Shield Thera Regulatory News (STX)

Shield Therapeutics plc

("Shield" or the "Company" or the "Group")

Interim Report for the Six Months Ended 30 June 2018

London, UK, 19 September 2018. Shield Therapeutics plc (LSE:STX), a specialty pharmaceutical company focused on secondary care, today announces its unaudited interim results for the six months ended 30 June 2018.

Highlights (including post period end)

Operational

· Exclusive licence agreement announced with Norgine BV

· Marketing authorisation in Europe extended to cover iron deficiency (ID) in adults with or without anaemia

· Phase III AEGIS-CKD achieved statistically significant response against primary endpoint

· US NDA submission remains on course to be filed in 2018

·  AEGIS-H2H recruitment completed

· Revenues maintained despite reductions in manpower and promotional activity

Financial

· Revenues of £495k (H1 2017: £142k)

· Net loss of £8.0m (H1 2017: £9.6m)

· Adjusted net loss (excluding exceptional items) of £6.8m (H1 2017: £8.4m)

· Net cash of £3.5m (31 December 2017: £13.3m)

· £11m upfront from Norgine licence agreement extends cash runway significantly

Board changes

Dr Andrew Heath resigned as Chairman and from the Board in June 2018 in order to focus on other business interests. Rolf Hoffman and Hans-Peter Hasler joined the Board as non-executive directors in April and July 2018 respectively.  

Conference call for analysts

A conference call for analysts will be held at 11.30am BST on 19 September 2018

Dial in details:

Participant local dial-in: +44 (0) 2071 928000

Participant free phone dial-in: 08003767922

Participant code: 8426797

To access the presentation, please visit Shield's investor relations page https://www.shieldtherapeutics.com/investors/presentations/

An audio replay file will be made available shortly afterwards via the Company website: www.shieldtherapeutics.com 

For further information please contact:

Shield Therapeutics plc +44 (0)207 186 8500

Carl Sterritt, Chief Executive Officer

Tim Watts, Interim Chief Financial Officer

Nominated Advisor and Joint Broker +44 (0)203 100 2222

Liberum Capital Limited

Christopher Britton/Steve Pearce

Joint Broker +44 (0)207 418 8900

Peel Hunt LLP

James Steel/Christopher Golden

Financial PR Advisor +44 (0)203 709 5700

Consilium Strategic Communications

Mary-Jane Elliott/Matthew Neal

About Shield Therapeutics plc

Shield Therapeutics is a commercial stage pharmaceutical company, delivering innovative specialty pharmaceuticals to address patients' unmet medical needs. Our clear purpose is to help our patients become people again, by enabling them to enjoy the things that make the difference in their everyday lives. The Group has a marketed product, Feraccru®, for the treatment of adults with iron deficiency with or without anaemia which has exclusive IP rights until the mid-2030's. For more information please visit www.shieldtherapeutics.com.

Note

This announcement is released by Shield Therapeutics plc and contains inside information for the purposes of the Market Abuse Regulation (EU) 596/2014 ("MAR") and is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of Shield Therapeutics plc was Carl Sterritt, Chief Executive Officer.

Licence agreement with Norgine B.V.

The Company has announced today that it has entered into an exclusive licence agreement with Norgine for the commercialisation of Feraccru® in Europe, Australia and New Zealand. Under the terms of the agreement, Shield will receive an immediate £11 million upfront payment, is eligible to receive up to €4.5 million in development milestones and up to €50 million in sales milestones upon the achievement of specified targets. Shield will also receive tiered royalties ranging from 25% to 40% of net sales of Feraccru®. This agreement is the result of an extensive process involving several potential partners.

Shield Therapeutics has made considerable progress during the first half of 2018, despite the setback in February caused by the preliminary data from the AEGIS-CKD study. With the broad label for Feraccru® now approved in Europe, the licence agreement with Norgine, the completion of the head-to-head study and the impending filing of the US NDA, the Group intends to build on this momentum in the coming months. The paediatric Phase III study will be started and focus will turn to the commercialisation of Feraccru® in other parts of the world, in particular the USA. Shield is now funded for at least 12 months and therefore well placed to deliver value to shareholders.

Financial Review

Revenue

Revenue of £495k was recorded during the period (H1 2017 : £142k), of which £107k related to sales in the UK and £388k to sales in Europe. European sales revenue includes a milestone payment of £61k from a commercial partner. Despite the closure of the UK and German sales and marketing teams during H1 2018, revenue in the period was unchanged from the £495k generated in H2 2017.

Selling, general and administrative expenses

Selling costs reduced from £3.9m in H1 2017 (and £5.3m in H2 2017) to £2.6m in the period, largely as a consequence of decisions taken following February 2018 to rationalise the Group's commercial structure and extend its cash runway.

