Circassia’s recent interims demonstrated 55% y-o-y revenue growth to £28.4m and a 75% R&D expense reduction (to £6.9m from £27.2m in H117) while growing the commercial infrastructure that now includes China. Investors should see a path to profitability, but we note recent licensing opportunities in the respiratory therapeutic area could accelerate this.
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Circassia Pharmaceuticals |
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8 November 2018 |
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Circassia’s recent interims demonstrated 55% y-o-y revenue growth to £28.4m and a 75% R&D expense reduction (to £6.9m from £27.2m in H117) while growing the commercial infrastructure that now includes China. Investors should see a path to profitability, but we note recent licensing opportunities in the respiratory therapeutic area could accelerate this.
Circassia’s transformation
Circassia has moved past R&D disappointments and transformed into a respiratory specialty pharmaceutical company with the potential for profitability. Circassia’s revenues (from its respiratory products Tudorza for COPD and NIOX) grew to £28.4m in H118 from £18.3m in H117. Just as important was the cost discipline, as illustrated by a 26% y-o-y fall in operational costs, helped by a 75% reduction in R&D spend. Circassia ended H118 with £50.8m in cash (£59.5m at YE17).
Big opportunities in respiratory space
Changing priorities at the UK’s biggest pharma companies could bring opportunities in the respiratory space. GlaxoSmithKline’s (GSK’s) recent Q318 results included a pruning of its once-dominant respiratory pipeline of three experimental products; media reports (by GSK’s head of oncology) have suggested a side-lining of the franchise with resources diverted to other therapeutic areas. In addition, after nine quarters of product sales declines, AstraZeneca is divesting its formerly most treasured but deprioritised respiratory brands such as Alvesco for asthma.
Therapeutic specialty and in-licensing record
Circassia in-licensing deprioritised complementary respiratory products from big pharma would make commercial sense, and is a logical fit beyond Circassia’s COPD product 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. In addition, the AstraZeneca deal has given Circassia a track record of structuring transactions that involve deferred and option payments, loans and share purchases without significant shareholder dilution.
Valuation: Few specialty respiratory peers
There are few opportunities for commercial respiratory exposure and, with an EV of c £151m, past R&D issues may still be discounting Circassia’s valuation.
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Consensus estimates
Source: Reuters |
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Research: TMT
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