Annual Financial Report

13 April 2012

SkyePharma PLC - Annual Report and Accounts 2011

In accordance with the Listing Rules, copies of the following documents have been submitted to the National Storage Mechanism:

·; Annual Report and Accounts 2011

·; Notice of Annual General Meeting

·; Form of Proxy

These documents will shortly be available for inspection at the National Storage Mechanism at www.hemscott.com/nsm.do

The Annual Report and Accounts and Notice of Annual General Meeting are also available on the Company website at www.skyepharma.com.

The Annual General Meeting will be held at 10.30 a.m. on Wednesday 16 May 2012 at the offices of FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.

In accordance with DTR 6.3.5, this announcement contains information in the attached Appendix of the principal risk factors, a responsibility statement and details of related party transactions which has been extracted in full unedited text from the Annual Report and Accounts 2011. Where page numbers and notes are mentioned in the Appendix these refer to page numbers and notes in the Annual Report and Accounts 2011. A condensed set of financial statements were appended to SkyePharma PLC's preliminary results announcement issued on 22 March 2012.

For further information please contact:

SkyePharma PLC

Peter Grant, Chief Executive Officer +44 207 881 0524

Singer Capital Markets Limited

Shaun Dobson / Claes Spång +44 203 205 7500

FTI Consulting

Jonathan Birt /Sue Quigley +44 207 831 3113

About SkyePharma PLC

Using its multiple drug delivery technologies and expertise, SkyePharma creates enhanced versions of pharmaceutical products. The Group has eleven approved products in the areas of oral and topical delivery as well as important license and revenue-generating arrangements in inhalation and injectable technologies. The Group's products are marketed throughout the world by leading pharmaceutical companies. For more information, visit www.skyepharma.com.

APPENDIX

UNEDITED EXRACT FROM ANNUAL REPORT AND ACCOUNTS 2011

Principal risks and uncertainties

Pharmaceutical development is inherently expensive and risky as the development cycle for new products is long and uncertain and the regulatory environment is complex and subject to change. In common with all businesses in the sector, the Group is exposed to a range of risks, some of which are not wholly within its control or capable of complete mitigation or protection through insurance. Accordingly, stakeholders and prospective stakeholders should be aware that investment in SkyePharma involves a high degree of risk.

The Board has established a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process and a detailed review of risk was undertaken by the Audit Committee during 2011. The Board has identified the following principal risks which could have a material impact on the Group's long-term performance and could cause actual results to differ materially from the expected and historical results. The risks listed below are those which the Group considers are the principal risks relating to this business:

Risks that Flutiform™ will not achieve commercial success

Flutiform™ is a key pipeline development product and the Directors believe that approval and a successful launch by the development partners will lead to significant cash inflows for the Group. Progress with the development of Flutiform™ is described in detail in the Business Review on pages 14 to 21. There can be no absolute certainty that Flutiform™ will successfully complete development, meet regulatory authority requirements or be approved and launched in a timely manner in any or all of the major territories. Even if approved and launched, there can be no assurance that it will be commercially successful, as this will depend on a range of commercial factors including the competitive environment following launch. The success of Flutiform™ is also dependent on the successful completion of manufacturing scale up and validation and the ability to produce sufficient product to meet commercial requirements at an economic cost. In order to mitigate these risks, the management of SkyePharma is involved on a day-to-day basis in ensuring that the Group is able to provide all necessary support to the development process and participates fully and pro-actively in regular meetings with its suppliers, sub-contractors and licensees in ensuring appropriate steps are being taken to prepare for the launch of the product.

Risks that cash balances and net cash inflows will be insufficient to pay off long-term debt obligations

The Group has obligations under its various borrowing agreements to make scheduled interest payments and capital repayments which, if not met, could result in default under those agreements. The approval and launch of Flutiform™ in initial markets in Europe, which the Directors anticipate will take place in the next 12 months, is pivotal to the value and cash generative potential of the Group. Even with the expected launch of EXPAREL™ and approval and launch of Flutiform™ it is unlikely, based on current financing and licensing agreements, that the Group will generate sufficient cash from normal trading to meet the earliest possible bond Puts if the Convertible Bonds are not converted prior to those dates. The Board continues to work with Jefferies International Limited, which is advising on the Group's capital structure. SkyePharma (Jersey) Ltd will seek to commence a dialogue with bondholders during the coming months. The aim is to seek a consensual solution to rebalance the Group's financing obligations to be in line with forecast cash generation and this may involve substantial dilution to shareholders. The ability to find a consensual solution with the bondholders may be influenced by but it is not entirely dependent on the approval and launch of Flutiform ™ as the business has a substantial enterprise value apart from Flutiform™. The Board regularly monitors its cash forecast, as well as reviewing, at least annually, the longer term plans and prospects for repaying long-termdebt. As a result of such reviews, potential actions are identified well ahead of the relevant repayment dates so that debt can berenegotiated or refinanced where necessary.

