Shield Therapeutics plc (STX) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Shield Therapeutics plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself, however, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to the management team from Shield Therapeutics plc. Anders, good afternoon, sir.

Good afternoon, and thank you so much, and welcome, everybody. Thank you for joining us for today's presentation about Shield Therapeutics. Santosh, who is our CFO, and I Anders, will present. The first part is a general part about the company. And for those of you who have followed us before, this may be a repetition. And then Santosh will follow me with the recent Q3 trading update after a little while. So we can go to the next slide. This is the disclaimer, and I'll move into the actual presentation. So we at Shield Therapeutics, we have one commercial product. It's called ACCRUFeR in North America and FeRACCRU in rest of the world. And it is the only FDA, EMA, U.K. and Health Canada approved oral iron that's broadly indicated for adults suffering from iron deficiency or iron deficiency with anemia. This market is a large market because traditional oral irons is typically discontinued because of GI side effects, such as stomach pain or constipation, leading that patients stop therapy. I'll come back to that a little bit more in detail in a little bit. We have a very experienced executive team with extensive U.S. commercialization expertise. And in the U.S., we do co-commercialization with our partner, Viatris. In rest of the world, they are our partners who are doing the commercialization alone. We estimate our peak revenue potential for ACCRUFeR to be around USD 450 million, and we have very strong IP through 2035. So this is the management team. So to the right, you see David Childs and Jackie Mitchell, they are in our Newcastle office, responsible for development, quality, regulatory affairs and manufacturing. And the 4 to the left are the people we have in our Boston office who are focusing more on the commercialization in the U.S. So what's the problem here? What is it that we're trying to solve? So in general, health care professionals are struggling to treat iron deficiency because most patients cannot tolerate the normal oral preparations. And that is because the oral ferrosols, they dissociate in the stomach, and unabsorbed iron leads to causing irritation and damage to the intestinal lining. And thereby, you see these gastrointestinal side effects. As I mentioned, like stomach pain. It could be bloating. It could be constipation. And thereby, a large portion of the patients stop therapy, which, of course, leads to lack of effectiveness. With ACCRUFeR/FeRACCRU, we have a very elegant solution to avoid that. So our product is not dissociated in the stomach, but rather, in the upper intestine. So thereby, we avoid many of the side effects and people tolerate this treatment much better, so they can stay on it, and thereby, we see very good results with our treatment. So these are the global partnership we have. So as I said, in the U.S., we have a very strong partner in Viatris. And here, we co-commercialize. So we have together a 100% sales team in place in the market. So we have about $30 million in available sales milestones with Viatris. In the rest of the world, we completely rely on our partners. So Norgine is our partner for Europe and a few more countries. And there, we get straight royalties, and we have milestones payments coming up. We just announced we finished the pediatric studies in the EU, so we foresee getting milestones for that. In Canada, which was the latest market to get approved in August of this year, we work with KYE Pharmaceuticals. We anticipate a launch early next year. Here, we have revenue-based milestones and double-digit royalties on net sales. In Korea, we are under review as we speak right now. We work with Korea Pharma. We anticipate to get an approval in 2025 and the launch following that. Here, we have mid-teens royalties on net sales. In China, we work with ASK, and we are doing a bridging Phase III study in the Chinese population to sort of link that back to the Caucasian population where we've done our previous studies. We hope to finish that study this year, submit and file next year and looking at an approval in the second half of 2026. Again, we have approval milestones. We have double-digit royalties on net sales from China. And we continue to evaluate other geographies in the world as well constantly to see if we can find other partners who can sell our products in those regions. So this is the U.S. market. So what you see, the total market, which we call the addressable market, is about 12 million prescriptions annually prescribed by about 0.5 million health care professionals. We are in the current market. So that's the market we are focusing on right now. That's where we have our 100 salespeople. As you can see, it's about 1.8 million prescriptions annually prescribed by about 12,500 health care professionals. And we have today a small market, just 3%. And of course, as Santosh will show you very soon, we keep growing in this marketplace. But there's so much more growth to be had, and we are constantly driving awareness in this marketplace. The expanded market is half of the total market where we have about 50,000 health care professionals doing that. That would, for us, be our expansion step, but that is something we would look to do maybe in 2 to 3 years. So in summary, there is, as I explained, a large unmet need due to that traditional irons typically leads to gastrointestinal side effects, leading to the cessations of taking the therapy. It's a rather concentrated prescriber base in the U.S., and we have 100-people sales force that can cover that market that we are addressing at the moment. And then as I explained, so ACCRUFeR/FeRACCRU is uniquely positioned to address the unmet needs, thanks to that we are not dissociated in the stomach, so we can avoid the gastrointestinal side effects to a much larger extent, leading to a very good treatment result. It's a promotional sensitive market as well. We know that. We know that both patients and health care professionals are highly engaged. They are looking for solutions, and we see a very good response on the marketing campaigns we do. And finally, we have very minimal branded competition. So that's the general part of the presentation. And now I will leave it to Santosh, who will go through our recent quarter 3 results. Santosh?

