Ascendis Pharma A/S (ASND) 2022 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the First Quarter 2022 Ascendis Pharma Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Tim Lee, Senior Director, Investor Relations. Please go ahead.

Thank you, operator. Thank you, everyone for joining our first quarter 2022 financial results conference call today. I'm Tim Lee, Senior Director of Investor Relations of Ascendis Pharma. Joining me on the call today is Jan Mikkelsen, President and Chief Executive Officer; Scott Smith, Senior Vice President and Chief Financial Officer; Dr. Dana Pizzuti, Head of Development Operations and Chief Medical Officer; Dr. Juha Punnonen, Head of Oncology; and Dr. Stina Singel, Head of Clinical Development, Oncology.

Before we begin, I would like to remind you that this conference call will contain forward-looking statements that are intended to be covered under the safe harbor provided by the Private Securities Litigation Reform Act. Examples of such statements may include but are not limited to our US commercialization and continued development of SKYTROFA for the US market. The commercialization of TransCon hGH for the EU market, our progress on our pipeline candidates and our expectations with respect to their continued progress, statements regarding our strategic plans, our goals regarding our clinical pipeline, including the timing of clinical results, statements regarding the US market approval of SKYTROFA and our pipeline product candidates, statements regarding our planned regulatory filings, our expansion into new therapeutic areas and statements regarding our ability to create a sustainable leading global biopharma company.

These statements are based on information that is available to us today. Actual results and events could differ materially from those in the forward-looking statements, and we may not be able to achieve our goals, carry out our plans or intentions or expectations or projections disclosed in our forward-looking statements, and you should not place undue reliance on these statements. Our forward-looking statements do not reflect the potential impact of any licensing agreements, acquisitions, mergers, dispositions, joint ventures or investments that we may enter into or terminate. We assume no obligation to update these statements as circumstances change, except as required by law. For additional information concerning the factors that could cause actual results to differ materially, please see our forward-looking statements section in today's press release and the Risk Factors section of our most recent annual report on Form 20-F filed with the SEC on March 2, 2022.

TransCon human growth hormone or TransCon hGH is approved by the FDA in the US under brand name SKYTROFA for the treatment of pediatric patients one year or older weighing at least 11.5 kilograms and have growth failure due to inadequate secretion of endogenous growth hormone. In addition, the European Commission has granted a marketing authorization for lonapegsomatropin, Ascendis Pharma developed under the name TransCon hGH as a once-weekly subcutaneous injection for the [premotor] children and adolescents aged 3 to 18 years with growth failure due to insufficient secretion of endogenous growth hormone.

In general, we refer to this product as TransCon hGH, unless we are referring to the product in the context of a particular jurisdiction such as the United States or the European Union. Otherwise, please note that our product candidates are investigational and not approved for commercial use. As investigational products, the safety and effectiveness of the product candidates have not been reviewed or approved by any regulatory agency. None of the statements made on the conference call regarding our product candidates shall be viewed as promotional.

On today's call, we will discuss in our first quarter 2022 financial results and will provide further business updates. Following some prepared remarks, we will then open up the call for questions.

I will now turn the call over to Jan Mikkelsen, President and Chief Executive Officer.

Thanks, Tim and good afternoon. 2021 was an extraordinary year for Ascendis. As we became a fully integrated commercial stage biopharma company with the launch of SKYTROFA in the US and the expansion of our clinical pipeline to five independent programs in endocrinology rare disease and oncology. These successes confirm that we have the right strategy, the people and capabilities in place to allow us to achieve our Vision 3x3 and to build a sustainable, profitable, leading global biopharma company.

In 2022, we have already achieved an important milestone. In March, we reported results for the TransCon PTH Phase 3 program and our PaTHway Trial made the primary and all key secondary end points. TransCon PTH is a product candidate, addressing a major unmet medical need for adults with chronic hypoparathyroidism patients. A large rare disease population with around 200,000 patients in North America, Europe and Japan alone.

It is rare for a biotech company to have two potential blockbuster product candidates in a row, achieving their target product profile and successfully meet their Phase 3 trial objectives. What has put Ascendis in this unique position? First, our TransCon technology platform and our approach to product innovation, the uniqueness of the TransCon technology platform, combining the benefits of two independent technology platforms, the classical product technology and a predictable sustained-release technology. The TransCon technology platform can be applied broadly to multiple [doctipes]. We believe this, combined with our validated approach to product innovation, enable us to achieve a higher rate of success compared to traditional drug development.

