGF-1 is biologically a good thing. In fact, growth hormones are designed to increase IGF-1 levels. After several interviews, we learned that physicians do not prioritize this very highly. If the levels grow toxic, most experts just decrease the dose.

• Even if Ascendis loses the battle to Pfizer/OPKO with a 40-60% market share, it will have a $1B drug at minimum in a >$5B market by 2027. Assuming a more reasonable 60-40% split, peak sales could approach $2B by 2030.

TransCon PTH: Hyperparathyroidism (HP) patients are some of the most ignored in the US, with most endocrinologists unaware about how many patients exist. But the disease is psychologically debilitating. Because of their inability to produce parathyroid hormone, patients are susceptible to "calcium crashes": extreme cramps in every muscle in the body (even the larynx!) prompted by critically low calcium levels. Currently, no standard-of-care exists. Patients are instead placed on dozens of calcium and vitamin D supplements that must be precisely timed throughout the day; if even one is missed, the patient risks crashing. It explains why HP patients live in a state of constant fear; 85% mention an inability to do household chores, while 76% cannot work.

Takeda-Shire's Natpara is the only treatment available for HP patients, but it is highly flawed. First, it does not solve the problem. Physiological PTH levels must be flat, which is difficult considering the hormone's three-hour half-life. If patients wanted to be fully stable, they would have to take eight Natpara injections a day; one daily injection only halves the pill burden while making crashes a bit more bearable. Second, Natpara has been mired in commercial woes from the very beginning. Sensing the solution would be incomplete, Shire deprioritized the project to focus on other drugs. As a result, a small number of HP endocrinologists are responsible for the majority of Natpara's annual sales at ~$300M. And after the Takeda merger, the drug was never even marketed in the EU. All these problems came to heads when Natpara was recalled from shelves in late 2019 after certain container defects were revealed. Suddenly, ~2700 patients were forced back on calcium pills, hundreds of whom calcium crashed within two weeks.

TransCon PTH can be a game changer. With a daily injection overlapping the drug's three-day half-lives, the infusion profile remains flat making it a first-in-class full-replacement therapy. But more importantly, Ascendis has been aggressive about seeing the release through. In response to the Natpara recall for instance, Ascendis promptly enrolled 19 patients to the Phase II trials. In doing so, it successfully recreated a Phase III trial. 57 patients were scheduled for treatment in the Phase III trial; 59 were treated in Phase II. A whopping 80% of TransCon PTH patients had their pill burdens eradicated completely; Natpara had none. If Ascendis could present a convincing case to bypass a Phase III trial, an emergency-use designation might have been presented by the FDA.

Unfortunately, Ascendis has showed no signs of progress, and the market has reacted poorly in response. We believe this reaction is overblown. If anything, the excellent Phase II data de-risks a Phase III trial entirely; it makes TransCon PTH's ultimate approval all but a guarantee. Furthermore, without any human data beforehand, TransCon PTH's dosing algorithm was 80% successful. With data on the first human cohorts, Ascendis can now modify the algorithm to draw closer to 100% - and if TransCon PTH eradicates supplements entirely, it literally cannot be improved. Given these points, we remain optimistic about the Phase III trials. We think the uncertainty around them makes this story even more compelling.

Our commercial TransCon PTH thesis ultimately comes down to TAM expansion. Citing Natpara's revenues, analysts believe the feasible market is only $1B in size. However, with ~80,000 patients in the US and Natpara's annual price tag of $115,000, we believe the domestic market alone presents a $8B opportunity. Add in the European market, and this number jumps even higher. With even 15-20% of US patients, Ascendis should have a $2B-a-year drug by 2030. Our model uses this $2B annual rate as a floor on the valuation. Realistically though, we believe TransCon PTH's revenues can increase much higher, up to $3-4B overall. The deciding factor will be the number of physicians Ascendis can educate. PTH endocrinologists self-organize into a sort of hub-and-spoke model, with most endocrinologists referring severe patients to only a few select experts. To the extent that Ascendis succeeds in selling down the spokes, TransCon PTH's TAM may have a long runway ahead.

TransCon CNP: Over the next five years, a wave of first-in-class treatments will enter the market for achondroplasia or dwarfism. These treatments occupy one of two categories: they are either direct or indirect inhibitors of an important developmental receptor called FGFR. Biologically, the indirect approach is safer. It is comfortably distanced from the core pathway, and so the propensity to induce more unpredictable chaos in the body is largely mitigated.

Unfortunately, the indirect inhibitor is a peptide called C-type natriuretic peptide (CNP) with only a 3–5-minute half-life. The race for CNP-based therapies, therefore, has centered around increasing the half-life as much as possible. BioMarin's vosoritide, which will hit the markets this year, managed to increase it to 3 hours: enough for a daily injection and only a few centimeters. Using TransCon, Ascendis could increase CNP's half life over nearly 1200 times, from three minutes to 3.5 days. This not only enables a weekly injection, but also "superiority" over vosoritide's standard-of-care.

This value proposition almost exactly mimics TransCon hGH's, and we believe the likeness is fully intentional. By laying the groundwork for CNP's commercialization, TransCon hGH should recruit enough growth endocrinologists to accelerate CNP's growth ramp. This strategy however is highly dependent on the efficacy readouts in Phase II trials. We are careful to temper our assumptions about TransCon CNP in their absence – though considering TransCon's track record so far, it is unlikely that something goes wrong. A very likely scenario however is that achondroplasia drugs in general do not promote growth to the same degree that a growth hormone treatment does. Vosoritide only increased average height by ~1.71 cm/year; if TransCon CNP performs similarly, the incentive to pay will be marginal. Achondroplasia marks a roughly $5B market, but considering the difference, we only believe ~30% will accept therapy. Put together, we believe ~$1.5B can be distributed among all the players, and unless we see remarkable efficacy, we believe CNP sales will reach ~$600M by 2029.

Additional Upside: In addition to the points mentioned above, a platform includes several additional sources of upside. First, TransCon hGH is currently in Phase III in adult patients. Should it get approved, we believe it can significantly edge out competitors OPKO and Novo Nordisk for the leading adult LAGH. This is because truncal adiposity is the most important metric for adults, and here, both competitors fall short. As the only LAGH that enables precise tissue and fat distribution of its peers, Ascendis should add another $100M of revenue from the adult segment by 2029. More importantly though, Ascendis will kick-start the development of its TransCon Oncology pipeline in 2021, which will be a new suite of products that can enhance the immune response against a tumor. These are not cancer cures. Instead, they are immune system stimulants that can be used as complementors to lead cancer therapies like PD-1s and CAR-T cells. But in a $150B industry, there are still sizeable markets – and most importantly, there are several use cases in the body. Much like the endocrine pipeline, Ascendis is pursuing well-validated targets that can greatly differentiate themselves with TransCon's sustained release. Given the early stage, we do not assign any valuation to Ascendis's oncology pipeline, but we believe it will play a significant role in Ascendis's second stage of growth.

Valuation: We perform two valuations. For both, we use the same probability-adjusted revenue estimates, marking TransCon hGH at $2B, TransCon PTH at $1.8B, and TransCon CNP at $350M by 2029. Bear in mind, we were especially conservative with our PTH estimates; we really wanted to reflect its floor of ~$5B as an extreme base-case for Ascendis, leaving plenty of room for pleasant surprise. With a WACC of 10.90% and a 3% terminal growth rate, our DCF estimates yield a value of $242/share, or a 59% increase over current prices with additional upside for TransCon Oncology. Our second valuation method used 8 commercial and pipeline-heavy biotechs to arrive at an EV/revenue multiple of 8.54x. We then applied this to our revenue projections, outputting a 5- year CAGR of 17%. Even though our comps do not fully reflect Ascendis's platform potential, we like this method because it somewhat captures Ascendis's open TAM. Most biotech companies are normally capped at a certain TAM; developing a new product means starting at square one. TransCon on the other hand puts Ascendis in a position to create de-risked products with a repeatable algorithm. In doing so, Ascendis's TAM is virtually limitless. This is a rare phenomenon in biotech, but if our read is right, one could potentially hold Ascendis for a long time to come.

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 Detailed Report

In biotech, like most forms of investing, risk and value are inversely related. The difference is that this relationship is brittle. It relies on a certain scientific depth, one that is either validated or destroyed with each binary event over a drug's development. Indeed, this is where the best biotech investors make their marks, and most others flee. "If the possibility (much less the promise) of future free cash flows is based on speculation and unknown science," the risk-averse seem to say, "count me out."

That said, realized value can be massive amid this uncertainty, and so most science-focused investors set about discerning the biological and clinical truths to identify the winners. Lost in the clamor is the limelight on sustainable compounders. Such compounders appear in two breeds. The first are the "commercializers", companies that can identify winning molecules better than investors and successfully bring them to market. The second are the "R&D engines'', those that pump out molecule after molecule incurring as little R&D risk as possible. For this latter group, processes must be repeatable and platforms reliable, and in both regards, we believe Ascendis Pharma (NASDAQ: ASND) is as good as they come. Ascendis is a Danish-American company valued at $8.2B, with three products in mid-to-late-stage development. Under its unique and ever-reliable TransCon platform, each product is de-risked further by the one before it: a winning combination for a biopharma company.

