Shield Therapeutics Edison

All eyes on a US partnering deal

Shield Therapeutics 22 May 2020 Update
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Shield Therapeutics

All eyes on a US partnering deal

FY19 results

Pharma & biotech

22 May 2020

Price

96.5p

Market cap

£113m

£0.82/US$; £0.90/€

Unaudited net cash (£m) at 30 April 2020

10.4

Shares in issue

117.2m

Free float

32%

Code

STX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(8.5)

(36.9)

(15.7)

Rel (local)

(14.1)

(21.3)

2.2

52-week high/low

196p

54p

Business description

Shield Therapeutics is a commercial-stage pharmaceutical company. Its proprietary product, Feraccru, is approved by the EMA and FDA for the treatment of iron deficiency. Feraccru is marketed through partners Norgine, AOP Orphan and Ewopharma.

Next events

Out-licensing US rights to Feraccru

2020

Launches in the US and additional EU states as covered by Norgine

2020/21

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr John Priestner

+44 (0)20 3077 5700

Shield Therapeutics is a research client of Edison Investment Research Limited

Shield Therapeutics (STX) has reported FY19 results; total revenue of £0.7m reflects royalties on Feraccru sales from European partner Norgine. 2019 achievements include FDA approval of STX’s key asset for the treatment of iron deficiency in patients with any underlying cause – the broadest possible label – in the critical US market. Momentum has continued into 2020 with an out-licensing deal with China-based Beijing Aosaikang Pharmaceutical (ASK Pharm) that covers China, Hong Kong, Macau and Taiwan. The next key inflection point is a US partnering deal, and discussions are ongoing with the aim of closing a transaction at the earliest opportunity in 2020. We expect Accrufer launch later this year once a partner has been found. STX reported a cash balance of £10.4m at 30 April 2020 implying a cash runway to Q121. We value Shield at £381.7m.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

11.88

(5.15)

(1.5)

0.0

N/A

N/A

12/19

0.72

(9.07)

(7.5)

0.0

N/A

N/A

12/20e

12.66

1.14

2.0

0.0

48.3

N/A

12/21e

8.99

(4.31)

(3.2)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

2020 focus on US partnering activity

STX reported FY19 revenues of £0.7m, as Feraccru/Accrufer (oral ferric maltol) is making inroads in Europe, with sales volumes growing ~70%. Further uplift in Europe will be determined by launches in additional countries (France, Italy and Spain expected in 2021) as well as ongoing growth in launched countries (Germany and the UK). Key inflections in 2020 include the US partnering deal, initiation of a paediatric study (a requirement for both Europe and US regulatory bodies) utilising a liquid formulation and the development of a new formulation of PT20 with a view to start the additional pivotal Phase III trial required in 2022.

Financials: Cash runway to Q121

Shield reported an unaudited cash balance of £10.4m at 30 April 2020 (including the $11.4m licence payment received from ASK Pharm), which implies a cash runway into Q121. We expect a US partnering deal by year-end 2020 and the associated upfront licensing payment to strengthen the balance sheet, further reducing the requirement for a capital increase. With ongoing growth in Europe and a US launch on the horizon, we forecast that sustainable profitability is achievable from 2022, with gross margins nearing c 50–60% in the long term. Partnering strategies enhance economic returns and de-risk the investment case.

Valuation: £381.7m or 326p/share

Our revised valuation is £381.7m or 326p/share, vs £369.2m or 315p/share (derived from an rNPV model). Our underlying assumptions for Shield remain unchanged. Our valuation reflects a revised end-2020 net cash forecast of £7.2m due to slight changes in working capital rolling on with the FY19 results. We have updated for FX and rolled forward our model. Our NPV calculation is based on Feraccru achieving peak sales of €130m in Europe, $410m in the US and $126m in China.

