Final Results

Preliminary announcement of 2015 annual results

Delivering record revenues and operating profit whilst investing in future drivers

LONDON, UK, 16 March, 2016 - Skyepharma PLC (LSE: SKP), the expert oral and inhalation drug development company, today announces its annual results for the year ended 31 December 2015.

Financial Highlights

· Record revenues of £95.9m (2014: £73.8m), up 30%

‒ First flutiform® sales milestone of €10m (£7.4m) recorded in the year

‒ Revenues excluding milestones up 36% to £88.1m (2014: £64.7m) driven by the growth of flutiform®, EXPAREL®, the GSK Ellipta® products and Solaraze® US

· Record operating profit of £31.5m (2014: £21.6m), up 46%

‒ Pre-exceptional operating profit of £31.5m (2014: £22.7m), up 39%

‒ Pre-exceptional operating profit excluding milestones up 74% to £23.7m (2014: £13.6m)

· Profit after tax £26.3m (2014: £11.7m* loss)

‒ Pre-exceptional profit after tax up 77% to £26.3m (2014: £14.9m*)

· Cash and cash equivalents at 31 December 2015 up £8.7m to £41.1m, with increased royalty receipts and robust performance of the flutiform® supply chain more than covering the £10.5m early repayment of the remaining CRC secured debt. Net cash up 131% to £34.7m (2014: £15.0m)

· Basic earnings per share 25.1 pence (2014: 13.7* pence loss per share)

· Further strengthening of the balance sheet with the remaining expensive secured debt repaid during the year and the signing in April 2015 of a 5-year £25m Revolving Credit Facility to provide flexibility

Operating Highlights

· Products launched in key markets in the last four years represent 76% of total 2015 revenues (2014: 66%) underpinning our growth expectations

· Continued substantial growth of flutiform® driving royalty and product supply revenues

‒ 2015 in-market sales of flutiform® up 100% to €144.4m (2014: €72.2m)

‒ Mundipharma completed recruitment of over 2,600 patients across two trials for COPD and made good progress with the development of the breath-actuated version of flutiform®

· Full year sales by Pacira of EXPAREL® up 27% to U.S.$240m

‒ In December 2015, Pacira announced it had reached an amicable resolution to these matters with the FDA which reaffirmed EXPAREL®'s broad indication and also included approval for the product's use as a post-surgical analgesic in oral surgery and for "TAP" procedures

· Strong growth in royalties from the GSK Ellipta® range of products as sales increased to £350m in 2015 (2014: £84m) with further approvals and launches

· Targeted investment made whilst growing overall profitability has enabled the significant advancement of the future product and technology pipeline:

‒ Further development of SKP-2075 for COPD/smoking asthma, which is expected to commence clinical trials in 2016

‒ Good progress with initial formulation of the novel triple-combination SKP-2076 and signing of a feasibility and option agreement with Mundipharma in December 2015

‒ Continued development of new gastro-retentive oral drug delivery technologies, with further work to optimise Soctec™ and preparation for commencement of a proof-of-concept trial for the hydrophobic raft technology, Oleotec™

‒ Substantive progress with development of a complex oral generic product under a collaboration with Hikma

Post year-end

· In January 2016, the Group entered into agreements with Sanofi and Mundipharma International to transfer the exclusive development, licensing and marketing rights for flutiform® in Mexico, Central and South America to Mundipharma

· On 11 March 2016, an agreement was signed to sell the surplus facility in Muttenz, Switzerland, for CHF 9.8 million (£6.9 million).  As a condition of the sale, the Group has leased a floor in the facility for a period of 9 years, with a right to sub-lease.  As the Group has no intention to use the facility, a provision has been made for the cost of this lease.  After allowing for this provision, the Group will record an exceptional profit on sale of CHF 1.3 million (£0.9 million) in 2016.  Net proceeds will be CHF 6.9 million (£4.8 million) after repayment of the associated mortgage and selling costs amounting to CHF 2.9 million.  