But we do not focus on the platform through most of this write-up. Instead, we dive deep into the science and clinical development, building up a sum-of-the-parts valuation much like an ordinary biotech investor might. In doing so, our question is implicit: if Ascendis on its own is undervalued, how much more undervalued is the platform? When discussing the platform itself, the markets Ascendis chooses, and the vision for the future, we believe there is more to Ascendis' potential than meets the eye. By the end of this lengthy read, we hope you will feel so too.

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Part 1: Introduction to Ascendis

TransCon is an elegant, repeatable, and highly de-risked platform that enables the whole pipeline to succeed.

So, what is TransCon technology? TransCon, or "transient conjugation", is a simple but innovative drug delivery system that can extend the half-life of virtually any small molecule, protein peptide, antibody, or antibody fragment within a specified size threshold.

Let us break this definition down. A drug-delivery system is the process by which a drug is introduced into the body. When engineering or implementing a drug-delivery system, scientists must consider the nuances. Where in the body does the drug need to go? How do we make sure it is not excreted? How do we control its release rate? These questions only scratch the surface of a vast effort in science. A half-life is defined as the "length of time required for the concentration of a particular substance to decrease to half of its starting dose in the body." If a doctor injects 100 mg of drug into your body, you will only have 50 mg of drug left after one half-life. After two, that decreases to 25 mg.

The half-life of a critical protein, in some cases, may be as short as a few seconds. TransCon technology can increase this, and it is the first platform that has successfully been validated to do so. Historically, scientists turned to a process called PEGylation, by which they expose a parent drug to small polymers called polyethylene glycols (PEGs). These polyethylene glycols then covalently link to each other, creating a thick coat. Because the PEGylated molecule has a radius that is five to ten times larger than the molecule alone, it will be excreted much slower and the half-life increases.

Where PEGylation fails is that the drug loses its activity, even as its physical half-life increases. Seeing as the two phenomenon counteract, this is not a problem for most compounds – a less active form of the drug is just present in the body longer. However, assuming the compound loses activity too quickly, one must look outside PEGylation for a solution. In most cases, this means changing the structural properties of the molecule itself, which usually leads to other unforeseen problems in the body.

TransCon technology comprises of three components: the prodrug, the carrier, and the linker. The prodrug (perhaps the easiest to understand) is an unchanged existing compound. The carrier is modelled off the earlier "permanently" PEGylated models; however, the TransCon polymer carrier is now built off a four-arm structure that is placed close to – but not directly on – the compound's surface. Finally, the third and most critical component, the linker, has a dual function. The first is to link the prodrug to the carrier, eliminating any contact between the two. The second is to hydrolyze and cleave when the molecule approaches the right pH and temperature conditions, deploying a newly activated prodrug into the tissue over a sustained and extended period of time. In this way, scientists can gauge the half-life of the TransCon compound accurately. Upon release, the carrier and the linker are excreted renally, while the prodrug acts on its targets.

Ascendis has a total of seven fundamental linker classes, each with dozens of linkers each. The linkers are fitted with different properties, with half-lives ranging between a day and six months, and with specificity for different drug chemistries. The linkers are also stable at room temperature storage conditions. This range makes TransCon incredibly versatile. It gives Ascendis a virtually endless mandate over possible drug candidates, allowing them to be extremely selective when looking for the best indications to tackle.

Despite TransCon's archetypal qualities, the uncertainty lies in the platform's efficacy. If TransCon were to fail for one compound, that would likely bode negative for the others. This threat however has been mitigated – if not eradicated completely – by preclinical and clinical evidence put forth by the company. Some of the very first structural experiments on TransCon HGH revealed that the structure of a native hormone molecule matched exactly with the structure built for TransCon hGH. Bioactivity assays between the released drug and the hormone were 100% identical as well. Off decades of recombinant hGH molecules generated in the past, these in-human similarity thresholds have never been reached. In TransCon hGH's first clinical trials, the case for the platform was furthered by remarkable phenotypic evidence; changes in typical markers like lipids, glucose, HbA1c, or insulin were all in line with the daily growth hormone variant. The same likenesses have been exactly replicated in TransCon PTH and CNP as well. With a three-for-three track record (notwithstanding a fourth molecule that was discontinued at an early stage for unrelated reasons in 2017), TransCon is virtually de-risked.

Such reliability is a rare occurrence in biotech; setting aside the argument for Halozyme, I challenge anyone to find another TransCon. Two conclusions logically follow. First, investors are not wrong to assign a higher "probability-of-success" to Ascendis' entire development-stage pipeline. Even an 80% PoS for TransCon CNP – unadvisable for just about any other Phase II compound – is not unreasonable. Second, this reliability makes Jan Mikkelson's long-term vision of building a biotech behemoth a reality. Ascendis is on track to release one drug every two years, similar to Regeneron, Genmab, or Seattle Genetics. Many of these drugs are likely blockbuster candidates given the concentrated physician bases and a relative lack of competition. Furthermore, much like these three companies, Ascendis is extremely careful about partnerships, maintaining total control over their endocrinology pipeline. I do not suggest a similar valuation makes sense now, but assuming a competent commercialization strategy, it may not be out-of-discussion in the next five years.

Jan Mikkelsen has been consistent and ambitious about his goal since the beginning.

Ascendis's CEO is Jan Mikkelsen, a scientist by training. Mikkelsen started his career at Novo Nordisk, where he grew to an executive role on the R&D side. He then left to start his own small biotech in 1999, Profound Pharma, which he sold to American company Maxygen for around $80M in only ten months. Most companies require years to even agree on a preclinical product; ten months for a fledgling biotech company is a feat almost unheard of. Three years later, Mikkelsen unveiled another Denmark-based pharmaceutical company, LifeCycle Pharma (now Veloxis A/S). At the time, it was one of the few biotech companies that successfully listed in the country. LifeCycle's platform MeltDose was much like a first-generation TransCon. It incorporates a parent drug into a "meltable" vehicle which is then sprayed onto an inert carrier. In doing so, the size of the overall drug increases, much like the TransCon carrier increases the size of its own parent drugs. By moderating the speed and amount of melting that occurs, LifeCycle could control the drug's release profile to increase its half-life. In 2006 however, Mikkelsen came across TransCon technology, which he saw as a significant upgrade over MeltDose and a once-in-a-lifetime opportunity. He left LifeCycle at the height of its fame in 2006 to found Ascendis, and he has led the company ever since.

Mikkelsen's ambition is the stuff of legends; according to one Danish newspaper, he turned down a buyout offer back in 2010 by Novo Nordisk for over $400M, even before starting clinical development. Considering this, his somewhat heretic choice to keep the core endocrine pipeline totally royalty-free, even in the face of Novo Nordisk and Pfizer's competition, makes a lot of sense. However, he is also a strategist. The 'Vision 20x20" plan he presented in 2016 has checked all its boxes, culminating in the full development of Ascendis's endocrine pipeline. With this in mind, we believe the goals on his recently-unveiled Vision 3x3 plan – which includes regulatory approval for three products and nine indications by 2024 as well as the introduction of a new independent therapeutic area by 2025 – are well achievable. Mikkelsen's track record speaks volumes in an industry where goals only rarely materialize, and we remain optimistic about his leadership through Ascendis's next phase of growth.

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 Part 2: The Endocrine Pipeline

With three highly carefully chosen shots in the endocrinology arena, Ascendis's sights are set on becoming a rare disease endocrinology leader. But why this specific niche?

One feature of endocrinology that sets it apart is the requirement of regulation. Hormones, by nature, are homeostatic; for humans to think, sleep, and grow properly, they must always be present in perfect balance. Where endocrinology diseases come up, this balance is disrupted – and it becomes the physician's goal to restore it. The concept of a "depot injection" is therefore fundamental to the field. Rather than infusing hormone every few hours and creating spikes of hormonal concentration, why not create a solution that allows a mass of hormone to diffuse gradually over time? 

TransCon is perfectly suited for this. Furthermore, most endocrinologists treat larger indications like diabetes, leaving a concentrated bunch to tackle the rest. We were surprised to see just how interconnected growth hormone endocrinologists were in our own surveys; at a top-five Ivy-League medical system, we found only two physicians focusing on pediatric GHD with sparse connections throughout the region. Hyperparathyroidism was noticeably smaller. Given these observations, we are inclined to believe Ascendis' claims that sales efforts in endocrinology are focused and heavily reliant on word-of-mouth.

Finally, given the minutes-long half-lives of certain molecules, there remains a high unmet need in numerous diseases. Ascendis has picked two – hyperparathyroidism and achondroplasia – and it is well-positioned to create near-first-in-class solutions for both.

In this section, we will be breaking down Ascendis's three rare disease endocrinology candidates: TransCon hGH, TransCon PTH, and TransCon CNP. We believe certain developments with TransCon PTH point to a brilliant clinical design that is being either overlooked or misinterpreted by investors unfamiliar with the HP landscape. These developments set a higher floor on Ascendis' valuation. With TransCon HGH, while the valuation is largely baked in, we believe the market is currently undervaluing the ramp to peak sales given our conversations with pediatric endocrinologists. Criticisms of TransCon HGH's clinical design are also being blown out of proportion. And while TransCon CNP is currently enrolling Phase II trials, we believe its clinical strategy perfectly replicates hGH's, which helps CNP grow even faster.

Long-acting growth hormones (LAGHs) will be the new standard of care by 2027

Steve Jobs once said, "Our job is to figure out what [customers] are going to want before they do." Replace that "want" with a "need," and you have the perfect set up for a biotech.

