Skyepharma PLC - Preliminary Results Announcement For The Year Ended 31 December 2005

LONDON, April 19 /PRNewswire-FirstCall/ -- SkyePharma PLC announces the Company’s preliminary results for the year ended December 31, 2005.

Operating highlights - Paxil CR(TM) back on US market - Triglide(TM) launched in USA - Pulmicort(R) HFA-MDI filed - Foradil(R) Certihaler(TM) now approved in more than 20 markets - Flutiform(TM) starts Phase III clinical trials - DepoBupivacaine(TM) completes Phase II clinical trials - Flutiform(TM) licence negotiations ongoing with several parties - DepoBupivacaine(TM) licensed to Mundipharma and Maruho - Rights issue raised 35 million pounds Sterling (net of expenses) - Strategic decision to divest injectables business unit Financial highlights (under IFRS) - Turnover down by 18% to 61.3 m pounds (2004: 75.2 m pounds) -- Absence of Flutiform(TM) licensing revenues -- Strategic shift from up fronts to royalties - Royalty income decreased by 16% to 21.7 m pounds (2004: 25.9 m pounds) -- Paxil CR(TM) supply problems -- Royalties excluding Paxil CR(TM) up 38% - Gross profit down 32% to 32.1 m pounds (2004: 47.0 m pounds) - Exceptional items of 21.4 m pounds (2004: 8.9 m pounds) -- Non cash investment impairments 19.4m pounds -- Abortive transaction costs 2.0m pounds - Operating loss before exceptionals 16.1 m pounds (2004: 0.4 m pounds) - Operating loss after exceptionals 37.5 m pounds (2004: 3.1 m pounds) - Net loss 50.9 m pounds (2004: 18.6 m pounds) - Loss per share 8.1p (2004: 3.0p) - End 2004 net cash 34.3 m pounds (2004: 15.3 m pounds)

Dr Jerry Karabelas, Non-executive Chairman, said: “2005 was a difficult year for SkyePharma but the Company now has a new management team and has adopted a new strategy. We are focused in the short term on the licensing of Flutiform(TM) and the divestment of our injectables business. While there is obviously uncertainty as to the timing of these two transactions, they will not only greatly reduce the Company’s current and future cash requirements but also provide us with the funds to consider new opportunities related to oral and inhalation products. We remain convinced that Flutiform(TM) will become a major product. We believe that the strategic initiatives we have adopted will enable the Company to maximise the potential of Flutiform(TM) and other pipeline products, to become profitable in the near term and to deliver long- term value for shareholders.”

For further information please contact: SkyePharma PLC Jerry Karabelas, Non-executive Chairman Frank Condella, 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 Buchanan Communications +44 207 466 5000 Tim Anderson / Mark Court / Rebecca Skye Dietrich CHAIRMAN’S STATEMENT

There is no disguising that 2005 was a difficult year for SkyePharma. Despite a number of significant achievements, outlined in the Review of Operations below, we did not complete a development agreement for Flutiform(TM), our major pipeline product. We believe that Flutiform(TM) has substantial commercial value. Faced with the prospect of a delay to the development of this important product, which might have impaired its commercial potential, we took the decision in September to raise £35 million (net of expenses) by means of a rights issue to keep Flutiform(TM) on its planned development timeline through Phase III. As such, our target launch date in the USA remains 2009. We are convinced that the decisions to proceed with the clinical development of Flutiform(TM) ourselves and to fund this development through a rights issue were in shareholders’ best interests.

We continue to have negotiations with potential strategic marketing partners for Flutiform(TM) who could also fund development of additional indications following initial approval for asthma. We hope to finalise an agreement with one or more marketing partners for Flutiform(TM) as soon as reasonably possible. The Board remains confident that an agreement will be reached in 2006.

Prior to reaching the decision to ask shareholders for funding, we explored a number of financing alternatives to fund the development of Flutiform(TM) and also a variety of strategic options for the Company. These included discussions concerning a transaction that, had it been successful, would have created a combined company that could have marketed Flutiform(TM) itself in some markets. The discussions were called off by SkyePharma due to uncertainties over the other party’s prospects. SkyePharma was unable to disclose this at the time due to reasons of confidentiality and the possibility that these discussions could resume at some time in the future.

