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Circassia Pharmaceuticals: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Growing opportunities in respiratory space could accelerate Circassia’s path to profitability, says analyst

Some of the big boys are shifting their focus away from their respiratory drugs, which could open up opportunities for Circassia to in-license them
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INVESTMENT OVERVIEW: CIR The Big Picture
Star fund manager Neil Woodford owns a 23.2% stake in Circassia

Circassia Pharmaceuticals PLC’s (LON:CIR) path to profitability could be accelerated by recent licensing opportunities in the respiratory therapeutic area, says research house Edison.

Some of the UK’s biggest pharmas such as GlaxoSmithKline PLC (LON:GSK) and AstraZeneca PLC (LON:AZN) were once heavily invested in the respiratory space, but their priorities seem to have shifted of late.

READ: Astra collaboration helps H1 sales jump at Circassia

In Glaxo’s recent quarterly update, it said it would be pruning its once-dominant respiratory pipeline by getting rid of three experimental products, with reports suggesting it would rather divert resources into other areas.

Edison analyst Andy Smith said this change in attitude “could bring opportunities” in the respiratory space.

Tie-up with AstraZeneca

Smith adds that Circassia in-licensing such de-prioritised drugs, as it has done with two of Astra’s already, would “make commercial sense” and is a “logical fit” beyond the firm’s chronic obstructive pulmonary disease (COPD) focus.

“Circassia’s commercial infrastructure will be leveraged once the second product from the AstraZeneca transaction, Duaklir, is approved, but a more complete respiratory portfolio, containing an inhaled corticosteroid (alone or in combination), could expand the franchise to asthma and further utilise the salesforce,” wrote the analyst.

He adds that the Astra deal bodes well for the future, having given Circassia a track record of structuring transactions that “involve deferred and option payments, loans and share purchases without significant shareholder dilution”.

Circassia’s transformation

Previous R&D disappointments have held the stock back over the past year or two, but Smith praised Circassia’s bosses for transforming it into a specialty pharma which has “the potential for profitability”.

Revenues from its Tudorza COPD drug and NIOX asthma management system jumped to £28.4mln in the first half of the year, up from £18.3mln in the opening six months of 2017.

Just as important was the sharp reduction in costs, which fell by 26% year-on-year, helped by reduced R&D expenditure. Circassia ended the half year with £50.8mln of cash in the bank.

Going forward, the Edison analyst expects revenues to hit £56.4mln for 2018 as a whole, before climbing up to £76.3mln in 2019.

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