LONDON (Reuters) - AstraZeneca is paying up to $45 million (32.25 million pounds) to increase its stake in Circassia, backing a company seeking to bounce back from the failure of its allergy drugs by switching all of its focus to respiratory medicines.

Circassia bought the U.S rights to two AstraZeneca drugs for chronic obstructive pulmonary disease (COPD) last year for up to $230 million plus royalties after its cat allergy medicine flopped in a final trial in June 2016.

AstraZeneca, which took a stake in Circassia as part of the deal, said on Tuesday it would increase its holding to a maximum 19.9 percent, with Circassia using some of the proceeds to pay R&D costs owed to its partner.

The first product, a bronchodilator named Tudorza, was already approved when it did the deal, but it was neglected in favour of bigger products in AstraZeneca's portfolio.

Circassia Chief Executive Steve Harris said sales of Tudorza had stabilised, and could be boosted by new data, to be presented next month, supporting a change in its label.

The company doubled its U.S sales force, working both on Tudorza and its existing NIOX asthma management products, to 200 after the AstraZeneca deal.

"We will focus on the commercial channel rather than the Medicaid channel, which is a much more valuable channel to market," Harris said on Tuesday.

The second product, a combination drug called Duaklir, will be filed for approval in the next couple of months, he said.

Tudorza could have sales of more than $90 million a year, while Duaklir sales could peak at more than $180 million.

Circassia will also use the AstraZeneca funds to build its salesforce in China, where its NIOX products are available in around 400 hospitals in big cities.

"The potential in China is very large, particularly when you look at the incidence of asthma," he said.

Harris said the company was delighted with its progress since the AstraZeneca deal, which looked even smarter after positive clinical trial results.

"Whilst this was always plan B it is actually quite difficult to pull these things off so we really are very pleased with where we've got to," he said.

Circassia's total revenue for 2017 doubled to 46.3 million pounds ($64.6 million), with an underlying loss of 36.9 million pounds against 35.9 million pounds a year earlier.

Its shares, which were trading around 265 pence before the failure of its cat allergy candidate, were trading up 3.7 percent at 91.5 pence at 1214 GMT.

(Reporting by Paul Sandle and Sarah Young; Editing by Keith Weir)

By Paul Sandle