Investors have had to be patient waiting for AIM-listed biotech Circassia Pharmaceuticals to come good, but things might now be turning in its favour.

A recent trading update highlighted good sales growth while cash – another key metric for any early-stage biotech – was healthier than expected.

Circassia was caught up last year in the Woodford debacle, with the troubled fund manager holding a 28 per cent stake in the firm in March that had to be sold down when it collapsed.

Circassia is focused on inhaled treatments for respiratory diseases such as COPD (smoker’s cough) and asthma, both areas that have considerable potential

Circassia is focused on inhaled treatments for respiratory diseases such as COPD (smoker’s cough) and asthma, both areas that have considerable potential

But that overhang, too, has now passed and last week another investment group, CIP Merchant Capital, bought a 3 per cent stake in Circassia based on, what it called, the ‘clear route to profitability’ evident for the business.

Circassia is focused on inhaled treatments for respiratory diseases such as COPD (smoker’s cough) and asthma, both areas that have considerable potential.

It’s NiOX product, for example, is a tool that measures if a person suffers from asthma and, if they do, the severity of the condition.

By analysing the fractional exhaled nitric oxide (FeNo) present when people breathe out, it can give a readout in less a minute.

For people diagnosed with the condition, the tool allows doctors to monitor the effectiveness of treatment and if doses need to be changed, allowing for better illness management.

Alongside NiOX, Circassia also has two COPD treatments in-licensed from FTSE 100 giant AstraZeneca for the US market – Tudorza and Duaklir.

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Under Circassia’s stewardship, both products saw their prospects boosted significantly last year.

Tudorza’s marketing label was broadened to include people suffering from cardiovascular conditions after a post-launch study indicated it can reduce breathing problems in COPD sufferers with heart problems.

As around a third of fatalities in sufferers are due to cardiovascular complications this was a major boost to the size of its potential market

Troubled fund manager Neil Woodford (above) held a 28 per cent stake in Circassia Pharmaceuticals back in March that had to be sold down when it collapsed

Troubled fund manager Neil Woodford (above) held a 28 per cent stake in Circassia Pharmaceuticals back in March that had to be sold down when it collapsed

Tudorza was already on sale in the US when Circassia acquired the rights, but under its control revenues had started to pick up again even before the recent labelling boost.

At the half-year, Turdoza sales rose 15 per cent to just under £21million out of group sales of £48.3million.

Duaklir, meanwhile, is a major addition to the group’s spread of products.

Already approved in 50 countries, it was given a broad label approval to be sold in the US in March and launched there in October.

The deal with AstraZeneca does require further payments to cover R&D, but Circassia structured the deal so that these additional sums will be covered by a loan backstop from AstraZeneca.

The UK drugs major has also taken a 19.9 per cent equity stake as an acknowledgement it has effectively outsourced the marketing of the duo to Circassia.

AstraZeneca has taken a 19.9 per cent equity stake in Circassia Pharmaceuticals

AstraZeneca has taken a 19.9 per cent equity stake in Circassia Pharmaceuticals

Duaklir is a long-acting therapy that comes in powder form and is administered using an inhaler.

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Peak sales in the US are estimated by analysts at US$180million annually, while Tudorza peak sales are forecast at US$80million a year.

But Circassia is not just a US story, there is scope to boost revenues elsewhere around the world.

Regulatory bodies such as the UK’s NICE have championed the use of FeNO analysis in asthma treatment.

China, meanwhile, has major air quality issues and Circassia has recently set up its own sales network there.

Added to Europe and the US, it means Circassia now has targeted and established sales and marketing networks in the key healthcare markets of China, Europe and the US, down which other products can be distributed.

Circassia has recently set up its own sales network where there are issues with poor air quality

Circassia has recently set up its own sales network where there are issues with poor air quality 

Some of that potential is now starting to show through.

The recent trading update indicated revenues in 2019 would be around US$63million, or 31 per cent higher than a year earlier, though this is with only a small contribution from Duaklir.

City broker finnCap expects Circassia’s revenues to rise to £84million this year and to hit £106million in 2021, with a healthy profit in two years’ time.

Cash at the latest year-end was also higher than expected at £27milllion with outflows in the second half dropping to about £5million from £20million a year earlier.

Changes in the boardroom have also seen listed biotech company veterans Ian Johnson and Michael Roller take over as executive chairman and CFO respectively of Circassia.

A dispute over the distribution of a breathing product for babies is a reminder that there still might be a few bumps in the road.

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But with revenue rising, costs under control and the potential of the Tudorza re-labelling and Duaklir approval to come through fully, a market value of £87million at 23.3p does not reflect the recovery potential.

 

 

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