Jobs' quote specifically comes to mind when we consider the efforts over the last decade to replace a daily growth hormone (HGH) with a weekly formulation. Having used the same daily HGH over the past forty years, patients and physicians simply do not know any better. They bear the burden of 365 injections a year – around 1400 injections overall – without question. They accept the tough consequences of missing a few injections as an inevitability of human error.

First, a bit of clinical history will be helpful. Daily HGH was the first biologic drug ever, designed by Genentech in 1981. Since then, incremental modifications have only slightly increased the bar. In fact, as one OPKO executive pointed out, "the only difference [between existing HGHs] really is the pen: some are fruit-based, some are glycolyzed, but they all essentially have the same product." From our own conversations with prescribing endocrinologists, we have discovered that the current HGH landscape is a battle across formularies where the most affordable HGH typically wins out.

Over the last four decades, the attention has turned to a more important problem than fruit-based injection pens: extending the half-life of HGH and developing a weekly injection. This long-acting growth hormone (LAGH) is a great improvement over its predecessors. Efficacy-wise, two out of every three children miss at least one dose of HGH a week, with each missed dose costing around 3 to 6 inches in total height. Two missed doses can cost up to one foot, while three nearly negates the impact of growth hormone altogether. From a quality-of-life perspective, an LAGH can save a child 1,200 injections over the course of childhood. Many parents also schedule their lives around administering shots, a process that is both emotionally taxing and guilt-inducing. And logistically, we interviewed twelve physicians about their thoughts on the LAGH. All twelve indicated they would prescribe it immediately.

The current daily HGH market is worth ~$4B, with 90% of the market split across five players: Novo Nordisk, Eli Lilly, Genentech, Pfizer, and Merck Serono. Given its decades-long maturity, we only identify two meaningful drivers. The first is the FDA's approval of HGH for patients in the bottom 1% of their age range in 2003, which improved the total prevalence of HGH-eligible patients from 3 to 120 per 10,000 beneficiaries. Today, there are around 150,000 children worldwide who are prescribed HGH, and the number steadily grows at ~2.4% a year. On the other hand, companies must regularly negotiate lower prices with payers to undercut the competition. Price reductions counter the growing population of users, thereby keeping the HGH market relatively stagnant.

The first LAGHs will be released in 2021, and over the next five to seven years, LAGHs will overtake daily hormones as the standard-of-care. This replacement may be gradual, seeing as most of today's physicians were medically trained on the first daily growth hormones and have been prescribing them ever since. Some even want to observe the entire four-year cycle firsthand. However, historical evidence suggests that this switch could be swift. In 2009, 25% of all GH insurance beneficiaries switched from branded to generic growth hormone, in response to cheaper prices. In 2015, 14% of beneficiaries switched out of a needle-free generic produced by Teva to a needle-containing branded version of GH, a response to the former's lack of efficacy. Inflection points are addressed quickly in the growth hormone timeline, and the LAGHs will be the largest change yet.

We believe improved compliance and increased pricing can grow the global market from ~$3.5B to at least ~$5B. Intuition backs the compliance argument: growth hormone, like all drugs, are priced by the dosing amount. By increasing the number of doses, the amount of drug consumed increases as well, and the price increases accordingly. If we rationally assume that hGH compliance sits at around 70% (i.e., the average patient takes ~5 injections out of the 7 prescribed every week), an increase to 100% compliance under a once-a-week regimen would take increase the market by 1.3x. Our more conservative assumptions assume that patients will miss a single injection every six weeks, translating to ~85% compliance or a ~15% increase in the current market.

TransCon hGH's "superiority" over the current daily growth hormone has great clinical relevance.

Mechanistically, HGH directly and indirectly induces growth in every tissue and organ. Whereas HGH binding directly stimulates bone and cartilage growth, it indirectly increases the release of a chemical called insulin growth-factor-1 (IGF-1) that builds peripheral tissues while also generating the energy that fuels growth. While HGH is directly responsible for around 20% of growth, IGF-1 causes the other 80%. In the absence of HGH, patients suffer from several different conditions classified as growth hormone deficiencies (GHD). 90% of these patients are children who suffer from height disorders, while the other 10% are adults struggling with tissue growth dysfunction.

There are currently three companies in the lead to release long-acting growth hormones by 2027 – Ascendis, OPKO Health, and Novo Nordisk. Each product is structurally different. While Ascendis uses an unmodified growth hormone, OPKO and Novo Nordisk are both modified growth hormones. While a modified growth hormone chemically alters the original HGH sequence to increase its half-life, its unmodified counterpart keeps the growth hormone intact. Past iterations have shown that by modifying the growth hormone's structure, a patient can risk unanticipated tissue and fat distribution effects. In the end, history favors the novel unmodified approach as a new frontier to growth biology.

When we surveyed physicians, we wanted to understand their criteria when picking an LAGH. The survey highlighted seven primary aspects of a GH treatment and asked physicians to rank all seven by importance. In order of priority, here were the results:

1. Serious adverse events

2. Decreasing truncal adiposity

3. Inferiority to daily HGH treatment

4. Minor adverse events

5. Insurance coverage

6. Elevated peak IGF-1 levels

7. Needle length

In the following sections, we will be breaking each of these down. Ascendis has the edge in Criteria 2, 3, 4, and 7; OPKO takes 6. Criteria 1 is similar across all three competitors, and Criteria 5 is too early to tell. Furthermore, the following sections will focus on each candidate's clinical profile, which we believe is the single most important feature of any drug's success on the market.

Decreased Truncal Adiposity

Truncal adiposity is belly or waist fat, and it is known to present cardiovascular and metabolic diseases in adults. It is linked to the amount of growth hormone in the body; if IGF-1 is neither sufficient nor uniformly distributed, severe metabolic effects take place that can be confirmed by a growing layer of belly fat. Put more succinctly, GH levels are inversely correlated with truncal adiposity.

In both quantity and distribution of hormone, Ascendis holds the clear advantage. TransCon HGH's IGF-1 levels are higher than the daily growth hormone, and with an unmodified LAGH, doctors need not worry about tissue and fat distribution. OPKO, on the other hand, has struggled to meet these requirements in adults. In a failed Phase III study for adult growth hormone deficiency in 2017, the results indicated no change in truncal adiposity. According to management, the results were caused by outliers in the data set, the removal of which were OK'd by the FDA. In the three years since however, OPKO has not submitted an adult HGH filing – regardless of their strategy, we take this as a poor sign. And turning to Novo Nordisk, Sogroya was approved in adult patients with a 1.06% decrease – half the 2.23% decrease demonstrated by daily HGH.

Superiority Average Height Velocity

The most basic requirement of a pediatric growth hormone is that its patient must grow. The taller he or she is, the better the hormone.

Compared to the daily growth hormone, TransCon HGH had demonstrated not just noninferior but superior results in average height velocity (AHV), helping the patient grow at 11.2 cm/year against the daily growth hormone's 10.3 cm/year. It must also be noted that the daily HGH patients in the trial's control arm claimed an adherence of ~99%, an unrealistic assumption where real world evidence suggests daily HGH adherence is closer to 70%. Factor this in, and the difference should increase from 0.9 cm (11.2 – 10.3 cm) to 2-3 cm. Taken together, these results create a solid case for Ascendis's approval and appeal. It makes little sense to take a daily growth hormone over a weekly formulation that also does a better job, and patients and physicians both realize this.

These "superior" results were internally anticipated – perhaps even intended – by management. Phase II studies on 53 patients had a similar AHV difference (12.9 cm vs. 11.6 cm on Genotropin), so with a larger cohort of patients, statistical significance could be achieved. But the word "superiority" offers management an important tool when negotiating premiums with payers. Today, each of the five growth hormones are priced at around $25,000. If any of the incumbents wanted to apply competitive pressure to LAGHs, they could perhaps decrease prices by ~10%, but no more. Factoring in a 20-25% increase based on LAGH adherence, the average LAGH could sell for ~$32,000 per patient. This (plus perhaps a slight premium based on convenience) is the ceiling for OPKO and Novo Nordisk's pricing strategy. Ascendis on the other hand has two options for pricing. It could leverage its "superior" results to negotiate a higher premium with insurance companies, receiving more per patient. Or it could charge a much smaller premium in line with OPKO and Novo Nordisk, broaden HGH access, and accelerate their revenue ramp. In doing so, Ascendis can compete head-on with existing daily HGH – it makes TransCon hGH a no-brainer for physicians and payers alike.

Minor Adverse Events

Adverse events are far less important for weekly growth hormones than daily growth hormones, so physicians only take note of the serious ones. In most ways, the safety profiles of all three drugs seem about the same with one notable omission: injection-site reactions and pain. Ascendis has a distinct advantage here: it uses a 4mm needle while OPKO uses an 8mm. This translates to far fewer safety events – Ascendis did not report any injection site pain or reaction statistics out-of-line with Genotropin. Contrast this to the colorful adverse event profile illustrated by OPKO: injection site pain was experienced by 39% of patients (vs. 25% in control group) and 9-13% prevalence of injection site reactions (vs. 0% in the control group).

One physician mentioned to us that injection-site reactions and pains were both "non-starters". This makes sense given that most hGH patients are smaller children, and we believe a predictable safety profile will be a strong selling point for Ascendis going forward.

The criticisms directed toward TransCon HGH's high IGF-1 levels are overblown.

