Investors that stayed loyal to Circassia (CIR) following the major clinical trial disappointment last year have been rewarded for their patience. Shares rose as much as 30 per cent on the day the specialist biotech company announced a partnership with pharma giant AstraZeneca (AZN).
Circassia will pay up to $230m (£186m) over the next few years for the US commercial rights to two of Astra's respiratory drugs. This includes an upfront share payment worth $50m, giving Astra a 14 per cent stake in the company. One of the drugs - Tudorza - is approved in the US and last year made $80m of revenue there. The other - Duaklir - is in the final phase of clinical trials, with approval expected by 2019. Circassia will contribute to the final development costs of this drug and will then sell it via its own commercial platform.
"This transaction is an ideal fit with Circassia's strategy and respiratory focus," said the group's chief executive, Steve Harris. Circassia was forced to make a strategic U-turn last year to concentrate on its respiratory products, after it suffered major disappointment from its flagship allergy franchise. The respiratory market may not have quite the same allure as the fast-growing allergy immunotherapy space, but investors can take comfort in the fact that Circassia has been chosen as a partner due to its strong commercial platform. It is very unusual for a global pharma company to seek commercial help from a small biotech group.
AstraZeneca has previously faced criticism for hiving off drugs that fall outside its sphere of focus, but Mr Harris thinks this one makes sense. "An $80m product doesn't move the dial for Astra," he said. But for Circassia it is a big deal, being roughly eight times the group's 2015 revenue, he added.
Broker Stifel has upgraded Circassia to a buy as a result of this deal, based on the fact it is cash-neutral and earnings-accretive. David Cox, analyst at Panmure Gordon, is also positive, calling it a "clever deal", which will give the group's commercial platform the opportunity to sell its own respiratory products once they are developed.