Commenting on the 2015 results, Peter Grant, Chief Executive Officer, said:

"2015 has been a year of further substantial progress both operationally and financially. Our proven expertise in developing innovative inhalation and oral products has given us a track record of growth that reinforces our optimism about the future. In 2015, this was demonstrated in record revenues, up 30% to £95.9 million; in pre-exceptional basic earnings per share, up 43%* to 25.1p; in operating profit, up 46% to £31.5 million; and in cash generation of £19.7 million.

With a healthy balance sheet, the Group is able to make carefully targeted investments to advance our promising pipeline to deliver products aimed at continuing to drive growth well into the next decade and beyond as well as continuing to invest in capacity to meet the increasing demand for flutiform around the world. In SKP-2075 and SKP-2076, we believe we have two product candidates which have the potential to be promising new treatment options in the $29 billion global COPD and asthma markets. We also continue to build on our heritage of innovation in the field of oral delivery by developing new technologies that have the potential to bring real benefits to patients.

With a sustained focus on expertise, innovation and growth, we have entered 2016 with a high degree of confidence in our business." 

* Certain 2014 figures have been restated for changes to deferred tax. Please see Note 9. 

A PDF version of the results' presentation has been published on the Company's website and a webcast of the analysts' results' presentation will be available shortly.

-Ends-

For further information, please contact: 

About Skyepharma

Skyepharma combines proven scientific expertise with validated proprietary drug delivery technologies to develop innovative oral and inhalation pharmaceutical products. The Group is eligible for revenues from 16 approved products in the areas of inhalation, oral, topical and injectable drug delivery as well as generating income from the development of further products and technology licenses. The products developed by the Group are marketed throughout the world by big pharma as well as speciality pharmaceutical companies. For more information, visit www.skyepharma.com 

OPERATING REVIEW

Summary

In 2015, Skyepharma delivered further substantial growth in revenues, profitability and cash generation whilst also significantly broadening its promising development pipeline. Key operational highlights for the year include:

· Robust financial and operating cash performance for the year with operating profit of £31.5 million and a closing cash balance of £41.1 million

· Growing demand for flutiform® with the first full calendar year of sales in all the major European markets leading to recording of the first sales milestone of €10.0 million (£7.4 million) and with both 56 and 120-puff treatment versions of the product in Japan. With higher volumes there was increased gross profit from the supply chain and the previously-announced capital investments to provide a step-up in capacity to meet forecast requirements are on track

· Launches of flutiform® in Malaysia, the Philippines, Kuwait and the UAE, bringing the total number of markets where the product was available at the end of the year to 30. As at 31 December 2015, flutiform® had been approved in a further 8 countries and was under review in another 16

· Continued progress to expand the flutiform® franchise, with the Mundipharma network of independent associated companies ("Mundipharma") making good progress with the development of the breath-actuated version of flutiform®, completing recruitment of clinical trials in Europe and Asia Pacific for COPD and preparing for a clinical trial in China for asthma which is planned to start once approval is obtained from the Chinese Food and Drug Administration ("CFDA")

· Post year-end, Mundipharma took over from the Sanofi Group ("Sanofi") as the Group's exclusive partner for flutiform® in Latin America which will bring Mundipharma's considerable experience with the product elsewhere to this region

· Further growth of EXPAREL® and Pacira Pharmaceuticals, Inc. ("Pacira") announcing a favourable resolution with the FDA reaffirming EXPAREL®'s broad indication and confirming additional approved use

· Substantial growth of GSK's Ellipta® range of inhalation products incorporating Skyepharma technology, with GSK reporting total sales of £349.5 million compared with £83.9 million in 2014, following additional launches in Europe, Japan and the U.S.