We wanted to devote a long section to IGF-1, because we believe the market significantly exacerbates an issue that, frankly, physicians don't pay much attention to. Because while a common fallacy about IGF-1's dangers are spreading in critic circles, people seem to forget that high IGF-1 levels are good. Most patients prescribed GH fall into the bottom 0.5% in IGF-1 levels. HGH is intended to increase IGF-1 levels, which stimulates growth; in Ascendis' case, baseline patients for the Phase III trial had IGF-1 levels that were, on average, two standard deviations (SDS) below their age group's mean IGF-1 levels. An effective growth hormone could increase that substantially.

That said, too much of a good thing can hurt, and Ascendis's data about TransCon HGH's strength sparked concerns. The safety threshold for IGF-1 levels is <2 SDS above the age-based mean. Beyond this, people foresee an increased likelihood of long-term illness, including cancers and diabetes. The finer results are presented below.

The results of a separate but simultaneous Phase III trial, the fliGHt trial, added fuel to this fire. The fliGHt trial was designed as a "switch" trial, illustrating to physicians that patients could be switched to TransCon HGH from another hormone. The focus here was less so on AHV, and more pointed toward safety, and while patients experiences almost no safety issues (apart from 2 dropouts due to non-study-related issues), IGF-1 mean levels came in at an extremely high 1.7 SDS. 55/141 patients had mean IGF levels >2 SDS, while 22 of those patients were >3.

While some might cite valid cause for concerns, we think these IGF-1 levels are not a barrier to acceptance. We have compiled our thoughts on the matter into eight distinct points:

1. IGF-1-dependent dose reductions are standard clinical practice. In our early outreach, many physicians pointed this out without us asking. Note the strange units used for GH doses – "24 mg/kg/week". Not 24 mg/week. In other words, HGH dosing is highly variable, and it changes with the weight of each patient. It can also change with a physician's judgment. When IGF-1 levels increase beyond 2, physicians are trained to dial it back to the 2 SDS level by cutting the dose.

2. No physician opted to reduce dose and almost all patients joined enliGHten. In the heiGHt trial, Ascendis gave physicians the option to decrease IGF-1 doses by 20% if IGF-1 levels were above the safety threshold. Only 2% of physicians opted to do so in both the TransCon HGH and Genotropin arms, demonstrating that most physicians were unbothered with IGF-1 levels. Furthermore, Ascendis launched a three-year long-term follow up study to the Phase III trials called enliGHten. While patient participation was considered optional, 296/307 heiGHt and fliGHt patients opted in. While free medication is a great incentive, we believe physician uptake will be faster than many anticipate given the enthusiasm.

3. Approved IGF-1 levels have exceeded 3.0 SDS before. For instance, Humatrope in idiopathic short stature patients demonstrated peak IGF-1 levels >2.0 in 30% of patients and >3.0 SDS in 8% of patients. Nutropin in pubertal GH deficiency patients also demonstrated IGF-1 SDS >3.0 in 40% of patients. We believe these trials justify an almost-certain 90% probability of success for TransCon HGH.

4. By GHRS standards, high IGF-1 peaks are irrelevant. The Growth Hormone Research Society issued the following statement on LAGHs in 2016: 

"Unlike the experience with daily GH, both the appropriate timing of blood sampling and the interpretation of the IGF1 standard deviation score (SDS) in LAGH-treated patients are controversial… the goal is to maintain serum IGF1 concentrations within the normal age-appropriate range for a majority of the treatment period." 

The bolded section is critical; it suggests that, as long as the IGF-1 are mostly below 2.0 SDS, the        LAGH should be considered safe. This was agreed upon by 55 pediatric endocrinologists around the world and has since become a standard for HGH clinical trial decision support.

5. Ascendis is the only LAGH developer that pursued a switch trial. Competitors like OPKO and Novo Nordisk decided not to, which may make physicians worry about switching patients over to the respective LAGHs.

6. The enliGHten trial suggest that TransCon HGH rescued Genotropin patients. During the enliGHten trial, all Genotropin patients were switched to TransCon HGH. As it turned out, poor responders for Genotropin were rescued, with the ratio of IGF-1 levels between poor responders and responders increasing 27% in six months. Clearly, the IGF-1 is directly responsible for increased height in TransCon HGH.

7. heiGHt IGF-1 data is being interpreted wrongly. What truly matters above all is "consecutive measurements >2.0", which represents whether a patient experienced IGF-1 spikes >2.0 SDS at two points on either side of a 13-week interval. 8.6%, is quite a solid number; OPKO by comparison found 3/109 patients or 3%, which is not far off.

8. FliGHt trial data matters will not matter in ~2.5-3 years. Some may still find the IGF-1 levels concerning, but because of the four-year cycle for growth hormone treatment, all patients currently on daily growth hormone will have finished therapy in the next four years. Within ~2.5 years, Ascendis' marketing strategy will probably just rely on heiGHt and enliGHten data.

Of course, IGF-1 levels still could be a concern for physician uptake. That said, we believe the ramp to peak sales is being far too underestimated, especially considering that TransCon will have ~6-8 months of market exclusivity before OPKO begins marketing its HGH. We predict 50% of physicians will have converted to LAGHs by 2027, making the total global market for LAGHs (post-compliance adjustments) around ~$2.5-3B. Assuming Ascendis captures 60% of this market by then– plausible seeing as OPKO's data falls slightly short and Novo Nordisk will not reach market until 2024 – it could do anywhere up to $2B in peak sales.

Commercialization will be tough – but Ascendis is positioned to win…

Taking the points above into consideration, Ascendis has the best-in-class product. So, what now?

We believe 'now' is where one must tread carefully. A first-time retail investor lured into biotech by sticky cash flows, high barriers-to-entry, or an innovative technology may feel compelled to invest in a company just out of the development gates, citing the attractive lack of scientific risk. However, commercialization and development are two very different games. A company with a stellar scientific direction – even if it is a platform company – often falls frustratingly short of projected sales.

Pfizer is no joke either. With physician networks spanning around the globe, not to mention an established grasp over 13% of the world's human growth hormone market with Genotropin, the Pfizer foothold is strong. Ascendis, the 15-year-old $9B upstart, going up against the 150-year-old $200B titan, may as well be biotech's own David and Goliath.

But Ascendis has the best-in-class product. The significance of a best-in-class product varies by therapeutic area. A rule of thumb we have found successful (so far, barring the exception of COVID-19) is that the higher the number of critically ill patients, the more the efficacy of that product matters. Marketing a slightly more effective asthma inhaler could prove a steep uphill battle if the current market leader is 100x larger than the developer. However, a metastatic cancer drug for an extremely small niche of patients without any working options will sell, regardless of how large or small the company is.

On paper, pediatric growth hormone deficiencies might not seem like chronic illnesses. However, for families with children of short stature, there is a psychological element that makes a growth hormone feel like a necessity. Parents realize their children have only a few critical years of growth left. They cannot say whether their children suffer from some condition or if they are naturally short, but they understand that treatment is available. This fear of missing a critical window is why most families accept the struggles of a 1400-injection regimen in the first place. It also justifies the inevitable decline in compliance as patients initially grow faster. A better hGH than the standard, given as a weekly injection with a smaller needle and no safety effects makes for a fantastic value proposition, one that compete with the likes of Pfizer already. Furthermore, there are only 1386 pediatric endocrinologists in the US, the majority of whom focus exclusively on diabetes. This is perfect for a lean, targeted sales operation, where each endocrinologist can be specifically handled and addressed. Management has also indicated that Novo Nordisk and Pfizer have started peeling back on their own GH sales operations, signaling the magnitude of the LAGH threat and a potential lack of competition for Ascendis to carry out sales.

Ascendis also has a four-month window between June and October where it will have critical market exclusivity. Management noted that switching trials would exclusively be a revenue driver during the first 2-2.5 years, and we imagine it will be especially critical early on. Finally, of all the physicians we spoke to, we found they were split around 60-40 in favor of Ascendis. When we asked the minority why they favored Pfizer, many of the responses we received were tied to insufficient data. This was peculiar because, after digging a little deeper, we confirmed that Ascendis had released most of the early data regarding bone age and tissue distribution that physicians were seeking. Across the small patient set, we believe both salesforces are at work, and we are impressed by Ascendis's progress so far. Also reassuring to us: of all the physicians who advocated Pfizer's product, none mentioned that IGF-1 levels were of significant concern.

…and the key is management.

Still, a small subset of physicians paints a biased image. If David were to beat Goliath, pure force would be useless. Shrewdness, opportunity, and strategy however might just do it.

Along with everything else, we have a large vote of confidence in Ascendis' management, largely fueled by expertise.  In 2020, Mikkelsen hired fellow Dane and Novo Nordisk-alum Jesper Hoiland to head commercial operations at Ascendis. Hoiland started his career at Novo Nordisk in 1987, where he worked for thirteen years as a manager. Following this, he served in executive positions for 16 years, climbing his way to President of Novo Nordisk US. As an executive, he ran international marketing efforts for growth hormone, ultimately catapulting Norditropin to the top spot ahead of the industry's incumbents. He followed this up with similar successes in hemophilia and insulin. In 2016, Hoiland left to run Radius Health as CEO, a company that sold parathyroid hormone to treat osteoporosis in postmenopausal women. While he was not overtly successful here (largely because of a failed breast cancer franchise), Hoiland helped Radius Health bring one of the first PTHs ever to market. Beyond growth hormone, this makes Jesper Hoiland one of the most credible commercial PTH experts in biotech.