Other costs remained broadly steady, with general and administrative expenses at £2.6m compared to £2.7m in H1 2017 (and £2.4m in H2 2017) and depreciation and amortisation of £1.2m in both H1 2018 and H1 2017.

Research and development expenditure

Research and development costs of £2.1m in the statement of profit and loss included expenditure on the Group's AEGIS-CKD study, and other continuing clinical and regulatory activities.

In addition, £2.7m of costs were capitalised as intangible assets, including £2.5m spent on the Head to Head and paediatric studies and £0.2m on improved patent protection.

Exceptional items

Exceptional items, which are set out in Note 6, are non-cash charges included in expenditure (IP amortisation and share-based payment charges) which the Directors consider should be disclosed separately in order to give a fuller understanding of the performance of the Group. The H1 2018 charge of £1.3m is broadly comparable with £1.2m in H1 2017.

Operating loss

The operating loss after exceptional items of £8.1m is a reduction from the £9.6m loss in H1 2017 and £11.3m loss in H2 2017. The reduction in the loss in the most recent period is due mainly to the reduction in selling costs.

Balance sheet

Net assets at 30 June 2018 were £33.5m (31 December 2017 : £41.2m), including intangible assets of £31.5m (31 December 2017 : £30.0m) and cash of £3.5m (31 December 2017 : £13.3m).

£22.4m of the intangible assets balance relates to the intellectual property acquired with Phosphate Therapeutics Limited in 2016. A further £9.1m of intangible assets relate to Feraccru®, including £1.3m strengthening the Group's patent protection and £7.8m of development cost expenditure in relation to the Group's Head to Head and paediatric studies, together with initial Marketing Authorisation costs.

Cash

The Group's cash at 30 June 2018 was £3.5m (31 December 2017 : £13.3m). Cash burn (net cash outflow from operating and investing activities) was £9.8m (H1 2017 : £11.0m), primarily in relation to key research and development activities and commercialisation.

Financial Outlook

As discussed above the Group has substantially rationalised its cost base and headcount such that selling and administration costs are significantly reduced. With the receipt of the £11 million upfront from the Norgine licence upfront payment, funding the business for at least 12 months, and with the prospects of future development milestones and the start of royalty payments, the Group is now financially well placed to undertake the paediatric Phase III study and to pursue the approval of Feraccru® in the USA. 

Consolidated statement of profit and loss and other comprehensive income

for the six months ended 30 June 2018

Group balance sheet

at 30 June 2018

Group statement of changes in equity

for the six months ended 30 June 2018

Group statement of cash flows

for the six months ended 30 June 2018

Notes

for the six months ended 30 June 2018

1. General information

Shield Therapeutics plc (the "Company") is incorporated in England and Wales as a public limited company. The Company trades on the London Stock Exchange's AIM market.

The Company is domiciled in England and the registered office of the Company is at Northern Design Centre, Baltic Business Quarter, Gateshead Quays NE8 3DF.

This interim report, which is not audited, has been prepared in accordance with the measurement and recognition criteria of EU Adopted International Financial Reporting Standards. It does not include all the information required for full annual financial statements and should be read in conjunction with the financial statements of the Company and its subsidiaries (the "Group") as at and for the year ended 31 December 2017. This financial information does not constitute statutory financial statements as defined in Section 435 of the Companies Act 2006. The comparative figures for the year ended 31 December 2017 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditors was unqualified. The auditor has reported on those accounts; their report was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006; though it did include a reference to a matter to which the auditor drew attention by way of emphasis without qualifying their report in relation to going concern. It does not comply with IAS 34 Interim financial reporting, as is permissible under the rules of AIM.

The interim report was approved by the board of directors on 18 September 2018.

2. Accounting policies

The accounting policies applied in these interim financial statements are consistent with those of the annual financial statements for the year ended 31 December 2017, as described in those annual financial statements, except as explained in Accounting Developments below.

Accounting developments

The Directors have considered all new standards, amendments to standards and interpretations which are mandatory for the first time for the financial year beginning 1 January 2018. From 1 January 2018 the Company adopted IFRS 15 Revenue from contracts with customers. The Company has also adopted IFRS 9 Financial Instruments. No adjustments have been required as a consequence of these standards' adoption, as the impact is immaterial. There are no other new or amended standards which impact the Group in the period.

The Group is continuing to assess the impact of IFRS 16 Leases and does not expect its introduction to have a material impact based on an initial assessment.

