Shield Therapeutics |
2021 all eyes on Accrufer US launch |
FY20 results |
Pharma & biotech |
4 May 2021 |
Share price performance
Business description
Next events
Analysts
Shield Therapeutics is a research client of Edison Investment Research Limited |
Shield Therapeutics’ (STX) FY20 results reported total revenue of £10.4m reflecting an $11.4m (£9.7m) upfront payment received from ASK Pharm (Feraccru out-licensing deal that covers China) and £0.7m from royalties on Feraccru sales from European partner Norgine. In March 2021, STX raised net funds of £27.8m, which will be utilised to support the US launch and commercialisation of Accrufer (iron deficiency). The focus for STX now is to establish and expand its US-based operations ahead of a Q221 launch; management will provide an update on progress in mid-May. STX expects to reach break-even on a monthly basis within 15–18 months after US launch. We value STX at £505.7m – the current share price reflects the European opportunity only according to our valuation.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/19 |
0.7 |
(9.1) |
(7.5) |
0.0 |
N/A |
N/A |
12/20 |
10.4 |
(1.9) |
(2.2) |
0.0 |
N/A |
N/A |
12/21e |
6.7 |
(22.3) |
(11.1) |
0.0 |
N/A |
N/A |
12/22e |
27.1 |
(8.4) |
(3.3) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Accrufer coming to America in June
The US commercialisation of Accrufer is key to unlocking value and FDA approval (2019) led to the broadest possible label to encompass iron deficiency of any cause. Timely launch (and subsequent market access coverage) is critical, as the product could offer an improved value proposition to patients and payors versus existing oral treatments or the alternative, an IV treatment in the hospital setting. STX has in place four US-based individuals with the relevant sales, medical liaison, supply chain and market access experience. It has also recently appointed Hans-Peter Rudolf as the group’s CFO.
Financials: Cash runway to FY23
In the near term management expects initial SG&A costs of $25–30m per year (2021/22), increasing to $40–45m in year three to fund US operations to the critical mass required. The fund-raise and open offer in March has extended the cash runway to forecast break-even in FY23. Profitability in FY23 is achievable on the basis of our current forecast revenue streams ex-US (royalties of £16.2m and milestones of £13.1m) plus a minimum US sales contribution of c $25m.
Valuation: £505.7m or 234p/share
Our revised valuation is £505.7m or 234p/share versus £471.4m or 218p/share (derived from an rNPV model). Our underlying assumptions for STX remain unchanged and reflect STX-led US commercialisation. Our valuation includes reported net cash of £28.2m at 31 March 2021, we update for FX and roll forward our model. Our NPV calculation is based on Feraccru achieving peak sales of €130m in Europe, $256m in the United States and $126m in China.
Planning a successful US launch of Accrufer
STX is working diligently to establish medical affairs, market access and sales and marketing infrastructure ahead of Accrufer’s imminent US launch. Exhibit 1 highlights the major work streams in progress that are required for launch and sales execution. The US operations team consists of four executives and is now ramping up additional staff; STX will provide a market update in two to three weeks’ time. Importantly, STX market research demonstrates that US prescribers believe there is unmet need and Accrufer’s profile is viewed positively in terms of a clinically meaningful profile and improvement versus existing oral iron salts (good tolerability and efficacy). While 460,000 US physicians prescribe mostly oral iron tablets, STX is specifically targeting 11,000 physicians who write 30% of all US prescriptions initially, through a salesforce of 30 reps in FY21 rising to 60 reps in FY22.
Exhibit 1: Major work streams in US commercialisation process |
Source: STX company presentation |
Norgine partnership
The commercialisation of Feraccru in Europe, Australia (recently approved) and New Zealand is in the hands of partner Norgine, and the product is now marketed by Norgine in Germany, the UK, Scandinavia (since Q420, previously AOP) and Belgium (since January 2021). Despite the significant headwind from the COVID-19 pandemic, sales volumes in Germany and the UK increased by 70% in FY20 (£0.7m royalty revenue). An unexpected reanalysis of the AEGIS-H2H data confirmed Feraccru as a credible alternative to IV therapy over the long term and will be used to negotiate pricing and reimbursement in the key markets of France, Italy and Spain. Additionally, data from the German healthcare setting (presented at the European Crohn’s and Colitis Organisation (ECCO) 2020 conference) concludes that total patient drug costs were 1.6x higher for treatment with IV iron compared with Feraccru. We note that the withdrawal of Teva Pharmaceutical’s European patent challenge means Feraccru’s patent protection will continue to October 2035.
China launch potential in 2023
The ASK Pharm deal covers China, Hong Kong, Macau and Taiwan. Shield received $11.4m upfront. ASK Pharm has submitted the IND application to the Chinese regulatory authority (CDE), the agency has indicated it is likely to require a short Phase III study in inflammatory bowel disease patients before approval. The study is expected to complete in 2022, leading to potential approval and launch in 2023. STX is eligible to receive a further $11.4m milestone upon regulatory approval in China, plus royalties of 10% or 15% on net sales (depending on the level), and up to $40m in cumulative sales-related milestones. ASK Pharm is responsible for all clinical and regulatory costs and activities in addition to all manufacturing and distribution costs of goods sold in the territory.
