Good morning. Welcome to Morgan Stanley's Global Healthcare Conference. I'm Sean Laaman, Head of SMID Cap Biotech Equity Research here at the firm. Before we proceed further, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have from argenx, I'm pleasure to host , the CFO, Karl Gubitz. Welcome and thank you for your time today, Karl. Maybe just to kick off proceedings, I'll get a few minutes from you just to set the scene. We'll have some macro type questions, and then we'll delve into the guts of it. Welcome, Karl, and thank you.
Thank you. Thank you, Sean. Good morning, everybody. Bright and early. It's a real pleasure to be here. At argenx, we are on an innovation mission. We know that is the only reason we exist. Patients are waiting. In doing this, we set ourselves very ambitious targets at the beginning of the year, and then we go out and execute on those. Biotechs many times falter at execution. At argenx, it is one of our core strengths. For this year, our targets were firstly commercial execution. I think our Q2 revenues, product net sales of $949 million, answer that question. We are doing really well. On the clinical side, in the first half of the year, we had two targets, CHMP approval. We've done that. The second one, which was really important, was with Vyvgart launch in April. Again, we achieved that.
In the second half of the year, we started off with phase I data in CMS, congenital myasthenia syndrome, which was successful. Very important, the phase III seronegative data where we achieved the primary endpoint, clinically meaningful results in all three subtypes. Later this year, we still are on track to do efgartigimod, lupus nephritis study, empa study for delayed growth function, and one phase I study. On track. As the Chief Financial Officer, I'm very proud to say that we've achieved profitability at the end of last year. Now we have revenue growth outpacing OpEx growth, generating a profitable margin, increasing quarter over quarter with free cash flows, increasing quarter over quarter. Sorry for that long introduction, but thank you for the opportunity.
No, that's wonderful. Maybe just to jump sideways a little bit before we go back to the central discussion, we've been spending quite a bit of time thinking about China and the rise in biotech innovation that is going on in that country. How do you think about argenx 's competitive position here? Does it influence your R&D and your business development strategies?
Yeah, in China, we use Zai Lab as a partner. By the way, Zai Lab is doing a really good job for us. They commercialize Vyvgart. They also run phase II proof of concept studies and also contribute patients to our phase III studies. Of course, we are always on the hunt for novel biology. We take a global approach. Our discovery and our business development teams are focused on this. Of course, also on China. I think what is now differentiated by China is the speed and efficiency they can do clinical study. Secondly, I think the biotech boom in China is disruptive. As a company, we are evaluating and putting in plans to capitalize on that.
Wonderful. Another big topic of ours is AI. We're starting to publish a regular piece on that called Looking for My MOM, the Maximally Optimized Molecule. We're thinking really long term. How are you currently leveraging AI or thinking about AI's future disruption potential?
Yeah. As a company, we are, of course, on a journey. The journey starts with isolated pilots, then we shift to end-to-end transformation, leveraging AI across commercial, R&D, and, of course, for corporate functions. We have a dedicated team focusing on this, and collaboration is in our DNA. Therefore, we also have a strategic partnership with one of the, I would say, best-in-class companies where we explore to put in place a vendor-agnostic platform to capitalize on this. I think areas we're focusing on are, first of all, productivity and efficiencies, then quality and risk management. I think where we also need to get to is using AI to do your studies cheaper and quicker.
Wonderful. Thank you. One more macro type question before we get onto the real guts of the business and I guess what most people are really here for. What has been the most impactful topic on argenx on the regulatory side? Would it be from changes to the FDA? Would it be potentially MFN or tariffs?
I think across all three of those, we pay a lot of attention to it. On the regulatory side, I will just say that our interactions with the FDA continue to be positive. There are continuous interactions, and it's all fine from the company's perspective. On tariffs, we do manufacture in the U.S. already. I think we should be in a good position to mitigate against that. With MFN, I think it's very difficult to comment. Our strategy is really focusing on pricing in a narrow band. I think if we're executing on those strategies, we're in the best possible situation to navigate that going forward.
Wonderful. We'll steer right back onto argenx. Thank you for that, Karl. Now turning to your pipeline, can you provide an overview of the key milestones expected from, I think, the six phase III and six phase II trials that you've got coming up over the next 18 months?
