SkyePharma PLC SkyePharma PLC SkyePharma Making good drugs better Annual Report and Accounts 2009 Registered Head Office Annual Report and Accounts 2009 105 Piccadilly London W1J 7NJ Registered No: 107582 Telephone: +44 (0)207 491 1777 Fax: +44 (0)207 491 3338 Email: [email protected] Web: www.skyepharma.com www.skyepharma.com Making good drugs better Advisers Auditors Depositary Bankers Ernst & Young LLP Bank of New York Mellon HSBC Bank plc Apex Plaza 101 Barclay Street 70 Pall Mall Reading New York NY 10286 London RG1 1YE USA SW1 5EZ Solicitors Joint Corporate Brokers Registrars Fasken Martineau LLP & Financial Advisers Capita Registrars 17 Hanover Square Credit Suisse Northern House London 20 Columbus Courtyard Woodsome Park W1S 1HU London Fenay Bridge E14 4DA Huddersfield Clifford Chance LLP West Yorkshire Welcome to 10 Upper Bank Street Piper Jaffray Ltd HD8 0GA London One South Place E14 5JJ London SkyePharma PLC EC2M 2BR SkyePharma’s mission is to become one of the world’s leading speciality drug delivery companies, powered WARNING TO SHAREHOLDERS – BOILER ROOM SCAMS through excellence in its oral and inhalation technologies. Over the last year, many companies have become aware that their shareholders have received unsolicited phone calls or SkyePharma strives to deliver clinical benefits for patients correspondence concerning investment matters. These are typically from overseas based “brokers”who target UK shareholders, offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. These operations are commonly known as by using its multiple delivery technologies to create “boiler rooms ”. These “brokers”can be very persistent and extremely persuasive, and a 2006 survey by the Financial Services Authority (FSA) has reported that the average amount lost by investors is around £20,000. enhanced versions of existing pharmaceutical products. It is not just the novice investor that has been duped in this way; many of the victims had been successfully investing for several years. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports. If you receive any unsolicited investment advice: n Make sure you get the correct name of the person and organisation Our Business Our Governance Our Financials n Check that they are properly authorised by the FSA before getting involved by visiting www.fsa.gov.uk/register n Report the matter to the FSA either by calling 0845 606 1234 or visiting www.moneymadeclear.fsa.gov.uk Overview 01 Directors & Officers 22 Consolidated Income Statement 58 n If the calls persist, hang up. Chairman’s Statement 02 Report of the Directors 24 Consolidated Statement of Business Review 04 Corporate Social Responsibility 29 Comprehensive Income/(Expense) 59 If you deal with an unauthorised firm, you will not be eligible to receive payment under the Financial Services Compensation Scheme. Financial Review 12 Corporate Governance 31 Consolidated Balance Sheet 60 The FSA can be contacted by completing an online form at www.fsa.gov.uk/pages/doing/regulated/law/alerts/overseas.shtml. Products 20 Remuneration Report 40 Company Balance Sheet 61 Statement of Directors’Responsibilities 54 Consolidated Statements of Changes Independent Auditors’Report 56 in Equity 62 Details of any share dealing facilities that the Company endorses will be included in Company mailings. Company Statements of Changes in Equity 63 More detailed information on this or similar activity can be found on the FSA website www.moneymadeclear.fsa.gov.uk. Consolidated Cash Flow Statement 64 Notes to the Consolidated Cash Flow Statement 65 Company Cash Flow Statement 66 Notes to the Accounts 67 Glossary of Terms 105 Advisers IBC Overview Key Events O u r B u Total Revenues !£m" #10% s n Flutiform™ i n e s n EMAA filed in March 2010 s 62.2 70 55.9 n Complete response received from US 60 FDA in January 2010 50 41.6 40 n 30 Japan Phase II studies remain on 20 track 10 0 n Discussion on Canada, Latin America 2007 2008 2009 partnerships continue R&D Expenditure (£m), Gross -22% n Lodotra™ launched in Germany, R&D Expenditure (£m), Net -40% approved in 13 European countries O 35 30.3 u n Royalty revenues boosted by Solaraze 30 25.1 r G 25 19. 6 ® 27.1 o and Requip Once-a-day 20 Gross v 15 e ® r 17.1 10 Net n n Restructuring of Lyon & Muttenz a 10.3 5 n operating facilities generating c 0 e annualised £2m costs savings 2007 2008 2009 n Formulation work commenced on Operating Profit (£m) +39% SKP-1052 for diabetes 15.1 15 10.9 10 5 0 2007 2008 2009 Cash Flow (£m) -5 -10 -15 -20 O -15.2 u r F Operational i cash ! ow 16.8 n a n c Capex Cash & Facilities (£m) -23% i (5.2) a l s Debt repaid (7.0) 38.0 40 35 33.1 Net interest (12. 3) 29.3 30 25 Other (0. 