Shield Therapeutics plc (STX) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Shield Therapeutics plc Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And as usual, if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Shield Therapeutics. Greg, Santosh, good afternoon.

Good afternoon, everybody, and thank you for taking the time to join us today. My name is Greg Madison, the CEO here at Shield Therapeutics. I'd like to take this opportunity to formally introduce my new Chief Financial Officer, Santosh Shanbhag. He has been with the organization now just over 4 weeks, I believe, if my math is correct. And he's a very, very welcome addition. We're very pleased to have him on board. As noted, we'll talk about the trading update that we put out yesterday, and at the end of the presentation, we'll be able to take some questions there. We're on a relatively limited time schedule, but we will do as many questions as we possibly can at the end. And those that we don't get to, so we'll look to follow up in writing through as well. So we put out a trading update yesterday and really was just thinking through just how to balance that tone here, right on the presentation, because on one hand, we've got some really good things that are going on in our business, both in '23 and as we accelerated to 2024. However, we also had to put out news that we discovered that there was a data anomaly in our reporting with our third party partner here and that's tough news to be able to put out there as well. So I think candidly speaking, we're very pleased with what we see in the underlying business, but it's hard to not acknowledge this new data piece that popped up yesterday. So we are disappointed to present this. Overall, we're frustrated internally here as well. But we identified it, we investigated it, and we obviously need to report that, which we've done. The team internally here, I wish many of you could be in this office with myself and even Santosh in his 4 weeks here and see the team that is here, incredibly dedicated, incredibly passionate, takes a lot of pride in what they do and always looking to do the right thing for patients, providers, for our shareholders. We take a lot of pride on what that is. So that really -- this whole thing is a bit of a disappointment for us. That being said, we also have a very resilient bunch of people here, right, that are just very focused on what needs to happen. When you're running an operating business, things sometimes happen, you figure it out and you go forward, and that's the team that we have here as well. So we remain very, very resolutely focused on our goal to make Accrufer, the oral iron of choice, here in the U.S. market as well. I think lastly before we get into the presentation, I think the most frustrating thing for us overall is if you can somehow just step aside from the data piece for half a second and look at what's going on in our underlying business, there are so many positive things that are moving in the right direction. We feel really good about the way things are trending right now and there's more to come. Just as we ended '23, there's more resources coming in '24. We think we have a very, very good plan in place. And if anything else, that's the part we don't want to overlook here as well. So we'll do our best to kind of balance the tone here and make sure we're in a good spot. So moving forward here, let's jump into the 2023 business update on a high level. So the 3 main goals for us. Obviously, we want to maximize our total revenues. We want to continue to improve our Accrufer gross to net. We want continue to grow Accrufer prescriptions. Obviously, the prescription and gross to net lead us to that total revenues. So if you look back at 2023, we did have over 3x year-over-year growth in our total revenues in the U.S. for Accrufer and [ year end ] $11.6 million. We also had 2.8% year-over-year growth in total revenues from 2023 to 2022. On the right 2 areas that we'll spend a little bit of time as we go forward here. On our third quarter update, we spent a lot of time talking about how do we improve our Accrufer gross to net. We're making very good progress here. That increased on net sales per prescription from $119 per prescription in the first half to $145 in the second half. And then on the right-hand side, as we grow our prescriptions overall, we did have a 3x year-over-year growth in 2023 compared to 2022. Bear in mind, we've got our partner, Viatris. We got our full now sales team up and running in mid-May. So this represents, call it, about 6.5 months of that team being out there overall. And all that being said, you'll notice that in the fourth quarter, our growth rate wasn't to our level of expectations, right? We thought we could do a little bit better there. We definitely made some operational changes in the fourth quarter that are now taking effect today to address this lower-than-expected growth. From a financial perspective, we just think about revenues. This is in the release as well. You see the breakdown here of our U.S. net sales, other income revenue from the Viatris milestone and our ex-U.S. sales across the board, all of which totaling up to USD 17.5 million and that's comparison to 2022 of $6.2 million. So let's spend a minute here on the gross to net. So as noted earlier, in the third quarter, we spent a lot of time talking about the first half of the year, the $119 wasn't progressing as fast as we wanted to. So we want to make some changes, and we are making some changes to address how we get that increase up overall. So first and foremost, it always helps you have expanded payer coverage, which allows you to get just more prescriptions paid for and covered, which automatically helps improving your gross to net. We had a nice win in California and New York that we reported in September. Right now, we're seeing very good progress from our prescription level in those 2 particular states overall. One area focuses a lot about was this increase in prior authorization submission rates by physicians here in the U.S., and we implemented some changes in our patient access programs during the fourth quarter in October and November as well. Thus far slides we're doing slides on it. We're seeing really nice results in that. Our PA submission rate increased pretty dramatically from Q3 all the way to Q4. It's up from 37% where we were at the beginning of the year, all the way up to 51% in the fourth quarter, and that's really worth only about 4 to 6 weeks of actual time being implemented. So it sets us up really well as we go into 2024 as well. So here's our growth, right? So if you look at this just by itself and say, all right, how did we do last year? Really nice, strong impressive growth again with the context you've got this team out there, that's been out there about 6 months, 47% growth in the second quarter, 58% in the third quarter, 22% here in the fourth quarter overall, right? These are the real numbers, if you will. So by itself, if you look at that on where we were last year and where we are this year, that really looks good, strong growth, and we're continuing to kind of focus on the execution side here as well. I would comment that our partnership with Viatris has never been stronger. We are just such in a good collaborative state of mind here in terms of what we're trying to accomplish, how we're going to accomplish it. There's always things that are popping up that you need to address overall, but good, strong, dedicated partner and our colleague, Viatris, as we go forward on our mission here as well. One thing we did note here is that, that fourth quarter performance wasn't exactly to the level that we expected it to see. So one of the things we did internally for Shield, at least, is we did strengthen our leadership and adjusted our sales leadership and our marketing team. So we've brought a