Take SkyePharma's pulse

SMALLER COMPANIES

SkyePharma is, like many of its peers, a small company with large ambitions. The source of those ambitions is its founder Ian Gowrie-Smith, the Australian financier who has already created one hit in with Medeva, the generic drugs company that became a stock market favourite, writes Richard Phillips.

Mr Gowrie-Smith has made his shareholders money, although he left Medeva under a slight cloud after a problem over stocks hammered the share price.

Despite that, SkyePharma is a company which deserves a closer look. Its core business Jago Holding, a Swiss company, specialises in drug-delivery technology. SkyePharma bought Jago in March last year for pounds 128m.

Jago is in a fascinating area. Broadly speaking, it moderates or changes the rate at which a drug is released into a patient's blood system. Its Geomatrix uses different coatings for tablets. A patient can expect a steady release of a drug over time, or even have two different doses delivered from the one tablet, at different times.

It is also working on a variety of mechanical devices to supplant traditional hypodermic injection, including respiratory products.

SkyePharma works with drug manufacturers to develop special formulations of their drugs using its delivery technology. It has an agreement with Intercardia to develop a once-a-day formulation for the US group's heart drug. It has also announced a deal with Roche for a new formulation of the Swiss company's established Parkinson's Disease treatment. Madopar- DR allows two drugs to be taken in a single pill and then released at different speeds.

It trumped that with news of a tie-up linking it to Eli Lilly of the US, and that company's Prozac, the well-known anti-depressant and the world's fifth best-selling drug. SkyePharma is working to develop a form of Prozac that reduces side effects.

In the 17 months to 31 De-cember 1996, the group reported sales of pounds 11.08m, but its pre-tax losses were pounds 14.62m. So it still has some way to go before it can claim to be a real success. At the time of the Jago deal, it raised pounds 140m through a placing at 84p to 100p a share.

SkyePharma is in an area of the pharmaceuticals market where growth - at 15 to 20 per cent a year - is running far ahead of the rest of the market. However, the potential upside can be limited for a company like SkyePharma, because it is dependent on royalty payments from the drug companies which it helps to reformulate existing products. This may be one reason why the share price has been stuck somewhat stubbornly in a range between 70p and 90p since May last year. And Mr Gowrie-Smith may find it hard to raise new money if the price has not moved up significantly by the time the company starts to run out of funds. But the shares, at 81p, are an entirely reasonable speculative buy.

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