SKP SEB SA

RNS Number:0443Q
Skyepharma PLC
23 September 2003

Part 1/2


FOR IMMEDIATE RELEASE                                       23rd SEPTEMBER 2003


                                 SkyePharma PLC

                           INTERIM FINANCIAL RESULTS
                    for the six months ended 30th June 2003

Financial Highlights

*         Turnover down #5.1million to #22.6million (2002: #27.7 million)
*         Royalty income more than quadrupled to #8.0m (2002: #1.8 million)
*         Operating loss #17.0 million (2002: #2.0 million)
*         R&D up 36% to #16.4 million (2002: #12.0 million)
*         Exceptional charge of #1.4 million (2002:#nil)
*         Deferred income up #1.2 million to #19.2 million (as of 31 December
          2002: #18.0 million)
*         Loss per share 3.1p (2002: 0.7p)
*         Cash #22.0 million (as of 31 December 2002: #28.1 million)

Operating Highlights

*         DepoMorphineTM completed Phase III. NDA submitted to the FDA on 18
          July and accepted in September
*         Paxil(R) CR increases market share - now 40% of new US prescriptions
          for Paxil franchise
*         FDA approves Paxil(R) CR for additional indication (Pre-Menstrual
          Dysphoric Disorder)
*         UroXatral(R) approved by FDA
*         Propofol IDD-DTM completed Phase II trials
*         Requip(R) commenced Phase III trials
*         Pulmicort(R) HFA commenced Phase III trials
*         SkyePharma to develop an improved oral version of Altace(R) for King
          Pharmaceuticals
*         European rights for DepoCyte(R) licensed to Mundipharma in June
*         Brazilian rights for DepoCyte(R) also licensed to Pharmis

Revised Full Year Guidance

*         Full year revenue and profit outlook dependent on licensing agreements
          currently under negotiation

Ian Gowrie-Smith, SkyePharma's Executive Chairman, commented:

"The company continues to increase investment in developing our expanding
portfolio of proprietary drugs. Whilst some delay in concluding the
out-licensing of certain of these products means higher costs now, out-licensing
at a later stage of development has shown itself consistently to mean higher
income later. This was exemplified in the excellent terms achieved when
out-licensing DepoMorphineTM and Propofol IDD-DTM for the North American
market.

Out-licensing delays also account for the potential risk to full year
profitability in 2003. Whilst such an outcome is by no means certain, our belief
remains that growth in royalty income will progressively reduce - and maybe
eliminate -our present exposure to milestone payments."

For further information, please contact:

SkyePharma PLC                                                              Buchanan Communications Ltd
Ian Gowrie-Smith - Executive Chairman                                       Tim Anderson / Mark Court
Michael Ashton - Chief Executive Officer                                    Tel No: 020 7466 5000
Donald Nicholson - Chief Financial Officer
Peter Laing - Director of Corporate Communications
Today on Tel No: 020 7466 5000 and thereafter on Tel No: 020 7491 1777



CHAIRMAN'S STATEMENT

Further progress

The first half of 2003 saw major progress, culminating in today's announcement
of the FDA's acceptance of our 18 July submission of an NDA for DepoMorphineTM,
our leading pipeline product. DepoMorphineTM exemplifies our business strategy
of taking selected products through the development process ourselves, which we
expect to increase the proportion of our future revenues derived from royalty
payments. As of today, however, milestone payments are still our major source of
revenues and the timing of concluding new agreements, and increased R&D
investment, has meant that we are reporting a loss for the half year - as the
company advised might be the case earlier this year. Despite this, we are
pleased to report that royalties for the half year were more than four times
those for the same period last year and already exceed the level for the whole
of 2002. Rising royalties are the key to the future rapid growth in earnings we
expect for SkyePharma.

In April the company gave guidance that we expected revenues for the full year
to grow from #70 million in 2002 to the region of #100 million. In giving that
guidance, management was aware that revenues could grow to between #85 million
and #115 million depending on the deal terms and timing of milestones from
certain key out-licensing agreements and how much of that income was
recognisable this year. Continuing negotiations could result in 2003 revenues
still achieving #100 million, at which level the company would meet market
earnings expectations. However, management feels it prudent to advise that
revenue growth may be at the lower end of that range, with a consequent impact
on the level of profitability. At the lower end of the range, the company may
not achieve a full year profit in 2003.

