Trading update confirms strong US sales growth
Shield Therapeutics issued a February trading statement showing excellent US H122 vs H222 sales growth of 97% and confirmed a successful funding round of $31.7mln plus the $5mln Viatris deal fee.
Shield delivered record US sales of 25,200 prescriptions in 2022, with 16,724 of these sales (66%) in H2 and 37% (9,324) in Q4. This shows the rapid rate at which Shield has been able to commercialise Accrufer. Royalties from Norgine sales in Europe were £1.3mln (FY21 £0.9mln).
In H2 FY22, Shield signed a marketing partnership for Accrufer in the US. The US co-promotion/co-marketing agreement is with Viatris (NASDAQ: VTRS), a $13.5bn market cap US-based company which is the world's leading speciality pharmaceutical company. Shield received US$5mln upfront and will share Accrufer revenues 55:45 in Shield's favour, co-commercialising the product to over 12,000 healthcare professionals in the US market. There may also be future sales milestones. To enable this, both parties are establishing a combined 100-person sales force split 50:50. The 2022 sales were only by the 22-person Shield sales force, so the increase to 100 in total should give a massive sales boost; we expect most of this in H223.
Given that the Viatris marketing agreement was signed in December 2022, we expect a progressive acceleration of the rapid growth seen over 2022. Shield has already trained 16 of its planned 50-person sales and expects to have its team of 50 hired and trained by May.
High H2 growth rate with Viaitris co-marketing deal in 2023
Shield has secured its funding position with an additional $10mln shareholder convertible loan, the Viatris $5mln fee and a $21.7mln total fundraising comprising an $18.5mln (£15.1mln) placing and a $3.2mln (£2.6mln)open offer. This gave $36.7m (about £30mln) in total. Year-end cash was not disclosed.
Accrufer delivered revenue of £2.8mln in FY22 out of a total £8.5mln in annual revenues. Shield also generated £4.4mln in licence agreement revenue and £1.3mln in royalties from Europe from Norgine.
Shield estimates that under the new marketing partnership, it will become cash flow positive from Q4 2024, with Accrufer generating net revenues in excess of US$150mln/year by 2025.
We view Shield's investment case as very positive given the rapid sales growth in Q4, the projected prescription growth and the prospect of becoming cash flow neutral by late 2024. The drag on this growth remains the Norgine European sales arrangement which continues to underperform.
Funding in place to build on record sales
Year end Dec 31 · 2020 · 2021
Revenue (£mln) · 10.4 · 1.5
Gross Profit £ mln · (2.6) · (19.3)
Shield has made a major strategy change with the plan to co-promote and co-market Acrufer with Viatris, one of the world's leading speciality pharmaceutical companies. Accrufer revenues will be shared 55:45, with both companies contributing to a joint 100-person sales force.
We consider the Viatris arrangement to validate Shield's view of the ~$300m/year peak sales opportunity for Accrufer, as its partner is prepared to fund the sales force required to market a product in return for a 45% share of the US sales.
Major strategy change, great partner secured
Shield's revenues in FY22 were £8.5mln of which £2.8mln in product revenue was from sales of Accrufer. A total of £4.2mln and £0.2mln in revenues came from licence agreements with Viatris and KYE Pharma respectively. The remaining £1.3mln of revenues was from royalty payments in Europe from Norgine. The historic sales trend is shown in Exhibit 1.
Chart 1 - Revenues
Source: Shield reports, ProActive Graph
Although we do not forecast sales and revenues, a scenario for US prescription sales by half year is shown in Chart 2. The blue area indicates a range of forecast US prescriptions; the black line is actual. This simple model indicates paid prescriptions in the range of 125,000–175,000 (in total) over 2023. This sales level will include sales generated by Viatris. The total sales might be in the range of £18-25mln.
Chart 2 - Prescription growth
Source: Shield reports, Proactive graph
This assumes a major rise in H223 as the new sales reps, recruited and trained in H1, become productive and more physicians are targeted. The exact sales level also depends on expanding payor coverage and on the effective price level achieved - which should also rise.
Shield will account for all sales but will then record a higher cost of goods to cover the 45% share of Viatris. In effect, £25mln of US sales, for example, will be £13.75mln of net sales to Shield. Revenues should further rise in 2024 as payor coverage becomes generally established plus natural sales growth.
Shield’s largest shareholder AOP Health made a US$10m convertible loan in September 2022. Of this loan, US$2.8mln has been converted into equity, with $7.2mln outstanding. As part of the funding round, AOP agreed to make an additional loan of $10mln on the same terms. AOP has now converted £2.2mln of this loan extension. The aim is to keep AOP's equity stake at about 27%. There is therefore a $15mln convertible loan outstanding.
Convertible loan increased
Cash at the end of June was £2.4mln; no end-of-year cash position has been disclosed. Management estimates that Shield has cash till the end of 2024 when they expect Shield to become cash flow positive.
Cash and move to cash postive by late 2024