Shield Therapeutics All in the execution

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Shield Therapeutics (LON: STX) is a commercial-stage pharmaceutical company delivering specialty products that address patients’ unmet medical needs, with an initial focus on treating iron deficiency with Feraccru®. Following IPO and EU approval of Feraccru, both in February 2016, STX has made good progress with its clinical and commercial strategy, most recently demonstrating in a phase 3 trial that oral Feraccru is as effective as intravenous iron. Management has secured commercialisation agreements and is now awaiting an FDA decision in 3Q’19. The remaining risks lie in US approval and in successful execution of commercialisation.

Strategy: STX’s strategy is to out-license the commercial rights to its products to partners with marketing and distribution expertise in target markets. These agreements allow STX to retain its intellectual property (IP) and to continue to invest in its R&D pipeline, while benefiting from immediate and long-term value.

Feraccru: A novel iron replacement therapy, Feraccru is approved across Europe for treatment of iron deficiency (ID) in adults with or without anaemia. ID results from depletion of iron stores, affecting production of red blood cells (which carry oxygen). Feraccru is well tolerated, having a similar side-effect profile to placebo.

Valuation: DCF analysis with conservative assumptions generated a risk-adjusted valuation for Feraccru of £184m. This assumes successful commercialisation across Europe and the US in selected patient sub-segments with iron deficiency anaemia, to reach annual sales of $640m/£490m at peak.

Risks: All drug companies carry development risk. However, STX has limited risk because of Feraccru’s simplicity and clinical profile. Also, Feraccru has already received more than one regulatory approval and is generating sales. The main risks are commercial execution and the FDA decision on US approval.

Investment summary: Shield Therapeuticsis at an exciting juncture. It has delivered on all goals set at the time of its IPO in 2016. Feraccru has been validated by regulatory approval and the commercial deals in Europe are likely to be repeated in the US. Given its advancement since IPO and its potential, STX’s market capitalisation of £110.9m, significantly below the IPO value, makes for an interesting proposition.

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