CIR.L Regulatory News (CIR)

For immediate release

Circassia Pharmaceuticals plc

Annual report and accounts for the year ended 31 December 2014 and Notice of 2015 Annual General Meeting

27 March 2015

In accordance with Listing Rule 9.6.1 copies of the following documents have been submitted to the UK Listing Authority.

· The Company's Annual report and accounts for the year ended 31 December 2014

· Notice of the Company's 2015 Annual General Meeting

· Form of Proxy for the Annual General Meeting

These documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm.

The Annual report and accounts for the year ended 31 December 2014 and Notice of 2015 Annual General Meeting are available on the Company's website: www.circassia.co.uk.

The Annual General Meeting will be held at 10.00 am on Wednesday 20 May 2015 at the Company's offices: Northbrook House, Robert Robinson Avenue, Oxford, OX4 4GA.

In accordance with DTR 6.3.5 the appendices below contain as unedited text extracted from the Annual report and accounts a responsibility statement and principal risks. Any references to page numbers in the extract refer to those in the Annual report and accounts. Circassia Pharmaceuticals plc's preliminary results announcement issued on 26 February 2015 contained a condensed set of financial statements, the Chairman's statement, an operating review and financial review.

Appendix 1 - Risks and risk management

The principal risks relating to Circassia Pharmaceuticals plc and its Group are set out on page 30 to 33 of the Annual report. The following is extracted in full and unedited form from the Annual report.

Regulatory approvals

The Company may not obtain regulatory approval for its products. Even if products are approved, subsequent regulatory difficulties may arise, or the conditions relating to the approval may be more onerous or restrictive than the Company expects.

The pharmaceutical industry is highly regulated. Regulatory authorities across the world enforce a range of laws and regulations which govern the testing, approval, manufacturing, labelling and marketing of pharmaceutical products. Stringent standards are imposed which relate to the quality, safety and efficacy of these products. These requirements are a major determinant of whether it is commercially feasible to develop a drug substance given the time, expertise, and expense which must be invested. Moreover, approval in one territory offers no guarantee that regulatory approval will be obtained in any other territory.

The Company's lead product candidate is Cat-SPIRE, which it is developing for the treatment of cat allergy. Failure to obtain regulatory approval for this lead product, or significant delays in obtaining approval, would have a material adverse effect on the Company's business. This risk can be further divided into a number of component risks, each of which require distinct mitigation strategies. These include a failure to complete the phase III registration study and supporting studies; inability to demonstrate efficacy of the product after moving to field studies from chamber studies; and any problems which might arise in validating the manufacturing process for the active pharmaceutical ingredient in the product.

In order to obtain regulatory approval for the Company's products, it will be necessary to successfully complete the supporting clinical studies. Clinical studies are typically expensive, complex and time-consuming, and have uncertain outcomes. Conditions in which clinical studies are conducted differ, and results achieved in one set of conditions could be different from the results achieved in different conditions or with different subject populations. Regulatory authorities or institutional review boards may suspend or terminate clinical studies at any time if the subjects participating in such studies are being exposed to unacceptable health risks or may require additional studies to be performed. Difficulties or delays in the enrolment of subjects could result in significant delays in the completion of those studies and even in their abandonment.

The Company relies on third party sub-contractors and service providers for the execution of most aspects of its development programs. Failure of these third parties to provide services of a suitable quality within acceptable timeframes - for example due to technical reasons or bankruptcy of the provider - may cause the failure or delay of these development programs.

Even where approval is obtained, regulatory authorities may still impose significant restrictions on the indicated uses or marketing of the product or impose costly, ongoing requirements for post-marketing surveillance or post-approval studies.

Mitigating activities

The Group manages its regulatory risk by employing highly experienced clinical managers and regulatory affairs professionals who, where appropriate, will commission advice from external advisers and consult with the regulatory authorities on the design of the Group's pre-clinical and clinical programs. These in-house experts ensure that high quality protocols and other documentation are submitted during the regulatory process, and that well-reputed contract research organisations with global capabilities are retained to manage the trials.

With regard to the risks specifically identified in relation to Cat-SPIRE, it is of note that recruitment for the phase III study has now been successfully completed; allergen levels used in the exposure chamber have been shown to be comparable to those experienced with an indoor cat; and three validation batches have now been manufactured, giving comfort that the manufacturing process is robust.

Unforeseen side effects

Unforeseen side effects may result from the use of the Company's products or product candidates.

