Specialty biotech company Shield Therapeutics (STX:AIM) is at an exciting point in its development and is worth buying before the market switches on to its full potential.

It is due to launch its proprietary iron deficiency drug Accrufer into the US market at the beginning of June 2021, after raising fresh equity of £29.2 million in March.

The product is a novel, low dose oral iron replacement therapy with patent protection until 2035. Existing non-oral solutions have the drawback of being administered intravenously, making them less attractive to patients and more costly to hospitals.

Competing existing oral solutions are heavily salt-based iron compounds with poor tolerability in the gut and low patient compliance.

Based on management and third-party projections the company expects to generate $100 million of revenues from the third year after launch and reach $300 million-to-$400 million of revenues by years four and five.

Based on estimates from Finncap, the assumptions imply the product taking around 10% market share by year five, which doesn’t look too aggressive.

Management numbers assume gross margins around 90% (the company pays a 5% royalty to Vitra) and annual sales and general marketing costs of $40-million-to-$45 million a year which results in projected free cash flow of around $225 million in five years. (£160 million)

The key risks are skewed towards effective execution of the US commercial roll-out rather than efficacy of the product. With the business priced at £110 million, the risk to reward looks very attractive.

INVESTORS HAVE HAD TO BE PATIENT

The US Food and Drug Agency originally approved the product in 2019 when the shares were trading around 180p. The company has spent just over a year looking to attract the right partners to commercialise and distribute the product, which ultimately resulted in no progress, putting pressure on the share price.

Two withdrew for reasons unrelated to the product, but during the course of negotiations with other interested parties Shield generated insights in how they were planning to commercialise the product.

Eventually Shield ended up hiring four US executives who were employed by one of the players looking to license from Shield.

European partner Norgine will market the product (called Ferracru outside the US) in Europe, Australia, New Zealand and Scandinavia. Sales began in Belgium in January 2021.

The product has regulatory approvals in Europe and the US while partner ASK Pharm will market the product in China, Hong Kong, Macau and Taiwan once it gets approval, expected sometime in 2023.

What is Iron Deficiency?

Iron deficiency anaemia is a condition where the blood lacks adequate healthy red blood cells, which carry oxygen around the body. As a result, sufferers often report that they are tired and short of breath.

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