SkyePharma Reports Preliminary Results Announcement for the Year
Ended 31 December 2004 LONDON, April 28 /PRNewswire-FirstCall/ --
SkyePharma PLC (LSE:SKP) ( NASDAQ: SKYE) announces the Company's
preliminary results for the year-ended December 31, 2004. Operating
highlights -- Agreement with GlaxoSmithKline for Paxil CR(TM)
provides a $10 million cash payment and a higher royalty rate and
ensures royalty income received even while Paxil CR(TM) remains off
the market -- Pulmonary package: Heads of Terms with major global
pharma company for Flutiform(TM) include up to $160 million in
milestone payments and reimbursement of development costs, with
double digit royalties. Agreement still subject to contract --
Conditional UK marketing authorisation for DepoDur(TM) --
DepoBupivacaine(TM) licensed to Mundipharma outside North America
and Japan -- New agreements with Critical Therapeutics for zileuton
and First Horizon for fenofibrate -- Two products expected to be
launched in 2005, four products to be filed for approval and four
products to enter Phase III development Financial highlights --
Turnover up by 17% to 62.2m pounds - excludes 5.5m pounds of
milestones received during 2004 (2003: 53.2m pounds) -- Royalty
income increased by 39% to 26.0m pounds (2003: 18.7m pounds) --
Gross profit up 33% to 31.0m pounds (2003: 23.4m pounds) --
Exceptional items of 3.0m pounds (2003: 9.5m pounds) -- Operating
loss before exceptionals and amortisation fell by 59% to 9.7m
pounds (2003: 23.4m pounds) -- Operating loss after exceptionals
and amortisation fell by 48% to 20.7m pounds (2003: 39.5m pounds)
-- Net loss fell by 44% to 24.3m pounds (2003: 43.2m pounds) --
Loss per share 3.9p (2003: 7.1p) -- End 2004 net cash 15.3m pounds
(2003: 22.0m pounds) Ian Gowrie-Smith, Non-executive Chairman,
said: "A highly beneficial new agreement with GlaxoSmithKline for
Paxil CR(TM), significant advances for both our marketed products
and our pipeline and important progress on the long- awaited
pulmonary deal are the keynotes of our performance. We now have
five key products on the market generating royalty income for us,
with two more expected to be launched this year, and a well-stocked
pipeline of products in late-stage development. Recent progress on
corporate agreements brings us several powerful new partners. We
face the future with confidence. " For further information please
contact: SkyePharma PLC Ian Gowrie-Smith, Non-executive Chairman
Michael Ashton, Chief Executive Officer Peter Laing, Director of
Corporate Communications Today +44 207 466 5000 Thereafter +44 207
491 1777 Sandra Haughton, US Investor Relations +1 212 753 5780
Buchanan Communications +44 207 466 5000 Tim Anderson / Mark Court
CHAIRMAN'S STATEMENT A highly beneficial new agreement with
GlaxoSmithKline for Paxil CR(TM), significant advances for both our
marketed products and our pipeline and important progress on the
long-awaited pulmonary deal are the keynotes of our performance.
The current year brought an unwelcome surprise with news in March
that the US FDA had halted distribution of GlaxoSmithKline's Paxil
CR(TM), currently our major source of royalty income. Our partner
is working with the FDA to expedite the return of this product to
the market. Meanwhile I can report that GlaxoSmithKline has now
agreed not only to increase the royalty rate due to us and make a
$10 million one-off payment but also to ensure that we will
continue to receive royalty income even while the product remains
off the market. We acknowledge our partner's willingness to support
us in this way, a tribute to the strength of our relationship. We
have made encouraging progress with our pipeline in 2004. We
currently have two products expected to be launched this year and
four products that we expect to file for approval, with another
four products poised to enter Phase III development. Our innovative
pain control agent DepoDur(TM) was approved in the USA and launched
by our partner Endo Pharmaceuticals. We have just heard that we
have also received marketing authorisation for DepoDur(TM) in the
UK (subject to some conditions), which will be used as the basis
for wider approvals in Europe, where the product will be marketed
by our partner Zeneus Pharma, appointed in 2004. Last year we also
concluded new agreements with First Horizon Pharmaceuticals for
fenofibrate and with Critical Therapeutics for zileuton. We have
also recently granted Mundipharma (our European marketing partner
for DepoCyte(R)) the rights outside North America and Japan for
another pain control product, DepoBupivacaine(TM), in a deal that
will bring us up to $80 million in milestone payments and a 35%
share of sales. Shareholders will be aware that our efforts to
licence our package of pulmonary products have taken longer than we
had initially hoped. However I am now delighted to report that we
have negotiated Heads of Terms with a major global pharmaceutical
company to develop and distribute our key pulmonary product
Flutiform(TM), a formoterol/fluticasone combination product in an
HFA- powered metered-dose aerosol inhaler. The company combines
strong primary care distribution in the key US market with the
financial resources to commit to a clinical development programme
designed to optimise the product profile. The outline terms include
milestone payments and reimbursement of clinical development costs
that in total could amount to $160 million. In addition SkyePharma
will receive double digit royalties, with an escalating royalty
rate as sales achieve certain targets. SkyePharma will execute the
clinical development programme. The agreement at this stage is
non-binding and subject to contract finalisation and Board
approvals. We have now completed Phase II trials for Flutiform(TM),
with very encouraging top line results. We aim to file this product
in 2007. Given the high potential value of a late-stage product in
an important therapeutic area, we have been determined to maximise
the return for ourselves. The terms that we have negotiated for
Flutiform(TM) amply justify this policy and we hope that
