Skyepharma: Forecasts For FY13 And FY14 Are Reduced

flutiform performing to expectations
The focus is now on flutiform; its performance (particularly in Europe) will define Skyepharma's, (SKP) future. The trading statement confirms the sales uptake in Europe is still matching Mundipharma’s expectations. Launch preparations for Japan, and other markets, are underway and planned for 2014. These, admittedly, still-early signs augur well for the refinancing of any remaining debt when the 2017 bond repayment is due.


Operational factors are now the key
With the debt and interest repayments now better aligned with the expected cash inflows, Skyepharma’s prospects hinge on commercial rather than financial factors. Revenues arise from royalties on 14 products; however, despite this broad portfolio, the investment case rests on the success of flutiform. This one product is expected to contribute over half Skyepharma’s royalty income by 2017, as well as profit from a manufacturing and supply agreement.

Flutiform launch roll-out continuing
flutiform is an inhaled combination of fluticasone and formoterol for treating asthma, and its progress in Europe is rightly the focus of investor attention. flutiform has been approved in 21 European countries and launched in 12. Further launches, including in France, are expected in 2014. Kyorin, the Japanese partner, has received approval and is also expected to launch next year. Sanofi, the partner for Latin America, has begun filings for approval with first launches over 2014-15.

Forecasts for FY13 and FY14 are reduced
The disagreement with Aenova over the lease on the Lyon manufacturing site shows no signs of amicable agreement and has been referred to an external adjudicator. The uncertainty means we have removed all expected rental income from our model. This, together with shifting the €3m milestone for the launch of flutiform in France to FY14, means we have reduced both our FY13 and, to a lesser extent, FY14 expectations. These are detailed in the Financials section.

Valuation: Equity holders now share in upside
Following the trading update we have made a number of changes to our forecasts. Our valuation is now 189p a share, which compares to our previous 198p per share. We value Skyepharma using a DCF model based on individual product sales projections through to 2024. This yields an enterprise value of £203.0m, which, after adjusting for net debt, results in an equity value of £87.2m, or 189p per share.

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