SkyePharma receives bid approach from UK drug group

SkyePharma, the perennially disappointing drug development company chaired by Ian Gowrie-Smith, is to sell itself to the highest bidder, after receiving an "unsolicited approach".

An unnamed UK drug company is believed to have suggested a merger last week, as SkyePharma shares languished near 10-year lows.

SkyePharma was forced into a humiliating rights issue last month after failing to find a funding partner for its latest asthma drug, and Michael Ashton, its long-standing chief executive has signalled his intention to retire. The company has appointed Lehman Brothers to conduct a "strategic review", which will attempt to encourage an auction of the company or will examine whether it should be sold off piece by piece.

The company said: "Following a recent unsolicited approach from a third party, the board has decided to review its strategic options, including inter alia offers for the company as a whole. There is no certainty that the review will result in any change to the present ownership structure."

SkyePharma shares had risen last week after the completion of its £35m rights issue and amid swirling rumours of a private equity bid. Traders noted that HBM Partners, a Swiss private-equity house had raised its stake to 6.6 per cent.

Industry sources suggested that the approach had come from a UK player, and the speculation was that a relatively small drug development company would want to bulk up by acquiring SkyePharma's drug-delivery technologies and manufacturing capability. Private equity participation in the auction would be a possibility, although SkyePharma's capital structure is complicated by debt which is convertible into equity and royalty income streams, which are shared with a finance house called Paul Capital.

The company specialises in developing ways of delivering drugs, particularly in controlled-release injections and pills, and in inhalers. The appointment of Lehman Brothers to conduct the strategic review is a snub to CSFB, its house broker, with whom Mr Gowrie-Smith had a falling out over the rights issue, which he regarded as priced too low. CSFB's own analyst suggested clients think twice before backing the fund-raising and removed the asthma drug, Flutiform, from his financial forecasts because of its failure to attract a Big Pharma backer.