Marketed products doing well

Our partner GlaxoSmithKline continues to be successful with Paxil(R) CR.
Paxil(R) CR currently accounts for 40% of all new US Paxil(R) prescriptions.
GlaxoSmithKline is also developing additional indications for Paxil(R) CR,
including some for which Paxil(R) was never approved (such as pre-menstrual
dysphoric disorder, for which FDA approval was granted in September). Despite
the recent start of US generic competition for unmodified Paxil(R), we remain
confident that sales of Paxil(R) CR will continue to increase. Sales of
Sanofi-Synthelabo's Xatral(R) OD have achieved further significant growth in
Europe and other non-US markets. We are delighted that the product was approved
by the FDA in June, with a US launch (as UroXatral(R)) expected in the autumn.
We have transferred European rights for the cancer drug DepoCyte(R) to
Mundipharma, a partner who shares our view of its potential as a treatment for
lymphomatous meningitis. We expect DepoCyte(R) to be launched in Europe later
this year.

Pipeline project momentum

An NDA for DepoMorphineTM, our long-acting injectable analgesic for pain relief
after surgery, was submitted to the FDA on 18 July and accepted in September,
joining the dry powder inhaler formulation of the asthma drug Foradil(R), filed
by our partner Novartis at the end of last year and currently under FDA review.
Our HFA-powered, metered dose inhaler version of AstraZeneca's Pulmicort(R) has
now moved into Phase III development, as has a new oral formulation of
GlaxoSmithKline's Requip. Propofol IDD-DTM, an improved formulation of the
sedative/anaesthetic propofol, has completed Phase II and will enter Phase III
clinical trials later this year.

Both DepoMorphineTM and Propofol IDD-DTM were licensed to Endo Pharmaceuticals
("Endo") for North America at the end of 2002. We expect to file DepoMorphineTM
for European approval in the autumn.

The future

The company continues to increase investment in developing our expanding
portfolio of proprietary drugs. Whilst some delay in concluding the
out-licensing of certain of these products means higher costs now, out-licensing
at a later stage of development has shown itself consistently to mean higher
income later. This was exemplified in the excellent terms achieved when
out-licensing DepoMorphineTM and Propofol IDD-DTM for the North American
market.

Out-licensing delays also account for the potential risk to full year
profitability in 2003. Whilst such an outcome is by no means certain, our belief
remains that growth in royalty income will progressively reduce - and maybe
eliminate -our present exposure to milestone payments.

Ian Gowrie-Smith
Executive Chairman

REVIEW OF OPERATIONS

Despite the loss in the first half of 2003 and the possibility of a loss for the
full year discussed in the Chairman's statement, we believe that we have made
further encouraging progress towards our goal of sustained profitability. There
were promising developments in our portfolio of marketed products and also in
our new product pipeline. In addition we concluded some important new commercial
agreements, with several others currently in advanced negotiations.

Products on the market

Paxil(R) CR is an improved formulation of GlaxoSmithKline's Paxil(R), a
leading SSRI antidepressant. Paxil(R) CR uses our GeomatrixTM technology to
reduce gastrointestinal side-effects, an issue with all drugs of this class.
Paxil(R) CR was launched in the USA in April 2002 and by the end of June this
year accounted for 38% of all new prescriptions for the Paxil(R) franchise.
GlaxoSmithKline reported that total US sales of Paxil(R) and Paxil(R) CR were
$1.07 billion in the first half of 2003, up 9%. Paxil(R) CR is now marketed in
the USA for treating depression and a second indication, panic disorder, and has
recently been approved by the FDA for pre-menstrual dysphoric disorder. The
latter indication will be unique to Paxil(R) CR as Paxil(R) had never been
filed for this indication. A submission for another depression-related
indication, social anxiety, is currently under review by the FDA.
GlaxoSmithKline has also recently published the outcome of a study of Paxil(R)
CR in another potential new indication, control of menopausal hot flashes (known
as hot flushes in some countries).

