TIDMCIR
RNS Number : 8987R
Circassia Pharmaceuticals Plc
27 September 2017
CIRCASSIA PHARMACEUTICALS PLC
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2017
Strong NIOX(R) sales growth
Duaklir(R) NDA filing on track following positive phase III
results
AstraZeneca US commercial collaboration progressing well
Respiratory pipeline advancing
Oxford, UK - 27 September 2017: Circassia Pharmaceuticals plc
("Circassia" or "the Company") (LSE: CIR), a specialty
pharmaceutical company focused on respiratory disease, today
announces its interim results for the six months ended 30 June 2017
and a post-period update.
FINANCIAL HIGHLIGHTS
-- Revenues increased 65% to GBP18.3 million (H1 2016: GBP11.1 million)
-- R&D expenditure, including GBP14.6 million R&D
contribution to AstraZeneca collaboration, increased to GBP27.2
million (H1 2016: GBP25.1 million)
-- Loss for period reduced to GBP34.3 million (H1 2016: GBP101.8
million(1) which includes GBP74.8 million of allergy-related
impairments)
-- Strong balance sheet with GBP82.9 million cash(2) at 30 June
2017 (31 December 2016: GBP117.4 million)
OPERATIONAL HIGHLIGHTS
Strong NIOX(R) sales growth
-- Sales increased 19% (8% at CER(3) ) to GBP13.1 million (H1 2016 CER(3) : GBP12.1 million)
-- Direct clinical sales(4) increased 26% (15% CER(3) ) compared with H1 2016
-- US clinical sales increased 39% (22% CER(3) ) vs H1 2016;
reimbursement and key accounts expanded
-- UK sales growth 100% vs H1 2016 following launch of direct sales team
-- Global commercial team and commercialisation activities strengthened
AstraZeneca US commercial collaboration progressing well
-- Duaklir(R)(5) phase III study AMPLIFY met co-primary endpoints
-- NDA planned H1 2018; supported by successful Duaklir(R) dose-ranging study ACHIEVE
-- Encouraging stabilisation in Tudorza(R) US prescriptions
-- US commercial team expansion completed ahead of schedule;
200-strong sales force launched 5 June
Respiratory portfolio advancing
-- Seretide(R) pMDI substitute targeting initial filing H1 2019
-- Spiriva(R) DPI substitute pharmacokinetic study on track to start H1 2018
-- Smart nebuliser technology in-licensed from Philips
-- Nebulised LABA / LAMA formulation on track to begin clinical study 2018
-- Flixotide(R) pMDI substitute EU rights not returned; launch activities halted
Cost reductions implemented
-- Allergy investment halted
-- In-house R&D positions reduced by further 30%
Steve Harris, Circassia's Chief Executive, said: "Circassia has
made great progress so far in 2017, continuing NIOX(R)'s strong
sales growth and culminating in the recent successful results from
Duaklir(R)'s phase III AMPLIFY study, which pave the way for an NDA
in the first half of next year. We are building impressive momentum
in our US commercial collaboration with AstraZeneca, and as part of
this flagship partnership we launched our significantly expanded US
sales force in June, and Tudorza(R) prescription levels are
responding positively. During the period we also continued to
advance our broader respiratory pipeline. We recently licensed
innovative 'smart' nebuliser technology from Philips, which we are
incorporating into our novel LAMA / LABA formulation development
programme, and our range of substitute products remain on
track."
"We intend to build on this success in the coming months. In
particular, we plan to capitalise on our significantly expanded
commercial capabilities to accelerate our NIOX(R) revenues and our
AstraZeneca collaboration, while also pursuing additional
opportunities to broaden our portfolio through in-licensing,
acquisition and partnering. With a period of dramatic change behind
us, Circassia has a strong commercial infrastructure, growing
revenues, advancing pipeline and robust balance sheet. As a result,
we are well placed to complete our transformation into a
self-sustaining, world-class specialty pharmaceutical
business."
Analyst meeting and webcast
An analyst meeting will take place today at 9.30am at FTI
Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. A
webcast will be available in the Media section of the Company's
website at www.circassia.com.
Enquiries
Circassia
Steve Harris, Chief Executive Tel: +44 (0) 1865 405
Officer 560
Julien Cotta, Chief Financial
Officer
Rob Budge, Corporate Communications
JP Morgan Cazenove
James Mitford / James Deal Tel: +44 (0) 20 7742
4000
Numis Securities
Clare Terlouw / Freddie Tel: +44 (0) 20 7260
Barnfield 1000
FTI Consulting
Ben Atwell / Simon Conway Tel: +44 (0) 20 3727
/ Mo Noonan 1000
About Circassia
Circassia is a world-class specialty pharmaceutical business
focused on respiratory disease. Circassia sells its novel,
market-leading NIOX(R) asthma management products directly to
specialists in the United States, United Kingdom and Germany, and
in a wide range of other countries through its network of partners.
The Company recently established a collaboration with AstraZeneca
in the US in which it promotes the chronic obstructive pulmonary
disease (COPD) treatment Tudorza(R), and has the US commercial
rights to late-stage COPD product Duaklir(R).
Circassia's development pipeline includes a range of respiratory
medicines. The Company's lead asthma treatment targets substitution
of GSK's Flixotide(R) pMDI and was approved in the UK. Circassia is
also developing a direct substitute for Seretide(R) pMDI, and its
pipeline includes a number of inhaled medicines for COPD, including
single and combination dose products. For more information on
Circassia please visit www.circassia.com.
(1) Includes goodwill and other intangible assets impairment of
GBP74.8 million associated with discontinued allergy programmes
(2) Cash, cash equivalents and short-term deposits
(3) Constant exchange rates (CER) for H1 2016 represent reported
numbers re--stated using H1 2017 average exchange rates; management
believes constant currency numbers better represent the underlying
performance of the Group due to subsidiary functional currency
fluctuations against Sterling
(4) Direct clinical sales to clinicians, hospitals and
distributors; research sales to pharmaceutical companies for use in
clinical studies
(5) Duaklir(R) is a registered trademark in Europe and other
markets; the US trademark is subject to review and approval by the
FDA
Forward-looking statements
This press release contains certain projections and other
forward-looking statements with respect to the financial condition,
results of operations, businesses and prospects of Circassia. The
use of terms such as "may", "will", "should", "expect",
"anticipate", "project", "estimate", "intend", "continue", "target"
or "believe" and similar expressions (or the negatives thereof) are
generally intended to identify forward-looking statements. These
statements are based on current expectations and involve risk and
uncertainty because they relate to events and depend upon
circumstances that may or may not occur in the future. There are a
number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements. Any of the assumptions underlying these
forward-looking statements could prove inaccurate or incorrect and
therefore any results contemplated in the forward-looking
statements may not actually be achieved. Nothing contained in this
press release should be construed as a profit forecast or profit
estimate. Investors or other recipients are cautioned not to place
undue reliance on any forward-looking statements contained herein.
Circassia undertakes no obligation to update or revise (publicly or
otherwise) any forward-looking statement, whether as a result of
new information, future events or other circumstances.
OPERATING AND STRATEGY REVIEW
During the first half of 2017 Circassia capitalised on the
significant refocusing the Company initiated in the previous six
months. With a greatly expanded commercial presence focused on the
respiratory field, we established a transformational US
collaboration with AstraZeneca. The inevitable operational
disruption this caused is now drawing to a close with our US sales
force expansion, territory realignment and product training
complete. With the team focused on accelerating NIOX(R) and
Tudorza(R) sales we are building encouraging momentum.
We also made good commercial progress elsewhere, strengthening
our local and global capabilities and building on the launch of our
dedicated sales team in the UK. At the same time, Circassia's
pipeline continued to advance. We recently received positive
Duaklir(R) clinical results from the phase III AMPLIFY study, which
support a New Drug Application (NDA) planned for the first half of
next year. In addition, development of our particle-engineered
substitutes targeting market-leading respiratory products continues
on track.
NIOX(R) sales growth
NIOX(R) is the leading point-of-care product used across major
markets to assess airway inflammation through the measurement of
fractional exhaled nitric oxide (FeNO). As a result, physicians
around the world use NIOX(R) to diagnose and manage asthma.
During the first half of 2017, NIOX(R) sales continued to grow
strongly, with total revenues increasing to GBP13.1 million, 19%
above the same period in 2016 (8% CER). Sales for use in regular
clinical practise, rather than pharmaceutical company studies, are
more directly influenced by Circassia's commercialisation
activities and these continued to demonstrate good growth during
the period. For the first half of 2017, clinical sales increased by
26% (15% CER) compared with the same period the year before. This
was offset to some extent by less predictable research sales for
use in clinical studies, which declined during the period by 6%
(14% CER).
