argenx SE (ARGX) Earnings Call Transcript & Summary

Good morning, everyone. My name is Rajan Sharma. I cover European pharma and biotech here at Goldman Sachs. I'm very pleased to have with us this morning, Karl Gubitz, who is the Chief Financial Officer at argenx. Karl, thank you so much for joining us.

Rajan, thank you. Thank you for the opportunity.

Perfect. Maybe we'll go straight in. And obviously, macro and policy are kind of top of mind for everyone at the minute. So can we start there? And maybe on tariffs. So you've outlined that you expect potential sector tariffs to have limited impact on argenx. Can you just kind of walk us through what you're comfortable from that perspective?

Yes. Thank you, Rajan. And maybe if I just take it 1 level higher to start off with. At argenx, we believe that we are building the company here for the long term. Our strategies is in place to achieve our Vision 2030. And one of those strategies is to manufacture in region for region. That strategy has been in place even before the current administration. It goes back to the COVID days, where the supply chains came under pressure, and we made the decision that in all our priority regions to manufacture in region for region. So today, we already manufacture drug substance, that is the API for biologic in Portsmouth in New Hampshire. And if you follow the current U.S. rules, your rules of origin applies on the drug substance, and that is U.S. manufactured. So today, we are -- I think, from a tariff point of view, we are well positioned.

Okay. And I guess one of the questions that's still coming up is, is that based on your view that the tariff will be applied to kind of a transfer price or a list price?

Yes. So I mean if a tariff will apply, and just one step back again, there are no tariffs on drugs today, as we all know. And even if tariffs get implemented, we believe that the rules of origin will then not -- will position us, but it does not apply to us. But if it applies, yes, we believe that tariffs will be applied on the transfer price, which, of course, is the higher price.

Okay. Makes sense. And then maybe moving on to one of the other topics of drug pricing. So there's obviously President Trump's executive order, which was announced in May. We're heading towards sort of the initial 30-day timeline. Has -- to your knowledge, has there been any negotiations or discussions with the administration?

Yes. So again, back to the long-term strategy before I talk about M&F, our long-term strategy is to price within a narrow band, i.e., to really take time with the various authorities, with the various governments and payers across the globe to explain the value proposition of VYVGART and to maintain a narrow price band as much as possible. So I think that strategy is the best protection you can have against the impacts of most favored nations. And in terms of all the detailed discussions, I mean, we're not going to comment on that. We're going to stay out of it. I think that there's a lot of uncertainties, a lot of things which needs to be sorted out, and I don't think we want to be speculating as a company.

Okay. And I guess if that were to come to fruition, how would you think about kind of launching and pricing ex U.S.? So you obviously talked about that narrow band. Has that been a deliberate strategy that you've taken?

Yes. I mean that strategy I think is -- I think that's what all companies will have to do going forward, is to make sure that there's an equalization, using the new administration's word, in terms of prices across the globe. I think going forward, you're going to see more of it, but I think that's already part of our strategy, and we try to apply that as much as possible.

Okay. And could there be risk? And I understand kind of the point on VYVGART being priced in a narrowband, but is there kind of lateral risk in the sense that if competitor products -- and I know that the FcRn is still kind of an early class, but more broadly thinking about the complement inhibitors in MG, and if the price point came down in that class, could there be lateral effects?

Yes. I think it will come down to the differentiation of FcRn as a class versus maybe other pathways. And I think that a precision medicine as an FcRn are clearly differentiated. And then again, in the FcRn class, I think if you look at the efficacy, safety and tolerability and the patient journey, again, VYVGART is differentiated. So I think that is probably the best protection you can have for those.

Okay. And I guess the third area of concern from a policy perspective is just the CMS guidance, which suggested in the third cycle of Medicare negotiations that subcutaneous and intravenous products may not be considered separate. I guess, what's your take on that? And fundamentally, what's the impact for argenx given that there was a relatively narrow period of time between the IV approval and the subcutaneous launch?

Yes. Let's call it less than 2 years difference between the IV launch and the subcutaneous the subcu launch. So if the subcu might or might not be treated as a separate product for their IRA negotiations. But from our point of view, this is a 2034 issue. We already started to work on our second FcRn program. The IRA clock is ticking, and we know that if we want to build an FcRn class, which will last decades that you need more than 1 FcRn differentiated FcRns to really build to this class. And that is what we are focusing on. I don't want to comment on whether Halozyme will be successful in their argument that there is clinical differentiation between when you add 2 more entities. I'll leave it for them. I think we are focusing on what we can control, and that is our pipeline.