Risks that manufacturing and R&D operations and related royalty revenues will be disrupted

Any significant and lengthy disruption to the Group's or third party research and development and manufacturing operations or that of its suppliers could result in a substantial loss of manufacturing and related royalty revenues. The Group has insurance against the usual insurable risks such as fire and other perils, but it is not possible to insure all risks and not all insurable risks can be fully insured on an economically feasible basis, such as supplier failures, industrial action, regulatory sanctions and negligent manufacturing issues. For example, a significant failure to maintain manufacturing facilities in compliance with required regulatory standards could result in sanctions by regulators which could require the cessation of manufacture until deficiencies are rectified. To mitigate this, the Group maintains a comprehensive system of quality assurance, including regular inspections and reviews of its facilities and certain key suppliers. Group facilities are also inspected by regulatory authorities in order to maintain their approved status. In preparation for such audits, external specialist consultants may be used to provide preparatory audits and similar support and any recommendations arising from such audits are acted upon where appropriate. Any issues arising are the subject of monthly reporting through the management structure and, where appropriate, to the Board. Disruption could also arise due to dependency on single sources of supply for certain of the Group's products. This would include the Lyon manufacturing arrangement with Aenova. A termination of such arrangements may cause significant disruption. In addition, defects in components and raw materials supplied and used in the manufacture of the Group's products could adversely affect the Group. The Group seeks to identify key or critical suppliers in relation to its business. Where possible, alternative sources of supply are sought, although often this is not possible or economically feasible. Suppliers are subject to a quality audit, a requirement of regulatory authorities, to ensure that the manufacturing processes are in compliance. In addition, insurance is taken out to help mitigate the consequences of defects in products/raw materials and disruption of supplies and, where possible, contracts are negotiated to include appropriate provisions for replacement of defective goods.

Risks that competition, technological change or lack of innovation will damage prospects for the business

The Group has a number of pipeline developments and revenue generating products, which are at various stages of their effective commercial lives and, as such, the Group is not dependent on any one product for the majority of its current revenues. With respect to future revenues, please see the risks relating to Flutiform™ above. The successful development and commercial success and life of regulated pharmaceutical products depends upon a range of factors, such as having adequate product innovation and development strategies, how successfully products are marketed, the overall competitive environment, the effectiveness of patent protection and constraints on healthcare spending. In particular, competition, technological change or lack of innovation may render the Group's products or technologies uncompetitive or obsolete and the time frames involved could be relatively short. For example, where generic products are successful in entering the market this can have a very significant impact, especially for oral products, on both pricing and market share of existing marketed products, and often heralds a rapid end to the commercial life of the existing product. ANDA filings in the United States on Uroxatral®, Requip® XL™, Sular® and Solaraze® highlight the risks of potential generic entry. In order to protect its future prospects, the Group files for and prosecutes patents and creates other forms of intellectual property to protect its assets and, where appropriate and in conjunction with its collaboration partners, takes steps to enforce these rights. In addition, appropriate steps are undertaken both internally and through external service providers to identify the filing and progress of third party rights that may be of interest to and/or have adverse effects on the Group's activities so that these can be taken into account and action can beinitiated where appropriate.

Risk arising from inability to control or influence commercialisation of products and the income streamsrelated to them

The Group helps third parties in developing their products. Once the development work is complete and the third parties have obtained approval and launched their products (which may contain a formulation inside a third party device), the Group may be entitled to royalties and/or milestones on net sales of these products. In many cases, the Group has no influence over the scale up, validation, manufacture, sales and marketing and distribution as well as the income stream that is derived from products. This can lead to unpredictable cessation of part of the Group's royalty streams, for example where a product is discontinued without consultation or prior warning by the third party. Management tries to mitigate the risk of unexpected shortfalls through regular dialogue with third parties and clauses in contracts to ensure timely disclosure.

Risk that external capital requirements under local law cannot be complied with

Certain of the Group's subsidiaries are subject to capital maintenance requirements under local laws. If these requirements were to be breached, and the over-indebtedness is not covered by the value of assets on a going concern or liquidation basis, steps would need to be taken to rectify such overindebtedness. If this was not achieved in a timely manner, insolvency proceedings may have to be initiated. Any long-term delay or failure to launch Flutiform™ could lead to a capital maintenance issue in one or more subsidiaries.

