Shield Therapeutics: PBMs have bought in to Accrufer

Hardman & Co

Shield Therapeutics plc (LON:STX) is a commercial-stage pharma company delivering specialty products that address patients’ unmet medical needs, with an initial focus on iron deficiency (ID). Following the US launch of Accrufer® in July 2021, the initial challenge was to greatly improve market awareness of its differentiating features as an oral ID drug. The US market offers enormous potential, but it takes time to get new drugs on to formularies and sales traction. The market was disappointed by initial sales reported in a recent trading update. However, even on revised forecasts, Shield is expected to become profitable and cash-generative in 2023.

  • Strategy: In the US, Shield is commercialising Accrufer itself, thus retaining a greater share of profits for shareholders. Outside the US, Shield’s strategy is to out-license commercialisation rights to partners with appropriate expertise in target markets, which has been achieved in Europe, China, Korea and Canada.
  • Trading update: Since launch, Shield Therapeutics has greatly increased market awareness of Accrufer and has momentum in securing contracts with key pharmacy benefit managers (PBMs) covering over 60m commercial patients. However, in the first six months from launch, Accrufer sales in the US were only $0.13m/£0.1m.
  • Valuation: Changes to our near-term sales and marketing costs for Accrufer in the US have reduced our sum-of-the-parts NPV generated by DCF modelling by 14% to $734m/£545m, or 252p per share. The current share price is clearly applying an enormous discount for the execution risk associated with Accrufer.
  • Risks: The key risk is commercial execution for Accrufer in the US. It is taking longer than expected to achieve sales traction. However, a 50% increase in commercial lives covered by large PBM contracts over the past two months makes Accrufer immediately available to patients and is a key potential driver.
  • Investment summary: The market has reacted badly to the poor level of Accrufer sales generated in the first six months from launch. However, Shield Therapeutics has seen increased traction with PBMs recently – so the reaction looks overdone. Moreover, the market is ignoring the fact that iron replacement is a hot area, as evidenced by the acquisition of AMAG by Covis in November 2020 (EV/sales: 2.4x) and the tender offer for Vifor by CSL in December 2021 (EV/sales: 9.3x).
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