Second, our commitment to patients and designs. Our commitment to patient and design has guided our product development strategies. We seek to design optimal clinical programs to bring differentiated product candidates to patients as quickly as possible, mid-robust clinical data. Third, and in this time, perhaps extremely important, we have a strong balance sheet to support long-term strategic execution. We have the capital necessary to live on both short and long-term goals. During the first quarter, we further strengthened our balance sheet to a convertible notes offering. As a result with the cash on hand today, we believe we are well positioned to deliver on our Vision 3x3 strategy, independent, offer and financing.

What made me so optimistic for the future? So optimistic for the patient. So optimistic for Ascendis is that all our five independent clinical programs are based on the TransCon technology platform and develop using the same algorithm for product innovation. And we will navigate the regulatory pathway with the same experienced global Ascendis team that brought TransCon Growth Hormone to approval in the US and Europe. We believe we have demonstrated that we have the fundamentals for creating a continuous stream of product candidate with the potential to address major unmet medical need with greater success than traditional drug development.

In short, we believe Ascendis has the right approach, a [growing] portfolio of product candidates, the right people and capabilities and the necessary funding to deliver on our goal to create a sustainable, leading global biopharma company. Throughout the rest of the year, we look forward to sharing clinical data from across our pipeline, including our third endocrinology rare disease product candidate, TransCon CNP in fourth quarter and from our oncology programs, which had multiple important milestones this year.

For TransCon growth hormone, which is now approved in both the US and Europe, we continue to build awareness and increase adoption and covers in the US, where it's market under the brand name, SKYTROFA. We believe that SKYTROFA is a unique important treatment option for patient. And we are determined to build it into a leading global brand. As we work to shift the daily treatment paradigm for physicians and payers, I'm pleased to share that brand penetration continues to grow with increased prescription, treated patient and cover plans. As part of our commitment to make TransCon growth hormone, the leading treatment option in the global growth hormone market, we continue to recruit patients for our global Phase 3 foresiGHt Trial of TransCon growth hormone in adults with growth hormone deficiency.

As a result of the ongoing war in Ukraine, we do not expect any patient in certain Eastern European countries to be part of the foresiGHt Trial. And we have modified our recruitment efforts to focus on other countries to compensate. As a result, we are now targeting [completement] of enrollment of the foresiGHt Trial during the fourth quarter of this year. In addition, to support further label expansion for TransCon Growth Hormone, we are planning a protocol submission in the second quarter to FDA for Turner syndrome.

Turning now to TransCon PTH. We believe that the best way to treat a hormone deficiency is to replace the missing [indiscernible] PTH hormone at physiological levels over 24 hours. For this unmet need, we designed TransCon PTH to become approved the first complete PTH hormone replacement therapy, which addressing the underlying cause of this disease. The positive Phase 3 PaTHway Trial results for the composite primary endpoint and all key secondary endpoints confirm our belief in this potential.

As a reminder, the Phase 3 results at week 26, the data shows that 95% of TransCon PTH treated patient, that is 57 out of 60 patients were able to eliminate conventional treatment with therapeutic doses of cattle supplement and active vitamin D. In addition, for the key secondary endpoint, two several quality-of-life instruments show TransCon PTH treated patients reported significant decrease in disease symptoms and significant improvement in their physical function. Our Phase 2 and Phase 3 trials are the first clinical trials able to show statistic improvement in quality-of-life measurement and demonstrate consistent results across both stocks.

I believe these improvements, specific the normalization of quality-of-life measurement arrive after more than two years, 59 out of -- 57 out of 59 patients in our Phase 2 trial and all 79 patients who completed the Phase 3 trial have continued treatment in these studies. These results from our tiles have promising outcome for adults suffering from chronic [SP], who often experience multi-organ comorbidity and a diminished quality of life. We are doing the work required to build this new market and treatment paradigm, because these patients deserve a better life. Understanding the early need, we are working to bring TransCon PTH through the regulatory process in the US and Europe as quickly as possible. There are robust data sets from our Phase 2 and Phase 3 studies will be the foundation of our planned US and European regulatory filings, which remain on track with a US NDA filing plan for Q3 and in European and [BLA] filing plan for Q4.

In Japan, we recently completed enrollment in our pathway Japan Phase 3 trial. And we plan to report topline results based later this year, which demonstrates Ascendis global development capabilities. If approved, we believe TransCon PTH has the potential to become our largest endocrinology rare disease product. And the only PTH replacement therapy available in an estimated more than EUR5 billion plus market opportunity.