shareholders agree that it was worth waiting for. Conclusion We now
have five key products on the market generating royalty income for
us, with two more expected to be launched this year, and a
well-stocked pipeline of products in late-stage development. Recent
progress on corporate agreements brings us several powerful new
partners. We face the future with confidence. Ian Gowrie-Smith
Non-executive Chairman OPERATIONAL REVIEW Products on the market
During 2004, Paxil CR(TM), our improved formulation of
GlaxoSmithKline's Paxil(R), held about 6.5% of all new US
prescriptions for SSRI antidepressants. This share has been
gradually declining through the advent of new SSRI antidepressants
but has been largely unaffected by US generic competition for the
older version Paxil(R) from 2003. GlaxoSmithKline's total sales of
Paxil CR(TM) were 396 million pounds ($725 million) in 2004, up by
13% in constant exchange rate terms. In March 2005, the FDA halted
US distribution of Paxil CR(TM) and another unrelated product
because of manufacturing problems at a GlaxoSmithKline plant in
Puerto Rico. We have recently concluded an agreement with
GlaxoSmithKline that not only provides us with a lump-sum payment
of approximately $10 million and an increased royalty rate on this
product but also ensures that we will continue to receive royalty
income while the product remains off the market. Xatral(R) OD
(Uroxatral(R) in the USA), our once-daily version of Sanofi-
Aventis's Xatral(R) (alfuzosin), is a treatment for the urinary
symptoms of benign prostatic hypertrophy. Xatral(R) OD has been on
the market outside the USA since April 2000 and has now largely
replaced the older multidose versions of Xatral(R). Uroxatral(R)
was launched in the USA in November 2003 and by the end of 2004 had
captured 9% of the combined prescriptions written for it and for
its main competitor. Xatral(R) OD has now been approved in Europe
for a second indication, acute urinary retention, with Phase III
trials ongoing for the USA. Reported sales of all forms of
Xatral(R) were ?281 million in 2004, up by 28% in constant exchange
rate terms. Global sales of DepoCyt(R) doubled in 2004. Sales in
the USA by our partner Enzon were $6.6 million, up 61% on the prior
year. Our European partner Mundipharma launched the product as
DepoCyte(R) in February 2004 and has had an encouraging initial
response with full year sales of $1.5 million. Mundipharma shares
our view that the market for DepoCyte(R) is largely under-
developed. We have now completed enrolment in the Phase IV trial
that will be used to support a filing for the most common form of
neoplastic meningitis, associated with solid tumours. We have
recently extended our relationship with Mundipharma by granting
rights outside North America and Japan for DepoBupivacaine(TM), a
long-acting local anaesthetic that we believe complements
DepoDur(TM). DepoBupivacaine(TM) is currently in Phase II trials.
Solaraze(R), our topical gel treatment for actinic keratosis, is
now marketed in the US by Bradley Pharmaceuticals. Bradley, a
fast-growing US specialty pharmaceuticals company, acquired the
Bioglan dermatology unit of Quintiles in August 2004. This has more
than doubled the number of sales representatives detailing
Solaraze(R). Combined sales by both partners in 2004 were $12
million. The transfer of rights to market Solaraze(R) from
Quintiles to Bradley required our consent and in August we received
a $5 million payment from Quintiles as part of this transaction.
Solaraze(R) is marketed in Europe and certain other territories by
Shire Pharmaceuticals. Total non-US sales were $6 million in 2004.
In Australia, Shire has now filed for approval using data from a
clinical trial in patients with multiple actinic keratoses.
DepoDur(TM) (formerly known as DepoMorphine(TM)) is our new
analgesic for the relief of acute post-operative pain. Our
DepoFoam(TM) sustained-release injectable formulation delivers from
a single epidural injection administered immediately before surgery
a therapeutically effective level of morphine for up to 48 hours -
covering the typical period of peak pain after a major operation.
There is widespread recognition that pain relief is an under-served
therapeutic need and current approaches to control of postoperative
pain leave much to be desired. In the USA, we filed DepoDur(TM) in
July 2003. It was formally approved by the FDA in May 2004 - the
fastest approval time possible. Our North American partner Endo
Pharmaceuticals launched DepoDur(TM) in the USA in December at a
significant price premium to conventional approaches to
post-operative analgesia and now has a team of 70 specialist sales
representatives focused on hospitals. Initial acceptance has been
encouraging. DepoDur(TM) was filed with the UK regulatory
authorities in November 2003 and we have recently received
marketing authorisation subject to certain conditions. Once these
conditions are met, this will be used as the basis for seeking
approval throughout the European Union using the EU's "mutual
recognition" procedure. Our European partner Zeneus Pharma
(appointed in April 2004) has been eagerly awaiting approval of
DepoDur(TM) to commence marketing. Zeneus has a pan-European
hospital sales force of approximately 150 representatives. Products
in late-stage development Foradil(R) Certihaler(R) is a new version
of Novartis' long-acting bronchodilator Foradil(R) (formoterol). We
developed not only the multidose dry-powder inhaler device but also
the formulation technologies that ensure dose consistency
regardless of storage conditions. These technologies are also
involved in a new collaboration with Novartis to jointly develop
another bronchodilator, QAB149. Novartis filed Foradil(R)
Certihaler(R) with the FDA and European regulatory authorities in
December 2002. The FDA issued a second "approvable" letter in
December 2004 and Novartis is in discussions with the FDA about the
conditions necessary for final approval. The product has now been
approved in ten European and Latin American countries. Novartis is
responsible for marketing Foradil(R) Certihaler(R) outside the USA.