In 2020, Hoiland received a call from Mikkelsen to run commercial efforts for Ascendis. Drawn in by an opportunity to reclaim his parathyroid and growth hormone roots, he accepted. Much like PTH, there are few in the industry that understand the growth hormone market as well as Hoiland does. He has seen this story before, Norditropin's David against Genentech's Goliath back in 2005, and he won. Today, he has the physician networks on hand and a strategy in place; we believe the odds favor him winning again.

 Hypoparathyroidism is a misunderstood disease with destructive effects on patients' lives.

We started the prior section with a quote by Steve Jobs. If anything, we believe it is even more applicable to hypoparathyroidism. Endocrinologists still underdiagnose the condition, while a shocking number refuse to acknowledge it at all. Patients, on the other hand, understand the lifestyle burden distinctly – 85% of patients are unable to perform any household activities, while 76% are unable to work in a professional setting at all. In some emergency-room settings, patients must plead with physicians for the necessary calcium infusions given the lack of awareness.

This is largely because hypoparathyroidism (HP) neither is life-threatening, nor is it particularly flashy. An ordinary calcium crash, to an outsider, makes its victim seem extremely drunk without any sense of coordination or coherence. Internally, however, every muscle in that patient's body – including the larynx – is cramping and spasming. Speaking and unobstructed breathing are non-options. Worse still, the violently fluctuating calcium levels lead to a brain fog which, even in a fully treated state, render the patient unable to think adequately. All this takes a psychological toll on the patient. Going out, working, and running errands are conflicted by the possibility of an unexpected calcium crash, and so many patients choose not to at all.

HP patients suffer a loss of parathyroid hormone (PTH), usually a consequence of pituitary surgery or heredity. Parathyroid hormone has a half-life of only three hours. As a result, few replacement therapies have been conceived, and the current standard-of-care walks an extremely fickle line between too much and too little. This standard-of-care is also unwieldy. One patient described a 21-pill regimen timed precisely over an ~18-hour day. Five doses of calcium anchored the regimen, and missing even one could lead to a calcium crash. Furthermore, calcium supplements increase and decrease in waves leading to cramp-ruined sleep, hypertension, inability to think, and ultimately, severe depression.

Situations like hypoparathyroidism, we feel, can make for great opportunities – the market is unrealized, under-appreciated, and likely to grow beyond expectation. 'Unrealized' because there are no existing treatments. 'Under-appreciated' because of the wide spectrum of patient experiences (some mild and some debilitating). And 'likely to grow' because, when fewer physicians can empathize with the patient population, something of a 'hub-and-spoke' model tends to emerge across physician population. In this case, most endocrinologists do not have the training to handle their patients' day-to-day concerns beyond an emergency calcium infusion, so they rely on small but vocal 'hubs' of physicians who specialize in HP patients. These doctors are well-aware of developments in the HP landscape and they are incredibly responsive to trying new treatments. When combined with a similarly passionate minority of patients, the enthusiasm for new therapies translates to a fast treatment uptake.

HP has a $8B total addressable market that is only 3% penetrated.

There are ~80,000-100,000 patients who suffer from HP in the United States. There are also ~120,000 patients in the EU and ~35,000 in Asia. Assuming an annual cost of ~$100,000 a year, the US numbers alone work out to an 80,000 patients * $100,000 = $8,000,000,000 TAM.

But does the $100,000 price tag make sense? It does for a few reasons. First, with less than 200,000 patients in the US, synthetic PTH is classified as an orphan drug, thus enjoying greater pricing leniency and exclusivity. More importantly, TransCon PTH will not be the first solution in the HP market. That position belongs to Natpara, a recombinant parathyroid hormone produced by Takeda-Shire that operates as an "adjunct" to an HP patient's pill regimen. An "adjunct" is not a full replacement. It is a mitigating supplement that meaningfully decreases the pill regimen as well as the risk of a calcium crash. Even as a mitigant, Natpara has been priced at an estimated $115,000 in the US. A true replacement therapy, which can completely eradicate the calcium and vitamin D, should be priced even higher.

But we must factor in the reality of HP. Endocrinologists prescribe calcium, vitamin D, and other supplements by pure trial-and-error. The patient can't sleep through awful cramps? Try doubling the dose of calcium. Serum magnesium levels too low? Take a magnesium pill with dinner. Constantly in flux, a severe patient's condition must be addressed by an endless cycle of symptom management. Mild patients, by comparison, are easier to treat. With less severe pill regimens, a $100,000 daily injection might not make sense. Even despite this, the HP market remains massive. Let us assume that an extremely generous 90% of patients decide against taking TransCon PTH. Dividing the TAM by 10, our more realistic TAM arrives at $800M in the US alone. This can translate to ~$1.5B worldwide. As the only replacement therapy on the market, and with the clinical trial results we discuss below, Ascendis should capture the lion's share of this market, signaling a blockbuster drug in the making.

With $230M in revenues in 2018, Natpara owns a mere 3% of the US market after four years of commercialization. It could be a signal about patients' unwillingness to pay Takeda's price. But we think Natpara's value proposition is mostly responsible. Natpara is essentially a daily injection on top of a halved pill regimen; it cuts the severe 21-pill regimen to a 10-pill regimen plus one daily injection, only to calm down the symptoms. Few patients face such intense levels of pill burden: ~3% sounds about right. In nearly 80% of TransCon PTH patients however, a single daily shot cuts pill burden to 0 while eradicating symptoms altogether. Just how much more attractive this value proposition is remains to be seen.

Ascendis, for its part, has focused on spreading word as far as possible. In the context of the hub and spoke model, this means launching physician education initiatives that range beyond the hubs and branch into the spokes. Ultimately, the goal will be to attract moderately affected patients to TransCon PTH. While commercialization efforts are difficult to interpret at such an early stage, I believe there is ample real-world evidence to suggest that new, first-in-class therapies in areas with psychologically impactful unmet needs tend to scale brilliantly. Regeneron's Dupixent is a great example – while atopic dermatitis is not lethal, people do not want to leave their homes with awful rashes and itching. It is today projected to reach $10B in annual revenue over the next five years against a 2017 TAM of $5.4B. Pfizer's Lyrica is even more accurate – HP's shares many social parallels to epilepsy through a patient's fear of having a seizure in public. The drug chalked up $7B in revenues in 2018. The moral of this story? TAMs in biotech can increase dramatically, and with only a fraction captured of an untapped market, TransCon PTH's trajectory should be similar.

There are no competitive alternatives to TransCon PTH.

Even without the capabilities of the parathyroid hormone, Natpara steadily grew US revenues from $24.4M in 2015 to $231M by YE2018. This was due to its profound effects on HP patients. Much like the Steve Jobs quote that headlines this section, once patients had a small taste of the quality-of-life improvements associated with an adjunct therapy, they clamored for more. Unfortunately, from an initial 200-patient base in 2015, it seems Shire realized that HP sales would require a serious education and awareness effort, which was not worth it given the drug's limited efficacy. In the five years since, the patient base has grown organically by word-of-mouth across the 'hubs', with doctors involved in the 2014 clinical trials taking on a critical role in scaling Natpara's impact.

Shire also turned its views to Europe, where it expected a large revenue boost from a patient population twice as big as in the US. It received a CE mark in late 2016, combined with NHS statements advocating for the drug. However, in 2018, talks with Shire collapsed entirely. We have not been able to find evidence for why this happened, but UK patients formed strong patient advocacy groups around it. Even with this strong demand, Natpara flopped internationally.

In September 2019, Natpara was suddenly recalled from shelves by Takeda-Shire on orders from the FDA. Toxic particulates from the container for Natpara were somehow found in the blood, presenting a critical safety issue. 358 critical patients were granted special use permission to continue on Natpara; the rest were left without treatment. The lack of treatment brought more problems than many physicians expected. Severe patients were placed back on calcium and vitamin D, but because of their acclimation to parathyroid hormone, calcium and vitamin D levels were totally uncertain, with some physicians reporting that they had to dose twice as much calcium (or twice as many pills) to stabilize the patient. Around one-hundred patients were reported to have been hospitalized within the first few weeks.

Natpara will remain on clinical hold well into 2021 or 2022. Without it, the HP market had no treatments available last year, and an established pool of patients was prepared to begin PTH therapy almost immediately.

TransCon PTH's clinical holdups de-risk the drug entirely, suggesting a brilliant clinical maneuver.

TransCon PTH is vastly better to Natpara, by a much larger margin than TransCon hGH is to somatragon. I will save the reader the science by identifying only the critical points; the purpose of this section is, after all, to appreciate TransCon PTH's opportune clinical position to a degree the market has not.

The most important feature of a good parathyroid hormone is a test of its replacement ability. The big clinical questions logically follow: is the synthetic PTH providing sufficient calcium just as a natural PTH should? How many patients are taking under 500 mg of calcium every day vs. the normal 2000 mg supplementation? How much calcium ends up in the blood? How much is released in the patients' urine?