In November, we also received an opportunistic takeover approach from Innovata PLC. As a result, the Board felt that it was in shareholders’ interests to explore all options and consequently appointed Lehman Brothers to conduct a full strategic review of all the options open to the Company.

The conclusion of this review in early 2006 did not lead to an offer for the entire Company on terms that the Board felt able to recommend to shareholders. However, there were expressions of interest in individual parts of the business. The Board then took a strategic decision to divest the US- based injectables business in order to reduce the Company’s projected cash outflow over the next few years and to raise funds to concentrate on the oral and inhalation businesses. The investment bank UBS has been retained recently to manage this sale and the process is ongoing. The injectables business includes DepoCyt(TM) and DepoDur(TM), both marketed products, and the lead injectable pipeline product DepoBupivacaine(TM).

In January 2006 certain shareholders requisitioned an Extraordinary General Meeting (“EGM”) seeking to remove the Company’s then Chairman and to appoint a nominated director to SkyePharma’s Board with the ultimate aim of having him appointed as Executive Chairman. Although this motion was defeated at the EGM in early March, the Board has since made a number of changes and introduced a process whereby major investors are now involved in the selection of new Non-Executive Directors.

Board Changes

In January 2006, Ian Gowrie-Smith stepped down from his role as Non- Executive Chairman when I was appointed in his place. Ian subsequently resigned as a Director in February. As shareholders will be aware, Ian founded SkyePharma in 1996 and has seen it grow to become a substantial business. He remains a shareholder but will now be focusing his energies on a number of early-stage non-pharmaceutical companies. I have been a Non-Executive Director of SkyePharma since 2000 and I have also had extensive experience at senior management levels of the international pharmaceutical industry.

Michael Ashton, who has now reached the age of 60, indicated to the Board last year that it was his intention to retire as Chief Executive in 2006. Michael will continue to serve as a Director until the 2006 Annual General Meeting in June but will not be seeking re-election.

I am sure that shareholders will join me in thanking both Ian and Michael for their contribution to the development of SkyePharma since its formation.

The Board has appointed Frank Condella as Chief Executive, who joined the Company on 1 March 2006, having previously run the European operations of the leading generic company IVAX. Before joining IVAX, Frank was Chief Executive of Faulding Pharmaceuticals and before that built up the speciality pharmaceuticals business of Roche. Frank joined the Board on 4 April 2006.

The Board has also appointed Dr Ken Cunningham in the new role of Chief Operating Officer. Ken was formerly Chief Executive of the private UK company Arakis and has a wealth of experience in pharmaceutical development, especially in the areas of oral and inhalation products.

Two other Non-Executive Directors, Sir Michael Beavis and Dr Keith Mansford, will not be standing for re-election at the Annual General meeting. The Board will miss their wise counsel and wishes them well in retirement. In their place, we will be appointing two new Non-Executive Directors.

The Future

The EGM process was costly and also diverted significant management time away from running the business. However, now that this is behind us we can focus on execution of the new strategy referred to above and outlined in more detail in the following pages. We are focused in the short term on the licensing of Flutiform(TM) and the divestment of our injectables business. While there is obviously uncertainty as to the timing of these transactions, they will not only greatly reduce the Company’s current and future cash requirements but also provide us with the funds to consider new opportunities related to oral and inhalation products. We are also devoting a significant amount of resource to ensure that Flutiform(TM) continues on its planned development timeline. We remain convinced that Flutiform(TM) will become a major product, as is evident from the number of companies that have expressed an interest in obtaining licensing rights. We believe that the strategic initiatives we have adopted will enable the Company to maximise the potential of Flutiform(TM) and other pipeline products, to become profitable in the near term and to deliver long-term value for shareholders.

Dr Jerry Karabelas Non-Executive Chairman STRATEGY

SkyePharma’s mission is to become one of the world’s leading speciality pharmaceutical companies, powered through excellence in drug delivery.

On 2 February 2006, the Company announced the outcome of its Strategic Review. The Board concluded that in the interests of achieving sustainable profitability in the shortest reasonable time, SkyePharma should concentrate on oral and inhalation products and divest its injectable business interests. The proposed divestment, which the Board expects to be subject to approval by shareholders, would not only release cash but also relieve the Company of a significant cash burn and future capital expenditure. The Board believes that the residual core business would be able to achieve profitability in the near term. Furthermore, with greater focused resources the Company would be in a better position to further develop its pipeline of oral and inhalation products. Ultimately, it is the Company’s strategy to add a niche sales and marketing capability in one or more markets that would improve profit growth and give it greater control over revenue generation.

