Annual Report 2023

Annual Report 2023

Basis of Presentation

Foreign Currency Transactions

Functional and presentation currency

Items included in the consolidated financial statements of each of the entities are valued using the currency of their economic environment in which the entity operates. The consolidated financial statements are presented in USD ($), which is the Company’s presentation currency.

Revenue from sale of product

Revenue from the sale of goods is recognized at an amount that reflects the consideration that the Company expects to be entitled to receive in exchange for transferring goods to a customer, at the time when the customer obtains control of the goods rendered, this means when the customer has the ability to direct the use of the asset. The consideration that is committed in a contract with a customer can include fixed amounts, variable amounts, or both. The amount of the consideration may vary due to discounts, rebates, returns, chargebacks or other similar items. Contingent consideration is included in the transaction price when it is highly probable that the amount of revenue recognized is not subject to future significant reversals.

Our product net sales mainly consist of sales of VYVGART in U.S., Japan, Europe and China and VYVGART SC in the U.S. and Europe. Product net sales are recognized once we satisfy the performance obligation at a point in time under the revenue recognition criteria in accordance with IFRS 15 “Revenue from contracts with customers”.

Revenue arising from the commercial sale of VYVGART and VYVGART SC is presented in the consolidated financial statements under Note 15 “Product net sales”. In accordance with IFRS 15 “Revenue from contracts with customers”, such revenue is recognized when the product is physically transferred, in accordance with the delivery and acceptance terms agreed with the customer. Payment of the transaction price is payable at the point the customer obtains the legal title to the goods.

Revenue from Collaborations and License Agreements

Revenues to date have consisted principally of milestones, license fees, non-refundable upfront fees and research and development service fees in connection with collaboration and license agreements.

We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods and services. In order to determine revenue recognition for agreements that we determine to be in the scope of IFRS 15, we followed the IFRS 15 5-step model. The Company has currently two active collaboration and license agreements in scope of IFRS 15:

Zai Lab

For the collaboration agreement with Zai Lab the Company has assessed that there is more than one distinct performance obligation, being the transfer of a license and supply of clinical and commercial product. The Company concluded that these performance obligations are distinct in the context of the contract.

Therefore, the Company allocates the transaction price to all performance obligations identified. The transaction price of the agreement is composed of (i) a fixed part, that being an upfront payment in the form of newly issued Zai Lab shares, and a guaranteed, non-creditable, non-refundable payment and (ii) a milestone payment for approval of efgartigimod in the U.S. and the consideration received in return for the supply of clinical and commercial product.

The fixed part of the transaction price, as well as the milestone for approval of efgartigimod in the U.S. has been allocated to the transfer of a license performance obligation. The Company concluded that the license as of the effective date of the contract, being January 2021, has standalone value. As such, the Company concluded that the promise in granting the license to Zai Lab is to provide a right to use the entity’s intellectual property as it exists at the point in time at which the license is granted and therefore, revenue was recognized at a point in time.

Under the collaboration agreement, the Company provides clinical and commercial supply to Zai Lab. Company concludes to recognize such sales as revenue given that the Company acts as principal in the transaction as the risk related to inventory is born by the Company until the inventory is transferred to Zai Lab. The revenue related to clinical supply is recorded under line item “Collaboration revenue”. The revenue related to commercial supply is recorded under line item “product net sales” in the consolidated statements of profit or loss and the consolidated statements of other comprehensive income (loss). The income related to royalties is recorded under line item “Collaboration revenue”.

AbbVie

For the collaboration agreement with AbbVie the Company has determined that the transfer of license combined with the performance of research and development activities represent one single performance obligation. The Company concluded that the license is not distinct in the context of the contract.

The transaction price is composed of a fixed part, that being an upfront license fee, and a variable part, being milestone payments and cost reimbursements of research and development activities delivered. Milestone payments are only included in the transaction price to the extent it is highly probable that a significant reversal in the amount of cumulative revenue recognition will not occur when the uncertainty associate with the variable consideration is subsequently resolved. Management estimates the amount to be included in the transaction price upon achievement of the milestone event. Sales-based milestones and sales-based royalties are a part of the Company’s arrangements but are not yet included in its revenues.

The transaction price has been allocated to the single performance obligation and revenues has been recognized over the estimated service period based on an input model, being the percentage of completion method. The upfront license fee has been fully recognized since 2021 as the performance obligation has been fulfilled at that time. Milestone payments that become highly probable after the performance obligation has been fulfilled are therefore recognized at that point in time.