Let me switch now to TransCon CNP for achondroplasia. We designed TransCon CNP to provide sustained release of an effective level of CNP over the course of a week by avoiding a high Cmax, which may be the driver of cardiovascular complication. Last December, we completed enrollment in the companies, our Phase 2 randomized double binded placebo-controlled clinical trial of TransCon CNP in children with achondroplasia from the age of 2 up to 10. We look forward to sharing the topline results for this Phase 2 study during the fourth quarter of this year.

Moving to oncology and air where unmet need remains high. In oncology, we are applying the same algorithm we have used in endocrinology rare diseases to bring forward product candidates that we believe will address major unmet medical needs with higher success compared to traditional drug developing by building on well-understood biological pathways. We believe that TransCon technology can address some of the challenge that had limited these immunotherapies and address additional aspect of the immunity cycle to induce the patient's own immune system to potentially eliminate the tumor.

To transform this treatment paradigm in oncology, we are using TransCon Intratumoral and systemic technology to enhance Intratumoral effects while providing sustained modulation of tumor microenvironments and activating of [sedototics] in wound cells. TransCon TLR 7/8 Agonist is using the TransCon Intratumoral Technology platform and is designed to kickstart their immune system inside the tumor. TransCon IL-2 beta/gamma is using the TransCon systemic technology platform and is designed to increase the systemic stimulation of the body's own cancer immune system. We believe TransCon IL-2 beta/gamma development program may ease and bent over all current treatment options.

We are beginning to see promising results, and we will provide additional data by the end of the year. The results we plan to present later this year will include additional clinical data from our TLR 7/8 Agonist program. At the end of last year, we reported early signs of clinical efficacy and a well-tolerated safety profile. Enrollment continues in our Phase 1/2 study of TransCon TLR7/8 Agonist monotherapy and in combination with checkpoint inhibitor in patients with advanced or metastatic solid tumor.

Later this year, we expect to share both topline monotherapy and combo therapy dose escalation data from this trial. For TransCon IL-2 beta/gamma, we have already moved into our third monotherapy cohort in our Phase 1/2 IL-Believe trial with dosing at 80 micrograms per kilo with the expected strong safety profile and effect just as we designed this molecule. We are using the TransCon technology to release a permanent high potent beta/gamma bias IL-2 molecule. Through the TransCon technology, we are flattening the PK profile and expanding the therapeutic window by avoiding the high Cmax that is known to drive toxicity.

During this summer, we're living forward to share initial data related to TransCon IL-2 beta/gamma activation of the factor in wound cells. We also expect topline monotherapy data by the end of 2022. Later this quarter, we are targeting the first patient dose in a combination therapy portion of Phase 1/2 IL-2 beta IL-Believe Trial. TransCon IL-2 beta/gamma and TransCon TLR 7/8 Agonist acts on different parts of their [mood] system. And we are developing the programs in parallel as we believe there could be working together in synergy to become a new backbone in therapy in immunotherapy, independent of checkpoint in new business.

We expect to really take clinical trials exploring this potential clinical synergy together later this year. Going [there on], endocrinology and oncology. We are finalizing the selection of our third therapeutic area. And I'm looking forward to sharing more information of this with you in the end of this year. It is the best time for Ascendis, but we never forget why we're here to make a meaningful difference in the life of patients. Our corporate strategy has been clearly defined in our Vision 3x3. And we continue to achieve constant impactful results as we're working across the portfolio. The values that drive our organization, patient, sign and passion, combined with our strong financial position and expanding in-house capabilities position us to advance where regulatory, clinical and commercial milestones that will contribute to our long-term sustainability and profitability. I firmly believe we have the right team, culture and capability in place to execute.

I will now turn the call over to Scott for additional details and financials with you before we open for questions.

Thanks, Jan. As Jan eloquently laid out, 2022 is an important transition year for Ascendis. We have demonstrated we have all the elements of success in place to deliver sustainable growth and we have a strong balance sheet to support execution of our Vision 3x3 strategy and long-term profitability.

Turning now to our financial results for the quarter ended March 31, 2022, we reported a net loss of EUR125.5 million or EUR2.21 per basic and diluted share compared to a net loss of EUR62.3 million or EUR1.17 per basic and diluted share during the first quarter of 2021. And we ended the first quarter with cash, cash equivalents and marketable securities totaling approximately EUR1.1 billion. Let me now run through some key components of these results.

Total revenues for the first quarter were EUR6.8 million compared to EUR0.7 million during the first quarter of 2021. Revenues include US SKYTROFA net sales as well as license clinical supply and services provided to third parties, primarily VISEN Pharmaceuticals. Reported US SKYTROFA net sales for the first quarter, which are net of provisions to cover estimated sales deductions and product returns were EUR1.9 million.

