SKYEPHARMA PLC - INTERIM MANAGEMENT STATEMENT
LONDON, UK, 15 October, 2012 - SkyePharma PLC (LSE: SKP) today publishes its Interim Management Statement for the period 1 July 2012 to 14 October 2012 and provides an update on key events since the half-year results announcement issued on 23 August 2012.
Pipeline and product updates
flutiform® - Europe
In September 2012, flutiform® was launched in Germany and the UK and, in early October 2012, the Group received related launch milestones totalling €8.0 million (£6.3 million) from its development, marketing and distribution partner, Mundipharma International Corporation Limited ("Mundipharma"). These milestones will be included in revenues and operating profit for the year, but half of the cash received has been paid out as a mandatory prepayment of the Paul Capital Note.
As announced on 3 July 2012, the European Commission adopted a decision in favour of granting marketing authorisations for flutiform®, which covers the 21 member states in the decentralised procedure. Marketing authorisations have so far been granted in 10 countries, with flutiform® launched in Germany, UK, and the Netherlands and national marketing authorisations granted in Austria, Cyprus, Denmark, Iceland, Norway, the Slovak Republic and Sweden. On 8 October 2012, the Scottish Medicines Consortium accepted flutiform® for use in NHS Scotland for appropriate asthma patients.
Further national marketing authorisations are anticipated shortly. In some countries, negotiations are required with national pricing and reimbursement authorities before the product can be made commercially available. Mundipharma aims to continue to launch as soon as possible through its network of independent associated companies once national approvals are granted and where relevant, reimbursement confirmed.
According to IMS1, the preventative asthma/COPD market sizes in 2011 were estimated at £5.3 billion in Europe, £1.5 billion in Japan and £0.3 billion in Mexico, Central and South America, with four-year compound annual growth rates of 4.9 per cent., 11.5 per cent. and 16.5 per cent. respectively. The asthma segments where flutiform® will compete, are estimated to be over half these total markets, which comprise anti-leukotrienes, ICS, ICS/LABAs, LAMAs and PDE-4 inhibitors.
1. Source: IMS data for 2011 translated from U.S.$ at £1.00 = $1.57. Europe comprises the EU plus Switzerland, Norway and Croatia. Preventative market defined as: anti-leukotrienes, ICS, ICS/LABAs, LABAs, LAMAs and PDE-4 inhibitors (where available). Definition does not include hospital formulations e.g. IV or nebulised forms, or sustained-release theophylline. Where sales data is limited (e.g. retail only, or none available) appropriate scaling approaches are used. LAMA = Long-acting Muscarinic Antagonist. PDE-4 = Phosphodiesterase 4 inhibitor. LABA = Long Acting Beta Agonist. ICS = Inhaled corticosteroids
KRP-108/flutiform® - Japan
As announced on 25 September 2012, the Group's development and marketing partner Kyorin Pharmaceutical Co., Ltd. submitted a New Drug Application ("NDA") to the Japanese authorities for KRP-108/flutiform® for the treatment of bronchial asthma (in patients who require combination therapy with inhaled corticosteroids plus inhaled, long-acting beta-2-agonists). The NDA submission included data used in the European Marketing Authorisation Application together with the results from two additional Phase III clinical studies (A301 and A302) for the Japanese development programme for KRP-108/flutiform® which met their primary endpoints.
Japanese launches of Requip® Once-a-day and Paxil CR™
On 28 August 2012, GlaxoSmithKline launched the Requip® Once-a-day extended release tablet in Japan for Parkinson's disease. The extended release Requip® Once-a-day uses the Group's proprietary Geomatrix™ technology and is designed to provide smooth delivery of ropinirole over 24 hours. This follows the approval and launch of Paxil CR™, also developed using the Group's proprietary Geomatrix™ technology, in Japan in June 2012.
Approval and planned launch of RAYOS® (LODOTRA®)
On 27 July 2012, the Group announced that its partner, Horizon Pharma, Inc., received approval of the NDA for RAYOS® by the U.S. Food and Drug Administration. Launch in the United States is anticipated in Q4 2012. The Group is entitled to a low-mid single digit percentage royalty on net sales of RAYOS® in North America. LODOTRA® has also recently been approved in Australia and New Zealand where the Group is entitled to a mid-single digit percentage royalty on net sales. Notice of Allowance has been received from the United States Patent and Trademark Office for a U.S. patent application related to RAYOS®. After issuance, Horizon plans to list the U.S. patent in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, or Orange Book.
Implementation of Bond Proposals
The Bond Proposals announced on 23 August 2012 by SkyePharma (Jersey) Limited (the "Issuer") were approved on 24 September 2012. Following implementation of the Bond Proposals, an aggregate principal amount of £22,184,483 of the £83,007,000 outstanding Convertible Bonds were converted into 22,184,483 Ordinary Shares in the Company (the "New Shares"), representing approximately 48.1 per cent. of the Company's enlarged share capital. On 25 September 2012, the New Shares were listed on the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange.
The remaining £14,764,400 8 per cent. Guaranteed Convertible Bonds due 2025 (the "2025 Bonds") were exchanged for new £14,764,007 6.5 per cent. 2024 Bonds (the "New 2024 Bonds"). Together with the remaining £46,058,117 6 per cent. Guaranteed Convertible Bonds due 2024 (the "2024 Bonds"), this leaves a total of £60,822,124 6.5 per cent. 2024 Bonds outstanding as non-convertible bonds with the following key amended terms:
- Ordinary interest of 6.5 per cent. per annum, with an option (which the Issuer has exercised), for the Issuer to defer payment of the next four semi-annual interest payments (totalling up to £7.9 million) until up to 4 November 2017, subject to the right to further deferrals ceasing on certain change of control events or a significant cash equity issuance. Deferred interest will become payable earlier out of the proceeds, subject to restrictions, of certain cash equity issuances as well as on early redemption.
