FDA approval ushers in a new era for Shield

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®. FDA approval of Accrufer with a broad label in the US opens up a current market worth over $1bn in intravenous (IV) iron alone. This event will transition the company from the early growth stage illustrated by its 2019 interim results into a global company by 2020. STX is in ongoing discussions with a number of potential partners for US commercialisation – a deal that represents the next major valuation inflection point.

• 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.
• Interims: Results for 1H’19 were broadly as expected, with royalties of £0.3m received from Feraccru sales in Europe, where the product is launched in England and Germany. At £6.6m, cash on 30 June 2019 was slightly under forecasts; however, even in the absence of a US deal, STX’s cash runway is into 2020.
• Valuation: Following FDA approval of Accrufer, our sum-of-the-parts valuation was increased to £208m/178p. Minor adjustments following the interims have increased this to £221m/189p. The US commercial deal will be the next major inflection point, when we will upgrade our model to allow for the agreed deal terms.
• Risks: All drug companies carry development risk. However, the risks with STX are limited because of Feraccru/Accrufer’s simplicity and clinical profile. Given the FDA approval, the main risk is achieving the most appropriate commercial partner and executing on its global commercialisation 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 valuation inflection point.