argenx Stock: Innovation Over Losses In Autoimmune Arena (NASDAQ:ARGX)

Argenx Performance and Prospects Amid Market Challenges

Argenx’s (NASDAQ:ARGX) stock is down 22% since my last evaluation in October. Back then, I noted growing revenue opportunities for the company’s lead asset, Vyvgart. argenx, a biotechnology developer based in Amsterdam, is a leader in the anti-FcRn market, which is expected to grow to over $10 billion. Last quarter (Q4), argenx reported $374 million in global net product revenues (Vyvgart and Vyvgart Hytrulo) and $417 million in total operating income. argenx still reports hefty operating losses ($138.6 million) due to high R&D ($306 million) and SG&A ($208.8 million) expenses. Recall that the company is advancing both intravenous and subcutaneous Vyvgart across several autoimmune conditions. Furthermore, argenx’s pipeline includes ARGX-119 (targeting MuSK), empasiprubart (targeting C2), ARGX-118, and a few others. As I alluded to in past contributions, argenx is facing some competition in the clinic. Immunovant’s (IMVT) anti-FcRn antibody, IMVT-1402, is showing early promise as a differentiated at-home, subcutaneous delivery. This asset is expected to advance into Phase 2 in a few autoimmune conditions later this year. Some other competitors include Johnson & Johnson’s (JNJ) nipocalimab, which just demonstrated Phase 2 efficacy in Sjögren’s disease. UCB’s Rystiggo is already approved for generalized myasthenia gravis (gMG). MG is the “money” indication so far in the anti-FcRn market. argenx associated their $1.2 billion in 2023 revenue with gMG. Moreover, argenx noted that the switch to Vyvgart Hytrulo, a subcutaneous formulation, is ongoing.

Although Vyvgart still comprises the majority of prescriptions, we are seeing more traction with Hytrulo likely supported by access dynamics, favorable payer policies that mirror Vyvgart and a dedicated J-Code in place. We are committed to innovating on the patient experience even further by advancing the development of our prefilled syringe or PFS this year.

Looking ahead, argenx is expected to report Q1 earnings on May 9. Analysts estimate $400 million in revenue with an EPS of -$0.75. The estimated EPS would be a slight improvement, suggesting a potential stabilization in their financials. As of December 31, the company reported $3.2 billion in “cash, cash equivalents and current financial assets.” Assuming similar net losses for the upcoming quarters ($138.6 million), this gives argenx at least five years of cash runway. Although this is quite extended, investors are probably hoping for a cap to their net losses. The company may have eluded to this when they projected utilizing “up to $500 million of net cash in 2024.”

Moreover, investors should keep an eye on the ongoing developments associated with Vyvgart. In February, the company announced the FDA accepted its supplemental Biologics License Application (sBLA) for Vyvgart Hytrulo for the treatment of chronic inflammatory demyelinating polyneuropathy (CIDP). A decision is anticipated next month, with a launch expected later this year. The company has discussed the “overlap” between the markets for MG and CIDP, which should help them overcome some challenges associated with marketing a new product for this indication (e.g., established treatments). CIDP is not as large a market as MG is, but it’s still considerable. The global CIDP market is projected to eclipse $3 billion in 2031. As Vyvgart Hytrulo figures to be the first of its kind for CIDP due to its differentiated mechanism of action and delivery, it figures to take a considerable share of this market. Subsequently, regulatory approval and a successful market launch could boost agrenx’s valuation.

Lastly, several data readouts are anticipated in 2024. Vyvgart data for Sjogren’s syndrome, post-COVID-19 postural orthostatic tachycardia syndrome (PC-POTS), and myositis are just a few. Any success in these indications could really drive shareholder value.

Market Sentiment

argenx sports a market capitalization of $22.9 billion. According to Seeking Alpha data, consensus analyst estimates are $1.8 billion in sales in 2024 and $2.45 billion in 2025. argenx’s stock has underperformed across recent timeframes, most notably in the past six months, as it is off 22% while the SP500 has returned 17.65%.

Short interest is relatively low, at 2.26% of the float. There is no recent insider activity to note. Institutions have increased their positions by 5.3 million shares and decreased by 3.9 million shares. Top holders include Fmr, Artisan Partners, and Avoro Capital Advisors.

Overall, I’d rate argenx’s market sentiment as “mixed.”

Risk Reward Analysis and Investment Recommendation

In assessing risk and reward, most biotechnology stocks will fall in Quadrant 1 (high return/high risk). I am particularly interested in biotechnology stocks that I perceive to fall above the sloped line representing the linear relationship between risk and expected return.

Due to the robust launch of Vyvgart and argenx’s leadership in the autoimmune disease sector, I believe argenx is a compelling investment. Certainly, argenx remains a youthful drug developer. As such, there are considerable financial and operational risks to consider. However, the extended cash runway and solid balance sheet (virtually no debt) mitigate the sting of the heavy R&D and SG&A expenses that are necessary to maintain leadership in these early innings. Granted, there are existing and potential threats looming in the anti-FcRn market, but I don’t suspect that argenx is going to disappear anytime soon. The market is large enough for a few players and argenx is clearly putting in the work to remain a leader. Peak annual revenue for argenx is expected to eclipse $7 billion in 2031. Because argenx markets a biologic product, this affords them several more years of exclusivity relative to just a small-molecule drug. Subsequently, an appropriate multiple (in valuing argenx’s stock) would be at least 4. argenx’s current enterprise value of $20 billion could spell undervaluation in light of these assumptions. Subsequently, I’m comfortable with keeping my rating at “buy,” also noting that the recent stock weakness may provide greater opportunities for return.

There are some limitations and risks associated with my “buy” recommendation. This is a recommendation best suited for a barbell portfolio (allocation with 90% of funds in secure assets like Treasuries and broad-market ETFs, complemented by targeted 10% investments in high-alpha stocks). In an ordinary portfolio, I would be careful with allocation. argenx’s leadership within their market could be significantly challenged in the coming years. Moreover, data in autoimmune indications outside of MG and CIDP may disappoint. As always, investors are encouraged to maintain a diversified and robust portfolio to mitigate some of these idiosyncratic risks.