Trading update confirms early commercial progress
Shield Therapeutics yesterday issued a trading statement indicating that it recorded modest initial revenues of £1.5mln, comprising £0.1mln of net product sales from US commercial activities, £0.9mln of royalties from sales by Norgine in the EU and milestones of £0.5mln. The market marked the shares down by nearly 14%, as presumably higher sales were expected; this was despite a stronger than forecast cash position of £12.7mln (US$17.7mln) at the fiscal 2021 (FY21) year-end, suggesting controlled marketing costs.
It is possible that the market may have under-appreciated the fact that Shield has to date been providing Accrufer at minimal cost to give US physicians experience of the product in advance of establishing formulary status and reimbursement with US healthcare providers, something which only started in December. A digital marketing campaign only started in October 2021, the goal of which was to increase physician awareness of Accrufer. Revenues should climb significantly this year as Shield gains insurance and Medicare coverage and makes the transition to the full commercial phase.
At an investor presentation last week, Shield disclosed that Accrufer is listed on formularies of four US healthcare providers — Optimum, Express Scripts (NASDAQ:ESRX), ProCare Rx and Ascent Health Services — and in the trading statement it disclosed new agreements with Cigna (NYSE:CI), Humana and Highmark. These collectively cover over 60mln lives (18% of the US population). Currently, it has formulary coverage of 33% of the lives managed by these plans (up from 22% in December) with the potential to expand this proportion to around 65%. It is noteworthy that the four initial deals were announced in mid-December, so would have very little impact on the FY21 results.
Accrufer is expected to be recommended to iron-deficient patients who cannot tolerate the generic oral iron salt products. In this respect, it is an effective and well-tolerated alternative to expensive branded injectable iron products and does not require a visit to a healthcare facility. It is suitable for all cases except where a seriously anaemic patient has to increase their haemoglobin levels quickly, for example, in advance of elective surgery.
Shield's investor event last week was its first KOL (“key opinion leader”) presentation and was aimed at raising its profile within the biotech specialist investor community in the US. This event showed the support for an effective, well-tolerated product from senior clinicians in the field.
Modest initial sales ahead of move to full commercial phase
Shield's investment proposition is very simple: if can capture a share of the US iron replacement market, the revenues generated would easily support a valuation that would be a multiple (perhaps up to 5x) of its enterprise value of £52mln; however, historically many UK biotechs that have launched their own products in the US have faced significant challenges in negotiating the complex US healthcare system, so this undertaking should not be considered to be without execution risk.
Investment opportunity geared to US market penetration
US iron deficiency market
Iron deficiency is a common condition, particularly associated with women, people with kidney disorders or inflammatory bowel disease. The cheapest treatment is to use various soluble iron preparations but these are not very effective and have gastrointestinal side effects that make them difficult to tolerate in most patients; however, clinical guidance generally recommends that oral iron is given before infused or injectable preparations.
Shield estimates there are 15m people with iron deficiency with or without anaemia in the US, representing a US$2.2bln theoretical market opportunity. There are about 10mln oral iron prescriptions and 2.3mln iv/injectable prescriptions written annually. The leading injectable or intravenous (iv) iron product, sold by the Swiss company Vifor, is ferric carboxymaltose. This is sold as Ferrinject (Europe) and as Injectafin (US). Vifor Pharma is subject to an agreed takeover offer from the Australian company, CSL Behring, which was announced in December. Pharmacosmos (Denmark) sells MonoFer (ferric derisomaltose) and CosmoFer (iron dextran), which are ferric products given intravenously.
As an effective oral product, Accrufer could be more acceptable to patients. It is being positioned as a second-line option after generic oral ferrous salts and before the use of injectable or intravenous ferric products.
KOL would like to see it a first line option
The KOL call suggested Accrufer enjoys strong clinical support, with one of the two speakers, an academic centre-based obstetrician-gynaecologist, highlighting his own desire to prescribe the product as a first-line option for what he termed the “typical” patient he sees, a 49-year-old woman with anaemia as a result of endometriosis.
Healthcare professional launch strategy
Source: Shield Therapeutics. Note NOP/PA = nurse practitioner/physician assistant.
Driving clinical experience
Shield has to date been providing Accrufer at minimal cost to patients in advance of establishing formulary status and reimbursement protocols with US healthcare providers. This is designed to build up a body of clinical experience. Costs to patients (co-pays) etc are reduced to US$10/prescription, broadly the same level as for generic iron salts (details are shown below).
Source: Shield Therapeutics
Financial considerations
Shield's investment proposition is unusually simple by biotech standards: it depends on its ability to capture share in the US iron deficiency segment, something that is entirely within its own control. Shield controls the sales and promotion of Accrufer and will reap the rewards from doing so. Shield's internal projections suggest peak revenues could be in the US$500mln/year range, possibly from 2027 onwards; however, the company will have to fund costs of its 30-person sales force until it reaches cash flow breakeven, which may occur in 2023. This will be a key target for investors to watch.
Accrufer has been licensed in Europe to the private company Norgine (which sells it as Ferracru). Shield reported that Feraccru volumes in Europe increased by 60% in 2021, driven in particular by increased demand in Germany, and that Norgine submitted a reimbursement dossier for Spain in late 2021; however, we do not expect significant European growth for some time. It is unclear how much Norgine is investing in sales and marketing beyond its focus area of gastrointestinal specialists. The product is also licensed with ASK Pharma for China and the launch there is anticipated for 2023 on trial completion.