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Collaboration with AstraZeneca

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RNS Number : 7819Z
Circassia Pharmaceuticals Plc
17 March 2017
 

Circassia Pharmaceuticals plc

 

17 March 2017

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION

 

This announcement is not an advertisement and not an offer of securities for sale in any jurisdiction, including in the United States, Canada, Australia, Japan and South Africa. The securities referred to herein may not be sold in the United States absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended (the "Securities Act"). Circassia Pharmaceuticals plc does not intend to register any of the securities in the United States or to conduct a public offering of the securities in the United States.

 

Neither this announcement nor anything contained herein shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction. Any decision in respect of the Transaction should be made solely on the basis of the information that is contained in the combined prospectus and circular to be published by the Company in due course in connection with the Transaction.

 

Circassia Pharmaceuticals plc

 

Proposed Collaboration and Securing of Certain U.S. Commercial Rights to Tudorza® and Duaklir® from AstraZeneca for Consideration of up to US$230 Million (including US$50 Million in Ordinary Shares (the "Consideration Shares") on Completion) plus future royalties based on Duaklir® sales (the "Transaction")

 

HIGHLIGHTS

 

·  Circassia Pharmaceuticals plc ("Circassia" or the "Company"), a specialty pharmaceutical company focused on respiratory disease and allergy, has reached agreement with AstraZeneca to enter into a collaboration and secure certain U.S. commercial rights to two chronic obstructive pulmonary disease products, Tudorza® and Duaklir®*, for a maximum total consideration of US$230 million, plus future sales based royalties upon the commercialisation of Duaklir® in the United States, following potential approval.

·   The Transaction provides an opportunity to transform Circassia's product portfolio and commercial presence.

·   The Products represent a clear strategic fit with Circassia's focus on respiratory medicines and will leverage and enhance Circassia's commercial infrastructure.

·  Tudorza® is approved in the United States and approximately 60 further countries around the world; total AstraZeneca revenues related to worldwide sales of the product were US$170 million in 2016, of which US$80 million was in the United States.

·   Duaklir® is in phase III development in the United States for the treatment of COPD; it was initially approved in the European Union in 2014 and is approved in approximately 50 countries worldwide.

·  The Transaction will support the immediate expansion of the Company's commercial infrastructure in the United States, positioning Circassia for future product acquisition and in-licensing opportunities.

·   The consideration will be structured as follows:

o Circassia will issue Ordinary Shares with a value of US$50 million to AstraZeneca on completion of the Transaction;

o Circassia will pay AstraZeneca deferred non-contingent consideration of US$100 million on the earlier of: (i) 30 June 2019; and (ii) the approval of Duaklir® by the FDA;

o Circassia will initially enter a commercial collaboration and profit share arrangement with AstraZeneca for Tudorza® in the United States. Based on the sales performance of Tudorza® in a twelve month period ending no earlier than 30 September 2018, or if Duaklir® gains FDA approval before 31 December 2019, Circassia will have the option to secure the remaining commercial rights and economic benefits of Tudorza® in the inhaled administration for all respiratory indications (the "Field") in the United States (the "Tudorza® Option"). If the Tudorza® Option is taken, Circassia will make further payments to AstraZeneca of up to US$80 million dependent on the level of Tudorza®'s sales within the United States;

o Circassia intends to fund the deferred and contingent consideration through third-party financing;

o Circassia will pay royalties to AstraZeneca on sales of Duaklir® in the United States, following potential approval; and

o Circassia will make R&D contributions of up to US$62.5 million payable to AstraZeneca as deferred payments, which the Company intends to fund through its returns from the commercial collaboration and profit share with AstraZeneca.

·   The Transaction structure allows Circassia to accrue the benefits of a broader product portfolio as well as significant infrastructure expansion with no funding requirement anticipated from Circassia shareholders.

·   The Transaction is anticipated to be earnings enhancing for Circassia after one year and broadly cash neutral for three years, then cash generative.

 

Due to its size, the Transaction constitutes a Class 1 transaction for the Company under the Listing Rules and is therefore subject to the approval of Shareholders. A combined prospectus and circular containing further details of the proposed Transaction and containing the notice convening a general meeting to consider a resolution to approve the Transaction will be sent to Shareholders as soon as practicable. This summary should be read in conjunction with the full text of this announcement.

 

Steve Harris, Chief Executive of Circassia, said:

 

"This proposed transaction is an ideal fit with Circassia's strategy and respiratory focus.  It represents a transformational opportunity for the Company, doubling the number of marketed products in our portfolio, with the potential to triple the current number within two years.  Through an initial commercial collaboration with AstraZeneca, we plan to double our U.S. sales force to promote Tudorza® as our priority, as well as our existing NIOX® products, transforming Circassia into a world-class respiratory business positioned for future in-licensing and M&A.  In addition, the transaction structure is highly attractive, allowing us to fund the consideration without further investment anticipated from shareholders, while at the same time welcoming AstraZeneca to our share register."