The injectables business, located in San Diego, consists of two marketed products: DepoCyt(R) for a complication of cancer and DepoDur(R) for the treatment of post-surgical pain. This business also has a pipeline of projects in various stages of development. These include controlled-release injectable formulations of a number of biological products and DepoBupivacaine(TM), a long-acting injectable formulation of the local anaesthetic bupivacaine for the control of post-operative pain. The Company remains convinced that DepoBupivacaine(TM) addresses an important area of unmet medical need and has major commercial potential. However, further development of this business would require significant cash resources and would also impact the Company’s ability to become profitable in the near term.

The Company has retained UBS to act as its investment bank to manage the divestment process. This process is ongoing and several third parties, both trade and financial, have already shown significant interest in the injectables business.

Funds raised by the divestment of the injectables business will be available to enhance the core oral and inhalation business. We expect to be able to accelerate the development of certain pipeline products whose development has had to be delayed in recent years. Several of these products are at an early stage of development but would address important therapeutic areas such as gastrointestinal, diabetes and hypertension. Development activities will continue to be based in Muttenz, Switzerland and manufacturing in Muttenz and Lyon, France.

Our oral and inhalation pipeline includes SkyePharma’s most important project Flutiform(TM), a combination asthma product. The Company is convinced that Flutiform(TM) has substantial value as it is poised to enter a large and rapidly growing market with currently limited competition. We are currently negotiating with several companies for the rights to market Flutiform(TM) in the US, Canada, Japan and the countries of the European Union.

The core oral and inhalation business has seven products marketed by licensees, including Paxil CR(TM), Xatral(R) OD and Triglide(TM). These products will continue to generate revenues and cash for the Company. There are also a number of late-stage products that are close to the market.

The Company will focus its efforts on working with partners to maximise revenues from existing and future marketed products. We will also be able to devote more resources in this area to the development of additional products and to increase the size of our pipeline.


Flutiform(TM) HFA-MDI is a fixed-dose combination of the long-acting bronchodilator formoterol and the inhaled steroid fluticasone in a metered- dose aerosol inhaler (MDI) using a hydrofluoroalkane (HFA) propellant.

The world market for asthma drugs is expected to exceed $20 billion by 2010, with use in chronic obstructive pulmonary disease (COPD) expected to add a further $10 billion. The fastest-growing part of this market is combination treatments, which combine a long-acting bronchodilator with an inhaled steroid in a single delivery device. Combinations are not only convenient for patients but also optimise the efficacy of the individual agents. Sales of GlaxoSmithKline’s combination Advair (Seretide in Europe) already exceed $6 billion and AstraZeneca’s Symbicort (which is not yet on the US market) add another $1 billion. By 2010 the combination category is expected to account for over half of the asthma/COPD market by value.

Formoterol provides 12 hours of bronchodilation and has a rapid onset of action (1-3 minutes). By contrast salmeterol, the bronchodilator used in GlaxoSmithKline’s Advair/Seretide, is also a twice-daily product but has the drawback of needing 30-45 minutes after inhalation to take effect. The inhaled steroid fluticasone (a component of Advair/Seretide) is perceived to have a better safety and efficacy profile than budesonide, the steroid used in AstraZeneca’s Symbicort, and is the physician-preferred inhaled steroid in the US. The SkyePharma formulation technology employed in Flutiform(TM) provides patent protection to 2019.

In 2005 the Company completed phase II trials and a review of development activities with the FDA and European regulatory agencies. Subsequent to these meetings, the Company initiated Phase III trials for Flutiform(TM) in February 2006. The product is on track for its target filing date with the US Food and Drug Administration (“FDA”) in the second half of 2007, with US market entry expected in early 2009. SkyePharma expects Flutiform(TM) to be the third combination product to enter the US market, following GlaxoSmithKline’s Advair and AstraZeneca’s Symbicort. Despite the eventual likelihood of additional entrants, the Company believes that no competing product is likely to enter the US market before 2012. We believe that Flutiform(TM) will be at worst the third combination on the US market and differentiated from both Advair and Symbicort. There is potential to position Flutiform(TM) as “Best in Class.” Furthermore there is limited risk of generic competition in the combination asthma market because there is no recognised test for bioequivalence after inhalation dosing and therefore no basis for approval of an “AB rated” generic inhaled drug in the US market. A generic company would therefore have to conduct clinical trials, which is much more expensive and risky than development of a conventional oral generic drug - so typical generic deep- discount pricing would not be possible. We therefore anticipate a peak sales potential for Flutiform(TM) well in excess of $1 billion with an appropriate marketing partner.

