LONDON, Sept. 28 /PRNewswire-FirstCall/ -- SkyePharma PLC announces today financial results for the six months ended 30 June 2006.
Operating highlights Marketed products: - Sales of royalty-earning products reported by SkyePharma’s partners have largely met or exceeded our expectations - Pipeline progress: - DepoDur(TM) approved in UK - DepoCyt(R) approved in Australia - zileuton CR filed by Critical Therapeutics - Lodotra(TM) filed by Nitec - Foradil(R) Certihaler(TM) successfully modified and modifications filed with the FDA - Flutiform(TM) commenced Phase III trials New corporate agreements: - Flutiform(TM) licensed to Kos Pharmaceuticals for USA - Flutiform(TM) licensed to Mundipharma for Europe - DepoBupivacaine(TM) rights regained from Mundipharma - Development of nisoldipine CR for Sciele Pharma - Negotiations ongoing to divest the Injectables unit Financial highlights - Revenue 25.6m pounds (2005: 36m pounds) - Royalties 11.5m pounds (2005: 12m pounds) - R&D spend 19.2m pounds (2005: 10.9m pounds) - Gross Profit 12m pounds (2005: 21.4m pounds) - Loss before tax 26.4m pounds (2005: 12.8m pounds) - Loss per share 3.5p (2005: 2.1p) - Net cash 21.8m pounds (2005: 19.0m pounds) Frank Condella, Chief Executive, commented:
“SkyePharma has made significant progress on the strategic objectives put forward this year. With our new management team in place, we have licensed Flutiform(TM), our major pipeline asset, in both the USA and Europe. We have also expanded our development pipeline while improving our operational efficiency. Throughout the remainder of this year we look forward to continue executing on our strategic plan, including the divestiture of our injectables unit as an outright sale or under the possible alternative scenario of the out-licensing of DepoBupivacaine.
“We continue to believe that if we deliver on our strategic objectives we will reach sustainable profitability and create value for shareholders.”
About SkyePharma
SkyePharma PLC develops pharmaceutical products benefiting from world- leading drug delivery technologies that provide easier-to-use and more effective drug formulations. There are now eleven approved products incorporating SkyePharma’s 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.
CHAIRMAN’S STATEMENT
SkyePharma has made substantial progress on executing our strategic plan announced earlier this year.
1. Appoint new leadership SkyePharma’s founder Ian Gowrie-Smith resigned from the Board in January and I was appointed Non-executive Chairman in his place. A new executive management team has also been appointed with Frank Condella as Chief Executive and Dr Ken Cunningham as Chief Operating Officer. Both have now joined the Board. 2. Divest the injectables unit This is a stand-alone operation in San Diego with its own management team, manufacturing facilities for marketed products (DepoCyt(R) and DepoDur(TM)), and R&D activities with a pipeline of products including DepoBupivacaine(TM) and several therapeutic proteins. We retained UBS as our investment bank to manage the divestment process. We are in active negotiations with several parties interested in acquiring the entire business unit, with terms likely to include a combination of upfront and milestone payments and royalties on product sales. In addition a number of parties have expressed their interest in licensing DepoBupivacaine(TM), the major pipeline asset. We are therefore in parallel negotiations regarding a potential licence. Under this option, we would expect an upfront payment and full funding of further development of DepoBupivacaine(TM), milestone payments and a longer term royalty stream. Should we pursue the licence option, we would plan to reduce the size of the unit, minimizing the ongoing cash burn, and pursue the future divestment of the remaining components of this business unit. We aim to complete a transaction before the end of the year. 3. Continue Phase III for Flutiform(TM) and out-license this year Phase III trials started in February as planned, and represents our major R&D expenditure until anticipated completion in mid-2007. The 12 month safety study is ongoing and the three pivotal studies have also commenced recently, all on track for our target of filing with the FDA in the second half of 2007 and in Europe in 2008. In May, we granted exclusive US marketing rights for Flutiform(TM) to Kos Pharmaceuticals, a US specialty pharmaceutical company with a highly successful sales record and experience in the respiratory market. We are convinced that Kos has an ideal profile to optimise sales of Flutiform(TM) in the key US market and we are gratified by their obvious commitment to the product. We have recently announced a partnership with Mundipharma for Europe and other territories. 