Okay. Makes sense. And then maybe we'll just go back to Q1 earnings where there was obviously kind of a -- net pricing was in focus and there was the talk around the channel mix. Could you maybe just talk about where we were at the end of 2024 in terms of channel mix, gross to net? And how you think that evolves through 2025, and what the drivers are?

Yes. Thanks, Rajan. Maybe just we think we printed very well. We know we printed a good quarter in Q1, 7% growth in Q1, following a very strong Q4, and that 7% is quarter-over-quarter, Q1 over Q4 2024. We think that it is a really strong performance. The underlying KPIs in terms of patient adds, physician expansion, really pleased with where the launch is for both MG and CIDP. In Q1, you get impacted by your typical, what we call, seasonality that impacts many drugs, all drugs probably in the U.S. And that is the main driver of why the revenue growth, compared to the previous quarter, is lower than other quarters. You see the same thing a year ago when you go from Q4 '23 to Q1 '24, the growth then was 5% versus the 7% we printed in Q1. Really good quarter. The launch is where it's supposed to be for both indications. But yes, I also commented on gross to net. And this again goes back to my consistent comments during 2024, where I always reported that gross to net is stable at around 12% to 13% with no discount. We don't play a discount game. It's the channel is under control, if you like. But I also said, with the launch of PFS in Q2 2025, PFS will be a pharmacy channel drug, i.e., Medicare Part D for Delta, and then, for reasons which we all understand, the 20% hook-up patients after -- once we had catastrophic and just more discounts in the pharmacy channel, that gross to net will increase, and it will increase gradually starting Q2 as PFS becomes a bigger share of a product mix. That's what I said at the end of 2024. In Q1, what we saw was that patients want to move to Medicare Part D. Medicare patients want to move to D if they have an option, if payer and prescriber allows that. And they want to do that because of an out-of-pocket cap of $2,000. So we saw patients mostly on Hytrulo switching to D. Again, going back to 2024, we always had patients on D for Delta. It was a small number, but growing quarter-over-quarter, but still small. And in Q1, you saw a lot of patients moving to D. So this is not a material driver for the performance in Q1 in terms of a net sales number, it's a dynamic, which I tried -- which we are explaining. And yes, in Q2, Q3, Q4, you will see gross to net, of course, increasing. I also provided that for MG, your net price per patient in Q1 is still approximately $225,000 per year. So that hasn't really changed. It's still ballpark. So those are the dynamics, which I think we explained in the Q1 discussion.

And those patients that are in Part D, so this is before the PFS launch, is the expectation that they move to the PFS so that the Part D impact is essentially a PFS issue?

I think many -- most of those patients will ultimately move to PFS because you still have to pay for their infusion, so for the nurse. Typically, it's a nurse coming to your house through a specialty pharmacy or from the infusion center to do the injection in your house. Now with PFS, you provide independence to the patients, so they don't -- it doesn't need to be HCP administered. The freedom is on them to inject themselves. So we think that many of those patients will switch to PFS. So from my point of view, I don't think the gross-to-net changes, where it would have been by year-end, the journey just started a little bit earlier.

Okay. Okay. That makes sense. And are you comfortable in your conversations with investors and analysts, I guess, that people are modeling that correctly?

I think -- I mean, yes, I think that we aim to stay close to the Street and to the analysts to provide a broad understanding of what happened. I did not provide an update on gross to net in Q1. But in Q2, it is part of mandatory disclosures I have to provide, so you will be able to see it in Q2.

Okay. Makes sense. Maybe moving to some of the positives of the PFS and thinking about launch dynamics. So it was approved in April. Could you maybe just talk about what the initial launch momentum has been like?

