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Research: Healthcare
Shield Therapeutics (STX) successfully launched its key asset, Accrufer (oral ferric maltol for iron deficiency), in the US market on 1 July, in line with previous guidance. The US commercialisation of Accrufer is key to unlocking value (the US iron market is a huge market at ~10 million patients per year and is the key value driver) and FDA approval in 2019 led to the broadest possible label, which encompasses iron deficiency from any cause. The H121 results reported total revenue of £0.5m entirely from royalties on Feraccru sales from European partner Norgine (versus £8.9m in H120, of which £8.7m related to a milestone payment from ASK Pharm for China rights). We value STX at £631.3m or 293p/share.
Written by
Shield Therapeutics |
2021 focus on Accrufer |
Interim results |
Pharma & biotech |
23 August 2021 |
Share price performance
Business description
Next events
Analysts
Shield Therapeutics is a research client of Edison Investment Research Limited |
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Shield Therapeutics (STX) successfully launched its key asset, Accrufer (oral ferric maltol for iron deficiency), in the US market on 1 July, in line with previous guidance. The US commercialisation of Accrufer is key to unlocking value (the US iron market is a huge market at ~10 million patients per year and is the key value driver) and FDA approval in 2019 led to the broadest possible label, which encompasses iron deficiency from any cause. The H121 results reported total revenue of £0.5m entirely from royalties on Feraccru sales from European partner Norgine (versus £8.9m in H120, of which £8.7m related to a milestone payment from ASK Pharm for China rights). We value STX at £631.3m or 293p/share.
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 |
3.9 |
(23.6) |
(11.7) |
0.0 |
N/A |
N/A |
12/22e |
19.3 |
(13.0) |
(5.1) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Accrufer now launched in the US
With Accrufer now available in the US market, the immediate focus for STX is to continue to build on market access coverage (STX expects over the next six to 12 months to increase formulary coverage by signing reimbursement agreements with numerous payors) and physician awareness of Accrufer’s benefits to drive sales in the US. In Europe, Feraccru sales volumes increased 51% versus H220, however royalties received from partner Norgine were flat at £0.5m. We revise our FY21 revenue forecasts to reflect slower sales momentum in Europe. Launches in additional countries could aid uplift, albeit slowly. The product was launched in Belgium and Luxembourg in early 2021. We maintain our European peak sales forecasts of €130m in 2028 and will monitor this as uptake develops. Post period, STX signed a licensing deal with Korea Pharma for South Korea (£0.5m upfront, £5.5m in sales and development milestones and 15% royalties on sales). Negotiations with potential partners in other territories are ongoing and could provide further upside to our current forecasts.
Financials: Cash runway to FY23
STX raised net funds of £27.7m in March 2021, extending the cash runway to forecast break-even in FY23. The primary use of these funds is to support the commercialisation of Accrufer in the US. The appointment of a US-based CEO (Greg Madison) highlights the focus on the key US market.
Valuation: £631.3m or 293p/share
Our revised valuation is £631.3m or 293p/share, versus £505.7m or 234p/share previously. The main changes are a slower sales evolution in Europe offset by reflecting the product’s launched status in the US. Our other underlying assumptions are unchanged. We have rolled our model forward and include net cash of £22.6m at 30 June 2021. Our NPV calculation is based on Feraccru achieving peak sales of €130m in Europe, $256m in the US and $126m in China.
Accrufer launches in the United States
Following launch of Accrufer in the United States in July 2021, STX is working to increase physician awareness and expand market access. The COVID-19 pandemic has provided some headwinds to the initial phase of launch, limiting face-to-face contact with physicians. Importantly, STX market research demonstrates that US prescribers believe there is unmet need and Accrufer 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 approximately 30% of all US prescriptions initially, through a salesforce of 30 reps in FY21 rising to 60 reps in FY22. Accrufer could offer an improved value proposition to patients and payors compared to existing oral treatments or the alternative, an intravenous treatment in the hospital setting.
