The Investment Column: SkyePharma

LOSS-MAKING pharmaceuticals group SkyePharma says it is on track for breaking even next year. While it lent weight to the claim by posting a 70 per cent jump in half-year sales, valuing SkyePharma is tricky.

The attraction of the group, which aims to be a specialist in drug delivery mechanisms, is the promise of riding on the back of the earnings streams of major pharmaceuticals groups employing its services. The star is Paxil CR, a variation of a SmithKline Beecham drug. But the treatment has not yet gone to market because SmithKline's existing Paxil drug has retained patent protection.

No wonder SkyePharma is broadening its portfolio. It has gained two new products this year with the acquisition in March of California-based DepoTech. DepoCyte, a meningitis treatment in which it has a 50 per cent stake of royalties, hit the market in May; its sales - pounds 1.3m in the period - are meeting expectations, but it will not be a blockbuster. DepoMorphine, a painkiller for hip surgery, has a potentially larger market but is still in trials.

The half-year sales hike followed rises in research and development income and royalties. After a pounds 2m hit from the cost of listing in the US, underlying losses narrowed from pounds 7.5m to pounds 3.8m in the first half. Analysts expect a full-year loss of pounds 11m, with maiden profits in the first half next year.

With the group lacking a deal to provide guaranteed and substantial revenues, the shares are risky.

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