In the United States, the Company's significantly expanded sales
force made impressive progress, with an overall increase in NIOX(R)
revenues of 39% (22% CER) compared with the same period the
previous year. During the first half of 2017 the UK team also
delivered an encouraging performance. Previously, UK
commercialisation was managed by a distributor, which was replaced
by Circassia's direct sales force at the end of December 2016. The
team has rapidly established itself in the market, and sales are
100% ahead of Circassia's revenues during the same period in
2016.
US market access progress
Circassia's US managed markets and key accounts teams have
performed well since their establishment in the second half of
2016. During 2017, the team increased reimbursement levels and
consequently over 6 million additional Americans now have NIOX(R)
coverage via a number of health plans. In parallel, Circassia's key
accounts team identified and targeted large multi-site health
providers. As a result, the team signed 29 major account contracts
during 2017, providing physicians in these facilities with easy
access to NIOX(R).
Customer evaluation programmes
During 2017, the US team evolved its NIOX(R) experience
programme to focus on objectively demonstrating the value of FeNO
measurement to potential customers. The programme offers a 90-day
trial at an introductory price and provides healthcare
professionals with weekly 'Impact Reports' detailing their
FeNO-guided treatment changes alongside comparisons with national
averages and the medical literature.
Circassia's commercial teams in the UK and Germany have also
introduced local evaluation programmes. In Germany, the initiative
is conducted in collaboration with the national pulmonology society
and aims to increase the accessibility of FeNO measurement for
patients. In the UK, the programme is currently running across five
regions, with physicians trialling NIOX(R) to demonstrate the
benefits of FeNO monitoring for their patients, practices and local
healthcare commissioners.
Distribution management
Circassia commercialises NIOX(R) directly in the United States,
Germany and the UK, and its commercial team in Beijing manages
local distributors in China. In addition, NIOX(R) is available
through distributors in a wide range of other countries where the
Company does not have a direct commercial presence. Relationships
with these distributors are managed by a recently-expanded
specialist team based at Circassia's headquarters in Oxford, which
is working to increase sales, boost local performance and monitor
sales and marketing efforts. During the last few months the
distributor management team has appointed new partners in a number
of countries in the Middle East and is pursuing a number of
opportunities in Asia. In Europe, newly-appointed distributors in
France and Italy have re-launched NIOX(R) following a period of
underperformance by the previous distributor, and Circassia is
further supporting French commercialisation through the appointment
of a dedicated local market expert.
NIOX(R) registration extensions
During 2017, Circassia built on two clinical studies it
successfully completed in 2016, which were designed to extend the
use of NIOX VERO(R). The Company recently completed the product's
European certification for use in the screening of primary ciliary
dyskinesia (PCD), an orphan condition that affects approximately
50,000 people in the EU. We recently launched this new application
at the European Respiratory Society annual meeting, where the
Company presented the results of its PCD clinical study and
unveiled NIOX(R)'s new software and nasal breath sampling kit at a
dedicated workshop.
During the first half of 2017, Circassia also filed an
application to extend NIOX VERO(R)'s US registration to include its
six second test mode, which has the potential to increase use in
children compared with the currently approved 10 second mode. The
Company hopes to receive approval for this shorter test in the
coming months.
As well as extending the utility of the NIOX(R) system,
Circassia is working to increase the number of countries in which
it is registered. During the first half of 2017 the Company
received regulatory approval for NIOX VERO(R) from Health Canada,
and submitted filings in Taiwan and Singapore.
NIOX(R) development programme
Circassia is developing the next generation of NIOX(R) to retain
its market leadership position. As part of this development
programme, the Company has established a dedicated device
development team and specialist laboratory in Oxford, which
recently completed a successful external audit as part of the
NIOX(R) ISO accreditation process. The development team is
currently working with commercial colleagues on product concept
refinement for future NIOX(R) systems, based on both market
requirements and new technologies.
Commercial collaboration with AstraZeneca
In April 2017, Circassia established a transformational
transaction with AstraZeneca, which brings the Company two exciting
respiratory products in the United States. Under the initial
commercial collaboration, we promote the chronic obstructive
pulmonary disease (COPD) product Tudorza(R) through our
significantly expanded sales force. In addition, Circassia has
exclusive US commercialisation rights to Duaklir(R), which recently
completed a successful phase III study supporting an NDA filing
planned for the first half of next year.
In addition to the products, the structure of the transaction is
attractive. AstraZeneca has joined Circassia's share register,
taking a 14% shareholding in the Company in payment for the upfront
consideration of $50 million, while the transaction's remaining
consideration is deferred with the exact amount payable dependent
on the success of Tudorza(R) and Duaklir(R). We will seek
third-party funding to cover these deferred payments, and in the
event financing is not available we have agreed a vendor loan with
AstraZeneca to address this consideration. Additionally, we
anticipate the Tudorza(R) commercial collaboration will fund the
expansion of our US commercial team and our R&D contribution to
the products' clinical studies.
Tudorza(R) collaboration
Tudorza(R) (aclidinium bromide 400 <MU>g twice daily) is a
long-acting muscarinic antagonist (LAMA) indicated for the
long-term maintenance treatment of bronchospasm associated with
COPD, including chronic bronchitis and emphysema. Following
completion of the transaction with AstraZeneca, Circassia assumed
responsibility for the promotion of Tudorza(R) in the United
States, and is building encouraging momentum. The Company's
existing US sales force completed Tudorza(R) product training and
began promotion at the beginning of May 2017. In parallel, we
doubled the number of our sales representatives to 200, selecting
from over 4,000 applications. This greatly expanded team, which
includes a large number of experienced respiratory specialists,
began Tudorza(R) promotion at the start of June, eight weeks ahead
of schedule. We also complemented this sales team growth with
additional marketing, medical, training and analysis expertise.
As part of the overall expansion programme, sales territories
were redefined, reallocated and aligned with our expanded
resources. Additionally, potential new customers have been
identified and targeted, and contact established with the existing
Tudorza(R) customer base. As a result of these changes, we
experienced inevitable disruption for a number of months, which is
now drawing to a close. With the team increasingly established in
the marketplace we are making good progress and are exceeding our
Tudorza(R) physician call targets.
Our promotional strategy targets prescribers who account for the
majority of Tudorza(R) prescriptions, as well as the modest number
of physicians who are responsible for the greatest number of COPD
prescriptions. In the short period since Circassia assumed
responsibility for Tudorza(R)'s promotion, the market is showing
encouraging early results. Following previous sustained declines in
Tudorza(R) prescription levels, Circassia has now stabilised
product uptake in recent weeks, and anticipates returning it to
growth in the coming months.
Duaklir(R) development programme
Under the terms of the transaction with AstraZeneca, Circassia
secured the US commercial rights to Duaklir(R), a fixed dose
long-acting muscarinic antagonist / long-acting beta agonist (LAMA
/ LABA) combination (400 ug aclidinium bromide / 12 ug formoterol
fumarate twice daily). In recent months, Duaklir(R) has made
significant progress and recently completed a successful phase III
trial, AMPLIFY, meeting its co-primary efficacy endpoints with
clinically relevant improvements in patients' lung function. These
results are supported by another recently completed study, ACHIEVE,
which confirmed the 12 ug dose of formoterol included in the
AMPLIFY study as the optimal dose for the product. As a result,
AstraZeneca plans to submit a New Drug Application to the FDA in
the first half of 2018.
Positive clinical data
During the first half of 2017, several studies were published
supporting Tudorza(R), Duaklir(R) and the novel Pressair(R) inhaler
used to deliver both products. Pressair(R) offers a number of
competitive advantages and previous studies show a clear patient
preference for the inhaler versus a number of competing
devices.
In June, a post-hoc analysis from a Tudorza(R) phase III study
was published in the International Journal of COPD*. This compared
Tudorza(R) treatment with the market-leading LAMA, Spiriva(R), in
patients with symptomatic moderate-to-severe COPD. The results
showed that Tudorza(R) provided additional improvements in
bronchodilation, particularly during the night, and in daily COPD
symptoms, early-morning and night-time symptoms and early-morning
activity limitation.
This publication followed a number of presentations at the
American Thoracic Society conference in May, which highlighted data
from several studies.
-- Tudorza(R) showed greater improvements in symptoms and
quality-of-life measures with lower exacerbation frequency in
patients with moderate-to-severe COPD compared with Spiriva(R).
-- Tudorza(R) significantly improved daily COPD symptoms as well
as cough and sputum symptoms compared with placebo.
-- Duaklir(R) significantly improved exercise capacity and lung
hyperinflation versus placebo, with significant early improvements
in physical activity, in patients with moderate-to-severe COPD.
-- Pressair(R)** required less training and patients had fewer
errors, higher satisfaction and greater willingness to continue
using the inhaler compared with Spiriva(R)'s Respimat(R)
device.
During the second half of 2017, Circassia is anticipating
further Tudorza(R) clinical results when the currently ongoing
ASCENT post-marketing study completes. This study, in which
AstraZeneca enrolled over 3,500 COPD patients in North America, is
exploring the effect of Tudorza(R) treatment on the time to a first
major cardiovascular event and the rate of moderate or severe COPD
exacerbations. Positive results from the study may support a
supplemental filing to include the data in Tudorza(R)'s label.