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 in Germany, the UK, Scandinavia (taken over from AOP Orphan), Belgium and Luxemburg. Despite the significant headwind from the pandemic, sales volumes increased by 51% in H121 versus H220 (Germany and the UK accounted for 87% of packs sold), Exhibit 1. We have lowered our forecast sales trajectory in Europe due to the lack of visibility on additional launches (ex Germany and UK) by Norgine. This has affected our royalty expectations from Norgine and we now forecast £1.4m in FY21 (vs £3.2m) and £2.9m in FY22 (vs £9.8m). Launching and obtaining pricing and reimbursement in additional European countries (key markets include France, Italy and Spain) is paramount to driving adoption in future years. Based on Feraccru’s competitive profile in our view, we maintain our European peak sales forecast of €130m in 2028 and will monitor this as uptake develops. Timely sales growth over the next few quarters is critical to achieving this.
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Exhibit 1: European sales evolution of Feraccru |
|
|
Source: STX company presentation |
Feraccru is not yet approved in China, and this territory is covered by partner ASK Pharm (the deal covers China, Hong Kong, Macau and Taiwan). The Chinese regulatory authority (CDE) has approved the IND for a short (12-week) Phase III study in c 120 inflammatory bowel disease (IBD) patients and a pharmacokinetic/pharmacodynamic study (to be conducted in parallel) that will be sufficient to support an NDA application. ASK Pharm has started to screen patients for the IBD study, which is expected to complete by the end of 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. Furthermore, in August 2021 STX out-licensed the Accrufer development and commercial rights in South Korea to Korea Pharma, netting an upfront payment of £0.5m, and is due a £1.5m milestone on first sales in the territory plus 15% royalties on sales and up to £4m in sales milestones. Negotiations with potential partners in other territories are ongoing and could provide further upside to our current forecasts.
Valuation
Our revised STX valuation of £631.3m or 293p/share (versus £505.7m or 234p/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 United States (STX-led commercialisation) and China (as covered by ASK Pharm). We have increased the probability of success to 100% in the United States following launch and use a discount rate of 10% for Europe and the United States, where the product is launched, and 12.5% in China. However, sales execution risk remains, as for any company launching products, and we will closely monitor the US sales evolution versus our early years sales ramp-up expectations. The US opportunity is a key value driver and represents ~70% of our valuation. We have lowered our near-term sales trajectory in Europe but maintain our peak sales forecasts. Timely sales growth over the next few quarters is critical to achieving this. All other forecasts are unchanged. We have rolled forward our model and reflect reported net cash at 30 June 2021 of £22.6m.
Exhibit 2: Valuation
Product |
Market |
Indication |
Launch |
Peak |
Peak |
NPV |
Probability |
rNPV |
rNPV/share |
||||||||
Feraccru/Accrufer |
EU5 |
IDA |
2019 |
2028 |
€130m |
111.3 |
100% |
111.3 |
51.6 |
||||||||
US |
IDA |
2021 |
2027 |
$256m |
438.5 |
100% |
438.5 |
203.1 |
|||||||||
China |
IDA |
2023 |
2031 |
$126m |
78.6 |
75% |
58.9 |
27.3 |
|||||||||
Net cash at 30 June 2021 |
|
|
|
22.6 |
100% |
22.6 |
10.5 |
||||||||||
Valuation |
|
|
|
|
651.0 |
631.3 |
292.5 |
||||||||||
Source: Edison Investment Research
Financials
STX’s revenues remain wholly dependent on the success of Feraccru/Accrufer. STX reported H121 revenues of £0.5m vs £8.9m in H120, as the prior year benefited from the £8.7m ($11.4m) upfront licence payment from ASK Pharm. Royalties received from partner Norgine relating to Feraccru sales in Europe were flat at £0.5m vs H220. We forecast total revenues of £3.9m in FY21 (this includes £2.0m US Accrufer sales, plus £1.4m in royalties from partner Norgine on European Feraccru sales and a £0.5m upfront payment from Korea Pharma). We expect total revenues to increase to £19.3m in FY22 (this includes US sales of £16.4m, plus £2.9m in royalties from Norgine). We note that Accrufer is still in the early phases of launch in the United States and the timing of achieving payor coverage will have a significant impact on our sales trajectory and revenue forecasts.
