BioWorld International Correspondent

LONDON - Shares in drug delivery specialist SkyePharma plc fell 15 percent Friday after a smaller counterpart, Innovata plc, was revealed as its would-be suitor.

The market was hoping for an outright bid for SkyePharma after the company said earlier in the month that it had ordered a strategic review following an unsolicited approach from a third party.

It was Innovata that confirmed the "early stage discussions . . . regarding a possible combination of the two companies." It emphasized that the talks were "preliminary in nature," and said there can be no certainty a transaction would be concluded.

London-based SkyePharma's position was weakened in October when CEO Michael Ashton announced he was retiring from the company next year as he launched a heavily discounted rights issue at 30 pence per share to raise £35 million (US$61 million) to pay for Phase III trials of flutiform, a combination asthma product.

The market reacted negatively, as the company had said previously that it would find a partner to pay for the trial. In April it announced heads of agreement on a deal with a headline value of £160 million, before pulling out in September when another potential partner appeared.

SkyePharma's shares perked up initially when news of the approach and the appointment of Lehman Brothers to give advice was announced Nov. 14. Friday's fall to 47.5 pence valued the company at about £360 million. SkyePharma did not comment on Innovata's announcement.

Innovata said it was in expansion mode following its formation in March from ML Laboratories plc and Quadrant Technologies Ltd. The business was created after Kieran Murphy was appointed CEO of ML Labs and set about a root and branch restructuring, closing six ML Labs business units. After acquiring Quadrant for £46.7 million, the company was renamed Innovata and moved into Quadrant's headquarters in Nottingham.

Following its formation, Innovata has narrowed its focus to the pulmonary delivery of existing and novel compounds, based on delivery devices from the ML Labs business and formulation technology from Quadrant. At the time, Murphy said that following the acquisition of Quadrant, the company would have the devices and stabilization and formulation technologies to take a more creative approach to pulmonary delivery, moving beyond asthma and chronic obstructive pulmonary disease treatments that currently are administered by this route, to the delivery of antibodies, proteins and peptides.

Innovata has not published any financial results since its creation. In the six months to the end of March, ML Labs' turnover was £6.4 million, and Murphy promised at the time of acquiring Quadrant that the merged entity would be profitable once the merger was completed in October. Innovata's share price rose by 3 percent to 25.75 pence when it said it had approached SkyePharma.

Although SkyePharma has interests in pulmonary delivery, most notably in flutiform, the company has a range of other technologies for oral, injectable and topical delivery, supported by solubilization capabilities. They are in use in a number of marketed products, including an extended-release formulation of morphine and the controlled-release version of GlaxoSmithKline plc's Paxil.

In the six months ending in June, SkyePharma had revenues of £36 million and a loss of £9.3 million. At that point, it had net cash of £19 million.