Uroxatral

LONDON, Sept. 28 /PRNewswire-FirstCall/ --

Michael Ashton, Chief Executive, said: "The first half of 2005 has seen a number of significant achievements including the approvals and subsequent launches of two important products, Triglide(TM) in the US and Foradil(R) Certihaler(R) in Germany, its first major market. We have appointed the first licensee for DepoBupivacaine(TM) on terms which will largely fund its development. I am pleased to report that Paxil CR(TM) has returned strongly to the US market. We have also decided to take Flutiform(TM) through Phase III development ourselves before out-licensing which will, we believe, create significant additional value for shareholders."

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/.

Certain statements in this news release are forward-looking statements and are made in reliance on the safe harbour provisions of the U.S. Private Securities Litigation Act of 1995. Although SkyePharma believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will materialize. Because the expectations are subject to risks and uncertainties, actual results may vary significantly from those expressed or implied by the forward-looking statements based upon a number of factors, which are described in SkyePharma's 20-F and other documents on file with the SEC. Factors that could cause differences between actual results and those implied by the forward-looking statements contained in this news release include, without limitation, risks related to the development of new products, risks related to obtaining and maintaining regulatory approval for existing, new or expanded indications of existing and new products, risks related to SkyePharma's ability to manufacture products on a large scale or at all, risks related to SkyePharma's and its marketing partners' ability to market products on a large scale to maintain or expand market share in the face of changes in customer requirements, competition and technological change, risks related to regulatory compliance, the risk of product liability claims, risks related to the ownership and use of intellectual property, and risks related to SkyePharma's ability to manage growth. SkyePharma undertakes no obligation to revise or update any such forward-looking statement to reflect events or circumstances after the date of this release.

In March 2005, the FDA halted US distribution of Paxil CR(TM), our improved formulation of GlaxoSmithKline's Paxil(R), and another unrelated product because of manufacturing problems at a GlaxoSmithKline plant in Puerto Rico. These problems have now been resolved and GlaxoSmithKline returned Paxil CR(TM) to the market at the end of June. However because of the supply disruption GlaxoSmithKline's total sales of Paxil CR(TM) in the first half of 2005 were down by 65% in constant exchange rate terms to 67 million pounds ($126 million). Prior to the FDA action, Paxil CR(TM) held about 7% of all new US prescriptions for SSRI antidepressants and we are encouraged by the trend in new prescriptions. We concluded a new agreement with GlaxoSmithKline in April that not only provided us with a $10 million lump-sum payment and increased the royalty rate on this product from 3% to 4% but also maintained our royalty income even while the product was off the market.

Xatral(R) OD (Uroxatral(R) in the USA) is our once-daily version of Sanofi-Aventis's Xatral(R) (alfuzosin), 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 the older multidose versions of Xatral(R) have now largely been withdrawn. Uroxatral(R), launched in the USA in November 2003, currently holds 11% 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. In the first half of 2005, reported sales of all forms of Xatral(R) were AC157 million, up by 16% in constant exchange rate terms.

Sales of DepoCyt(R) in the USA by our partner Enzon were $3.3 million, up 45% on the prior year. Our European partner Mundipharma, which launched the product as DepoCyte(R) in February 2004, had sales of $2.2 million. We have now completed the Phase IV trial that will be used to support a filing for the most common form of neoplastic meningitis, associated with solid tumours.

Solaraze(R), our topical gel treatment for actinic keratosis, is now marketed in the US by the Doak Dermatologics unit of Bradley Pharmaceuticals. Sales in the first half of 2005 were in the region of $5 million. Solaraze(R) is marketed in Europe and certain other territories by Shire Pharmaceuticals. In the first half of 2005 Shire's total non-US sales were $5.4 million, up by 44%.

In December our US marketing partner Endo Pharmaceuticals launched DepoDur(TM), our new injectable analgesic for the treatment of pain after surgery. Sales in the first half of 2005 were $2.3 million. Given the length of time typically needed to establish hospital products, we are confident that this initial sales level does not reflect the full potential of the product. In the UK, we were informed by the UK regulatory agency, the CSM, that it will recommend approval for DepoDur(TM), subject to certain conditions being satisfied. We are in discussions with the CSM about these conditions (which do not require further clinical trials). Assuming final approval is received, the UK approval will be used as the basis for seeking approval throughout the European Union under the EU's Mutual Recognition procedure. DepoDur(TM) will be marketed in Europe by our partner Zeneus Pharma.