- Additional interest of 3 per cent. per annum to 4 November 2017 (up to £9.3 million) and a redemption premium of 47.3 per cent. (£28.8 million) are both payable on redemption.
- The earliest date when the Bondholders may ordinarily redeem the 2024 Bonds is 4 November 2017.
Amendment to CRC Facility
As announced on 28 September 2012, the Group entered into a further amendment agreement ("CRC Amendment") with respect to its existing Finance Facility ("Facility") with a specialised lending entity ("CRC"), advised by Christofferson, Robb & Company LLC. Under the CRC Amendment, the obligation for the Group to pay six quarterly principal repayments (starting from 30 September 2012) on each of the U.S.$ and Euro components of the Facility has been deferred until 31 December 2016 when they will be paid in a bullet payment. The deferred principal payments amount to approximately U.S.$7.0 million and €5.4 million respectively, equivalent to approximately £8.6 million in total for the six quarters.
The interest rates applicable to the U.S.$ and Euro components of the Facility, which are variable based on LIBOR and Euribor, have been increased by 2.08 per cent. and 2.01 per cent. respectively, effective from 1 July 2012. To enhance short-term liquidity further, the interest payments due at the end of the first three quarters of 2013 will also be deferred and paid on 31 December 2013. The three delayed interest payments will not bear additional rolled interest. The CRC Amendment also includes an option, exercisable up to 30 June 2013, for the Group to choose not to defer the two principal payments due on 30 September 2013 and 31 December 2013. If this option is exercised the increase in margin described above will reduce to 1.50 per cent. for the U.S.$ loan and 1.45 per cent. for the Euro loan, effective from 1 July 2013.
SkyePharma Holding, Inc., a wholly owned subsidiary in the United States, has become a guarantor of the Facility and the receivables due to it from Pacira Pharmaceuticals, Inc, principally in respect of EXPAREL®, have been pledged as additional security for the Facility.
The Board's expectations for pre-exceptional operating profit for 2012 remain unchanged. Some contract development work has been delayed into 2013 but the effect of this is expected to be offset by lower costs. Revenue and pre-exceptional profits will benefit from the €8.0 million (£6.3 million) milestones following the launch of flutiform® in Germany and the UK. Net profit will be affected by exceptional charges and additional finance costs related to the Bond Proposals and CRC Amendment as described more fully below.
On 30 June 2012, the Group had £11.0 million of cash. As anticipated, despite the receipt of milestones following the launch of flutiform® in Germany and the UK, the Group will continue to use cash in the second half of the year, due to half those milestones being paid to Paul Capital and the continuing investment in working capital to support the launch of flutiform®. The implementation of Bond Proposals and amendment to the Facility has significantly reduced short-term liquidity demands on the Group and better aligned repayment obligations with the Group's cash generative potential.
Peter Grant, Chief Executive Officer of SkyePharma, commented:
"The Group's cash generative potential has been substantially boosted by five major product approvals and launches during 2012, with EXPAREL launched in the U.S; approvals and launches of Paxil CR and Requip Once-a-day in Japan; approval of RAYOS in the U.S; and the first approvals and launches of flutiform in Europe. On top of this success we have renegotiated the Group's debt to better align repayment obligations with this enhanced cash generative potential. Overall these achievements have been transformational for the Group. They have validated the Group's expertise in the complex field of respiratory development as well as our ability to improve some of the world's most successful products using our innovative oral and inhalation drug delivery capabilities. We approach the future with confidence as flutiform is launched across Europe and we generate value from our partnered and pipeline assets."
Note on Accounting Treatment of Bond Proposals and CRC Amendment:
The implementation of the Bond Proposals will result in an exceptional non-cash item in the Group's income statement arising from comparing the carrying value of the bonds with the fair value of the shares issued and the fair value of the Bonds carried forward. The latter has yet to be determined. The implementation of the CRC Amendment has not given rise to an exceptional charge, as the change in terms of the Facility is not a substantial modification under IFRS. The costs of implementing the Bond Proposals and CRC Amendment will be recorded as an exceptional pre-tax charge of approximately £2.5 million.
Following the implementation of both the Bond Proposals and CRC Amendment, the ordinary financing charges in the income statement will be higher than the historical charges due to the additional interest charge on the Bonds and the Facility, as described above, and, for the Bonds, the redemption premium and accounting for the liability to fall due in just over five years' time (rather than through to the final maturity dates of 2024 and 2025).
For further information please contact:
Peter Grant, Chief Executive Officer
+44 207 881 0524
Jonathan Birt/ Julia Phillips/ Susan Stuart
+44 207 831 3113
About SkyePharma PLC
Using its multiple drug delivery technologies and expertise, SkyePharma creates enhanced versions of pharmaceutical products. The Group receives revenues from thirteen approved products in the areas of inhalation, oral, topical and injectable delivery as well as generating income from the development of further products and technology licenses. The Group's products are marketed throughout the world by leading pharmaceutical companies. For more information, visit www.skyepharma.com.