SkyePharma had previously sought a partner to pay for the clinical development of Flutiform(TM) but negotiations have taken longer than expected. In September 2005 we therefore decided to raise funds to proceed with Phase III development at our own expense. The Phase III trials will cost in excess of $50 million. This decision kept development under our control and reduced the risk of delays to market entry that could jeopardise the sales potential of Flutiform(TM). It is still our intention to appoint a licensee or licensees as soon as possible. However, SkyePharma’s flexibility on the terms and structure of any licensing deal has been significantly increased by removal of the partner funding obligation, elimination of the majority of the development risk and proximity to launch. SkyePharma remains in discussions with various potential marketing partners.

Foradil(R) Certihaler(TM)

Foradil(R) Certihaler(TM) is our version of Novartis’ long-acting bronchodilator Foradil(R) (formoterol). Global sales of Foradil(R) were $332 million in 2005, of which the Certihaler(TM) version made up a very small proportion, the product having only been on the market for a short time. We developed not only the multi-dose dry-powder inhaler device but also the formulation technology that had been shown to ensure dose consistency. Foradil(R) Certihaler(TM) has now been approved in 22 countries in Europe, the Middle East and Latin America. The product was launched in Germany and Switzerland in September 2005 but a recall from these markets was initiated in January 2006 because of concerns that accidental mishandling of the device had resulted in inaccurate dosing in a small number of cases. SkyePharma is collaborating with Novartis and the relevant health authorities to investigate the reasons and the actions necessary before the product can be returned to the market. These are likely to include modification of the patient use instructions and the device. In the US, the FDA issued an “approvable” letter for Foradil(R) Certihaler(TM) in April 2006. However, the FDA is requiring device modification as a prerequisite for approval. Novartis is currently working with the FDA on the most effective way to address its concerns.

The Certihaler(TM) and related formulation technology are also involved in a second collaboration with Novartis to jointly develop QAB149 (indacaterol), a novel inhaled long-acting beta-2-agonist that provides sustained 24-hour bronchodilation with rapid onset of action, which has completed Phase II development in both asthma and COPD. Novartis is currently revising the indacaterol development plan in Certihaler(TM) to accommodate the device modifications mentioned above.

Formoterol HFA-MDI

This is a formulation of the long-acting bronchodilator formoterol in an HFA-powered MDI. Because of the growing use of combination products for asthma and COPD, there is now a correspondingly diminishing market opportunity for single agent bronchodilators. While this product has completed Phase II development, pending the divestment of the injectables business, the Company will conclude its strategic review of this product.

Pulmicort(R) HFA-MDI

This new HFA-powered MDI containing AstraZeneca’s inhaled corticosteroid Pulmicort(R) (budesonide) was filed for marketing authorization in June 2005 on a country-by-country basis in Europe for the treatment of asthma in adults and children. In February 2006, the product received approval in Finland, its first European market. Other European approvals are expected this year. The currently available MDI formulation of Pulmicort(R) has been on the market since 1981 and uses chlorofluorocarbons (CFCs) as the propellant. In accordance with the Montreal Protocol, this version will now be replaced by the non-ozone depleting device using HFAs as propellant. SkyePharma developed this new HFA-MDI formulation, which employs its proprietary formulation technology, and also conducted the clinical development programme for AstraZeneca. SkyePharma will earn a double digit royalty on AstraZeneca’s sales of this formulation of Pulmicort(R).


