ARGENX - A decade-long opportunity in autoimmunity - ARGX BB

Argenx’ FcRn inhibitor efgartigimod is a multi-blockbuster in the making. However, macro headwinds for the biotech sector and a relatively slow 2021 provide for an interesting long-term entry point. We raise our price target to € 300/share and rating to Buy.

Our View:
Today we publish our company note on Argenx: a decade-long opportunity in autoimmunity. A head-to-head comparison of 5 FcRn assets in development shows that with efgartigimod, Argenx owns a first-in-class and potentially best-in-class asset in the rapidly growing autoimmune inflammation market. The company intends to maximally leverage its unique asset in an ambitiously broad development plan, including 6 indications by YE21 (indication #5 & #6 to be revealed during tomorrow’s R&D day) and intentions to expand to up to 10 indications.
Next to broad development, commercial ambitions for efgartigimod span quite some territories for an initial launch in gMG. Argenx will tackle core markets US, Japan & EU with a proprietary salesforce while Zai Lab acts as commercial partner for the Chinese market. China adds an interesting additional road to value creation for efgar, as the addressable patient population in gMG, ITP and PV/PF is larger than the sum of US, EU and Japan. However, this is offset by significant expected pressure on pricing relative to the US (KBCS est. -60%). Nonetheless, we expect Argenx to receive € 201m in royalties on peak sales of € 1.0bn in gMG. This compares favorably to US gMG peak sales of € 760m.
For the 4 disclosed indications, we expect efgar global sales to extend beyond € 7bn (2029), translating into € 5.5bn direct revenues for Argenx (proprietary sales + China royalties). Current estimates show proprietary peak sales (US + EU + JPN) between € 0.8 – 1.7bn per indication, providing an anchor point for future indications and a roadmap to a decade of market launches in novel indications. Given its planned development trajectory, we believe that in a blue-sky scenario this means efgartigimod peak sales could extend beyond € 10bn, placing it comfortably among the top-10 best-selling drugs.

In the short-term, we see some reasons for caution:
First commercial launch in gMG is expected to be slow given a novel MoA, need for physician education, slow time to reimbursement and a potential lingering COVID-19 effect. Investor rotation: as Argenx transitions from R&D organisation to commercial biopharma, “Buy the data, sell the launch”-mentality with specialist investors could set in while more generalist investors enter the name. 2021 is relatively soft in clinical newsflow, which Argenx handily circumvents with a flurry of reveals (efgar indications #5 & #6, ARGX117 development plan, ARGX119 MoA). Cusatuzumab’s future remains uncertain as J&J steps away as strategic partner for the asset, leaving little rationale for maintaining its equity stake in the company. Macro headwinds for the biotech sector endure in the short term: tax increases, drug pricing/healthcare reform rhetoric, a more stringent FTC bearing down on M&A, potential interest rate hikes pressing down on higher-risk growth stocks.
Given this setup, we believe macro headwinds and a slow 2021 provide investors with an interesting entry point for Argenx, given efgar’s enormous potential. We raise our price target from € 240 to € 300 and rating to Buy.