Yes. We're very excited about PFS. As a reminder, for MG, you see linear growth quarter-over-quarter, now 13 quarters in a row. If you take out the quarterly impacts of seasonality and so forth, if you step back, linear growth. We are now in our 14th quarter of MG. To maintain that growth, you need new innovation. And the PFS is providing that new innovation. We think it will expand the patients, and it will expand the prescriber base. There are many patients out there who lead active lives. They have families they have to look after. They've got demanding jobs. They can't commit to the logistics of scheduling every week or in cycles going to an infusion center, going to the physicians' offices for their injections. Those are the patients, we think, were waiting for PFS, and it's those patients, which will help us maintain the linear growth, which we saw up until now. What we hear from patients and patient groups is that they love independence, the fact that you can take it out of your -- you can take the vial out of a fridge for 30 days -- 3-0, and you can travel with it. It provides a level of independence to patients, which we were all waiting for. A lot of excitement in the community. We are happy to report that around half of the patients on PFS is new to VYVGART. Half of them are switches from VYVGART Hytrulo, the butterfly needle, the HCP administered subcu or IV and the other half is new. And we're also very pleased with HCP expansion, i.e., new neuros, who are now starting to write VYVGART, and they are writing VYVGART PFS. So I think it's early days, but the launch is where it's supposed to be. The hurdle, which we need to get over, of course, is the payer contracts, like with any new drug, and this is a new drug from a payer point of view, it takes around 2 quarters to get all the payers signed up. We've done it now a few times. We have VYVGART IV, and then, we have Hytrulo subcu. So we've got the relationships. We've got the trust. We know what to do. The teams are out there negotiating. And -- I mean, when we sign it, of course, it's public, you can find it with some of the payers. We're making good progress, but it still takes time to get all the payers signed up.

Okay. I guess just on that point, you said you've been through the process twice now. Is there any using the learnings from the first 2 kind of payer contracts? Is there any possibility that it could be slightly faster with the PFS?

I would always hope to go faster. But it is a process. I mean the payers, they have a process, they need to -- some of them are new to market blocks. So yes, they are familiar with the drug because it's the same drug, they are familiar with the company, they are familiar with our teams. So maybe that helps. But at the end of the day, it is a process you need to go through, and it can take up to 2 quarters.

Okay. And then just from a manufacturing perspective on the PFS device, are you comfortable that you kind of have the manufacturing in place in the sense that you can meet the total volume opportunity?

Yes. As a company, we have been very proactive by believing in the potential of VYVGART early on. We think this is going to be -- it's going to have a significant impact on many, many patients. So we invested early through our CDMOs in the capacity for drug substance and drug supply -- and drug product, i.e., the fill and finishing. And we had no issues with supply up until now. And one of the things, our strong balance sheet enables us to do now, is to continue to invest early in enough capacity so that we have inventory for all presentations, for all scenarios.

Okay. And from a kind of just on that point on the prefilled syringe, you also have an auto-injector in development. I think launch time on there is 2027.

Yes.

Can you maybe just talk about what the incremental opportunity there is? Is this more of a -- it's not going to necessarily open a new patient population that the PFS won't, but it's just improving on what's available? Is that the right way to think about it?

Yes. So auto-injector, I think most of our audience know what the auto-injector is. You don't see the needle, and the device basically do the work for the patient. You don't have to push. But I think our focus really is on the patient. We do not wait with a subcu to use it as life cycle planning later on. We are working really hard to get innovation to the patient as soon as possible. And that is why we already have PFS on the market only 3 years after launch. We will have an auto-injector. Remember, it's the same drug inside the vial. The device is different. It's with Ypsomed. It is now in the industrialization phase, which means it exists. I already had it in my hand. It's there. I can show you photos. And they are now building the factories who is going to build the device. It's new innovation. It's 5 ml. So we are very excited, and we will be able to offer that to patients if everything goes well in 2027.

Okay. So I guess, by that point, you would potentially have 4 formulations of VYVGART, as you pointed out, it's the same drug. So how should we think about what the share of each of these formulations will be? Are there specific indications where PFS or IV may be preferred? And also on a regional basis, is that likely to differ?

Yes. So I think at a high level, we hope to have many indications, and the vision is to have all the presentations in all the indications. Outside the U.S., with IV -- I think you always need IV for in that hospital setting. But the majority of the presentation outside the U.S. will quickly switch to PFS. It is because many of those healthcare systems are designed to keep the patient out of a hospital, and they don't have infusion networks, which you have here in the U.S. In the U.S., I think it will be a little bit different in that the IV and the VYVGART Hytrulo butterfly HCP-administered drug will always be an important part of our portfolio, and this is because of a buy and bill dynamics, where the buy and bill is part of office dynamics of a practice that will always be part of it. And of course, the payer will have certain -- might have certain preferences, and the patient might have certain preferences. But what we will have is the only FcRn with IV subcu HCP-administered if that is what the physician and patient want or a self-administration PFS, and then later on, of course, subject to all the approvals for auto-injector.

Okay. And maybe just thinking about MG a little bit in terms of some of the KPIs that you track. It's obviously an area that's becoming a little bit busier than when you first launched. So are you confident that you're still going to maintain that kind of market-leading position there? And what are you tracking as forward-looking indicators?

