Early exponential indications
Shield Therapeutics reported H1FY22 sales and royalties of £2mln from its fully approved, patented, oral iron product, Accrufer. Sales of £1.2mln were from the growing US market with a further £0.7mln in Norgine royalties, the European licensee. A £0.1mln Canadian licence fee made £2mln.
The key thing now is for Shield to maintain its marketing drive to boost the number of physicians who use the product; 1,050 did so for the first time in H1 making over 1,500 since July 2021. Women’s health practitioners wrote about half the prescriptions. This group seems particularly keen on the benefits of Accrufer for their patients: it works with very few side effects compared to cheap ferrous generic salts which usually don't work with frequent side effects. General practitioners wrote about 45% of the prescriptions, with use also growing. These two groups write 90% of all US oral iron prescriptions. 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's current limitation is its compact marketing force in the US: a team of up to 30 contract sales and three in-house personnel. In H1, this generated an average of 175 new prescribers per month. There could be 65,000 potential high-prescribers in the US — plus another 485,00 lower prescribers. Clearly, a bigger sales team or additional marketing channel will boost revenues. In Europe, Norgine sells Ferracru (European brand) but royalties are anaemic: H1FY22 £0.7mln and H1FY21 £0.5mln, up 40% from a tiny base.
Prescriptions growing fast in US
After revenue of £2mln, the H1 loss was £11.8mln. Cost of goods includes a 5% royalty and remains high at 55% although falling (H122 85%) as US direct sales develop. We estimate the US H1 margin at about 70-80%.
Although we do not forecast sales, a linear extrapolation with H2 reimbursement assumed at 80%+ and a wholesale net price rising to $225/pack or greater suggests £5mln in US sales in 2022 from over 30,000 prescriptions. More optimistically, but not unrealistically, with H1 22 sales growth at 55% and 87% QoQ an exponential sales curve may be developing. If so, this momentum plus better reimbursement could enable Shield management to boost sales and marketing investment to increase the number of prescribing physicians. This would enable Shield to take advantage of the market opportunity: over 20mln Americans are anaemic with 13.4mln oral iron prescriptions. Sales growth could continue for some years. This would push back break even but give greater overall returns.
Cash use in H1 was £10mln (including £1.3mln of capitalised R&D). Period end cash was £2.4mln. In August, a $10mln loan (£8.2mln then) was received from a shareholder giving 31 August cash of £8.2mln. Shield has funding till about the end of 2022. However, further capital will be needed in H2FY22 to fund 2023.
Shield's cash use is reducing with breakeven possible in 2023
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, particularly in younger women due to regular periods. Shield is raising awareness of Accrufer in Primary care and OBS/GYN. Cheap, ferrous (green) ion solutions are ineffective with inherent side effects. Accrufer is a low toxicity ferric (brown) 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. Many patients will be chronic users.
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
The high rate of growth seen over H1 2022 indicates an exponential growth that could take Shield to break even during the second half of 2023. Once sales momentum has been built, profits will rise rapidly. In addition, increased price and volume should see US cost of goods fall towards 10%. 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 11233 prescriptions in H1 2022. High QoQ growth rates are expected by us to continue over 2022 and 2023.
Exhibit 2 - Precriptions and prescribers
Source: Sheild H1FY22 presentation
Norgine's legacy failure to sell Ferracu in Europe is discouraging despite a minor sales rise, but it targets low prescribing gastroenterologists so this is not surprising. Norgine might try and move its sales targetting to OB/GYN in 2023.
Europe - a 2023 shift?
Shield has a $10mln shareholder loan (from 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 converted to shares at a 10% discount. In August $2.7mln (£2.3mln) was converted to 42mln shares at 5.5p. The outstanding loan of about $7.3mln will be spent largely in the US on marketing.
Loans, funding and long-term returns