 

Mark Mallon, Executive Vice President, Global Product & Portfolio Strategy at AstraZeneca, said:

 

"Tudorza and Duaklir are important components of AstraZeneca's respiratory franchise globally and this collaboration will support their commercialisation in the US for the benefit of the millions of COPD patients. It also further sharpens our focus on Symbicort, Bevespi Aerosphere, benralizumab and other respiratory development programmes. Circassia will be an important strategic partner for AstraZeneca in the US and we look forward to working closely together."

 

This announcement is released by Circassia Pharmaceuticals plc and contains inside information for the purpose of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR), encompassing information relating to the Transaction, and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

 

For the purposes of MAR and Article 2 of the Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Julien Cotta, Chief Financial Officer and Company Secretary.

 

*Duaklir® is a registered trademark in certain European countries; the U.S. trademark is to be confirmed

 

Enquiries

 

 

Circassia Pharmaceuticals plc

Tel:  +44 (0) 1865 405 560

Steve Harris, Chief Executive Officer

 

Julien Cotta, Chief Financial Officer

 

Rob Budge, Corporate Communications

 

 

 

Numis (Sponsor and Joint Corporate Broker)

Tel:  +44 (0) 20 7260 1000

Clare Terlouw

 

James Taylor

 

James Black

 

 

 

J.P. Morgan Cazenove (Joint Corporate Broker)

Tel:  +44 (0) 20 7742 4000

James Mitford

 

Chris Cargill

 

 

 

FTI Consulting (PR Adviser)

Tel:  +44 (0) 20 3727 1000

Ben Atwell

 

Simon Conway

 

Mo Noonan

 

 

Circassia will host an analyst meeting today at 09.30 GMT. For further details please contact Mo Noonan on +44 (0)20 3727 1390 or mo.noonan@fticonsulting.com.

 

About Circassia

Circassia is a specialty pharmaceutical business with established commercial infrastructure, marketed products and a portfolio of particle-engineered treatments targeting major market opportunities. Circassia sells its novel, market-leading NIOX® asthma management products directly to specialists in the United States, United Kingdom and Germany. Its products are also promoted in a number of other countries by the Company's network of partners.

 

Circassia's broad-based development pipeline includes a range of respiratory medicines.  The Company's lead asthma treatment, Fliveo®, targets substitution of GSK's Flixotide® pMDI and is approved in the UK.  Circassia is also developing a direct substitute for Seretide® pMDI, Seriveo®.  In addition, the Company's pipeline includes a number of inhaled medicines for chronic obstructive pulmonary disease, including single and combination dose products.  For more information on Circassia please visit www.circassia.com.

 

IMPORTANT NOTICE

 

Forward-looking statements

 

This announcement, including its Appendix, contains forward-looking statements, including but not limited to statements about financial conditions, results of operations and business of Circassia, Circassia's plans and objectives and the development and commercialisation of the Products. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and therefore are based on current beliefs and expectations about future events. Forward-looking statements are not guarantees of future performance and the Group's actual operating results and financial condition, and the development of the industry in which it operates may differ materially from those made in or suggested by the forward-looking statements contained in this announcement. In addition, even if the Group's operating results, financial condition and liquidity, and the development of the industry in which the Group operates are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Accordingly, prospective investors should not rely on these forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. None of the Company, the Directors or the Sponsor undertake any obligation nor do they intend to revise or update any document unless required to do so by applicable law, the Financial Conduct Authority's (the "FCA's") Prospectus Rules (the "Prospectus Rules") and the FCA's Disclosure Guidance and Transparency Rules (the "Disclosure Guidance and Transparency Rules").

 

This announcement and the information contained in it is restricted and is not for release, publication or distribution, directly or indirectly, in whole or in part, in, into or from the United States (including its territories and possessions, any state of the United States and the District of Columbia, collectively the "United States"), Australia, Canada, Japan or South Africa or any other jurisdiction where to do so might constitute a violation of local securities laws or regulations (each an "Excluded Territory"). The information in this announcement may not be forwarded or distributed to any other person and may not be reproduced in any manner whatsoever. Any forwarding, distribution, reproduction, or disclosure of this information in whole or in part is unauthorised. Failure to comply with this directive may result in a violation of the Securities Act or the applicable laws of other jurisdictions.