Yes. So competition is coming into MG. That's clear. New innovation is coming into the market. New innovation is good for the market. It helps to grow the market. Karen Massey, our COO, she launched Ocrevus. She knows the MS market really well. And she talks about how new innovation, multiple new innovation into a market helped to grow the market with multiples. So if you look at MG today, the share of biologics is, call it, somewhere between 10% and 20%, high level. I don't know where the share of biologics will be in a few years, but it will be multiples of where it is today. I think there's enough place for innovation to come in and to help grow that market. We are very optimistic, but we will continue to be the first biologic. And remember, with 80% or more than 80% of the patients not yet on a biologic, they are on mestinon, steroids, immunosuppressants. That is where the bulk of the patients are. That is where the bulk of our opportunity is. And with VYVGART, with our efficacy, remember, we're changing the narrative to MSE, minimum symptom expression, in the absence of a cure, the best thing you can provide to a patient is to walk around symptom free. We get 50% of patients into MSE, where I haven't seen other data comparing to that. On our safety and tolerability, I think it speaks for itself, no black box, no vaccinations, no REMS. It is a really clean safety and tolerability profile, and then, of course, on the patient's experience, which we can -- which I have already talked about. With all of those things, I think we are well positioned to be the first biologic. And if new competition comes, and they play after us, in a crowded market, that actually helps us. So I think that is why our strategies are so focused on being the first biologic and moving up on the treatment paradigm. And if we can continue to do that well, we will be very successful.

Okay. And maybe just sticking with VYVGART a little bit, in terms of duration of therapy, how are you tracking that?

Yes. So for MG, going back all the way to the ADAPT study, duration of therapy -- sorry, not treatment, not cycles. For MG, I mean, we have MG patients from the very beginning. So patients stay on the drug. In the ADAPT study, 20% of patients don't respond. We know that 80% of patients do respond in MG. And then over time, you continue to lose patients for whatever reasons. But in general, patients continue to stay on the drug for many years, and we still have patients from the beginning.

Okay. And then thinking about growth dynamics, I think you talked about 7% growth in Q1, what proportion of that was coming from myasthenia gravis versus CIDP?

Yes. We didn't break out that 7% growth by indication. I will just take you back to the underlying key performance indicators, and the key ones for me is patient adds and prescriber growth. And for both MG and CIDP, we are where we think we should be. Those are both growing for both indications. So I think we're doing well.

Okay. And on CIDP, how is kind of frequency of dosing tracking? Because it's obviously weekly versus every 2 weeks with MG. And I think there's an open label trial, which may allow for less frequent dosing.

Yes. So the CIDP label says weekly dosing here in the U.S. We know from the open-label extension and also looking at industry analogs, but in the real world, dosing will be less frequent than weekly. By the way, if you look at the European label, we share the open-label extension data with authorities in Europe, and you'll see that it's weekly or biweekly based on clinical evaluation. So it's already in the European label. Where we are today in the U.S., I think it's fair to say that most patients still dose weekly because it's still relatively early in the launch, but you will start seeing less frequent dosing. And -- I mean I can't share data with you today. But at some stage, we will be able to share data because it will reduce over time.

Okay. Okay. And then also just thinking about positioning in CIDP, similar question. We've seen some data from Sanofi, and they've kind of progressed their C1 inhibitor. How do you think about the competitive landscape in CIDP relative to myasthenia gravis? And then you also have empasiprubart? And how does that coexist with VYVGART?

Now where we are today is focusing on VYVGART, making sure we get the launch off to a really good start. And we -- as I explained, we're really happy with that. But CIDP is a big market, and there's a lot of opportunity to transform the market. And we also know from the ADHERE study that VYVGART will not help all patients. Remember, in stage of A of ADHERE study, 67% of patients responded. So that is also why we have empa, now in a Phase III in CIDP. And yes, we know that the C1 is also going through its clinical studies. But I think it's a big market. There's a lot of opportunity. Together, we can grow the market. We are -- today, what we have is VYVGART, and we're very pleased with the efficacy, safety and tolerability data, which we see from the study, but also from the real world. So I think we're off to a good start.

Okay. And maybe just zooming out a little bit now. So 2025 is an important year for argenx as you kind of transition to profitability. Can you just kind of help us think about how you think about a profitable company? Can you talk through -- are you running the P&L for specific margins? Or what is the focus?