Significant market opportunity
COPD is a highly prevalent and serious disease that causes
long-term disability. In the United States, over 15 million people
have been diagnosed with COPD and the disease is the third largest
cause of death, killing over 135,000 Americans each year. As a
result, the COPD treatment market is significant, with US sales
estimated at more than $5 billion in 2016.
This major market opportunity is further supported by recent
changes to the Global Initiative for Chronic Obstructive Lung
Disease (GOLD) treatment guidelines. Notably, these advocate a move
away from treatment with inhaled corticosteroids and now recommend
LAMA-containing products, such as Tudorza(R) and Duaklir(R), as
preferred initial treatments for every patient group.
Commercial growth platform
Over the last 12 months, Circassia has completed its
transformation into a fully-fledged specialty commercialisation
company with growing capabilities in key markets. In the United
States, we expanded our sales management, training, marketing and
operational capabilities alongside the doubling of our field force.
We have also boosted our infrastructure in Europe, where our UK and
German teams are complemented by marketing, market access and
in-house training expertise. Additionally, our distributor
management team now incorporates market access support to assist
local reimbursement activities. With these expanded capabilities
now in place, Circassia is building a robust presence in the
marketplace, including significant brand building activities at
leading global respiratory conferences. This investment strategy
has a dual objective, targeting increased product sales as well as
building a strategic growth platform on which to broaden our
portfolio through acquisition, in-licensing or partnering.
Respiratory portfolio
Seretide(R) pMDI and Spiriva(R) DPI substitutes progressing
Circassia is developing products targeting direct substitution
of GSK's Seretide(R) pMDI and Boehringer Ingelheim's Spiriva(R)
DPI. In 2016, the originators' products accounted for global
revenues of approximately $4.7 billion and $3.3 billion
respectively in a range of inhalers. Circassia's development
programmes are continuing to advance, and we are targeting a
European filing in H1 2019 for our Seretide(R) substitute and an
initial pharmacokinetic clinical study of our Spiriva(R) substitute
in the first half of next year.
Novel nebulisation technology
During the second half of 2016, we began the development of a
novel LAMA / LABA formulation based on currently approved drugs for
use as a specialist COPD treatment. This programme incorporates
novel mesh nebulisation technology, which we recently in-licensed
from leading medical innovation company Philips Respiratory Drug
Delivery. The easy-to-use nebuliser is designed to improve
usability, which is particularly important for patients with more
severe COPD who are often elderly and infirm. The hand-held
nebuliser is also web enabled, allowing efficient data
collection.
The product concept aims to increase treatment efficacy for
vulnerable COPD patients who struggle to use existing LAMA / LABA
inhalers. Importantly, it targets a different market segment to
Tudorza(R) and Duaklir(R), providing Circassia the opportunity to
offer treatments to a broad range of patient groups. The
development programme continues to make progress, and Circassia is
on track to begin an initial clinical study in 2018.
Flixotide(R) pMDI EU rights
At the end of 2015, Circassia's lead asthma product targeting
substitution of GlaxoSmithKline's Flixotide(R) pMDI was approved by
the UK's Medicines and Healthcare products Regulatory Agency (MHRA)
in all three strengths in which the originator product is
available. The product was previously out-licensed in major
territories prior to Circassia's ownership, and with the United
States remaining the largest market, we initiated discussions
regarding the potential return of rights for the more modest EU
opportunity in the second half of 2016. However, we have not
secured these rights, which remain with our partner, and as a
result we have halted EU launch activities for the product.
Focus on costs
In the first nine months of 2017, Circassia has continued its
focus on costs. In the second quarter of the year, the Company
completed a review of its R&D requirements following receipt of
disappointing allergy clinical data that mirrored the phase III
results it received in 2016. Based on this review the Company
halted investment in the allergy field and subsequently reduced its
R&D headcount by a further 30%.
During 2017, Circassia also completed the consolidation of its
Oxford facilities, significantly reducing future costs.
Additionally, with the closure of the Company's sites in Chicago
and Solna at the end of 2016, Circassia's G&A expenditure was
significantly lower during the first half of 2017 compared with the
same period the year before. Circassia intends to continue its
focus on costs to maintain efficiencies across its operations.
Summary and outlook
Throughout 2017, we have continued to build on the changes we
began last year following the disappointing phase III results for
our lead allergy product. Since then, we have halted investment in
the allergy field, significantly expanded our commercialisation
platform, completed a major commercial transaction with AstraZeneca
and in-licensed exciting nebulisation technology from Philips. With
the inevitable operational disruption caused by such ambitious
changes now behind us, we are building encouraging momentum,
increasing product uptake, advancing our pipeline and pursuing
additional opportunities to expand our portfolio.
In the coming months, we intend to capitalise on this momentum.
In the key US market, we are targeting a substantially larger
customer base than at this time last year, and consequently we
anticipate robust revenue growth for both NIOX(R) and Tudorza(R).
We also plan to increase our NIOX(R) sales in the UK and Germany
through our direct sales teams, as well as supporting our
distributors' efforts to expand uptake across our growing
international network. In addition to this commercial progress, we
plan to advance our pipeline products. Our partner AstraZeneca is
on track to submit an NDA for Duaklir(R) in the first half of 2018
and we plan to move our Spiriva(R) substitute and nebulised LAMA /
LABA development programmes into the clinic, while also advancing
our Seretide(R) substitute.
With a period of dramatic change behind us, Circassia has a
strong commercial infrastructure, growing revenues, advancing
pipeline and robust balance sheet. As a result, we are well placed
to complete our transformation into a self-sustaining, world-class
specialty pharmaceutical business.
*Int J Chron Obstruct Pulmon Dis 2017;12:1731-1740
**Pressair(R) is marketed as Genuair(R) in certain countries;
the Genuair(R) branded device was included in the study presented
at the American Thoracic Society conference
FINANCIAL REVIEW
The first half of 2017 has been a period of significant change
for Circassia, with the Company completing and building on the
major refocusing it initiated during H2 2016. With all significant
allergy investment halted following disappointing clinical results,
Circassia dramatically expanded its commercial platform,
facilitating a transformational US collaboration with AstraZeneca,
which in turn led to a further doubling of the US sales team at the
end of the period.
The AstraZeneca collaboration and ceasing of all further
activity on allergy development programmes have contributed to a
reduction in the loss for the financial period, and a reduction in
cash spend, compared to H1 last year. Loss for the financial period
was GBP34.3 million (H1 2016: GBP101.8 million). The presentation
of the 2016 results have been restated to show costs related to the
discontinued allergy business separately.
Under the terms of the AstraZeneca collaboration agreement,
Circassia is responsible for the promotion of Tudorza(R) to
physicians by its field force and records the associated costs
under its sales and marketing expenditure. AstraZeneca records
product revenues and is responsible for its distribution together
with all other ancillary costs, such as pharmacovigilance.
Circassia's revenue represents the Company's equal share of the net
profit generated by the collaboration. In addition, Circassia will
contribute $62.5 million to Tudorza(R) and Duaklir(R) R&D
costs, which will be paid in three instalments between 2017 and
2019 of $17.5 million at the end of 2017, $20 million at the end of
2018 and $25 million in 2019.
The table below sets out results for H1 2017 for the Group
separated into continuing and discontinued operations. Continuing
operations include revenue and costs derived from the collaboration
with AstraZeneca, in particular the sale of Tudorza(R) and
development of Duaklir(R), as well as sales of NIOX(R) and costs
for the existing underlying Circassia business. Discontinued
operations include direct costs and overheads associated with the
allergy programmes following the decision to stop all further
development in April 2017. The presentation of the results for the
six months to 30 June 2016 has been restated in accordance with
IFRS 5 to provide a clearer comparison.
Continuing Discontinued Group Continuing Discontinued Group
operations operations(1) operations operations
H1 H1 2017 H1 2017 H1 2016 H1 2016 H1 2016
2017
Restated(2) Restated(2)
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 18.3 - 18.3 11.1 - 11.1
Gross profit 13.6 - 13.6 7.5 - 7.5
Sales and marketing (21.1) (0.5) (21.6) (11.4) (76.2) (87.6)
Research & development (22.8) (4.4) (27.2) (7.9) (17.2) (25.1)
Administrative
expenditure (5.0) (0.1) (5.1) (9.3) (0.2) (9.5)
Operating loss (35.3) (5.0) (40.3) (21.1) (93.6) (114.7)
Finance income
net 1.2 - 1.2 6.3 - 6.3
Share of (loss)/profit
of joint venture - (0.5) (0.5) - 0.8 0.8
Loss before tax (34.1) (5.5) (39.6) (14.8) (92.8) (107.6)
Taxation 4.5 0.8 5.3 0.9 4.9 5.8
Loss for the financial
period (29.6) (4.7) (34.3) (13.9) (87.9) (101.8)
Cash(3) 82.9 - 82.9 138.0 - 138.0
======================== ============ =============== ======== ============ ============= ========
(1) Disclosed as a single amount in the condensed interim
consolidated statement of comprehensive income
(2) Restated to show the results of the allergy business in
discontinued operations, see note 6 to the condensed interim
consolidated financial statements
(3) Includes cash and cash equivalents and short-term
deposits.