 

This announcement is for information purposes only and does not constitute an offer or invitation to acquire or subscribe for the Consideration Shares to or by anyone in any Excluded Territory or to any person to whom it is unlawful to make such offer or invitation. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions. Subject to certain exceptions, the securities referred to herein may not be offered or sold in any Excluded Territory or to, or for the account or benefit of any national resident or citizen of any Excluded Territory. This announcement does not constitute or form part of an offer to sell securities in the United States. The Consideration Shares have not been and will not be registered under the Securities Act or under any securities laws or with any securities regulatory authority of any state or other jurisdiction of the United States. The Consideration Shares may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, into or within the United States absent registration under the Securities Act or an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of the Consideration Shares in the United States. The Consideration Shares are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act and no representation is made as to the availability of the exemption provided by Rule 144 for resales of any Consideration Shares. Subject to certain exceptions, no action has been taken by the Company or by the Sponsor that would permit an offer of the Consideration Shares or possession or distribution of this announcement in the Excluded Territories or any other jurisdiction where action for that purpose is required, other than the United Kingdom. No public offering of the shares referred to in this announcement is being made.

 

This announcement has been issued by, and is the sole responsibility of, the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by the Sponsor or by any of its respective affiliates or agents as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

 

Numis Securities Limited ("Numis"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting solely for the Company in relation to the Transaction and nobody else as a client in relation to the Transaction and will not be responsible to anyone other than Circassia for providing the protections afforded to the clients of Numis or for providing advice in relation to the Transaction.

 

J.P. Morgan Securities plc (which conducts its UK investment banking activities under the marketing name, J.P. Morgan Cazenove), which is authorised in the United Kingdom by the Prudential Regulation Authority and regulated in the United Kingdom by the Prudential Regulatory Authority and by the Financial Conduct Authority, is acting as joint Corporate Broker for Circassia and for no-one else in connection with the proposed Transaction referred to in this document and is not, and will not be, responsible to anyone other than Circassia for providing the protections afforded to clients of J.P. Morgan Securities plc, nor for providing advice in connection with any of the matters described in this document.

 

Apart from the responsibilities and liabilities, if any, which may be imposed on the Sponsor by the Financial Service and Markets Act 2000, as amended, or the regulatory regime established thereunder, or by the London Stock Exchange or the Listing Rules, or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, neither the Sponsor nor any of its respective affiliates, directors, officers, employees or advisers accept any responsibility whatsoever for, or makes any representation or warranty, express or implied, as to the contents of this announcement, including its accuracy or completeness, or for any other statement made or purported to be made by it, or on behalf of it, the Company, the Directors or any other person, in connection with the Company, the Consideration Shares or the Transaction, and nothing in this document should be relied upon as a promise or representation in this respect, whether or not to the past or future. The Sponsor and its respective affiliates, directors, officers, employees and advisers accordingly disclaims to the fullest extent permitted by law all and any responsibility or liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above), which it might otherwise have in respect of this announcement or any such statement.

 

The distribution of this announcement and the offering of the Consideration Shares in certain jurisdictions other than the United Kingdom may be restricted by law.

 

Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future.

 

No statement in this announcement is or is intended to be a profit forecast or profit estimate or to imply that the earnings of the Company for the current or future financial years will necessarily match or exceed the historical or published earnings of the Company. The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the shares.

 

The Consideration Shares to be issued pursuant to the Transaction will not be admitted to trading on any stock exchange other than on the main market for listed securities operated by the London Stock Exchange.

 

Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.

 

Proposed collaboration and securing of certain U.S. commercial rights to Tudorza® and Duaklir® from AstraZeneca

 

1.  Introduction

 

The Company today announces that it has reached agreement with AstraZeneca to enter into a collaboration and secure certain U.S. commercial rights to two chronic obstructive pulmonary disease (COPD) products, Tudorza® and Duaklir®, for a maximum total consideration of US$230 million, plus future sales based royalties upon the commercialisation of Duaklir® in the United States following potential approval.

 

Tudorza® is a long-acting muscarinic antagonist (LAMA) indicated for the long-term, maintenance treatment of bronchospasm associated with COPD, including chronic bronchitis and emphysema.  It was initially approved in the United States in 2012.  It is authorised in 60 countries around the world under a range of brand names.  AstraZeneca revenues related to worldwide sales of Tudorza® were US$170 million in 2016, of which US$80 million was in the United States. 

 

Duaklir® is a long-acting muscarinic antagonist / long-acting beta agonist combination (LAMA / LABA) in late-stage development in the United States as a maintenance bronchodilator treatment to relieve symptoms in adult patients with COPD.  It was initially approved in the European Union in 2014 and is currently in a clinical phase III study and a phase IIb dose confirmation study in the United States.  It is approved in approximately 50 countries around the world under a range of brand names. It is not currently commercialised in the United States, and AstraZeneca revenues related to Duaklir® (and aclidinium/formoterol combination) sales outside of the United States were US$63 million in 2016.  Both products are presented as a dry powder for inhalation, deliverable via a breath-actuated multi-dose dry powder inhaler, Pressair® (the "Pressair® Device").