Valuation
Our revised STX valuation of £505.7m or 234p/share (versus £471.4m or 218p/share previously) is based on a risk-adjusted net present value (NPV) model of Feraccru/Accrufer (Exhibit 2) for the treatment of iron deficiency anaemia (IDA) in Europe (as covered by Norgine), the US (STX-led commercialisation) and China (as covered by ASK Pharm). Adding reported net cash at 31 March 2021 of £28.2m and using a discount rate of 10% for Europe, where the product is launched, and 12.5% for the United States and China, we reach our risk-adjusted NPV of 234p/share. We have rolled forward our model and updated for spot FX rates. All other forecasts are unchanged.
Exhibit 2: Valuation
Product |
Market |
Indication |
Launch |
Peak |
Peak |
NPV |
Probability |
rNPV |
rNPV/share |
||||||
Feraccru/Accrufer |
EU5 |
IDA |
2019 |
2028 |
€130m |
114.6 |
100% |
114.6 |
53.1 |
||||||
US |
IDA |
2021 |
2027 |
$256m |
346.3 |
90% |
311.7 |
144.4 |
|||||||
China |
IDA |
2023 |
2031 |
$126m |
75.8 |
75% |
51.2 |
23.7 |
|||||||
Net cash at 31 March 2021 |
|
|
|
|
28.2 |
100% |
28.2 |
13.1 |
|||||||
Valuation |
|
|
|
|
|
|
|
564.9 |
505.7 |
234.3 |
Source: Edison Investment Research
Financials
STX’s revenues remain wholly dependent on the success of Feraccru/Accrufer. STX reported FY20 revenues of £10.4m (FY19: £0.7m), which included the £9.7m ($11.4m) upfront licence payment from ASK Pharm and £0.7m in royalty revenue from Norgine relating to Feraccru sales in Europe. We forecast total revenues of £6.7m (this includes £2.0m US Accrufer sales, plus £3.8m in royalties and £0.9m sales milestone from partner Norgine on European Feraccru sales) in FY21. We expect total revenues to increase to £27.1m in FY22 (including US sales of £16.4m, plus £9.8m in royalties and a £0.9m sales milestone from Norgine).
During FY20 SG&A expenses increased to £8.6m (FY19: £6.8m) and R&D expenses were mainly flat at £2.6m (FY19: £2.5m). This resulted in an operating loss for the period of £2.2m (FY19: £9.0m). Based on its financial guidance we expect STX to move into sustainable profitability on an annualised basis from FY23. Specifically, we assume operating profit of £37.0m in FY23 based on total revenues of £84.8m (assuming potential US sales of £55.5m, European royalty contributions plus an $11.4m forecast China approval milestone payment from partner ASK Pharm). We expect rapid margin expansion and forecast operating margins could reach 52% by 2024, given 90% gross margins and that the main operating costs for the business will likely relate to US SG&A. We will monitor how sales ramp up and note that sales are dependent on gaining broad market access.
Following the post period share placing (raising £27.8m net) STX reported an unaudited cash balance of £28.2m at 31 March 2021. Management expects this is sufficient to take it to the point at which it is cash flow positive, which it expects to reach on a monthly basis within 15–18 months after US launch. Our forecast cash requirement and break-even assumptions are reliant on STX reaching our 2022 total revenue forecast of £27.1m.