Following FDA approval in May, First Horizon Pharmaceutical Corporation launched Triglide(TM) (fenofibrate) on the US market in July. We licensed Triglide(TM), a once-daily oral treatment for elevated blood lipid disorders, to First Horizon in 2004. We will receive 25% of First Horizon's net sales of this product in the form of royalty income and manufacturing revenues. Lipid disorders such as elevated cholesterol and triglycerides are proven risk factors for cardiovascular disease and already affect over half of the US population. Even among the minority who are treated, only a few attain target goals. Treatment therefore represents a major area of unmet medical need. Fenofibrate not only lowers levels of total triglycerides and LDL cholesterol ("bad cholesterol") in the bloodstream but also has the valuable property of raising abnormally low levels of HDL cholesterol ("good cholesterol"), increasingly recognized as a major cardiovascular risk factor. Sales of Abbott's Tricor(R), the current branded version of fenofibrate, already exceed US$ 1 billion. Fenofibrate is highly insoluble in water, resulting in variable uptake from the stomach and requiring the patient to take the tablets with food. In Triglide(TM) this drawback has been overcome by our proprietary IDD(TM)-P solubilization technology. Triglide(TM) has comparable absorption under both fed and fasting conditions and therefore allows patients to take the drug at any time, improving compliance and simplicity for both patients and prescribers.

Products in late-stage development

Foradil(R) Certihaler(R) is our 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. The product has now been launched in Germany and is approved in eleven other countries in Europe, Latin America and South Africa. In the USA, where the product will be marketed by Schering-Plough, Novartis has responded to the FDA about the conditions imposed in a second "approvable" letter issued in December 2004.

We have completed Phase III trials of Requip 24hr(TM), the once daily version of GlaxoSmithKline's Parkinson's drug Requip(R). The product is expected to be filed by GlaxoSmithKline later this year.

We are developing several other asthma drugs in metered-dose aerosol inhalers (MDIs) powered by a hydrofluoroalkane (HFA) propellant gas. AstraZeneca has now filed for approval of an HFA-MDI version of the inhaled steroid Pulmicort(R) (budesonide) in the first country in Europe, triggering a milestone payment. We will also 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, on track for planned filing in 2007. Because of the success of combination products, there is now a correspondingly diminishing market opportunity for single agent bronchodilators and we are therefore currently undertaking a strategic review of formoterol HFA-MDI.

Flutiform(TM) HFA-MDI (a fixed-dose combination of formoterol and the inhaled steroid fluticasone) has now completed its Phase II trial. The results have been reviewed by the FDA and we have now submitted an IND to commence Phase III trials in early 2006 with a target filing date of mid-2007. The market for combination products for asthma alone is already worth in excess of $5 billion and growing rapidly and is projected to be worth $10 billion by 2010. We continue to believe that Flutiform(TM) will be an important product, with significant advantages over the limited number of potentially competitive products that we expect can reach this market over the next few years. As discussed in more detail in the accompanying release today, we have now decided to proceed with Phase III development at our own expense. This should allow us to appoint a marketing partner or partners at a later stage and therefore on substantially better terms than we had previously intimated.

We have extended our relationship with Mundipharma, our European marketing partner for DepoCyte, by granting rights outside North America and Japan for DepoBupivacaine(TM), a long-acting local anaesthetic that we believe complements DepoDur(TM). We will receive up to $80 million in milestone payments and a 35% share of sales (30% in markets outside Europe). DepoBupivacaine(TM) is currently in Phase II trials, with results expected in the autumn. At that time we will commence negotiations with potential US licensees. Endo, our US marketing partner for DepoDur(TM), has the right of first negotiation for US commercial rights to DepoBupivacaine(TM). We are also in negotiations to appoint licensees for other territories.

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. We are 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.

Current trading and prospects

Apart from the continued delay in the licensing in Flutiform(TM), the results and net loss for the first half of 2005 were in line with the Directors' expectations. These expectations have been revised as a result of the decision to self-fund the development of Flutiform(TM). This decision will result in additional development costs of 8 million pounds which it had previously assumed would be reimbursed by a partner during the second half of 2005. The balance of the business is expected to perform broadly in line with Directors' previous expectations.

