Argenx: The New Ablynx?

| About: Argen X (ARGNF)

Summary

Argenx seems to be a spin-off of Ablynx (a successful Belgian biotech company). However, today we explain the differences between the two.

We also take a look at Argenx's pipeline and discuss why we're having high hopes for its products, especially for Gerilimzumab.

Last but not least, we compare its valuation to its two Belgian peers and take a look at its burn rate and current cash position.

Everyone who's looking for a high-potential biotech stock with a high reward/relatively high risk ratio, should look no further.

We asked our blog followers a while ago which stock they wanted us to analyze. The answer was obvious: Argenx (OTC:ARGNF) (22% of votes) and Ericsson (NASDAQ:ERIC) (20% of votes). Today, we'll fulfill our promise considering Argenx.

Argenx (founded in 2008 and went public in 2014) seems to be a direct spin-off of Ablynx (OTC:ABLYF). Not only is the CEO a former employee of Ablynx (Tim Van Hauwermeiren) but Argenx works - like Ablynx - with llamas to develop new medicines.

Differences

Llamas have two kinds of antibodies. Ablynx uses the nano-antibodies of llamas (which can be used for a broad spectrum of diseases) while Argenx uses the ordinary antibodies in order to target cancers and autoimmune diseases. In other words, Argenx focuses on two specific niches (cancer and auto-immune diseases).

Huge market

The antibodies that Argenx develops are also called therapeutic antibodies. These types of antibodies have numerous properties, which make them very suitable as medicinal products.

They can generally bind better to the proposed target, they have fewer side effects, and can activate powerful killing mechanisms within the human body.

Therapeutic antibodies have already been developed for the treatment of a large number of diseases such as cancer, inflammation, ophthalmology, infectious diseases, and cardiovascular and metabolic disorders.

Important to know is that in 2013 five of the ten top-selling drugs were therapeutic antibodies. Sales of all therapeutic antibodies in 2013 exceeded 60 billion USD.

How does it work

Argenx adjusts ordinary antibodies from llamas (which very closely resembles human antibodies but are much more powerful) by using its Fc engineering technology platform.

After fine-tuning the properties of the antibodies (expanding the half-time, making them better recognize the targets and giving them better abilities to kill the targeted cells) the antibodies are introduced into the body of the patient.

These new antibodies will then strengthen and help the natural defenses of the human body in order to exterminate, disable or weaken the proposed illnesses.

Promising pipeline

Products: ARGX-109, ARGX-110, ARGX-111 and ARGX-113 are most important to Argenx. These have already begun their phase II studies (or are about to start them). During these studies, the appropriate doses of the products are determined by testing them on a larger group of healthy people. The potential drugs are also tested on a larger group of patients that are ill. Excellent Phase II results are therefore crucial for Argenx.

  • ARGX-113

ARGX-113 could be used against many autoimmune diseases. But the first autoimmune diseases that Argenx is going to test it on are Myasthenia Gravis (MG) and Immune Thrombocytopenia (ITP). MG is the name of a condition that leads to the failure or insufficient functioning of the muscles (range: 20 people per 100,000). ITP is a relatively rare blood disorder in which the blood does not clot well (range: 3 people per 100,000).

The phase Ia study with single ascending doses and the phase Ib study in which Argenx uses multiple ascending doses of ARGX-113 were very positive and indicated that ARGX-113 was well tolerated by the human body and therefore is safe to use. We expect that the Phase II trials for ARGX-113 will also be successful due to strong proof-of-concept studies.

  • ARGX-110

ARGX-110 is designed for the blocking of CD70. CD70 is a protein expressed on highly activated lymphocytes (like in T- and B-cell lymphomas). It is therefore suggested that anti-CD70 antibodies might be a possible treatment for CD70 positive lymphomas as normal lymphocytes do not express a lot of CD70.

In understandable words: CD70 often occurs in blood cancers (lymphoma and leukemia), multiple solid tumors and auto-immune diseases, but rarely in healthy cells. ARGX-110 is supposed to have a triple function: It blocks the growth of tumor cells, it kills cancer cells and activates the immune system of the patient to attack the tumor.

