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Research: Healthcare
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.
Written by
Shield Therapeutics |
FDA approval attained, sales execution now key |
Regulatory update |
Pharma & biotech |
26 July 2019 |
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Shield Therapeutics is a research client of Edison Investment Research Limited |
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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* |
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 |
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
|
|
Research: Industrials
Cohort delivered another year of growth in what remained quite a constrained defence spending environment in its domestic markets. The recently acquired Chess Technologies delivered a stronger than expected performance in its initial period of consolidation, helping to mitigate the slippage of profits into FY20 at EID as an export contract was signed too late to be shipped in FY19. The record order intake and stronger backlogs across the group provide a solid foundation for growth, enhanced by a full-year contribution from Chess. Our EPS estimates are marginally reduced for FY20, but we expect stronger growth and cash flows in FY21. The FY21e P/E of 11.3x remains below UK defence sector peers despite the continued positive progress of the group.