ARGNF - argenx: Hytrulo Finally Approved But CIDP Is A Bigger Fish To Fry

2023-06-29 21:55:49 ET

Summary

• argenx has received approval for the subcutaneous version of efgartigimod, a drug for treating myasthenia gravis, but the market did not respond positively to the news, and the company's share price remained relatively stable.
• The drug's label did not include the self-administration option, which could have increased its sales potential.
• The company is facing uncertainties with its CIDP (Chronic Inflammatory Demyelinating Polyneuropathy) trial, which is a high-risk catalyst event expected to read out in July 2023.
• Other drugs targeting the same FcRn mechanism have shown mixed results, raising questions about the effectiveness of this class of drugs. Despite promising results in certain indications, there is still uncertainty surrounding the outcomes in other indications.
• The current valuation of argenx, with a market cap of around $19 billion, leaves little room for error, and any negative news could lead to a decline in the stock price.
• We maintain a non-consensus hold rating on argenx.

Update: Sc efgartigimod finally approved, but not a meaningful needle mover

We are writing a follow-up article due to two recent news flows that have reinforced our view around giving a neutral rating on argenx (ARGNF) (ARGX). Firstly, argenx recently announced the approval of the SC version of efgartigimod on June 20, 2023, as we initially expected based on the drug's robust clinical data that showed equivalence to the IV formulation, but the price action was lukewarm, indicating that everything was fully priced in. We remind readers that VYVGART Hytrulo is an SC (subcutaneous) product that combines efgartigimod with recombinant human hyaluronidase PH20 (rHuPH20). Halozyme’s unique ENHANZE® drug delivery technology allows the drug to be injected subcutaneously rather than intravenously. This comes with several key advantages a) faster injection time and b) superior safety - in terms of injection site reaction.

We note a few key highlights, a) the label looks clean, except that it did not include the AChR- or self-admin option, which would have been a key upside that some investors may be hoping for, and b) the FDA label seems in line with the IV version of Vyvgart. If the label injected the self-injectable option, it could offer an upside to the sales ramp because it would allow patients to self-administer it at home rather than visiting a healthcare provider (increase the health economic rationale of the agent).

Furthermore, the management indicated that they're still evaluating a pre-filled syringe strategy to receive label expansion around the self-administration potentially in the future. However, we believe this may take a long time (1-2 years) to play out. Most importantly, the management confirmed that the net price for SC Vyvgart would be in line with the current IV efgartigimod, which is surprising to us because we were expecting some degree of premium pricing for the new dosage form.

Takeda's phase 3 ADVANCE-CIDP1 further highlights the uncertainty around CIDP indication.

On June 20th, Takeda announced HYQVIA's phase 3 data that showed only a 31.4% replacement rate in the placebo arm, which means that around 69% of the population who were taking Hyqvia (SCIG) did not relapse. We believe this high degree of placebo rate aligns with historical CIDP trials. Although there are washout periods in argenx's CIDP trial, it is unclear if that could be enough to reduce the placebo rate to drive enough delta that many investors are hoping for. Another thing that worries us on the upcoming CIDP readout is that UCB's rozanolixizumab failed to show any benefit in phase 2 (the company discontinued the development) and roza shares the mechanism of action with argenx's efgaritigmod.

FcRn landscape and key catalysts to look for:

Catalysts on the horizon for the FcRn mechanism

Setting

Trial details/event

Timing

argenx and Vyvgart (IV approved, subcutaneous under review)

CIDP

Phase 3 Adhere trial (subcu)

Q2'23

MG

US approval of subcutaneous formulation

Pdufa Jun 20, 2023

PV

Phase 3 Address trial (subcu)

H2'23

ITP

Phase 3 Advance-SC

H2'23

PC-POTS

Proof of concept phase 2

Q4'23

J&J and nipcocalimab (IV in ph3, subcutaneous in early development)

HDFN

Open-label phase 2

Toplined positive Feb 2023

RA

Proof-of-concept phase 2

H2'23

SLE

Proof-of-concept phase 2

H2'23

wAIHA

Phase 2/3

Q4'23

MG

Phase 3

Q4'23

UCB and rozanolixizumab (subcutaneous infusion under review)

MG

Potential US/EU approvals

Q2'23

Immunovant and batoclimab (subcutaneous in ph3)

Graves' disease

Initial phase 2 results (trial not started)

H2'23

MG

China phase 3 (run by Harbour Biomed)

H2'23

Immunovant and IMVT-1402 (subcutaneous in preclinical)

TBC

Initial phase 1 data

Mid-2023

Source: Evaluate Pharma

Risks

1. CIDP Trial Outcome: argenx's CIDP (Chronic Inflammatory Demyelinating Polyneuropathy) trial is a high-risk catalyst event expected to read out in July 2023. The outcome of this trial is uncertain, and there is a negative bias toward the data. If the trial results disappoint or fail to meet expectations, it could have a significant impact on argenx's future prospects and stock price.

2. Competitive Landscape: The FcRn (neonatal Fc receptor) mechanism, which argenx's efgartigimod targets, has other players in the market, including Takeda with HYQVIA and UCB with rozanolixizumab. The recent phase 3 data from Takeda's HYQVIA trial showed a high placebo rate and Roza failed in phase 2, raising questions about the effectiveness of FcRn inhibitors in CIDP. Most importantly, UCB's rozanolixizumab failed to demonstrate any benefit in a phase 2 trial.

3. Market Perception and Valuation: Despite the approval of the subcutaneous version of efgartigimod, the market did not respond positively, and argenx's share price did not see significant upward movement. This suggests that the market perception may not be as optimistic as expected, and the current valuation of argenx, with a market cap of around $19 billion, leaves little room for error. Any negative news or unmet expectations could lead to a decline in the stock price.

4. Uncertainty in Other Indications: While argenx has shown promising results in certain indications, such as myasthenia gravis ((MG)), there is still uncertainty surrounding the outcomes in other indications.

Conclusion

Net net, we maintain a hold rating moving into the CIDP readout. In terms of the recent price action, we note that two key catalysts that could have previous lead to meaningful appreciation in stock price, a) SC efgartigimod approval (potential high likelihood catalyst) and b) impressive Q1 earnings ($218m Q1 VYVGART net sales, which performed significantly better than what we anticipated previously ), did not translate to additional upward movement in argenx's share price. We believe argenx is priced to perfection (~19Bn market cap); anything can't go wrong at this valuation. Especially as we consider CIDP a high-risk catalyst event (expected to read out in July 2023), and we believe there is a good chance, even with positive data, it could be a sell-the-news type of event. In the long-term, we are believers of the anti-FcRN class, and we see it entering multiple other neurological indications and MG sales ramp to continue strong.

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