8) 20 15 10 5 0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 2007 2008 2009 Stock Exchange Code: SKP 01 “THE DIRECTORS REMAIN CONFIDENT IN THE FUTURE PROSPECTS FOR THE BUSINESS, WITH THE FILING OF THE EMAA FOR FLUTIFORM™ IN EUROPE, THE GOOD PROGRESS WITH CLINICAL STUDIES IN JAPAN, THE FUTURE EUROPEAN LAUNCHES OF LODOTRA™ AND CONTINUING TIGHT CONTROL OF COSTS.” to interact directly with the FDA. A meeting will take place with the FDA to determine the steps which would need to be taken before the application could be approved. Among marketed products, Lodotra™ was launched in Germany for the treatment of rheumatoid arthritis joint stiffness, bringing the total number of marketed products to 12. Royalty revenues remained strong, with notable performances from Solaraze® and Requip® Once-a- day. In the development pipeline, the Group’s development partner Somnus Therapeutics Inc. (“Somnus”) secured funding for the Phase II studies of SKP-1041 in sleep maintenance. Also the Group Chairman’s Statement embarked upon formulation work for a new pipeline candidate, Frank Condella SKP-1052 for diabetes. The Group’s senior team was further strengthened with the Overview appointment of Dr Anne Brindley as Executive Vice-President Trading in 2009 was in line with the Board’s expectations, with Pharmaceutical Development based in Switzerland. good progress on a number of fronts during the year, leading to a substantial increase in pre-exceptional operating profit and a sharp Financial Highlights reduction in the net loss to £1.4 million. Revenues for 2009, which were in line with the Board’s expectations, totalled £55.9 million. This was down 10 per cent. on the £62.2 million The expected decrease in revenues, due to lower milestones in reported for 2008, mainly due to lower milestones in 2009 and non- 2009 and non-recurring manufacturing revenues in the prior recurring manufacturing revenues in 2008. year, was mitigated by beneficial exchange rate effects and price increases for manufactured products. Operating costs were The improvement in pre-exceptional operating profit, up by 39 reduced due to lower expenditure on Flutiform™ development, per cent. to £15.1 million from £10.9 million in 2008 reflected and a number of cost reduction measures. The Group expects to lower research and development expenses resulting from reduced see continuing benefit from these cost reduction measures in 2010 spending on developing Flutiform™, cost savings resulting from and beyond. restructuring, especially in the Lyon factory, price increases for manufactured products and receipt early in 2010 of U.S.$3 million Clinical studies were completed for Flutiform™ in Europe in 2009, (£1.9 million) of catch-up royalty payments from one partner and the European Marketing Authorisation Application (“EMAA”) following agreement on the calculation methodology. is in the process of being filed . Work on Flutiform™ in Japan by the Group’s partner Kyorin Pharmaceutical Company Ltd (“Kyorin”) Exceptional credits for 2009 totalled £9.8 million (2008: Nil), of continues on track and the Group continues to hold discussions which £5.0 million was a net cash inflow. £5.1 million arose from with potential partners for Flutiform™ in Canada and Latin America. the July 2009 agreement with Novartis and a subcontractor on the termination of contracts relating to the Foradil® Certihaler® The New Drug Application (“NDA”) for Flutiform™ was filed in after the decision was made not to proceed with United States the United States with the Food & Drug Administration (“FDA”) commercialisation of Foradil® Certihaler®. The remaining £4.7 in March 2009 and a Complete Response Letter was received in million of exceptional credits are non-cash and primarily relate to January 2010. As previously announced during the review the the final settlement of amounts due in respect of clinical trial work FDA raised a number of new substantive issues to be addressed, performed for Flutiform™. which, if undertaken, would involve significant additional clinical work including generating additional data on dose ranging. Whilst The exceptional charge of £11.2 million (2008: £28.5 million) Abbott Respiratory LLC (“Abbott”) remains the Group’s partner, it includes non-cash impairment charges of £8.4 million, of which has transferred the NDA to SkyePharma which will allow the Group £5.7 million relates to the Insoluble Drug Delivery® (“IDD®”) 02 SkyePharma PLC Annual Report 2009 www.skyepharma.com O u r goodwill and £2.7 million is a write-down of a licence in respect Strategy B u of Flutiform™ in North America. The remaining £2.8 million is a The Group’s main focus for the next 12 months on Flutiform™ s i cash charge for employee termination and other costs associated will be to work with our partners to pursue the registration in n e with the restructuring of the Lyon manufacturing facility and the Europe and the United States, to advance development in Japan, s s research and development facility in Muttenz, Switzerland.