Circassia reaction

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Neil Woodford 20 June 2016 Est. reading: 3 min read

We want you to know about an update we have received from one of our portfolio companies this morning, Circassia. It has this morning announced the failure of its high-profile phase III study into its cat allergy vaccine. We have just met with the company and would like to share our latest thoughts with you following this announcement.

This is undoubtedly a disappointing development. We had high hopes for this trial and are therefore surprised at its failure, particularly when you consider some of the positive aspects of the trial data. The drug has demonstrated a very positive effect, with patients on all doses of the treatment showing a 60% improvement in their symptoms with a very good safety profile. This is better than we had expected – in fact, it’s better than anyone had expected.

The problem is, the trial results also showed a dramatic placebo effect. The trial was being conducted on people with a severe allergic reaction to cats – whether these people had been administered the drug or a placebo, the trial results showed broadly the same impact on symptoms.

This is unprecedented – such a placebo effect hadn’t been seen before in earlier studies on Circassia’s cat allergy product, any of its other potential allergy treatments, or indeed in competitor’s studies in allergy. It is highly unusual to see such a high placebo effect in a clinical study and it is difficult to explain how and why such an effect has been seen.

We had a meeting with Circassia’s management team earlier today to get a full and comprehensive update on this trial disappointment and on the company’s wider performance. The company is in the process of analysing the full dataset to try to better understand this placebo riddle and what it means for its wider allergy pipeline as soon as it can. It has already announced that it is halting investment in its earlier-stage allergy trials until it better understands these results. There are two mature trials which will continue to completion: a phase IIb study in house dust mite allergy and a phase II trial in birch allergy. We would be pleased if these trials demonstrate such a strong effect on patients as the cat allergy phase III study, but at this stage, it is impossible to know if the unusual placebo effect will be evident in these trials also.

It is also worth bearing in mind that there is much more to Circassia than the allergy platform. As a result of acquisitions made last year, it has become a more diverse business with some very attractive respiratory products both in the market and under development. Its NIOX asthma management franchise is performing well and offers considerable growth potential and the company will also continue to progress its Prosonix respiratory portfolio. The company remains very well-financed, with net cash of almost £140m on its balance sheet.

All of this should be borne in mind when considering the stock market reaction to this news which has seen Circassia’s shares fall by over 65% today. We would expect an announcement like this to be greeted by a share price decline but it is the nature of the stock market to over-react to negative news, with the immediate reaction typically much greater than long-term fundamentals would justify. That is almost certainly the case here – this is a significant disappointment for Circassia but we remain supportive shareholders and from here, we continue to see long-term value in the shares.

Circassia in context

Circassia is a biopharmaceuticals company which is based on technology developed at Imperial College London (ICL). We were originally introduced to the business by Imperial Innovations, the business was founded by ICL to help commercialise the intellectual property emanating from it and other leading UK universities.

I first invested in Circassia in January 2008, initially as an unquoted holding. Early funding of the business allowed it to accelerate its development with positive results from a range of clinical trials in cat, house dust mite, grass and ragweed allergies. It listed on the UK stock market in 2014.

Last year, Circassia made two strategic acquisitions which created a more diversified business, specialising in allergy and asthma. Aerocrine brought the company’s first approved product in the respiratory sector and provides commercial infrastructure in major markets for the entire company portfolio. Meanwhile, Prosonix is a respiratory technology that provides additional product for that infrastructure – its first product was approved towards the end of 2015.

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address: 27 Old Gloucester Street, London, WC1N 3AX.

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