Business context and reporting period
Ascendis Pharma A/S filed an audited annual report on Form 20-F for the fiscal year ended December 31, 2017, not a standalone fourth-quarter report. The company is a Denmark-based, clinical-stage biopharmaceutical developer using its TransCon technology; it had no approved products and no product-sales revenue. Financial statements are in euros and prepared under IFRS as issued by the IASB. The figures below are annual unless stated otherwise.
Financial performance and position
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | €1.5 million | €4.6 million | Down 67% |
| Research and development costs | €99.6 million | €66.0 million | Up 51% |
| General and administrative expenses | €13.5 million | €11.5 million | Up 17% |
| Operating loss | €111.5 million | €72.9 million | Loss widened |
| Net loss | €123.9 million | €68.5 million | Loss widened 81% |
| Basic and diluted loss per share | €3.68 | €2.58 | Loss per share increased |
| Cash used in operating activities | €95.1 million | €60.2 million | Cash use increased |
- Cash and cash equivalents were €195.4 million at year-end, compared with €180.3 million a year earlier. Total assets were €211.0 million; total liabilities were €23.8 million; equity was €187.2 million.
- The company reported no third-party debt. Year-end current assets were €204.6 million and current liabilities €23.8 million.
- Financing cash flow was €124.7 million, primarily from the 2017 share offering; investing cash outflow was €0.9 million. Cash increased by €28.7 million before a €13.7 million adverse exchange-rate effect on cash balances.
- Revenue comprised service fees (€1.5 million); no license income was recognized in 2017. All reported 2017 revenue came from one customer.
- No profit margin was meaningful for this pre-commercial company with minimal collaboration revenue and substantial development spending.
Material changes and unusual items
- R&D spending rose as development advanced for TransCon GH, PTH and CNP, including Phase 3 GH work, manufacturing, and auto-injector development. The company attributed €12.5 million of the increase to GH development, €7.4 million to PTH and €5.2 million to CNP.
- Revenue declined largely because recognition of deferred Genentech license income had ended by 2016, and fewer collaboration services were performed. No new collaboration agreements were signed in 2017 or 2016.
- Net finance expense was €12.8 million, versus net finance income of €4.2 million in 2016. The €13.7 million foreign-exchange loss was principally associated with U.S.-dollar balances as the dollar weakened against the euro.
- Share-based payment expense rose to €9.7 million from €7.3 million. The company had 36.98 million ordinary shares outstanding at year-end and 4.62 million warrants outstanding.
- Operating lease commitments totaled €19.4 million, including €2.95 million due within one year. These are commitments, not reported debt.
Outlook, risks and contingencies
- Management expected expenses to increase as clinical programs, staffing and capabilities expanded. It stated that year-end 2017 cash was expected to fund at least 12 months from the report date. Separately, a February 2018 offering generated approximately $242.5 million (€196.8 million) in net proceeds; this occurred after the reporting period.
- Company development milestones included anticipated top-line results from the TransCon GH pediatric Phase 3 heiGHt trial in Q1 2019; full Phase 1 PTH data in Q2 2018, with a possible Phase 3 start in Q1 2019 subject to successful results and regulatory consultation; and planned TransCon CNP Phase 1 dosing in Q2 2018, with data expected in Q4 2018. These are management expectations, not assurances.
- Management described a strategic ambition to seek approval and launch three candidates with greater than $1 billion market potential between 2020 and 2024. This is a company target, not financial guidance.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, safety and long-term technology risks, dependence on partners for collaboration programs, reimbursement and market acceptance, and reliance on third-party manufacturers and certain single-source suppliers.
- Foreign-exchange exposure is material: the company held $183.4 million in U.S.-dollar-denominated monetary assets and liabilities net at year-end; a 10% dollar strengthening was estimated to increase profit/loss and equity by €18.3 million, with a comparable adverse effect from a 10% weakening. The company did not hedge with derivatives.
- Deferred tax assets of €52.7 million were unrecognized because future utilization was uncertain. Management reported no legal proceedings expected to have a material adverse effect and no off-balance-sheet arrangements.
- The auditor issued an unqualified opinion on the IFRS financial statements. Management assessed disclosure controls and internal control over financial reporting as effective at year-end; the auditor did not provide an internal-control attestation under the emerging-growth-company exemption.
Important facts for investors to verify
- Confirm clinical-trial progress, endpoint results and regulatory timelines for GH, PTH and CNP against subsequent company disclosures.
- Assess cash burn and runway using the post-year-end offering proceeds, planned R&D spending and any changes to operating plans.
- Review collaboration partner decisions, milestone conditions and termination rights; potential milestone and royalty receipts are uncertain.
- Evaluate manufacturing capacity and alternative sources for key materials, and the company’s sensitivity to currency movements.
- Track share and warrant dilution, including the February 2018 ADS offering and outstanding warrants.