Thank you, Anders, and hello, everyone. Let me walk you through our Q3 2024 business highlights. As you can see on this slide, Slide #10, our 2024 business priorities are threefold: growth in ACCRUFeR in the U.S., which includes revenue, price and prescription; strengthening our balance sheet to support both our near-term as well as our long-term growth ambitions; and number three, access to our innovative products globally. As you may have read in our press release on Tuesday this week, we have made significant progress on all 3 fronts in Q3 2024. During the third quarter of 2024, we reported net revenues of $7.2 million from approximately 43,500 prescriptions of ACCRUFeR with an average net selling price, or what we call NSP, of $167 per prescription. I will speak more to this in the next slide. From a balance sheet perspective, we ended this quarter with $7.7 million cash on hand compared to $8.1 million in Q2 2024. Post the end of the quarter, we also added and took multiple steps to strengthen our balance sheet and extend our cash runway. This includes a 10% reduction to our cost base; expanding our accounts receivable financing from $10 million to $15 million; and entering into a nonbinding term sheet with AOP Health, our largest shareholder, for a minimum of $10 million of new equity-based financing. I'll speak to this in the next couple of slides as well. And lastly, in Q3, we also reported that our pivotal trial in the pediatric population with ACCRUFeR showed highly clinically relevant effectiveness with no patient discontinuations due to adverse events. We plan to file these results with the FDA and EMA in the first half of next year. Note that we expect to receive development milestones totaling EUR 1 million from Norgine as we go through the regulatory process. Let me move to the next slide. As you will see on Slide 11, we reported approximately 43,500 prescriptions of ACCRUFeR dispensed in Q3 2024. This represents another quarter of growth with nearly 20% increase in prescriptions compared to the second quarter of this year. Keep in mind that we recognize revenue when the units are sold to wholesalers and pharmacies and not when the prescriptions are dispensed to patients. We reported $7.2 million in ACCRUFeR revenues in Q3 2024. That represents a 4% growth compared to the second quarter of this year. The difference in the growth rate between revenues and prescriptions was due to the wholesalers buying ahead of the July 4 weekend during the last week of June. If we adjust for this buying pattern, the sequential growth rate in revenue would be identical to the prescription growth rate of 20%. Similarly, on pricing, adjusting for July, the net selling price was $192 per prescription compared to $171 in Q2. Our expectations are that the net selling price can be maintained at similar levels or even higher throughout Q4 2024. Once again, the fundamentals of the business with ACCRUFeR in the United States are very strong, and it is a testament to the collaborative work by both Shield and our U.S. commercial partner, Viatris. On the next slide, Slide #12, we have outlined the details of the key elements of our balance sheet. We continue to maintain the strong relationship with SWK and the $20 million debt facility we have in place with them. Earlier this week, we also reported total group revenues of $20 million year-to-date through Q3 2024. This includes royalties and milestones from our global partners. Based on our internal estimates, we expect to meet the total revenue covenant target of $31.5 million for full year 2024 under the debt facility agreement with SWK. Now post-quarter, upon evaluating our internal projections and our current burn rate, the Board has concluded that we will need to, a, lower our operating base; and b, access additional capital to help achieve our goal of becoming cash flow positive by the end of 2025. We have hence prioritized 3 key initiatives. Number one, we are implementing a cost reduction of approximately 10% to our operating cost base across the company. Number two, we are implementing an expansion of our current working capital financing with Sallyport from $10 million to $15 million. Now keep in mind, this is not new money. It is our own money that we collect fast. Both these initiatives will help us extend our cash runway into the second quarter of next year. And number three, we have also entered into a nonbinding term sheet with AOP Health, our largest shareholder, for a minimum of $10 million of new equity-based financing. The details of this term sheet are outlined on the right-hand side of the slide. Now keep in mind that the closing of this financing is conditional, upon approval by the takeover panel and the shareholder vote. We are working diligently to close this process successfully and as quickly as possible. We believe that these initiatives can help us achieve our aim of becoming cash flow positive by the end of 2025. This should allow us to have enough capital to help us get there. Now obviously, our rate of cash burn remains highly dependent on ACCRUFeR achieving our internal forecast, and we are looking forward to it. With that, I will hand it back to Anders to conclude.