The US Foradil(R) franchise has been licensed to Schering-Plough
Corporation. We have now completed the Phase III trial of our once
daily version of the Parkinson's drug Requip(R) which we are
conducting for our partner GlaxoSmithKline. The product is expected
to be filed later this year. We are developing several other asthma
drugs in metered-dose aerosol inhalers (MDIs) powered by a
hydrofluoroalkane (HFA) propellant gas. In 2004 we completed the
Phase III trial of an HFA-MDI version of AstraZeneca's inhaled
steroid Pulmicort(R) (budesonide) and AstraZeneca is about to file
for approval of this product in the first country in Europe. We
will receive double-digit royalties on sales of Pulmicort(R)
HFA-MDI. Our own HFA-MDI version of the bronchodilator formoterol
will commence Phase III trials in the autumn. Flutiform(TM) HFA-MDI
(a fixed-dose combination of formoterol and the inhaled steroid
fluticasone) has now completed its Phase II trial, with very
encouraging headline results. Both products are on track for
planned filing in 2007. As discussed in the Chairman's Statement,
we have now negotiated Heads of Terms with a major global
pharmaceutical company to develop and distribute Flutiform(TM). The
agreement, which is still subject to contract, will provide us with
up to $160 million in milestone payments and reimbursement of
development costs and we will also be entitled to double-digit
royalties on our partner's sales. Propofol IDD-D(TM) is our novel
formulation of propofol, a widely-used injectable anaesthetic and
sedative. Our formulation has been designed not to support
microbial growth, a recognised problem with current versions, and
should provide uninterrupted sedation for 24 hours, ideal for the
fast-growing intensive care market. In April 2004 the FDA completed
its review of the Phase II trials, triggering a milestone payment
from our North American partner Endo, and we are now in dialogue
with the FDA on the design of the additional trials required for
approval. We are also in current discussion with potential
licensees for Europe and certain other markets. New corporate
developments In 2004 we licensed fenofibrate, an oral treatment for
elevated blood lipid disorders, in the USA to First Horizon
Pharmaceutical Corporation. We will receive up to $50 million in
milestone payments, of which up to $15 million is dependent on the
timing and conditions of FDA approval, now anticipated in 2005. We
will also receive 25% of First Horizon's net sales of this product
in the form of royalty income and manufacturing revenues. We are
also developing an improved formulation of First Horizon's lead
product, the cardiovascular drug Sular (nisoldipine). We also
announced a collaboration with Critical Therapeutics to develop
zileuton, an oral drug for asthma and COPD. We had previously
developed a twice-daily version for Abbott Laboratories: this had
completed Phase III development for asthma but was not filed.
Critical Therapeutics has now licensed zileuton from Abbott.
Critical Therapeutics is aiming to file the controlled release
product with the FDA by the end of this year. In April we licensed
our dermatology products, pipeline and topical delivery
technologies to a US dermatology company, Trigenesis Therapeutics.
In a strategic review last year we concluded that we would gain a
greater return by out-licensing this technology portfolio to a
company with a development and market focus in this area. We retain
our existing licences and can also continue to use the delivery
technologies under certain conditions. If all the pipeline products
reach the market, milestone payments will exceed US$20 million.
SkyePharma will also receive a 10% royalty on sales. Trigenesis is
now part of the Indian pharmaceutical company, Dr Reddy's
Laboratories. In June we agreed a strategic alliance with the UK
company Vectura for pulmonary delivery technologies. We obtained
certain rights to Vectura's Aspirair(R) dry-powder inhaler, which
is particularly suitable for the delivery of macromolecules. We
invested 2 million pounds for a 4% equity stake in Vectura. We are
gratified that Vectura subsequently completed a successful initial
public offering on the AIM market and also recently concluded a
major pulmonary deal with Novartis. King Pharmaceuticals (at that
time the target of a takeover offer from Mylan Laboratories, a
leading US generic company) decided to terminate a 2003 agreement
to develop a modified release formulation of Altace(R) (ramipril).
This product was at an early stage of development. In 2004 our
partner Astralis initiated US Phase II trials of its novel
psoriasis treatment Psoraxine(TM). Preliminary results announced
recently were disappointing, with a placebo-like level of response.
We are currently working with Astralis to investigate and resolve
the possible reasons why the outcome of this trial should have been
so different from the promising results of previous large-scale
trials in Venezuela. We have recently acquired shares from two
former directors of Astralis, taking our equity stake up to just
under 50% and enabling us to exercise greater influence. Dr. Gordon
Schooley, SkyePharma's Chief Scientific Officer, has also been
appointed to the board of Astralis. The future We are determined to
maximise the long-term return from our products and to move away
from reliance on one-off milestone payments, which historically
have made up the majority of our revenues. This has meant a change
in the structure of our agreements to optimise royalty rates and to
increase milestone payments that are tied to product revenue
targets. Inevitably this has brought a short-term penalty in terms
of revenues and cashflow but we are confident that this is the
correct long-term approach, which will greatly enhance the value of
our products to the company. Michael Ashton Chief Executive Officer
FINANCIAL REVIEW Turnover Turnover for the year increased by 17% to
62.2 million pounds, compared with 53.2 million pounds in 2003.
This is primarily due to higher royalty income together with an
increase in manufacturing and distribution revenues, partly off-set
by a fall in contract development and licensing revenues. This
increase does not include milestone payments of 5.5 million pounds
($10 million) received during 2004 from Endo and First Horizon,
which have not been included in turnover and have been fully
deferred to later years. In April 2005 SkyePharma announced the
licensing of DepoBupivacaine(TM) for Europe to Mundipharma.
Contract development and licensing revenue decreased by 11% to 26.3
million pounds due primarily to the deferral of the above
milestones received and the absence of anticipated milestones in
the year from the expected approval of fenofibrate and the
licensing of a package of products in the pulmonary field. As
discussed in the review of operations both milestones are still
anticipated. Revenues recognised from milestone payments and
payments received on the signing of agreements amounted to 20.3
million pounds compared with 24.2 million pounds in 2003. The 2004
total included revenue from Endo upon the FDA approval of
DepoDur(TM) in the USA, Zeneus (formerly Medeus) for the European
marketing and distribution rights for DepoDur(TM), Dr Reddy's
(formerly Trigenesis) for the rights to certain dermatological
assets and Quintiles for consenting to the transfer of the US,
Canadian and Mexican marketing rights for Solaraze(R) to Bradley.
