argenx: The Upside Is Still There

Summary

• Efgartigimod is set to change treatment paradigm in MG indication.
• Efgartigimod has also demonstrated promising efficacy in additional indications.
• Collaboration with Janssen Pharmaceutical has added significantly to the company's cash balance.
• Investors should consider risks such as R&D failure risk, regulatory risks, and market uncertainty risks.

Today, we will see why argenx (NASDAQ:ARGX) is an attractive pick in March 2020.

Company overview

Argenx is a late-stage immunology company focused on the development of differentiated antibody-based therapies for the treatment of severe autoimmune diseases and cancer. The company's SIMPLE Antibody Platform involves sourcing V-regions of the antibody from the immune system of "outbred" llamas. These V (variable) regions of the Y-shaped proteins called antibodies are used to bind to harmful agents or antigens. The upper Y part of the antibody works to identify the foreign bodies, while the Fc region, at the base of the Y, alerts and attracts cells from the immune system to eliminate the pathogens. The SIMPLE Antibody Platform is leveraging the virtually identical nature of the V-regions of llama and human antibodies. The company is also deploying its three antibody engineering technologies, NHance, ABDEG, and POTELLIGENT, to enhance the therapeutic index of its investigational antibody therapies.

Argenx's lead asset, Efgartigimod, is a first-in-class investigational antibody being developed for severe autoimmune diseases associated with high levels of pathogenic IgG (immunoglobulin G) such as MG (myasthenia gravis), ITP (immune thrombocytopenia), and skin blistering diseases. The company in collaboration with Janssen is studying cusatuzumab, an investigational SIMPLE Antibody targeting immune checkpoint target CD70, in AML (acute myeloid leukemia) and MDS (myelodysplastic syndromes) indications.

How Efgartigimod works in MG?

According to HealthLine, "MG is a neuromuscular disorder that's usually caused by an autoimmune problem. Autoimmune disorders occur when your immune system mistakenly attacks healthy tissue. In this condition, antibodies, which are proteins that normally attack foreign, harmful substances in the body, attack the neuromuscular junction. Damage to the neuromuscular membrane reduces the effect of the neurotransmitter substance acetylcholine, which is a crucial substance for communication between nerve cells and muscles. This results in muscle weakness."

In MG, IgG autoantibodies are formed against the nicotinic AChR (acetylcholine receptor) of the neuromuscular junction. Many pharmaceutical companies are trying to leverage this concept to develop treatments targeting FcRn (Neonatal Fc receptor), a receptor that plays a central role in prolonging the half-life of IgG molecules. FcRn salvages IgG and albumin from lysosomal degradation. Hence, antagonism of this receptor can lead to IgG catabolism, which in turn results in reduced overall IgG and pathogenic autoantibody levels.

Efgartigimod works by binding to FcRn, which is a recycling receptor for IgG including disease-causing autoantibodies. This helps increase IgG clearance.

Besides MG in the neuromuscular space, Argenx is also studying efgartigimod in two major indications driven by pathogenic IgGs. These involve ITP (immune thrombocytopenia) indication in hematology/oncology space and PV (Pemphigus Vulgaris) indication in the blistering skin disease space.

Argenx expects to launch Efgartigimod in myasthenia gravis indication in 2021

Argenx is currently a front-runner in the FcRn space. The company has secured fast-track designation from the FDA for intravenous efgartigimod in myasthenia gravis and expects to launch the drug in 2021. The company has completed enrollment of 167 patients in Phase 3 ADAPT study evaluating efgartigimod in MG indication and expects top-line data by mid-2020. The company is preparing for a BLA filing by the end of 2020.

Argenx is now busy building a commercial organization in major markets such as the U.S. and Japan. The company has hired medical research liaisons in key regions and has also started to build out our thought liaisons teams to engage with MG physicians. The company plans to hire a sales force after announcing ADAPT data. The company has developed a robust global supply chain and has set up flexible manufacturing operations to support the launch.

Argenx has designed the ADAPT trial based on positive data generated by a Phase 2 proof-of-concept study. Here, after the first week, 83% of patients demonstrated clinically meaningful responses. Besides, 75% of the patients saw sustained responses of at least six weeks. Since the 11-week trial ended with the majority of responders still in response, the company could not assess the full durability of the drug.

Generalized MG patients experience waxing and waning of disease symptoms, with the intensity of symptoms varying for each patient. The standard of care is fast-acting steroids and immunosuppressants which take around 6-12 months to work. However, these treatment options are accompanied with significant side-effects.

With efgartigimod, Argenx expects to maintain MG patients in minimum symptom expression mode. The sustained response can be a major advantage for MG patients, who may now have a chance to go multiple weeks without doctors' visits and without worrying about the therapy.

To date, Argenx has also not seen safety issues such as headache, GI toxicity or drops in CRM albumin as seen for other FcRn antagonists. The company is also focusing on the convenience of administration of efgartigimod which would involve a fast, clean infusion with no premedication and no infusion-related reactions requiring follow-up. Argenx expects to change the MG treatment paradigm and make it more personalized with efgartigimod.

Argenx now aims to replicate the robust Phase 2 results in the ADAPT trial in a larger set of patients to further validate efficacy and safety as well as assess the durability of response of efgartigimod in MG patients.

Similar to the design of Phase 2, argenx plans to administer patients with one treatment cycle of four weekly doses of 10-milligram per kilogram IV efgartigimod in the ADAPT trial. The company will then compare the primary endpoint which is the percentage of responders at any point during this initial eight weeks compared to the placebo. Responders are defined as those patients who achieve at least a 2-point reduction on the MG-ADL (Myasthenia Gravis Activity-of-Daily-Living) for at least four consecutive weeks within the initial treatment cycle.