 

The Transaction provides an opportunity to transform Circassia's product portfolio and commercial presence. The Products represent a clear strategic fit with Circassia's focus on respiratory medicines and will leverage and enhance Circassia's commercial infrastructure. In addition to broadening Circassia's product portfolio, the Transaction will support the immediate expansion of Circassia's commercial infrastructure in the United States, positioning the Company for future product acquisition and in-licensing opportunities.

 

The Transaction structure allows Circassia to accrue the benefits of a broader product portfolio by adding one revenue generating product (Tudorza®) and one product in phase III development in the United States (Duaklir®), as well as significant infrastructure expansion with no funding requirement anticipated from Shareholders.

 

Due to its size, the Transaction constitutes a Class 1 transaction for the Company under the Listing Rules and is therefore subject to the approval of Shareholders by ordinary resolution (the "Resolution"). A combined prospectus and circular containing further details of the Transaction and containing the notice convening a general meeting to consider the Resolution (the "General Meeting"), will be sent to Shareholders as soon as practicable.

Circassia has also received irrevocable undertakings from certain Shareholders, being Invesco, Woodford Investment Management Limited and Touchstone Innovations, to vote in favour of the Resolution in respect of 181,185,112 Ordinary Shares in aggregate, representing approximately 63.6 per cent. of Circassia's existing issued ordinary share capital.

 

2.  The Transaction

 

Circassia proposes to enter into a collaboration with AstraZeneca and secure certain US commercial rights in respect of the Products.  The Transaction comprises a number of stages and amounts of consideration payable by Circassia at certain dates, up to a maximum amount of US$230 million, plus future sales based royalties upon the commercialisation of Duaklir® in the United States, following potential approval. As detailed below, the precise amount of the consideration will be dependent on the sales achieved by Tudorza® and will be paid over a period of approximately two and half years, excluding ongoing royalty payments on Duaklir® sales following potential approval.

 

Under the terms of the Transaction, it is proposed that Circassia will secure the rights to: 

 

(a)       collaborate with AstraZeneca on the commercialisation of Tudorza® in the United States (the Collaboration) until the earlier of: (i) Circassia exercising and completing an option to secure the commercial rights to Tudorza® in the Field in the United States; and (ii) 31 December 2022 (the "Collaboration Term").  During the Collaboration Term, Circassia will undertake the marketing and promotion of Tudorza® and, as part of this, Circassia will expand its existing U.S. commercial infrastructure significantly.  AstraZeneca will continue to book sales, manufacture and supply Tudorza®. These costs will be funded from the revenues of the Tudorza® collaboration and Circassia and AstraZeneca will share the remaining operating profits from the Tudorza® collaboration on an equal basis (the "Collaboration Profit Share");

(b)        the Tudorza® Option, being an option to secure the exclusive commercial rights to Tudorza® in the inhaled administration for all respiratory indications in the United States, subject to: (i) Duaklir® having been approved in the United States no later than 31 December 2019; or (ii) net sales of Tudorza® in the United States in the 12 month period ending on 30 September 2018, 31 December 2018 or 31 March 2019 are greater than US$45 million; and

(c)        an exclusive sub-licence to commercialise Duaklir® (the "Duaklir® Licence").

 

The consideration payable by Circassia pursuant to the terms of the Transaction will be structured as follows (together, the "Total Consideration"):

 

(a)      on Completion, Circassia will issue Consideration Shares with an equivalent value of US$50 million to AstraZeneca (the "Initial Consideration");

(b)        Circassia will pay AstraZeneca an amount of deferred non-contingent consideration of US$100 million on the earlier of: (i) 30 June 2019; and (ii) the approval of Duaklir® by the FDA; 

(c)        should Circassia exercise the Tudorza® Option for the exclusive U.S. commercial rights to Tudorza® in the Field ahead of approval of Duaklir® by the FDA: (i) Circassia will make a further payment to AstraZeneca of between US$5 million and US$16 million; and (ii) Circassia will make a payment to AstraZeneca of between US$20 million and US$64 million upon the approval of Duaklir® by the FDA; with both payments dependent on the level of Tudorza®'s sales within the United States during the Collaboration Term; and

(d)        upon the commercialisation of Duaklir®, Circassia will pay AstraZeneca sales-based royalties, which will rise to an industry-standard rate.

