When Circassia’s (CIR) novel cat allergy medicine failed to reduce symptoms any more than a placebo treatment, the company was written off by many as another biotechnology failure. Circassia lost more than two-thirds of its value on the day of the announcement and since then has walked away from its allergy drug development franchise. But prior to the clinical trial, management ensured that the business would not be ruined by such a failure. Yet, today it boasts an impressive global commercial platform, which was established prior to the allergy drug failure, a strong pipeline of both novel and replica respiratory drugs, and a partnership with AstraZeneca (AZN). But, in the shadow of the high-profile drug failure, the shares have trodden water for more than a year. We think that is a mistake. The new, reinvigorated Circassia is a well-placed speciality pharma group which has a lot more potential than investors are currently giving it credit for.
Global commercial platform
Partnership with AstraZeneca
Strong cash position
Large potential sales
No profits forecast until 2019
Continued research and development expenditure
In the short term, the biggest opportunity for growth is Tudorza, one of the two drugs Circassia gained access to with its $230m (£174m) deal with AstraZeneca. Tudorza is used for the long-term maintenance of chronic obstructive pulmonary disease (COPD) and, at its peak, generated $120m of revenue for AstraZeneca. But the global pharma company has bigger fish to fry and has therefore let Tudorza marketing dwindle and, with it, its sales. Under the terms of the partnership, Circassia has taken on the drug’s US marketing and will earn royalties (£5.2m between April and June of 2017) on its sales. The group has doubled Tudorza’s US sales team and started promotion ahead of schedule, meaning broker Numis thinks it is on track to reach peak sales of $90m.
The second drug in the Astra partnership, Duaklir, also for COPD, will be filed with the US Food and Drug Administration in the first half of 2018. Having contributed roughly £14.6m to the development of the drug, Circassia has gained its US commercial rights and will sell it via its own platform and pay Astra royalties. Broker Stifel thinks Duaklir has the potential to make revenues of $200m by 2025.
Circassia’s own pipeline of respiratory drugs is equally impressive. The group has developed unbranded replicas of two of the best-selling asthma medicines of all time, which are expected to be registered in Europe by mid-2019. Meanwhile, its own novel asthma drug, NIOX, reported a 19 per cent increase in sales in the first half of 2017 and is expected to keep up this strong growth trajectory as more US insurers pick up coverage.
Extraction from the allergy franchise has narrowed research and development spend, meaning Circassia can direct its £83m of cash towards its respiratory drugs. Operating cash burn is expected to fall significantly in the second half of the year from £34m in the first half, meaning Circassia looks well financed for now.
CIRCASSIA (CIR) | ||||
ORD PRICE: | 83p | MARKET VALUE: | £276m | |
TOUCH: | 83-85p | 12-MONTH HIGH: | 114p | 77p |
FORWARD DIVIDEND YIELD: | nil | FORWARD PE RATIO: | na | |
NET ASSET VALUE: | 86p* | NET CASH: | £82.9m |
Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p) | Dividend per share (p) |
2014 | 0.0 | -44.0 | -21.0 | nil |
2015 | 10.8 | -56.1 | -17.3 | nil |
2016 | 23.1 | -64.9 | -20.1 | nil |
2017** | 40.6 | -88.9 | -23.7 | nil |
2018** | 58.1 | -33.6 | -8.7 | nil |
% change | +43 | - | - | - |
Normal market size: | 5,000 | |||
Matched bargain trading | ||||
Beta: | 0.1 | |||
*Includes intangible assets of £176m, or 53p a share | ||||
**Peel Hunt forecasts, adjusted PTP and EPS figures |