Investing in iron
Shield Therapeutics, a UK-listed company, directly sells a fully approved, patented, oral iron product, Accrufer, into the large and lucrative US market. This requires sales and marketing investments but captures all the profits enabling sustainable investment to gain higher returns. The two crucial steps to cash sustainability are to gain US reimbursement, a fragmented and bureaucratic process, and building physician knowledge through targeted sales force and marketing.
To date, Shield has gained insurer reimbursement covering 100mln people (40% of eligible Americans in the targeted population) and coverage from Medicaid in several large US states. Shield estimates there are 20mln people in the US with anaemia who could benefit from Accrufer and that there are currently 13.4mln oral iron prescriptions.
Accrufer prescriptions are growing 100% QoQ since launch in July 2021 with 3,912 scripts in Q122. The key segments are obstetricians and general practitioners who write 90% of oral iron prescriptions. As a first Accrufer course takes three months (clinical trial data), doctors see patient responses gradually. As patients gain effective restoration of iron levels and an improved quality of life with few or no side effects (common with cheap ferrous products), prescription rates should rapidly rise. Reimbursement helps this. Many patients will be chronic users.
Shield's current limitation is its compact marketing force in the US: a team of up to 30 contract sales and three in-house personnel. This stimulated 700 physicians to prescribe Accrufer for the first time between January and April — but there could be 65,000 potential high-prescribers in the US plus another 485,00 lower prescribers. Shield needs to invest into its sales force and marketing and perhaps also find additional marketing channels. In Europe, Norgine sells Ferracru but sales, although rising in Germany, are low as the wrong physician group is targetted. Shield gets a small royalty, FY21: £0.9 mln.
Solid opportunity
Revenue in FY21 was £1.5mln with a gross profit of £539k, basically from the £500k deal upfront from Korea Pharma. Selling and admin expenses increased to £20mln from £8.6mln. Shield's annualised operating cash use is now about £19mln. Cash as of 31 May 2022 was £4.2mln (£12.1mln on 31 December 2021). To cover the gap till late 2022, Shield has arranged a $10mln shareholder loan. Further capital is needed to repay the loan (due before Dec 2023, unless converted) and fund 2023 marketing. At an expected $250/pack net price ($500 list price), Shield needs about 105,000 packs / year to break even at full reimbursement. If sales continue to double QoQ in 2022 and then increase at 50% QoQ over 2023, this could be achieved during 2023, depending on reimbursement. Greater marketing investment would pay off — although it would shift cash break even — as this is still only around 1% of US oral iron scripts. Shield could then invest to gain a lucrative market with all the profit.
Shield needs 1% of US oral iron market to breakeven
Year end Dec 31 · 2020 · 2021
Revenue (£mln) · 10.4 · 1.5
Gross Profit £ mln · (2.6) · (19.3)
Iron deficiency is common for many reasons, but particularly in younger women due to regular periods. Shield is raising awareness of Accrufer in Primary care and OBS/GYN. Cheap, ferrous ion solutions are ineffective with inherent side effects (see our last note). Accrufer is a low toxicity ferric ion complexed with the sugar maltol for intestinal delivery. Accrufer (Exhibit 1) is positioned as a second-line option after failure on ferrous salts and before the use of expensive injectable or intravenous ferric products.
Premium oral iron: effective with low side effects
The list price is about $500 per vial (one month) with a three-month course indicated from clinical trials; many users will need chronic therapy. Shield receives a net price after patient and wholesaler discounts and other costs. Although currently low, due to non-reimbursed costs, the net price is expected to rise to about $250/vial as the market matures. To break even at the current conservative marketing spend rate, Shield needs revenues of about £22.5mln. At a 10% cost of goods, this equates to about 105,000 packs/year or 0.8% of the market.
Exhibit 1 - Accrufer pack
Source: Shield
A high rate of growth at a 50% net price could see this occur during 2023, probably second half. Once sales momentum has built, profits and the share price would be expected to rise rapidly.
In the US, Shield sells Accrufer directly. Primary care or obstetrics/gynaecology physicians prescribe 90% of the oral iron, Exhibit 2, with 65,000 of these (about 12%) being high prescribers and so key sales targets. Sales and marketing to date, helped by increasing reimbursement and Medicaid coverage, generated 3,912 prescriptions in Q12022. High QoQ growth rates are expected by us to continue over 2022 and 2023.
Exhibit 2 - Precriptions and prescribers
Source: Sheild revised FY21 presentation
Investment into an approved and reimbursed product should offer high returns. Norgine's legacy failure to sell Ferracu in Europe is discouraging, but it targets low prescribing gastroenterologists so this is not indicative of Shield's US prospects. The current bear market does not seem willing to fund this ironclad opportunity crewed by a new and committed management team. Shield has now arranged a $10mln shareholder loan (AOP Orphan) at 7% over USD-LIBOR (plus a 2% fee). It is either repaid in cash on a $30mln+ funding by late 2023 or might be converted to shares at a 10% discount. This gives funding till approximately the end of 2022. However, further capital will be needed in H222 to fund 2023.
Loans, funding and long-term returns