 

Circassia intends to utilise its returns from the Collaboration Profit Share to fund a contribution to research and development activities carried out by AstraZeneca in respect of the Products under the terms of the Transaction, with such contribution being capped at a maximum amount of US$62.5 million, invoiced as incurred by AstraZeneca in the ongoing trials and payable as deferred payments.

 

Circassia intends to fund the Deferred Consideration and Contingent Consideration through third party financing.  In the event that Circassia is not able to procure third party financing at the time the relevant element of the Deferred Consideration and/or Contingent Consideration becomes payable, any amount not paid shall be deemed to be a loan from AstraZeneca for the outstanding portion of Deferred Consideration and/or Contingent Consideration (as applicable).  The loan will be secured, interest bearing, and fully repayable in no more than 36 months.

 

The Board believes that this Transaction structure is attractive because it permits the majority of the Total Consideration to be deferred, with the precise level of Total Consideration ultimately payable dependent on the approval of Duaklir® by the FDA and successful commercialisation of the Products. 

 

In addition, under the Transaction Structure, the Board would welcome AstraZeneca as a shareholder.

 

3.  Background to and strategic rationale for the Transaction

 

The Directors believe there is a strong strategic, commercial and financial rationale for the Transaction. The Transaction has the potential to rapidly accelerate Circassia's strategy to build a world-class specialty pharmaceutical company with a strong commercial infrastructure, marketed products and pipeline of therapies targeting major market opportunities.

 

The Directors believe that the Transaction will significantly assist Circassia in progressing its strategy by: 

 

(a)        entering a collaboration and profit share arrangement with AstraZeneca for Tudorza® in the United States;

(b)      broadening its portfolio of commercial products by adding Tudorza®, for which AstraZeneca revenues related to its sales currently total approximately US$80 million in the United States;

(c)        adding to its pipeline the phase III product Duaklir®, in relation to which AstraZeneca has stated it aims to make an NDA filing during the first half of 2018 with the possibility of receiving FDA approval by the end of the first half of 2019. Duaklir® has been approved in the European Union and a number of other countries and AstraZeneca revenues related to sales outside of the United States totalled US$63 million in 2016;

(d)       expanding its U.S. commercial infrastructure by approximately doubling its U.S. sales force by the end of July 2017, which Circassia anticipates funding by revenues generated through the Collaboration with AstraZeneca; and

(e)       enhancing Circassia's position as an attractive commercialisation partner, positioning the Company for future acquisition and collaboration opportunities and exploiting Circassia's specialist expertise and presence in the United States.

 

4.  Summary information on the Products

 

Products

 

Tudorza® and Duaklir® are inhaled respiratory products for the treatment of COPD.  Tudorza® has been approved and marketed in the United States since 2012. Duaklir® is approved and marketed in the European Union and a number of additional rest of the world countries, and is subject to two on-going clinical trials to support a planned NDA application by AstraZeneca to the FDA in the United States.  Both products are presented as a dry powder for inhalation and are delivered via a breath-actuated multi-dose dry powder inhaler, Pressair®.  The Pressair® Device is marketed in some countries under the trade name Genuair®.

 

COPD is a broad diagnosis including emphysema and chronic bronchitis.  The COPD market is large and growing, and the prevalence and burden of COPD is projected to increase over the coming decade due to continued exposure to risk factors giving rise to COPD and aging of the world's population. Current estimates suggest the global market size will total more than US$13 billion by 2022.

 

U.S. COPD Market

 

Both Products target the COPD market in the United States, which was estimated to be worth more than US$5 billion in 2016. The Directors believe that the COPD market offers a major opportunity because, as noted above, the prevalence of COPD is expected to rise over the next 30 years and the treatment market is expanding.  Approximately 15.7 million adults in the United States report that they have been diagnosed with COPD.  It is estimated that several million more adults have undiagnosed COPD. COPD is responsible for over 120,000 deaths per year in the United States making it the third leading cause of death in the United States.

 

COPD Treatment Guidelines

 

The Global Initiative for Chronic Obstructive Lung Disease ("GOLD"), which comprises a number of leading agencies, including the United States' National Heart, Lung and Blood Institute and National Institutes of Health and the World Health Organisation, has recently released its "2017 Global Strategy for the Diagnosis, Management and Prevention of COPD" (the "2017 GOLD Report"). This sets out guidelines for the treatment of COPD.  Prior to the publication of the 2017 GOLD Report, LABA and inhaled corticosteroid (ICS) containing products were considered recommended first line therapies for the majority of patients. In the 2017 GOLD Report, however, this is no longer the case and LAMA and/or LABA/LAMA products are now acknowledged as the preferred treatment regimen for many COPD patients because of the benefits such products provide in terms of symptom relief and reduction in exacerbation risk.  In addition, ICS monotherapies and ICS / LABA combinations are no longer recommended as preferred initial treatments in any patient group. Consequently, the GOLD treatment guidelines support a market move towards LAMA containing treatments, which encompasses both Tudorza® (a LAMA monotherapy) and Duaklir® (a LABA/LAMA combination therapy), if approved.