Thank you, Santosh. So as you have heard, this is a very big market opportunity in the U.S. alone with a very significant revenue potential. And as I described, so far, we have a rather low market share in the addressable market. But as Santosh has outlined, we see very nice growth quarter-over-quarter. We, of course, are looking to the other parts of the world as well, and we keep expanding. I mean ACCRUFeR/FeRACCRU is approved by the FDA, EMA, Health Canada and in the U.K., and we're looking forward to new approvals after reviews in markets like Korea and China as the years go by. We have a very strong partnership in the U.S. We have a very strong partner with Viatris that helps us reaching our goals. And we see a good growth in prescriptions, net revenue and net selling price in the U.S. market. As Santosh also explained, we have increased our balance sheet and our operational flexibility. And we believe now that we have enough resources to get to cash flow positivity by end of 2025. So that concludes the presentation part of this meeting, and we'll now move on to questions.

Anders, Santosh, thank you very much for your presentation, if I may just bring back up your cameras. [Operator Instructions] I'd like to remind you that a recording of this presentation, along with the copy of the slides and the published Q&A, can be accessed by our investor dashboard. Alice, could I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Fantastic. Thanks, Lily. So the first question is, the most important issue for Shield is sales volume and revenue growth. Will Shield present quarter-by-quarter sales volume and revenue growth projections as anticipated by the Shield executives?

Santosh, you go ahead.

Yes, sure. We have set a standard where we report our quarterly numbers as soon as we wrap up the quarter, and we continue to plan to do that. So we will keep the shareholders and investors up to date on our performance every quarter. At this point, we do not plan to provide projections. It is a bit too early for us to provide any quarterly projections into next year. What we have said, though, is based on our internal projections, both ACCRUFeR's projections, our ex U.S. revenues potentials and managing our operating expenses, we expect to be cash flow positive by the end of next year.

Thank you, Santosh. Next question, have you had any discussions with the EU partner regarding reimbursement resubmission for France, Italy and Spain? And are you also able to provide any further information on Korea?

So let me take that question. So the short answer is yes. There's been quite a lot of work trying to get to those 3 markets in Europe: France, Italy and Spain. In the end, the decision lies with Norgine. So you would actually have to ask them what their decision will be. But I repeat it again, yes, there's been a lot of work looking into those 3 markets because they are 3 really significant markets in the U.S. For Korea, we know that they are actively reviewing our file as we speak. We've gotten questions from the authorities, and we are answering those questions. If everything goes well, which we anticipate it will do, we'll be looking at an approval sometime during next year.

Thank you, Anders. How much of your business is repeat prescription? If people need the products, are they on it for life?

Do you want me to take that, Anders?

Yes. Let me talk to the second. I mean, of course, it depends on the condition if the patient is a chronic patient or not, right? So if a patient has, for instance, a chronic kidney disease, yes, they could be on for life. If the patient has, for instance, IBD, yes, they could be on for life. But most of our patients are taking the treatment for 3 to 4 months. You should not view this as a chronic treatment because the focus we have in the marketplace is typically also in the OB/GYN space, women's health. And they are not chronic patients. The focus we have with the primary care physicians, it's different because they do see what I mentioned, all of those type of patients. But I pause there, and I'll let Santosh get us a little bit more into the numbers.

Sure, Anders. And you're absolutely right. When you think about the prescriptions and the refills, from a patient perspective, it really depends on the type of patient. But on average, we have seen somewhere in the 3 to 4 refills per patient. And that differs based on whether it is a patient who is covered by commercial insurance, whether it's a patient covered by Medicaid insurance or if it's a patient that is paying cash out of pocket. So it varies, but we have typically seen somewhere in the 3 to 4. I would also add that in terms of Q3, when you think about the contributions of refills to the prescriptions versus new prescriptions to the total prescriptions, it's about half and half. It's skewing a little bit, favoring the new prescriptions when it comes to contributions to total prescriptions. And then in terms of contributions of existing prescribers versus new prescribers, the split varies quarter-to-quarter. But in Q3, it was about 70-30. So 70% of our prescribers were existing prescribers from prior quarters and 30% were new prescribers. So across the board, I think there's strong support from both physicians as well as patients. Those who continue to write continue to write in the future as well. The word-of-mouth is spreading and new physicians are coming into the foray as well as patients continue to believe in the product and continue to take the product for the duration of the course. So excited about what we see.