· Increased contribution from U.S. sales of Solaraze® and its authorised generic due to manufacturing issues at a competitor

· Significant progress with the development of the self-funded pipeline projects including:

‒ Progress with the development of SKP-2075 for COPD/smoking asthma which is expected to commence clinical trials during 2016. This project has the potential for relatively quick development for Europe and be one of the first treatments for this substantial patient group

‒ Initial development of SKP-2076, the novel triple ICS/LABA/LAMA combination product for asthma incorporating known chemical entities and the signing of an exclusive feasibility and option agreement with Mundipharma

‒ Further work to optimise the new gastro-retentive oral drug delivery system ("GRDDS") Soctec™ and planning underway for its potential scale-up, and also development of a second gastro-retentive technology, Oleotec™, targeting higher payloads due to commence a clinical proof-of-concept study during 2016

‒ Discussions with potential partners to fund further development of SKP-1052, the novel oral product aimed at the reduction of the risk of severe nocturnal hypoglycaemia in insulin-dependent diabetics

· Substantive progress with development of a complex oral generic product under a collaboration with Hikma Pharmaceuticals PLC ("Hikma")

· Early repayment of remaining expensive secured debt and setting up of a 5-year £25 million Revolving Credit Facility ("RCF"), further improving balance sheet flexibility and reducing finance costs

Financial Highlights

The Group achieved revenues of £95.9 million for 2015, up 30 percent from £73.8 million in 2014. The increase over 2014 is due to strong growth in flutiform® royalty and supply revenues, the Group's share of higher net sales of EXPAREL®, royalties from increased sales of the GSK Ellipta® products and higher than expected royalties from Solaraze® in the U.S.

Throughout 2015, the Group earned revenues from 16 approved products which together generated £75.5 million of royalty and product supply revenues (2014: £51.4 million) of which £60.6 million (2014: £36.4 million) related to the nine products which have achieved key market launches in the last four years.

In addition, flutiform® generated milestones of £7.4 million (2014: £4.1 million) and contract development revenue of £3.9 million (2014: £3.5 million).

Revenues from products launched in key markets in the last four years represented 76% of total revenues in 2015 (2014: 66%).

Cost of sales increased to £43.1 million (2014: £32.9 million) reflecting growth in supplies of flutiform® and other products.

Net operating costs excluding exceptional items increased to £21.3 million in 2015 (2014: £18.2 million), primarily due to higher investment in research and development projects (an increase of £2.8 million). Pre-exceptional operating profit was up 39 percent to £31.5 million (2014: £22.7 million). Operating profit for 2014 included an exceptional charge of £1.1m representing the Group's agreed contribution to the costs of Aenova's site restructuring plan in respect of the Lyon Facility.

The profit after tax was £26.3 million (2014: £11.7* million loss). Basic earnings per share were a profit of 25.1 pence (2014: 13.7* pence loss per share). Pre-exceptional basic earnings per share were 25.1 pence (2014: 17.5* pence) whilst pre-exceptional diluted earnings per share were 24.6 pence (2014: 17.1* pence).

Cash flows benefited from a total of £0.1 million of milestone receipts (2014: £9.2 million). Pre-exceptional EBITDA (earnings before interest, tax, depreciation and amortisation) totalled £34.3 million (2014: £26.1 million) and represented 36 percent of revenues (2014: 35 percent).

As at 31 December 2015, the Group's cash was £41.1 million (up £8.7 million since 31 December 2014). Gross debt amounted to £6.4 million and the Group had net cash of £34.7 million (31 December 2014: net cash £15.0 million). Debt was reduced by the early redemption of the remaining U.S. Dollar balance of the CRC Finance facility on 27 February 2015 at a cost of £10.5 million, saving £1.0 million in future finance charges.

Operational Highlights

flutiform®

flutiform®, the fixed-dose combination of fluticasone, an inhaled corticosteroid ("ICS"), and formoterol, a long-acting beta agonist ("LABA") in a pressurised metered dose inhaler, continues to be an important value driver for the Group. As of 15 March 2016, flutiform® has been approved in 38 countries and launched in 31, including recent launches in Portugal, Malaysia, the Philippines, Kuwait and the UAE.