 

US LAMA and LAMA / LABA market

 

The LAMA and LAMA / LABA market in the United States is large and growing, with current sales estimated to total more than US$2 billion.  As the recommendations set out in the 2017 GOLD Report support an increased use of LAMA-based products, and Tudorza® and Duaklir® have compelling value propositions, the Transaction presents a major commercial opportunity for Circassia.

 

As a LAMA monotherapy, Tudorza® is one of the recommended first line treatments for a large proportion of COPD patients. In addition to the therapeutic benefits offered by the LAMA class, Tudorza® provides 24-hour bronchodilation, which provides patients with significant night time and early morning symptom control.

 

Duaklir® is a LAMA/LABA combination product, which has the potential to offer a number of benefits derived from its LAMA component.  Additionally, it has the potential to offer straightforward treatment escalation (and de-escalation) for patients treated with Tudorza®, due to the products' common LAMA component, identical dosing regimens and patient preferred Pressair® Device used by both products.

 

Tudorza®

 

Tudorza® (aclidinium bromide 400 μg twice daily) is supported by a broad clinical database, including three pivotal phase III studies, three one-year long term safety studies and a head-to-head comparison with the market-leading LAMA, Spiriva® (tiotropium bromide 18 μg once a day). 

 

These studies demonstrate that Tudorza® provides statistically and clinically significant improvements in: (i) trough and peak forced expiratory volume in one second (FEV1), breathlessness, exercise tolerance, physical activity and health status compared to placebo.  It also reduces the risk of COPD exacerbations and the need for rescue medication use, and has placebo like anticholinergic side-effects that are typically associated with the LAMA class.  The product also significantly improves COPD symptom severity during the daytime, early morning and night time, and due to its rapid onset of action provides bronchodilation from the first dose, which is sustained over long-term treatment.

 

A comparison versus Spiriva® Handihaler® shows that Tudorza® offers a number of benefits. The results of the comparison show that while both products significantly improved lung function (FEV1) versus placebo at all time points over 24 hours, Tudorza® offers significantly greater improvements versus Spiriva® during the night time, which follows the evening dose of aclidinium that provides additional and sustained bronchodilation. Additionally, Tudorza® provided significant improvements in early morning symptom severity versus both Spiriva® and placebo, with significant differences from baseline score in symptoms such as phlegm, shortness of breath, wheeze and cough.  The data also showed a significant reduction in night-time symptom severity from baseline in Tudorza® treated patients versus both placebo and Spiriva®. Additionally, Tudorza® showed a significant improvement in activity limitation from baseline versus the other groups.

 

Duaklir®

 

Duaklir® is an orally inhaled fixed dose LAMA / LABA combination containing 400 µg aclidinium bromide and 12 µg formoterol fumarate.  It is administered twice daily, once in the morning and once in the evening.  The clinical development programme on which the product was approved in the European Union and other countries outside the United States included approximately 4,000 COPD patients, with a number of phase III studies complemented by long term safety studies. Duaklir® is not currently commercialised in the United States, and is undergoing two clinical trials designed to support a planned NDA filing by AstraZeneca to the FDA.

 

The previously completed studies show that Duaklir® provided consistently significant and clinically meaningful improvements in lung function (FEV1) and symptom reduction compared with placebo and the product's individual components. The rate of moderate or severe exacerbations was also significantly reduced compared to placebo. Duaklir® also provided clinically meaningful bronchodilation within five minutes of the first dose, which was maintained over the dosing interval, with a sustained bronchodilator effect shown in both six month and one-year studies.

 

Additionally, Duaklir® provided a clinically meaningful and statistically significant improvement in breathlessness compared with placebo and its constituent components.  It also improved daily symptoms of COPD such as 'chest symptoms', 'cough and sputum' as well as overall night-time symptoms, overall early morning symptoms and limitation of early morning activities compared to placebo and its aclidinium and formoterol components.  A phase III study demonstrated that Duaklir® significantly improved patients' disease-specific health status (St George's Respiratory Questionnaire), while a pooled efficacy analysis demonstrated that Duaklir® offered a statistically significant reduction in the rate of moderate or severe exacerbations compared to placebo, and a statistically significantly delayed time to first moderate or severe exacerbation.

