CIR.L Regulatory News (CIR)

For immediate release

Circassia Pharmaceuticals plc

Annual report and accounts for the year ended 31 December 2015 and Notice of 2016 Annual General Meeting

22 March 2016

Circassia Pharmaceuticals plc announces that the following documents have today been posted or otherwise made available to shareholders:

· The Company's Annual report and accounts for the year ended 31 December 2015

· Notice of the Company's 2016 Annual General Meeting

· Form of Proxy for the Annual General Meeting

In accordance with Listing Rule 9.6.1 copies of each of 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 2015 and Notice of 2016 Annual General Meeting are available on the Company's website: www.circassia.com.

The Annual General Meeting will be held at 9.30 am on Wednesday 18 May 2016 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 2015 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 11 March 2016 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 pages 34 to 37 of the Annual report. The following is extracted in full and unedited form from the Annual report.

Regulatory approvals

The Group may not obtain regulatory approval for those of its products which are in development. Even where products are approved, subsequent regulatory difficulties may arise, or the conditions relating to the approval may be more onerous or restrictive than the Group expects, or existing approvals might be withdrawn.

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 or medical device 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 Group's lead product candidate is a treatment for 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 Group'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.

The Group already holds regulatory approvals for its NIOX MINO® and NIOX VERO® devices in certain key countries such as the United States, Japan, and Germany but approvals are still pending in a number of other countries. Delays or complications in any of these regulatory applications could adversely affect the Group's business.

In order to obtain regulatory approval for the Group's products, it will be necessary to successfully complete supporting clinical studies. The Group is currently carrying out clinical trials for a number of its allergy and respiratory products. 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 Group relies on third party sub-contractors and service providers for the execution of most aspects of its development programmes. 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 programmes.

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, or may even withdraw the approval if new concerns over safety and efficacy arise.

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 its cat allergy product, it is of note that final dosing in 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 been manufactured, giving comfort that the manufacturing process is robust.

Unforeseen side effects

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

There is a risk of adverse reactions with all drugs and there is a risk that the malfunction of a medical diagnostic may have an adverse impact on patients. If any of the Group's products are found to cause adverse reactions or unacceptable side effects or risk of misdiagnosis, then product development may be delayed, additional expenses may be incurred if further studies or product development work 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 or device malfunction may also potentially lead to product liability claims being raised against the Group as the developer of the products and sponsor of the relevant clinical trials.

Mitigating activities

The Group conducts extensive pre-clinical and clinical trials which test for and identify adverse side effects of its novel drug candidates. Its medical diagnostic products are subject to rigorous testing procedures. 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 its cat allergy product are balanced against any risks. Insurance is in place to cover product liability claims which may arise during the conduct of clinical trials or sales of the Group's NIOX MINO® and NIOX VERO® products.

Commercial success

The Group 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 Group'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 Group. 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 Group.

The Group's NIOX MINO® and NIOX VERO® devices compete with products made by Bedfont Limited and Medisoft SA. Neither of these competing products are currently available in the US. Outside the US and Germany the Group relies on distributors to sell its NIOX® devices and such relationships must be carefully managed in order to ensure the services provided are of a sufficiently high quality.

The successful commercialisation of the Group's fluticasone propionate will, when launched, be largely dependent upon its partner Mylan which has the exclusive rights to sell the product in most major markets. Moreover, this product and certain other drug products being developed by the Group for treatment of asthma, such as its Seretide substitute, are generic products and so will compete with the innovator products as well as potentially generics from other third parties.

Factors that may undermine the Group'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 Group.

Mitigating activities

In the context of its cat allergy treatment, 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 favourable safety profile. 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.

With regard to its NIOX® franchise, the NIOX VERO® has been launched in Europe, in the US, Japan and China. This device offers advantages over the NIOX MINO® (in terms of portability, enhanced life, and better interface).

With respect to the Respiratory franchise, the Group's agreement with Mylan contains provisions which offer remedies in the event that insufficient diligence is applied to the marketing of its Flixotide substitute. A joint steering committee oversees this project.

Compliance with healthcare regulations

The Group must comply with complex regulations in relation to the marketing of its device products (and in the future will need to comply with such regulations in relation to its drug products once approved). These regulations are strictly enforced. Failure by the Group (or its commercial partners) to comply with the US False Claims Act, Anti-Kickback Statute and the US Foreign and Corrupt Practices Act and regulations relating to data privacy (amongst others) and similar legislation in countries outside the US may result in criminal and civil proceedings against the Group.

Mitigating activities

The Group has strengthened its internal Compliance function in the course of the year, by appointing an experienced compliance professional as VP, Global Compliance Officer. The Global Compliance Officer reports to the General Counsel but also has a direct reporting line to the Chair of the Audit and Risk Committee. A Compliance Committee has been formed to oversee activities in this area. The Compliance function works with a network of external advisers in the relevant territories to ensure the appropriate regulations are understood and that strategies are in place to support products in development and those already approved and sold. Robust processes are in place to ensure that sales compliance requirements are met and any failures or allegations of failure are swiftly investigated. This includes training of employees and audits of distributors and suppliers.