In order to mitigate this risk, management is pro-actively managing the progress of Flutiform™. In addition to this, regular reviews take place of the impairment head room and contingency plans if a recapitalisation would be needed.

Risks arising from current difficult global economic conditions and adequacy of financial resources

The Board has given careful consideration to the potential impact of the economic outlook on its business activities. It recognises that, in times of economic uncertainty, development budgets will be under pressure and sources of funding may be difficult to obtain and this can affect current business and future growth opportunities. The Business Review and Financial Review on pages 14 to 29 set out the steps taken to reduce the Group's cost base to ameliorate this risk.

The Group is exposed to the effects of exchange rate fluctuations and, as set out in the notes to the accounts in Note 28: Financial instruments, the Group aims to maintain natural hedges to ameliorate the effects of these. Actual and potential exposures are regularly reviewed and professional advice is taken in considering hedging strategies. The key focus is to ensure that the Group is not exposed to very significant cash effects from foreign exchange movements. The Group's results and balance sheet carrying values may be materially affected, as they were in 2010, by exchange translation effects.

The Board has reviewed the Group's dependency on key suppliers and customers for existing products and continues to monitor the financial strength and integrity of its business partners. See also the next section on risks arising from the Eurozone crisis.

As regards the financing of the businesses, the Directors have prepared cash flow forecasts for the period to 31 December 2013. The Board regularly monitors its cash forecasts, as well as reviewing, at least annually, the longer term plans and prospects for repaying long-term debt. The Board is working with Jefferies International Limited to seek a solution to rebalance the Group's financing obligations to be in line with forecast cash generation.

Risks arising from the Eurozone crisis and its impact on transactions and funding

The Board has discussed the risks associated with the Eurozone sovereign credit crisis and its potential impact on SkyePharma. These risk exposures could include cash inflows/outflows and balances, exposure of counterparties to exchange rate fluctuations and potentially certain countries leaving the Euro. Analysis has been carried out of the currencies of royalty flows, which banks hold Group funds and the location of SkyePharma counterparties. Although the Group's primary operations are outside the Eurozone - in Switzerland and the UK - some counterparties are in the Eurozone and a significant part of the Group's revenues are derived from sales in the Eurozone or are denominated in Euros. A Eurozone crisis could affect the competitiveness of the Group through the strengthening of the Swiss Franc, and fluctuations in Euro exchange rates could affect the natural currency hedging which the Group deploys. A Eurozone crisis could also impact the Group's ability to refinance due to market uncertainty. The Group has taken action to limit risk by ensuring that funds are kept with highly rated institutions based outside the Eurozone. However it is impossible to predict the precise nature of any crisis and the extent of counter party risk and it is possible that a Eurozone credit crisis could have a significant adverse impact on the Group. The Board continues to regularly monitor these risks.

Other risks

Although the above items represent the principal risks which the Board considers are specific to SkyePharma, many general industry and sector risks and more remote risks could also result in material adverse effects on the business and its future prospects. Some of these risks are mitigated by insurance which the Group maintains in line with normal industry practice. Other risks are managed by regular reviews and reporting, taking appropriate professional advice in a timely manner, careful assessment of potential new developments involving technical and commercial appraisals, and monitoring industry trends.

DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with the FSA's Disclosure and Transparency Rules, the Directors listed on pages 30 and 31 confirm, to the best of their knowledge, that:

1. The financial statements have been prepared in accordance with IFRS as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company and the undertakings included in the consolidation taken as a whole; and

2. The management report, which is incorporated into the Report of the Directors, includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the Group.

RELATED PARTIES

Company

The Company has issued share options to employees of subsidiary undertakings and in accordance with IFRS 2 has made a charge of £0.1 million (2010: £0.1 million).

The Company has charged £1.0 million (2010: £1.6 million) to its subsidiary undertakings and the Company was charged £0.1 million (2010: £0.1 million) by its subsidiary undertakings for corporate services provided.

The Company has intercompany loans and accounts with its subsidiary undertakings, details can be found in Note 19: Shares in and loans to Group undertakings, Note 21: Trade and other receivables and Note 24: Trade and other payables. All current intercompany balances are settled on a monthly basis, therefore no interest is charged.

The Group's key management personnel for disclosure purposes comprises only Executive Directors. Executive Directors' and Non-Executive Directors' remuneration for the year is shown in the audited part of the Remuneration Report.