Skyepharma set to miss profits target and hit cash crunch

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Skyepharma, the mid-cap drug developer, has abandoned its promise of "sustainable profitability", less than six months after making it.

The company made its maiden profit in April, but said that the current year's figures could show a loss and that it was £18.6m in the red at the half-way point. The issue sent SkyePharma's shares down 10 per cent and raised fears that it may be headed for a cash crunch ahead of the repayment of a £60m bond in 2005.

Talks to find a partner for three of the company's exciting new painkillers may not now come to fruition before the end of the year, Michael Ashton, the chief executive, said.

SkyePharma had promised £100m in revenues this year, the majority from licensing deal milestones. The new guidance is that only £85m can be guaranteed, and that this could leave it with a loss for 2003. Yesterday's warning is a return to form for a company that repeatedly missed forecasts before its eventual move to break-even last year, after which its chairman, Ian Gowrie-Smith, said "there is no going back from this point".

But Mr Ashton rejected suggestions it could damage management's reputation. "Quite the contrary. We don't want to put ourselves in the position of having to get these deals done this year," he said. "They will be done, but we are looking for certain numbers. It is prudent to say that the company will not give up any value."

SkyePharma is trying to license three products, a controlled release morphine, a sedative and a local anaesthetic, to a bigger pharmaceutical company that could market them in Europe and Japan. Talks with a number of companies are continuing, Mr Ashton said, although it has not yet been decided if the drugs will be licensed together or separately.

SkyePharma posted an £18.6m loss for the six months to 30 June on revenues of £22.6m. Royalties from existing drugs developed with SkyePharma technology, including GlaxoSmithKline's antidepressant Paxil CR, increased more than fourfold to £8m. In an expression of confidence, the company promised to maintain spending on research and development. But Julie Simmonds, an analyst at Evolution Beeson Gregory, said the company may be forced to cut some projects as investors start to focus on the company's cash position and the bond repayment in June 2005. She said: "We were all expecting them to have broken even by now, in which case that wouldn't have been an issue. The company is not in a strong cash position if deals do not come through and costs remain high."