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. Where possible, we have also taken products further in development before out-licensing in order to optimise the returns we can obtain. 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.

In the accompanying release, you will see that I have indicated to the Board that it is my intention to retire next year after I reach the age of 60. It has been my great pleasure to work with such a talented group of staff at SkyePharma. I will be stepping down no later than the Annual General Meeting. Meanwhile I will be working with the Board to identify a successor and to ensure a smooth transition.

Revenues for the half year were 3% higher at 36.0 million pounds compared with 35.1 million pounds in the same period in 2004. This is primarily due to an increase in royalty income as well as higher manufacturing and distribution revenue. Revenues have increased by a cumulative annual growth rate of 37% since 1996.

Contract development and licensing revenues decreased 7% to 19.5 million pounds for the period (H1 2004: 21.0 million pounds). Revenues recognised from milestone payments and payments received on the signing of agreements in the period decreased by 0.5 million pounds to 17.6 million pounds and included revenues from First Horizon for the US marketing and distribution rights for Triglide and Mundipharma for the European marketing and distribution rights for DepoBupivacaine. In addition, 3.3 million pounds of revenue was recognised from GlaxoSmithKline on the phase III clinical trials of Requip (ropinirole), AstraZeneca on the phase III clinical trials of Budesonide HFA and Novartis on the phase II clinical trials of QAB 149. Research and development costs recharged fell by 1.0 million pounds mainly due to a fall in the costs recharged to Micap plc in respect of the development of their microencapsulation technology.

Royalty income, principally from Paxil CR, Xatral OD, DepoCyt and Solaraze, increased by 17% to 12.0 million pounds compared with the first half of 2004.

Manufacturing and distribution revenues increased by 19% to 4.6 million pounds for the period mainly due to higher production of QAB 149, compared with 3.9 million pounds in H1 2004.

Deferred income

During the period there was a net reduction in deferred income of 0.9 million pounds under SkyePharma's revenue recognition policy. Total deferred income of 13.2 million pounds as at 30 June 2005 comprised:

Deferred income will be released in subsequent periods as the related costs are incurred or as any associated obligations under the relevant contracts are satisfied.

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 26% to 14.6 million pounds in the first six months of 2005 (H1 2004: 11.6 million pounds). This was mainly due to an increase in manufacturing and distribution expenses ahead of the approval and launch of Triglide, as well as DepoDur costs since its launch in December 2004. The resulting gross profit decreased 9% to 21.4 million pounds compared with 23.5 million pounds in the first half of 2004.

Expenses

Selling, marketing and distribution expenses decreased to 0.5 million pounds (H1 2004: 1.1 million pounds), reflecting continued savings resulting from the Group reorganisation announced in 2003.

Amortisation of intangible assets remained at 1.0 million pounds. Other administration expenses before exceptionals also remained relatively constant at 9.1 million pounds in the first half, compared with 9.2 million pounds in H1 2004. After exceptional items other administration expenses decreased marginally at 9.1 million pounds in the first half (H1 2004: 9.8 million pounds).

SkyePharma's own research and development expenses in the period decreased by 3.5 million pounds to 10.9 million pounds mainly due to a reduction in expenditure on Budesonide HFA, DepoDur and other injectable products partly off set by an increase in expenditure on DepoBupivacaine and Flutiform.

The other operating expense in the first six months of 0.3 million pounds relates to a loss due to the movement in the fair value of the Group's investment in GeneMedix plc. This compares with a net gain of 2.7 million pounds in H1 2004, comprising a gain of 0.6 million pounds on the revaluation of the investment in GeneMedix and an exceptional 2.0 million pounds profit in H1 2004 on disposal of the Group's entire holding of Transition Therapeutics shares.

The Group began to equity account for Astralis Limited in December 2004 and the charge for the first six months is 0.6 million pounds, compared with no charge in the first half of 2004.

Operating results

The operating loss after exceptionals of 0.3 million pounds is broadly constant with the loss in 2004 of 0.1 million pounds. Before exceptionals the Group made a loss of 0.3 million pounds compared with a loss of 1.6 million pounds in H1 2004. The reduction is mainly due to the decrease in the Group's own research and development of 3.5 million pounds, partly offset by the increase in cost of sales. The retained loss for the period increased by 7% to 9.3 million pounds (H1 2004: 8.7 million pounds), after net interest payable of 8.3 million pounds (H1 2004: 8.5 million pounds). Earnings before interest, tax, depreciation and amortisation ('EBITDA'), a commonly used indicator, resulted in a profit of 3.3 million pounds in the period (H1 2004: 3.9 million pounds).