Now turning to operating expenses. Research and development costs for the first quarter were EUR83.2 million compared to EUR88.1 million during the first quarter of 2021. This reflects the stabilization of our overall R&D costs due to successful progression of early-stage programs through late-stage development and approval. Selling, general and administrative expenses for the first quarter were EUR47.4 million compared to EUR37.2 million during the first quarter of 2021. These higher expenses primarily reflect increased costs to establish our commercial organization in the US. Finance income and expenses for the first quarter included a net foreign exchange rate gain of EUR11.7 million compared to a net gain of EUR34.2 million during the first quarter of 2021, primarily related to unrealized gains on translation of our US dollar holdings of cash and marketable securities to euro.

Finance expenses for the first quarter also included EUR4.2 million in transaction costs related to our $575 million convertible senior notes financing. Going forward, we may potentially report significant volatility in the finance income and expense line as IFRS accounting rules will require us to remeasure the conversion option embedded in the convertible notes at fair value on a quarterly basis.

Finally, we ended the first quarter with cash, cash equivalents and marketable securities totaling approximately EUR1.1 billion. Turning to an update on our US launch of SKYTROFA for pediatric GHD. The demand for SKYTROFA continues to be strong. The total number of patients receiving prescriptions enrolled through our patient hub grew from 369 at the end of 2021 to 978 as of March 31. The number of healthcare practitioners prescribing SKYTROFA increased from 139 at the end of 2021 to 349 as of March 31. In addition, through the first quarter of 2022, 46% of these healthcare practitioners have prescribed SKYTROFA to more than one patient compared to 41% at the end of 2021.

From launch through April 29, 1,231 SKYTROFA prescriptions have been written by over 400 prescribers and submitted to our patient hub for processing. Of those prescribers, nearly 50% have described SKYTROFA to more than one patient. From a market access perspective, 45% of US lives were covered per MMIT as of the end of April, reflecting continued adoption of SKYTROFA on formulary by healthcare plans. We believe SKYTROFA has unique benefits for patients and payers alike, and we will continue to work with payers, PBMs and GPOs to maximize coverage within our premium responsible pricing strategy.

As a reminder, once approved for reimbursement by a payer, the patient will generally finish their current supply of daily growth hormone or SKYTROFA fast start treatment before beginning reimbursed therapy with SKYTROFA. Turning to the remainder of 2022, we expect our expenses to increase modestly as our pipeline matures, and we continue to build our commercial capabilities and organization in preparation for additional anticipated product launches and as we advance our endocrinology rare disease pipeline, expand our activities in oncology and continue to invest in the TransCon technology platform.

Let me now also provide an update on select corporate milestones. For TransCon PTH, we are on track for a planned NDA submission in Q3 2022 and a planned MAA submission in Q4 2022. And for PaTHway Japan, topline results are expected later this year. For TransCon CNP, topline data from the Phase 2 accomplished trial are expected in Q4 2022. For TransCon TLR7/8 Agonist, topline monotherapy and combo-therapy dose escalation data from the Phase 1/2 transcendIT-101 clinical trial are expected in Q3 2022.

For TransCon IL-2 beta/gamma, we are on track to dose the first patient in the checkpoint combination dose escalation arm of the IL-Believe clinical trial in the second quarter of 2022 and monotherapy topline results are expected from IL-Believe, in Q4 this year. Within oncology, we expect to submit an IND or equivalent for a Phase 2 cohort expansion in order to evaluate the combination of TransCon TLR7/8 Agonist and TransCon IL-2 beta/gamma therapy in Q4 2022.

Finally, we plan to announce our third therapeutic area in the fourth quarter this year. As you can see, it's a busy year ahead for Ascendis with key catalysts across the pipeline, both in endocrinology rare disease and oncology. As Jan noted, we strengthened our finances earlier this year, raising capital at favorable terms with our convertible note financing in Q1. And now with over EUR1 billion on our balance sheet, we have the capital to fund our growth initiatives and execute on our Vision 3x3 to build a sustainable global biopharma company.

We very much look forward to seeing many of you face-to-face at the BofA conference in Las Vegas tomorrow. And with that, operator, we are now ready to take questions.

(Operator Instructions) And our first question comes from Jessica Fye from JPMorgan.