Xatral(R) OD (UroXatral(R) in the USA), our once-daily version of
Sanofi-Synthelabo's Xatral(R) (alfuzosin), is a treatment for the urinary
symptoms of benign prostatic hypertrophy, a common condition affecting middle
aged males. Xatral(R) OD is on the market in Europe and many other markets
outside the USA. The older multidose versions of Xatral(R) are progressively
being withdrawn from the market. Combined sales of all versions rose by 26% in
the first half to Euro103 million. UroXatral(R) was approved by the FDA in
June and a US launch is expected in the fourth quarter. Sanofi-Synthelabo has
indicated that the launch will be "fully competitive". As the older versions of
Xatral(R), which had to be taken two or three times a day, have never been
launched in the US, UroXatral(R) will be a new product in the USA. Phase III
trials for a second indication for Xatral(R) OD, acute urinary retention, are
ongoing. The first filings in Europe took place in July.

DepoCyte(R) (known as DepoCyt(R) in the USA), a long-acting injectable
formulation of the cancer drug cytarabine, is a treatment for lymphomatous
meningitis, a serious late-stage complication of non-Hodgkin's lymphoma. During
the period we reacquired European rights for DepoCyte(R) from Elan and licensed
the product to Mundipharma for most of Europe and Eastern Europe. Mundipharma
concurs with our view that the market for DepoCyte(R) is largely
under-developed. We have also appointed Pharmis as licensee for Brazil.

Products in late-stage development

DepoMorphineTM is our new analgesic for post-operative pain. After completing
clinical trials, we were delighted to meet our published target of filing
DepoMorphineTM with the FDA in July. The FDA has recently formally accepted
this submission, triggering a milestone payment from our partner Endo
Pharmaceuticals (Endo). We expect to file with the European regulatory
authorities in the autumn. DepoMorphineTM employs our sustained-release
injectable technology so that a single epidural injection immediately before
surgery maintains a therapeutically effective level of morphine for 48 hours -
typically the period of peak post-operative pain. There is widespread
recognition that relief of post-operative pain is sub-optimal. Epidural
analgesia has many theoretical advantages but is only used in about 50% of
surgical procedures today because of some practical issues. Conventional
morphine is relatively short-acting so for repeat administration the epidural
catheter has to be left in place, impairing patient mobility and causing
complications such as infections and bleeding within the spinal column.
DepoMorphineTM eliminates the need for an indwelling catheter and for infusion
pumps.

SkyePharma has completed seven clinical trials of DepoMorphineTM. The Phase IIb
and Phase III clinical development programme for DepoMorphineTM involved four
separate pain models and included nearly 1000 patients. In the two pivotal
trials, in hip replacement surgery and lower abdominal surgery, DepoMorphineTM
demonstrated sustained dose-related analgesia and achieved its primary endpoint
(superiority over study comparators in terms of total demand for opioid
analgesics after surgery) with a high degree of statistical significance (p<
0.0001 and p=0.0003 respectively). DepoMorphineTM also achieved statistical
significance on several secondary endpoints such as patient perception of pain
intensity and adequacy of pain relief. In two related Phase IIb trials,
DepoMorphineTM was significantly better than study comparators in the caesarean
section study (p=0.0209) and approached statistical significance in the knee
arthroplasty study (p=0.0902). In the latter study, the primary endpoint was
recalled pain intensity. DepoMorphineTM did achieve a high degree of
statistical significance in total demand for opioid analgesics after surgery (p=
0.001), a secondary endpoint in this trial but the primary endpoint in the three
other studies. In all of these studies the safety profile of DepoMorphineTM was
typical for an epidural opioid agent.

Having licensed DepoMorphineTM to Endo for North America at the end of last
year, we expect to conclude a European licence by the end of this year. We are
also in discussions with potential Japanese licensees.

Propofol IDD-DTM is our novel formulation of propofol, a widely-used injectable
anaesthetic and sedative. Our formulation will not 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 have
now completed Phase II trials and expect Phase III trials to start later this
year. Propofol IDD-DTM was licensed to Endo for North America in 2002.

We are conducting clinical studies of our once-daily version of the Parkinson's
disease drug Requip(R) (ropinirole) for GlaxoSmithKline. We commenced the Phase
III trial in June, triggering a milestone payment from our partner.

Foradil(R) CertihalerTM is a new version of Novartis' Foradil(R)
(formoterol), a long-acting bronchodilator for asthma. SkyePharma developed not
only the multi-dose dry-powder inhaler device but also the unique formulation of
the drug. This product was filed by Novartis at the end of last year and is
currently under review by the US and European regulatory agencies. We expect
Foradil(R) CertihalerTM to receive approvals starting in 2004.