The loss per share for the period was 1.5 pence, which represents a 7% increase compared with a loss of 1.4 pence for the same period in 2004.

Foreign currency movements did not have a material impact on the results of operations in 2005 compared with 2004.

Balance sheet

The balance sheet at 30 June 2005 shows shareholders' equity of 32.1 million pounds, with cumulative goodwill written off to the profit and loss account reserve of 147.6 million pounds.

In July 2004 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. In September 2004 the 49.6 million pounds 2024 convertible bonds were consolidated to form a single series with the 20 million pounds 2024 bonds issued in May 2004. In June 2005 the Group issued 20 million pounds 8% convertible bonds. Unless previously redeemed or converted, the bonds will be redeemed by the Group at their principal amount in June 2025. In addition the company repaid the 9.8 million pounds balance on the convertible bonds due June 2005. As a result of these transactions the Group has 69.6 million pounds convertible bonds due May 2024 and 20 million pounds convertible bonds due June 2025 outstanding as at 30 June 2005. On the balance sheet these are reflected as 63.3 million pounds in liabilities and 28.5 million pounds in equity.

During the period the Group issued 5,482,238 Ordinary Shares to two former Astralis Directors to acquire 11,160,000 common shares in Astralis.

Liquidity and capital resources

At 30 June 2005 SkyePharma had cash and short-term deposits of 20.2 million pounds and a bank overdraft of 1.2 million pounds, compared with 15.3 million pounds cash and no bank overdraft at 31 December 2004. Bank and other non-convertible debt amounted to 11.3 million pounds at 30 June 2005, consisting principally of a 6.8 million pounds property mortgage secured by the assets of Jago. Net debt excluding the Paul Capital funding liabilities amounted to 54.4 million pounds (31 December 2004: 55.5 million pounds).

There was a net cash inflow from operating activities of 4.5 million pounds for the half year (H1 2004: 3.0 million pounds outflow). During the first half of 2005 purchases of property, plant and equipment were 1.1 million pounds. Purchases of intangible fixed assets of 2.0 million pounds mainly relate to the purchase of licenses to intellectual property in the area of pulmonary delivery.

This resulted in cash inflow before financing for the period of 1.3 million pounds compared with a cash outflow of 4.4 million pounds in the same period in 2004.

Cash inflows from financing in the period were 2.3 million pounds (H1 2004: 11.7 million pounds). In May 2005 the Group announced that it had signed agreements for a private placement of 20 million pounds 8% convertible bonds, with a first put after five years by the holder of the bonds, and a final maturity of June 2025. The bonds were issued on 3 June 2005. This 20.0 million pounds raised was received prior to 30 June 2005 with expenses being incurred after this date. The bonds are convertible at the option of the holder into SkyePharma Ordinary Shares at an initial conversion price of 81 pence at any time prior to maturity.

Borrowings of 5.2 million pounds were repaid in the period (H1 2004: 3.3 million pounds). This primarily comprises royalty payments paid to Paul Capital. The proceeds from the sale of future royalty interests to Paul Capital are classified as borrowings under IFRS and payments of royalties treated as a reduction of the liability.

In addition the company repaid the 9.8 million pounds balance on the convertible bonds due June 2005.

International Financial Reporting Standards

The interim financial information for the six months ended 30 June 2005 has been prepared for the first time in accordance with IFRS. In preparing the financial information certain first-time adoption provisions have been applied. The Group has established IFRS accounting policies which it expects to apply in its financial statements for the year ended 31 December 2005 and applied these policies to its interim 2005 results. Further information on the impact of our transition to IFRS can be found in note 11.

Notes to the Interim Financial Statements for the six months ended 30 June 2005 are available on http://www.skyepharma.com/ or by calling 212 753 5780 or email for a full copy of the report to ir@skyepharma.com.

CONTACT: 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, all of SkyePharma PLC; Buchanan Communications: Tim Anderson or Mark Court, +44-207-466-5000

Web site: http://www.skyepharma.com/

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