In light of the SKYTROFA number, I had a couple of questions there just to kind of clarify what we're seeing here. Of the patients who have been prescribed to SKYTROFA, what proportion were reimbursed during the first quarter? And in light of the lag that you mentioned between plans adopting coverage and patients starting up on reimbursed product after they finish using their free drug. Can you tell us of the patients who have been prescribed SKYTROFA? What proportion of those patients are on plans that now cover SKYTROFA? And I have a follow-up.

Thanks, Jess, for the two questions. Let us start with the last question you have about the time. This is actually a time that still are getting developed when you come to a more steady state situation. So if we start to discuss the number now, then you will, basically you will have a complete different number in two to three weeks from now -- in two to three months for now, because it's basically deploying a general principal, because we have the fast start program. In the fast start program we come in without majority of the patient comes. So we basically will have in position that as we also have seen from the data that Scott released, the majority of the patient is still coming from six patients. So we still -- many of them will have daily growth hormone supply.

And first of all, it will take some time before they have used up their daily growth hormone supply, before we start with SKYTROFA and also the reimbursement system in that. There is a [wide eye] of delay in this number. We will come up, as we said before, in a situation when we come up with our Q2 financials. We will give you an updated perspective both on what we expect to be our revenue basis for rest of the year, and we will also give you much more solid data. Why do we believe, we can provide you much more solid data, because we will have all the fundamental analytic for two full quarters. And when we have that, we feel much more in comfort for basic, being in a position can give you information, data that can give you a way to make a realized forecasting of the sales.

For the first question, I think Scott has some question related to that.

Jess, your question related to how many patients are reimbursed now that came on to therapy, I think, is the one that I'm addressing. Once the patient receives their first claim reimbursed, I would say we have limited information after they start being dispensed via the specialty pharmacy. However, from a financial perspective, as I mentioned, we take a net provision for a variety of different discounts and rebates and product returns. And we try to be as conservative as possible until as Jan mentioned, we get our experience around how the patient evolves over time.

So basically, Jess, what we are doing here, when we talk about net revenue, we basically have some, what I call basically a worst case scenario, both we incorporate already at that stage, if there's a product recall and other things like that, because we don't want to be in a position that we suddenly are in a position that we need to redo a lot of expected revenue basis on a net base, because something comes up in the end of the year. I know it's a pretty conservative way to do it, but we believe it's the right way to do it, because it gives you a great fundamentals for having what we call a real net revenue basis instead of what we call a percent net revenue basis.

Okay. And a follow-up question was just, do you expect for early review in the US for TransCon PTH?

I think Dana had her hands up in the air. So I do not know what that mean.

Well, Jess, I think we're going to make a strong case for it. And I think it's always up to the agency to sort of make their ultimate decisions. But we'll be talking with them about it definitely.

Our next question comes from Josh Schimmer from Evercore ISI.

For TransCon PTH, had a lot of interest and enthusiasm for the product to have nephroprotective and potentially cardioprotective properties. When do you think you'll be in a position to generate clinical data to really support that and go beyond the theoretical into the more tangible proven advantage?

So when we look on the potential of TransCon PTH, we believe the way we are providing PTH to the patient, giving the right molecule in the physiological level 24 hours a day. It's providing, as you say, total right. We are getting to a place where we do normalization of all biochemical, physical, everything what we are measured including quality of life parameters. When we specifically go to elements like cardiovascular risk, I actually think we already have what I call surrogate markers that in my best way have a strong scientific, clinical correlation. For example, phosphate, calcium/phosphate complex I think there is a strong scientific connection that also are providing, if you have them elevated up to her level, they are providing what we call cardiovascular risk.

If we, for example, go to the kidney, which are a huge issue for the patient group because they're basically in a position to dumping all the calcium into the kidney system and basically are going to do no damage. And one of the element we can do, just is that when we now have patients already in treatment for two, three, four years, we can go back and look and look on their example, the situation, look on their way, that basic are performing. And sure, we cannot have what we call double-blinded placebo-controlled because we cannot really being in a position that we can defend to have patients going out on treatment for a long time without giving them access to our medication. But what we can do, which, I believe, is a very, very strong benchmark is compared to all the data that is built on the patient population of patients with hypoparathyroidism.

And I think that will be a strong comparison to it. But I believe also in this case, there is strong surrogate markers like urinary 24 hour calcium with basic IMA position that we really can give a strong scientific rationale why it should be giving a positive impact on that. Dana, also has a few comments to add.