Worldwide opportunity driven by ID/IDA prevalence

In Europe, Feraccru is being marketed by commercialisation partner Norgine, and the product was launched in Germany and the UK in Q119. It is reimbursed throughout Germany, however we note in the United Kingdom, reimbursement is limited to one-third of formularies in England (where each of the ~200 Clinical Commissioning Groups has its own formulary), with no coverage to date in Scotland, Wales and Northern Ireland (Norgine is in the process of submitting applications). Growth in the UK will be dependent on widening access. Future growth in Europe will depend on launches in other European countries, which are reliant on formulary access and pricing negotiations.

US market within grasp in 2020

In the near term the US market is the most significant opportunity given the broad label awarded (iron deficiency), addressable patient population (eight to nine million US iron deficiency anaemia (IDA) patients, source: STX presentation), and Accrufer’s positioning as an alternative to IV iron and thus premium pricing relative to existing oral salts and on a par with IV iron (on an annualised level). On this point it was disappointing that in the AEGIS head to head (H2H) study, the product has not met the primary endpoint on non-inferiority to IV iron, leading to a €2.5m milestone repayment to Norgine from STX. AEGIS-H2H was not required for regulatory approval and it is still likely that the 52-week data (which shows the product was effective and generally well tolerated over the period) will prove valuable for health economics purposes and in pricing and reimbursement discussions. We believe Feraccru/Accrufer’s profile as a highly tolerable oral iron product will still enable it to garner market share given treatment discontinuation rates are high (30–60%), with first-line treatment utilising salt-based oral iron products (which have intolerable side effects). We expect use in iron deficiency (ID)/IDA in patients whose iron level does not warrant intravenous iron infusions.

China deal adds to overall value proposition

STX has an exclusive deal for Feraccru/Accrufer with China-based Beijing Aosaikang Pharmaceutical (ASK Pharm) that covers China, Hong Kong, Macau and Taiwan. ASK Pharm will complete any required clinical trials in China and file the marketing authorisation for the treatment of iron deficiency in all territories covered by the deal. China represents a large market in volume terms (>280m IDA population, source ASK Pharm, Vifor). Although at lower pricing than the US and European opportunity, the licensing deal adds to Feraccru’s overall value proposition. Under the deal terms with ASK Pharm, Shield received $11.4m as an upfront payment and is eligible for a further $11.4m on approval in China. Shield will receive tiered royalties of 10% or 15% of net sales of Feraccru/Accrufer (throughout the duration of the intellectual property) plus up to $40m in sales-related milestones. ASK Pharma is a speciality pharma company with a focus on gastrointestinal and oncology treatment. Feraccru/Accrufer fits into its therapeutic focus well and will benefit from the 1,000-strong commercial team in China on potential launch. A local Phase III clinical study and regulatory approval will likely take two to three years to compete, thus we forecast launch in China in 2023.

Clinical work continues in 2020

STX plan to initiate the required (as per EMA and FDA approvals) paediatric study for Feraccru/Accrufer. The paediatric study requires a liquid formulation (rather than the capsule formulation approved in adults) and the first step is to manufacture a liquid formulation and then prove its equivalence to the capsule in a study (to be conducted towards end 2020). The estimated cost of the paediatric study is £5m over two to three years (this is already reflected in our R&D forecasts).

Additionally, STX’s iron-based phosphate binder PT20, which has already completed one of the two required pivotal, Phase III studies, is coming back into focus. Reformulation work is planned for H220 (and will take 15–18 months) to enable the initiation of the second Phase III trial required for regulatory submission. We do not include PT20 in our forecasts or valuation of STX.

Exhibit 1: Financial summary

Year end 31 December

£000s

 

2017

2018

2019

2020e

2021e

PROFIT & LOSS

Revenue

 

 

637

11,881

719

12,659

8,991

Cost of sales

 

 

(155)

(311)

(485)

(1,769)

(4,204)

Gross profit

 

 

482

11,570

234

10,891

4,787

Gross margin %

 

 

76%

97%

33%

86%

53%

SG&A (expenses)

 

 

(16,722)

(12,429)

(6,773)

(6,750)

(6,098)

R&D costs

 

 

(4,711)

(4,300)

(2,496)

(3,000)

(3,000)

Other income/(expense)

 

 

0

0

0

0

0

EBITDA

 

 

(18,514)

(2,469)