We are developing several other asthma drugs in metered-dose inhalers (MDIs)
powered by a hydrofluoroalkane (HFA) propellant gas. We have now initiated the
Phase III pivotal trial of an HFA-MDI version of AstraZeneca's inhaled steroid
Pulmicort(R) (budesonide) , also involving a milestone payment. Our own HFA-MDI
version of formoterol is expected to commence Phase III trials in 2004.

We are increasingly focussing our sustained-release injectable delivery
technologies on biologics - protein and peptide drugs that cannot be given
orally but where the current need for frequent injections is undesirable. A new
formulation of human growth hormone is about to enter clinical trials.

New corporate developments

In May we announced a licence agreement with King Pharmaceuticals to develop a
new oral controlled-release formulation of Altace(R) (ramipril), a leading
angiotensin converting enzyme ("ACE") inhibitor with US sales of over $500
million. This project is still at the preclinical stage. We also signed an
option agreement with an undisclosed partner for an undisclosed product in the
pulmonary area. In June we completed a strategic reorganisation of our research
centres that culminated in a substantial reduction in staff at SkyePharma
Canada, with certain activities outsourced to other sites in San Diego and
Muttenz. Our partner Astralis has recently commenced the Phase I US clinical
trial of its novel psoriasis treatment PsoraxineTM. Finally we were gratified
that Micap plc, the UK yeast technology specialist in which SkyePharma has an
equity stake, successfully completed an initial public offering on the AIM
market in August. The value of the #2 mn investment we made in January has risen
significantly.

Exciting future

The progress we have achieved this year, together with further agreements still
under negotiation, makes us confident that our pipeline of new products will
enable us to raise the proportion of our revenues derived from royalty payments.

Michael Ashton
Chief Executive Officer

FINANCIAL REVIEW

Turnover

In recent years the majority of our revenues have been generated in the second
half of the year, and this trend is expected to continue in 2003. Revenues for
the half year of #22.6 million were lower than the #27.7 million in the same
period in 2002. This is primarily due to delays in the timing and recognition of
milestone payments, which are still the major source of revenue in the near
term. In addition some of the licensing arrangements we had anticipated
concluding in the first half are now expected to be finalised in the second
half. Nevertheless revenues have increased by a cumulative annual growth rate of
40% since 1996.

Contract development and licensing revenues totalled #11.4 million for the
period (H1 2002: #22.7 million). Revenues recognised from milestone payments and
payments received on the signing of agreements amounted to #8.6 million and
included #6.0 million from three transactions; Mundipharma for the rights to
market and distribute DepoCyt in most European countries, King for developing
and commercialising a modified-release formulation of Altace (Ramipril) and the
signing of an option agreement in respect of an undisclosed pulmonary product.
In addition SkyePharma received some #6.1 million in milestones from
GlaxoSmithKline and AstraZeneca on the initiation of Phase III clinical trials
of Requip (Ropinirole) and Budesonide HFA. Of this total only #1.4 million was
recognised as revenue and #4.7 million deferred to match against costs in the
second half and 2004.

Royalty income of #8.0 million has increased more than fourfold compared with
the first half of 2002, following a similar fourfold increase achieved in the
full year in 2002. In addition, royalty income for the first half of 2003 is
already in excess of that for the full year in 2002. Manufacturing and
distribution revenues remain unchanged at #3.2 million for the period.

Deferred income

During the period, a further net #1.2 million of turnover and other income was
deferred under SkyePharma's revenue recognition policy. This results in total
deferred income of #19.2 million as at 30 June 2003 comprising:

                                          31 December 2002                                             30 June
                                                                   Received        Recognised             2003
                                                 # million        # million         # million        # million
Contract development and licensing
revenue                                               10.2             12.5            (11.4)             11.3
                                                      
Other operating income                                 7.8              4.3             (4.2)              7.9
                                                      18.0             16.8            (15.6)             19.2

This deferred income will be released in subsequent periods in line with the
related costs or as any associated obligations under the relevant contracts are
satisfied.

In addition the Group recognised #1.6 million of revenue through the statement
of total recognised gains and losses rather than the profit and loss account, as
the amount earned did not meet the definition of qualifying consideration.