To find answers, Ascendis designed a two-part Phase II trial. The first part was purely conducted with safety and dosing as the end-goal, and it spanned over four weeks. Clinically, this was the "main" part of the trial. We however believe the second part bears much more significance. Spread over six months, all PTH patients were switched to TransCon PTH and the following endpoints were noted:

• Proportion of all subjects with normal blood calcium: 100%

• Proportion of all subjects off vitamin D: 100%

• Proportion of all subjects taking < 500 mg/day of calcium supplements: 91%

• Proportion of all subjects with normal FECa (fractional excretion of calcium): 86%

In the 6-month extension study, 76% of all patients stopped taking pills altogether. 91% of patients met the final two criteria, i.e., no vitamin D and <500 mg of calcium every day. On the contrary, only 43% of Natpara patients hit the two latter criteria, meaning TransCon PTH doubles the efficacy. Ascendis also ran an impressively thorough trial: a decrease in urinary calcium, for instance, provides critical evidence that the newly produced calcium stays in the blood and that the patient receives its entire benefit. Ascendis used "fractional excretion of calcium" as a primary endpoint in their trial and demonstrated success in 86% of patients. Natpara, on the other hand, showed urinary calcium excretion increasing over the six-month period – none of the patients were absorbing enough.

The Natpara recall happened in September 2019, and Ascendis promptly enrolled 19 Natpara patients into a Phase II trial. The message was clear: there were 2700 Natpara patients in the US struggling without any treatment, and by demonstrating improvement over Natpara in the ongoing trials, Ascendis could approach the FDA for accelerated approval to address the unmet need. In doing so, it could move submission from 2023 to 2021 and capture the open market. Given the trial's robust clinical design and the unmet need, this strategy had great potential. But seeing as the Phase II trial was not designed as a pivotal trial, there were setbacks. First, with all patients switched over to TransCon PTH, the open-label extension had no control arm. We cannot think of any scenarios in which the FDA approved an uncontrolled trial, so the organization was unlikely to depart from principle for a non-acute disease. Second, TransCon PTH does not have prespecified doses. The clinical trial experts developed an algorithm to decide how much PTH was required for each patient. Because of the external variability this introduced, it may have been unclear whether the trial's success could be attributed to TransCon PTH or to the differences in doses. In hindsight, investors may have played up the accelerated approval possibility; given the points above, Phase II pivotal submission was probably unlikely to happen to begin with.

That being said, with an expanded cohort and stricter endpoints, Ascendis can now orchestrate a fascinating clinical maneuver. By testing the conditions of the Phase III trial, Ascendis has now de-risked TransCon PTH's clinical development program. The Phase III trial will involve 76 patients. Split it 3:1 between treatment and control, and we know that 57 patients will be treated with TransCon PTH. This is lower than the 59 patients enrolled on TransCon PTH in the Phase II enrollment trial; in some ways, the Phase II trial was more confirmatory.

On top of this, Ascendis now knows where to fill in TransCon PTH's Phase II holes. As we have come to learn, the titration algorithm used to dose patients was only a prototype. With a 76% replacement success rate, it worked brilliantly. However, it was highly dependent on prior calcium and vitamin D serum levels, leading many endocrinologists to underdose as a precaution. In Phase III, we believe Ascendis knows the risks much better. They will doubtlessly be looking for a 100% replacement number, and a clinically validated algorithm will be their driving force toward that goal.

Is TransCon PTH the next Tepezza?

Tepezza is a monoclonal antibody that inhibits IGF-1. Originated by Genmab in the early 2000s, the guiding vision was that IGF-1 was linked to cancer. By the 2010s however, better targets arose and the drug spent years in development hell, from Genmab to Roche, then from Roche to a tiny company called River Vision. Here, scientists were interested in a rare inflammatory condition called thyroid eye disease (TED) which makes the eyes bulge. With no debilitating effects on vision and unclear disease pathology, the incentive to develop a drug for TED is unclear. However, as River Vision floated the option through clinical trials, it found that patients were highly receptive. Moreover, it worked wonderfully. After Tepezza's Phase II results were revealed, River Vision was acquired by Horizon Therapeutics for $145M plus future contingent payments in 2017. Horizon declared Tepezza a likely $250M annual sales opportunity, which was lifted to $750M in early 2020 with large physician education campaigns.

Tepezza hit the shelves in March 2020. Even with the pandemic preventing mandatory in-person infusions, Tepezza became an overnight success. In a single quarter, Horizon racked up $189M in revenues, with ~5,000 patients arriving for their triweekly treatments. Compliance was shockingly perfect. By the end of Q2, peak sales estimates were increased by management to $3B annually. From our own internal analyses, including the impact of ex-US sales, we believe this number may even reach the $4-5B mark – a 15-20x multiple over the first peak sales estimates three years ago.

With Tepezza, Horizon established and executed a working strategy that has formed an important mental model for us ever since. The drug's enormous success had little to do with its safety or efficacy, but it had everything to do with the receptivity of the market. Analysts grossly underestimated the number of physicians and patients interested, considering the hefty >$200,000 annual price tag attached to it. This penetration may increase from ~10% today to ~70%. Market penetration and receptivity are intrinsically linked to the unmet need; where there is significant scope for improvement, Tepezza's example shows that the market will always follow. We believe TransCon PTH will have a very similar trajectory as well. TED and HP share many features: high but non-visible symptoms of discomfort and pain, an inability to work, a similar worldwide population size, and a low competition environment. In both diseases, physician education efforts were critical to the drug's uptake, with bottoms-up marketing efforts launched through concentrated and active patient associations. Finally, both Tepezza and TransCon PTH are extremely effective with >80% of patients meeting all endpoints.

And of course, many of these parallels reflect in the numbers. With an underwhelming commercialization strategy, Shire has still managed to grow patients remarkably from 2000 patients in mid-2018 to 2700 patients in late 2019. This is a 35% increase in patients YoY – but it only represents 3% of the US population. The potential for TAM expansion is huge. Estimating a ~$115,000 price tag on Natpara, the "half-solution" was able to bring in an estimated ~$300M a year in the US.

Ascendis is planning on prioritizing TransCon PTH. Even if it scrapes together twice the US market, sales will catapult to $600M a year. Globally, that is already a billion-dollar drug. The potential is clearly massive – but much like Tepezza's case, without physicians even recognizing HP, it is tough to gauge just how large the HP market can be. To give the reader an idea, if Ascendis can get 50% of physicians to prescribe TransCon PTH in the US much like Tepezza, domestic sales may top $5B. Sounds preposterous? Absolutely, even to us– but it hopefully illustrates the sheer magnitude.

One final thought: recall that Ascendis' head of commercialization is Jesper Hoiland. His last company, Radius Health, is one of the three revenue-producing parathyroid endocrinology companies in the world (the others are Amgen and Eli Lilly). Hoiland is intimately familiar with the parathyroid space, and with an HP physician base at Radius already larger than Shire's for Natpara, we have no reason to believe he can't do it again. Altogether, in both scale and revenue ramp, we believe TransCon PTH will be a strong contender to replicate Tepezza's success.

Early results suggest TransCon CNP could make Ascendis into a leading growth endocrinology company.

Like the rest of Ascendis' endocrine pipeline, the goal behind TransCon CNP is to mimic the body's regulatory function exactly by allowing for continuous secretion of a single protein. Unlike the pipeline, TransCon CNP's Phase I data does not yield a whole lot of insight beyond a well-tolerated profile. With efficacy too early to predict, the clinical trial analyses that benefited TransCon hGH and PTH are relatively inconsequential. Instead, we wanted to direct the attention toward TransCon CNP's largest hurdle and its greatest asset: a six-way competitive battle for the best-in-class title.

But first, some background. Achondroplasia (ACH) or dwarfism is a disease typically associated with short stature. However, its downstream effects can be far more severe. From a symptomatic standpoint, most patients suffer from sleep apnea and respiratory problems. Around a quarter of all patients lose their hearing, and many suffer from spinal problems late into life. ACH patients also only live to around sixty years of age.

The primary scientific basis behind ACH is a mutation in a receptor called FGFR3. In ACH, FGFR3's role is strictly regulatory in nature. When turned off, chondrocytes (or the cells that make up cartilage and lead to bone formation) are formed and expanded. When turned on, the chondrocytes stop growing. Normally, these are held in strict balance by several different stimuli, including the C-natriuretic peptide (CNP) which continually turns off FGFR3 when required and allows chondrocytes to proliferate. In ACH patients however, the FGFR3 receptor has a mutation that hyperactivates to where the body's CNP is insufficient.

To fight this, a number of therapeutic strategies have emerged. One is replicating the FGFR's namesake inhibitor, fibroblast-growth factor or FGF. The risk here however is that FGFR is at the center of several different processes; by injecting more FGF into the body, one risks jeopardizing another important bodily function. The second is building a separate inhibitor to FGFR, much like the efforts undertaken by BridgeBio/Novartis, Pfizer, and Ribomic Inc. While the inhibitor is derisked, the same problems persist to a degree – in fact, ACH was only the third indication chosen by BridgeBio's drug infigratinib (the first two were bile duct cancer and bladder cancer, demonstrating just how "random" FGFR receptors can be).

But by far, the ideal approach is replicating the CNP peptide. Because the CNP is an indirect FGFR inhibitor, the core FGF pathways will not be interrupted. In other words, CNP interferes with chondrocyte inhibition and little else. There are two versions of synthetic CNP currently in development: BioMarin's vosoritide and Ascendis' TransCon CNP. Vosoritide is a competent drug. It led to an average height velocity increase of 1.71 cm/year in a cohort of 60 pediatric children against the control group which only had a 0.13 cm/year increase over baseline. Furthermore, quality-of-life metrics were not significantly different between the two groups, reflecting a clear lack of adverse effects and treatment burden.