Yeah, I think if I can focus on the phase IIIs. We also have a couple of phase IIs and a phase I, which is also, of course, very important. For a company of our size, to have five phase IIIs leading out in the next year, that is significant. We have one phase III in EMPA, that's our C2 sweeper, in MMN, multifocal motor neuropathy. You've seen the phase II data. This is going to be, I think this is really important for us because we need to show the street. What we've done with Vyvgart, which is a transformational drug, is repeatable and scalable. We want to show you that with EMPA, our second drug. Then with efgartigimod, where we have TED, we have myositis, and of course, we have ITP, which of course are all really big opportunities.
The first up will be the ocular study in the beginning of next year.
Wonderful. I guess on the next question, thinking about those market opportunities, maybe just help investors size it against the current opportunities that we've got in myasthenia gravis and CIDP.
Yeah, so I think the first one, of course, is, as I said, seronegative. Think of that as label expanding for MG, which I think is really important to help us maintain that impressive growth curve for MG. If you then think about myositis and TED, in my mind, think of it as MG-like opportunities. Myositis is called the three subsets. Two of those subsets, IMNM and ACES, there really are no options for patients, and they need very significant we can be transformational. In dermomyositis, yes, there's IVIG, but I think we all know that we can take on IVIG, and I think we can also really be beneficial for patients. A really big opportunity.
TED, yes, the PESA is a very successful drug, but I think there's a place for a class-to-class differentiated, where we with our drug, which is rapid response, clinically differentiated, and then with our safety profile could be really transformational. MG-like opportunities in all of those.
Wonderful. I have a question here about e mpasipruvab, but maybe for those less familiar with your stock, what is e mpasipruvab? How do you think about the opportunity in MMN and CIDP compared to Vyvgart?
Yeah, as I said earlier, e mpasipruvab is a C2 sweeper. For us, it's really important, but we replicate Vyvgart. We're currently in two phase IIs and two phase IIIs with EMPA. EMPA, the first one is in multifocal motor neuropathy. The phase II data, which we disclosed last year at the R&D day, is truly transformational. I think that opportunity, call it around 10,000 patients in the top five markets. They are very heavy users of IVIG. It's about a $1 billion market. In our study, we take on IVIG head-on. If we can replicate the phase III through what we've done in phase II, I think there's a significant opportunity. We're also in CIDP, and we're in two phase IIs, delayed growth function and dermomyositis.
Wonderful. If empa is indeed successful in CIDP, how do you think it coexists in that CIDP market with Vyvgart?
I think the data should speak. We are at this stage not trying to niche empa. What we know from our Vyvgart study is that 70% of the patients responded in phase A of a TF study. I think there is a way what happens in the other 30% of the patients, I think we need to do the study. We are not niching empa in the study, so we don't position it as Vyvgart refractory. We're going to do the study. We'll let the data speak, and then we'll get to it.
Can I just take a bit of a temperature check on how much inbound you may get from investors on empa? Do you think it's a relatively undiscovered piece of the argenx story, or?
Oh, absolutely. Yes, absolutely. I think I'm sure we'll talk about it more later. If we look at the valuation today, it is really only Vyvgart. Even for Vyvgart, it's only MG and CIDP. Very little focus on the other indications and very little focus on the other assets in the pipeline. Empa gets, if I look at the valuations from the street, you see very little value for empa.
Wonderful. Thank you, Karl. I guess getting back on to Vyvgart and the CIDP story, there was some stutter step in the stock on the back of the Q1 result. If you maybe talk to us on what we talked about, pretty strong CIDP patient numbers at Q2 at 2,500. Maybe give us a bit of a flavor of how you see the launch trajectory going on from here and maybe remind investors why the decision to not provide patient numbers back in Q1.
Yeah, we're not going to provide patient numbers every quarter. I think we're going to provide patient numbers when we exceed certain thresholds. I think the revenue numbers should really speak, and we want to get out of the deeper quarterly focus. I think we can focus on the long term, yeah. In terms of CIDP patients, yes, the 2,500 patients at the end of Q2 is a global number. Clearly, that's largely U.S., but it also includes a handful of German patients because we launched just before the end of the quarter and Japanese patients because in Japan we launched in January and we had a really strong launch. I think the way to look at it is that in the U.S. alone, there are 40,000 diagnosed CIDP patients. 24,000 of them are being treated.