During H121 SG&A expenses increased to £6.1m (H120: £4.8m) due to pre-launch costs in the United States. R&D expenses increased to £1.6m (H120: £0.7m) predominately due to the paediatric study (Stage 1 completed). This resulted in an operating loss for the period of £7.6m (H120: £2.4m profit). We expect expenditure to increase significantly as the US launch gathers momentum and the final stage of the paediatric study starts, offset by growing sales in the United States and Europe. Based on its financial guidance, we expect STX to move into sustainable profitability on an annualised basis from FY23. STX reported an unaudited cash balance of £22.6m at 30 June 2021 following the share placing in March (£27.7m net). 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 18 months of US launch. Our forecast cash requirement and break-even assumptions are reliant on STX reaching our revenue forecasts and we note that sales are dependent on gaining timely broad market access.
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 |
3,904 |
19,308 |
Cost of sales |
|
|
(155) |
(311) |
(485) |
(1,354) |
(1,067) |
(3,396) |
Gross profit |
|
|
482 |
11,570 |
234 |
9,033 |
2,837 |
15,912 |
Gross margin % |
|
|
76% |
97% |
33% |
87% |
73% |
82% |
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 |
(21,588) |
(11,098) |
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) |
(23,642) |
(13,015) |
Exceptionals and adjustments |
|
|
(2,571) |
0 |
0 |
0 |
0 |
0 |
Adjusted operating income |
|
|
(18,380) |
(5,159) |
(9,035) |
(2,154) |
(23,642) |
(13,015) |
Finance income/(expense) |
|
|
(43) |
8 |
(31) |
268 |
90 |
0 |
Reported profit before tax |
|
|
(20,994) |
(5,151) |
(9,066) |
(1,886) |
(23,552) |
(13,015) |
Adjusted profit before tax |
|
|
(18,423) |
(5,151) |
(9,066) |
(1,886) |
(23,552) |
(13,015) |
Income tax expense |
|
|
1,406 |
3,359 |
266 |
(744) |
600 |
1,952 |
Reported net income |
|
|
(19,588) |
(1,792) |
(8,800) |
(2,630) |
(22,952) |
(11,062) |
Average number of shares outstanding (m) |
|
|
112.4 |
116.4 |
117.0 |
117.2 |
195.5 |
215.9 |
Year-end number of shares, m |
|
|
116.4 |
116.4 |
117.2 |
117.6 |
215.9 |
215.9 |
Basic EPS (p) |
|
|
(17.4) |
(2.0) |
(7.5) |
(2.2) |
(11.7) |
(5.1) |
EPS - normalised (p) |
|
|
(15.1) |
(1.5) |
(7.5) |
(2.2) |
(11.7) |
(5.1) |
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 |
8,483 |
2,386 |
Inventories |
|
|
125 |
109 |
948 |
1,379 |
586 |
933 |
Trade and other receivables |
|
|
1,572 |
1,031 |
356 |
619 |
4,676 |
5,304 |
Other current assets |
|
|
0 |
1,500 |
950 |
292 |
292 |
292 |
Total current assets |
|
|
14,996 |
12,416 |
6,395 |
5,230 |
14,037 |
8,915 |
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 |
3,224 |
6,997 |
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 |
4,005 |
7,778 |
Equity attributable to company |
|
|
41,207 |
40,430 |
32,145 |
30,276 |
35,526 |
24,963 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
|
Reported net income |
|
|
(19,588) |
(1,792) |
(8,800) |
(2,630) |
(22,952) |
(11,062) |
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) |
(1,511) |
2,798 |
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) |
(21,909) |
(5,847) |
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 |
27,702 |
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) |
27,702 |
0 |
Cash and equivalents at beginning of period |
|
|
20,978 |
13,299 |
9,776 |
4,141 |
2,940 |
8,483 |
Increase/(decrease) in cash and equivalents |
|
|
(7,679) |
(3,523) |
(5,635) |
(1,467) |
5,543 |
(6,097) |
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 |
8,483 |
2,386 |
Closing net (debt)/cash |
|
|
13,299 |
9,776 |
4,141 |
2,940 |
8,483 |
2,386 |
Source: Company accounts, Edison Investment Research
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Research: Real Estate
Less than two months after closing its most recent, c £100m (gross) upsized equity placing, LXi REIT has substantially deployed the equity proceeds in accretive acquisitions. Further assets are in solicitors’ hands. Full rent collection underpins the FY22 DPS target, a new high level since listing in February 2017, and we forecast portfolio growth and inflation-protected rents to drive further growth in DPS and net asset value.