Shield Therapeutics plc (STX) Earnings Call Transcript & Summary

I think we've got a good number of people joining now to kick off today. So good afternoon, and welcome to the Shield Therapeutics webinar, where the team will be providing an update on Shield assuming full control of ACCRUFeR in the U.S. [Operator Instructions] The company might not be in a position to answer every question submitted today and where appropriate, share response following today's presentation. The webinar today is being recorded, and we will be publishing this on the Shield Therapeutics website after today. I'd like to hand over now to Shield Therapeutics CEO, Anders; CCO, Andy; and Bryon, Senior Director of FP&A.

Thank you, Polly, and good afternoon, good morning, everyone, and thank you for joining us. I'm Anders Lundstrom. And as Polly said, I'm also joined by Andrew Hurley, our Chief Commercial Officer; and Bryon Kallert, our Senior Director of Financial Planning and Analytics. As many of you will have seen, we announced last Thursday, we have reached an agreement with Viatris, our current U.S. partner to assume full control of ACCRUFeR in the U.S. So this is a landmark opportunity for our company, and we're glad we have this opportunity to walk you through it more in detail. So the purpose of today's call is to explain as clearly and fully as we can, why we believe this is such a significant milestone for Shield Therapeutics. Next slide, please. Before we begin, please note the disclaimer on the slide regarding the forward-looking statements. We'll start with a short presentation, after which we'll open the floor for questions. We have received a number of pre-submitted questions, which we will start with, and that will, as Polly said, we try to cover as many questions as we can. So can I have the next slide, please? So as the title says, we are assuming full U.S. commercial control of ACCRUFeR. So we entered into an agreement with Viatris, our partner in the U.S. is about 4 years. That says that we will assume full commercial responsibility and the anticipated closing date is 30th of September of 2026. So we start the fourth quarter promoting ACCRUFeR on our own. So this transaction represents an important strategic milestone for us, giving us full control of our largest market and also enhancing our economics of ACCRUFeR. And in addition to that, it creates a very strong platform for future growth. So just as an example, we estimate gross profit to expand around 75% to 80% and an EBIT uplift of about almost 2x over the 5-year term we have with Viatris. We will assume responsibility for the dedicated U.S. sales force, so we will bring over those people who have been with Viatris. So it's about 40 people in that organization. And that is why this will take us a little bit longer before we can start because we're working out all the details to bring them over to us. So after that, we will be fully responsible for the commercialization here in U.S. for ACCRUFeR. And the next slide, please. A few more details here we would like to share. This transaction immediately improves our economics through increased net sales retention, improved margins and a stronger cash generation. Also, this gives us more flexibility where we are in charge of the product alone. It will enable us to have more flexible and fast decision-making. This will also sort of strengthen, I think, our leadership position. We reached this point together with Viatris. We've grown, as you've seen over the last 4 years a lot. So this provides a strong foundation for continued growth and market expansion. For us, rather for the people who prescribe our products and the patients who receive our product, this will be a seamless transition. Because as we explained to you before, we have 80 sales territories that are unique. So we've had 40 each on each side. So we have 40, 40. So that is the structure that will continue to be in place. So thereby, it will be for anybody who is our customer, will be a seamless transition. The deal reads that we will pay was a royalty on U.S. net states. And as we have announced this ranging from high single digits to the mid-teens over a 5-year term. And what it does for us as a company and why we are sort of also so excited, this additional commercial capacity we have now, it also gives us, as a company, a stronger platform for additional opportunities to sell or market in the U.S. and also will accelerate our long-term value creation by this deal alone and also, of course, with expanded platform we have to potentially bring in other products as well. Then on the next slide, please. So this slide, Andy will cover more than closer to what happens in the U.S. market. Andy?

Yes. Thanks, Anders. And to expand on Anders mentioning that seamless transition in terms of continuity of business, many aspects of the commercial model is going to remain the same. So since launch, Shield has had sole ownership of the launch strategy, all of marketing, commercial operations, trade and distribution, data management, manufacturing, regulatory, medical affairs, sales training and pricing strategy. What changes is that fully own the sales infrastructure with the addition of the Viatris sales leaders and sales reps that are coming over with the transition. So we're going to assume full responsibility now for the market access strategy and the payer engagement activities that go with that. And we are in the process right now of hiring a team to take on that responsibility. So this move as well, we're excited about it, and we really appreciate the partnership we had with Viatris, but it's going to allow our commercial team as we move forward to have even greater flexibility in driving sales execution. So that's just a summary of the transition from the commercial side. I'll turn it back over to you, Anders.

Thank you. On the next slide, please. So I use my own quote as a summary of the next presentation. And I'd like actually to start with to thank Viatris for the partnership over almost 4 years. It's been a very strong partnership we have together built a very strong market position for ACCRUFeR. And as I said, thanks to the structure of this deal that we are taking on the sales force that already have vast experience with ACCRUFeR, we look forward on building on the success we already created together as we move on into the next phase for the growth of ACCRUFeR for Shield. As we also are highlighting it is an important strategic milestone for us as a company because it reflects the significant progress we have done so far in establishing ACCRUFeR as the leading brand prescription oral iron in the U.S. But as we then assume full control here in the U.S., we also enhance the economics of -- for Shield, we strengthened our ability to execute our growth strategy and creating a scalable commercial platform for the future. What does it mean? It means that if we saw have the opportunity, which we actively are looking for to add another product, we are now in full control of the entire commercial organization, which actually makes it easier for us as a company to add on another product. And we touched this on a couple of slides already and that we are acquiring approval commercial infrastructure, and that is very important. That is going to be seamless, which we believe in the customer-facing aspect is going to be very seamless. It's going to take us another month to work out all the details to bring everybody over. The teams are working really hard on both sides was on the Shield side, and we have decided to make this happen during this month. It will increase our cost base, but these costs are expected to be more than offset by the increased margin, we will be able to receive. And that we believe, as we are already a fully integrated company, we have all the functions we need to do this. It's -- this is not the merger of equals. So I mean, the -- the people we have already will, of course, stay with us, and we will be able to mainly grow our sales force. And that is the only thing that comes over. We'll add and the sense market access function as well. So we are certain we will be able to continue to improve access to ACCRUFeR patients and health care professional as we move forward. And that concludes the formal part of the presentation, and we just move on to questions, and we'll answer them as we can.