Argenx aims to study the full durability of the effect after one treatment cycle and assess the potential for retreatment in the ADAPT trial. Throughout the primary study, patients can receive a minimum of one cycle and a maximum of three cycles. In the 52-week open-label extension trial, the company plans to maintain retreatment criteria but may start tapering off the standard of care to simulate real-world settings. Argenx expects to get a clear view of the median number of cycles that will typically be needed in a year in MG indication. This can help in the commercialization of efgartigimod in MG patients.

Argenx currently stands ahead of the peers focused on developing FcRn antagonists in MG indication. It is the first company that is attempting to develop an individualized dosing regimen for MG patients. Competitors such as Momenta Pharmaceuticals (MNTA) and Immunovant (IMVT) are yet to design their Phase 3 trials. Further, these companies are developing fixed-dose regimens for MG patients.

Besides, argenx also plans to engage with the FDA in 2020 on potential bridging strategy for 1000mg subcutaneous ENHANZE-efgartigimod in MG indication.

There are multiple other catalysts for efgartigimod in 2020

Besides generalized MG, Efgartigimod is being studied in three indications such as ITP, PV, and CIDP (Chronic inflammatory demyelinating polyneuropathy). Argenx plans to announce the fifth indication for Efgartigimod in 2020. The company is also expecting to be working on five Phase 3 trials for this investigational asset in 2020.

Argenx has initiated the Phase 3 trial, ADVANCE, to study 150 primary ITP patients dosed with 10 mg per kg of intravenous efgartigimod for both induction and maintenance of platelet counts. The company also plans to initiate a small confirmatory trial called ADVANCE two in the first half of 2020 to study 10 mg per kg IV dose of efgartigimod in ITP indication. Finally, the company will commence the ADVANCE subcutaneous trial in the second half of 2020 that will evaluate 10 mg per kg IV of efgartigimod for induction of platelet response and a 2 ml subcutaneous of efgartigimod from maintenance.

In January 2020, argenx announced positive proof-of-concept data from Phase 2 ADAPTIVE, which aimed to establish an optimal treatment regimen of efgartigimod in PV indication.

The trial demonstrated a fast onset of action, robust efficacy, and favorable tolerability of efgartigimod in PV indication. Besides, the optimized dosing regimen was determined to be at least biweekly dosing of efgartigimod in combination with oral prednisone (0.25-0.5mg/kg).

Argenx now expects detailed results from the extended dosing cohort of this Phase 2 trial during medical meeting in 2020. The company also expects this data to support advancing to a registrational trial expected to commence in the second half of 2020.

Finally, Argenx is studying efgartigimod in CIDP indication in the Phase 2 ADHERE trial. This study can be expanded into a registrational trial based on favorable results from the first 30 patients.

Cusatuzumab is a promising early-stage oncology asset

In December 2018, Argenx and Janssen (JNJ) entered into a collaboration to develop anti-CD70 SIMPLE Antibody, cusatuzumab, in AML, MDS, and other hematological malignancies.

Currently, the companies are enrolling patients in two trials, which includes Phase 2 trial, CULMINATE evaluating cusatuzumab with Vidaza in newly diagnosed AML patients and the Phase Ib evaluating various combinations of cusatuzumab with Venetoclax and azacitidine in newly diagnosed AML. The companies also plan to commence more trials in the first half of 2020 including a high-risk MDS trial evaluating cusatuzumab and Vidaza and also clinical studies evaluating cusatuzumab in AML and MDS indications in Japan. Data update from these programs is anticipated in 2020.

Investors should consider these risks

Currently, the growth prospects of Argenx are tied closely with the clinical and commercial prospects of its lead asset, efgartigimod. This exposes the company to significant business concentration risks. The company is also exposed to significant R&D failure risk, if efgartigimod fails to demonstrate clinically meaningful efficacy and favorable safety profile in Phase 3 trials.

Argenx currently does not have much experience of commercializing products. Hence, the uptake of efgartigimod may fall short of the company's or investors' expectations. Since the company is leveraging an innovative FcRn antagonist approach, it would require to create awareness amongst prescribers and patients. This exposes the company to significant market uncertainty.

What price is right for the stock?

According to finviz, the 12-month consensus target price of the company is $168.32. On February 27, Piper Sandler analyst Edward Tenthoff reiterated an Overweight rating and $198 price target. On February 24, Guggenheim analyst Yatin Suneja reiterated Buy rating and raised the price target on Argenx from $164 to $201. On February 10, BofA analyst Tazeen Ahmad initiated coverage with a Buy rating and target price of $181. On January 9, Wedbush analyst David Nierengarten reiterated the Outperform rating and increased the target price from $179 to $184. On January 9, JMP Securities analyst Jason Butler reiterated the Outperform rating and increased the target price from $164 to $170. On December 16, SunTrust analyst Joon Lee raised his price target from $160 to $192 and reiterated Buy rating for the company. On December 8, Stifel analyst Derek Archila reiterated Buy rating and raised his price target for Argenx to $170 from $154.

At the end of 2019, the company had a cash balance of $1.50 billion. In 2019, the company spent around $150 million in cash on operational activities. The company is expected to spend more in the coming years due to an increase in the number of Phase 3 trials and preparations for a commercial launch of efgartigimod in MG indication. Despite this, the company is in a good position to sustain its operations with its cash balance for at least three to four years.

In this backdrop, I believe the target price of $181 is a fair estimate of the true value of the stock. The multiple milestones for efgartigimod, promising early-stage assets and solid cash position make a strong case for investing in this stock in March 2020.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.