3. Critical accounting judgments and key sources of estimation uncertainty

In the application of the Group's accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The significant judgments and estimates which may lead to material adjustment in the next accounting period are:

Going concern

Notes (continued)

for the six months ended 30 June 2018

Valuation of intellectual property acquired with Phosphate Therapeutics Limited - £22.4m

The valuation of intellectual property acquired with Phosphate Therapeutics Limited is based on cash flow forecasts for the underlying business and an assumed appropriate cost of capital and other inputs in order to arrive at a fair value for the asset. The realisation of its value is ultimately dependent on regulatory approval and successful commercialisation of the asset. Work on the development of a suitable commercial formulation of the drug product is ongoing and a strategic commercial/co-development partner for the asset is being sought in order to provide the funding required to successfully commercialise the asset. In the event that commercial returns are lower than current expectations or partner or alternative funding is not available this may lead to an impairment. No impairment has been recognised to date.

Valuation of intellectual property associated with Feraccru® - £9.1m

The valuation of intellectual property associated with Feraccru® (including patents, development costs and the Company's investment in Shield TX (Switzerland) AG) is based on cash flow forecasts for the underlying business and an assumed appropriate cost of capital and other inputs in order to arrive at a fair value for the asset. The realisation of its value is ultimately dependent on the successful commercialisation of the asset. A strategic commercial partner for the asset is currently being sought in Europe in order to provide the funding required to successfully commercialise the asset. In the event that commercial returns are lower than current expectations or partner or alternative funding is not available this may lead to an impairment. No impairment has been recognised to date.

Deferred tax assets

No deferred tax asset has been recognised as at 30 June 2018 as there has been no certainty of future profitability.

4. Segmental reporting

The following analysis by segment is presented in accordance with IFRS 8 on the basis of those segments whose operating results are regularly reviewed by the Chief Operating Decision Maker (considered to be the Board of Directors) to assess performance and make strategic decisions about the allocation of resources. Segmental results are calculated on an IFRS basis.

A brief description of the segments of the business is as follows:

· Feraccru® - development and supply of the Group's lead Feraccru® product

· PT20 - development of the Group's secondary asset

Operating results which cannot be allocated to an individual segment are recorded as central and unallocated.

Notes (continued)

for the six months ended 30 June 2018

4. Segmental reporting (continued)

The revenue analysis in the table below is based on the country of registration of the fee paying party. £61,000 (2017 - £Nil) of revenue is derived from a milestone payment from a commercial partner. The remainder of revenue is derived from the sale of goods.

Segment assets and liabilities

All material segmental non-current assets are located in the UK. 

Notes (continued)

for the six months ended 30 June 2018

5. Operating costs - selling, general and administrative expenses

Operating costs are comprised of:

6. Exceptional items

Exceptional items are separately disclosed on the basis that the Directors believe this is necessary to enable a fuller understanding of the performance of the Group. The Directors define exceptional items as:

· Material items that are unusual by size or incidence; or

· Non-cash charges which, whilst recurring in nature, at this stage in the Group's development, are of a disproportionate size relative to the Group's other expenditure - this includes the amortisation of the Phosphate Therapeutics licences and share-based payment charges.

7. Loss per share

The basic loss per share of £0.07 (H1 2017: £0.09) has been calculated by dividing the loss for the period by the weighted average number of shares of 116,426,000 in issue during the six months ended 30 June 2018 (six months ended 30 June 2017: 108,223,000).

The basic adjusted loss per share of £0.06 (H1 2017: £0.08) has been calculated by dividing the adjusted loss for the period of £6,768,000 (H1 2017: £8,438,000), after adding back the exceptional items in Note 6, by the weighted average number of shares of 116,426,000 in issue during the six months ended 30 June 2018 (six months ended 30 June 2017: 108,223,000).

Although there are potentially-dilutive ordinary shares these would not serve to increase or reduce the loss per ordinary share, as the Group is loss-making. There is therefore no difference between the loss per ordinary share and the diluted loss per ordinary share.

Notes (continued)

for the six months ended 30 June 2018

8. Intangible assets

9. Share capital

On 28 June 2017 the Company issued an additional 1,000,000 Ordinary Shares to participants in a placing, raising gross proceeds of £1.5m. The placing was undertaken by means of a cash box structure. Consequently, relief was available under s612 of the Companies Act 2006 from recording share premium and the difference between net proceeds and the nominal value of shares issued was transferred to retained earnings. As part of the 2016 listing process 11,666,658 of Warrants were issued to participants in the placing. During June 2017 7,193,766 Warrants were exercised at a strike price of £1.50, raising gross proceeds of £10.8m. The remaining 4,472,892 Warrants lapsed at 30 June 2017. On 28 June 2017 the Company's directors and senior management subscribed to an issue of 96,669 Ordinary Shares, raising gross proceeds of £145,000. Expenses of £0.5m were incurred in the course of the exercise of Warrants, placing and subscription.