Annual Report and Accounts

14 April 2010

SkyePharma PLC - Annual Report and Accounts 2009

In accordance with the Listing Rules, copies of the following documents have been submitted to the UK Listing Authority:

·; Annual Report and Accounts 2009

·; Notice of Annual General Meeting

·; Form of Proxy

These documents will shortly be available for inspection at the UK Listing Authority's document viewing facility, which is situated at:

Financial Services Authority

25 The North Colonnade

Canary Wharf

London

E14 5HS

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

The Company further announces that, in accordance with the Financial Services Authority's Disclosure and Transparency Rule ("DTR") 6.1.2, copies of the proposed new Articles of Association, the amended Articles of Association and the amended Memorandum of Association have also been lodged with the UK Listing Authority for publication through the Document Viewing Facility. The principal changes introduced in the new Articles are also set out in the Notice of General Meeting.

The Annual General Meeting will be held at 10.30 a.m. on Wednesday 12 May 2010 at the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB.

The documents have been posted/made available to shareholders and the Annual Report and Accounts 2009 and Notice of Annual General Meeting 2010 are available on the SkyePharma PLC website at www.skyepharma.com.

In accordance with DTR 6.3.5, extracted below from the Annual Report and Accounts 2009 is a management report in full unedited text which contains a responsibility statement, principal risk factors and details of related party transactions. References to page numbers and notes in such extract refer to those in the Annual Report and Accounts 2009. A condensed set of financial statements were appended to SkyePharma PLC's preliminary results announcement issued on 28 March 2010.

Name of contact and telephone number for queries:

John Murphy

Company Secretary

SkyePharma PLC

Tel: 020 7491 1777

UNEDITED EXRACT FROM ANNUAL REPORT AND ACCOUNTS 2009

Directors' Responsibility Statement

In accordance with the FSA's Disclosure and Transparency Rules, the Directors listed on page 25 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 loss of the 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 Company 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.

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 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:

Risks that Flutiform™ will not achieve commercial success

Flutiform™ is a key pipeline development product and the Directors believe that 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 4 to 11. 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. The FDA has been reviewing the safety of LABAs as a class, including when used in conjunction with an inhaled corticosteroid, as would be the case with Flutiform™. The FDA has stated that it might require additional clinical work to address this matter but not whether any such work would have to be carried out prior to or after any approval of Flutiform™ in the United States. If the FDA requires additional clinical work, this could be substantial and, if required prior to approval, could delay approval and/or make the development programme for Flutiform™ in the United States uneconomic. If required following approval, it could have an adverse effect on the value of the opportunity for, and/or make it uneconomic to commercialise, the product in the United States. 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. In order to mitigate these risks, the management of SkyePharma is very much involved on a day-to-day basis in ensuring that the Group is able to provide all necessary support to the development process and that senior management participate fully and pro-actively in regular joint steering committee meetings with its licensees in developing and preparing for the launch of the product.

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 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 certain risks, such as supplier failures, industrial action and regulatory sanctions. 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 its approved status for manufacturing. 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. In addition, components and defects in 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 protect against certain aspects 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 cash balances and 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. Where appropriate, long-term loans have been renegotiated to match the maturity profile of the repayment dates with the expected cash inflows, which depend on the future prospects of the business including the prospects for Flutiform™. The Group could face difficulties in repaying its debt, especially the convertible bonds which, to the extent not converted by that time, can be called for repayment in November 2013 and December 2014. 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. As a result of such reviews, potential actions are identified well ahead of the relevant repayment dates so that debt can be renegotiated or refinanced where necessary.

Risks that competition and technological change will damage prospects for the business

The Group has a number of pipeline developments and 12 approved and marketable 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 revenues. However, 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 and technological change 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 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™ and Sular® 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 be initiated where appropriate.

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 recognizes 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 4 to 19 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 2 9: 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 2009, 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.

As regards the financing of the businesses, the Directors have explained in Note 2: Accounting policies that after making appropriate enquiries, the Directors have reasonable expectations that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

Whilst not a significant uncertainty affecting going concern, management of the Flutiform™ supply chain involves the Group in a number of commitments including the remaining capital expenditure for production tooling obligations to prepare for commercial supply, working capital requirements and certain minimum commitments to suppliers. However, these factors and the timing of approval and launch of Flutiform™ and related net cash inflows are not critical to the Directors' current assessment of going concern.

Other risks

Although the above items represent the principal risks which the Board considers are specific to SkyePharma, many of the general industry and sector 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 mitigated by management vigilance, 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.

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 £0.2 million (2008: £0.4 million).

The Company has charged £1.7 million (2008: £1.8 million) to subsidiary undertakings and the Company was charged Nil (2008: Nil) by subsidiary undertakings for corporate services provided.

The Company has intercompany loans and accounts with its subsidiary undertakings and details can be found in Note 20: Shares in and loans to Group undertakings, Note 22: Trade and other receivables and Note 26: Trade and other payables. For balances designated as short term, interest has been charged on the intercompany loans and accounts of European subsidiaries at 0.5 per cent. above one month LIBOR or 1.0 per cent. above three month LIBOR. From 1 July 2007, most balances were designated as permanent with current balances being settled on a monthly date, so after this date intercompany interest was no longer charged. No interest was charged on intercompany loans and accounts to United States subsidiaries as these are regarded as permanent.

There were no material balances held with associates at the year ended 31 December 2009 or 2008.