Yeah. Jess, as we've looked at the data and some of the correlation between the PTH levels that we have and the urinary calcium levels what we're seeing is that it doesn't take much PTH to restore the resorptive ability in the kidney. So I don't know how long it's going to take to see clinical benefits or the lack of progression of like particularly renal complications related to the calcium, but the longer we look, the better -- the better it should be or more stable these patients should be. So that's one way that we're looking at it.

Are there ways to quantify the amount of calcium in the kidney, like there are for the heart?

The way we actually are qualifying what we call the -- how to look on what we call the short-term way is to look on 24-hour urinary calcium, because just to look on different documentation from FDA. There is a clear correlation between what we call renal impairment compared to other effect that you see with having an elevated 24-hour urinary calcium. But as Dana said, it's really interesting from a scientific perspective, what we're seeing now because we basically can track because we have so many patients on different doses.

And what we see different part of the body because it's a multi-organ disease. And we see the threshold, which we believe is the most important, the stable physiological PTH level, but different organs have basically different way to respond to it. And as Dana said before, the kidney is actually one of the easiest organ to some way to normalize with the PTH, and we see that really really easy in low-dose PTH as long as a constant in the low level of the physiological level when we see the improvement.

Our next question comes from David Lebowitz from Citi.

Could you -- understanding that at this point in time, you're not comfortable giving us timing in certain specifics on reimbursement. Could you run us through the typical process for a patient coming to a doctor to get prescribed for growth hormone, what it takes to get the prescription, how the prescription gets submitted to the insurer, how long can they be looking at depending on what the nature of their insurer is and where their status of coverage is? Just to get us some sort of idea of what the process is facing these patients right now.

Yeah. This is a question where there is so many, many, many scenarios for answering the question. First of all, it's very much dependent, are you a patient or you already have been stated a treatment on daily growth hormone. Then you just take the big group of these two, intervening patient, you basically need to go through all the different kind of test that involves [scan] test, x-ray of -- you still have open growth rate, a lot of different tests that take a period of time really to get established that you have the diagnose of growth hormone deficiency. If you take the patient that's coming from already established on data platform, it's -- from that perspective, it's much, much, much easier, because you already have been true, all the different diagnosis and therefore, have expected.

This is why potentially we see a majority of the patient coming for switch patient, because they don't need to go to the entire system to be static diagnosed of having growth hormone deficiency. There was two big, big group. Then you go into each of the two big group, very much depended, are you coming for a system where we already have market assets or not markets. And then there is a different place to have market assets. This is not a typical way to have market assets, you will have different, what I call, power of market sales and either of them will basically acquire a lot of different elements to fulfill it.

And it will take different times in different system you have dependent on the market assets you have in your insurance. But what we see of all these groups, we get all the groups now, and we get them both, what we call that already have the prioritization. We're also getting from the system where you go to medical exemption. This is mainly typically where there is no market in sales, they're still getting medical acceptance, because if you have a chart on daily growth that is not growing and you have started some optimal treatment option. It's actually possible to get medical excemption, and this is where we see them come from. [Sadly] enough, I cannot answer your question better because this is describing about 200 different pathway in the complexity of the US system related to basic getting reimbursed and established as a commercial treated patient.

And one follow-up here. Could you possibly outline for us what the revenues might have been before provisions to give us just a perspective on the level of impact at this point?

I think this is something we typically never disclosing in our numbers because, as I said and what Scott said, we do it in a very, very conservative manner where we both subtracting elements like rebate, but we also basically are taking away if there is any kind of material that are not getting sold and other things like that. So I think we have four or five ways where we're substracting for what we call the gross margin. And then you have gross margin one, you have gross margin 3, you have gross margin 4, before we go back to the final one we call net-net revenue. And that is what we give to you. And that is not realized net-net revenue. This is where we believe that in the future, if there's any kind of discounting coming, then we will take it away. So it is not what we call net-net revenue of day. This is where we will be in a position where we expect for future, which here will be any kind of element that we need to discounting is already being taken into consideration.

Our next question comes from Vikram Purohit from Morgan Stanley.

So first, could you just give us an update on where TransCon hGH stands in Europe? And what are the next steps there for securing reimbursement across some of the key geographies that you need to start commercializing it to really start initially ramping that launch?

Yeah. It's a question. And what we were really waiting for was basic TransCon PTH to get the positive Phase 3 data that we achieved. And you can say, why? Because the complexity of Europe is that, it's not a single market, it's a multiple differentiated market. And one of the element we are focused on is to be profitable and having a P&L play. And this is why to have the optimal way to penetrate the different European market, we will be in a position that we can build on the synergy, the economy of scale of launching two extremely important product just after this one.