There is a risk of adverse reactions with all drugs. If any of the Company's products are found to cause adverse reactions or unacceptable side effects, then product development may be delayed, additional expenses may be incurred if further studies are required, and, in extreme circumstances, it may prove necessary to suspend or terminate development. This may occur even after regulatory approval has been obtained, in which case additional trials may be required or the approval may be suspended or withdrawn or additional safety warnings may have to be included on the label.

Adverse events or unforeseen side effects may also potentially lead to product liability claims being raised against the Company as the developer of the products and sponsor of the relevant clinical trials.

Mitigating activities

The Company conducts extensive pre-clinical and clinical trials which test for and identify any adverse side effects. A robust pharmacovigilance plan is in place to ensure any safety issues are identified and reported. A Risk Evaluation and Mitigation Strategy (REMS) has also been developed to ensure that the benefits of Cat-SPIRE are balanced against any risks. Insurance is in place to cover product liability claims which may arise during the conduct of clinical trials.

Commercial success

The Company's products may not be commercially successful.

The Company may not be able to sell its products profitably if reimbursement from third party payers such as private health insurers and government health authorities is restricted or not available because for example it proves difficult to build a strong enough economic case based on the burden of illness and population impact. Third party payers are increasingly attempting to curtail healthcare costs by challenging the prices that are charged for pharmaceutical products and denying or limiting coverage and the level of reimbursement. Moreover, even if the products can be sold profitably, they may not be accepted by patients and the medical community.

Alternatively, the Company's competitors - many of whom have considerably greater financial and human resources - may develop safer or more effective products or be able to compete more effectively in the markets targeted by the Company. New companies may enter these markets and novel products and technologies may become available which are more commercially successful than those being developed by the Company.

Factors that may undermine the Company's efforts to commercialise its products include: the inability to train and retain effective sales and marketing personnel; a failure to persuade prescribers to prescribe products; and higher costs of marketing and promotion than are anticipated by the Company.

Mitigating activities

In the context of Cat-SPIRE, thorough market research will be carried out prior to product launch and the findings will be used to generate effective and appropriately resourced marketing campaigns. This will emphasise the attributes which differentiate the product from its competitors, for example its short dosing regimen and lack of side effects. A disease awareness campaign will be developed and implemented. Pricing and reimbursement studies and health economic data will be used to support the value proposition which will be presented to payers.

Supply Chain

The Company relies on third party contractors for the supply of key materials and services. Problems at contractors, such as technical issues, contamination, and regulatory actions may lead to delays or even loss of supply or inadequate supply of these materials and services either prior to launch or thereafter. Some materials may only be available from one source, as is currently the case for the peptides contained in the Cat-SPIRE product, and regulatory requirements may make substitution costly and time-consuming, particularly where the product is regulated as a biologic.

Mitigating activities

Audits of sub-contractors are routinely conducted according to procedures set out in the Company's Quality system. Dual sourcing is being investigated where this is practicable. Manufacturing sites are well established FDA-approved facilities.

Research and development risks

The Company may not be successful in its efforts to use and expand its technology platform, Toleromune®, to build a pipeline of products and develop marketable products. This would have a material impact on the long term success of the business. Failure of programs could result from lack of internal resources or capabilities, or from not obtaining the desired pre-clinical and clinical results.

Mitigating activities

The Company has recruited highly experienced R&D executives. Projects are closely monitored against goals and regularly reported to the Senior Management Team and the Board, and external resources are retained where this is deemed appropriate. In addition, the Company will seek, through business development activity, to identify opportunities which would expand and diversify its portfolio.

Intellectual property, know how, and trade secrets

The Company may be subject to challenges relating to the validity of its patents. If these challenges are successful then the Company may be exposed to generic competition. Four of the Company's granted European patents (three patents relevant to Cat-SPIRE and a fourth relevant to Ragweed-SPIRE) are currently the subject of opposition proceedings at the European Patent Office by anonymous opponents. If the opponents are successful then the patent protection for these products in Europe will be reduced or even eliminated.

Alternatively, the Company may be sued for infringement of third party patent rights. If these actions are successful then it would have to pay substantial damages and potentially remove its products from the market.

Such litigation, particularly in the US, involves significant costs and uncertainties.

It is possible that the Company will not be able to secure intellectual property protection, or sufficient protection, in relation to products which are acquired or in development. Similarly, a failure by the Company to maintain or renew key patents would lead to the loss of such protection. In both cases the potential of the Company to earn revenue from its products could be compromised as it would be less difficult for third parties to copy the products.