4. Focus on core oral/inhalation unit and expand pipeline In June SkyePharma’s Business Review day disclosed two new projects about to enter clinical trials: a treatment for pain and inflammation and a novel approach to the treatment of sleep disorders. We also announced one new partnered project (a controlled release version of Sular(R) (nisoldipine), the lead product of Sciele Pharma, our US partner for Triglide(TM)), and two late-stage products that have now been filed: a controlled release version of the oral asthma drug Zyflo(R) for Critical Therapeutics and Lodotra(TM), a delayed release formulation of an anti-inflammatory drug for rheumatoid arthritis for Nitec. We are seeking additional complementary projects to reinforce our pipeline. 5. Improve operational efficiency We have been reviewing all costs, but remain committed to prudent R&D expenditure as it is the future of the company. Having completed a survey of the London market, we have found the rent of our existing offices to be highly competitive. Regardless, we have reduced our space requirements and halved the costs of our London head office. Also, we are vacating our US office in New York which will further reduce overheads. We have reviewed overall staffing levels and reduced the number of personnel at our plant in Lyon. Finally, we have restructured our investor relations, legal and company secretarial functions.
We are confident that the strategy we have adopted will enable the Company to maximise the potential of Flutiform(TM) and other pipeline products, to become profitable and to deliver long-term value for shareholders.
Dr Jerry Karabelas Non-Executive Chairman REVIEW OF OPERATIONS Inhalation Products
For Foradil(R) Certihaler(R) (formoterol) we developed not only the multidose dry-powder inhaler device but also the formulation technologies designed to ensure dose consistency regardless of storage conditions. This product has now been approved in 26 countries in Europe, the Middle East, Latin America, South Africa and New Zealand. After launch in two European markets in late 2005, the product was voluntarily withdrawn by Novartis early this year because a small number of patients received an incorrect dose after mishandling the device. We have now successfully made modifications to the inhaler to ensure proper handling that we hope will allow Foradil(R) Certihaler(R) to be returned to the market in Europe and to obtain approval in the USA. We have filed modifications’ to the Certihaler(R) with the FDA and we expect a decision on this in late 2006.
Inhalation pipeline
AstraZeneca has now received the first approvals in Europe, in Finland and Latvia, for the inhaled steroid Pulmicort(R) (budesonide) in a metered-dose aerosol inhaler (MDI) powered by a hydrofluoroalkane (HFA) propellant gas.
Flutiform(TM) HFA-MDI (a fixed-dose combination of formoterol and the inhaled steroid fluticasone) commenced its Phase III trial in February, on target, and remains on track for a target US filing date of H2 2007.
In May we announced that we had entered into an agreement with Kos Pharmaceuticals, Inc. to jointly develop Flutiform(TM), our novel combination product for asthma and chronic obstructive pulmonary disease (‘COPD’). In September we announced a parallel agreement with Mundipharma International to develop Flutiform(TM) for Europe. Both Kos and Mundipharma share our belief in the high potential of Flutiform(TM) as a superior product concept, differentiated from competing combination asthma products, and poised to take advantage of a clear window of opportunity.
Kos will have exclusive rights to market Flutiform(TM) in the US and a right of first negotiation for Canada. SkyePharma could receive up to $165 million in milestone payments on achievement of all regulatory and revenue targets (of which $25 million was paid upfront) together with royalties starting in mid-teens on sales by Kos. We will share with Kos the development of Flutiform(TM) for asthma and COPD: we will manage and fund the trials needed for approval of Flutiform(TM) in adult asthma while Kos will manage and fund the trials needed for all other indications and all marketing and post- approval studies. The US represents the largest market opportunity for Flutiform(TM), forecast to exceed $6 billion by 2009 when we expect Flutiform(TM) to be launched.
