My colleague G A Chester placed Circassia Pharmaceuticals (LSE: CIR) firmly in bargepole territory recently, and I can see why.
The firm raised hundreds of millions based mainly on high hopes for its allergy treatments. But it was all for nought and the share price collapsed in June 2016 when the company’s cat allergy trial failed miserably. That was followed by the complete abandonment of its associated research after a dust mite allergy trial similarly flopped.
Neil Woodford, who holds Circassia in his Equity Income Fund, saw the rump of the company worth holding on to after the disaster. But who’d want to buy? Well, perhaps those who actually like the look of what is now a very different company, focusing on respiratory diseases, including asthma and COPD. Results for 2017, released Tuesday, looked promising to me and gave the shares a 3% boost.
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The company saw sales of its NIOX asthma treatment rise by 18% to £27.3m, with direct clinical sales (excluding research sales) up 26%. The international appeal of the product was apparent, with rises in clinical revenues of 34% from the US (27% at constant exchange rates, CER) and 44% from China (36% at CER).
Partnership
Perhaps ironically, while Neil Woodford has been pruning his holding in AstraZeneca, it’s with that very pharmaceuticals giant that Circassia’s biggest promise for its COPD treatments currently lies. Its US commercial partnership is said to be progressing well, after a deal was finalised back in April 2017 for the two products Tudorza and Duaklir. The remainder of the year brought in £19m in profit share revenues and Duaklir‘s phase III study met its primary endpoints with AstraZeneca set to make an NDA submission this year.
The company still recorded a loss of £99.1m, although that’s down from £137m a year ago, with revenues of £46.3m almost exactly double the 2016 figure. Year-end cash dropped to £59.5m from £117.4m, so there’ll have to be questions over where funding is going to come from until the company reaches profitability.
But chief executive Steve Harris did point to 2018’s expected “full year’s contribution from our enlarged US sales team and our collaboration with AstraZeneca, ‘locking in’ significant growth potential.“
So if you go for ‘jam tomorrow’ young companies, I think you could do a lot worse.
Buy the strategy?
If you do fancy this kind of investment, you could buy into Woodford Patient Capital Trust (LSE: WPCT), which aims at identifying tomorrow’s winners.
But there are plenty of reasons I share fellow Fool Harvey Jones’s aversion, especially after reading Tuesday’s full-year report. For one thing, it starts off with a big failure in Prothena, which revealed on Monday that its NEOD001 trial has failed to meet its primary endpoint and the Al Amyloidosis treatment will be abandoned.
The fund’s net asset value (NAV) declined by 1.6% during the year to 91.73p, which is mildly disappointing and at 77p, the shares are selling at a discount to NAV of around 16%. That’s not a vote of confidence from the markets.
I’m also turned off by the fund’s top-heavy investment in four flagship companies (including Purplebricks, which I think is overvalued). So there’s really not that much diversification after all.
Finally, this kind of high-risk strategy is not in line with Woodford’s traditional expertise, which lies in understanding top-quality blue-chip companies. It’s definitely not for me.
