FDA approval opens door to major US opportunity

Shield Therapeutics (STX) is a commercial-stage pharmaceutical company delivering specialty products that address patients’ unmet medical needs, with an initial focus on treating iron deficiency (ID) with Feraccru®/Accrufer®. News that the FDA has approved this drug for a broad indication opens it up to a commercial market worth over $1bn. STX has been in discussions with a number of potential partners, but its hand has been strengthened by the regulatory de-risking of Accrufer. Its USP will be that oral Accrufer is as effective as intravenous iron. The market capitalisation equates to only 4.4x in-market sales.

• 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.
• Accrufer approval: A novel iron replacement therapy, Accrufer has been approved in the US for the broad indication of iron deficiency (ID) in adults. This paves the way for STX to conclude a commercial deal with one or more of the potential partners with whom STX has already been in discussion.
• Valuation: Removal of the regulatory risk for our risk-adjusted DCF model added £14m/12p per share to our group valuation to £208m/178p. The next valuation 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 risks with STX were limited because of Feraccru/Accrufer’s simplicity and clinical profile. Given the FDA approval, the main risk is to sign up with the most appropriate commercial partner, and to execute on its global commercial strategy.
• Investment summary: The approval of Accrufer reinforces our view that STX is at an exciting juncture. It has delivered on all goals set at the time of its IPO in 2016. Feraccru/Accrufer has been validated by regulatory approval in both the EU and the US, 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, short-term, valuation inflection point.