Shield Therapeutics Edison

FDA approval attained, sales execution now key

Shield Therapeutics 26 July 2019 Update
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Shield Therapeutics

FDA approval attained, sales execution now key

Regulatory update

Pharma & biotech

26 July 2019

Price

176p

Market cap

£206m

US$/£0.80; €/£0.90

Net cash (£m) at 31 December 2018

9.8

Shares in issue

117.2m

Free float

29%

Code

STX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.2)

17.0

168.8

Rel (local)

(10.2)

16.4

176.3

52-week high/low

121p

31p

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 currently marketed through partners Norgine, AOP Orphan and Ewopharma.

Next events

Out-licensing US rights to Feraccru

2019/2020

Publication of AEGIS-H2H data

H219

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

2020

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Sean Conroy

+44 (0)20 3077 5700

Shield Therapeutics is a research client of Edison Investment Research Limited

Shield Therapeutics’ primary asset, Feraccru, has been approved by the FDA for the treatment of iron deficiency in patients with any underlying cause – the broadest possible label. It will be marketed in the US as Accrufer. This is upside to our previous assumptions and increases our peak sales potential to c$420m (vs c $250m previously). Successfully commercialising Feraccru/Accrufer through partners is now key to Shield realising its value. We expect Shield to out-license the US rights during the next 18 months. An upfront licensing payment would extend Shield’s cash reach beyond our current forecast of H220. We now value Shield at £273m.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

0.64

(18.42)

(15.2)

0.0

N/A

N/A

12/18

11.88

(5.15)

(1.5)

0.0

N/A

N/A

12/19e

3.14

(9.23)

(6.4)

0.0

N/A

N/A

12/20e

3.17

(9.92)

(7.5)

0.0

N/A

N/A

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

Broadest label possible opens up US market

There remains a significant need globally for a tolerable oral iron therapy and this approval has now de-risked the opportunity in the US. Due to a broader than predicted label, we increase our peak sales forecasts for the US to c $420m vs $250m previously. We retain our peak sales forecast of c €130m for the EU5 states, as covered by Norgine. With positive data in hand from the AEGIS-H2H study, demonstrating non-inferiority to the market-leading iv iron (Vifor’s Ferinject 2018 sales of c $0.9bn), Accrufer could quickly generate significant market share in both the US and EU.

Partner execution key to sustaining top-line growth

Out-licensing Accrufer in the US is now the next step to commercialisation. Furthermore, an upfront licensing payment would alleviate the need to raise additional capital by mid-2020. With the approved broad label of Accrufer, we anticipate that Shield will be able to negotiate deal terms in line or better than those achieved with Norgine in Europe. We forecast sustainable profitability from 2022, with gross margins nearing c 50–60% in the long term. With Norgine now actively marketing Feraccru in Germany and the UK, we anticipate an uptick in sales during 2019. Further launches in additional European markets during 2020 (and potentially in the US contingent on a deal) will aid revenue growth (Shield receives royalties on sales).

Valuation: £273m or 231p/share

Our revised valuation of Shield at £273m or 231p/share vs £177m or 152p/share (derived from an rNPV model) reflects the removal of regulatory risk from our valuation and the increased market opportunity as a result of the broad US label. We have also updated for FX and rolling forward our model in time. Uncertainty about the eventual outcomes from patent challenges raised by Teva Pharmaceuticals still represents c 35% downside to our base case (82p/share).

Exhibit 1: Financial summary

Accounts: IFRS, year-end: December, £000s

 

 

2016

2017

2018

2019e

2020e

PROFIT & LOSS

Revenue

 

 

304

637

11,881

3,139

3,169

Operating revenues

 

 

304

637

11,881

3,139

3,169

Cost of sales

 

 

(100)

(155)

(311)

(544)

(1,718)

Gross profit

 

 

204

482

11,570

2,595

1,450

Gross margin %

 

 

n/a

n/a

n/a

n/a

1

SG&A (expenses)

 

 

(10,675)

(16,722)

(12,438)

(7,324)

(6,668)

R&D costs

 

 

(2,029)

(4,711)

(4,300)

(4,500)

(4,500)

Other income/(expense)

 

 