Revenue
Circassia's revenues of GBP18.3 million (H1 2016: GBP11.1
million) include NIOX(R) sales of GBP13.1 million (H1 2016:
GBP11.1m) for the full six months and revenue of GBP5.2 million
from the collaboration with AstraZeneca, for the sale of Tudorza(R)
from 12 April 2017 when the agreement became unconditional.
Included in NIOX(R) revenues are clinical sales of GBP11.0
million (H1 2016: GBP8.8 million), research sales of GBP1.9 million
(H1 2016: GBP2.0 million) and other revenues of GBP0.2 million (H1
2016: GBP0.3 million), which include freight. Clinical revenues
represent sales to physicians, hospitals and distributors for use
in clinical practice, while research sales are those to
pharmaceutical companies for use in clinical studies. During the
period, NIOX(R) direct clinical sales increased by 26% (15% at CER)
compared to H1 2016. Growth was greater in the first quarter of
2017 compared with the second, due in part to operational
disruption in the US following the start of the collaboration with
AstraZeneca when the field force was expanded from 100 to 200,
territories restructured and representatives removed from the
market temporarily to complete training on Tudorza(R). Revenues
from more unpredictable pharmaceutical company use decreased during
the period by 6% (14% CER).
Gross profit
Gross margin during the period increased from 68% to 74%. This
was mainly due to the contribution of revenues from the AstraZeneca
collaboration. This gross margin is expected to increase further in
H2 2017 based on revenues from the collaboration for the full six
month period. Gross profit on NIOX(R) sales was GBP8.4 million (H1
2016: GBP7.5 million), with a gross margin of 64% (H1 2016: 68%).
This decrease mainly reflects the weakening in sterling.
Sales and marketing
Sales and marketing costs from continuing operations increased
during H1 2017 to GBP21.1 million (H1 2016 restated: GBP11.4
million). This was mainly due to an increase in the size of the US
field force from 100 to 200 as part of the collaboration agreement
with AstraZeneca. In contrast, total sales and marketing costs
decreased to GBP21.6 million (H1 2016: GBP87.6m), due to a goodwill
write-down of GBP74.5 million in H1 2016.
Research and development activities
Research and development expenditure increased during the period
to GBP27.2 million (H1 2016: GBP25.1 million). Continuing R&D
operations of GBP22.8 million (H1 2016 restated: GBP7.9 million)
included an accrual of GBP14.6 million (H1 2016: GBPNil) for the
R&D contribution to AstraZeneca relating to Tudorza(R) and
Duaklir(R).
Included within discontinued operations are costs of GBP4.4
million (H1 2016: GBP17.2 million) relating to the halted allergy
programmes.
Administrative expenditure
Administrative expenditure, which includes overheads specific to
corporate functions, centrally managed support functions and
corporate costs, decreased to GBP5.1 million (H1 2016: GBP9.5
million). This reflects a number of cost saving measures, including
the closure of the Company's site in Solna, Sweden and decreased
expenditure on patent maintenance.
Finance income - net
Net finance income decreased to GBP1.2 million (H1 2016: GBP6.3
million) during the period. A foreign exchange gain of GBP2.6
million (H1 2016: GBP5.8 million) arose as a result of the exchange
gain on the $100 million non-contingent consideration payable to
AstraZeneca under the companies' collaboration, due to weakening of
the US dollar against sterling. Additionally, finance costs of
GBP1.5 million have been recognised to reflect a charge to the
income statement for this period which arose on this $100 million
deferred consideration.
These finance costs arose as Circassia will pay AstraZeneca the
$100 million on the earlier of 30 June 2019 and the approval of
Duaklir(R) by the FDA. This deferred consideration was recognised
on 12 April 2017 as a liability and discounted to reflect its value
taking into account the time value of money. The difference in the
discounted rates recorded on 12 April and 30 June 2017 is charged
to the income statement on a pro-rata basis.
Share of loss of joint venture
A joint venture between Circassia and McMaster University was
established previously to collaborate on the development of allergy
immunotherapies. Since the decision to cease all further allergy
product development, the shareholders have agreed that the joint
venture will be wound up and net assets returned in due course.
Loss for the period in respect of the joint venture was GBP0.5
million (H1 2016: GBP0.8 million gain), which has been included in
discontinued operations.
R&D tax credits
The tax credit on qualifying expenditure for the period was
GBP5.3 million (H1 2016: GBP5.8 million). Included under continuing
operations is a tax credit of GBP4.5 million (H1 2016 restated:
GBP0.7 million). The increase over the previous year reflects
increased R&D expenditure on the Company's respiratory
programmes and the R&D contribution to AstraZeneca. The R&D
tax credit relating to the allergy portfolio is included in
discontinued operations.
Loss after tax and loss per share
Basic loss per share for the period was 11p (H1 2016: 36p)
reflecting a loss for the financial period of GBP34.3 million (H1
2016: GBP101.7 million), with the loss per share for continuing
operations of 10p (H1 2016 restated: 5p) reflecting a loss for the
financial period of GBP29.6 million (H1 2016 restated: GBP13.8
million). This increase in loss per share from continuing
operations mainly arises as a result of the R&D contribution to
AstraZeneca.
Transaction with AstraZeneca
On 12 April 2017, Circassia's collaboration and profit share
arrangement with AstraZeneca became unconditional. Under the
agreement, Circassia secured certain US commercial rights to
Tudorza(R) and Duaklir(R) for a maximum total consideration of $230
million plus future royalties on Duaklir(R) sales.
The consideration is structured as follows:
-- On 12 April 2017, Circassia issued 47,355,417 ordinary shares
with a value of $50 million to AstraZeneca;
-- Circassia will pay AstraZeneca deferred non-contingent
consideration of $100 million on the earlier of: (i) 30 June 2019;
and (ii) the approval of Duaklir(R) by the FDA;
-- Circassia entered an initial profit share arrangement with
AstraZeneca for Tudorza(R) in the United States. Based on
Tudorza(R) sales in a 12 month period ending no earlier than 30
September 2018, or if Duaklir(R) gains FDA approval before 31
December 2019, Circassia will have an option to the overall
commercial rights to Tudorza(R). If this option is taken, Circassia
will make further payments to AstraZeneca of up to $80 million
dependent on Duaklir(R)'s approval and Tudorza(R)'s US sales;
-- Circassia will pay royalties to AstraZeneca on sales of
Duaklir(R) in the United States; and
-- Circassia will make R&D contributions of up to $62.5
million payable to AstraZeneca as deferred payments.
Circassia anticipates utilising third-party funding to satisfy
the deferred payments, and the Company's share of the profits from
the Tudorza(R) commercial collaboration to fund its R&D
contributions.
Statement of financial position
The Group's net assets at 30 June 2017 were GBP286.7 million (31
December 2016: GBP280.7 million). The increase mainly reflects the
investment in the AstraZeneca collaboration, partly offset by the
decrease in the Company's cash balance. Further detail can be found
in note 11.
The weakening of pound sterling against Swedish krona resulted
in a credit of GBP1.8 million (H1 2016: GBP7.6 million) to 'Other
Comprehensive Income and Expense' based on the retranslation of the
Group's overseas operations.
Current liabilities at the end of the period were GBP30.9
million (31 December 2016: GBP21.5 million). The increase was
mainly due to the R&D contribution to AstraZeneca partially
offset by the reduction in other R&D expenditure with external
service providers.
Current tax assets at 30 June 2017 were GBP14.1 million (31
December 2016: GBP8.7 million), representing the R&D tax credit
due from HM Revenue and Customs (HMRC). A payment of GBP11.8
million was received in H2 2016 from HMRC, and an R&D tax
credit of GBP8.8 million is expected to be received in H2 2017.
Cash flow
The Group's cash position (including short-term deposits)
decreased from GBP117.4 million at 31 December 2016 to GBP82.9
million at 30 June 2017. The main cash outflows were:
-- GBP34.2 million cash used in operations (H1 2016: GBP37.4
million), with the decrease reflecting higher revenues and a net
decrease in the overall cost base of the business;
-- GBP0.9m transaction costs relating to the AstraZeneca
agreement, reflecting the proportion of the total transaction costs
of GBP1.9 million paid during the period. Of the GBP0.9 million,
GBP0.1 million is included in cash used in operations and GBP0.8
million offset against share premium.
