Compelling Circassia could be a market leader

True, pharmaceuticals investors have shifted their attention to blockbuster mergers, but Circassia still offers a compelling story. The allergy market suffers from a dearth of successful, long-term treatments. Most common and serious allergies are treated via a series of injections that often require three to five years of 'maintenance' treatment, whether that involves oral medications or follow-up subcutaneous injections. Circassia aims to reduce patients' treatment to a single course of four to eight injections, none of which will carry inflammatory side effects or require follow-up treatment.

For example, Circassia recently released results from a two-year follow-up study testing patients who received its short-course treatment for an allergy to house-dust mites. The trial was conducted in Toronto where 172 volunteers with confirmed house dust-mite allergy received one of four treatment regimens or a placebo. Chief executive Steve Harris says the treatment had lasting effects two years on with no further injections necessary.

As a private company, Circassia successfully developed its ToleroMune drug delivery technology to design these injection courses, supported at the time by institutional shareholders Invesco Perpetual, Imperial Innovations and Lansdowne. But top fund manager and former Invesco Perpetual star performer Neil Woodford has pledged his ongoing support for Circassia's blue-sky growth story by holding it in his new Woodford Equity Income Fund.

As of today, Cat-SPIRE - Circassia's leading cat allergy product - has achieved good results in clinical studies and is currently in the final phase of testing. But, unlike many biotech companies, Circassia intends to launch the product independently, rather than selling it on to big pharma. Its bosses reckon that full ownership of future treatments would work hand-in-hand with a dedicated sales force to maximise financial returns for the company.

Setting up a sales force is risky and expensive, but Circassia has three other late-stage drugs that it would hope to market one day. Analysts at investment bank JPMorgan estimate these could collectively generate £1.3bn in sales. And analysts at broker Shore Capital say that Circassia's immunotherapies demonstrate a 'best-in-class' safety and treatment profile, based on existing clinical data. They also reckon Circassia is right to focus predominantly on its cat allergy treatment because there is no comparable product available for sufferers.

Final test results of the cat allergy treatment won't be available until early 2016 and analysts at JPMorgan estimate that it won't be until the end of 2017 that Circassia's other allergy treatments will be in the final phase of testing. This makes the Circassia story a long-term one and full of risks, but analysts believe that if - big if - all four treatments are successful, the share price could top £15, over five times the current level.

However, developments in the US drugs industry offer further encouragement. The Food and Drug Administration (FDA), the US drugs regulator, has recently approved new forms of oral treatment for grass and ragweed allergies developed by US companies Merck and Stallergenes. This implies that the FDA is broadening its outlook on treatment for these allergies, both of which Circassia is targeting with two products in early-stage development.