Mundipharma will have exclusive rights in Europe and other territories. We received an upfront payment of euro 15 million ($19 million) on signature and could receive additional milestone payments of up to a further euro 70 million ($90 million) on attainment of various development and revenue targets, together with double digit royalties. Mundipharma will have access to data from the trials we are conducting for FDA approval, which will be used as the basis for obtaining European approval. Mundipharma will also conduct, at its own expense, an additional clinical study needed for regulatory approval in Europe and also the studies needed to extend the indication to paediatric patients and to a higher dose strength. The costs of these studies will be recouped from future royalty and milestone payments to SkyePharma.
In a second collaboration with Novartis, the Certihaler(TM) and related formulation technology have been applied to QAB149 (indacaterol), which has completed Phase II development in both asthma and COPD. While Novartis has progressed to Phase III with another device, the QAB149 Certihaler(TM) project is on hold, pending finalization by Novartis of development plans for this formulation and full implementation of the device modifications.
Oral and Topical Products
US marketing of Paxil CR(TM) was suspended for four months in 2005 because of manufacturing problems at GlaxoSmithKline’s plant in Puerto Rico. Even after returning to the market, new administrative procedures, introduced as part of a consent decree with the FDA, have resulted in continuing supply constraints and sales have not returned to the pre-withdrawal level. In the first half of 2006 sales were up by 22% in the US on the prior year period to $141 million, on which we earned a royalty of 4%. However, royalty income was down since during the first half of 2005 we were paid royalties based on higher budgeted sales. The first US generic competitor for Paxil CR(TM) could enter the market in the second half of 2007.
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. European sales have started to be affected by generic competition after the expiry of a key European patent in May, however the impact was offset by strong growth in the US. In the first half of 2006, reported sales of all forms of Xatral(R) were 186 million euro ($229 million), up by 16% on the prior year period.
Solaraze(R), our topical gel treatment for actinic keratosis, is marketed in the US by Bradley Pharmaceuticals. Sales in the first half of 2006 more than doubled to $10.0 million. Sales in Europe and certain other territories by Shire Pharmaceuticals were $6.9 million, up by 28% on the prior year period. Both partners are actively involved in campaigns to raise awareness of the risks posed by this common condition, an early form of skin cancer. Although Solaraze(R) has been approved and marketed in the USA and Europe for several years, we have recently been informed by the Australian regulatory authority that it will not approve the product.
Triglide(TM) (fenofibrate) is marketed in the US by Sciele Pharma, Inc. (formerly known as First Horizon Pharmaceutical Corporation). Triglide(TM), an oral treatment for elevated blood lipid disorders, was launched in July 2005. By mid-2006, Triglide(TM) had captured 1.8% of new prescriptions for fenofibrate and 1.4% of total prescriptions and was one of the key drivers in Sciele’s strong first half revenue growth.
Oral pipeline
Requip Once-a-day tablets for Parkinson’s disease, developed in partnership with GlaxoSmithKline, was filed at the end of 2005 in Europe and is expected to receive pan-European approval in the second half of 2007. The US NDA filing was withdrawn for technical reasons but is expected to be resubmitted in the fourth quarter of 2006.
We have developed an improved formulation of the oral asthma drug zileuton for Critical Therapeutics. Zileuton is a highly potent anti-inflammatory drug for treating severe asthma but the current version (marketed as Zyflo(R)) has to be taken four times a day. Our twice-daily version was filed with the FDA at the end of July. Our partner expects it to reach the market in the second half of 2007.
Lodotra(TM), developed for Nitec, is a novel modified-release formulation of a widely-used anti-inflammatory drug for treating the pain and stiffness caused by rheumatoid arthritis. With our Geoclock(TM) delivery system the drug can be taken at bedtime but released in the early hours of the morning, the optimum time. Nitec has now filed the product in Europe. Merck KGaA has marketing rights for Germany and Austria. Nitec is currently in negotiations with potential licensees for other markets.
In May we entered into an agreement with Sciele Pharma (our US licensee for Triglide(TM)) to develop an improved version of Sciele’s leading product Sular(R) (nisoldipine), a calcium channel blocker antihypertensive. This product is expected to be filed in the first half of 2007 and to enter the US market in the first half of 2008.