An exchange gain on cash and cash equivalents arises as a result
of translation of foreign currency balances at the beginning and
end of the relevant period. The exchange gain for the period was
GBP0.6 million (H1 2016: GBP5.4 million). The reduction compared
with H1 2016 was due to less fluctuation in exchange rates during
the period. The H1 2016 gain reflected the significant weakening of
sterling following the Brexit vote in June last year.
Summary and outlook
Several factors have significantly influenced Circassia's
financial performance during the first half of 2017. The halting of
investment in the allergy field has reduced Circassia's in-house
R&D expenditure, and the dramatic expansion of the Company's US
sales force has increased ongoing sales and marketing costs while
also delivering substantially increased revenues.
This period of major change is also likely to influence the
financial performance in the second half of the year. In
particular, the cash spend in H2 2017 is expected to be
substantially lower than in the first half of the year. A number of
factors are likely to result in a greater use of cash in the first
half, most notably the operational disruption in the US that
followed the recruitment of an additional 100 sales representatives
and subsequent product training and territory restructuring. With
the US field force now established in the marketplace, Circassia
expects product revenues to increase, and the Company to benefit
from a full six months contribution from the AstraZeneca
collaboration. In addition, during the second half of the year,
Circassia will not commit any further expenditure on its
discontinued operations and expects to receive a substantial
R&D tax credit. Consequently, the Company anticipates its total
cash spend in H2 2017, including the payment of a $17.5 million
R&D contribution to AstraZeneca, to be significantly below the
level in the first half of the year.
PRINCIPAL RISKS AND UNCERTAINTIES
We have considered the principal risks and uncertainties facing
the Group for the remaining six months of this year and do not
consider them to have changed from those set out on pages 36 to 41
of the 2016 Annual report and accounts. A summary of these risks is
as follows:
Commercial success
The Group's competitors - many of whom have considerably greater
financial and human resources - may develop safer or more effective
products or be able to compete more effectively in the markets
targeted by the Group. New companies may enter these markets and
novel products and technologies may become available which are more
commercially successful than those being developed by the
Group.
Compliance with healthcare regulations
The Group must comply with complex regulations in relation to
the marketing of its device products (and in the future will need
to comply with such regulations in relation to its drug products).
These regulations are strictly enforced. Failure by the Group (or
its commercial partners) to comply with the US False Claims Act,
Anti- Kickback Statute and the US Foreign and Corrupt Practices Act
and regulations relating to data privacy (amongst others) and
similar legislation in countries outside the US may result in
criminal and civil proceedings against the Group.
Regulatory approvals
The Group may not obtain regulatory approval for those of its
products which are in development. Even where products are
approved, subsequent regulatory difficulties may arise, or the
conditions relating to the approval may be more onerous or
restrictive than the Group expects, or existing approvals might be
withdrawn.
Unforeseen side effects
Unforeseen side effects may result from the use of the Group's
products or product candidates.
Supply Chain
The Group relies on third parties for the supply of key
materials and services. Problems at these contractors, such as
technical issues, contamination, and regulatory actions may lead to
delays or even loss of supply or inadequate supply of these
materials and services either prior to launch or thereafter.
Research and development risks
The Group may not be successful in its efforts to build a
pipeline of respiratory products. This would have a material impact
on the long-term success of the business. Failure of programmes
could result from lack of internal resources or capabilities, or
from not obtaining the desired pre-clinical and clinical
results.
Intellectual property, know how, and trade secrets
The Group may be subject to challenges relating to the validity
of its patents. If these challenges are successful then the Group
may be exposed to generic competition.
The Group could also be sued for infringement of third party
patent rights or not be able to secure intellectual property
protection, or sufficient protection, in relation to products which
are acquired or in development.
The Group may rely upon know how and trade secrets to protect
its products and maintain a competitive advantage. This may be
especially important where patent protection is limited or
lacking.
The Group licenses certain intellectual property rights from
third parties. The rights which are licensed to the Group as part
of the collaboration with AstraZeneca relating to Tudorza(R) and
Duaklir(R) fall within this category. If the Group fails to comply
with its obligations under these licence agreements it may enable
the other party to terminate the agreement.
Organisational capabilities and capacity
The Group may be unable to successfully implement its plans for
growth if it does not attract and retain employees with the
requisite capabilities and experience, in appropriate numbers.
Free float
The UK Listing Authority requires listing issuers to maintain at
least 25% free float in their listed shares. As at 31 August 2017
the Company had a free float of approximately 13%. If the level of
free float cannot be increased to 25% then the UKLA can require the
Company to cancel its listing on the premium segment of the
Official List.
Financial operations
The Group has incurred significant losses since the inception of
its various businesses and anticipates that it will continue to do
so for some time due to the high level of expenditure required to
develop its NIOX(R) business, its respiratory pipeline, and to
promote Tudorza(R) and launch Duaklir(R).
Foreign exchange fluctuations may adversely affect the Group's
results and financial condition.
Adverse decisions of regulators, including tax authorities, or
changes in tax treaties, laws, or the interpretation of those laws,
could reduce or eliminate research and development tax credits
which the Group currently receives in the United Kingdom.
Brexit
At the referendum which was held on 23 June 2016, the UK voted
to leave the EU. The Group faces a range of risks associated with
this decision. For example, the vote to leave the EU may lead to
changes in the regulatory system by which medical devices and
pharmaceutical products are approved for use. The Group will also
seek marketing authorisations in respect of its respiratory
pipeline products in the future, and the optimal regulatory pathway
for the approval of these products after Brexit cannot yet be
determined.
Brexit may also result in restrictions on the movement of people
which make it harder for the Group to attract the talent it needs
to support the business. The general economic uncertainty created
by the process may also make it harder to enter into strategic
partnerships with European companies.
CONDENSED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
FOR THE SIX MONTHSED 30 JUNE 2017
Notes 30 June 2017 30 June 2016
GBPm GBPm
Unaudited Unaudited
Restated(1)
---------------------------------------- ------ ------------- -------------
Continuing operations
Revenue 18.3 11.1
Cost of sales (4.7) (3.6)
---------------------------------------- ------ ------------- -------------
Gross profit 13.6 7.5
Research and development
costs (22.8) (7.9)
Sales and marketing (21.1) (11.4)
Administrative expenses (5.0) (9.3)
Operating loss 4 (35.3) (21.1)
Finance costs (1.6) (0.1)
Finance income 2.8 6.4
---------------------------------------- ------ ------------- -------------
Finance income - net 5 1.2 6.3
Loss before tax (34.1) (14.8)
Taxation 4.5 0.9
---------------------------------------- ------ ------------- -------------
Loss for the financial
period from continuing
operations (29.6) (13.9)
---------------------------------------- ------ ------------- -------------
Discontinued operations
Loss for the period from
discontinued operations
attributable to owners
of Circassia Pharmaceuticals
plc 6 (4.7) (87.9)
---------------------------------------- ------ ------------- -------------
Loss for the period (34.3) (101.8)
---------------------------------------- ------ ------------- -------------
Loss attributable to:
Owners of Circassia Pharmaceuticals
plc (34.3) (101.7)
Non-controlling interests - (0.1)
---------------------------------------- ------ ------------- -------------
Loss for the financial
period (34.3) (101.8)
---------------------------------------- ------ ------------- -------------
Other comprehensive income/(expense)
Items that may be subsequently
reclassified to profit
or loss:
Share of other comprehensive
expense of joint venture 10 - (0.1)
Currency translation
differences 1.8 7.6
---------------------------------------- ------ ------------- -------------
Total other comprehensive
income for the period 1.8 7.5
Total comprehensive expense
for the period (32.5) (94.3)
---------------------------------------- ------ ------------- -------------
Total comprehensive expense
attributable to:
Owners of Circassia Pharmaceuticals
plc (32.5) (94.2)
Non-controlling interests - (0.1)
---------------------------------------- ------ ------------- -------------
Total comprehensive expense
for the period (32.5) (94.3)
---------------------------------------- ------ ------------- -------------
Loss per share attributable
to owners of the parent
during the period
---------------------------------------- ------ ------------- -------------
Basic and diluted loss
per share
Loss per share from continuing 13 (GBP0.10) (GBP0.05)
operations
Total loss per share 13 (GBP0.11) (GBP0.36)
---------------------------------------- ------ ------------- -------------
(1) Restated to show the results of the allergy business in
discontinued operations, see note 6 for further details
The notes on pages 18 to 25 are an integral part of these
condensed interim consolidated financial statements.