In-market sales1 of flutiform® for the year ended 31 December 2015 totalled €144.4 million (£104.82 million) (2014: €72.2 million (£56.53 million)) up 100 percent. In Q4 2015, total in-market sales of flutiform® were €44.2 million (£31.9 million4), up 26 percent from €35.1 million (£25.2 million5) in Q3 2015.

Mundipharma, the Group's licensee in Europe and most other territories outside Japan and North America, continued to make progress with flutiform®, with strong growth in 2015 and new launches in Malaysia, Philippines, UAE, Kuwait and, post year-end, in Portugal.

Mr Antony Mattessich, Managing Director, Mundipharma International, said:

"Sales of flutiform have continued to grow strongly as the benefits of this unique combination in the treatment of asthma are appreciated in an increasing number of markets around the world. With good progress with the development of the breath-actuated version of flutiform and continuing international clinical trials in COPD, we are demonstrating our sustained commitment to improve outcomes for patients with serious respiratory diseases." 

In Japan, where the 120-puff version was launched on 1 December 2014 following the launch of the 56-puff version in November 2013, in-market sales for the year-ended 31 December 2015 (included in the above total sales) were €43.3 million (£31.5 million2) (2014: €15.2 million (£11.9 million3)) up 185 percent. In Q4 2015, total in-market sales of flutiform® in Japan were €14.8 million (£10.7 million4), up 42 percent from €10.4 million (£7.5 million5) in Q3 2015.

Minoru Hogawa, President & CEO, Kyorin Holdings Inc., commented:

"2015 has seen the first full-year contribution of the 120-puff version of flutiform in the Japanese market. Kyorin believes the patient-friendly and discreet design of the flutiform inhaler, together with the unique combination of fluticasone and formoterol, will continue to drive flutiform's success in the growing market for ICS/ LABA combination products in Japan."

In-market sales trends for flutiform® have been as follows:

Mundipharma is seeking to extend the reach of flutiform® both geographically and through line extensions. As at 31 December 2015, applications for marketing authorisations were under review in 16 countries in the Middle East, Far East and Africa.

In May, Mundipharma completed recruitment of over 1,700 patients for its European clinical study of flutiform® for COPD. This study is a 52-week multi-centre, randomised, double-blind, active-controlled, parallel-group study. In Asia-Pacific, including China, Mundipharma has completed recruitment for a clinical trial of flutiform® for COPD involving more than 900 patients treated over a 26-week period. Preparations are also being made for a clinical trial in China for asthma which will commence once the Chinese Food and Drug Administration ("CFDA") has approved the investigational new drug application. Having met with the UK Medicines and Healthcare Products Regulatory Agency ("MHRA"), Mundipharma plans to resubmit its application for a European paediatric indication of flutiform® for asthma in due course.

Skyepharma has continued to support Mundipharma in its development of a novel breath-actuated version of flutiform®, where the flutiform® pMDI press-and-breathe actuator is replaced by Mundipharma's breath-actuated device. If approved and launched, Skyepharma would be eligible for revenues from royalties, milestones and filled-canister supply for this product on a similar basis to flutiform® pMDI.

In January 2016, the Group entered into agreements with Sanofi and Mundipharma to transfer the exclusive development, licensing and marketing rights for flutiform® for Mexico, Central and South America ("the territory") to Mundipharma. The transfer to Mundipharma follows a review by Sanofi of its strategy in the territory and has been implemented by mutual agreement. It has been effected by way of novation of the original development, licensing and marketing agreement which the Group agreed with Sanofi in 2011. Subject to minor adjustments, the terms of the novated agreement remain the same. Marketing approval for flutiform® was received by Sanofi in Argentina in 2014 and in Colombia in 2015 and these will be transferred to Mundipharma which will prepare further filings in the territory.

Raman Singh, President, Mundipharma Asia-Pacific, Latin America, Middle East and North Africa, said:

"Asthma has a significant impact on people's quality of life by affecting the most essential function: the ability to breathe. We at Mundipharma have been focused on developing new and innovative asthma treatment options, and this expanded partnership will enable us to leverage our growing success with flutiform in the Latin American region. In the many markets where we have launched flutiform, we have found that it offers a valuable treatment option for patients whose asthma symptoms are not adequately controlled and we believe this will also be the case in Mexico, Central and South America."

