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Research: Healthcare
Today’s 2019 business and trading update highlights a landmark year for Shield Therapeutics. Feraccru/Accrufer (oral ferric maltol) is making inroads in Europe, with sales volumes growing 67% through commercialisation partner, Norgine. Importantly, the AEGIS head-to-head study proved Feraccru/Accrufer to be non-inferior to IV iron therapy, a strong marketing tool for an oral treatment. In July 2019, the FDA approved the product for the treatment of iron deficiency in patients with any underlying cause – the broadest possible label. 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, which we assume will occur in the next 12 months. We value Shield at £345m.
Written by
Shield Therapeutics |
2019 a landmark year |
Business update |
Pharma & biotech |
27 January 2020 |
Share price performance
Business description
Next events
Analyst
Shield Therapeutics is a research client of Edison Investment Research Limited |
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Today’s 2019 business and trading update highlights a landmark year for Shield Therapeutics. Feraccru/Accrufer (oral ferric maltol) is making inroads in Europe, with sales volumes growing 67% through commercialisation partner, Norgine. Importantly, the AEGIS head-to-head study proved Feraccru/Accrufer to be non-inferior to IV iron therapy, a strong marketing tool for an oral treatment. In July 2019, the FDA approved the product for the treatment of iron deficiency in patients with any underlying cause – the broadest possible label. 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, which we assume will occur in the next 12 months. We value Shield at £345m.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
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 |
2.92 |
(7.82) |
(5.2) |
0.0 |
N/A |
N/A |
12/20e |
11.74 |
0.27 |
1.3 |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
US and further European launches lie ahead
The company expects FY19 revenues of £2.9m (2018 £11.8m) with £2.3m from milestones and £0.6m in sales-related revenues. The original approved European label for Ferracru was narrower and there have been reimbursement constraints related to this. Norgine is focusing its field-based detailing on the AEGIS H2H study and is in the process of submitting pricing and reimbursement applications to key European markets. Under the China deal ASK Pharm will complete any required clinical trials and file the marketing authorisation for the treatment of iron deficiency in all territories covered by the deal; we forecast China launch in 2023. The US is a key market and Shield is in detailed discussions with potential commercial partners. We expect Accrufer launch later this year once a partner has been found.
Financials: Cash runway extended into 2021
Shield reported a FY19 cash position of £4.1m, but the post period end upfront payment of $11.4m from ASK Pharma extends the cash runway into 2021.We expect a US partnering deal (2020) and 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.
Valuation: £344.7m or 294p/share
Our revised valuation is £344.7m or 294p/share vs £346.8m or 296p/share (derived from an rNPV model). Our base assumptions for Shield remain unchanged and our valuation reflects an end-2020 net cash forecast of £8.5m and we have updated for FX and rolling forward our model. Our NPV calculation is based on Feraccru achieving peak sales of €133m in Europe, $420m in the US and $126m in China.
Exhibit 1: Financial summary
Year end 31 December |
£000s |
|
2017 |
2018 |
2019e |
2020e |
2021e |
PROFIT & LOSS |
|||||||
Revenue |
|
|
637 |
11,881 |
2,924 |
11,746 |
8,369 |
Cost of sales |
|
|
(155) |
(311) |
(415) |
(1,719) |
(4,081) |
Gross profit |
|
|
482 |
11,570 |
2,510 |
10,028 |
4,288 |
Gross margin % |
|
|
76% |
97% |
86% |
85% |
51% |
SG&A (expenses) |
|
|
(16,722) |
(12,438) |
(7,324) |
(6,758) |
(6,107) |
R&D costs |
|
|
(4,711) |
(4,300) |
(3,000) |
(3,000) |
(3,000) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
0 |
EBITDA |
|
|
(18,514) |
(2,814) |
(5,490) |
2,528 |
(2,712) |