40

0

0

0

0

EBITDA (reported)

 

 

(10,524)

(18,514)

(2,814)

(6,905)

(7,550)

Depreciation and amortisation

 

 

(1,936)

(2,437)

(2,354)

(2,324)

(2,168)

Reported Operating Income

 

 

(12,460)

(20,951)

(5,168)

(9,229)

(9,718)

Exceptionals and adjustments

 

 

(2,157)

(2,571)

0

0

0

Adjusted Operating Income

 

 

(10,303)

(18,380)

(5,168)

(9,229)

(9,718)

Finance income/(expense)

 

 

(3,143)

(43)

15

0

(200)

Reported PBT

 

 

(15,603)

(20,994)

(5,153)

(9,229)

(9,918)

Adjusted PBT

 

 

(13,446)

(18,423)

(5,153)

(9,229)

(9,918)

Income tax expense

 

 

587

1,406

3,359

1,800

1,200

Reported net income

 

 

(15,016)

(19,588)

(1,794)

(7,429)

(8,718)

Basic average number of shares, m

 

101.2

112.4

116.4

116.4

116.4

Year-end number of shares, m

 

 

101.2

112.4

116.4

116.4

116.4

Basic EPS (p)

 

 

(14.84)

(17.43)

(2.00)

(6.38)

(7.49)

Adjusted EPS (p)

 

 

(12.71)

(15.15)

(1.54)

(6.38)

(7.49)

Dividend per share (p)

 

 

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

 

19

13

8

6

4

Goodwill

 

 

0

0

0

0

0

Intangible assets

 

 

28,984

29,961

30,957

28,885

26,969

Other non-current assets

 

 

0

0

0

0

0

Total non-current assets

 

 

29,003

29,974

30,965

28,891

26,973

Cash and equivalents

 

 

20,978

13,299

9,776

4,827

6,746

Inventories

 

 

418

125

109

598

1,888

Trade and other receivables

 

 

1,985

1,572

1,031

1,974

6,964

Other current assets

 

 

0

0

1,500

1,500

1,500

Total current assets

 

 

23,381

14,996

12,416

8,900

17,097

Non-current loans and borrowings

 

 

0

0

0

0

8,000

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

0

8,000

Trade and other payables

 

 

3,827

3,501

2,548

3,887

10,384

Current loans and borrowings

 

 

0

0

0

0

0

Other current liabilities

 

 

161

262

403

403

403

Total current liabilities

 

 

3,988

3,763

2,951

4,290

10,787

Equity attributable to company

 

 

48,396

41,207

40,430

33,501

25,283

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Reported net income

 

 

(15,016)

(19,588)

(1,794)

(7,429)

(8,718)

Depreciation and amortisation

 

 

1,936

2,437

2,354

2,324

2,168

Share based payments

 

 

288

560

1,013

500

500

Other adjustments

 

 

3,382

39

4

1

1

Movements in working capital

 

 

(846)

(186)

(255)

(93)

218

Interest paid / received

 

 

0

0

0

0

0

Income taxes paid / received

 

 

0

587

(1,500)

0

0

Cash from operations (CFO)

 

 

(10,256)

(16,151)

(178)

(4,699)

(5,832)

Capex

 

 

(3,175)

(3,408)

(3,345)

(250)

(250)

Acquisitions & disposals net

 

 

0

0

0

0

0

Other investing activities

 

 

177

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(2,998)

(3,408)

(3,345)

(250)

(250)

Net proceeds from issue of shares

 

 

33,507

11,880

0

0

0

Movements in debt

 

 

0

0

0

0

8,000

Other financing activities

 

 

0

0

0

0

0

Cash from financing activities (CFF)

 

 

33,507

11,880

0

0

8,000

Cash and equivalents at beginning of period

 

 

725

20,978

13,299

9,776

4,827

Increase/(decrease) in cash and equivalents

 

 

20,253

(7,679)

(3,523)

(4,949)

1,918

Cash and equivalents at end of period

 

 

20,978

13,299

9,776

4,827

6,746

Net (debt)/cash

 

 

20,978

13,299

9,776

4,827

(1,254)

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.

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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.

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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.

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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

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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

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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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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