So we will start, as I said, with -- was about 14, 15 or 16 presubmitted questions. I will start by reading those questions, and we'll answer them, and then we will take additional questions that I hope has come in during this presentation. I'm actually able to see them -- those questions. So the first question is about something else really. And the question is, will the business be likely to have more signed GPO contracts by the end of this year. And where are we? Would we have more contract?

I'll speak to that. So we continue to look at different channel opportunities to grow ACCRUFeR and the facilities that use GPOs, and we're going to continue to evaluate other GPOs that warrant us contracting with them for ACCRUFeR inclusion. We just signed with one of the bigger GPOs as mentioned on previous calls, we're still putting efforts towards that new channel opportunity and early signs are saying that, that's going well. So if that continues the way we expect it will, then we will continue to look at that as a possible channel opportunity that expands beyond the one that we have right now.

Good. Thank you. Second question, well, this is like excellent news that taking full control more funds will need to be raised or do the existing actions cover is also that this move enable the current debt facilities to be expanded on better terms. Bryon, you'll start answering that question, please?

Yes. Thanks, Anders. I can start with that. Yes. So just as a reminder, that this transaction doesn't actually require any upfront payment to Viatris as part of the close, and we do expect it to be accretive immediately as I previously mentioned, improving our margins and cash generation and really supporting our path to operating profitability. So the deal itself does not create any additional financing needs.

Okay. And I'd also like to add, I mean, we told you many times that ACCRUFeR is really promotionally sensitive brand. And we said also before, if we were able to invest more money, especially in marketing. We know that drives more prescriptions and in other parts of the business as well. So since we now are in full control of the asset. If we see that we that with more investments would drive more revenues that is potentially something we could raise money towards. But we will, of course, let you know in due time. But as Bryon said, the transaction in itself does not -- there's no need to raise additional capital. Third question, following on here, how much additional annual operating cost will the deal add? Bryon?

I can take that. Yes, I'll take that one as well, Anders. Yes, we expect bringing on the new sales force that our operating expenses should increase about 30% year-over-year.

Thank you. Next one is when Viatris both maintain separate sales team, they would have a duplicate additional overheads or management, HR and so forth, what synergies are we anticipating with a single structure. But this isn't the merger of equals. It's -- simply, but it is simply -- we are absorbing the sales force from Viatris. So for us, as I mentioned before, we've had all the functions in place. We continue to have other functions in place as I need to rate the company would have. So it doesn't change much from that respect at all. So there's no additional savings for any duplicate overhead or anything like that. Andy, would you like to comment on that one as well so as people get a better understanding on what we had before and what we will continue to have?

Yes. So we have a mirrored situation with respect to how we went about building the sales infrastructure. So we have -- every single sales rep has a dedicated solely owned geography. So we don't have overlap there. So as Anders mentioned, as we are inheriting the sales force and bringing them over there isn't duplication in those sales geographies. Those are independent. They are all sales territories that have had staffing in the past, and we will bring them over exactly that way. So we're not going to be finding duplication in the way that, that crosses over.

Okay. Thank you. Would you expect your gross margin to be on U.S. for sales after the deal completes? Bryon?

Yes. So as previously stated in the presentation, we estimate that the margin would go between 75% to 80% post deal close.

Thank you. Then there's a number of questions regarding takeover discussions about the current forecast as a certain number, why we don't do a similar deal with Norgine? I want to answer that. And where people don't buy shares instead of the company. We're not going to -- we can't comment on what other people are doing or other companies have been thinking or if there is anything like that going on. we'll address the questions that is about us solely. So I will actually skip all of those, except the Norgine question. So would you consider doing a similar with Norgine? We had. It's very different, actually. First of all, we don't have a commercial infrastructure anywhere else but in the U.S. Secondly, as we do with most of our out-licensing is that Norgine, they own the registration in Europe, it is their product. "It's our product". From an IP and production point of view, but so that we can do it similarly like that. And that's the big difference, and that's why that is not happening at all. We'll have one here. To reach your goal of operating profitability in 2026 would require another $35 million in ACCRUFeR sales? This requires higher prescription growth in the second half of the year compared to what we ever had before. How will you achieve this? We've never given out a forecast what actually it is, we would need here or there. And as we said, this deal by itself is immediately accretive. So typically, our H2 is much stronger than our H1 as we actually shared with you in the previous presentation we had as we saw. So this deal is accretive by in itself. So we'll sort of -- we can't really comment on how much more revenues we would need to reach any profitability at this stage. We are still, of course, aiming at being profitable by the end of the year, as we stated before. And of course, this deal helps store, helps us a lot coming closer to that point. As a question on, does this deal increase this financial sensitivity to the sales performance? Bryon? Does it -- what happens here?

Yes. So as from the deal economics perspective, lower royalty rates at the same time. We do -- we are picking up increased costs, but at a lower royalty rate and our cost pickup, it is -- it's more beneficial from Shield overall from a cash generation, sales retention and profitability standpoint.

And the last of the pre-submitted questions. From a management perspective, Shield demonstrated this operational success with ACCRUFeR to justify adding a new product to that portfolio. Andy?