BioWorld International Correspondent

LONDON - SkyePharma plc is to raise £35 million (US$61.4 million) in a heavily discounted rights issue to fund Phase III development of Flutiform after pulling out of an agreed $160 million milestone and double-digit royalty deal for the combination asthma product.

A heads of terms agreement on the $160 million deal was signed in April. "We then got into a maze of bureaucracy," Michael Ashton, SkyePharma's CEO, told analysts. "One of the issues with big pharma is by definition they have big groups of clinical development and process people who want to change the product, and this slows you down. We can't stand any interference with anyone coming in and putting in other elements that they think are appropriate, when we know we are in line with the FDA."

The delay, coupled with the emergence of another suitor, led London-based SkyePharma to ditch the $160 million deal in September.

The 1-for-5 rights issue of 125.6 million shares at 30 pence per share is fully underwritten.

"We have discounted it to get it away, so we can get on with the business," Ashton said. "It is to ensure we don't miss any timelines: [We] get the Phase III going at the beginning of next year, and importantly, file in 2007 for approval in 2009."

The company has been promising a partner for Flutiform for some time, and in December 2003, pulled out of a deal offering milestones of $90 million. The market has been hanging on for details of the $160 million deal since SkyePharma announced it had an outlined agreement in April, and reacted badly to news of the rights issue, knocking 21 percent off the share price, which closed down 10.75 pence at 42 pence.

Ashton's ambition is that Flutiform, containing the beta agonist formeterol and the steroid fluticasone, will be the second or third combination asthma product on the market, following Advair, which is approved and vying for second place with Symbicort.

"This is an enormous market that will be growing to $10 billion, but we won't get a share unless we get on with the study," Ashton said. "By raising the money for Phase III, we will ensure time to market and enhance the terms of a deal." He estimated that a "small investment" of $50 million to pay for Phase III will increase the royalty rate by 10 percent over the previous offer.

Ashton made it clear that the decision to have a rights issue is borne out of frustration at the negotiating tactics of potential partners, and he accused both Pfizer Inc. and Merck and Co. Inc. of deliberately dragging out partnering discussions to weaken SkyePharma's hand. "I want to underscore we are not stopping discussions, but we won't be pushed around," he said.

SkyePharma believes its combination of formeterol and fluticasone will be faster- and longer-acting than competitor products. "One thing we have learned from all our negotiations is that no one believes this is not going to be the best combination, and no one doesn't believe this is going to be a $1 billion product."