 

Additionally, a comparison study versus leading ICS / LABA product Seretide® (fluticasone/salmeterol) showed that Duaklir® provided significantly improved FEV1, with fewer pneumonia and treatment-related adverse events, versus the comparator.

 

The Pressair® Device

 

Both Tudorza® and Duaklir® are delivered by the Pressair® Device, which offers significant advantages over other COPD drug delivery devices.  In addition, studies demonstrate a clear patient preference for the Pressair® Device versus a number of competing products, including the Handihaler® device, which is used to deliver the market leading LAMA-containing product, Spiriva®.

 

The Pressair® Device's advantages make it potentially best in class.  It has fewer actuation steps than many other COPD medications on the market, and has a simple process to prime the device to deliver the medication. After removing the protective mouthpiece cap, the patient simply presses and releases the coloured button on top of the device to dispense a single dose. A 'trigger mechanism' prevents another dose being released until there has been a successful inhalation, thereby preventing accidental overdosing.  There is also a unique combination of in-built patient feedback mechanisms that indicate (i) whether the Pressair® Device is ready to use; (ii) if a correct inhalation has been performed via an audible click and coloured window; and (iii) the remaining doses.  The device also includes a lock-out mechanism that prevents further use after the final dose has been dispensed.  It also does not require cleaning throughout its in-use life.

 

5.  Commercial Plan for the Products

 

The Board believes that Tudorza®'s recent commercial performance can be maintained and potentially enhanced with focused commercialisation efforts. 

 

Following Completion of the Transaction, Circassia will be responsible for Tudorza® sales and marketing efforts in the United States, and the Company intends to make the product its lead priority in terms of promotional activities, with NIOX® in second position.

 

Circassia plans to implement a robust plan to focus promotion on Tudorza®.  To implement this plan, Circassia intends to increase its United States field sales force to approximately 200 full time representatives by the end of July 2017 to support Tudorza® commercialisation initially, and in due course Duaklir®, if approved.  

 

Circassia intends to first focus its promotional efforts on the highest Tudorza® prescribing physician group, in order to maintain 2016 levels of sales as a basis for future growth.  As a result, Circassia intends to target the physicians who currently account for eighty per cent. of Tudorza® prescriptions, despite making up just thirty two per cent. of those who prescribe the product.  In addition, Circassia intends to target additional potential prescribers who are not currently Tudorza® customers. As a result, the Company plans to target the physicians who account for forty per cent. of non-Tudorza® COPD prescriptions. Circassia believes that by providing highly targeted, focused resources it will be able to significantly increase the level and intensity of one-one sales calls where the product benefits can be explained to the target physician in detail.  This activity will also serve to establish the prescribing base for future sales of Duaklir®, following potential approval.

 

Circassia intends to initiate contact with target physicians as soon as possible following the Completion Date, and plans to use existing AstraZeneca marketing materials, training and data to ensure continuity of Tudorza® branding.

 

Circassia anticipates that while it will have a strong focus on Tudorza® promotion following Completion of the Transaction, the Company will also continue to advance its NIOX® business.  The Company's sales force will continue to target allergists to promote NIOX® products, which will comprise nearly thirty per cent. of its commercial focus.  It will also promote NIOX® to its Tudorza® and COPD target physicians.

 

Overall, the Board believes the Transaction offers a highly attractive commercial opportunity for Circassia.  The combination of recent changes to the GOLD guidelines supporting the broader use of LAMA-containing treatments, the compelling product benefits offered by Tudorza® and Duaklir® (following potential approval) and the Company's focused commercialisation plan, provides a strong foundation to capture a proportion of a large and growing market.

 

6.  Financial impact of the Transaction

 

The Directors believe that both the Transaction and the Transaction structure offer significant benefits to Circassia.

 

The Transaction adds to Circassia's portfolio the marketed product Tudorza®, for which AstraZeneca revenues related to its U.S. sales were US$80 million in the year ended 31 December 2016. Third-party estimates suggest the product may achieve peak U.S. sales of over US$90 million. The Transaction also includes rights to commercialise the late-stage product Duaklir®, which has the potential for approval and launch in H1 2019, and has third party projected potential peak U.S. sales of over US$180 million. Additionally, following Completion, Circassia expects to rapidly expand its U.S. sales force to approximately 200 by the end of July 2017, which it anticipates funding through the collaboration with AstraZeneca.

 

On Completion, the Directors believe that the Enlarged Business will be fully funded to deliver on its plans, including the development of its broader product portfolio. Overall, the Transaction is expected to be broadly operating cashflow neutral for the first three years and then cash generative. The Transaction is expected to be earnings enhancing within one year.

