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Shield Therapeutics Turns The Corner, Tipped As A Buy

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About: Shield Therapeutics PLC (SHIEF)
by: Tim Worstall
Tim Worstall
Tech, banks, gold & precious metals, natural resources
Summary

Shield Therapeutics has had a hard time of it, their main drug turned down by the FDA.

This decision has now been reversed, and it looks like they've turned the corner into near future positive cash flow.

They're heavily tipped as a "buy" in the Sunday Times stock tipping column.

Shield Therapeutics (OTCPK:SHIEF) [STX:LN] in a nutshell

From last week's research report:

The approval of Accrufer reinforces our view that STX is at an exciting juncture. It has delivered on all goals set at the time of its IPO in 2016. Feraccru/Accrufer has been validated by regulatory approval in both the EU and the US, and the commercial deal in Europe looks set to be repeated in the US. Announcement of its commercial partner, together with the terms of any deal, represent the next valuation inflection point.

Or, to put it all more simply. They've gone through the expensive and difficult process of finding a drug that works. And which then gains approval so that it can be sold. It's on sale and gaining patients in Europe. The much larger - in revenue terms - US market looks as if it's about to be cracked.

Thus, we've an opportunity to buy in at a good point in the company lifecycle.

Some background

A year and a half back, it looked like the drug - to treat anemia - had failed the necessary tests, and this wasn't going to be approved by the FDA. That would have been - was - something of a problem of course. The share price, not unnaturally, collapsed. We can see this in the stock price chart:

Shield(Shield Therapeutics stock price from London Stock Exchange)

As we can see, the price has recovered as that decision was reversed. The data was reanalysed and showed that the drug worked just fine. Not just that, but also passed the FDA hurdle of being better than current treatments.

Accounts

Of course, given the early stages here, the numbers in the accounts don't look all that great:

Financial Highlights

• Revenues of £2.6 million (H1 2018: £0.5 million)

• Loss for the period of £2.0 million (H1 2018: £8.0 million)

• Cash of £6.6 million (31 December 2018: £9.8 million)

They've 18 months of money and no more. But note two other things:

Norgine commenced promotion of Feraccru® in the UK and Germany with early signs of the positive impact of a larger commercial operation, and have started pricing and reimbursement activities in other European markets

Their European revenues are starting to come in. And, more:

FDA approves Accrufer® (as Feraccru® is to be marketed in the US) on 25 July 2019 with a broad label of treating iron deficiency in adults

They've now got license access to that US market. It's the commercial deal - not a simple thing but easier than passing the FDA - that remains.

But the importance for us

There are few stock tippers left in the British newspapers. Changes in financial market regulation have meant that they've got to be very sure of themselves when offering advice. So, they tend to be pretty good once, they do decide to tip a stock. As they're doing here:

Shield has secured a link with Norgine, a Dutch pharma specialist, to sell its products in the UK and Germany, which helped sales jump 428% to £2.6m in the first half of this year. It has enough cash to last until the third quarter of next year, and further deals could prove lucrative: one in America could pay $50m upfront and then more than $100m of milestone payments.

Shield's early troubles, which sent shares down to 15.75p, forced it to reset its strategy, aiming for licensing deals rather than building its own sales force. Like many biotech hopefuls, it is loss-making, bleeding £2m in the first part of the year, but analysts expect it to get into the black in 2021.

FinnCap, its joint broker, has put a 350p target on the stock, while Peel Hunt, its nominated adviser and joint broker, is predicting a more modest 200p. Buy.

That's the Sunday Times, a fairly grand newspaper for those who don't know the British media.

My view

The scarcity of British stock tipping these days means that we should take seriously those few we do get. This looks like a good story to me. It's getting past the FDA that is always the pharma problem with the US market. Achieve that and good things will probably happen. I agree that this looks a good thing to put a little away into and see what happens over the next couple of years.

The investor view

The big pharma question is, well, will anyone want to use the drug? That being what FDA review actually tells us in a roundabout manner. Because you only get licensed if the drug works and also it works better than extant treatments. So, gaining approval means that it does work and better too.

Shield is, apparently, just waiting to strike the right financial deal to enter the world's richest pharmaceuticals market. Of course, small companies, high risk, but a small amount to be tucked away for the medium terms looks like a good idea.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.