Taking on China

Shield Therapeutics (STX) is a commercial-stage company delivering specialty products that address patients’ unmet medical needs, with an initial focus on treating iron deficiency (ID) with ferric maltol. Recent news that the FDA had approved this drug for a broad indication opened up a market in the US currently worth over $1bn p.a. On 8 January, STX announced a development and commercialisation licence deal in China with Beijing Aosaikang Pharmaceutical Co (ASK Pharm), whose local expertise should support approval and deliver strong licensing income in what is the world’s second largest pharmaceuticals market.

• 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 deals allow STX to retain its intellectual property (IP) and to keep investing in its R&D pipeline, while benefiting from immediate and long-term value.
• China deal: The novel iron replacement therapy, Feraccru/Accrufer, has been exclusively licensed to ASK Pharm for development and commercialisation in China. This paves the way to a large and growing market for iron replacement products and strengthens STX’s hand in ongoing negotiations with potential US partners.
• Valuation: Addition of the China deal takes our valuation to £422m/360p. The $11.4m/£8.7m upfront payment extends STX’s cash runway into 2021. The next value inflection point will be when STX announces who its US commercial partner(s) is, and the terms of the licensing deal.
• Risks: All drug companies carry development risk. However, the clinical risk with STX is limited because of Feraccru/Accrufer’s clinical profile and existing marketing approvals. The main risk is achieving an appropriate partnering deal in the US and executing on commercialisation strategy to capture market share.
• Investment summary: The FDA approval and pending launch of Accrufer reinforces our view that STX is at an exciting juncture. It has delivered on all the goals set at the time of its IPO in 2016. Feraccru/Accrufer has been validated by EU and US regulatory approvals, and the commercial deal in Europe looks set to be repeated in the US. Announcement of its commercial partner, together with the terms of any deal, represent the next valuation inflection point.