Now we have the Phase 3 data. We have the approval in Europe. We basically are executing on our European strategy. And this is a strategy that is built on not spending EUR120 million and generate EUR5 million in revenue. It's building and P&L play, because we are a European company exactly not know what to do, because it's -- seen settling up a lot of company coming into Europe and believe that is a place where you basically can execute and make a highly profitable business on what I call rapid global expansion. You don't do that. You go country by country, build it up and take high volume, high marketing country at the first stage and then you build the expansion from there.

Got it. And a follow-up on a separate topic. So for the TLR7/8 and IL-2 readouts that we're looking forward to in 3Q and 4Q, what could we expect to learn in terms of number of patients and not a follow-up? And what do you hope to see from each of these readouts to feel like each program has a viable path forward?

I will start with a few remarks and then Stina will take over. When we moved into oncology, I got asked multiple times. Why do you do that again? Do you have where is this endocrinology, you can dominate that. Perhaps it's easier to dominate rare disease endocrinology in going into oncology. But why actually are bullish in the same way, because we have the TransCon technology and the way we have our algorithm for innovation, where we can really make highly differentiated product opportunities that no one else ever, ever have made. And when I think the synergy we're building up in our pipeline approach is a kick style -- is a kick style in solid tumor, where we placed inside tumor a crop that get sustained release over weeks, one single injection. And then you activate the mood system inside the tumor. And then we're going out and saying, you have today a stable checkpoint inhibitor, but we've also seen the limitation.

And we are not here to develop something in synergy with checkpoint inhibitor, we are here to develop something that is improvement the next generation compared to checkpoint inhibitors. And this is our vision, and that is what we're building out with clinical data that really can support that vision. So Stina can give a little bit more perspective, what we have seen on our initial readouts we have seen with all the data.

Thanks, Jan. For the TLR7/8 program, we expect to have about 18 patients dosed by the time that we disclose our data end of the year. And depending on how many patients make it to the first tumor assessment at week nine, we do expect to have approximately 10 patients with [efficacy valuable] data. For the IL-2 beta/gamma program, we are actively in dose escalation. So it really depends on when we -- they may not hit a maximum tolerated dose, we will have more patients. But as Jan has mentioned before, we are already dose escalating in dose level 3, which is a microgram per kilogram. And we're doing it with the standard 3 plus 3 dose escalation, three to six patients per dose level cohort in monotherapy and in combination with pembrolizumab.

So when I think about the year two rates, there's about 20 companies in the IL-2 rates. When I see how fast we are progressing. And why are we progressing so fast, because we designed it in an optimal manner to see the right efficacy without a safety concern. And what we see today is really everything has around how we probably designed it. So I'm really, really looking forward to share this data with you later this year.

Our next question comes from Leland Gershell from Oppenheimer.

Just one or two for me. First, maybe for Scott, just looking at the OpEx, your SG&A was maybe a little bit down this quarter versus 4Q. Clearly, you're in a launch and you guided to a modest increase the rest of the year. Just wondering what was behind perhaps not spending as much this past quarter given the spectra of launch.

I think that, as we alluded to with regard to R&D, to some extent in SG&A, there have been onetime costs to build the infrastructure. So I think a combination of some costs rolling off offset by increased personnel basically led to flattish expenses.

Okay. And then I also wanted to ask in terms of the China trial, given all the COVID impact in that geography, I wanted to ask if there's any particular impact to accomplish with respect to COVID-19.

Yeah. And just a quick follow-up on -- I should have added that, we also are basically in steady state with the SG&A infrastructure as well as the R&D infrastructure. And then your question about the status, it was the status of accomplished in China. Is that...

No, the East European part of -- as I understood your question. It's not right you're addressing the Eastern European elements.

Shanghai and so forth, just wondering if there's been any impact on the accomplished China trial that you've been conducting with, in that region.

Yeah. The complete trial is actually pretty interesting because we managed to get a lot of enrollment done. So we actually got the cohorting as we wanted to do. We actually are following up a lot of that, but we also realize that China is also a big country that basic element that is very, very affected on the COVID situation and the other part that's not effected with it. So from that perspective, we feel that we are doing that. But as we said before, we're also planning to basically do the same parallel in the European and the USA, because we feel that and we're getting so much response from the patient groups that really would like to see the same core expansion. So we will do the same thing in what we call in US and EU focus trial, where we do exactly the same thing what we did in China to have it doubled.

And it's mainly being driven out from the perspective is that we have so many children in our [chief] trial. This is our national [history] trial, and the basic are asking us why can we not come into a treatment. And with our patient focus, we will do what we can do for the patient. And this is why we expand the assets to basic having TransCon CNP in this patient group 2.

