On June 17, Neil Woodford bought up another tranche of shares in Circassia (LON:CIR), a company that has come to represent an increasingly big bet for the veteran fund manager over the past year. The transaction moved Woodford’s stake in the company past the 20% mark. The next business day, Circassia posted Phase III trial data that caused its stock price to crash.
In isolation, the purchase of shares and subsequent 66% stock crash would represent a small blow to Woodford, albeit one with unfortunate timing. The transaction added 520,000 shares to Woodford’s holding of the allergy drug developer. If bought at the price at which Circassia’s stock closed on June 17, the purchase of shares would have cost £1.4 million ($2.1 million), small beer for someone managing as much money as Woodford.
However, the purchase wasn’t a one-off. Rather, it was just the latest action in a yearlong drive to buy up a bigger stake in Circassia. As recently as June 2015, Woodford owned just 15.3 million shares in Circassia. The purchase late last week brought his share holding up to 57.1 million, an increase of 273% in a little more than 12 months. Over that same period, Woodford has also increased his stake in Imperial Innovations (LON:IVO), an investor that owns a piece of Circassia. Innovations’ fate is seen as being tied to that of Circassia to the extent that its stock fell 8% on the day the allergy trial data were published.
In a blog post to discuss the Circassia data, Woodford sought to talk up the company’s activities outside of the allergy sector. Yet, while it is true Circassia has bought in assets to complement its core programs, investors didn’t drive the company to one of the biggest biotech IPOs ever so they could own a stake in a pipeline of generic respiratory products. How those investors--and others who have backed Woodford or are watching from the sidelines--react to Circassia’s troubles could have far-reaching implications for the future of biotechs on public markets in the U.K..
Public market investors in Britain have traditionally taken longer to forget late-phase blowouts than their counterparts in the U.S., a trait that has contributed to stretches of IPO inactivity in London. When Circassia went public in 2014, it was the first biotech to list on the main market in London since Renovo raised £50 million in its IPO in 2006. The travails of companies such as Renovo and Ark Therapeutics, which raised £55 million in a London IPO in 2004, cost some investors considerable sums of money and tarnished their perceptions of the biotech sector.
Circassia was seen as the start of a shift in attitudes, but even before this week it was beginning to look more like an outlier than a pioneer. Acacia Pharma and Shield Therapeutics (LON:STX) canned IPOs intended to raise a total of £260 million late last year. Companies, including Shield, have continued to raise relatively small sums on London’s AIM--and F2G’s $60 million round suggests VC funding is still flowing--but it could be a long time before any drug developer succeeds in following in the footsteps of Circassia.
Exactly how long the freeze lasts will depend, in part, on what happens to Circassia and Woodford from here onward. For now, Circassia has hit pause on some of its programs while it picks through the data in an attempt to understand the underlying cause of the strong response to the placebo. “We’re particularly frustrated that we've seen a treatment effect that had someone offered that at the start of the study we would have bitten their hands off,” CEO Steve Harris said in a call with investors to discuss the data.
If the placebo problem scuttles the allergy pipeline, the fallout will affect Woodford and the people who have invested in his funds. Part of the allure of Woodford’s wildly-popular Patient Capital Trust was that it provided people with a way to invest in biotechs and other young companies without getting personally involved in the tricky business of picking winners. Woodford, who built up a lot of goodwill with investors while at Invesco, would handle that for them.
The difficulties faced by Woodford investments Circassia and Northwest Biotherapeutics ($NWBO) have raised doubts about the wisdom of placing such faith in the fund, although, as is befitting an investment vehicle with “patient” in its name, it will be some time before definite conclusions can be drawn.
Circassia sinks as key allergy drug fails PhIII, pipeline under pressure
Woodford exits Sanofi, doubles down on Circassia in portfolio rejig
Circassia kicks off adaptive-design PhIII grass allergy field trial