Circassia Group’s (LON:CIR ) 1H20 results for the six months to 30 June 2020, has disclosed  first signs of ‘a gradual recovery’ despite trading well below last year as a result of the COVID-19 pandemic.

Revenue from the COPD products (Tudorza® and Duaklir®) increased 25% to £11.6m (1H19: £9.3m) and were unaffected by COVID-19.

However, the medical device firm said sales of its asthma diagnosis product, NIOX®, fell 39% to £11.4m (1H19: £18.6m) after being adversely affected during 1H20 by COVID-19. 

The extent of the sales disruption caused by the impact of lockdown is reflected in the fact that when excluding China, where the timing of the lockdown was different, 1Q20 sales of NIOX® was actually 6% up on prior year, whereas in 2Q20 they were 53% down on prior year.

EBITDA loss for the group’s NIOX® business remained largely unchanged at £6.2m (1H19: £6.0m ) despite the total revenue reduction of £7.2m, reflecting the substantial reduction in cost base during the period.

Following a strategic review of the business, which concluded with agreement in May 2020 with AstraZeneca to hand back the Tudorza® and Duaklir® products for a total consideration of £123.1m now leaves the Company debt free and with net cash of £9.6m at 30 June 2020.

The extent of the sales disruption caused by the impact of lockdowns is reflected in the fact that excluding China - where the timing of the lockdown was different - Q1 NIOX® clinical revenues were 6% up on prior year, whereas in Q2 they were 53% down on prior year. 

July and August have seen a sales recovery, but still to a level well below the prior year. While the pandemic has impacted NIOX® revenues, management has also taken appropriate cost actions to mitigate the impact of this on the company's financial resources, it said.

EBITDA loss for the group’s NIOX® business remains largely unchanged at £6.2m (H1 2019: £6m ) despite revenue reduction of £7.2m, reflecting substantial reduction in cost base.

“The decision to hand back the COPD products and focus the Group's activities on NIOX® has led to a significant reduction in the cost base of the Group reflecting its smaller size, reduced complexity and lower regulatory risk profile,” said Executive Chairman, Ian Johnson.

Revenues in the COPD business in H1 were 25% up on H1 2019 at £11.6m (H1 2019: £9.3m) and have been unaffected by COVID-19. As a result of reduced sales and marketing costs during the transition period, the business has since traded profitably during July and August.
As a result of the technology transfer, the group changed its name to Circassia Group in April to reflect its new exclusive focus on its ‘world leading’ NIOX® products over pharmaceutical products.

Post Balance Sheet Events

July and August have seen a sales recovery, but still to a level well below the prior year, leading to management to take appropriate cost actions to mitigate the impact of this on the company's financial resources, it said.

As a result of reduced sales and marketing costs during the transition period, the business has since traded profitably during July and August.

Shares in Circassia Group recovered strongly from lows of 13.0p in March to open at 24.0p following today's announcement. 

Outlook

Going forward the objective of Circassia is to grow the core NIOX® business globally through organic growth as well as increasing the company’s presence in key strategic markets.

It said that the ‘good progress’ made in aligning the cost base with the requirements of the NIOX® business has been executed in a way that will support future growth post COVID-19.

Johnson said the group anticipates that its underlying cost base of the NIOX® business will have reduced from £35.3m in 2019 to no more than £23m by 2021 on an annualised basis resulting in the Board expectations for the group to be EBITDA positive at revenue levels of approximately £35m.

He added that this would exclude depreciation, amortisation and head office costs which are expected to be around £1.6m in 2021. 
With its existing cash resources and a £5m equity facility being drawn down today, Circassia says it has sufficient cash to fund its current operations for at least the next 12 months. 

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