ARGX-110 is also sponsored by the Leukemia & Lymphoma Society for the Development of WM (Waldenstrom's macroglobulinemia), a rare lymphoma.

A Phase I/II combination study of the potential combination of ARGX-110 with another drug (Romidepson) against CTCL (cutaneous T-cell lymphoma) is currently being launched and tested. Phase I trials were already positive.

We are very positive about the phase II study of ARGX-110 and expect a favorable outcome here (also due to very strong proof-of-concept studies).

  • ARGX-115

Earlier this year, Argenx managed to close a major alliance with pharma giant AbbVie (NYSE:ABBV) to develop ARGX-115 (cancer treatment). Argenx immediately received 40 million USD in cash and can - if it successfully continues its research - receive up to 645 million USD. Many considered this deal as a first major recognition of Argenx's technology. We believe this is wrong.

  • ARGX-109

We believe that Argenx's received huge recognition for its technology in 2012 as Argenx managed to close a deal on Gerilimzumab (ARGX-109) with RuiYi (currently Bird Rock Bio). The terms of the deal were never shared with investors (as Argenx wasn't a public company at the time), but Bird Rock Bio has a lot of confidence in ARGX-109 as a potential alternative treatment for rheumatoid arthritis (a disease that's affecting > 20 million people, and generates more than 35 billion USD sales). More so, Bird Rock Bio hopes to put Gerilimzumab in the market as a disruptive medicine (as it would require fewer treatments and is much cheaper than regular RA drugs).

Due to the global scale of rheumatoid arthritis, combined with an aggressive pricing plan, we believe that ARGX-109's revenue potential is huge. The first tests with Gerilimzumab on healthy humans were completed earlier this year. The results were very positive and Bird Rock Bio plans on doing some vital pivotal phase II studies soon.

Partnerships

Next to these partnerships, Argenx also closed partnerships with Shire (NASDAQ:SHPG) (for the discovery of antibodies that treat rare diseases) and Leo Pharma (to find better treatments for skin conditions).

As a young biotech company, the total amount that Argenx could receive after reaching crucial milestones is already more than 2 billion EUR.

Cash burn

Argenx's cash position stood at ~109 million EUR at the end of H1 2016. This piggy bank will enable Argenx to continue its developments for at least a few years. Currently, Argenx burns around 15 million EUR per year (although we expect its cash burn to accelerate due to the commencement of several phase II studies).

Valuation

Galapagos Argenx Ablynx
Market value 2.66 billion EUR 296 million EUR 655 million EUR
Enterprise value 1.70 billion EUR 187 million EUR 460 million EUR
Clinical pipeline 8 products 4 products 9 products
Phase III 1x Filgotinib 0x 1x Caplacizumab
Phase II 4x 2x 5x
Phase I 3x 2x 3x
Click to enlarge

When comparing Argenx to its two Belgian peers: Ablynx and Galapagos (NASDAQ:GLPG), one quickly sees that Argenx has the smallest pipeline and therefore also receives a lower valuation from investors.

We believe however, that Argenx should probably be worth half the market size of Ablynx, which would lead to a 327 million EUR market cap at current prices.

By comparing the three companies, one might also argue that the upside potential for Argenx is much higher than for the other two companies and is therefore a better buy.

Conclusion

We believe Argenx is a really interesting biotech company. If everything goes well, then ARGX-110 and ARGX-113 could soon present promising phase II results.

Next to ARGX-110 and ARGX-113, we also think that Gerilimzumab or ARGX-109 (under development at Bird Rock Bio) might turn out to be a major positive surprise for investors.

And last but not least Argenx will soon look (and probably find) a partner for ARGX-111.

All of the above are powerful positive price triggers, which might push Argenx share price towards 20 EUR or higher. But as with any biotech company, the positive thesis is only valid if things go well.

When comparing Argenx to its larger and more advanced peers, we believe Argenx is almost "priced to perfection" (taking into account the uncertainties and limited pipeline). However, a first position is still appropriate for investors who think long term and have a very differentiated portfolio.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ARGNF over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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