One thing just to add in with Scott's comments about it, Ascendis Pharma is now matured. We matured to a state when we take new products up as we will do in our virtual (inaudible), when we see new product come into oncology, we basically nearly with the same speed are taking out in the opposite end like SKYTROFA, finalized out in commercial manufacturing now out of reserves and development. We do the same thing now with PTHs, finalizing the validation fashion, all the PPQ activities. Next year, we move them out to commercial manufacturing. We do that in nearly in the same speed as we actually generate the pipeline. So this is why we're coming to a steady state in Ascendis Pharma, feeding on, we are a machine developed to develop rocks, successful. And that is we will continue to do with the speed and dedication we have. So our overall plan is that new product be approved every year or every second year. And it looked like we really can fulfill that ambition.

Our next question comes from Joseph Schwartz from SVB Securities.

Just a question on SKYTROFA and then one on PTH. First, I was wondering if you could describe for us your free drug policy in terms of the duration of therapy that patients are entitled to receive, before they need their insurance to cover the bill? And do you have any data at all that you can share with us that illustrates the success rate for patients being able to receive insurance coverage once their free drug supply runs out?

Good question. From the perspective is that it's something we're analyzing a lot, looking on the data a lot every month, and we see the expected development. We see that expected development is that when we start a patient there has to be an opportunity to come into our staff program. But it's not actually all of them are doing that. We actually see there is have 2/3 that do rest go directly into. So 2/3 opts into this opportunity to get early assets to that. And what we now are following, and this is where I really, really love to see more, more, more and more, more data, because it have different patient groups one with naive patient, one with switch patient. But what is really depending is also how we build up the market assess, because more and more market assets and how we get market assessed is also changed the ratio when they're moving over. So what we're seeing is not a steady state.

But what we expect, we expect that the majority of patients that is starting on this fast tag program basically will end up as commercial patients. But what we do not know is exactly the timing and how long time it takes. We have some average time, but it's not meaningful for us to give you an ever-time because it's actually changing month by month, getting faster and faster.

Okay. And then on PTH, to what extent do patients feel better when they're on TransCon PTH therapy? I'm asking because it seems like many of the day-to-day symptoms you'd capture in a clinical trial are cognitive. But there seems to be a bigger impact on physical functioning than cognitive in your data. So I'm wondering why that is and what it might mean in the real world.

Dana will come with further question about it. But what we did basically in Phase 2 and what we did in Phase 3, it's a little bit different because in Phase 2, we basically have the entire -- I do not know how many different sub domains we analyze or 20-plus or something like that. And we saw basic improvement in all of them. After Dana and she can explain it is that she had an intense discussion with the regulatory agents and what we believe was the most important one and what the belief its potential is the one that we like for us to move forward with. We selected this soft mainly in working in a strong discussion with FDA with one vessel was more important for this patient group. But Dana, you can explain somewhat of the discussion.

As you know from prior sort of releases that we've had with the Phase 2, we looked at sort of our -- the SF-36 scale, we saw normalization essentially across all the domains. Again, it's not disease specific. And then we're continuing to develop our HPES, which is disease-specific sort of instrument. Now we still use both of them in the Phase 3, right? And what the FDA asked us to do for Phase 3 was to focus on what we felt were some of the most important domains, okay? And I think that, in particular, they are particularly interested in the symptoms, right? Okay, and then the functioning, right? So we did sort of focus on those particular areas.

And as we disclosed back in March, we were highly statistically significant for pretty much every single one. So -- and then even if we drill down into some of the smaller ones, and we still saw a very sort of favorable results for the patients. But the FDA asked us to focus on the things that they felt were probably the most important.

I think an early way to look at it, Joe, is look about patient retention. Because addressing patient retention is the short-term benefit you get on treatment. You don't stay in a clinical trial or an open-label extension, because you believe long-term complication mainly are getting solved. You do it because you feel normal again that you see the immediate benefit of the drug. When I see we still have 57 out of 59 after more than 2.5 years in open-label extension.

We saw all the patients from our Phase 3 is now under treatment. I think this is the best way for me to mature. Sure, we can quantify it in all the different things we did in our key site element in our Phase 2. What patient retention for me is the key element because this is a wide patient, take the therapy, why they keep going every day with a daily injection with an adherence treatment of about 98% to 99%. They do it because they get the short-term relief, they are feeling normal again. And this is one of the best lesson for me.

Thank you. This concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day.