new head of marketing into the organization during the fourth quarter. And we also adjusted our sales leadership structure, whereas before, we had one VP of sales, managing 6 frontline sales managers, who then managed the reps. We've adapted that model and actually now have 2 area directors, managing the 6 frontline managers. So more of a ratio instead of 1 to 6 previously. Now it's a 1 to 3 ratio. This high-touch model we think is going to pay off significantly in the benefit side just to enhance communication, coaching and consistency. The other thing we noted there is that we believe we can execute better, particularly against our targets overall, right? So the first several months of the launch, I think both teams are out there, pretty much visiting as many doctors as we can, scooping on prescriptions, and you see that in the growth rates. One of the things we didn't do as well in the fourth quarter is stay focused on our targets. There's too many calls against nontargets. And the reason why that's important for us targets have much more value. They write many, many more prescriptions overall versus nontargets. So that consistency on reaching those targets, hitting their frequency overall. Again, we had to realign kind of what we wanted to do there. But I think between both teams, just focus on the fundamentals and not allow any drift. It's not, let's find prescriptions anywhere. Let's stay really focused on our targets, get them ready for the first time and drive additional [ depth ]. So a little bit of a basic blocking, tackling that we need to revisit here, and the teams out there executing that as we speak right now. So here's the third-party data issue that we referenced, right? So we discovered this issue, we investigated the issue, and now we are actually reporting issue here as well. So this is through a third-party data provider and unfortunately, they had some methodology that was not exactly correct, where it resulted in an over projection of the prescriptions overall. What you see here is the prior reported prescriptions on the top line, the updated prescriptions overall and the actual growth rates that I just shared with you on the previous slide. So we ended the year at 77,000 prescriptions. Like I said, 3x the growth versus 2022, and it puts us on a good trajectory. So this is one slide that just may help kind of put in characterization. As we discovered this and now reported it, kind of the pull forward after, right? So the blue bars represent where we thought we were on a trajectory, if you will, based on the previous data that we reported. The orange bars now reflect, this is the trajectory that we're actually on, right? So you can clearly see here as we looked at it, as we're kind of thinking as we ended the year, we're budgeting towards the blue line, and we're making plans to the blue line, et cetera. Now in reality, as we discovered this from the orange line, we need to make several different operational adjustments of course, to the business. So #1, as we reported, clearly, the time to being cash flow positive. So if you're on the orange line versus the blue line, unless there's some event that's going to happen and close that gap, that time is going to move up, right. So we've reported there that our aim right now is to be cash flow positive in the second half of 2025. Previously, that was that the end of 2024, but that orange bar line certainly puts us on that trajectory in terms of the second half of 2025. So if you think about 2024 and our business priorities, they're listed right here, right? So you've got maximized total revenues. We've got grow Accrufer TRx in the gross to net and then let's talk about the path to cash flow positive, if you will. So on the left-hand side, I think it is pretty clear, we're going to be driven primarily by our U.S. revenue growth. And it would be remiss to say that we're actually making some really good progress on our ex U.S. opportunities, right? So China continues to enroll. That enrollment has actually picked up a little bit nicely here. We continue to make progress on our pediatric study, which should be done right around the midyear time frame, and we should get the last patient enrolled there as well. Korea continues to make progress, and we're expecting approval in Canada by the end of the second quarter here as well. So our revenues will be driven by primarily U.S. in the near term, but we are making very good progress in some of the ex-U.S. opportunities as well. The middle bucket, we'll spend a little bit of time here, right? So obviously, we want to grow prescriptions. We want to improve our gross to net, right? So as I noted, we've realigned our sales focus and prioritizing activity against targets. We've adjusted our sales model as of December of last year, and we fully expect that to benefit us and pay off with some of our basic blocking and tackling. Where we're making really, really good progress is on the gross to net. So I talked about the increase that we saw both in the fourth quarter compared to the second half of last year against the first half of that year, we fully expect that to continue to accelerate. One of the things we're able to do at the end of last year is lower one of our peer rebates, which is important because it not only helps lower our commercial overall gross to net, but also helps lower our Medicaid best price, right? So the simple way to think about this is that any prescription that was written for a commercial insurance plan or a Medicaid program in December of 2023. As of January 1, 2024, you write those same prescriptions, they both worth more than they were just 3 days ago. So that's a fairly good step change for us overall. So we put out a target previously of 220 to 240 by 2025. I think we're very comfortable with that type of target that we're looking at here. But we really expect that improvement in the gross to net, just to continue to improve and accelerate as we go through 2024. And then we have the introduction of our field reimbursement team. We talked about that previously in one of the calls here. That team is designed out there to provide support and education to physicians to help continue to increase that PA submission rate, which is just critical for us to get that up. We're seeing nice progress based on what we did in the fourth quarter of last year. And again, that's going to continue and accelerate as we go forward as well. And then last but not least, it's a path to cash flow positive. So as noted in the earlier chart, you can see the trajectory that we're currently on. As we sat down and Santosh being in here the last 4 weeks, this is where that we discovered this overall. This is where we spent a lot of time in trying figure out how we make this work, if you will? We had a very tight control of our operating expenses, made a number of different working capital enhancements as well. All of our focus right now is any dollar we're spending, if at all possible, it's got to go drive -- tie directly to supporting Accrufer growth and hitting that top line number here as well. And then we ended the year at 2023, just under $14 million cash balance and as noted, aimed to turn cash flow positive in the second half of 2025. Okay. So I believe that's the end of the presentation here. Just give us a moment here, so we can start to scroll through some of the questions. Some of you were nice enough to submit questions ahead of time. I think there's definitely be a number of questions that I'm scanning at the chat board here. So just give us a couple of moments. Let us kind of collect our thoughts on some of these as you know we got relatively tight time line, so I'm looking at the number of questions here. There is definitely no way we're going to be answering all these on this call, but we'll look to take about, I'd say, 4 to 5 questions, and we can go from there.