The Company may rely upon know how and trade secrets to protect its products and maintain a competitive advantage. This may be especially important where patent protection is limited or lacking. Conversely, the Company may be subject to claims that its employees or agents have wrongfully used or disclosed the confidential information of third parties which could lead to damages or injunctions which affect particular products.

The Company licenses certain intellectual property rights from third parties. If the Company fails to comply with its obligations under these agreements it may enable the other party to terminate the agreement. This could impair the Company's freedom to operate and potentially lead to third parties preventing it from selling certain of its products.

Mitigating activities

Detailed responses have been filed to the four oppositions filed against the Company. The oral hearing relating to the European Ragweed-SPIRE patent took place in November 2014 and the Opposition Division of the European Patent Office upheld the validity of the patent and rejected all grounds of opposition. Important products are covered by more than one patent family and attacks on patents are defended using carefully selected external patent attorneys and lawyers. A robust system is in place which ensures patents are renewed on time. Third party patent filings are monitored to ensure the Company continues to have freedom to operate and oppositions are filed where this is considered expedient. Confidential information (both of the Company and belonging to third parties) is protected through use of confidential disclosure agreements with third parties, and suitable provisions relating to confidentiality and intellectual property exist in the Company's employment contracts. Licences are monitored for compliance with their terms.

Organisational capabilities and capacity

The Company may be unable to successfully implement its plans for growth if it does not attract and retain employees with the requisite capabilities and experience, in appropriate numbers. More particularly, the rapid development which is envisaged may place unsupportable demands on the Company's current managers and employees, particularly if it cannot attract sufficient new employees. The Company depends on the skills and experience of its current management team and employees, and is generally subject to competition for, and may fail to retain, skilled personnel.

Existing employees, investigators, consultants and commercial partners may engage in misconduct or improper activities, including non-compliance with regulatory standards and laws.

Where the Company acquires complementary technologies, products, or businesses it may not be able to integrate those acquisitions effectively or realise their expected benefits.

The Company may be vulnerable to disruption and damage as a result of failures of its computer systems.

Mitigating activities

The Company has budgeted for substantial growth in headcount over the next 3 years. The management team has already been strengthened in the course of 2014 by the recruitment of a Chief Medical Officer, Chief Commercial Officer, and Vice President of Human Resources. Remuneration packages are competitive, and incentive plans based on the contingent award of shares, are in place to attract, motivate and retain staff.

Disciplinary and whistleblowing policies exist to address misconduct by employees and officers, and committee structures have been established with the Contract Research Organisations instructed by the Company, to monitor and manage the conduct of the Company's clinical trials.

The Senior Management Team has considerable experience of integrating acquired businesses and assets, and will assess opportunities using conservative assumptions.

To address IT risks, a disaster recovery plan has been developed. Data is backed up daily on off-site servers and the Company operates from two physically separate sites.

Financial Operations

The Company has incurred significant losses since its inception and anticipates that it will continue to do so, at least until it is able to launch products.

Foreign exchange fluctuations may adversely affect the Company's results and financial condition. The Company records its transactions and prepares its financial statements in pounds sterling, but a significant proportion of its expenditure is in US dollars, Canadian dollars, Swiss Francs, or Euros.

Adverse decisions of regulators, including tax authorities, or changes in tax treaties, laws, or the interpretation of those laws, could reduce or eliminate research and development tax credits which the Company, and its joint venture Adiga Life Sciences Inc. currently receive in the United Kingdom and Canada respectively.

Mitigating activities

The Company has prepared a detailed budget for the next 3 years and, if it achieves its objectives, this shows that the current business plan is sufficient to take the Company through to profitability.

Forward purchases of foreign currencies are made when exchange rates are favourable to provide for expenditure in those currencies. Markets are constantly monitored and an external commentary is provided by Investec on a daily basis.

If tax credits are lost in the future then action would be taken to reduce discretionary expenditure in order to ensure there remained sufficient cash to support the business through to profitability.

Appendix 2 - Directors' responsibility statement

The following statement is extracted from page 72 of the Annual report. This statement relates solely to the Annual report and is not connected to the extracted information set out in this announcement.

The Directors are responsible for preparing the Annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law the Directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent company financial statements under IFRSs as adopted by the European Union. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

· properly select and apply accounting policies;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of any particular transactions, other events and conditions on the entity's financial position and financial performance; and

· make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and for taking reasonable steps to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

· the Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties which they face; and

· the Annual report and the financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company's performance, business model and strategy.