So why doesn't every company chase CNP? CNP has an extremely low half-life at only 3-5 minutes. By re-engineering the peptide, BioMarin was able to increase this to 30 minutes. This translated to a daily subcutaneous injection which only partially resembles the effect of CNP in the body by adding half an inch. On the other hand, TransCon CNP blows both half-lives away at a whopping 3.5 days, almost 1200 times that of a native CNP. Not only does this turn CNP-based treatment into a weekly regimen, but it also very accurately replicates the body's activity by only allowing CNP to reach a quarter of peak levels. It is tough to lock in the effects of this, but one can logically reason that Phase II trials should bring a pleasant surprise for AHV numbers – well above the mark vosoritide has set.

These make for some exciting developments in the achondroplasia market. But we must set forth some qualifiers. Vosoritide is set to enter the US and UK market over the next few months. TransCon CNP will not reach the market until 2025 or 2026, seeing as the FDA requires a year-long readout for Phase II and a two-year long trial for Phase III. Furthermore, the ACH pipeline is dense; if any of BridgeBio, Ribomic, or Pfizer's products work exceedingly well, it would significantly complicate an already-uphill battle for TransCon CNP. While this does not seem likely from a scientific point of view, clinical efficacy data will be the final arbitrator. Until then, TransCon CNP's advantage seems clear, and it positions the therapy well for commercialization over the next 5 years.

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Part 3: The Additional Upside

TransCon hGH has a unique edge in adult patients, which will provide a slight revenue boost.

Recall an earlier point about truncal adiposity: hGH is more than just a height booster. It also ensures that the surrounding tissues, fat, and muscle all increase in proportion as well. This latter point is especially critical in the adult GH population, who make up ~10% of the hGH population. Adults do not care to grow taller; they take hGH because certain parts of their body could be either over- or under-developed. To these adults, hGH is more so a necessity than a supplement.

And so, tissue distribution becomes the priority. Unfortunately, this is exactly where modified growth hormones have failed. We have discussed OPKO’s and Novo Nordisk's results above and in both cases, tissue distribution was no better than half of optimal levels. Ascendis, on the other hand, has preclinical and early clinical data suggesting that complete tissue distribution (looking at AUC and Cmax curves). For adult patients, choosing the best GH molecule is far more important than it is for children – and an unmodified GH molecule has better data. That said, adult patients may be more skeptical of the LAGH overall. To account for this, we pull back our revenue estimates to assume only one-third of all adult patients will use an LAGH by 2028. Furthermore, Novo Nordisk will have a two-year head start in commercialization. While it turns the adult hGH race into an uphill battle for Ascendis, we remain confident that Ascendis has the better molecule. As a result, we believe Ascendis will overtake its competition within about five years of its release, translating to ~$100M in additional revenue by 2028.

TransCon Oncology ushers in a new "accessory" product line defined by massive TAM.

When most biotech companies begin unveiling plans in the world of oncology, skepticism matters for two reasons. First, broadly speaking, cancer is tough. Even though the battle against it hinges on a few core principles, executing on these principles can be messy, random, and often misguided as new factors and relationships emerge. But more importantly, companies entering the rat-race are looking for "easy" growth through a large TAM. The air-quotes around "easy" are purely ironic; of course, as cancer is anything but. Between checkpoint inhibitors Keytruda and Opdivo, however, peak sales are projected to grow to $35B by 2028 – and this is only 50% of the total eligible market. In a market the size of cancer, even a dent is rewarded with billions.

Ascendis understands this and has indicated frequently that TransCon will never compete with the titans. Rather, Ascendis is positioning TransCon Oncology to become an accessory line. This, we believe, makes for a fascinating strategy. Core oncology strategies will always change – PD-1s for the next five years, bispecifics and cell therapies in the years thereafter – but the principles behind an immune response remain the same. Ascendis' first two targets are great examples of this relationship. The TLR7/8 agonist is an immune stimulant that activates T-cells against the tumors. It has two targets – TLR7 and TLR8 – which allow for dual activation of two different immune cell types. While the value proposition is clear as a catalyst for a checkpoint response, its success is less established. For one thing, the sustained release platform for TransCon TLR7/8 is different from its endocrine predecessors. It relies on a localized and intertumoral hydrogel which "sticks" to the tumor and secretes drug directly inwards. Because the platform has not been tested in humans yet, we do not think it can be de-risked like the rest of the pipeline. (that said, preclinical mouse results seem to replicate the endocrine pipeline's results perfectly). Furthermore, TransCon TLR7/8's parent drug resiquimod does not share the same success story that the endocrine pipeline does; apart from some promising clinical results in 2015, the case for its efficacy is weak. However, by significantly increasing the efficacy-to-safety ratio via TransCon's localized release, there is a high probability that this could change – and become a template for future TransCon Oncology products. Ascendis filed an IND in December to begin clinical testing.

Ascendis's other cancer play, TransCon IL-2, has massive potential. Cytokine therapies have long been of interest, but rarely have they lived up to the hype. Perhaps TransCon IL-2 end up the same. However, we see several use cases for TransCon IL-2 beyond traditional oncology. New cell therapies – a broad bucket of therapies that inject engineered immune cells directly into the body – have struggled to gain traction without a long-acting version of IL-2 seeing as immune cells die quick. By increasing this half-life from 2.5 hours to 32 hours, TransCon can increase immune cell expansion nearly 10-fold in primates. In doing so, TransCon IL-2 can end up being more than an injectable therapy, but an important manufacturing ingredient. TransCon IL-2's IND will be filed by Q3 2021.

Above all, Ascendis presented data showing that TLR7/8 and IL-2 combined could have synergistic anti-cancer effects, dramatically decreasing tumor size between three or four times more than either could individually. Herein lies the vision for Ascendis's next great era: an entire arsenal of accessory drugs that are both synergistic and structurally de-risked by TransCon. Already, Ascendis has entertained offers for licensing and partnership on the Oncology pipeline, an indicator that commercialization could be tough, but the combination therapies are promising. That said, the lack of human data significantly complicates any proper valuation of this promising pipeline; until then, we will consider the Oncology pipeline mere additional upside.

TransCon CNP and hGH have additive effects, ushering a new frontier in growth endocrinology.

This is only preclinically validated. However, it may have critical implications for the growth endocrinology over the next decade. The scientific basis behind it is that, like most phenomenon in science, growth biology can be characterized by an elegant pathway. First, GH acts on developing bone cells to trigger differentiation, while concurrently stimulating IGF-1. IGF-1 then expands those bone cells as well as peripheral tissues, creating an intracellular and intercellular environment in which the whole system thrives. Finally, CNP helps the chondrocytes expand at a more rapid pace when growth is especially critical, for instance puberty. When combined, all bottlenecks to growth are removed, leading to overall growth acceleration.

Ascendis tested this theory in mice by injecting both TransCon hGH and TransCon CNP. And as was hypothesized, the results were additive. A combination therapy may be in the works, and from a valuation perspective, both hGH and CNP's markets can expand substantially. Moreover, only three companies have the resources to combine growth hormone with a downstream FGFR inhibitor – Pfizer and Novo Nordisk are the other ones – suggesting a long-lasting oligopoly between the three in growth biology (although this is highly unlikely seeing as several hurdles stand in the way for all three). With preclinical results already validated, Ascendis has the head-start. Where the journey goes from here, it will be exciting to see.

Ascendis's auto-injector's 4mm needle boosts TransCon's value proposition.

Four millimeters, for reference, is 5/32 of an inch, about the width of three grains of rice. The current standard (at least for hGH) is double that at eight millimeters. We were surprised to realize that many clinicians ranked this difference lowest in their decision-making criteria; based on the patient feedback Ascendis received, we think the needle is one of those see-it-to-believe-it aspects of a good injection. There are both physiological and psychological factors that back this. From a physiological perspective, longer needles are wrought with adverse event issues. Notice the adverse event profiles between TransCon hGH and somatrogon vary significantly. The X-factor is injection-site pain: as 39% of all weekly somatragon patients indicated, a deeper injection that pierces into your muscle correlates with higher pain and worse injection reactions. On the psychological side, after spending years on a longer needle, it is much easier to appreciate a smaller one. At half the length, the 4-mm needle quickly and deliberately pricks the subcutaneous layer. For children, this decreases the age at which they can self-inject. For parents, it reduces the stress. In fact, we spoke about how most innovation in hGH was exclusively limited to the auto-injector in the past. This is as radical an innovation to the auto-injector as could ever happen.

Now let us broaden this to the whole of TransCon. Endocrinology is a field fundamentally tied to the injection; from insulin to growth hormone to PTH, hormones must be deposited directly into the bloodstream. Ascendis is trying to build a leading endocrinology company, and the needle is just another shot on goal. Will it contribute any monetary value? Probably not, apart from better compliance. However, it does help Ascendis garner brand value as a company with optimized home subcutaneous capabilities across stakeholders, and the value of this stickiness cannot be forgotten.

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Part 4: Valuation

Before touching on valuation, we want to comment on potential dilution going forward. Having raised capital in July 2020, Ascendis has just under $1B in cash on hand. With a burn rate of $362M over the last twelve months and large-scale commercial launches for their three endocrinology pipeline products in 2021, 2023, and 2025, Ascendis is unlikely to raise more capital over the next two years. Additional capital raises will depend on the performance of the pipeline products below.