Exhibit 3: Financial summary
Accounts: IFRS, Year end: 31 December |
£000s |
|
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
PROFIT & LOSS |
||||||||
Revenue |
|
|
637 |
11,881 |
719 |
10,387 |
6,651 |
27,076 |
Cost of sales |
|
|
(155) |
(311) |
(485) |
(1,354) |
(2,515) |
(6,559) |
Gross profit |
|
|
482 |
11,570 |
234 |
9,033 |
4,136 |
20,517 |
Gross margin % |
|
|
76% |
97% |
33% |
87% |
62% |
76% |
SG&A (expenses) |
|
|
(16,722) |
(12,429) |
(6,773) |
(8,608) |
(23,980) |
(26,427) |
R&D costs |
|
|
(4,711) |
(4,300) |
(2,496) |
(2,579) |
(2,500) |
(2,500) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
EBITDA |
|
|
(18,514) |
(2,469) |
(6,414) |
551 |
(20,289) |
(6,493) |
Depreciation and amortisation |
|
|
(2,437) |
(2,690) |
(2,621) |
(2,705) |
(2,055) |
(1,917) |
Reported operating income |
|
|
(20,951) |
(5,159) |
(9,035) |
(2,154) |
(22,344) |
(8,410) |
Exceptionals and adjustments |
|
|
(2,571) |
0 |
0 |
0 |
0 |
0 |
Adjusted operating income |
|
|
(18,380) |
(5,159) |
(9,035) |
(2,154) |
(22,344) |
(8,410) |
Finance income/(expense) |
|
|
(43) |
8 |
(31) |
268 |
0 |
0 |
Reported profit before tax |
|
|
(20,994) |
(5,151) |
(9,066) |
(1,886) |
(22,344) |
(8,410) |
Adjusted profit before tax |
|
|
(18,423) |
(5,151) |
(9,066) |
(1,886) |
(22,344) |
(8,410) |
Income tax expense |
|
|
1,406 |
3,359 |
266 |
(744) |
600 |
1,261 |
Reported net income |
|
|
(19,588) |
(1,792) |
(8,800) |
(2,630) |
(21,744) |
(7,148) |
Average number of shares outstanding (m) |
|
|
112.4 |
116.4 |
117.0 |
117.2 |
195.5 |
215.8 |
Year-end number of shares, m |
|
|
116.4 |
116.4 |
117.2 |
117.6 |
215.8 |
215.8 |
Basic EPS (p) |
|
|
(17.4) |
(2.0) |
(7.5) |
(2.2) |
(11.1) |
(3.3) |
EPS - normalised (p) |
|
|
(15.1) |
(1.5) |
(7.5) |
(2.2) |
(11.1) |
(3.3) |
Dividend per share (p) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
BALANCE SHEET |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
13 |
155 |
26 |
32 |
22 |
16 |
Intangible assets |
|
|
29,961 |
30,957 |
29,898 |
27,266 |
25,471 |
23,811 |
Other non-current assets |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Total non-current assets |
|
|
29,974 |
31,112 |
29,924 |
27,298 |
25,493 |
23,826 |
Cash and equivalents |
|
|
13,299 |
9,776 |
4,141 |
2,940 |
8,518 |
4,160 |
Inventories |
|
|
125 |
109 |
948 |
1,379 |
1,382 |
1,802 |
Trade and other receivables |
|
|
1,572 |
1,031 |
356 |
619 |
9,528 |
14,399 |
Other current assets |
|
|
0 |
1,500 |
950 |
292 |
292 |
292 |
Total current assets |
|
|
14,996 |
12,416 |
6,395 |
5,230 |
19,720 |
20,653 |
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Other non-current liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Total non-current liabilities |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Trade and other payables |
|
|
3,501 |
2,548 |
3,547 |
1,471 |
7,600 |
13,515 |
Current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Other current liabilities |
|
|
262 |
550 |
627 |
781 |
781 |
781 |
Total current liabilities |
|
|
3,763 |
3,098 |
4,174 |
2,252 |
8,381 |
14,296 |
Equity attributable to company |
|
|
41,207 |
40,430 |
32,145 |
30,276 |
36,832 |
30,184 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
|
Reported net income |
|
|
(19,588) |
(1,792) |
(8,800) |
(2,630) |
(21,744) |
(7,148) |
Depreciation and amortisation |
|
|
2,437 |
2,690 |
2,621 |
2,705 |
2,055 |
1,917 |
Share based payments |
|
|
560 |
1,013 |
456 |
771 |
500 |
500 |
Other adjustments |
|
|
39 |
3 |
31 |
(3) |
0 |
0 |
Movements in working capital |
|
|
(186) |
(255) |
555 |
(2,630) |
(2,783) |
624 |
Interest paid/received |
|
|
0 |
(8) |
31 |
(268) |
0 |
0 |
Income taxes paid/received |
|
|
587 |
(1,500) |
1,040 |
655 |
0 |
0 |
Cash from operations (CFO) |
|
|
(16,151) |
151 |
(4,066) |
(1,400) |
(21,972) |
(4,108) |
Capex |
|
|
(3,408) |
(3,345) |
(1,384) |
(23) |
(250) |
(250) |
Acquisitions & disposals net |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Other investing activities |
|
|
0 |
50 |
18 |
3 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(3,408) |
(3,295) |
(1,366) |
(20) |
(250) |
(250) |
Net proceeds from issue of shares |
|
|
11,880 |
0 |
0 |
0 |
27,800 |
0 |
Movements in debt |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Other financing activities |
|
|
0 |
(379) |
(203) |
(47) |
0 |
0 |
Cash from financing activities (CFF) |
|
|
11,880 |
(379) |
(203) |
(47) |
27,800 |
0 |
Cash and equivalents at beginning of period |
|
|
20,978 |
13,299 |
9,776 |
4,141 |
2,940 |
8,518 |
Increase/(decrease) in cash and equivalents |
|
|
(7,679) |
(3,523) |
(5,635) |
(1,467) |
5,578 |
(4,358) |
Effect of FX on cash and equivalents |
|
|
0 |
0 |
0 |
266 |
0 |
0 |
Cash and equivalents at end of period |
|
|
13,299 |
9,776 |
4,141 |
2,940 |
8,518 |
4,160 |
Closing net (debt)/cash |
|
|
13,299 |
9,776 |
4,141 |
2,940 |
8,518 |
4,160 |
Source: Shield company accounts, Edison Investment research
|
|