Injectable products
Sales of DepoCyt(R) in the USA by our partner Enzon were $4.0 million, up 15% on the prior year. Our European partner Mundipharma had sales of $4.6 million, more than double the 2005 level. DepoCyt(R) is currently approved for the treatment of lymphomatous meningitis, a very rare condition. As a condition of US approval SkyePharma was required to conduct a Phase IV study: data from this trial has been filed with the FDA and we expect a decision in April 2007. We are seeking to expand the current indication to the most common form of neoplastic meningitis, associated with solid tumours. We have recently decided to withdraw our European filing in order to incorporate data from additional patients. Encouragingly, we have recently received approval for the treatment of all forms of neoplastic meningitis in Australia, where we are in the process of appointing a licensee.
DepoDur(TM) is our sustained-release injectable morphine analgesic for the treatment of pain after surgery. Sales by our US marketing partner Endo Pharmaceuticals in the first half of 2006 were $1.6 million. Endo considers that the product is still in its launch phase. In the UK, we received approval in May which will be used as the basis for seeking approval throughout the European Union under the EU’s Mutual Recognition procedure.
Injectable pipeline
Our long-acting local anaesthetic DepoBupivacaine(TM) is expected to commence Phase III trials later this year. In July we regained European rights from Mundipharma. This allows us to offer rights to this product in both the US and Europe as part of our divestment plans. We believe that DepoBupivacaine, for the relief of pain after surgery, has significant market potential.
In April we agreed with our US partner Endo Pharmaceuticals to halt development of Propofol IDD-D(TM), an injectable anaesthetic and sedative.
Frank Condella Chief Executive Officer Financial Review Revenue
The Group’s revenues are sensitive to the timing and recognition of milestone payments and up-front payments received on the signing of new agreements. Revenues for the first six months of 2006, at 25.6 million pounds, were 29% below the 36.0 million pounds reported in the first half of 2005, primarily due to the phasing of recognition of up-front revenues received in 2006 for the US marketing and distribution rights for Flutiform(TM).
Contract development and licensing revenue in the half year decreased by 9.3 million pounds to 10.2 million pounds, compared with 19.5 million pounds in 2005. Revenues recognised from milestone payments and up-front payments received on the signing of agreements amounted to 8.3 million pounds in the first half of 2006 compared with 17.6 million pounds in 2005, primarily due to differences in revenue recognition for up-front payments received. Under SkyePharma’s accounting policy for revenue recognition, up-front payments are generally deferred and recognised over the period of development up to filing. Consequently, while SkyePharma received 13.4 million pounds ($25 million) in May 2006 from Kos for the US marketing rights to Flutiform(TM), only 2.9 pounds million was recognised in the first half of 2006. By contrast in the first half of 2005 we were able to recognise 10.7 million pounds from the payment from Sciele Pharma for the approval of Triglide(TM). Research and development costs recharged remained constant at 1.9 million pounds.
The recent up-front payment of 10.1 million pounds (euro 15.0 million) received on signature of a licensing transaction with Mundipharma for European rights to Flutiform(TM) will result in a significant increase in the total revenue in respect of Flutiform(TM) that can be recognised in the second half of 2006, compared with the 2.9 million pounds recognised in the first half of 2006.
Royalty income decreased slightly to 11.5 million pounds, compared with 12.0 million pounds in the first half of 2005. During the early part of 2005 the Company received royalties based on GlaxoSmithKline’s budgeted sales of Paxil CR(TM) while the product was temporarily off the market as a result of GSK’s suspension of production at their Cidra plant in Puerto Rico. The slight decrease in 2006 was due to a 48% fall in Paxil CR(TM) royalty income: although the product returned to the market in June 2005, continuing supply constraints mean that sales have not fully recovered to the pre-withdrawal level. This was largely offset in 2006 by an increase in royalty income from DepoCyt(R), Triglide(TM), Xatral(R) and Coruno (R). Excluding Paxil CR(TM), royalties for the balance of SkyePharma’s other products grew by 50% in the first half of 2006 compared with the first half of 2005.