1 In-market sales are internal calculations using IMS Health data based on sales to pharmacies, excluding certain minor countries not covered by IMS. In-market sales are not the same as sales to wholesalers on which royalties are payable to the Group.

2 Using the average exchange rate for 2015.

3 Using the average exchange rate for 2014.

4 Using the average exchange rate for Q4 2015.

5 Using the average exchange rate for Q3 2015.

EXPAREL®

In February 2016, Pacira Pharmaceuticals, Inc. ("Pacira"), reported 2015 net sales of EXPAREL® (bupivacaine liposome injectable suspension), an injectable product for single-dose administration into the surgical site to produce post-surgical analgesia, of U.S.$239.9 million, an increase of 27 percent compared with U.S.$188.5 million in 2014. The most recent reported sales are as follows:

The Group receives 3 percent of net sales (on a cash received basis) of EXPAREL®, and in addition, Skyepharma is eligible to receive certain sales milestones. Based on the latest net sales forecasts by analysts covering Pacira, the Board continues to expect that the next sales milestone of U.S. $8.0 million (£5.4 million6), which is due when annual net sales (on a cash received basis) reach U.S. $250 million, will be achieved in 2016.

On 15 December 2015, Pacira announced that it had achieved an amicable resolution with the U.S. FDA which had resulted in the rescission of an FDA Warning Letter issued in September 2014 which had affected Pacira's marketing of EXPAREL®. The resolution confirmed that EXPAREL® is, and has been since 2011, broadly indicated for administration into the surgical site to provide post-surgical analgesia. Whilst Pacira had already commenced clinical studies for oral surgery, the FDA resolution also confirmed EXPAREL®'s approval for post-surgical analgesia at the site of oral surgery procedures including tooth extractions and for infiltration into the transversus abdominis plane ("TAP"), sometimes referred to as a TAP block. Pacira is also developing EXPAREL® for nerve block and chronic pain indications.

Pacira's animal health partner, Aratana Therapeutics, Inc., has stated that it anticipates obtaining approval for the use of the product, to be called Nocita®, in surgical procedures in dogs in late 2016.

Pacira may seek potential partners for marketing and/or distribution of EXPAREL® outside the U.S.. Skyepharma is eligible for a U.S. $4 million milestone upon first commercial sale in a major European country.

GSK Ellipta® products 

Certain of Skyepharma's dry-powder formulation technology is used in GSK's once-a-day treatments for asthma and COPD: Relvar®/Breo® Ellipta® (ICS/LABA), Anoro® Ellipta® (LABA/LAMA7) and Incruse® Ellipta® (LAMA). The Group has the potential for royalty income of up to £9.0 million per annum from this licence.

On 30 April 2015, GSK announced that the U.S. FDA had approved Breo® Ellipta® (fluticasone furoate/vilanterol [FF/VI]) for the once-daily treatment of asthma (but not for the relief of acute bronchospasm) in patients aged 18 years and older. Breo® Ellipta® had previously been approved and launched by GSK in the U.S. for COPD. On 3 February 2016, GSK reported total 2015 sales of Relvar®/Breo® Ellipta®, Anoro® Ellipta® and Incruse® Ellipta® of £349.5 million, up from £83.9 million in 2014. The most recent reported sales of these products are as follows:

As of 31 December 2015, Relvar®/Breo® Ellipta® had been approved for marketing in over 75 countries, and launched in over 45 countries, Anoro® Ellipta® had been approved for marketing in 70 countries and had been launched in over 35 countries, and Incruse® Ellipta® had been approved for marketing in over 15 countries.

