Skye Pharma: Flutiform Launched In Germany

SkyePharma’s (SKP.L) partner, Mundipharma, has launched flutiform in Germany at a slight discount to the existing leading products. The emphasis is clearly to highlight flutiform’s clinical efficacy rather than major on price alone. flutiform’s first launch marks an important stage in SkyePharma’s rehabilitation. Assuming the proposed
restructuring of its convertible bonds proceeds as planned, investor attention should switch to flutiform’s commercial prospects. After adjusting for the restructuring of the bonds, our NPV model suggests the equity is worth 250p a share.

German launch, UK is imminent
flutiform has been launched in Germany, with Mundipharma (SkyePharma’s marketing partner) pricing it at a slight discount to AstraZeneca’s Symbicort and GSK’s Seretide. The launch triggers a €4m milestone, half of which is applied to repayment of the Paul Capital Note. The UK launch is imminent, also triggering a €4m payment, with further launches over the following months as individual country reimbursement negotiations are completed. European launch milestones will total €15m, with a further up to €40m sales-related payments due (but a proportion will be applied to certain funding obligations). Japanese registration is progressing well, with Kyorin still expecting launch ahead of March 2015.

flutiform progress is the key
flutiform’s EU approval was, in our view, a prerequisite for a successful refinancing and is now rightly the focus of investor attention. flutiform is the fourth ICS/LABA combination to reach the European market for asthma and Mundipharma (SkyePharma’s marketing partner) will need to position it carefully in what is set to be
an increasingly competitive market. Nonetheless, the tortuous approval process does mean plans are well established and our modest sales expectations appear to be
realistic.

Valuation: Equity holders now share in upside
After adjusting for the proposed bond restructuring (see our Update note published on 6 September), Edison’s DCF model yields an enterprise value of £225m for SkyePharma, which, after adjusting for net debt, results in an equity value of £116m, or 250p per share on an enlarged shareholder base.

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