Research and development Expenses

Research and development expenses consist principally of:

  • external research and development expenses related to (i) chemistry, manufacturing and control costs for our product candidates, both for preclinical and clinical testing, all of which is conducted by specialized contract manufacturers, (ii) fees and other costs paid to CROs in connection with preclinical testing and the performance of clinical trials for our product candidates, (iii) costs associated with regulatory submissions and approvals, QA and pharmacovigilance and (iv) costs associated with post-approval clinical trails.
  • personnel expense related to compensation of research and development staff and related expenses, including salaries, benefits and share‑based payment expenses;
  • materials and consumables expenses;
  • depreciation and amortization of tangible and intangible fixed assets used to develop our product candidates; and
  • IT expenses;
  • other expenses including, but not limited to costs associated with obtaining and maintaining patents and other intellectual property.

We incur various external expenses under our collaboration and license agreements for material and services consumed in the discovery and development of our partnered product candidates.

Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, including the timing of the initiation of clinical trials, production of product batches and enrolment of patients in clinical trials. Research and development expenses are expected to increase as we advance the clinical development of efgartigimod and empasiprubart and further advance the research and development of our other early-stage pipeline candidates. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from any of our product candidates. This is due to numerous risks and uncertainties associated with developing drugs, as fully described in Item 3.D. “Risk Factors,” and including the uncertainty of:

  • the scope, rate of progress and expense of our research and development activities;
  • the successful enrollment in, and completion of clinical trials;
  • the ability to market, commercialize and achieve market acceptance for efgartigimod or any other product candidate that we may develop in the future, if approved;
  • establishing and maintaining a continued acceptable safety profile for our product candidates;
  • the terms, timing and receipt of regulatory approvals from applicable regulatory authorities;
  • the successful completion of preclinical studies necessary to support IND applications in the U.S. or similar applications in other countries;
  • the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights and our current and future collaborators continuing their collaborations with us.

Selling, general and administrative Expenses

Selling, general and administrative expenses consist primarily of:

  • personnel expenses relating to salaries and related costs for personnel, including share-based compensation, of our employees in executive, finance, business development, marketing, commercial and support functions;
  • professional fees for business development, marketing, IT, audit, commercial, legal services and investor relations costs;
  • Board of Directors expenses consisting of directors’ fees, travel expenses and share-based compensation for non-executive board members;
  • costs associated with commercial launch of VYVGART and VYVGART SC for the treatment of gMG and marketing and promotional activities, pre-launch activities of VYVGART and VYVGART SC in other indications and continued investment in supply chain and costs associated with pre-launch activities in other indications;
  • allocated facilities costs; and
  • other Selling, general and administrative expenses, including leasing costs, office expenses, travel costs.

We expect our general and administrative expenses to increase as we continue to support our growth. Such costs include increases in our personnel, additional IT-related expenses, and expenses and costs associated with compliance with the regulations governing public companies. We expect our selling and marketing expenses to increase due to marketing and promotional activities with respect to the ongoing commercial launch of VYVGART, VYVGART SC and preparation of commercial launch of our other product candidates.

Financial Income (Expense)

Financial income mainly reflects interest earned on our cash and cash equivalents and current financial assets and net gains on our cash and cash equivalents and current financial assets held at fair value through profit or loss. Financial expense corresponds mainly to net losses on cash and cash equivalents and current financial assets held at fair value through profit or loss.

Exchange Gains (Losses)

Our exchange gains (losses) relate to (i) our transactions denominated in foreign currencies, mainly in euro, and which generate exchange gains or losses and (ii) the translation at the reporting date of assets and liabilities denominated in foreign currencies into USD, which is our functional and presentation currency. For more information on currency exchange fluctuations on our business, please see Note 26 “Financial instruments and financial risk management – Foreign exchange risk” in our consolidated financial statements which are appended to our Annual Report for the period ended December 31, 2023. We have no derivative financial instruments to hedge interest rate and foreign currency risk.

Income Tax Expense

We have a history of losses in certain jurisdictions, including Belgium and the Netherlands. We may continue to incur losses as we continue to invest in our clinical and pre-clinical development programs and our discovery platform, and we incur costs for various commercial launches and regulatory approvals. Consequently, we do not recognize any deferred tax asset regarding certain tax attributes on our consolidated statements of financial position.

We incur current income tax expense and recognize deferred tax assets in various subsidiaries in view of the transfer pricing policy set up between argenx BV and these subsidiaries.

For more information on income tax and deferred tax, please see Note 25 “Income tax expense” in our consolidated financial statements which are appended to our Annual Report for the period ended December 31, 2023.