CONDENSED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
AS AT 30 JUNE 2017
Notes 30 June 31 December
2017 2016
GBPm GBPm
Unaudited Audited
------------------------------ ------ ---------- ------------
Assets
Non-current assets
Property, plant & equipment 1.5 1.4
Goodwill 8 9.8 9.7
Intangible assets 9 166.1 167.1
Deferred tax assets 7 16.3 16.6
Investment in joint venture 10 0.4 0.9
Prepayment for business
combination 11 106.9 -
301.0 195.7
------------------------------ ------ ---------- ------------
Current assets
Inventories 6.5 4.6
Trade and other receivables 10.5 7.7
Current tax assets 7 14.1 8.7
Short-term bank deposits 20.0 20.0
Cash and cash equivalents 62.9 97.4
------------------------------ ------ ---------- ------------
114.0 138.4
------------------------------ ------ ---------- ------------
Total assets 415.0 334.1
------------------------------ ------ ---------- ------------
Equity and liabilities
Ordinary shares 15 0.3 0.2
Share premium 15 602.2 563.8
Other reserves 16 14.3 12.5
Accumulated losses (330.1) (295.8)
------------------------------ ------ ---------- ------------
Total equity 286.7 280.7
Liabilities
Non-current liabilities
Deferred tax liabilities 7 31.7 31.9
Non-contingent consideration 11 65.7 -
------------------------------ ------ ---------- ------------
97.4 31.9
------------------------------ ------ ---------- ------------
Current liabilities
Trade and other payables 12 30.9 21.5
30.9 21.5
Total liabilities 128.3 53.4
------------------------------ ------ ---------- ------------
Total equity and liabilities 415.0 334.1
------------------------------ ------ ---------- ------------
The notes on pages 18 to 25 are an integral part of these
condensed interim consolidated financial statements.
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHSED 30 JUNE 2017
Notes 30 June 30 June
2017 2016
GBPm GBPm
Unaudited Unaudited
--------------------------------------- ------ ---------- ----------
Cash flows from operating activities
Cash used in operations 14 (34.2) (37.4)
Interest and bank charges paid (0.1) (0.1)
Tax paid - (0.2)
--------------------------------------- ------ ---------- ----------
Net cash used in operating activities (34.3) (37.7)
--------------------------------------- ------ ---------- ----------
Cash flows from investing activities
Interest received 0.5 0.3
Contingent consideration payment - (30.0)
Purchase of property, plant and
equipment (0.5) (0.3)
Decrease in short term bank deposits - 3.2
Net cash used in investing activities - (26.8)
--------------------------------------- ------ ---------- ----------
Cash flows from financing activities
Purchase of treasury shares - (0.4)
Expenses offset against share (0.8) -
premium
Transactions with non-controlling
interests - (3.2)
Net cash used in financing activities (0.8) (3.6)
--------------------------------------- ------ ---------- ----------
Net decrease in cash and cash
equivalents (35.1) (68.1)
Cash and cash equivalents at 1
January 97.4 166.0
Exchange gain on cash and cash
equivalents 0.6 5.4
--------------------------------------- ------ ---------- ----------
Cash and cash equivalents at 30
June 62.9 103.3
--------------------------------------- ------ ---------- ----------
The notes on pages 18 to 25 are an integral part of these
condensed interim consolidated financial statements.
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
`
----------
Notes Share Share Other(1) Accumulated Total Non-controlling Total
capital premium reserves losses interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
At 1 January 2017
(audited) 0.2 563.8 12.5 (295.8) 280.7 - 280.7
Comprehensive
expense:
Loss for the period - - - (34.3) (34.3) - (34.3)
Other comprehensive
income:
Currency translation
differences - - 1.8 - 1.8 - 1.8
---------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
Total comprehensive
expense - - 1.8 (34.3) (32.5) - (32.5)
Transactions with
owners:
Issue of Ordinary
shares 15 0.1 38.4 - - 38.5 - 38.5
---------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
At 30 June 2017
(unaudited) 0.3 602.2 14.3 (330.1) 286.7 - 286.7
---------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
At 1 January 2016
(audited) 0.2 564.0 2.8 (158.5) 408.5 1.2 409.7
Comprehensive
expense:
Loss for the period - - - (101.7) (101.7) (0.1) (101.8)
Other comprehensive
income/(expense):
Share of other
comprehensive
expense of joint
venture 10 - - (0.1) - (0.1) - (0.1)
Currency translation
differences - - 7.6 - 7.6 - 7.6
---------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
Total comprehensive
expense - - 7.5 (101.7) (94.2) (0.1) (94.3)
Transactions with
owners:
Purchase of own
shares 16 - - (0.4) - (0.4) - (0.4)
Employee share
option scheme - - 0.9 - 0.9 - 0.9
Transactions with
non-controlling
interests 16 - - (2.1) - (2.1) (1.1) (3.2)
---------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
At 30 June 2016
(unaudited) 0.2 564.0 8.7 (260.2) 312.7 - 312.7
---------------------- ------ --------- --------- ---------- ------------ -------- ---------------- --------
The notes on pages 18 to 25 are an integral part of these
condensed interim consolidated financial statements.
(1) Other reserves include the share option reserve, translation
reserve, treasury shares reserve and transactions with NCI
reserve.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
1. General information
Circassia Pharmaceuticals plc is a public limited company which
is listed on the London Stock Exchange and incorporated and
domiciled in England and Wales. The address of its registered
office is The Magdalen Centre, Robert Robinson Avenue, Oxford
Science Park, Oxford, Oxfordshire, England, OX4 4GA.
The condensed consolidated interim financial statements were
approved for issue on 27 September 2017.
The condensed consolidated interim financial statements do not
comprise statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 31
December 2016 were approved by the Board of Directors on 25 April
2017 and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
The condensed consolidated interim financial statements have not
been audited or reviewed.
Basis of preparation
The condensed consolidated interim financial statements for the
six months ended 30 June 2017 have been prepared in accordance with
the Disclosure and Transparency Rules of the Financial Conduct
Authority (previously the Financial Services Authority) and IAS 34
'Interim financial reporting', as adopted by the European
Union.
The condensed consolidated interim financial statements should
be read in conjunction with the annual financial statements for the
year ended 31 December 2016, which have been prepared in accordance
with IFRSs as adopted by the European Union.
Going concern
The Group has sufficient cash and cash equivalents to meet its
day-to-day working capital requirements. Though the Group continues
to make losses, the Directors have reviewed the current and
projected financial position of the Group, taking into account
existing cash balances. On the basis of this review, the Directors
have not identified any material uncertainties to the Group's
ability to meet its liabilities as they fall due for the
foreseeable future.
Accounting policies
The accounting policies adopted are consistent with those of the
previous financial year except as described below.
Discontinued operations
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area of operations that will not be progressed in the future.
Discontinued operations are presented on the income statement as a
separate line and are shown net of tax. Cash flows relating to
discontinued operations are disclosed in the notes.
Deferred non-contingent consideration
Deferred non-contingent consideration is measured by discounting
the liability, where the effect of the time value of money is
material, using a pre-tax discount rate that reflects current
market assessments of the time value of money and, when
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the liability due to the passage of time
is recognised as an interest expense in the income statement.
There are not considered to be any new standards, amendments to
IFRS's and interpretations effective for the financial year ending
31 December 2017 that would have a material impact on the
Group.
Use of estimates and assumptions
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed interim financial statements, the
significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the annual financial
statements for the year ended 31 December 2016 except as disclosed
below.
Restatement of prior period information for discontinued
operations
The allergy programme costs and the associated research and
development tax credit for the period ended 30 June 2016 have been
reclassified as discontinued operations in the condensed interim
consolidated statement of comprehensive income in accordance with
IFRS 5 requirements. The decision to treat the allergy business as
discontinued was made after the Group announced a decision to cease
all further activities on the allergy programmes.
Business combinations
The Group accounts for all business combinations under the
acquisition method. A judgement is made as to determine the point
at which control of a business passes to the Group and a business
combination occurs. Until control is passed to the Group,
consideration paid or payable is presented as a prepayment for the
business combination.
Under the acquisition method, the identifiable assets acquired
and liabilities and contingent liabilities assumed are measured at
their fair value at the acquisition date. Judgements and estimates
are made in respect of the measurement of the fair values of assets
and liabilities acquired and consideration transferred. The Group
has a maximum period of 12 months to gather all the necessary
information and finalise the acquisition accounting.
Financial instruments
The Group's financial instruments comprise cash and cash
equivalents, short-term bank deposits, receivables and payables
arising directly from operations. The Directors consider that the
fair values of the Group's financial instruments do not differ
significantly from their carrying values.
2. Financial and capital risk management
The condensed interim financial statements do not include all
financial and capital risk management information and disclosures
required in the annual financial statements; they should be read in
conjunction with the Group's annual financial statements for the
year ended 31 December 2016. The viability consideration has been
disclosed in the last annual report and the Directors believe that
the year-end position remains unchanged.
The majority of operating costs are denominated in Sterling,
United States dollars, Euro or Swedish krona. Foreign exchange risk
arises from future commercial transactions and recognised assets
and liabilities. The Directors expect foreign exchange volatility
to continue to affect the Group's results and the resulting impact
will be assessed in the annual report.
3. Operating segments
The chief operating decision-maker (the Executive Directors) is
responsible for making key operating decisions in the Group.