Supply Chain

The Group relies on third party contractors for the supply of key materials and services. Problems at these 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 Group's cat allergy treatment, and the sensors for the NIOX MINO® and NIOX VERO® devices, and regulatory requirements may make substitution costly and time-consuming, particularly where the product is regulated as a biologic as is the case for the Group's allergy products in the US.

Mitigating activities

Audits of sub-contractors are routinely conducted according to procedures set out in the Group'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 Group may not be successful in its efforts to use and expand its allergy technology platform to build a pipeline of allergy products or its particle engineering technology to successfully develop a pipeline of respiratory 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.

In addition, the Group is dependent upon external collaborators for the development of certain of its products. The Group relies upon its collaborations with Panasonic for the development of the NIOX® devices and upon ITG for the development of the sensors contained in those devices.

Mitigating activities

The Group 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. The development collaboration with Panasonic is managed by a steering committee with representatives from the Group. In addition, the Group will seek, through business development activity, to identify opportunities which would expand and diversify its portfolio.

Intellectual property, know how, and trade secrets

The Group may be subject to challenges relating to the validity of its patents. If these challenges are successful then the Group may be exposed to generic competition. One of the Group's granted European patents relevant to its cat allergy treatment is currently the subject of opposition appeal proceedings at the European Patent Office. If the opponents are successful then the patent protection for its cat allergy treatment in Europe will be reduced.

Alternatively, the Group 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 Group 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 Group to maintain or renew key patents would lead to the loss of such protection. In both cases the potential of the Group to earn revenue from its products could be compromised as it would be less difficult for third parties to copy the products.

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

Mitigating activities

Important products are covered by more than one patent family and attacks on patents are defended using expert 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 Group continues to have freedom to operate and oppositions are filed where this is considered expedient. Confidential information (both of the Group 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 Group's employment contracts. Licences are monitored for compliance with their terms.

At the beginning of the year there were four oppositions pending against the Group's allergy patents - three relating to its cat allergy treatment patents and one relating to the patent protecting the Group's treatment for Ragweed allergy.

A favourable result had been obtained in the opposition against the patent protecting the Group's Ragweed allergy treatment opposition in December 2014 with the patent upheld. This was confirmed by a written decision issued in February 2015 and no appeal was filed by the opponent.

The opposition proceedings against the patent which covers the active constituents of the Group's cat allergy treatment concluded in October 2015 with the opponent's arguments being rejected and the patent being upheld. It has now been confirmed that the opponent will not be appealing the decision. A second opposition against a patent protecting the formulation of the cat allergy treatment was also successfully brought to a close in October with the patent upheld. Again it has been confirmed there will be no appeal by the opponent. There is a third opposition still pending, against a second formulation patent covering the Group's cat allergy treatment. The oral proceedings in this matter took place in December 2015 and the decision was in the Group's favour. The Group is now waiting for confirmation as to whether the opponent will appeal this outcome.

Organisational capabilities and capacity

The Group 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 Group's current managers and employees, particularly if it cannot attract sufficient new employees. The Group 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 Group acquires complementary technologies, products, or businesses it may not be able to integrate those acquisitions effectively or realise their expected benefits. In the second half of 2015 the Group has focused on integrating the operations of Aerocrine and Prosonix which it acquired on 18 June and 15 June respectively.

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

Mitigating activities

The Group has budgeted for substantial growth in headcount over the next three years. The management team has already been strengthened in the course of 2015 by the recruitment of a Chief Business Officer. 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 Group, to monitor and manage the conduct of the Group's clinical trials. To address IT risks, a disaster recovery plan has been developed. Data is backed up daily on off-site servers and the Group operates from a number of physically separate sites.

Free Float

The UK Listing Authority requires listing issuers to maintain at least 25% free float in their listed shares. At 29 February 2016 the Company had a free float of approximately 18%. If the level of free float cannot be increased to 25% then the UKLA can require the Company to delist from the Official List. This would adversely affect the ability of new and existing shareholders to buy Ordinary shares and of holders to sell them.

Mitigating activities

The Company will keep the free float under review, and if it remains below 25% will: (i) discuss with Shareholders who own more than 5% of the issue share capital of the Company whether any of their holdings can be disaggregated because decisions are being taken by independent investment managers within that Shareholder's organisation; (ii) discuss with such Shareholders the prospect of reducing their holding below 5%; (iii) seek a derogation from the UKLA while such measures are being implemented.

Financial Operations

The Group has incurred significant losses since the inception of its various businesses (including those of its recently acquired companies Aerocrine and Prosonix) and anticipates that it will continue to do so, at least until it is able to launch its allergy products.

Foreign exchange fluctuations may adversely affect the Group's results and financial condition. The Group records its transactions and prepares its financial statements in pounds sterling, but a significant proportion of its expenditure is in US dollars, Swedish krona, 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 Group, and its joint venture Adiga Life Sciences Inc. currently receive in the United Kingdom and Canada respectively.

Mitigating activities

The Group has prepared a detailed forecast for the next 10 years and, if it achieves its objectives, this shows that the current business plan is sufficient to take the Group 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 78 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 they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent financial statements the Directors are required to:

· properly select and consistently apply accounting policies;

· make prudent and reasonable accounting estimates and judgements;

· state whether they have been prepared in accordance with IFRSs as adopted by the EU; 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 and Directors Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group 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 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 IFRS as adopted by the EU 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 Group's position, performance, business model and strategy.