Research and development

Skyepharma continues to seek to strengthen the product pipeline through a mix of self-funded feasibility and technology development projects through to key inflection points before being out-licensed and further collaborations where partners fund the development on a time and materials basis. Subject to suitable opportunities, the Board has determined a target range for self-funded development expenditure in any one year of 10 to 15 percent of revenues, which the Board believes will enable the Group to develop a valuable future additional revenue-generating portfolio whilst enabling the Group to benefit from growing profitability and cash generation. Currently, self-funded development projects include SKP-2075, SKP-2076, SKP-1052 and work on oral drug delivery technologies, as outlined below: 

SKP-2075 is being developed to provide a new treatment for patients with features of both COPD and smoking asthma, a specific phenotype with a high unmet medical need. The Board believes that SKP-2075 has the potential to be one of the first products developed for this phenotype.

SKP-2075 is part of a novel inhaled therapy platform acquired from Pulmagen in 2014, based on the concept that the use of low-dose inhaled theophylline to increase sensitivity to ICS could have applications in a range of COPD products, including combinations which include an ICS, especially for patients whose condition is inadequately controlled by available therapies. The approach may also have potential for certain patients with bronchial asthma.

SKP-2075 is being developed as a single-capsule dry-powder inhaler, comprising fluticasone propionate and a low-dose of theophylline. Good progress has been made in formulating the product and with pre-clinical work. Clinical plans comprise a phase I tolerability and safety study followed by commencement of a phase II dose-ranging, efficacy and safety clinical trial with over 500 patients. This clinical programme will commence in 2016 and is expected to be concluded by the end of 2017. It is being designed to produce statistically significant results with a view to partnering SKP-2075 for further development and commercialisation and is designed to provide the opportunity to a partner for a relatively quick development path for Europe. As at 31 December 2015, the remaining cost of the planned work was estimated to be £14.0 million. This is subject to fluctuations in exchange rates and changes in project requirements.

SKP-2076 is a triple ICS/LABA/LAMA combination product in a metered-dose inhaler incorporating known chemical entities. Good progress has been made with the initial formulation for SKP-2076, which is expected to move into GMP pilot scale manufacturing in 2016. In light of the positive experience with flutiform®, the Board believes that SKP-2076 could add significant value to the Group's respiratory franchise. In December, the Group announced that it had entered into a feasibility and option agreement with Mundipharma Laboratories GmbH (part of Mundipharma), which is expected to lead to Mundipharma being the global development and commercialisation partner for SKP-2076. A non-refundable option fee of several hundred thousand Euros was received in early 2016 following signing.

Under the agreement, Skyepharma is responsible for certain feasibility work which is planned to be completed in Q2 2016. Mundipharma has the option, exercisable until shortly after completion of the feasibility work, to complete the development of, and commercialise, SKP-2076 under exclusive global development and licence agreements which the parties have agreed to use good faith and reasonable efforts to negotiate based on heads of terms already established. Skyepharma would provide chemistry, manufacturing and control ("CMC") services to Mundipharma to support this development, which would be funded by Mundipharma.

SKP-1052 is a concept developed in-house which uses the Group's proprietary Geoclock™ chronotechnology to reduce the risk of severe nocturnal hypoglycaemia in insulin-treated patients with type 1 and 2 diabetes mellitus. There is currently no recognised medication to reduce the risk of this side-effect of insulin treatment. Following the generation of supportive data in a proof-of-concept study, the Group has received encouraging advice from the FDA on the development plan and regulatory pathway in the U.S. and research undertaken for the Group indicates a potential opportunity to treat over 1.2 million adult patients in the U.S. with peak sales potential in that market of U.S. $300 million to U.S. $500 million per annum.

The Board's preferred strategy is to partner this project for further development, either with a speciality pharmaceutical company with existing capabilities or in a special purpose company set up to recruit appropriate expertise in treating complications of diabetes. The Group continues to explore the potential for either option and, in the meantime, has continued with preparation for scale-up and the manufacture of clinical trial supplies and the planning of the next clinical trial.

