Rising Pricing Pressures And Biosimilar Challenges Will Weaken Margins

Key Takeaways

• Reliance on Vyvgart and vulnerability to biosimilar competition risk future revenue, margin stability, and long-term market share.
  
• Growing regulatory, pricing, and supply chain pressures threaten profitability and the ability to meet international expansion goals.
  
• Strong global demand, pipeline diversity, operational scale, and sector trends position the company for resilient, long-term growth and reduced dependence on a single product.

Catalysts

A commercial-stage biopharma company, develops various therapies for the treatment of autoimmune diseases in the United States, Japan, China, the Netherlands, and internationally.

• Aggressive pricing scrutiny from government programs and payers, combined with increased gross-to-net adjustments-already rising from 12 percent to 20 percent just this year-will likely intensify in the future, restricting the company's ability to maintain or increase net revenue per patient even as volumes grow.
  
• The global escalation of cost-effective biosimilars and generics threatens to erode Argenx's long-term pricing power and market share, especially as branded biologics currently represent just 10 percent of the MG market and new competitors target the same niches, jeopardizing future revenues and margins as the biologics category matures.
  
• The company's concentration on Vyvgart/efgartigimod and its newer formulations leaves it highly vulnerable to any negative shifts in clinical performance, regulatory setbacks or adverse safety signals-such as increased FDA FAERS monitoring in CIDP-creating the risk of sudden revenue contraction and earnings volatility.
  
• Rapidly expanding R&D investment and SG&A costs-up nearly $100 million quarter-over-quarter and expected to continue rising as the company scales-may outpace top-line growth if pivotal data from the late-stage pipeline or new indications disappoint, compressing profitability and operating leverage in the medium to long term.
  
• Increasing global supply chain fragmentation and rising geopolitical risks could raise manufacturing complexity and costs, erode regional margins, and potentially disrupt patient access, directly undermining Argenx's ability to meet ambitious sales and earnings growth targets globally as it pushes for broad international expansion.

argenx Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on argenx compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming argenx's revenue will grow by 23.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 41.0% today to 26.7% in 3 years time.
• The bearish analysts expect earnings to reach $1.6 billion (and earnings per share of $23.96) by about August 2028, up from $1.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 28.9x on those 2028 earnings, down from 31.7x today. This future PE is lower than the current PE for the GB Biotechs industry at 34.1x.
• Analysts expect the number of shares outstanding to grow by 1.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.26%, as per the Simply Wall St company report.

argenx Future Earnings Per Share Growth

Risks

• Rapid and consistent revenue growth across all geographies and indications for VYVGART, with 97% year-over-year growth and strong momentum in both established and new markets, indicates robust demand and expanding addressable patient population, which supports resilience in top-line revenues.
  
• A broad and advancing late-stage pipeline, including three Phase III assets and four new molecules in development, points to meaningful potential for future revenue diversification and long-term earnings growth, reducing the company's reliance on a single product.
  
• Significant investments in manufacturing scale, supply chain strength, and new product formulations (such as the prefilled syringe) are already enabling higher patient access and adoption while supporting gross margin stability as production costs decline, indicating operational leverage may drive net margin expansion over time.
  
• The company's strong balance sheet-with nearly four billion dollars in cash, significant positive operating cash flow, and disciplined capital allocation-provides ample runway for sustained R&D investment, future business development, and financial stability, underpinning long-term earnings resilience.
  
• Favorable secular trends-such as aging populations, rising prevalence of autoimmune/neuromuscular diseases, growing healthcare expenditures, and industry-wide tailwinds for innovative biologics-reinforce the potential for secular demand growth and long-term revenue expansion, counterbalancing competitive or reimbursement headwinds.

Valuation

• The assumed bearish price target for argenx is €524.73, which represents two standard deviations below the consensus price target of €690.47. This valuation is based on what can be assumed as the expectations of argenx's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €806.0, and the most bearish reporting a price target of just €480.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.9 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 28.9x, assuming you use a discount rate of 5.3%.
  
• Given the current share price of €565.6, the bearish analyst price target of €524.73 is 7.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.