Persistent Pricing Pressures Will Compress Margins While Orphan Demand Expands

Key Takeaways

• Heavy dependence on flagship products and pricing pressures could restrict revenue growth and increase vulnerability to competition and regulatory changes.
  
• High R&D spending and ambitious pipeline expansion may delay profitability while rising competitive and regulatory risks threaten future market share and margins.
  
• Elevated spending, narrow product focus, and reimbursement risks threaten profitability and restrict revenue potential amid fierce competition and external pricing pressures.

Catalysts

Operates as a biopharmaceutical company that focuses on developing TransCon-based therapies for unmet medical needs in Denmark, rest of Europe, North America, and internationally.

• Although Ascendis Pharma is benefitting from the increasing prevalence of chronic endocrine and rare diseases and the growing global demand for long-acting, patient-friendly therapies, continued pricing and reimbursement pressures in the US and Europe could limit the company's ability to maintain premium pricing, ultimately narrowing revenue growth and compressing future net margins.
  
• While the successful launch and rapid uptake of YORVIPATH and the robust market positioning of SKYTROFA signal a strong platform for future double-digit revenue expansion, the heavy reliance on these flagship products elevates revenue concentration risk; setbacks, slower-than-expected label expansions, or new competition in core indications could sharply curtail earnings growth and reduce financial resilience.
  
• Despite operational leverage opportunities stemming from a maturing commercial infrastructure and expanding global scale, persistent high R&D expenditures, paired with ambitious global launches and broad pipeline expansion, risk delaying sustainable profitability and could continue to dampen net margins over the medium term.
  
• Although secular trends, such as growing investment in rare disease research and generally favorable regulatory pathways for orphan drugs, are supportive of innovation-led companies, there is a risk that increasing industry-wide regulatory scrutiny and extended approval timelines could slow the commercialization of pipeline programs, negatively impacting near-future revenues and delaying earnings inflection points.
  
• While advancements in genomics and personalized medicine should benefit differentiated biopharma platforms like TransCon, intensifying competition from big pharma and emerging entrants utilizing alternative modalities may erode future market share and create lasting pricing pressures, putting both top-line revenue growth and long-term operating leverage at risk.

Ascendis Pharma Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ascendis Pharma compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ascendis Pharma's revenue will grow by 63.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -92.7% today to 18.7% in 3 years time.
• The bearish analysts expect earnings to reach €303.2 million (and earnings per share of €4.7) by about July 2028, up from €-341.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 45.9x on those 2028 earnings, up from -25.7x today. This future PE is greater than the current PE for the US Biotechs industry at 16.5x.
• Analysts expect the number of shares outstanding to grow by 5.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.42%, as per the Simply Wall St company report.

Ascendis Pharma Future Earnings Per Share Growth

Risks

• Persistent high research and development spending and sharply increased selling, general, and administrative expenses driven by continued global commercial expansion threaten to delay the company's path to sustained profitability, thereby compressing net margins and risking future earnings growth.
  
• Ongoing uncertainty regarding payer and reimbursement dynamics, particularly in ex-US markets where full reimbursement is still pending, exposes Ascendis to potential delays or limitations in market access which could restrict expected revenue growth across geographies.
  
• Heavy reliance on a narrow product portfolio-primarily YORVIPATH and SKYTROFA-means that any regulatory setbacks, market access challenges, or clinical trial failures for these flagship therapies would materially damage future top-line revenue and investor confidence.
  
• Heightened competition from rival companies pursuing alternative treatment modalities in targeted disease areas, such as BridgeBio and MBX, carries risk that Ascendis' technologies will lose market share or face pricing pressure, reducing both projected revenue and eventual profitability.
  
• Secular pressures including potential drug price controls, increased healthcare cost containment, and payer resistance to premium pricing for specialty drugs may collectively erode Ascendis Pharma's long-term pricing power, ultimately impacting future net revenues and operating margins.

Valuation

• The assumed bearish price target for Ascendis Pharma is $193.36, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ascendis Pharma's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $306.23, and the most bearish reporting a price target of just $193.36.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.6 billion, earnings will come to €303.2 million, and it would be trading on a PE ratio of 45.9x, assuming you use a discount rate of 6.4%.
• Given the current share price of $170.14, the bearish analyst price target of $193.36 is 12.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.