At the end of last week, Shield Therapeutics, a UK based development stage biotech, announced the closing of its IPO. The company placed 21.66 million shares at 150p per share to raise £32.5 million, or a little over $47 million. The company first attempted a public offering in September last year, but delayed in the wake of weak capital markets. At that time, Shield was chasing a $170 million valuation, and the latest raise represents a considerable shortfall on expectations. This is where the problem lies. The company has a drug with a high chance of EMA approval, and needs the money to commercialize in Europe. Without the funds, Shield likely wont be able to market the drug sufficiently to reach its potential.
So what’s the solution? Well, it’s far too soon for a secondary offering, so the company has two choices. Forge forward on a restricted marketing budget and try to make the best use of its available capital, or find a partner. Both are possible solutions, but by far the more attractive is the latter (for Shield shareholders, at least). With this in mind, which companies might make appropriate suitors?
To answer, let’s address the drug in question. It’s an oral administration therapy for patients (initially) with inflammatory bowel syndrome, targeting the iron deficiency anemia associated with the condition. At the moment, people with IBS have two choices for treating the deficiency symptom – oral pill or intravenous iron. Oral administration is the preferred root from a safety and ease of use perspective, but its not that effective in a large number of patients. IV administration is more effective, but it involves bad site reactions and administration has to take place at special centers (i.e. ones with dedicated resuscitation facilities).
Shield’s drug, Feraccru, is a special formulation iron supplement that is designed to overcome the bioavailability issues that weigh on the efficacy of the current oral administration drug. It uses a ligand that doesn’t enter the system (called ferric maltol) to deliver the drug’s active compound to the intestinal tract.
In trials, the drug performed well, with the phase III on which the EMA application is based showing a marked improvement in Hb levels (hemoglobin levels – the standard baseline measurement in iron deficient anemia therapy) over placebo in 128 patients across a twelve-week period.
Just as does the FDA, the EMA will often request a review for a drug from an advisory panel before the agency makes the final decision. Mid-December, 2015, we got this advisory panel review, and the Committee for Medicinal Products for Human Use (CHMP), the scientific committee of the European Medicines Agency (EMA) gave the drug the thumbs up, almost (but not quite) guaranteeing approval.
So, we’ve got a drug that fills an unmet need, a pending approval, but not enough capital to finance commercialization to its full potential. As mentioned, it’s a perfect window for a big pharma entity to pitch in, foot the commercialization bill, and gain rights/royalties on on favorable terms. Who might bite?
One candidate that immediately springs to mind is Amgen Inc. (NASDAQ:AMGN). The company already has two blockbuster anemia drugs in its pipeline, Aranesp and Epogen, and revenues from both dipped slightly towards the end of last year. If the company can fund the European commercialization of Feraccru for rights to development and commercialization of the drug in the US, for example, it would be a nice addition to the Amgen anemia portfolio. At last count, the company had $3.2 billion cash on hand, with a further $2.9 billion in receivables (which have likely realized by now – last count was September 30, 2015), so the company has plenty of capital to throw at the deal – it would be a circa $100 million plus milestone deal, working with the numbers available at the IPO info stage.
Another potential suitor is Johnson & Johnson (NYSE:JNJ). The company teamed up with the aforementioned Amgen to market a US anemia drug, and just as with Amgen, would love to pick up the rights to a portfolio boosting treatment, while taking out the potential competition the drug offers at the same time. J&J is in an even better cash position – $13.6 billion at last count.
So there we go. Approval should come at any time between now and the end of the quarter, so expect some interest from big pharma over the next couple of months, and a boost for Shield’s market cap if anyone steps up to the plate.