Circassia Builds US Respiratory Presence with AstraZeneca Deal
Executive Summary
Circassia has put memories of last year's Cat-SPIRE disappointment firmly behind it with a new deal with AstraZeneca for Tudorza and Duaklir in COPD that will allow it to concentrate on boosting its respiratory franchise.
Shares in UK biotech firm Circassia Pharmaceuticals PLC jumped by as much as 30% to 114 pence on the LSE on Mar. 17 on news that it had entered into a deal with AstraZeneca PLC to secure certain US commercial rights to two chronic obstructive pulmonary disease products (COPD), Tudorza (aclidinium bromide) and Duaklir (aclidinium bromide plus formoterol), for up $230m.
Circassia said the deal would "transform its product portfolio and commercial presence". It already markets the airway inflammation test Niox for use in asthma management in the US, EU, Japan and China, and this will immediately provide it with another marketed product, as well as giving it another in the wings.
In addition to the strategic fit with Circassia’s renewed focus on respiratory medicines, the deal would leverage Circassia’s commercial infrastructure – it plans to double its US sales force as a priority – and put it in a better position for future production licensing and acquisitions.
CEO Steve Harris said the way the deal is structured was "highly attractive" as it allows Circassia "to fund the consideration without further investment anticipated from shareholders, while at the same time welcoming AstraZeneca to our share register". The company has been concentrating on its respiratory franchise all the more since its cat allergy product Cat-SPIRE failed in a high-profile Phase III study last June, wiping more than 60% off its share price. This was Circassia's lead development drug product and attention had been particularly focused on it following a highly successful IPO and funding round by the company. (Also see "Circassia's Harris Deeply Frustrated By Phase III Cat Allergy Flop" - Scrip, 20 Jun, 2016.) Just prior to the failure, Circassia shares had been trading at around 270 pence.
Analysts at Cantor Fitzgerald said in a noted dated Mar. 17 that the new deal made sense from both sides: "[It allows] AstraZeneca to focus on other more important respiratory assets, while for Circassia it goes some significant way to realize its goal of becoming a significant specialty pharma company in the respiratory field.
"Having suffered a significant setback with its lead immunotherapy programme last year we see this as a positive step for Circassia as it seeks to exploit the commercial infrastructure it has in place in the US respiratory market."
AstraZeneca acquired the rights to the long-acting muscarinic M3 antagonist (LAMA) Tudorza, and its combination with the long-acting beta-2 agonist formoterol (Duaklir), from Actavis in 2015. Tudorza brought in worldwide revenues for AstraZeneca in 2016 of $170m, of which nearly half ($80m) were in the US. Despite being approved in the EU in 2014, Duaklir is still in Phase III in the US but is expected to be on the market there around 2019, when it will need to compete with GlaxoSmithKline PLC's LAMA/LABA product Anoro Ellipta (umeclidinium plus vilanterol), which has had since 2014 to establish itself.
Deal Details
Under the deal, $50m will be paid in the form of ordinary shares issued to AstraZeneca on completion of the transaction.
Circassia will also make a deferred payment of $100m either on Jun. 30, 2019 or the FDA approval of Duaklir, whichever comes first.
Circassia will pay royalties to AstraZeneca on the Duaklir in the US once on the market as well as deferred R&D contributions of up to $62.5m, which Circassia intends to fund through its returns from the commercial collaboration and profit share with AstraZeneca.
The deal is anticipated to be earnings enhancing for Circassia after one year and broadly cash neutral for three years, then cash generative.