Manufacturing and distribution revenue decreased by 0.6 million pounds in the first half to 3.9 million pounds, compared with 4.5 million pounds in the first half of 2005, primarily due to a fall in the production of clinical trial material for Novartis in respect of QAB 149 following the withdrawal of Foradil(R) Certihaler(TM) from the market.
Deferred income
During the first half of 2006, there was a net increase in deferred income of 3.8 million pounds under SkyePharma’s revenue recognition policy. The movement in deferred income was as follows:
31 December Recognised/ 30 June 2005 Received* Transferred 2006 million million million million pounds pounds pounds pounds Contract development and licensing revenue 10.6 16.8 (13.0) 14.4 * Includes exchange adjustments Cost of sales
Cost of sales comprises expenditure on research and development conducted for third parties, primarily 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 decreased by 1.0 million pounds to 13.6 million pounds in the first half of 2006, mainly due to the aforementioned fall in the production of clinical trial material for Novartis in respect of QAB 149. The resulting gross profit decreased 44% to 12.0 million pounds, compared with 21.4 million pounds in the first half of 2005.
Expenses
Selling, marketing and distribution expenses increased to 1.6 million pounds in the first half of 2006, compared with 0.5 million pounds in the first half of 2005, due primarily to SkyePharma’s contribution towards the marketing costs of Triglide(TM). The expenses for the 2005 calendar year of 5.9 million pounds included a contribution towards the marketing costs of DepoDur(TM) which SkyePharma is no longer obliged to make.
Amortisation of intangible assets increased slightly to 1.1 million pounds in the first half 2006, compared with 1.0 million pounds in the first half of 2005. Other administration expenses were 10.0 million pounds in 2006, 0.9 million pounds higher than the 9.1 million pounds reported in 2005, mainly due to the additional costs of the Strategic Review and the EGM.
SkyePharma’s own research and development expenses in the period increased by 8.3 million pounds to 19.2 million pounds, mainly due to the development expenditure incurred on the start of the Flutiform(TM) phase III clinical trials.
The other income of 0.4 million pounds is mainly due to the profit on disposal of the Group’s holding in Vectura Group plc and certain Vital Living Inc securities.
Results
The operating loss was 19.5 million pounds in the half year 2006, compared with 0.3 million pounds in the comparable period in 2005, due principally to the reduction in revenue, the increased R&D costs for Flutiform(TM) phase III clinical trials and the additional costs of the Strategic Review and EGM.
The finance costs of 9.3 million pounds (first half of 2005: 12.3 million pounds) mainly comprise notional interest on the Paul Capital funding liabilities as well as the interest payable on the convertible bonds. The finance income of 2.6 million pounds in 2006 includes 1.8 million pounds of foreign exchange gains (first half of 2005: loss of 3.1 million pounds) relating to the Paul Capital funding liabilities which are denominated in US dollars. As at 31 December 2005 the Paul Capital obligations were revised to reflect a change in estimated future payments, resulting in additional finance income of 9.0 million pounds.
The Group’s share of the losses of Astralis was 0.2 million pounds for the first half 2006, compared with 0.6 million pounds in the first half of 2005.
The retained loss increased by 13.7 million pounds to 26.6 million pounds, also due primarily to the fall in revenue and the higher costs as a result of the Flutiform(TM) clinical trials.
Earnings before interest, tax, depreciation and amortisation showed a loss of 15.8 million pounds in the first half of 2006, compared with a profit of 3.2 million pounds in the comparable period in 2005.
The loss per share for the first half of 2006 was 3.5 pence, which compares with 2.1 pence in the first half of 2005.
Foreign currency movements did not have a material impact on the results of operations in the first half 2006 compared with the comparable period in 2005.