Yes. argenx is in a really strong financial position. We have $3.6 billion in the bank at the end of Q1. We are -- operating cash flows are positive in Q1. We also had growing cash flows at the back end of last year, but that wasn't really operating cash flows. So we're now in a position that we're adding to the cash every quarter, and we will be adding to the cash every quarter with revenue growth outpacing OpEx growth. I don't want to talk about where we're going to -- what metrics we are chasing because we are not really chasing a metric. We are focused on, yes, growing the top line, delivering that quarter-over-quarter growth, which we talked about and pushing forward our clinical pipeline. We have a unique opportunity today to set the company up for the long run. We have Vision 2030. We need to invest in our supply chain. Going through our capital allocation priorities, the first thing we do is deliver on the promise of VYVGART. There's still a lot of work to do there, a lot of value we can generate for our shareholders. Then it's a pipeline, empa is leading that, our C2. We want to show you what we are doing with VYVGART is repeatable and scalable, and we want to show you with empa. Empa will probably never be as big as VYVGART, but it should be in multiple indications, and many of those indications has the potential to be blockbusters. Then we're going to invest -- continue to invest in our supply chain, then we can talk about business development. Remember, we as a company, collaboration and business development is in our DNA. We've got about 20 programs in our IIP, immunology innovation platform. Each of them is a small business development deal, if you like, because it is a collaboration typically with academic institutions, and then we can get back to returning cash to shareholders, but we're not there yet. That's in the future. I think it is -- for now, it is growing the top line, delivering on our clinical catalysts. But as the CFO, I'm also very proud to say we can do all of that, but we will grow the revenue line faster than we will grow the OpEx line. We're going to have increasing profits quarter-over-quarter, and we're going to generate increasing free cash flows every quarter.

Okay. Since you mentioned BD, how should we think about when that may become more of a priority? As you said, you've got $3.6 billion in cash that's going to grow, is there times when you may look to kind of do deals to supplement the pipeline or even the commercial organization?

Yes. I mean I went through the capital allocation priorities. I think business development needs to be part of a mix. But what I will say is that we've got a really exciting internal pipeline. I hope that you've seen the R&D Day from last year, it's still on our website, 4 INDs this year, empa, 119, all of those. So I think my point is we don't have to do BD today. And if we do, it will be a really high hurdle in terms of a biology, it needs to be novel, it needs to be innovative and it needs to be having a differentiated outcome for patients. I think those are the types of opportunities company should go for, and at argenx, that's what we are doing.

Okay. And then you mentioned Vision 2030, and I guess part of that is 4 new INDs this year. How are you tracking relative -- firstly, I guess, the Vision 2030 progress that you're looking for? How are you tracking relative to that? And then when should we get clarity on what the additional INDs will be in 2025?

Yes. So I mean, in terms of 4 INDs, we can tick the box on 2 of those, 109 and 213, which is the second FcRn. So we're making good progress on those. So I think all programs -- I mean, we give you more detailed updates at the quarterly earnings. But as a company, we're super focused on executing for our shareholders. We have targets to deliver. We hold ourselves to those targets. We focus on it. And I think that's been part of a success story for argenx. So I've got no new updates for you other than to say that we are on track to reach Vision 2030.

Okay. And in terms of the strategy for the next-generation FcRn, are you thinking about this as a life cycle management for VYVGART, so it would be same indications? Or is there potential to go beyond where VYVGART is?

No, I think we don't have to make decisions today. And when we talk about our second FcRn program, we don't necessarily just talk about one. We've shown you one. But I think if you want to -- the FcRn class is too big for 1 molecule. There's a lot of opportunity. Yes, we can do a life cycle play. Yes, we can have different molecules at different price points sitting next to each over going after different diseases. All of those options are on the table. Today, we're creating optionality. Tomorrow, we will have to make decisions how we're going to execute on those.

Okay. And then just in the last minute, I think the view is amongst investors, for '25, it's a year of execution for argenx because it's a little bit light on a Phase III readout perspective relative to prior years, but you do have the seronegative data at the end of the year. Could you just talk to kind of confidence going into that readout and what the incremental opportunity that unlocks?

Yes. I mean I don't necessarily agree, but we like, because I think if you have a Phase III readout later this year, that's very exciting. And the seronegative study, we will have results later this year. We still have to do the study, of course, but that should add around 11,000 patients if it's successful. And remember, that can just slot in with our current infrastructure with no incremental investment. So I think that should really help.

Okay. Perfect. Well, we're right at time, and we look forward to that later this year. Thank you, Karl.

Thank you for the opportunity. Thank you.