12,000 of those patients are the patients which are not adequately treated with standard of care, whether it's from efficacy or tolerability issues. Therefore, the 2,500, of which the majority is U.S. patients, is a very small number in that journey. That is just for refractory patients. My point is four quarters into the launch, it's still very early days and there's a lot of growth ahead of us with CIDP.
On the refractory patient angle, do you see some developments where Vyvgart might become standard of care? What should we think about for that to happen?
I think with all launches, especially in rare disease, you start with a refractory patient. Those are the patients the doc gives you because there's nothing else available for that patient. Over time, you move up into the treatment paradigm. That's exactly what we see with MG today. With CIDP, I think it will take a long time. It will take a few quarters, maybe a few years to get there. There's also the payer hurdle. Not all, but most payer policies do require you to step through IG. Around 85% of our patients today do have IG experience. Ultimately, Sean, you're right. Longer term, I think the drug has the potential to move up in the treatment paradigm.
Wonderful. Maybe before we move on from that, just the sort of pricing strategy for Vyvgart and how that compares to standard of care.
In CIDP?
In CIDP , sorry.
For CIDP, we guide the price per patient to argenx, i.e., the contribution for us at around $450,000 per year in the U.S. Yes, that is more expensive than your typical IG patient, which is probably around $150,000 to up to $400,000 for heavy users. I think what's really important is that Vyvgart is not just a more convenient IG. We do have that regain of function data in the study, where around half of the patients who entered the study in a wheelchair walked out of the study. We also hear the patient anecdotes, the patient stories on a daily basis from the field where we're really helping patients to get back to their lives. I think it is this value proposition for society, which helps us to get those payer policies in place. Today, the payer policies are not a hurdle.
It's one of the enablers of the launch.
Thank you, Karl. On the prefilled syringe, how do you see that changing patient and prescriber behaviors?
The feedback we get from the field is that the prefilled syringe self-injection is a game changer. It is really expanding the patient base. Think of those patients in rural areas where commuting to a physician's office or the IV infusion center is very difficult. We are now being able to reach those patients. Also, patients who live very busy lives, caring for families, having work, full-time jobs where they don't have the flexibility. We're really expanding into those patient segments. It is not just for patients. We also provided a metric at the last earnings call that we have had 1,000 prescribers for PFS at the end of the second quarter. 150 of those prescribers were new to Vyvgart. It's the first Vyvgart script they gave us. We are expanding both the patient population, but we're also expanding the prescriber population.
I think that's really good news, and it will set us up to continue to grow.
Awesome. Thank you, Karl. I guess you've got going on myasthenia gravis for at least 14 quarters now.
Yes.
What should we think about in terms of forward growth when you think about unlocking the TAM, which I think is about 60,000 patient potential? How should we think about the seronegative opportunity and how that might facilitate that?
Yeah, we had a really successful launch in MG. We always said to continue to maintain that growth, you need innovation. We delivered that innovation. The PFS, as we just discussed, providing that independence to the patients in April. Recently, we had the seronegative label and expansion study. Next year, if it goes well, we will hope to add the ocular phase III data to that. That will help us to continue to grow that patient population. At launch, we talked about 17,000. We think the total addressable patient population, including the label expansion studies I mentioned, is 60,000 patients. Another way to look at it, Sean, is if you add up the share of all the novel biologics and I exclude IG, it's around 10% of the market.
I don't know what the share of novel biologics will be in a few years, but it should be multiples of 10%. I think, yes, we see a lot of competition coming into the market. We're all going to grow the market together. The product who is going to grow the fastest and the most is whoever is the first biologic. Today, we are the first biologic. I think we're working really hard to continue to establish ourselves and entrench ourselves as the first biologic.
Thank you, Karl. A bit of inbound on this next one, but you know what's your view on the fast safety signal in chronic inflammatory demyelinating polyneuropathy and how you engage with the FDA? How might your phase IV switch study results in chronic inflammatory demyelinating polyneuropathy use to ease concerns, if there's any?