In addition, 7.2 million pounds of revenue was recognised from
GlaxoSmithKline on the phase III clinical trials of Requip(R)
(ropinirole), AstraZeneca on the phase III clinical trials of
budesonide HFA and Novartis on the first European approval of
Foradil(R) Certihaler(R) and the phase II clinical trials of QAB
149. Royalty income increased by 39% to 26.0 million pounds,
compared with 18.7 million pounds in 2003. Royalty income in 2004
derives principally from Paxil CR(TM), Xatral(R) OD, DepoCyt(R) and
Solaraze(R). DepoDur(TM) was launched in December 2004 and is
expected to contribute to royalty income in 2005. Manufacturing and
distribution revenues more than doubled to 9.9 million pounds,
compared with 4.8 million pounds in 2003, mainly due to increased
clinical and pre-launch production of the Foradil(R) Certihaler(R)
for Novartis and Coruno for Therabel. Deferred income During 2004,
the Group released a net 1.4 million pounds from deferred income
under its revenue recognition policy. Amounts received included the
milestones from Endo and First Horizon noted above which have been
fully deferred. The total deferral of 14.5 million pounds at the
end of 2004 comprises: 31 31 December December 2003 Received*
Recognised 2004 pounds pounds pounds pounds million million million
million Contract development and licensing revenue 7.1 26.6 (26.3)
7.4 Other operating income 8.8 (0.5) (1.2) 7.1 15.9 26.1 (27.5)
14.5 * Includes exchange adjustments Deferred contract development
and licensing income will be released in later years as the related
costs are incurred or as any associated obligations under the
relevant contracts are satisfied. Other operating income deferred
will no longer be recognised under International Financial
Reporting Standards ('IFRS'). Cost of sales Cost of sales comprises
research and development expenditures, including the costs of
certain clinical trials incurred on behalf of our collaborative
partners; the direct costs of contract manufacturing; direct costs
of licensing arrangements and royalties payable. Cost of sales
increased by 5% to 31.2 million pounds in 2004, compared with 29.8
million pounds in 2003. This was mainly due to increased
manufacturing and distribution costs on the higher production of
the Foradil(R) Certihaler(R) for Novartis partly offset by a fall
in contract development and licensing cost of sales. The resulting
gross profit increased by 33% to 31.0 million pounds, compared with
23.4 million pounds in 2003. Expenses Selling, marketing and
distribution expenses decreased significantly by 60% to 1.7 million
pounds, reflecting the significant savings resulting from the Group
reorganisation announced last year. Amortisation of intangible
assets decreased slightly by 0.4 million pounds to 6.3 million
pounds. Other administration expenses before exceptionals were 12.2
million pounds in 2004, compared with 18.0 million pounds in 2003,
a fall of 32%. The decrease was mainly due to one-off charges in
2003, including the cost of reacquiring the DepoCyt(R) European
rights from Elan and from administration savings resulting from the
aforementioned reorganisation. The exceptional charge of 4.7
million pounds mainly relates to a write down in the value of fixed
asset investments, and the continuing reorganisation of some
research and development operations and other business functions
which commenced during 2003. The reorganisation is expected to be
completed during the first half of 2005. SkyePharma's own research
and development expenses in the year decreased by 2.6 million
pounds to 28.0 million pounds, mainly due to a reduction in
expenditure on DepoDur(TM) when compared with the significant
expenditure incurred in the prior year in preparation for its July
2003 filing with the FDA. Other operating income Under the Paul
Capital agreements, other operating income recognised in 2004 was
1.2 million pounds, compared with 6.1 million pounds in 2003. All
of the income under the first Paul Capital agreement has now been
recognised, and there is 7.1 million pounds of deferred income
under the second Paul Capital agreement as at December 2004.
Royalty payments to Paul Capital of 3.0 million pounds (2003: 3.2
million pounds) were expensed during the year. Operating results
The Group's operating loss before exceptionals fell by 59% to 9.7
million pounds, compared with 23.4 million pounds in 2003 due
principally to the reduction in other administration expenses. The
increased turnover and lower selling, marketing and distribution
expenses together with lower research and development expenses have
also contributed to the reduction of the operating loss before
exceptionals. The operating loss after exceptionals also fell by
48% to 20.7 million pounds. The net loss fell by 44% to 24.3
million pounds in 2004, compared with 43.2 million pounds in 2003.
Earnings before interest, tax, depreciation and amortisation
('EBITDA'), a commonly used performance indicator, showed a 76%
improvement to a loss of 6.4 million pounds in 2004 compared with a
loss of 26.6 million pounds in 2003. The loss per share after
exceptionals was 3.9 pence, which compares with 7.1 pence in 2003.
Foreign exchange movements negatively impacted turnover by 2.8
million pounds in the year. This was more than offset by exchange
benefits in costs, primarily research and development costs. The
total impact on the net loss for the year was a benefit of 1.6
million pounds over 2003. Cash balances and cash flow During 2004
the Group issued 20 million pounds 6% convertible bonds, with a
first right of conversion after five years by the holder of the
bonds, and a final maturity of May 2024. In addition, the Group
exchanged 49.6 million pounds of its convertible bonds due 2005 for
convertible bonds due 2024, leaving 9.8 million pounds of the 2005
bonds outstanding. Unamortised issue costs of 0.3 million pounds
were written off on exchange of the convertible bonds. The 49.6
million pounds 2024 convertible bonds were consolidated to form a
single series with the 20 million pounds 2024 bonds issued in 2004.
The bonds are convertible at the option of the holder into
SkyePharma Ordinary Shares at a conversion price of 1.00 pound.