Paxil CR(TM)

Our improved formulation of GlaxoSmithKline’s antidepressant Paxil(R) (paroxetine) remains a major source of royalty income. In March 2005 GlaxoSmithKline temporarily suspended production of Paxil CR(TM) and certain other products made at its Cidra plant in Puerto Rico. GlaxoSmithKline announced in April 2005 that it had entered into a consent decree with the FDA regarding manufacturing processes at the plant and recommenced supply of product to the market shortly thereafter. As previously reported, we concluded a new agreement with GlaxoSmithKline last year 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 temporarily off the market.

Despite the product’s return to the market, new documentary procedures introduced as part of the consent decree have hindered the Cidra plant’s ability to meet demand and GlaxoSmithKline alerted customers to supply constraints in January 2006. Paxil CR(TM) currently holds about 3% of new prescriptions in this market, well below the 7% share held before the March 2005 withdrawal. World sales of Paxil CR(TM) were $231 million in 2005, of which US sales were $209 million, 70% below the 2004 level in constant exchange rate terms.

In late 2005 we and our partner GlaxoSmithKline received notification from Mylan Pharmaceuticals Inc. that it had filed an Abbreviated New Drug Application (“ANDA”) with the FDA for a version of paroxetine hydrochloride extended release tablets. The ANDA contains a “Paragraph IV certification” that certain of the patents listed in the FDA’s “Orange Book” by GlaxoSmithKline for Paxil CR(TM) (paroxetine hydrochloride Controlled Release tablets) are not infringed. These patents include SkyePharma’s US patent 5,422,123. The certification does not challenge GlaxoSmithKline’s basic active ingredient patent covering paroxetine hydrochloride hemihydrate, which protects the product until June 2007. GlaxoSmithKline has decided not to exercise its right to file suit for patent infringement within the 45-day period permitted by the Hatch-Waxman Act (“the Act”) and therefore there will be no 30-month stay of approval for this product pursuant to the Act. SkyePharma has a number of issued patents covering technology incorporated in Paxil CR(TM) and our policy is to enforce our intellectual property wherever possible.

Requip Once-a-day

In December 2005, SkyePharma’s collaborator GlaxoSmithKline submitted Requip Once-a-day, a once-daily dosage formulation of Requip(R) (ropinirole), for approval by US and European regulatory authorities for the treatment of Parkinson’s disease. The FDA has raised some administrative issues that were identified in the preliminary initial review and which led GlaxoSmithKline to withdraw the US filing. SkyePharma has been informed that it is the intention of GlaxoSmithKline to resubmit as soon as possible. It is not expected that the European regulatory review process will be affected by these issues. This new once-daily oral formulation of Requip(R) incorporates SkyePharma’s Geomatrix(TM) oral controlled-release delivery technology. SkyePharma will receive royalties on the product sales.


Following FDA approval in May 2005, First Horizon Pharmaceutical Corporation launched Triglide(TM) (fenofibrate) on the US market in July. First Horizon, which licensed Triglide(TM) in 2004, has a 400-strong representative force focused on cardiovascular physicians and high-prescribing primary care practitioners and has a proven ability to capture market share in the cardiovascular therapeutic area. We and First Horizon see a substantial opportunity for Triglide(TM), a once-daily oral treatment for lipid disorders such as elevated cholesterol and triglycerides. 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. In Triglide(TM), the problem of variable uptake arising from the low solubility of fenofibrate has been overcome by our proprietary IDD-P(TM) 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. First Horizon’s 2005 sales of Triglide(TM) in the 5 months since launch were just under $5 million but we and First Horizon expect a significant increase in the current year.

SkyePharma has now received $20 million in milestone payments from First Horizon ($15 million of which was due on FDA approval, obtained in May 2005) and could receive up to $30 million more in sales-based milestone payments. In addition we receive 25% of First Horizon’s net sales, out of which we pay for manufacturing and supply. In 2005 we also agreed to contribute towards the marketing costs incurred by First Horizon to establish the product in its first two years after launch, the aim being to enhance market penetration and thereby optimize revenues. Originally we agreed to contribute up to $5 million towards First Horizon’s marketing costs through 2007 and to provide samples. In January 2006 this arrangement was modified in order to emphasise its intent as a marketing contribution. SkyePharma will now make a contribution of up to $11.3 million towards First Horizon’s marketing costs (of which $3.1 million was paid in 2005) and First Horizon will pay SkyePharma for the supply of product samples. There is no change in the net cost to SkyePharma.