Yeah, I mean, I think it's a little bit overblown. Clearly, we take patient safety very serious. Think of fears as a canvas where safety are reported without the denominator. The CIDP switch, I think, is known. It's not a Vyvgart issue. For us, it's real-world data. It's around 2% of patients. What we hear from the field is that the physicians know how to manage it. They are aware of it. We don't really see it as a hurdle to growth. The phase IV data, yes, that year's study was the biggest CIDP study. It answered a lot of questions, but it didn't answer this question. That's why we're doing the phase IV study. We should have a result later this year.
Wonderful. I'm jumping ahead a little bit, but I think there might be potential autoinjector launch in 2027. How should we be thinking about that?
Yeah, I think at argenx, for example, the PFS self-injection, which we talked about earlier, typically companies leave this innovation as usually as life cycle later on. We are not doing that. We are running as fast as we can to provide innovation to patients. The autoinjector is the next innovation. It should be here in 2027. That will add added convenience to patients. I think it's really important.
Thank you. Back on the pricing dynamic, can you describe how Medicare Part D redesigns are affecting access and pricing dynamics for your company?
Yeah, the IRA, of course, got implemented at the beginning of this year. Part D redesign means that we pay that 20% incremental rebate to CMS for the pharmacy channel. The impact, of course, is that gross to net has increased as predicted. I think the two things which are really important are that, yes, gross to net is now higher. It's around 20%. The bulk of the increase is behind us. Very important is that the net contribution per patient for argenx, or the net price per patient, has not changed. For MG, that continues to be $225,000 per year. For CIDP, $450,000 per year. That hasn't changed. Think of a patient expansion, which is going to drive growth, and the Part D dynamics not really having an impact.
Sure. Thank you. I'm doing a bit of work around complement inhibitors, and just sort of wondering how you view the competitive profile of Vyvgart against what might be coming down the pipeline, and how do you think about positioning for that?
Yeah, I mean, in MG in particular, there is a lot of competition now coming to the market. I think what's happening in the marketplace is that FCRN is going to be your first novel biologic, and then the C5s is following that for largely, I think, probably safety reasons. I think that the C5s and complement inhibitors that can come, I'm sure there will be many of them, but they should follow FCRN. Also, remember that more competition to the field, we don't view that as a bad thing. I think there's a lot of work to grow the total pie, and that's typically what you see when more competition enters.
Wonderful. The next series of questions, I don't get a lot of inbound on this, but I think it's a very important and emerging part of the argenx story. I mean, investors rightly have been very focused on top line growth in MG and CIDP, but look at the cash flow from operations that the company is generating. You've hit that point of profitability, and I think that's probably going to open the company up to a whole new set of investors who've been more generalist-friendly. You know, how do you think about the evolution of profitability? How do you think about the OpEx lines, and how do you think about cash flow?
Thank you, Sean. Maybe if I can start with capital allocation because I think that's really important. We have a unique opportunity to set the company up for the long run. Vyvgart is the type of asset which builds companies. Therefore, our capital allocation priorities start with Vyvgart. Priority number one is deliver on the promise of Vyvgart. Yes, we've got two indications, but we're starting it in 15 indications. It's a true pipeline and a product by which we can provide disproportionate return for our shareholders. The second priority is the rest of our pipeline, empa is first. As we discussed earlier on, we want to show you what we're doing with Vyvgart is repeatable and scalable. Of course, we have also 119, the four INDs. The innovation in the company is truly impressive. The third capital allocation priority is supply chain.
For a biotech who is going through multiple global launches, we have zero inventory issues. That is because of decisions we've made years ago. We are making those similar decisions, similar investments today to ensure our supply going forward. Fourth is business development. Everything the company is doing is essentially, in terms of hunting for novel biology, is essentially a business development deal. You have discovery and business development going out to wherever the novel biology is. We typically find it in academic centers. Today, with the strength of our balance sheet, we are also opening up the biotech. We're looking at biotech, more earlier stage than later stage. Eventually, we'll get to return of cash to capital, return of capital to investors. That's in the future. We're not there yet. That's a long way before I go to profitability. Yes, revenue growth is outpacing OpEx growth.
Very proud of that. We're going to work hard to make sure we maintain that for our investors. That in itself is not the objective. Our operating margin the last quarter was just about 20%. Very impressive for a company which turned profitable just a few quarters ago. That, again, is not the objective here. Our objective is the innovation mission. Even if we focus on that, we will still be able to grow that operating margin quarter- over- quarter and increase the cash flows quarter- over- quarter.