This raised approximately 16.6 million pounds net of expenses. At
31 December 2004 SkyePharma had cash and short term deposits of
15.3 million pounds. This compares with 22.0 million pounds net of
overdrafts at 31 December 2003 and 29.0 million pounds net of
overdrafts at 30 June 2004. In 2004 there was a net cash outflow
from operating activities of 10.7 million pounds, compared with a
net cash inflow of 6.6 million pounds in 2003. During the year the
Group spent 7.9 million pounds on capital expenditure and fixed
asset investments, including 4.4 million pounds on tangible fixed
assets. The Group also recorded fixed asset investments of 2.0
million pounds and intangible assets of 1.0 million pounds relating
to the strategic alliance with Vectura in the area of pulmonary
delivery technologies. The proceeds on disposal of the Group's
non-strategic holding of Transition Therapeutics shares were 2.7
million pounds. SkyePharma received 0.3 million pounds of cash
during the year from the issue of Ordinary Shares relating to the
exercise of employee share options over Ordinary Shares. During
2004 the Group settled the 0.5 million pounds Chiron promissory
note. Balance sheet The Group balance sheet at 31 December 2004
shows shareholders' funds of 63.6 million pounds (2003: 84.9
million pounds). Goodwill written off to the profit and loss
account reserve remained at 147.6 million pounds. At 31 December
2004 SkyePharma had fixed asset investments totalling 20.1 million
pounds. The investments include Astralis Ltd, a US company; Micap
plc, a UK company; Vectura Group plc, a UK company and Vital Living
Inc, a US company. The investment in Astralis has been treated as
an associated undertaking from December 2004, when SkyePharma
announced a transaction to acquire a significant equity position
and additional Board representation in Astralis so as to influence
its future strategic direction. This has resulted in goodwill of
13.7 million pounds. The Group's fixed asset investments are
primarily held in development stage pharmaceutical companies as
long term investments associated with collaboration agreements or
as part of SkyePharma's long term strategy. The Board continues to
review the underlying performance of the individual companies and
the investments have been recorded at the lower of cost or net
realisable value. Vital Living has been written down by 3.5 million
pounds to the Directors' assessment of its net realisable value
based on a number of considerations including the share price as at
31 December 2004. The Group will continue to monitor its
investments and the underlying value of the companies closely.
Current asset investments comprise a 3.25 million pounds 5%
convertible loan note from GeneMedix plc. This has been recorded at
1.1 million pounds at 31 December 2004, being the lower of cost and
net realisable value assuming conversion of the note into GeneMedix
ordinary shares. At 31 December 2004 bank and other non-convertible
debt amounted to 11.0 million pounds (2003: 12.7 million pounds)
consisting primarily of a 7.4 million pounds (2003: 7.5 million
pounds) property mortgage secured on the Swiss assets. In addition
the company has 6% Convertible Bonds due June 2005 of 9.8 million
pounds (2003: 58.8 million pounds) and 6% Convertible Bonds due May
2024 of 66.5 million pounds (2003: Nil pounds). Net debt amounted
to 72.0 million pounds (2003: 49.5 million pounds). Throughout most
of 2004 30 million pounds of the 6% Convertible Bonds were subject
to an interest rate swap agreement, swapping a fixed rate
obligation of 6% for a floating rate. The weighted average floating
rate for the year was 6.82%, and the floating rate at 31 December
2004 was 7.14%. The swap is cancellable at the option of the bank.
This will terminate in June 2005. During 2004 SkyePharma issued
3.25 million Ordinary Shares to the Research Development Foundation
as a result of a restructuring of the historic arrangements with
RDF existing at the time of the DepoTech acquisition in 1999.
International Financial Reporting Standards SkyePharma will be
required to prepare consolidated financial statements under IFRS
from 1 January 2005 and to restate the 2004 results for comparison.
The Group is completing a project to convert its comparative
financial information from UK GAAP to IFRS and plans to announce
the results during the first half of 2005. The first SkyePharma
financial statements prepared under IFRS will be for the period
ending 30 June 2005. The key differences that the Company expects
to arise on the adoption of IFRS are summarised in this
announcement in the Supplementary Information: IFRS. Subsequent
events In April 2005 SkyePharma entered into an amendment agreement
with GlaxoSmithKline ("GSK") in respect of Paxil CR(TM). Under the
terms of the amendment agreement, GSK will make a one-time payment
of approximately $10 million. In addition, SkyePharma will also be
entitled to an increase in the royalty rate from 3% to 4% on actual
net sales of Paxil CR(TM), with effect from 4 March 2005. As GSK
has been unable to supply Paxil CR(TM) in the US since 4 March
2005, GSK has also agreed to pay SkyePharma the same level royalty
on GSK's budgeted sales of Paxil CR(TM) from 4 March 2005 while the
product remains off the market, subject to other terms of the
agreement. Approximately 5.0 million pounds has been recorded as
royalty income in 2004. Donald Nicholson Finance Director
CONSOLIDATED PROFIT AND LOSS ACCOUNT Before Except- Year Before
Except- Year except- ional to 31 except- ional to 31 ional items
Decem- ional items Decem- Notes items and ber items amorti- ber and
amorti- 2004 and sation 2003 amorti- sation amorti- sation (note 4)
sation '000 '000 '000 '000 '000 '000 pounds pounds pounds pounds
pounds pounds Turnover 2 62,168 - 62,168 53,152 - 53,152 Cost of
sales 2 (31,154) - (31,154) (29,786) - (29,786) Gross profit 31,014
- 31,014 23,366 - 23,366 Selling, marketing and distribution
expenses (1,728) - (1,728) (4,348) - (4,348) Administration
expenses Amortisation - (6,314) (6,314) - (6,669) (6,669) Other
administration expenses (12,226) (4,711) (16,937) (17,987)
(9,487)(27,474) (12,226) (11,025) (23,251) (17,987)
(16,156)(34,143) Research and development expenses (27,961) -