Segment information Segmental information on revenue and operating loss is as follows: 6 months to 6 months to 30 June 2006 30 June 2005 million million pounds pounds Revenue Injectable 3.9 5.1 Oral and Inhalation 21.7 30.9 25.6 36.0 Operating (loss)/ profit Injectable (11.7) (7.2) Oral and Inhalation (7.8) 6.9 (19.5) (0.3)
The 9.2 million pounds fall in Oral and Inhalation revenue in the first half of 2006 is primarily due to the aforementioned timing of revenue recognition on the up-front payment received on the licensing of US marketing and distribution rights for Flutiform(TM) to Kos.
The 14.7 million pounds increase in Oral and Inhalation operating loss is caused principally by the reduction in revenue and the increased costs arising from the start of the Flutiform(TM) phase III clinical trials.
The operating loss by segment includes an allocation of corporate costs to each segment.
Balance sheet
The Group balance sheet as at 30 June 2006 shows total shareholders’ equity of 8.1 million pounds (31 December 2005: 31.9 million pounds).
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 2006. On the balance sheet these are reflected as 63.9 million pounds in liabilities and 28.4 million pounds in equity.
In addition the Group has other borrowings at 30 June 2006 of 42.0 million pounds due to Paul Capital. Whilst the contractual arrangements contemplate the payment of a share of our royalty income to Paul Capital, IAS 39; Financial Instruments: Recognition and Measurement requires the Group to record a liability equal to the net present value of the royalties the Group expects to pay Paul Capital over the term of the agreements.
Liquidity and capital resources
At 30 June 2006 SkyePharma had net cash of 21.8 million pounds, comprising cash and cash equivalents of 22.8 million pounds and a bank overdraft of 1.0 million pounds, compared with 34.3 million pounds net cash at 31 December 2005. Bank and other non convertible debt amounted to 10.3 million pounds at 30 June 2006 (31 December 2005: 9.9 million pounds), consisting principally of a 6.8 million pounds property mortgage secured on the assets of Jago (31 December 2005: 6.9 million pounds). In addition the Group has 6% convertible bonds due May 2024 of 69.6 million pounds (31 December 2005: 69.6 million pounds) and 8% convertible bonds due June 2025 of 20.0 million pounds (31 December 2005: 20.0 million pounds). Net debt (excluding the Paul Capital funding liabilities) amounted to 51.4 million pounds (31 December 2005: 39.2 million pounds).
In the first half 2006 there was a net cash outflow from operating activities of 2.3 million pounds, compared with a net inflow of 4.5 million pounds in the first half of 2005. During the 2006 period the Group spent 1.4 million pounds on property, plant and equipment; and expenditure on intangible assets of 1.1 million pounds, mainly related to the purchase of licenses to intellectual property in the area of pulmonary delivery. The proceeds on disposal of the holding in Vectura Group plc and certain Vital Living Inc securities were 1.3 million pounds.
Borrowings of 6.5 million pounds were repaid in the period, primarily comprising Paul Capital’s share of the Group’s royalty income. In addition the Group paid 3.1 million pounds of interest during in first half 2006, mainly relating to the convertible bonds.
The results for the period to 30 June 2006 have been formally reviewed and reported on by Ernst & Young LLP the Company’s new auditors. The auditors’ independent review report is modified in two respects:
They were appointed auditors on 21 August 2006 and did not report on the financial information as presented in the 30 June 2006 financial statements for the period ended 30 June 2005. For that reason they have not reviewed the 30 June 2005 comparatives as would be required for a full review in accordance with Bulletin 1999/4.
Their report contains an emphasis of matter paragraph drawing attention to the uncertainties outlined in Note 1 to the financial statements included in the interim review. Their review opinion is not qualified in this regard.
The auditors’ conclusion is that they are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2006.
International Financial Reporting Standards
Since the 2005 Interim Report the Group has changed its interpretation of the application of IAS 39 to the Paul Capital funding liabilities. Previously the proceeds received from Paul Capital were treated as a floating rate financial liability, and any change in the estimated future payments to Paul Capital was effectively spread forward and reflected in a reduced implicit interest cost in future years. Following the change in the year ended 31 December 2005, the estimated payments to Paul Capital are discounted using each contract’s original effective interest