Thank you. I know you don't have garnish out there, but just to push you a little bit, if we think about the top line outpacing OpEx, what sort of framework should we use to think about form of quantification for R&D and SG&A?
Now, for R&D and SG&A, both of them are running at around $300 million a quarter at the moment. Think of R&D to continue to grow with inflation, and I would say a little bit more of an inflation as we continue to build our capabilities and continue to run more clinical trials. Today, we are running 50 clinical trials. That's a lot for a company of our size. I think we are working hard to scale that capability to do more. On SG&A, the growth will be slower because we have the infrastructure we need to capitalize on the opportunity with a step change when we launch our first room indication. Think of SG&A, more inflation-like increases until we talk about room.
Wonderful. Wonderful. We look across our SMID Cap coverage, and you know it's becoming harder to call argenx a SMID Cap company, but we've got this theme of SMID to big. Which of our SMID Cap companies will become a big cap company? Argenx sort of firmly fits within that bucket. I've kind of summarized what you just said. You've got this sort of beach head in Vyvgart, and it's growing very, very nicely. That's what you think you'll build the company around. We should continue to see operating margins expand. When it comes to business development opportunities, you think you've got the pipeline already set in place that probably negates or investors should probably think about any multi-billion type M&A. It's really investment in early stage stuff.
Exactly.
It will come back to capital return, whatever form that might take, dividends, buybacks, and that's how to think about the company.
Exactly. Eventually, we don't want to talk about that today, but we will get there.
I guess on that longer-term vision, you know, how is your vision 2030 shaping your decisions today? What does success look like to you in five years, Karl?
I think vision 2030, we want to reach 50,000 patients. Remember, today we have 15,000. That 50,000 patients is ambitious, but it's achievable. There are multiple ways of getting there. I mean, just MG and CIDP will be the bulk of that 50,000. We need some other indications, and we've talked about that. The second one is 10 on-label indications. As you know, we have in the U.S. today two. We've talked about the phase IIIs earlier on. By the end of next year, the picture already can look very different. The five new assets, which we're working very hard on, you'll see the phase Is and the INDs going through the pipeline. We're on track. I think if we can achieve those things, I think we will be in a really good place.
How do you think about academic collaborations as feeding into that pipeline? What sort of networks do you have there?
Yeah, yeah. I mean, it really is our IIP, the Immunology Innovation Platform, where we collaborate with largely academic centers in bringing novel biology into the company. It is in our DNA. That is what we do. Vyvgart, 117, 119, were all built on those principles. Remember, there are seven assets out there. Many of them now have companies from the early days where we did that very successfully. That is what we're doing. This is the partnership between discovery and business development, a really broad network. We will continue to double down on that strategy because we believe that you cannot replicate the knowledge and experience of these academic centers, even if you hire 1,000 scientists. You just can't. These individuals are world-class experts who spent a lifetime on doing research in their respective area. We as a company need to tap into that knowledge.
Thank you, Karl. I guess some of the more searching questions we get, we've addressed the safety question. We've addressed the competition question. Just maybe remind investors on the patent situation with Vyvgart. That's sort of quite some time away, but just to cover off that.
Yeah, no, I mean, our patents for Vyvgart go until 2037. That's a composition of matter patent. Of course, we have other patents, process patents, and so forth, which you can layer on top of that. I think we have got a really long runway. We're not thinking about managing around that patent. We are building an FCRN company now. You would have seen from the R&D day, our second FCRNs. We've showed you one, 213, where we have a longer half-life with once monthly dosing. That's not the only second FCRN we have. We are building an FCRN portfolio because we believe the FCRN class is going to be too big for just one compound.
Sure. Wonderful. We've got a small amount of time left. Is there something that I didn't ask that I should have or a message that you would like to leave investors with before we sign off?
Maybe I'll just go back to, and I think we alluded to it earlier. If I look at the valuation of a company today, it's largely based on MG and CIDP. With all this wave of new indications, phase III readouts on Vyvgart around the corner, and the exciting pipeline led by empa and 119, I think there's a lot of opportunity to create disproportionate value for our shareholders. That's what we're focusing on.
Okay. Perfect. We're just about out of time. We might thank you there, Karl, and thank you for participating in the conference.
Thank you very much for the opportunity. Thank you, everyone.
Thank you, everyone.