(27,961) (30,520) - (30,520) Other operating income 3 1,237 - 1,237
6,126 - 6,126 Operating loss (9,664) (11,025) (20,689) (23,363)
(16,156)(39,519) Profit on disposal of investment 7 - 2,021 2,021 -
- - Share of loss in associate (10) (6) (16) - - - Loss on ordinary
activities before interest and taxation (9,674) (9,010) (18,684)
(23,363) (16,156)(39,519) Interest receivable 758 - 758 1,029 -
1,029 Interest payable (5,784) (338) (6,122) (4,493) - (4,493) Loss
on ordinary activities before taxation 2 (14,700) (9,348) (24,048)
(26,827) (16,156)(42,983) Taxation (248) - (248) (240) - (240)
Retained loss (14,948) (9,348) (24,296) (27,067) (16,156)(43,223)
Basic and diluted loss per Ordinary share 5 (2.4p) (1.5p) (3.9p)
(4.4p) (2.7p) (7.1p) There was no material difference between the
loss on ordinary activities before taxation and the historical cost
loss before taxation in 2004 and 2003. All results represent
continuing activities. See Notes to the Preliminary Announcement.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year to
Year to 31 31 December December 2004 2003 '000 '000 pounds pounds
Loss attributable to shareholders (24,296) (43,223) Net currency
translation effect (531) (175) Unrealised gain on contract
development 130 2,029 Unrealised interest receivable 42 - Total
recognised losses for the year (24,655) (41,369) RECONCILIATION OF
MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS Year to Year to 31 31
December December 2003 2004 (restated) '000 '000 pounds pounds
Shareholders' funds at the beginning of the year as previously
stated 84,870 124,270 Restatement for UITF Abstract 38; Accounting
for ESOP trusts - (1,028) Shareholders' funds at the beginning of
the year as restated 84,870 123,242 Total recognised losses for the
year (24,655) (41,369) ESOP credit 1,278 558 Purchase of own shares
for ESOP - (925) Equity shares issued, net of expenses 1,869 2,560
Exercise of share options, net of expenses 261 765 Issue of
warrants - 39 Net movement in the year (21,247) (38,372)
Shareholders' funds at the end of the year 63,623 84,870
CONSOLIDATED BALANCE SHEET Notes 31 31 December December 2004 2003
(restated) '000 '000 Fixed assets pounds pounds Intangible assets 6
91,519 95,096 Tangible assets 40,628 42,615 Investments 7 20,104
22,024 152,251 159,735 Current assets Stock 1,531 1,320 Debtors Due
within one year 19,093 14,832 Due after more than one year 770 802
Investments 1,093 981 Cash and short-term bank deposits 15,337
23,240 37,824 41,175 Creditors: amounts falling due within one year
Convertible bonds due June 2005 (9,774) - Deferred income (14,291)
(12,926) Other creditors (24,486) (26,394) (48,551) (39,320) Net
current (liabilities)/assets (10,727) 1,855 Total assets less
current 141,524 161,590 liabilities Creditors: amounts falling due
after more than one year Convertible bonds due May 2024 (66,478) -
Convertible bonds due June 2005 - (58,791) Deferred income (250)
(2,948) Other creditors (10,462) (12,860) (77,190) (74,599)
Provisions for liabilities and charges (711) (2,121) Net assets
63,623 84,870 Capital and reserves Called up share capital 63,440
63,067 Share premium account 320,980 319,223 Other reserves 9,350
9,350 Profit and loss account (330,147) (306,770) Shareholders'
funds Attributable to equity interests 52,313 73,560 Attributable
to non-equity interests 11,310 11,310 63,623 84,870 See Notes to
the Preliminary Announcement CONSOLIDATED CASH FLOW STATEMENT Year
to Year to 31 31 Notes December December 2004 2003 '000 '000 pounds
pounds Net cash (outflow)/inflow from operating activities (b)
(10,715) 6,615 Returns on investments and servicing of finance
Interest received 747 1,047 Interest paid (5,880) (4,013) Interest
element of finance lease payments (9) (70) (5,142) (3,036) Taxation
(248) (227) Capital expenditure and financial investment Purchase
of intangible fixed assets (1,308) (2,530) Purchase of tangible
fixed assets (4,432) (4,021) Purchase of fixed asset investments
(2,186) (5,674) Disposal of fixed asset investments 2,650 - (5,276)
(12,225) Cash outflow before use of liquid resources and financing
(21,381) (8,873) Management of liquid resources Net decrease in
amounts held on short- term bank deposit 19,086 183 Financing Issue
of Ordinary Share capital 261 1,437 Issue of warrants - 39 Issue of
convertible bonds due May 2024 20,000 - Expenses of convertible
bonds issue and exchange (3,399) - Debt due within one year:
Inception of new loan - 770 Repayment of loans (1,260) - Debt due
beyond one year: Inception of new loan - 1,936 Repayment of loans
(264) (286) Capital element of hire purchase and finance lease
payments (223) (1,078) 15,115 2,818 Increase/(decrease) in cash
12,820 (5,872) NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a)
Reconciliation of movements in net debt Year to Year to 31 31
December December 2004 2003 '000 '000 pounds pounds
Increase/(decrease) in cash in the year 12,820 (5,872) Cash inflow
from increase in debt and lease financing (14,854) (1,342) Cash
inflow from decrease in liquid resources (19,086) (183) Change in
net debt resulting from cash flows (21,120) (7,397) Amortisation of
issue costs on convertible bonds (522) (414) Write off of issue
costs on exchange of convertible bonds (338) - New finance leases -
(46) Translation difference (489) (24) Movement in net debt in the
year (22,469) (7,881) Net debt at beginning of the year (49,482)
(41,601) Net debt at end of the year (71,951) (49,482) Net debt is
defined as cash and liquid resources less borrowings. (b)
Reconciliation of operating loss to net cash (outflow)/inflow from
operating activities Year to Year to 31 31 December December 2004
2003 '000 '000 pounds pounds Operating loss (20,689) (39,519)
Depreciation 5,994 6,294 Amortisation 6,314 6,669 Increase in stock
(211) (64) (Increase)/decrease in debtors (4,207) 19,573 Decrease
in deferred income excluding unrealised gain on contract
development (1,203) (126) Increase in other creditors 28 4,734
(Decrease)/increase in provisions (1,410) 1,920 Provision for
diminution in value of fixed asset investments 3,503 1,599
Impairment of intellectual property - 2,673 Impairment of tangible
fixed assets - 1,324 Other 1,166 1,538 Net cash (outflow)/inflow
from operating activities (10,715) 6,615 c) Analysis of net debt At