Oral drug delivery technologies - work is continuing on a number of internally-developed concepts for novel oral drug delivery platform technologies. These include Soctec™, a novel, proprietary gastro-retentive drug delivery platform technology comprising a buoyant self-orienting capsule, for which a notice of allowance for a patent application has been issued in the U.S.. It is targeted at gastro-retention and aims to retain the drug delivery dosage form in the upper gastro-intestinal ("GI") tract for as long as possible with the active ingredient being released for delivery for local action or absorption in the stomach or the upper GI tract. After an encouraging proof-of-concept study, progress is being made with further development to optimise the Soctec™ technology and plan for potential scale-up. This technology is being marketed to potential partners.

A hydrophobic raft technology, Oleotec™, is also under development for gastro-retention, aimed at higher payload requirements, and for which a clinical proof-of-concept trial is planned for 2016.

Collaborative development work

Hikma and Skyepharma have established a collaboration to develop complex oral generic products and a first development project is already underway. Skyepharma is having clinical trial supplies manufactured in its Lyon facility in H1, 2016.

Activity continued during the year on development projects largely funded by partners, including the development for Mundipharma of the breath-actuated version of flutiform® described above. During 2015, work on the development of new inhaled therapies for COPD and severe asthma for RespiVert Ltd ("RespiVert"), a subsidiary of Janssen Biotech, Inc., was phased out, as expected, as the projects completed their feasibility stages.

Manufacturing and Supply

flutiform® supply chain

Under the agreements with Mundipharma and Kyorin, the Group is responsible for arranging the manufacture and supply of flutiform®, and has contracted with Sanofi to manufacture and assemble the product at its factory in Holmes Chapel, UK. The Group has entered into agreements with a number of suppliers in order to obtain materials required and have them supplied to Sanofi to manufacture flutiform®. For Latin America, transitional arrangements are in place allowing the continued supply of flutiform® by Sanofi until direct supply arrangements are put in place between Skyepharma and Mundipharma.

The Group has committed to substantial capital expenditure to scale-up flutiform® production capacity. At 31 December 2015, cumulative capital expenditure was £21.8 million, of which £4.9 million was incurred in 2015 (2014: £2.5 million) with £3.6 million cash outflow (2014: £2.0 million cash outflow). In addition, the Group incurred £1.7 million of product maintenance costs in the year (2014: £2.8 million), which are included as part of cost of sales. The Group will continue to invest in:

· working capital to support growth in supply volumes of flutiform®. The impact of moving to more normal supplier payment terms in 2016 is expected to increase working capital by approximately £4.0 million;

· expenditure to maintain product supply (included in cost of sales) forecast to be approximately £1.0 million to £3.0 million per annum for 2016 and 2017; and

· capital expenditure to increase production capacity to meet anticipated growth in demand.

In view of recent increases in medium-term demand forecasts from customers, as announced in March 2015, capital investment to increase capacity was accelerated in comparison with previous plans. Total capital expenditure on flutiform® supply is anticipated to be approximately £5.0 million to £7.0 million for 2016.

Lyon Facility

In 2011, Aenova leased the Group's manufacturing business and premises in Lyon (together "the Facility") and is currently paying a rental of €2.0 million (£1.5 million2) per annum until the lease arrangements expire on 30 June 2016. Aenova continues to manage and be responsible for the operational and financial performance of the Facility on a day-to-day basis. A site restructuring plan to which the Group contributed was announced in 2014 and implementation was completed during 2015 with savings being shared between the Group and Aenova. The Group is reviewing options to add additional work into the Facility ahead of the manufacturing business reverting to Skyepharma when the lease terminates and is planning some capital investments with a view to further improvements in operating efficiency and capabilities.

The Facility currently manufactures seven Skyepharma products. Five of these use the Geomatrix™ family of technologies: Diclofenac-ratiopharm®-uno, Coruno®, ZYFLO CR®, Madopar DR® and lower-dose formulations of Sular®. LODOTRA®/RAYOS® uses the Group's Geoclock™ chronotechnology and the other oral product, Triglide®, uses some of the Group's solubilisation technology. The Facility has current good manufacturing practice ("cGMP") status, with approvals, amongst others, from the European Medicines Agency, U.S. FDA, ANVISA (Brazil) and KFDA (South Korea). In June 2015, a routine FDA inspection of the Facility was successfully concluded without any Form 483 notices (observations requiring corrective actions) being issued.