Thank you, Santosh. How many tablets days do you get for the $192 average price? Is it 1 tablet for 90 days? Also, this seems quite a high price. Is this covered by people's insurance companies in the U.S.?

The ACCRUFeR in the U.S., FeRACCRU in the rest of the world, it's 2 doses per day, so 2 tablets per day. That is what it is. And the $192 is the price per prescription, which is the math. So that is the pricing in the U.S. Yes, typically, prices in the U.S. are higher than in the rest of the world. And yes, in general, we have good commercial coverage for patients who are getting their health insurance from their employers. We have very good coverage with Medicaid, and we do not have very good coverage with Medicare. So it depends on what type of plan the patients have if the $192 are covered or not. That's a factor we actually also weigh in, coverage, how we focus our salespeople. If a physician has no coverage, we have a solution for that. Sometimes we give away drug for free. Sometimes there's an out-of-pocket. That varies depending on what type of insurance they have. So this is an average price we see, but that is everything from 0 up to $200-something per prescription. So this is just an average price.

Fantastic. Thank you, Anders. The next question, Shield has entered into agreement to raise $10 million equity with AOP Health. Could you provide a little more explanation on the reasoning behind this? You've got a long-term loan of $20 million. So I'm unsure the reasons for the equity raise, especially when you're on track to meet orders.

Do you want me to take that, Anders?

Yes, please do.

Yes. I think as I said in my prepared remarks, the Board and management, we looked at our internal projections, we looked at our growth projections. We do expect ACCRUFeR to continue to grow. And we have seen that over the last few quarters, and we expect the same over the next year. However, when you look at our balance sheet strength and what we need to help us to get to cash flow positive, we have had to make multiple decisions. And one of them was making sure that we reduce our cost base, and we have taken steps to doing that, so 10%. That's in our control. Number two, we have expanded our financing with Sallyport to from $10 million to $15 million. That's not new money. That's our own money that we collect faster. But just those two elements really helps us extend our cash runway into Q2 2025. We need more to help us get to cash flow breakeven, which we expect to be in the second half of 2025. And so when we looked at the different options, we evaluated all the different options, we ended up with AOP Health, a minimum of $10 million via an equity financing. And it is a nonbinding term sheet that is contingent on a few things that need to take place between now and hopefully by the end of the year. But we believe that the $10 million helps us get there, helps us get to being cash flow breakeven by the end of next year. And so I would say those are the 3 pieces that we have put in place to help us get to that goal of cash flow positive by the end of next year.

Thank you. Let's have a look. The Q3 trading update described increased buying from wholesalers around the 4th of July weekend. How might these volumes have affected the average net selling price for Q3? And we might expect some destocking in these channels in Q4 but see an associated rise in the average net selling price.

Okay. So no, good question. I mean I think Santosh tried to explain that in the prepared remarks. Basically, the math is like this. So July 4 this year was on a Thursday in the United States and a lot of people take this week off. So our wholesaler, Cardinal, decided to buy that week of goods a week earlier. So it ended up in June. So now we have an extra week of sales in June and 1 week less of sales in July. If you take the average sales over 13 weeks in the third quarter and you take 1 week out of the second quarter, add it to the third quarter instead, you get a 20% revenue growth. That is how we get to the 20% instead of the 4%. So that matches the prescription growth. Likewise, when we do the average price per prescription, as I tried to explain earlier, some of those prescriptions, we get $0 for or even we lose money on them, and somehow we get way more than $192 for. If you take out 1 week of paid product from the third quarter, in July, the average price goes down rather dramatically. So that's why in that month, it was just over $100 per prescription because we lost a week of sales. Then when it goes back to normal in August and September, that's why we see a number that is over $190. I think it was $192 or $194 on average, which is the level of revenue we get per prescription as we enter into the fourth quarter. So that's the math. That's the explanation. These things happen. And as Santosh also explained clearly, there is no direct correlation in a short period of time between prescriptions and our wholesaler buying. Of course, in the longer run, like over a quarter, it should correlate pretty equally.