TransCon hGH can reap $1.2 billion in sales by the time LAGHs take over in 2027.

The way we see it, there is simply no reason for physicians to use daily growth hormones when LAGHs exist, irrespective of whether the revenues go to OPKO or Ascendis. But to be conservative, we temper down any lofty assumptions about any revenue acceleration. We project that LAGH use will broadly increase from 8% in 2021 to ~50% in 2027. This may seem overcautious (and it probably is), but considering global physicians are wary of new biological technologies, international uptake may be the rate-limiting factor. In terms of the patient population using hGHs, we believe the market is already established with a CAGR of 2.4% - by 2029, over 150,000 patients worldwide will be on some form of hGH and ~80,000 should be on LAGHs.

GH therapy works on a four-year cycle. Therefore, if 6400 patients are prescribed on LAGHs in Year 1, those 6400 patients will carry over to Year 2, Year 3, and Year 4 before they drop off therapy. Such patient aggregation creates a gradual revenue boost for Ascendis; if only 6400 patients start LAGH therapy each year, there will be over 25,000 patients on therapy by the end of Year 4. Of course, this is misleading; the number should be closer to 60,000 seeing as more patients choose LAGHs over daily GHs every year. If the new number of patients arriving in Year 5 outweighs the number of Year 1 patients who leave, the overall TransCon hGH population – and therefore, TransCon hGH revenues – should continue to grow.

This four-year cycle anchors the model. Because of it, "switch patients" do not factor into revenues after 2025; most after that point either start on TransCon hGH or decide to stay their course with daily GH. In fact, such "switch patients" only matter through the first two years ($134M and $107M sales respectively). Furthermore, we project Ascendis and OPKO will compete for the patient population, and following our argument above, we project TransCon hGH will win in a roughly 60-40 proportion. Even after Novo Nordisk enters the landscape, assuming a ~$32,000 price tag, we believe TransCon hGH can reach $1B in annual sales by 2026. In fact, even if these tides are flipped and the proportion goes 40-60, Ascendis can record $1B annual sales before 2030. Any way one dices this, Ascendis should have a blockbuster drug.

TransCon PTH is a blockbuster drug with very high upside.

We already talked at length about TransCon PTH's valuation potential (see to the Tepezza vs. TransCon PTH from earlier), but this brief section should concretely lay down our assumptions. We assume domestic pricing in line with Natpara (a premium is likely but not accounted for in our valuation) at $115,050 annually per patient. We also assume a total US hypoparathyroidism prevalence of 80,000, as well as an international prevalence at ~150,000 patients. These numbers are likely to be much higher, even as high as 120,000 patients in the US and 400,000 worldwide because of the undercounting. Our estimates are truly conservative. We assume patient penetration by 2029 will be ~15% of the US HP population, with a steady revenue ramp growing from 6% penetration in 2023. It translates to ~$2B in global sales as of 2029, which once again could even be conservative. Finally, we assume TransCon PTH will win up to 86% of all PTH users given its full-replacement therapy status and a lack of competition.

Of course, it all comes down to market penetration. The floor for penetration is Natpara's performance, and Natpara alone has covered 3% of the US population with a nearly 30% annual increase in patients over the last five years. If the market penetration stagnates in the US at 5%, global revenues may come out to ~$600M annually. This effectively sets a floor on Ascendis' valuation at ~$5-6B. On the flip side, if domestic market penetration soars to 30%, PTH's net present value should come closer to $20-25B assuming annual peak sales of ~$3.6B. At 50% penetration, this is $35B. The upside for a full-replacement therapy is enormous yet uncertain, and it will be fascinating to watch just how TransCon PTH's launch pans out.

While TransCon CNP is not first-in-class, it scientifically leads a broad market.

Unlike the first two molecules, TransCon CNP is not a first-in-class play. Yet it makes for a great investment case, particularly in its similarities to TransCon hGH. It turns vosoritide's daily dosing regimen into a weekly one, and it can use sustained release to improve height efficacy. Furthermore, assuming TransCon hGH truly hits its stride by 2025, there will be enough growth-focused endocrinologists integrated into Ascendis' physician networks to quickly accelerate TransCon CNP's rollout.

Considering the lack of efficacy data however, we choose to stay conservative with our TransCon CNP projections. We first consider the low childhood population prevalence, using BioMarin's estimation of 22,000 patients as a base growing at a 4% CAGR. We do not think all patients will want treatment, especially when it only confers a few centimeters of height. By 2029, with our fingers crossed for more effective drugs, we believe ~38% of all patients will want treatment. At a base price of $120,000 growing at 4% YoY, this implies the ACH market should grow to ~$1.9B by the start of 2030. If Ascendis captures 30% of this market, it should be able to secure just under $600M in sales by that point. But this is contingent on the efficacy readouts in Q3 2021. We adjust with a probability of success at 60% -- high for a Phase II drug, but not unrealistic given TransCon's structural derisking. Should Phase II trials succeed, we will consider marking this number up to 85%. While TransCon CNP may not have the clear blockbuster potential of its two predecessors, we believe it will generate a steady revenue stream for Ascendis as it develops the oncology pipeline in the latter half of the 2020s.

DCF Analysis

We wanted a ballpark estimate of Ascendis's current value, and so we conducted a sum-of-the-parts analysis. We estimate that TransCon hGH, TransCon PTH, and TransCon CNP can achieve probability-adjusted revenues of $2B, $1.8B, and $300M respectively by 2029, adding up to a total of $4.2B. Please note that none of these estimates are reflective of peak sales; with TransCon PTH and CNP especially, we expect peak sales to increase even further.

We assume gross margins will come out to ~90%, in line with the typical high-margin small molecule company. For R&D expenses, we used a historical 'percentage of cash' scheme, which came out to roughly 30%. Historical SG&A by cash margins came to ~8%. Ascendis's depreciation costs are largely expensed in R&D and SG&A, while working capital changes and capital expenditures are negligible. Ascendis also only has ~$40M in debt. As a result, we decided to zero out the interest line items. This may be controversial with some folks, but we must remind you: a) a specialty biopharma company is rarely affected by any of those line items and b) we were only looking for a ballpark estimate. Using a calculated WACC of 10.90% and an industry-standard terminal growth rate at 2%, we arrived at a valuation of $12.6B, around $236 a share. This marks a 59% upside to current prices, with TransCon Oncology providing ample additional upside for the future pipeline.

Once again, we do not believe a DCF is an accurate measure for Ascendis's – or frankly, any true platform company's – future value. If Mikkelsen and Ascendis execute in a manner consistent with the last fifteen years, we should anticipate a dozen more molecules over the next fifteen. Sum-of-the-parts DCFs, even with an artificially boosted terminal growth rate, cannot do this justice. Instead, we must turn to a different method.

Comps Analysis

For our preferred valuation method, we wanted to highlight the impact of both Ascendis's current pipeline and its future one. To do so, we performed a simple EV/Revenue multiples analysis. We used the YE2020 revenues for all but Galapagos, who were hit with a CRL in 2020 (we used 2019 EV and revenue instead). The comparable companies we used were all commercial biopharma firms. Our original intention was to use only platform companies in this analysis; however, the uniqueness of Ascendis's platform quickly became clear. Aside from Seagen, there are no commercial biopharmas with 3+ years of revenues and a platform at its core. Instead, we decided to use a mix of semi-platform (highlighted in light blue) and high-productivity companies as comps . In doing so, we wanted to replicate the impact of a platform to construct an accurate measure of market perception.

Our ultimate outcome was a 5-year and 7-year IRR. The reason we stretched both out so much is because we wanted to come as close to peak sales as possible, just as most of our comparable companies had. Using the revenue projections above and a median multiple of 8.54x, we arrived at a 5-year IRR of 17% and a 7-year IRR of 18%. As a platform company, we believe this underscores what Ascendis can accomplish. With three derisked pipelines in commercialization, development, and discovery, the returns we project are testament to TransCon's unique productivity.

With TransCon, we believe Ascendis is the rare biotech company with decades of progress ahead.

We mentioned risk as one disincentive for investors looking to diversify into the life sciences. A second that we omitted was TAM. Most biotech companies place a ceiling on their TAMs even before they begin. It is their contract with the world, an unspoken recognition of the fact that the number of sickle cell disease or wet AMD patients will never magically increase. Whatever the respective TAM is, rarely does opportunity for growth exist beyond it.

Every so often however, some young biotech will come along and break this rule. The company might prove that a TAM is much bigger than the world expects. Or it might aggressively pursue different avenues, marginally increasing the TAM with each one. Ascendis does both. Through TransCon hGH and PTH, management sought out the rare opportunities where a product can increase its own market, simply by working better than the world expects. And with TransCon CNP and Oncology, Ascendis showcases its ability to produce high-TAM plays quickly and strategically. Combine the two, and the company stands to change the paradigm for commercial biotech.

Catalyst

• Approval of TransCon hGH in 2021 will validate Ascendis’s platform, which in turn de-risks the entire pipeline, including early-stage cancer assets.
• TransCon hGH’s commercialization should signal a future revenue ramp, clinical receptivity to a long-acting growth hormone, and superiority over competition from Pfizer/OPKO. It will also indicate the extent of market expansion via improved clinical compliance.
• The identification and conversion of TransCon PTH’s vastly unappreciated TAM (~$8B in the US).
• TransCon CNP’s efficacy readouts in Q4 2021 will be a critical competitive differentiator for achondroplasia patients.