(6,414)

3,391

(2,213)

Depreciation and amortisation

 

 

(2,437)

(2,690)

(2,621)

(2,250)

(2,098)

Reported Operating Income

 

 

(20,951)

(5,159)

(9,035)

1,141

(4,311)

Exceptionals and adjustments

 

 

(2,571)

0

0

0

0

Adjusted Operating Income

 

 

(18,380)

(5,159)

(9,035)

1,141

(4,311)

Finance income/(expense)

 

 

(43)

8

(31)

0

0

Reported PBT

 

 

(20,994)

(5,151)

(9,066)

1,141

(4,311)

Profit Before Tax (norm)

 

 

(18,423)

(5,151)

(9,066)

1,141

(4,311)

Income tax expense

 

 

1,406

3,359

266

1,200

600

Reported net income

 

 

(19,588)

(1,792)

(8,800)

2,341

(3,711)

Average Number of Shares Outstanding (m)

 

112.4

116.4

117.0

117.2

117.2

Year-end number of shares, m

 

 

112.4

116.4

117.0

117.2

117.2

Basic EPS (p)

 

 

(17.43)

(2.00)

(7.52)

2.00

(3.17)

EPS - normalised (p)

 

 

(15.2)

(1.5)

(7.5)

2.0

(3.2)

Dividend per share (p)

 

 

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

 

13

155

26

18

13

Goodwill

 

 

0

0

0

0

0

Intangible assets

 

 

29,961

30,957

29,898

27,906

26,063

Other non-current assets

 

 

0

0

0

0

0

Total non-current assets

 

 

29,974

31,112

29,924

27,924

26,075

Cash and equivalents

 

 

13,299

9,776

4,141

7,235

2,435

Inventories

 

 

125

109

948

1,943

2,310

Trade and other receivables

 

 

1,572

1,031

356

7,278

13,335

Other current assets

 

 

0

1,500

950

950

950

Total current assets

 

 

14,996

12,416

6,395

17,406

19,030

Non-current loans and borrowings

 

 

0

0

0

0

0

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

0

0

Trade and other payables

 

 

3,501

2,548

3,547

9,717

12,704

Current loans and borrowings

 

 

0

0

0

0

0

Other current liabilities

 

 

262

403

607

607

607

Total current liabilities

 

 

3,763

3,098

4,174

10,324

13,311

Equity attributable to company

 

 

41,207

40,430

32,145

34,986

31,774

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Reported net income

 

 

(19,588)

(1,792)

(8,800)

2,341

(3,711)

Depreciation and amortisation

 

 

2,437

2,690

2,621

2,250

2,098

Share based payments

 

 

560

1,013

456

500

500

Other adjustments

 

 

39

4

33

0

0

Movements in working capital

 

 

(186)

(255)

555

(1,747)

(3,438)

Interest paid/received

 

 

0

0

0

0

0

Income taxes paid/received

 

 

587

(1,500)

1,040

0

0

Cash from operations (CFO)

 

 

(16,151)

151

(4,066)

3,344

(4,550)

Capex

 

 

(3,408)

(3,345)

(1,384)

(250)

(250)

Acquisitions & disposals net

 

 

0

0

0

0

0

Other investing activities

 

 

0

50

18

0

0

Cash used in investing activities (CFIA)

 

 

(3,408)

(3,295)

(1,366)

(250)

(250)

Net proceeds from issue of shares

 

 

11,880

0

0

0

0

Movements in debt

 

 

0

0

0

0

0

Other financing activities

 

 

0

0

0

0

0

Cash from financing activities (CFF)

 

 

11,880

(379)

(203)

0

0

Cash and equivalents at beginning of period

 

 

20,978

13,299

9,776

4,141

7,235

Increase/(decrease) in cash and equivalents

 

 

(7,679)

(3,523)

(5,635)

3,094

(4,800)

Cash and equivalents at end of period

 

 

13,299

9,776

4,141

7,235

2,435

Closing net (debt)/cash

 

 

13,299

9,776

4,141

7,235

2,435

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Shield Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Shield Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Shield Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Shield Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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