Xatral(R) OD

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 US in November 2003, currently holds over 11% of the combined prescriptions written for it and for its principal competitor Flomax (tamsulosin, jointly marketed in the US by Boehringer Ingelheim and Astellas). Xatral(R) OD has now been approved in more than 50 countries, including 24 in Europe, for a second indication, acute urinary retention. However Sanofi-Aventis is no longer pursuing US approval for this indication. In 2005, global sales of all forms of Xatral(R) reported by Sanofi-Aventis were 328 million euro ($410 million), up by 18% in constant exchange rate terms. Included in this total were US sales of Uroxatral(R) of €53 million ($66 million), up by 121% in constant exchange rate terms. We estimate that Xatral(R) OD now accounts for more than 90% of the sales of Xatral(R) reported by Sanofi-Aventis.

Zyflo(R) CR

SkyePharma’s partner Critical Therapeutics, Inc. announced in January 2006 that it had initiated two studies designed to support a New Drug Application for a twice-daily version of Zyflo(R) (zileuton), an oral leukotriene synthesis inhibitor for the treatment of asthma. The current version of Zyflo(R) has to be taken four times a day and the CR version is expected to improve convenience for patients and therefore compliance. The controlled release formulation employed in the CR version was developed by SkyePharma. Critical Therapeutics expects to file the CR version with the FDA in the third quarter of 2006.



Solaraze(R) is our topical gel treatment for actinic keratosis and our proprietary hyaluronic acid formulation ensures that a high concentration of the active ingredient is maintained in the upper layers of the skin. Solaraze(R) is now marketed in the US by the Doak Dermatologics unit of Bradley Pharmaceuticals. Bradley has recently reported that sales in the first nine months of 2005 were just under $10 million and SkyePharma estimates that full year sales were approximately $15 million. Sales in 2004 were only $6 million, reflecting the fact that product rights were not acquired by Bradley until August 2004. Solaraze(R) is marketed in Europe and certain other territories by Shire Pharmaceuticals. In 2005 Shire’s total non-US sales of Solaraze were $12.5 million, up by 32%.


Biologicals portfolio

There has been encouraging progress with the Company’s portfolio of versions of protein drugs with enhanced delivery profiles, based on its two complementary sustained-release injectable technologies DepoFoam(TM) and Biosphere(TM). The objective of the work has been to develop different protein formulations to provide a range of durations from 7 up to 28 days of activity. The DepoFoam(TM) system has the benefit of neither altering the native protein during the formulation process nor the way in which it acts upon release into the body. SkyePharma has now successfully formulated seven different protein drugs, including major commercial products such as G-CSF, EPO, HGH, IFN-alpha and IFN-beta. In the second half of 2005 the Company entered into three new feasibility study agreements with third parties for enhanced biologics. It is anticipated that several of these products will enter Phase I clinical trials in 2007.


We are pleased to report that we have now completed the Phase II trial programme for DepoBupivacaine(TM), a long-acting local anaesthetic for use in the treatment of post-operative pain. DepoBupivacaine(TM) is SkyePharma’s novel sustained-release injectable formulation of the local anaesthetic bupivacaine, currently widely used as a local or regional anaesthetic during surgery, either in a hospital in-patient setting or in ambulatory (or “day”) surgery in which the patient is discharged from the hospital or clinic shortly after surgery to recover at home. DepoBupivacaine(TM) employs SkyePharma’s proprietary DepoFoam(TM) technology and was shown in Phase I and Phase II studies to provide local relief of pain for more than 48 hours after a single injection instead of 8-12 hours for conventional immediate-release bupivacaine. Superior control of pain after discharge is expected to reduce the need for other analgesics and to improve patient recovery and rehabilitation. The Phase III trial programme is expected to commence in the first half of 2006.

We have extended our relationship with Mundipharma, our European marketing partner for DepoCyte(R), by granting rights outside North America and Japan for DepoBupivacaine(TM). Under the terms of the agreement we could receive up to $80 million in milestone payments and a 35% share of sales (30% in markets outside Europe). The milestone payments include a contribution of up to $20 million towards the cost of the Phase III trial once Mundipharma agrees to the design of the trial.

DepoBupivacaine(TM) has also been licensed to the Japanese pharmaceutical company Maruho for the Japanese market. Maruho will pay SkyePharm