Greg, Santosh, if I may just jump back and then I'll give you a few moments to have a look at those questions. [Operator Instructions] I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. Santosh, Greg, as you can see we have received quite a large number of questions and given the significant attendance on today's call, you may not be able to answer them all directly, but of course, you can review all of the questions and add any additional responses after the presentation. And perhaps now if I may just hand back to you, just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end.

Great. So I think, obviously, with the context of what we discussed in the opening there, there's a number of questions related to the third-party data and all the projections, things like that. There's really not much more than can be said beyond what I stated earlier that obviously, we're disappointed. Obviously, we have to present that. Nobody is happy about that for sure. But we discovered it, we investigated it and reported it. We believe we've got an understanding of what happened overall and how it's going to be. It will be a fix going forward. So I'm not sure about the go-forward piece overall, but you saw the impact of what it did for us overall. So I think internally, we're disappointed, but we've reset. We understand what needs to get done. We have a very good, strong growing business. A lot of good things that are happening underneath that as well. We'll continue to stay focused on that piece, if you will. Anything to add on your context?

No, I think going back to what Greg just said, I think the fundamentals of the business continue to remain strong, and we are excited about it. It is unfortunate that there was a data anomaly from a third party. But we have identified it, and we have a path moving forward to -- that's pretty much I think what we can say on that question.

