US Accrufer marketing venture launches
Shield Therapeutics' investment proposition is highly geared to the success of its recently-formed US co-promotion/co-marketing partnership with Viatris for Accrufer (ferric maltol). Accrufer is an oral treatment for iron deficiency with a very low side effect profile. The two companies are now scaling up the promotion of Accrufer. Furthermore, growing reimbursement coverage should allow a phased reduction in the currently high level of patient co-pay support leading to better gross-to-net adjustment and a higher average realised sales per prescription. The combined effect should see US Accrufer revenues rise more five-fold this year from $3.4mln in 2022 to around $20mln, with $90mln possible in 2024 and $150mln in 2025.
The Viatris co-promotion deal was announced with a recapitalisation (via a debt and equity) giving Shield sufficient financing to reach operational break-even around late 2024. The hiring and training of the planned 100-person joint US sales force is now effectively complete. The enlarged sales force will boost the promotional support from May by more than fourfold compared to Shield alone in FY22.
Industry experience suggests there will be a three to five-month lag before this sales effort translates into revenue. We expect Accrufer sales to respond to the increased promotion and this should give a significant rise in prescription volumes from late summer 2023. In collaboration with Viatris, Shield also plans a fresh and innovative promotional campaign based around the concept that Accrufer avoids the “irony” that the GI side effects associated with generic oral ferrous iron therapy often make patients feel worse rather than better.
Under the co-promotion arrangement, Shield books all Accrufer sales and then makes a payment to Viatris equivalent to 45% of net sales that will be included in cost of goods. This gives Shield a 55% economic interest in US sales of Accrufer for a 50% share of the sales force cost.
Viaitris co-marketing deal now fully implemented
We view Shield's investment case extremely positively, as the US is the key market for Accrufer and it has a strong partner. Shield also has partnerships for Accrufer covering Canada, South Korea and China. The Norgine partnership in Europe, however, continues to underperform.
Shield had a cash position of £19.2mln (as of 31 March) with £12.4mln of debt owed to the main shareholder, AOP. The debt may be converted into equity in future. Shield's market cap is currently £41m and its enterprise value (market cap plus debt less net cash) is £34m.
The EV rises to £45m based on our projected year-end cash figure of £8m. Hence, EV/sales for 2023 would be c2.5x (adjusting for Viatris' interest in US Accrufer sales and including an assumed $5m sales milestone). EV/sales (adjusted for Viatris) falls to just over 1.0x in 2024, highlighting the attractive investment case.
Funding in place, US campaign starts
Year end Dec 31 · 2021 · 2022
Revenue (£mln) · 2 · 5
Gross Profit £ mln · 0.5 · 2.0
The investment proposition is highly geared to the success of the recently formed co-promotion/co-marketing partnership with Viatris for Accrufer (ferric maltol) for the US market. Viatris (NASDAQ: VTRS) is an $11bn market cap/$16.2bn sales US-based speciality pharma group.
The arrangement will field 100 sales reps plus 12 regional sales managers, and represents a more than four-fold rise in the promotional effort behind the drug. The hiring and training of the US sales force is now effectively complete, so it should be able to heavily promote Accrufer from mid May.
Although there is likely to be a three to five-month delay before this effort will be seen in monthly sales revenue, there should be a significant rise in the prescription volumes from the late summer. So far, prescription volumes (Table 1) have been on a steady growth trajectory (e.g. 12% in Q123 vs Q422). In collaboration with Viatris, Shield expects to launch an innovative promotional campaign with ads based around the concept that Accrufer avoids the “irony” that the GI side effects associated with generic ferrous oral iron supplements often make patients feel worse rather than better.
Investment summary
Table 1 - Accrufer period growth
Source: Proactiuve based on Shield reports
Furthermore, Shield should soon be able to reduce the currently high levels of patient co-pay support which will reduce the gross-to-net adjustment and allow a higher average realised sales per prescription.
This figure was $135 in 2022, we estimate this could reach $150 in 2023 and perhaps $250 by end 2024.
Some 25,200 US prescriptions of Accrufer were written in 2022. Shield has coverage arrangements with payers covering more than 100m lives. Shield has disclosed projections for Rx growth in the US that envisage a more than five-fold growth in total prescriptions this year (Table 2). Shield estimates seeing between 125-160,000 prescriptions in 2023, 270-420,000 in 2024 and 550-600,000 in 2025.
Prescription volume forecasts
Table 2 - Accrufer Prescriptions
Source: ProActive based on Shield
Our simple estimates suggest the mid-point of this would represent US Accrufer revenues of around $20mln in 2023, $90mln in 2024 and $150mln in 2025. Chart 1 (below) shows this on a quarterly basis.
Shield reported revenues of £4.5mln ($5.4mln) for 2022, comprising net product revenue of £2.9mln from sales of Accrufer in US, royalty revenue of £1.4mln from Norgine and an upfront payment of £0.2 mln from KYE Pharmaceuticals (Canada). The figure differs from that reported in the February trading statement, as auditors have not allowed full recognition of the £4.5 mln/$5.4mln upfront payment from Viatris. Instead, some £700k of this was recorded in other income for 2022 with £3.5mln included in deferred revenue that will be released over the year.
FY22 results
Financial outlook
We have estimated prescription volumes based on Shield's low and high scenarios. This is shown in Chart 1. Note the large increase over the second half of 2023 as the effect of the larger sales force becomes apparent given the 3-4 month lag between promotion efforts and prescription impact.
Chart 1 - Accrufer - Illustrative US Rx volume projections by quarter
Source: ProSActive estimates
Financial Outlook
We do not make financial forecasts for Shield. However, we expect to see a large rise in US sales this year and in 2024, together with a rise in operational costs and cost of goods (that will reflect the Viatris payment). We anticipate a rise in the royalty from Norgine, potentially up to a doubling, but from a low base and this remains disappointing. European sales of Ferracru are likely to remain a fraction on the US figure for Accrufer, despite the markets being of a broadly similar size in terms of incidence. The development of Accrufer in China has been slow, primarily for logistical reasons connected with the pandemic. There are potentially important milestones from ASK Pharm due on regulatory approval and launch in China.
Cash position
Cash at 31 December was £2.8mln, but this has changed as a result of the recapitalisation of the company in January. As of 31 March, cash stood at £19.2mln and convertible debt stood at £12.4mln. Management estimates that Shield has cash till the end of 2024 when they expect it to become cash flow positive. Our forecasts suggest operating cash outflow will be about £18m this year with the potential of triggering an initial sales milestone from Viatris (we estimate £5m).
Shares
There are currently 585.6mln shares outstanding. Shield’s largest shareholder AOP Health holds 27% of the equity and £12.4m of convertible debt. A hypothetical conversion of this debt at the current share price would increase the total number of shares to c760m, of which AOP would hold c43%. The debt is used so that AOP does not trigger mandatory bid rules associated with a shareholding above 29.9%, but it should nevertheless be considered as a party with a larger and effectively controlling interest.
Valuation observations
Shield's market cap is currently £41m and its enterprise value (market cap less net cash) is £34m, although the EV rises to £45m based on our projected year-end cash of £8m. Hence, EV/sales for 2023 would be 2.5x (adjusting for Viatris' interest in US Accrufer sales, but including an assumed $5m sales milestone). EV/sales falls to just over 1.0x in 2024, making the same adjustment for Viatris, which highlights the attractive investment case. We do not make a formal Cash flow valuation.