Assessment of performance and decisions regarding the allocation of
resources are made by operating segment. Performance of each
segment is assessed on revenue and operating profit/(loss). The
operating segments are identified within the Group by product
portfolios:
- NIOX(R) relates to the portfolio of products used to improve
asthma diagnosis and management by measuring fractional exhaled
nitric oxide (FeNO);
- Respiratory relates to the portfolio of asthma and chronic
obstructive pulmonary disease product candidates; and
- US AZ collaboration relates to the US collaboration agreement with AstraZeneca regarding the commercialisation of Tudorza(R) and Duaklir(R) once approved.
3. Operating segments (continued)
The allergy operating segment has been classified as a
discontinued operation. Information about this discontinued segment
is provided in note 6.
The table below presents revenue from external customers and
loss information regarding the Group's operating segments for the
six months ended 30 June 2017 and 2016. During 2016 businesses
acquired in 2015 were further integrated into the Group resulting
in the consolidation of some operations (mainly support functions).
Hence some costs are now shared between the segments and are not
allocated to individual segments for decision making purposes.
These are disclosed under the column headed 'Unallocated'.
NIOX(R) Respiratory US AZ Unallocated Total
collaboration
GBPm GBPm GBPm GBPm GBPm
---------------- -------- ------------ --------------- ------------ -------
Six months to
30 June 2017
Revenue 13.1 - 5.2 - 18.3
Operating loss (12.0) (1.2) (13.4) (8.7) (35.3)
Six months to
30 June 2016
Restated(1)
Revenue 11.1 - - - 11.1
Operating loss (6.9) (3.7) - (10.5) (21.1)
---------------- -------- ------------ --------------- ------------ -------
(1) Restated to show the results of the allergy business in
discontinued operations, see note 6 for further details
There have been no sales between segments in either reporting
period.
There have been no material changes in total assets or total
liabilities from the amounts disclosed in the last annual financial
statements except for the investment in the US AZ collaboration,
see note 11 for further details.
4. Operating loss
Included within the operating loss for the six months ended 30
June 2017 is a GBP14.6 million R&D contribution to AstraZeneca
relating to research and development costs of Tudorza(R) and
Duaklir(R).
Transaction costs totalling GBP1.9 million were incurred on the
collaboration arrangement with AstraZeneca, of which GBP0.3 million
is included within the operating loss to 30 June 2017 and GBP1.6
million has been offset against the Share premium reserve.
Included within the operating loss for the six months ended 30
June 2016 is a goodwill impairment charge of GBP74.5 million.
5. Finance income and costs
Six months Six months
ended 30 June ended 30 June
2017 2016
GBPm GBPm
------------------------------- --------------- ---------------
Finance costs:
Interest and bank charges
payable (0.1) (0.1)
Non-contingent consideration: (1.5) -
unwinding of discount
Total finance costs (1.6) (0.1)
------------------------------- --------------- ---------------
Finance income:
Bank interest receivable 0.2 0.6
Gain on foreign exchange 2.6 5.8
Total finance income 2.8 6.4
------------------------------- --------------- ---------------
Net finance income 1.2 6.3
------------------------------- --------------- ---------------
6. Discontinued operations
On 25 April 2017, following the receipt of the house dust mite
allergy study results, it was announced that Circassia would no
longer continue development of the allergy programmes. Therefore,
the allergy programme costs and the associated research and
development tax credit for the period ended 30 June 2016 have been
reclassified as discontinued operations in the condensed interim
consolidated statement of comprehensive income to comply with IFRS
5 requirements.
Loss for the period For the six months ended 30 June
----------------------------------------- ------ -----------------------------------
Notes 2017 2016
GBPm GBPm
----------------------------------------- ------ ---------------- -----------------
Expenditure (5.0) (18.8)
Intangible assets impairment - (0.3)
Goodwill impairment - (74.5)
Share of (loss)/profit of joint venture 10 (0.5) 0.8
Loss before tax (5.5) (92.8)
Taxation 0.8 4.9
----------------------------------------- ------ ---------------- -----------------
Loss from discontinued operations (4.7) (87.9)
----------------------------------------- ------ ---------------- -----------------
Cash flow For the six months ended 30 June
--------------------------------------------------- -----------------------------------
2017 2016
GBPm GBPm
--------------------------------------------------- ---------------- -----------------
Net cash outflow from operating activities (8.8) (16.5)
Net decrease in cash from discontinued operations (8.8) (16.5)
--------------------------------------------------- ---------------- -----------------
7. Taxation
R&D tax credit
Included within the GBP14.1 million tax debtor is an R&D tax
credit of GBP4.5 million (H1 2016 restated: GBP0.7 million)
relating to the six months ended 30 June 2017. This represents the
credit receivable by the Group for the period as well as
adjustments to prior years. These have been estimated at a rate of
14.5% for qualifying expenditure, being the prevailing R&D tax
credit rate at the time. An uplift of 130% has been applied to all
qualifying expenditure in line with R&D tax rules.
Deferred taxation
Intangibles Tax losses Net deferred tax liability
GBPm GBPm GBPm
At 1 January 2017 31.9 (16.6) 15.3
(Credit)/charge to the income statement (0.5) 0.6 0.1
Exchange differences 0.3 (0.3) -
At 30 June 2017 31.7 (16.3) 15.4
----------------------------------------- ------------ ----------- ---------------------------
30 June 2017 31 December 2016
GBPm GBPm
Deferred tax liabilities 31.7 31.9
Deferred tax assets (16.3) (16.6)
Total deferred tax position 15.4 15.3
----------------------------- ------------- -----------------
The Group has the following unrecognised potential deferred tax
assets as at
30 June 2017 31 December 2016
GBPm GBPm
Losses 58.3 51.8
Accelerated capital allowances - -
Share based payments and provisions - 1.3
Total unrecognised deferred tax asset 58.3 53.1
--------------------------------------- ------------- -----------------
8. Goodwill
GBPm
At 31 December 2016
Cost 84.2
Accumulated impairment (74.5)
------------------------------- -------
Net book amount 9.7
------------------------------- -------
Six months ended 30 June 2017
Opening net book amount 9.7
Exchange differences 0.1
Closing net book amount 9.8
------------------------------- -------
At 30 June 2017
Cost 84.3
Accumulated impairment (74.5)
------------------------------- -------
Net book amount 9.8
------------------------------- -------
The carrying value of goodwill, translated at period end
exchange rates, is allocated to the following CGUs:
30 June 2017 31 December
2016
Cash generating unit GBPm GBPm
NIOX(R) 5.4 5.3
Respiratory 4.4 4.4
---------------------- ------------- ------------
9.8 9.7
---------------------- ------------- ------------
There are no indicators of impairment for either CGU as at 30
June 2017.
9. Intangible assets
Total intangible assets
Customer relationships
IPR&D Technology Other
GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ------------------------- ------------- -------- --------------------------
At 31 December 2016
Cost 88.9 34.3 50.0 1.6 174.8
Accumulated amortisation
and impairment (0.1) (2.9) (3.1) (1.6) (7.7)
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Net book amount 88.8 31.4 46.9 - 167.1
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Six months ended 30 June
2017
Opening net book amount 88.8 31.4 46.9 - 167.1
Amortisation charge - (1.0) (1.1) - (2.1)
Impairment - - - - -
Exchange differences - 0.6 0.5 - 1.1
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Closing net book amount 88.8 31.0 46.3 - 166.1
---------------------------- -------- ------------------------- ------------- -------- --------------------------
At 30 June 2017
Cost 88.9 34.9 50.5 1.6 175.9
Accumulated amortisation
and impairment (0.1) (3.9) (4.2) (1.6) (9.8)
---------------------------- -------- ------------------------- ------------- -------- --------------------------
Net book amount 88.8 31.0 46.3 - 166.1
---------------------------- -------- ------------------------- ------------- -------- --------------------------
There are no indicators of impairment for the individual
intangible assets as at 30 June 2017.
10. Investment in joint venture
Six months ended 30 June 2017 Year ended Six months ended
GBPm 31 Dec 2016 30 June 2016
GBPm GBPm
At 1 January 0.9 0.2 0.2
Share of (loss)/profit (0.5) 0.6 0.8
Foreign exchange difference on consolidation - 0.1 (0.1)
At period end 0.4 0.9 0.9
---------------------------------------------- ------------------------------ ------------- -----------------
The Adiga Life Sciences joint venture managed clinical research
organisations (CRO's) in Canada in respect of allergy programmes on
behalf of Circassia. As the allergy programmes are no longer being
continued, the results of the joint venture for the six months
ended 30 June 2017 and 2016 have been included within discontinued
operations in the condensed interim consolidated statement of
comprehensive income, see note 6.
11. Prepayment for business combination
Collaboration and profit share arrangement with AstraZeneca
On 12 April 2017, Circassia's collaboration and profit share
arrangement with AstraZeneca became unconditional. Under the
agreement, Circassia secured certain US commercial rights to
Tudorza(R) and Duaklir(R). On that day Circassia issued 47,355,417
ordinary shares with a value of $50 million to AstraZeneca. In
addition, Circassia will pay AstraZeneca deferred non-contingent
consideration of $100 million on the earlier of: (i) 30 June 2019;
and (ii) the approval of Duaklir(R) by the FDA.