Yes. Right, so the question here around is a little bit on the gross to net, right? So it says, in the third quarter update, you made reference to actions, we've seen the improvement on the gross to net in the second half of the year. There was a question of the Q4 drop versus Q2 overall. So we kind of hit some of those points here. This in here, we're really excited about. And I think the team has done really [indiscernible] some job with some of the things. So obviously, we identified that our average net selling price midyear last year was not where we needed to be. And so we actively started to make some changes here as well. The way to think about gross to net, nobody want to go to overall. I get less worried about any kind of minor quarter-over-quarter fluctuations because that can really be impacted by sort of split of business. For example, if you have more Medicaid business versus commercial business overall, that can have minor impact. So whether not it went from 148 to 142 Q3 to Q4, that's immaterial, honestly in the grand scheme of things. It's really like what do you want to see from a line of sight on the overall trajectory. And that's where we're making excellent progress. As noted, in the third quarter -- primarily in the fourth quarter, specifically in October, we made some changes to our patient assistance programs, whereby physicians, we offer physicians that, hey, you need to write a prioritization to get access to Accrufer because patients need to try and fail general OTC iron. If you write that PA and submit that to the payers, if it's covered, the patients pay 0 dollars for a prescription of Accrufer per month. If it's not covered, they pay $25 per month overall, but you've got to submit that prioritization. If you don't submit the prioritization, then patient is paying a much higher cost, and we're not going to continue to subsidize those patients overall, right? So we want to really start to methodically think about instead of prescriptions at any cost, we want to start to modify our business and really be more intentful of, if somebody is not willing to do the work, then we're not going to just subsidize the patient for the sake you're getting the prescription overall. So what we noted by implementing that simple change, we saw PA submission rates jump up slightly in the fourth quarter, which is great. That's exactly what we want to see. Never mind, we did this in the middle of October. So we had about 8 weeks of real data here. But we're seeing a nice increase in PA submission rates. We expect that certainly continues as we go forward here as well. The second piece we noted is during the second quarter of this year, we're going to bring on this field access reimbursement team. Again, they'll be hired as we speak. They will be up and running as we start the second quarter here. That team is specifically designed to provide support and education to physician offices. They are having challenges, if you will, submitting prioritization, right? So they can see were the PA is kind of backing up, are there any offices that are having particular challenges with that, if you will, we can provide support and education, all with the goal to help that office increase their PA submission rate. If we increase that PA submission rate, there's a more likelihood that the PA submitted, we're going to get it covered, that's a revenue-generating script, but will still offer the access for the $25 as well. So that's a key indicator for us. So the actions we've taken in the fourth quarter, they're starting to pay off. There's more resources coming here as we hit the second quarter as well. And then lastly, as I noted in the presentation, at the end of last year, we were able to reset some of our payer rebates. That has a huge effect for us on the gross to net side. So you combine all these kind of different actions that we're looking at, we're making some really, really good progress on that side when we continue to make progress with the initial resources we have coming in. So excellent question on that side. Santosh, I'm going toss one to you. There's a couple of questions on just actions around the cash flow positive, right? So obviously, we had -- as we look at the orange bar around that trajectory overall, we would be cash flow positive in the second half of '25, but just a little bit of some of the operational work that we've done internally.

Yes, yes. No, and like Greg said, in light of the recent third-party data issues, we are on a different trajectory now. And so we looked at our business holistically, took a deep dive. We have made adjustments to our business to make sure that our existing resources get us to cash flow positive in the second half of '25. And some of those, as you can imagine, we are already hyper focused on making sure that our investments are linked directly to the growth and scaling of Accrufer. But we looked further into some of the G&A expenses, and we were able to delay or cancel some of the programs and move that into 2025. So found some potential opportunities for savings there, but our focus was a little bit more targeted towards working capital management, so the cash element of it. So things like we have been able to manage some of our supply chain costs, example, API and production costs, making sure that it aligns with this new trajectory that we are on. So there were some savings associated with cash savings. We've also improved our distribution process. How we distribute our product from our facilities into a [indiscernible] into warehouse and then move all the way to patients hand. We've been able to find some efficiencies there, and we will be implementing that as we speak in the first half of this year. And then finally, obviously, we have made -- we have taken -- undertaken multiple initiatives so as to be able to manage our accounts receivables and account payables. And that working capital management has actually helped us find some significant cash savings and enable us to get back to making these adjustments, so that our existing resources help us to get to cash flow positive in the second half of '25.