1 Non- At 31 January Cash cash Exchange December 2004 flow changes
movements 2004 '000 '000 '000 '000 '000 pounds pounds pounds pounds
pounds Cash at bank and in hand 3,052 11,653 - (18) 14,687 Bank
overdraft (1,198) 1,167 - 31 - Short-term bank deposits 20,188
(19,086) - (452) 650 22,042 (6,266) - (439) 15,337 Debt due within
one year (3,172) 1,260 (1,923) 34 (3,801) Debt due after one year
(9,195) 264 1,923 (92) (7,100) Convertible bonds due June 2005
(58,791) - 49,017 - (9,774) Convertible bonds due May 2004 -
(16,601)(49,877) - (66,478) Hire purchase and finance leases (366)
223 - 8 (135) (71,524) 14,854) (860) (50) (87,288) Total (49,482)
(21,120) (860) (489) (71,951) Cash at bank and in hand and
short-term bank deposits are aggregated on the balance sheet. Debt
includes bank loans and a secured mortgage. Non-cash changes relate
to the exchange of 49.6 million pounds convertible bonds due 2005
for bonds due 2024 in the same amount, amortisation of the issue
costs on the convertible bonds, the write off of unamortised issue
costs on the 2005 convertible bonds on exchange for 2024
convertible bonds and transfers between categories. See note 8;
Convertible bonds. SUPPLEMENTARY INFORMATION: INTERNATIONAL
FINANCIAL REPORTING STANDARDS The 2004 consolidated financial
statements have been prepared under UK Generally Accepted
Accounting Principles ('UK GAAP'), SkyePharma's historic primary
reporting GAAP. From 1 January 2005 SkyePharma is required to
prepare its consolidated financial statements under International
Financial Reporting Standards ('IFRS'). These standards represent a
significant change from UK GAAP. While SkyePharma's first published
IFRS financial statements will be its interim results for June
2005, guidance is provided below as to the key differences that the
Group expects to arise on the adoption of IFRS. The Group intends
to communicate further details of the impact of adopting IFRS on
the 2004 results during the first half of 2005. Assumptions The
financial impact of the transition to IFRS has been assessed based
upon the assumption that all IFRS standards issued by the
International Accounting Standards Board ('IASB') that are
effective for 2005 reporting are endorsed by the European
Commission. At present, the European Commission has not endorsed
all of these standards. Although the IASB has issued all standards
that will be compulsory for the year ended 31 December 2005, some
new standards may be available for early adoption, changes are
still anticipated to others and the interpretation and application
of certain recently revised standards is still being debated.
Therefore the current position with respect to IFRS may be subject
to change. Transition Date and Comparative Information The IASB
issued IFRS 1 'First time adoption of international financial
reporting standards' in June 2003. This deals with how companies
will have to apply IFRS for the first time. IFRS 1 requires that
comparative information be restated for all years that a full set
of comparatives is provided. Therefore, the Group's IFRS transition
date is 1 January 2004. IFRS 1 Exemptions In general a Group is
required to determine its IFRS accounting policies and apply these
retrospectively to determine its opening balance sheet, in our case
at 1 January 2004, under IFRS at its transition date. However IFRS
1 permits those companies adopting IFRS for the first time to take
some exemptions from the full requirements of IFRS in the
transition period. The key IFRS 1 transitional provisions the Group
proposes to adopt are outlined below. -- IFRS 3: Business
combinations A first time adopter has the option not to restate
most aspects of past business combinations and instead to apply
IFRS 3 prospectively from the transition date. It is expected that
SkyePharma will elect this option. In this case goodwill would
remain largely as under UK GAAP and amortisation would stop at 1
January 2004, SkyePharma's proposed transition date. -- IFRS 2:
Share based payments IFRS 2 applies to unvested equity instruments,
such as share options, granted since 7 November 2002 and not vested
at 1 January 2005. However under the transitional arrangements of
IFRS 1, there is the option to adopt full retrospective application
of the standard where companies have previously publicly disclosed
the fair value of those equity instruments determined at the
measurement date. SkyePharma has previously disclosed those fair
values in its US GAAP disclosures and expects to adopt full
retrospective application. -- IAS 19: Employee benefits In
accordance with IFRS1, the Group expects to elect to fully
recognise all actuarial gains and losses on its pension scheme in
France at 1 January 2004, its transition date to IFRS. Subject to
the endorsement by the European Union of IAS 19 (revised), ongoing
actuarial gains and losses will be recognised in the Statement of
Recognised Income and Expenditure. -- IAS 32 and IAS 39: Financial
Instruments One of the exemptions available under IFRS1 relaxes the
requirement to present comparative information on financial
instruments for 2004 in the 2005 financial statements. The Group
does not anticipate utilising this exemption, and expects to
retrospectively apply IAS 32 ('Financial Instruments: Disclosure
and presentation') and IAS 39 ('Financial Instruments: Recognition
and Measurement') which for many financial instruments will be fair
value. -- IAS 21: The Effects of Changes in Foreign Exchange Rates
An exemption offered by IFRS 1 in respect of IAS 21 'The Effects of
Changes in Foreign Exchange Rates' gives the Group the option to
reset its cumulative translation differences to zero at 1 January
2004, its date of transition. The Group does not expect to take
this exemption, and will continue to include its cumulative
translation differences within equity. This is because the
information is readily available and will be consistent with its
reporting under US GAAP. Key differences The key differences that
the Group expects to arise on the adoption of IFRS are: -- Revenue
recognition differences in respect of up front payments --
Accounting for the sale of royalty interests to Paul Capital -- The
inclusion of a fair value charge in respect of outstanding employee