Under the terms of the agreement, Circassia will have the option
to secure the remaining commercial rights and economic benefits of
Tudorza(R). This will be based on the sales performance of
Tudorza(R) in a 12 month period ending no earlier than 30 September
2018, or if Duaklir(R) gains FDA approval before 31 December 2019.
Until the option becomes exercisable Circassia does not have
control over the Tudorza(R) business hence the consideration paid
and payable represents a prepayment for the business
combination.
Following positive results from the AMPLIFY Phase III study, the
filing of a New Drug Application (NDA) for Duaklir(R) with the
United States Food and Drug Administration (FDA) is planned in the
first half of 2018. Circassia has exclusive commercialisation
rights to Duaklir(R) in the United States and as such it is
considered that the Group assumed control over the Duaklir(R)
business when the collaboration agreement became unconditional. At
the time the interim report and accounts were authorised for issue,
the initial accounting for the Duaklir(R) business combination was
incomplete, mainly due to the Group still finalising the fair value
of the business to be included in the accounts. As a result, the
proportion of the consideration paid or payable for the Duaklir(R)
business is included in the prepayment for the business
combination. The Duaklir(R) business combination will be recognised
in the Annual report and accounts for 2017. This adheres to the 12
month measurement window per IFRS3, which allows adjustments to the
acquisition accounting within this period.
Prepayment for business combination Six months ended 30 June 2017
GBPm
Share issue:
Ordinary share capital 47,355,417 shares at GBP0.0008 -
Share premium 40.0
Non-contingent consideration 66.9
------------------------------------------------------- ------------------------------
Total prepayment for business combination 106.9
------------------------------------------------------- ------------------------------
Non-contingent consideration
GBPm
At 12 April 2017 66.9
Unwinding of discount 1.5
Exchange differences (2.7)
------------------------------ ------
At 30 June 2017 65.7
------------------------------ ------
The value of the non-contingent consideration was calculated by
discounting the liability using a pre-tax discount rate of 11%.
If the option to secure the remaining commercial rights and
economic benefits of Tudorza(R) is taken, Circassia will make
further payments to AstraZeneca of up to $80 million dependent on
the level of Tudorza(R) sales in the United States. Such payments
are not considered to be a present obligation until the option
becomes exercisable therefore this has not been recognised as a
liability in the financial statements to June 2017.
12. Trade and other payables
30 June 2017 31 December 2016
GBPm GBPm
Trade payables 7.1 9.2
Social security
and other taxes 0.7 0.5
Accruals 21.6 8.1
Other payables 1.5 3.7
------------------ ------------- -----------------
Total trade and
other payables 30.9 21.5
------------------ ------------- -----------------
13. Net loss per Ordinary share
Basic loss per share is calculated by dividing the loss
attributable to ordinary equity holders of the parent company by
the weighted average number of Ordinary shares in issue during the
period.
For the period ending 30 June 2017
Continuing operations Discontinued operations Total
-------------------------------------------- -------- ---------------------- ------------------------ ------------
Loss for the period attributable to
ordinary equity owners of the parent
company GBPm (29.6) (4.7) (34.3)
Weighted average number of Ordinary shares
in issue Number 305,720,065 305,720,065 305,720,065
Loss per share (GBP0.10) (GBP0.01) (GBP0.11)
------------------------------------------------------ ---------------------- ------------------------ ------------
For the period ending 30 June 2016
Restated(1) Continuing operations Discontinued operations Total
-------------------------------------------- -------- ---------------------- ------------------------ ------------
Loss for the period attributable to
ordinary equity owners of the parent
company GBPm (13.8) (87.9) (101.7)
Weighted average number of Ordinary shares
in issue Number 284,889,171 284,889,171 284,889,171
Loss per share (GBP0.05) (GBP0.31) (GBP0.36)
------------------------------------------------------ ---------------------- ------------------------ ------------
(1) Restated to show the results of the allergy business in
discontinued operations, see note 6 for further details
As net losses were recorded in the six months ended 30 June 2017
and 2016, the dilutive potential shares are anti-dilutive and
therefore were excluded from the earnings per share
calculation.
14. Cash used in operations
Reconciliation of loss before tax to net cash used in
operations
For the six months ended 30 June
-----------------------------------
2017 2016
GBPm GBPm
------------------------------------------------ ---------------- -----------------
Loss before tax (39.6) (107.6)
Adjustment for:
Finance income (0.2) (0.6)
Finance costs 1.6 0.1
Depreciation 0.3 0.4
Impairment - 74.8
Amortisation (note 9) 2.1 2.1
Share of joint venture loss/(profit) (note 10) 0.5 (0.8)
Share based payment charge - 0.9
Foreign exchange on non-operating cash flows (3.0) (7.4)
Increase in trade and other receivables (3.1) (4.1)
(Increase)/decrease in inventories (1.4) 0.5
Increase in trade and other payables 8.6 4.3
Net cash used in operations (34.2) (37.4)
------------------------------------------------ ---------------- -----------------
15. Share capital and share premium
Number of shares Share capital Share premium
(millions) GBPm GBPm
--------------------------------------- ----------------- -------------- --------------
Balance as at 1 January 2017 284.9 0.2 563.8
Issue of new shares 47.7 0.1 40.0
Expenses offset against share premium - - (1.6)
--------------------------------------- ----------------- -------------- --------------
At 30 June 2017 332.6 0.3 602.2
--------------------------------------- ----------------- -------------- --------------
Number of shares Share capital Share premium
(millions) GBPm GBPm
--------------------------------------- ----------------- -------------- --------------
Balance as at 1 January 2016 284.9 0.2 564.0
Expenses offset against share premium - - (0.2)
At 31 December 2016 284.9 0.2 563.8
--------------------------------------- ----------------- -------------- --------------
16. Other reserves
Share Translation Treasury Transactions Total
option reserve reserve with other
reserve non-controlling reserves
interests
GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- ------------ --------- ----------------- ----------
At 1 January 2017 6.4 12.9 (0.7) (6.1) 12.5
Currency translation
differences - 1.8 - - 1.8
At 30 June 2017 6.4 14.7 (0.7) (6.1) 14.3
-------------------------- --------- ------------ --------- ----------------- ----------
At 1 January 2016 4.0 3.1 (0.3) (4.0) 2.8
Employee share
option scheme 2.4 - - - 2.4
Currency translation
joint venture - 0.1 - - 0.1
Other currency
translation differences - 9.7 - - 9.7
Purchase of own
shares - - (0.4) - (0.4)
Transactions with
non-controlling
interests - - - (2.1) (2.1)
-------------------------- --------- ------------ --------- ----------------- ----------
At 31 December
2016 6.4 12.9 (0.7) (6.1) 12.5
-------------------------- --------- ------------ --------- ----------------- ----------
17. Related party transactions
There have been no new related party transactions that have
taken place in the first six months of the current financial
year.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that these condensed interim financial
statements have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and that the interim management report
includes a fair review of the information required by DTR 4.2.7 and
DTR 4.2.8, namely:
- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report. The Directors of Circassia
Pharmaceuticals plc are listed on page 27.
The Directors are responsible for the maintenance and integrity
of the Group's website www.circassia.com. Legislation in the UK
governing the preparation and dissemination of interim financial
statements may differ from legislation in other jurisdictions.
On behalf of the Board
Steven Harris Julien Cotta
Chief Executive Officer Chief Financial Officer
27 September 2017
SHAREHOLDER INFORMATION
Indicative financial calendar
Preliminary results for the 12 months ending 31 December 2017:
Q1 2018
Annual General Meeting: H1 2018
Registrars
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first instance, be directed to Equiniti. Shareview is Equiniti's
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Addresses for correspondence
Head office Registrars
Circassia Pharmaceuticals Equiniti Limited
plc Aspect House
Northbrook House Spencer Road
Robert Robinson Avenue Lancing
The Oxford Science Park West Sussex BN99 6DA
Oxford OX4 4GA United Kingdom
United Kingdom
Shareholder support: 0871
Tel: +44 (0)1865 405560 384 2030
Fax: +44 (0)7092 987560
General enquiries: info@circassia.com Calls to this number are
Investors: IR@circassia.com charged at 10p per minute
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are open 8:30am to 5:30pm
Monday to Friday.
Directors
Dr Francesco Granata (Chairman)
Steven Harris (Chief Executive Officer and co-founder)
Julien Cotta (Chief Financial Officer)
Dr Rod Hafner (Senior Vice President Research and
Development)
Dr Jean-Jacques Garaud (Independent Non-Executive Director and
Senior Independent Director)
Russell Cummings (Non-Executive Director)
Marvin Samson (Independent Non-Executive Director)
Lota Zoth (Independent Non-Executive Director)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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