Great. Thank you. There was a question about ex-U.S. I think I covered that. There's a little bit on Norgine here as well, but let me just kind of repeat that as well. How the ex-U.S. things are progressing as well? So obviously, we reported in this release that Norgine, we've collected $1.5 million of royalties from our partner Norgine in Europe. We continue to work with Norgine on focusing on the right customers and driving impressive growth here as well. We have had a lot of conversations with them. They are committed to the product overall. It's an important part of their portfolio, and we're going to continue to work with them on the tactical execution in a number of different areas that we believe could potentially be improved. They're doing the right things. I think they're saying the right things. We'd love to move that a little bit faster if we possibly could, but the relationship is good at this point in time. On the other pieces, the development side, as noted in Canada. While we did expect approval, I think we previously talked about timing of approval in the second half of 2023, that's moved out. We really haven't had any communication to indicate anything overall, but just the delay in our partner, Canada, KYE Pharmaceuticals has been very active in kind of pressing for any answer overall. It does look like we will have an answer here by the end of the second quarter. I think we feel optimistic about the opportunity there as well and excited to get that in the hand of our Canadian citizens pending approval. Then China, as I noted, China is continuing to enroll their patients overall. It looks like we should be able to, all things being equal, get that patients enrolled before the end of this year. That will put us on track potential approval in the second half of 2026. So that will continue as going. Korea, they continue -- they finished their PK study. We should be filing for approval at some point this year. So that's progressing very nicely for us as well. So on the ex U.S. side, these are working well. I also mentioned our pediatric study. We've been enrolling that for a number of months at this point in time. It looks like we should be on track to had that patients enrolled in the middle part of this year, which will allow us to think about the potential indication expansion both in the U.S. and Europe, likely in the latter half of '25 or early 2026 time frame. So some really exciting progress on the ex-U.S. side here as well. Okay. I think we get time to hit perhaps for 1 more question. There was a question on just a Q4 growth rate of 22%, how that portends for this year and some of the actions we're taking overall. I think as we noted there, we've got some dedicated teams out there working really hard. I think we may -- we certainly as we're getting into the fourth quarter, approaching towards the end of the year, we weren't actually thrilled with some of the level of execution we're seeing, and we've seen this team perform. I'm talking about our field sales team here. We've seen they perform at a very high level before, so we know they can do it, and we just didn't execute the way that we thought, and that we've seen before that we know we can in the fourth quarter. So for a number of different reasons, we made some operational changes. I know there was sales leadership change, in the sales leadership structure that was done in December, that's already seen very, very positive signs in terms of level of communication, really focus on a small number of things do those really, really well, instead try to do 15 things, which you're not going to be able to accomplish. So we're really comfortable with what we see right now on that side. As noted, our partner, Viatris, kind of witnessed the same thing. And that collaboration and that communication we have around what are we hearing, what are we seeing overall. This is not a physicians don't care to write the product. In fact, we've got some recent market research here. We did a little bit of qualitative research and doing some quant research now. But head of marketing keeps walking in my office, she could drop these calls to physicians like when is this going to launch, excited to write it. We have so many patients that could benefit for that. So we not lost sight at all about the market opportunity. It is absolutely there. We just need to really focus and execute better than we think we did in the fourth quarter. And you've got a full team committed to be able to do that. So I think the option looking ahead for us here, it is very, very bright. Every piece of data we have tells us that the market is available. Patients who are in need, physicians working for an option, if you will, recognizing that it's not as easy as it sounds. It's not we could walk in once to a physician and you present Accrufer and you walked out and he just started writing it all over the place. It does take reach, frequency, repetition in order to kind of break through whatever happens that they've been doing before. So we feel very confident about the opportunity. We just need to have focus on our resources to execute a bit better, both on the sales side, and we're excited launch new marketing initiatives here as well. So despite all the noise from yesterday, the base business overall, we're going to focus on growth. Gross to net is moving in a really, really nice direction, across the board there. We're very comfortable with where we need to kind of focus on and move forward here as well, and we're going to do everything in our power to get to that cash flow positive in the second half of '25 with the existing resources we have sitting here today. Anything else to add before I close up?

No. I think that's it.

Okay. I think with that, as I'm just scanning one last time to see if there's any other questions, I will just try to cluster these and group these together. Yes, I think that should be it. So back over to you, if you will.

Perfect. Greg, Santosh, thank you very much indeed for [indiscernible] time, then addressing those questions that came in from investors. And of course, we will be able to give you back all of the questions that were submitted today as well as any further ones that come through, we'll give you those back immediately after the presentation has ended just for you to review and add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the platform. But Greg, perhaps before really just looking to redirect those on the call to provide their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great.

Yes, absolutely. So first off, thank you for taking the time today. We really appreciate all of our investors' support and things like that. As noted, in the underlying business, we see a lot of good things that are going. And I wish to be here internally with the team just to see the focus, the dedication, the passion of what we're trying to accomplish and staying focused on that goal. We obviously had a balanced trading update here with the reset, but we're very confident in terms of what happened, what we need to do, how we need to execute, how we're going to get there as well. And we look forward to update everybody along the way here as well. So thank you for your time and your questions.

Thank you, Greg.

Perfect. Great. That's great. Thank you once again for updating investors this afternoon. Could I please ask investors not to close this session, it will now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to compete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Shield Therapeutics plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.