Allergy failure lets the cat out of Circassia's M&A bag

Circassia’s valuation plunge after the failure of its cat-allergy vaccine project raises interesting scenarios in the respiratory space.

The UK group’s acquisition last year of Prosonix and its metered-dose inhaler formulation technology makes it an attractive target for the likes of Vectura, which has just finished rolling up another British player in the form of Skyepharma. Any buyer looking at Circassia now would face a lower price tag and the promise of a substitutable Advair generic as soon as 2018.

Failure of the Toleromune cat allergy vaccine kicks away the basic premise of Circassia’s existence. Its £200m ($334m) 2014 initial public offering, one of biotech’s biggest ever and the biggest on a UK exchange, was based on the promise of its allergy medicine platform relying on synthetic peptides rather than the allergen extracts that are used in current treatment.

In announcing that the Catalyst trial had failed to show the vaccine to be better than placebo, executives said Circassia would terminate a phase III trial of its grass allergy project, and prepatory work for a dose-ranging study of its ragweed allergy therapy. A phase IIb trial for a dust mite vaccine may continue, and a birch allergy trial will continue to completion.

Nevertheless, the signal from Circassia is that it is moving on from Toleromune, with its chief executive, Steve Harris, saying in a statement: “We will continue to focus resolutely on our wider portfolio.”

Placebo effect, part the infinity

Catalyst compared the Toleromune treatment against placebo in 1,200 patients, testing to determine whether it could reduce rhinoconjunctivitis symptoms and use of rescue medications as a combined score. The two doses of vaccine improved the score by 58.2% and 59.8%, while the score improvement for patients taking placebo was 58.5%, a difference that did not achieve statistical significance.

As often happens in trials with a similar outcome, Circassia executives pointed to a “dramatic placebo effect” that had not been revealed in phase II.

This did not soothe investors. Shares fell 64% in mid-afternoon trading, knocking the group’s valuation to £273m. The company reported that it had £139m in cash at May 31, so investors are placing some value on the Niox asthma management business it bought from Aerocrine as well as the promise of the respiratory platform it acquired from Prosonix (Circassia buy shifts focus to asthma, May 15, 2015).

This is where Circassia becomes more interesting as an acquisition target. At the end of 2015 the group achieved European approval for its generically equivalent version of Flixotide, which is being marketed by Mylan.

Respiratory play

Progress with a trial for a substitutable Advair has been held up by issues with absorption of salmeterol, although the companies think a European submission can be made in the last half of 2017. A triple combination of steroid, long-acting beta agonist and long-acting muscarinic antagonist has been tested in healthy patients.

At just one third of its value at Friday’s market close, and nearly a quarter of its peak valuation, Circassia becomes more of a bargain, especially if it does indeed shut down the allergy programme.

The programmes inherited from Prosonix will no doubt trigger some interest – beyond the above-mentioned Vectura, parties working in post-patent respiratory medicine include AstraZeneca, Teva Pharmaceutical Industries, Mylan and Hikma Pharmaceuticals.

The question is how long these parties are willing to wait. Sentiment is likely weigh on Circassia, and by mid-summer the company could look like an even a better deal than it does today.

To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @ByJonGardner on Twitter