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Novel respiratory drugs give Circassia commercial edge

The group has decided to reduce its research and development expenditure in favour of commercial expansion of its three top drugs
April 24, 2018

The identity crisis at Circassia (CIR) stepped up a notch in 2017. As well as walking away from its allergy drugs business (which suffered after a major trial failure in 2016), the group is tapering investment in its generic respiratory portfolio following product development delays. Pure commercial pharma is the new focus, which is why the sales and marketing team now makes up three-quarters of the group’s headcount, while research and development (R&D) staff have been cut by 40 per cent.

IC TIP: Buy at 91p

Key to the group’s new strategy is its joint venture with AstraZeneca, which has given it access to the US commercial rights to two respiratory drugs, and its asthma drug NIOX, which recorded a 26 per cent increase in worldwide sales. Growth from these drugs is expected to push group revenue up to £80m by 2019.

Meanwhile, the operational realignment is expected to slash R&D costs, which will help lower adjusted cash losses to £27.6m in 2018 and £7.7m the year after that, according to broker Numis (from £34.7m in 2017). Excluding the discontinued programmes, a £37m impairment on product delays and the £42m one-off expenditure on the joint venture, R&D fell 54 per cent to £20.9m in 2017. What’s more, management is planning on paying for the next phase of drug development in the joint venture with new shares issued to AstraZeneca, helping to preserve cash.

CIRCASSIA (CIR)   
ORD PRICE:91pMARKET VALUE:£303m
TOUCH:90-91p12-MONTH HIGH:114pLOW: 77p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:67p*NET CASH:£59.5m
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2013nil-23.9-1.3nil
2014nil-44.0-0.2nil
201510.8-62.8-0.2nil
2016 (restated)23.1-38.8-0.1nil
201746.3-114-0.3nil
% change+100---
Ex-div:na   
Payment:na   
*Includes intangible assets of £210m, or 63p a share