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 remained relatively flat in
the first six months of 2003 compared with the same period last year, as costs
postponed due to the delay in signing certain licensing deals were offset by
increased royalty payments made to Paul Capital and the cost of reacquiring the
DepoCyt European rights from Elan which the Group has expensed.

Expenses

Selling, marketing and distribution expenses increased to #2.5 million (H1 2002:
#2.1 million), reflecting increased promotion and market research for both
DepoMorphine and Propofol.

Amortisation of intangible assets increased by #0.4 million to #3.2 million,
primarily due to the amortisation of technology acquired. Other administration
expenses fell to #7.5 million in the first half, compared to #8.1 million in the
first half of 2002. This reduction is primarily due to the one-off charges and
professional fees incurred in the first half of 2002. The exceptional charge of
#1.4 million relates to a strategic reorganisation of the Group's research
centres involving a substantial reduction in staff at SkyePharma Canada.

SkyePharma's own research and development expenses in the period increased by
#4.3 million to #16.4 million due mainly to increased expenditures in connection
with self-funded projects, such as Propofol, DepoBupivacaine, Formoterol HFA,
Human Growth Hormone and DepoMorphine in preparation for its July 2003 filing
with the FDA.

Other operating income

Under the Paul Capital agreements, other operating income recognised in the
first half was #4.2 million (H1 2002: #7.7 million). All of the income under the
first Paul Capital agreement has now been recognised. SkyePharma received a
further #4.3 million under the second Paul Capital agreement during the period
which will be recognised on a cost to complete basis. During the period royalty
payments of #1.3 million were expensed.

Operating results

Delays in the timing and recognition of milestone payments were the most
significant factors contributing to the Group's operating loss of  #17.0 million
(H1 2002: #2.0 million) in the first six months of 2003. The exceptional charge
incurred in connection with the reorganisation of the Group's research centres
and the increase in the Group's own research and development contributed another
#5.7 million to the loss.  The increase in the Group's operating loss also
reflects lower levels of income received under the Paul Capital agreements.
Similarly, the retained loss for the period increased to #18.7 million (H1 2002:
#4.2 million), after net interest payable of #1.6 million (H1 2002: #2.0
million).

The loss per share for the period was 3.1 pence, which compares with a loss of
0.7 pence for the same period in 2002.

Foreign currency movements did not have a material impact on the results of
operations in 2003 compared with 2002.

Cash balances and cash flow

At 30 June 2003 SkyePharma had cash and short-term deposits of #22.2 million and
a bank overdraft of #0.3 million, compared to #28.1 million cash and no bank
overdraft at 31 December 2002.

There was a net cash inflow from operating activities of #7.0 million in the
first half of 2003 (H1 2002: #13.7 million). During the first half of 2003
purchases of fixed asset investments were #4.5 million including the final
tranche of convertible preferred shares of Astralis Ltd, an investment in Micap
plc and further purchases of SkyePharma shares as part of the Group's hedging
strategy for share scheme based remuneration. The purchases of intangible fixed
assets of #2.2 million relate to the access fee paid to Enzon for the PEG
modification technology. The resulting cash outflow before financing for the
period was #5.4 million (H1 2002: inflow #0.4 million).

Balance sheet

The balance sheet at 30 June 2003 shows shareholders' funds of #109.8 million,
with cumulative goodwill written off to the profit and loss account reserve of
#147.6 million.

The Group has 6% Convertible Bonds due 2005 of #58.6 million. In addition, bank
and other non-convertible debt amounted to #10.9 million at 30 June 2003,
consisting principally of a  #7.6 million property mortgage secured by the
assets of Jago. Net of cash and short term deposits, this amounts to #47.3
million.

Forward looking statements

The foregoing discussions contain certain forward looking statements with
respect to the Group's financial condition, results of operations and business,
as well as certain development projects, collaborative partnerships and plans
and objectives of SkyePharma. These statements include in particular statements
regarding turnover and profit expectations, potential sales revenue from
products, both currently marketed and under development, anticipated progress of
clinical trials, as well as expected filing and possible launch dates for
products.

By their nature forward looking statements involve risk and uncertainty that
could cause actual results and developments to differ materially from those
expressed or implied. The significant risks related to SkyePharma's business are
discussed under the caption 'Risk Factors' of SkyePharma's Annual Reports on
Form 20-F filed with the United States Securities and Exchange Commission.

Donald Nicholson
Finance Director



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