 

7.  Current trading and prospects

 

The Directors believe that the Transaction will complement Circassia's existing speciality respiratory business, which continues to make progress.  As announced at Circassia's interim results in September 2016, Circassia's NIOX® products have performed strongly, and the Directors confirm that full year 2016 revenues are expected to be broadly in line with analyst expectations. In addition, Circassia's cash balance at the end of 2016 is also expected to be broadly in line with analyst expectations.

 

During 2016, Circassia continued to build and grow its commercial presence to further increase NIOX® revenues.  During the year, Circassia significantly expanded its U.S. sales team and at the end of 2016 launched a direct sales force in the United Kingdom. Circassia has also conducted two NIOX® clinical studies designed to extend its existing registrations, to include children aged four to six years old in the United States and the diagnosis of primary ciliary dyskensia in Europe.  The studies are now successfully completed, with positive results received from both.

 

Circassia has also progressed its portfolio of particle-engineered respiratory products, which continue to advance.  Its lead asthma treatment, Fliveo®, which targets direct substitution of GSK's Flixotide® pMDI, is currently approved in the United Kingdom and is licensed to a partner in key markets, including the European Union.  During the second half of 2016, Circassia initiated negotiations for the return of the product rights in the European Union, which are ongoing.  In 2016, Circassia initiated a pharmacokinetic study of its Seriveo® product, which is also ongoing with final results expected in the coming weeks.  Following the addition of three new early-stage COPD products to Circassia's portfolio in 2016, including a potential direct substitute for the market leading LAMA product Spiriva®, early development activities are continuing.  As a result, Circassia's product targeting substitution of Spiriva® is in preparation to enter a pharmacokinetic study in the next 12 months.

 

Since June 2016, Circassia has taken robust measures to curtail costs relating to its allergy portfolio, and subsequently to drive efficiencies across its entire business.  As set out in the Interim Results in September 2016, following the receipt of disappointing cat SPIRE phase III results Circassia has taken a prudent approach to its allergy immunotherapies, halting late-stage development work on grass and ragweed allergy products and rationalising its allergy R&D team. Circassia has also now reviewed and rationalised its structure and cost base across its wider business.  Circassia is continuing a large-scale HDM SPIRE study, which was already well advanced, and expects results in Spring 2017, when it will have the opportunity to reassess its wider allergy portfolio if these clinical data are compellingly positive.

 

8.  Principal terms and conditions of the Transaction

 

As noted above, it is proposed that the Total Consideration payable by Circassia will be a combination of Consideration Shares and cash (or, in certain circumstances interest bearing short-term debt).

 

An application will be made by Circassia to the UK Listing Authority for the Consideration Shares to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for the Consideration Shares to be admitted to trading on its main market for listed securities.  The decisions in respect of Admission are at the discretion of the UK Listing Authority and the London Stock Exchange. 

 

The Transaction is conditional on the following, among other matters:

·     the Resolution being passed at the General Meeting (or at any adjournment thereof);

·     the issuance and delivery of an independent valuation report in relation to the Consideration Shares, as required by section 593 of the Companies Act 2006; and

·     any HSR Act statutory waiting periods having lapsed.

 

9.  Consideration Shares and dilution

 

The Consideration Shares will be issued as fully paid and will rank pari passu in all respects with the existing Ordinary Shares in issue at the time the Consideration Shares are issued pursuant to the Transaction, including in relation to any dividends or distributions with a record date falling after the issue of the Consideration Shares. 

 

The number of Consideration Shares to be issued in order to satisfy the Initial Consideration will be determined pursuant to the terms of the Development and Commercialisation Agreement prior to the Completion Date and will be calculated based on the lower of the weighted average share price over the 20 trading days prior to: (i) 16 March 2017, being US$1.0558454 (the Signing VWAP); and (ii) the completion of the Transaction, subject to a maximum of 62,407,169 Consideration Shares.  The exchange rate used for the purposes of calculating the number of Consideration Shares to be issued will be a 20 day weighted rate corresponding to the measures described at (i) and (ii) above.

 

On the basis that the applicable share price for determining the number of Consideration Shares to be issued is the Signing VWAP, Circassia would be required to issue 47,355,417 Consideration Shares to AstraZeneca. This would result in Circassia's issued ordinary share capital increasing by approximately 16.6 per cent. As a result, existing Circassia Shareholders would be subject to an immediate dilution, and following the issue of the Consideration Shares they would hold approximately 85.7 per cent. of the issued ordinary share capital of Circassia.

 

10.       Expected timetable to Completion

 

A Prospectus containing further details of the proposed Transaction and containing the notice convening a general meeting, will be sent to Circassia shareholders as soon as practicable. Completion of the proposed Transaction ("Completion") is expected to occur early in Q2 2017.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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