argenx SE

Moat: 4/5

Understandability: 3/5

Balance Sheet Health: 5/5

arGENX SE is a global immunology company that is focused on developing treatments for severe autoimmune diseases. It develops antibody-based medicines through a differentiated discovery platform.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: arGENX operates in the biopharmaceutical industry, focusing on the development and commercialization of antibody-based therapies for autoimmune diseases. The company’s key objective is to create innovative medicines that can address unmet medical needs in this space.

Revenue Distribution: Argenx’s revenues primarily come from sales of its approved therapies. Vyvgart is their primary revenue driver. They also earn revenues from collaborative agreements, licensing deals, and R&D service fees. These revenue streams have steadily grown as Vyvgart’s launch has become more successful. In FY2022 the company had product revenues of 490.7 million USD with an operating loss of 468.2 million USD. They forecast full-year revenues for 2023 to be around 1.2 Billion, and their growth rate remains very high. This means they are still very unprofitable on a net income basis due to large spending in R&D and SG&A.
Industry Trends: The biotech industry and pharmaceutical industry face headwinds such as drug pricing pressures and increasing regulatory scrutiny. Innovation is seen as one way for companies to combat the risk, alongside focus on high demand areas where treatment is less established.
Margins: argenx reports gross margins that have climbed dramatically over the last 3 years, increasing from 59.7% in 2020 to 87.6% in 2022. The company, however, is still unprofitable and the massive investments in R&D and SG&A is making their net profits look bad for now.
Competitive Landscape: The autoimmune drug market is competitive, with big pharmaceutical companies and specialty biotechs pursuing treatments for these conditions. Specifically, Immunoglobulin (IgG) antibodies have large competition. Many of the companies are competing for the same treatment pathways.
What Makes arGENX Different: arGENX distinguishes itself with its proprietary “ABDEG” antibody technology platform, which allows it to rapidly develop treatments against novel targets. They also benefit from strong collaboration with research institutes, and a diversified portfolio of treatments that targets different disease pathways, rather than just single molecules. They also have good patent protection for their core assets.
Recent Concerns/Controversies/Problems: During their Q4 2022 earnings call, management noted the potential impact of the Russian invasion of Ukraine on their operations, as they have had a number of trials ongoing in Ukraine. Also discussed were the issues of production constraints that limit their ability to sell the product in countries where they were approved to sell.
Management commentary on the matter has been positive with the CFO stating that they expect to overcome any potential headwinds. This also means that the company is focused on their operational infrastructure.
Management has stated their desire for the company to continue growing at a high pace and has given guidance that the company should be a multibillion revenue company by the end of 2025.

Moat Analysis: 4/5 Argenx has a strong moat, primarily due to: - Proprietary Technology: The company’s “ABDEG” technology is a significant barrier to entry, as it allows for the creation of novel therapies that competitors may find difficult to replicate. The technology and its application is backed by patents. - Clinical Data: The clinical data backing argenx’s therapies also serve as a moat, as the company has already successfully demonstrated in clinical trials, their ability to use the proprietary method. - Strategic Collaborations: The established collaborations with other companies, which they seem to be good at, are another form of intangible assets that can provide protection and a pathway to faster commercialization of their assets. - First Mover Advantage: They are leading the commercialisation of a new mechanism, the FcRn inhibitor. This makes them well positioned to take market share and establish market leadership.

However, its moat is not fully impenetrable and can be eroded by these factors:

Competition: The competitive environment is fierce, and other companies might develop superior or substitute therapies. Their novel drugs are also very expensive, and if another company releases a generic, their sales may be heavily impacted.
Regulatory Risk: Clinical trials and regulatory approvals are inherently uncertain. Delays or failures in either could impact argenx’s moat.
Eroding Intellectual Property: Patents on the underlying technology that gives them their advantage may be challenged, and the company may have to defend them through long litigation battles.

Business Resilience: argenx has shown signs of resilience: - Strong Balance Sheet: The company has a large cash position, providing financial stability, and they are continuing to raise capital every year. This allows the company to be able to maneuver through any difficult period or unexpected problems. - Diversified Pipeline: Their broad pipeline is diversified across therapeutic areas. This helps reduce dependency on any specific program. - Adaptable Platform: Their antibody platform is adaptable enough to new targets and allows for potential expansion into new markets. However there is still risks:

Reliance on One Drug: The company relies heavily on the success of Vyvgart. If it fails, the company may have serious trouble generating revenue and might lose investors faith.
Long Development Cycle: The drug development cycles for pharmaceuticals and biotech is quite long, and they can be subject to delays at each stage which might create problems in revenue generation and timelines.
High Spend: Their business model is very CAPEX heavy, meaning they have to keep spending large amounts of cash on research and development, making them exposed to risk.

Understandability: 3/5 arGENX’s business is moderately complex to understand. While the concept of antibodies and autoimmune diseases are generally known. Their specialized technology and business model requires additional understanding of biotech investment dynamics. The high level of information in the earnings releases are also challenging to analyse. Investors need to have a good grasp on the biotech industry to understand all the nuances and factors that can influence the company’s business prospects.

Balance Sheet Health: 5/5 arGENX has a very healthy balance sheet:

High Cash Reserves: The company holds a substantial amount of cash and cash equivalents, providing financial flexibility to fund ongoing operations and invest in future growth. As of the latest reporting period, the company had over 3.5B USD in cash, with little to no debt, creating a very strong balance sheet.
Low Debt: argenx currently has an exceptionally low level of debt, reducing the financial risk of the company.
Strong Liquidity: Their current assets like cash and marketable securities are very high, ensuring they have readily available resources to meet their short-term obligations. - Recent Capital Raise: They recently raised a good amount of capital through secondary offerings. This is seen as a positive sign for the company to further develop its pipeline.

Their strong balance sheet and low debt means they are in good position to make investments and expand their business, and are not exposed to credit risk. Their good cash management also allows them to navigate market uncertainty and pursue strategic deals when needed.