share options -- The cessation of amortisation of goodwill --
Accounting for Convertible Bonds -- The capitalisation of certain
research and development costs Revenue Recognition Under IFRS
SkyePharma will adopt a revenue recognition policy in accordance
with IAS 18 which is similar to that applied under US GAAP. Under
UK GAAP Skye has generally recognised up front payments immediately
in full where there are no material future obligations and the
milestones are non- refundable, on the basis that the up front is a
payment for past services. Under IFRS generally up front payments
will be deferred and amortised on a systematic basis over the
period of development to filing. This is similar to the treatment
adopted under US GAAP. However, the accounting for each agreement
will need to be determined on an individual basis. Sale of Royalty
Interests Under IFRS SkyePharma will account for the sale of
royalty interests to Paul Capital on a similar basis to that under
US GAAP. Under IFRS the proceeds received from Paul Capital meet
the definition of a financial liability under IAS 32, and will be
treated as debt. No other operating income will be recognised under
IFRS, royalties paid to Paul Capital will be treated as repayment
of the debt and interest will be charged on the debt. Under UK GAAP
the proceeds received from Paul Capital are treated as a sale and
recorded as other operating income and royalties are expensed when
incurred. Share Based Payments IFRS 2 requires that for share
option awards to employees, the fair value of the employee services
received should be measured by reference to the fair value of the
share option at the grant date. This is significantly different
from the current treatment in the UK where the charge to the profit
and loss account is based on the difference between the fair value
of the shares at the date of grant and the exercise price. Since
SkyePharma has historically granted employee options where the
share price at the date of grant equals the exercise price, there
has been no charge to record. The charge under IFRS will be the
same as that previously disclosed under US GAAP standard FAS 123.
Goodwill Amortisation UK GAAP requires goodwill to be amortised
over its estimated expected useful life which the Directors have
determined is 20 years. Under IFRS, goodwill is considered to have
an indefinite life and so is not amortised, but is subject to
annual impairment testing. Therefore the annual goodwill charge
made under UK GAAP will not be recorded under IFRS from 1 January
2004, the IFRS transition date. Convertible Bond Under UK GAAP the
net proceeds of the convertible bond issue were recorded as debt.
Under IFRS the convertible bonds will be bifurcated and the
conversion option deducted from the debt and classified as equity.
This will lead to higher interest charges under IFRS than under UK
GAAP. Furthermore the Group is likely to record a one off gain or
loss on the exchange of the 2005 bonds for the 2024 bonds. No such
gain or loss arises under UK GAAP. Research and Development Under
IFRS the Group is required to capitalise research and development
when the criteria as laid out in IAS 38 are met. The Group has
reviewed its current projects and determined that the
capitalisation of certain expenditure may be appropriate. Future
projects may lead to the capitalisation of further expenditure.
Note: A full version of this press release including notes to the
financial statements can be found on the Company website at
http://www.skyepharma.com/. Alternatively, please contact the
Company directly in the U.S. at (212) 753 5780 or in the U.K. at +
44 207 491 1777. About SkyePharma SkyePharma PLC uses its
world-leading drug delivery technology to develop easier-to-use and
more effective formulations of drugs. The majority of challenges
faced in the formulation and delivery of drugs can be addressed by
one of the Company's proprietary technologies in the areas of oral,
injectable, inhaled and topical delivery, supported by advanced
solubilisation capabilities. For more information, visit
http://www.skyepharma.com/. Except for the historical information
herein, the matters discussed in this news release include
forward-looking statements that may involve a number of risks and
uncertainties. Actual results may vary significantly based upon a
number of factors, which are described in SkyePharma's 20-F and
other documents on file with the SEC. These include without
limitation risks in obtaining and maintaining regulatory approval
for existing, new or expanded indications for its products, other
regulatory risks, risks relating to SkyePharma's ability to
manufacture pharmaceutical products on a large scale, risks that
customer inventory will be greater than previously thought, risks
concerning SkyePharma's ability to manage growth, market a
pharmaceutical product on a large scale and integrate and manage an
internal sales and marketing organization and maintain or expand
sales and market share for its products, risks relating to the
ability to ensure regulatory compliance, risks related to the
research, development and regulatory approval of new pharmaceutical
products, risks related to research and development costs and
capabilities, market acceptance of and continuing demand for
SkyePharma's products and the impact of increased competition,
risks associated with anticipated top and bottom line growth and
the possibility that upside potential will not be achieved,
competitive products and pricing, and risks associated with the
ownership and use of intellectual property rights. SkyePharma
undertakes no obligation to revise or update any such forward-
looking statement to reflect events or circumstances after the date
of this release. DATASOURCE: SkyePharma PLC CONTACT: Ian
Gowrie-Smith, Non-executive Chairman, or Michael Ashton, Chief
Executive Officer, or Peter Laing, Director of Corporate
Communications, all of SkyePharma PLC, Today - +44-207-466-5000,
Thereafter - +44-207-491-1777, or Sandra Haughton, US Investor
Relations of SkyePharma PLC, +1-212-753-5780; or Tim Anderson, or
Mark Court, both of Buchanan Communications, +44-207-466-5000 Web
site: http://www.skyepharma.com/
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