Depreciation and amortisation |
|
|
(2,437) |
(2,354) |
(2,324) |
(2,258) |
(2,107) |
Reported Operating Income |
|
|
(20,951) |
(5,168) |
(7,815) |
269 |
(4,819) |
Exceptionals and adjustments |
|
|
(2,571) |
0 |
0 |
0 |
0 |
Adjusted Operating Income |
|
|
(18,380) |
(5,168) |
(7,815) |
269 |
(4,819) |
Finance income/(expense) |
|
|
(43) |
15 |
0 |
0 |
0 |
Reported PBT |
|
|
(20,994) |
(5,153) |
(7,815) |
269 |
(4,819) |
Profit Before Tax (norm) |
|
|
(18,423) |
(5,153) |
(7,815) |
269 |
(4,819) |
Income tax expense |
|
|
1,406 |
3,359 |
1,800 |
1,200 |
600 |
Reported net income |
|
|
(19,588) |
(1,794) |
(6,015) |
1,469 |
(4,219) |
Average Number of Shares Outstanding (m) |
|
|
112.4 |
116.4 |
116.4 |
116.4 |
116.4 |
Year-end number of shares, m |
|
|
112.4 |
116.4 |
116.4 |
116.4 |
116.4 |
Basic EPS (p) |
|
|
(17.43) |
(2.00) |
(5.17) |
1.26 |
(3.62) |
EPS - normalised (p) |
|
|
(15.2) |
(1.5) |
(5.2) |
1.3 |
(3.6) |
Dividend per share (p) |
|
|
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
BALANCE SHEET |
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
13 |
8 |
6 |
4 |
3 |
Goodwill |
|
|
0 |
0 |
0 |
0 |
0 |
Intangible assets |
|
|
29,961 |
30,957 |
30,085 |
28,079 |
26,223 |
Other non-current assets |
|
|
0 |
0 |
0 |
0 |
0 |
Total non-current assets |
|
|
29,974 |
30,965 |
30,091 |
28,083 |
26,226 |
Cash and equivalents |
|
|
13,299 |
9,776 |
4,110 |
8,486 |
3,523 |
Inventories |
|
|
125 |
109 |
456 |
1,889 |
2,242 |
Trade and other receivables |
|
|
1,572 |
1,031 |
1,440 |
6,775 |
12,410 |
Other current assets |
|
|
0 |
1,500 |
1,500 |
1,500 |
1,500 |
Total current assets |
|
|
14,996 |
12,416 |
7,505 |
18,650 |
19,675 |
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 |
2,278 |
9,445 |
12,332 |
Current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
Other current liabilities |
|
|
262 |
403 |
403 |
403 |
403 |
Total current liabilities |
|
|
3,763 |
2,951 |
2,681 |
9,848 |
12,735 |
Equity attributable to company |
|
|
41,207 |
40,430 |
34,915 |
36,885 |
33,166 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
Reported net income |
|
|
(19,588) |
(1,794) |
(6,015) |
1,469 |
(4,219) |
Depreciation and amortisation |
|
|
2,437 |
2,354 |
2,324 |
2,258 |
2,107 |
Share based payments |
|
|
560 |
1,013 |
500 |
500 |
500 |
Other adjustments |
|
|
39 |
4 |
0 |
0 |
0 |
Movements in working capital |
|
|
(186) |
(255) |
(1,026) |
399 |
(3,101) |
Interest paid/received |
|
|
0 |
0 |
0 |
0 |
0 |
Income taxes paid/received |
|
|
587 |
(1,500) |
0 |
0 |
0 |
Cash from operations (CFO) |
|
|
(16,151) |
(178) |
(4,216) |
4,626 |
(4,713) |
Capex |
|
|
(3,408) |
(3,345) |
(1,450) |
(250) |
(250) |
Acquisitions & disposals net |
|
|
0 |
0 |
0 |
0 |
0 |
Other investing activities |
|
|
0 |
0 |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(3,408) |
(3,345) |
(1,450) |
(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 |
0 |
0 |
0 |
0 |
Cash and equivalents at beginning of period |
|
|
20,978 |
13,299 |
9,776 |
4,110 |
8,486 |
Increase/(decrease) in cash and equivalents |
|
|
(7,679) |
(3,523) |
(5,666) |
4,376 |
(4,963) |
Cash and equivalents at end of period |
|
|
13,299 |
9,776 |
4,110 |
8,486 |
3,523 |
Net (debt)/cash |
|
|
13,299 |
9,776 |
4,110 |
8,486 |
3,523 |
Source: Company accounts, Edison Investment Research
|
|
Research: Energy & Resources
Egdon Resources started the year with two important developments. The first was the announcement of the positive result of Egdon’s appeal against the refusal of planning consent at the Wressle oil field, which will allow the company to proceed with project development. The second was the farm-in agreement for the P1929 and P2304 licences with Shell. In November 2019, Egdon announced it had signed an exclusivity agreement for the licences, which contain the Resolution and Endeavour gas discoveries. The farm-down to Shell will allow Egdon to retain a 30% working interest in the licences and proceed with a 3D seismic survey planned for 2020. Our updated RENAV increases from 10.8p/share to 13.2p/share as we had previously assumed that Egdon would only retain a 15% working interest in the project.