Other approved products

Solaraze® - combined U.S. sales of Solaraze® and its authorised generic in 2015 as reported by the Group's U.S. license partner Fougera Pharmaceuticals Inc., (part of Sandoz), were significantly ahead of expectations due to manufacturing issues at a competitor. Combined net sales of Solaraze® in the U.S. in 2015 were U.S. $37.1 million (£24.2 million), up 28.4 percent compared with 2014. Net invoiced sales in 2015 by Almirall, the Group's partner in Europe and certain other territories, increased by 6.0 percent to €41.5 million (£30.1 million2).

Requip® Once-a-day - net sales of Requip® in 2015 as reported by GSK totalled £93.0 million, a decrease of 14.7 percent from 2014 (£109.0 million). This includes sales of other formulations of Requip® on which the Group does not receive royalties. Of the total sales, £29.0 million were generated in Europe, a decrease of 25.6 percent, and £64.0 million arose in the rest of the world, a decrease of 9.1 percent.

Xatral® OD (Uroxatral® in the U.S.) - net sales of Xatral® OD and Uroxatral in 2015, were €79.5 million (£57.7 million2), compared with €80.7 million (£65.1 million) in 2014. In the U.S., net sales of Uroxatral® for 2015 were €5.0 million (£3.63 million). In 2014, sales were €8.0 million (£6.4 million).

Paxil CR™ - in 2015, net sales outside the U.S. were £60.4 million, compared with £64.8 million in 2014.

LODOTRA® (RAYOS® in the U.S.) - Horizon reported combined net sales of LODOTRA® and RAYOS® of U.S. $45.2 million (£29.68 million) in 2015 compared with net sales of U.S. $25.5 million (£15.5 million) a year earlier. Horizon recognises a significant portion of LODOTRA® and RAYOS® sales at the time of delivery to its distribution partner, Mundipharma, and those deliveries are not linear or related to end-market sales in terms of timing and, therefore, can fluctuate year-on-year. The figures reported by Horizon are not the same as the net sales used in the calculation of the royalties paid to the Group.

On 15 July 2013, the Group and Horizon received a Paragraph IV Patent Certification from Watson Laboratories, Inc. - Florida ("WLF"), advising that WLF had filed an Abbreviated New Drug Application ("ANDA") with the FDA for a generic version of RAYOS®, containing up to 5 mg of prednisone. The related case was dismissed in the U.S. court in December 2015.

Triglide® - all marketing and other rights to Triglide® in the U.S. were transferred from Shionogi & Co., Ltd to Casper Pharma LLC (an affiliate of Citron Pharma LLC) during 2015. A consent fee was received by the Group for the transfer.

Madopar DR® (under the local brand name Prolopa DR®) was launched in Brazil by Roche in August 2015 for the treatment of Parkinson's disease.

Our Strategy

Skyepharma's strategy is to meet the needs of patients through the application of its scientific know-how and innovative inhalation and oral drug delivery technologies. The Group aims to grow revenues from its extensive portfolio of approved products and ensure the success of its pipeline of product candidates. The Board is looking to leverage its growing underlying profitability by measured investment in developing new products and technologies through a mix of self-funded development projects, collaborations with partners and carefully targeted in-licensing transactions and acquisitions. In inhalation, these could be aimed at the global market for the treatment of asthma and/or COPD which is currently worth U.S. $29 billion9 per annum.

Typically, self-funded inhalation projects such as SKP-2075 would cost £10 million to £20 million over several years with the aim of making the product suitable for out-licensing. Such developments are likely to be novel products from early-formulation through to Phase II proof-of-concept. The Group's preferred strategy is for early involvement of the eventual license partner, to mitigate risk of any investment through to proof-of-concept.

Self-funded oral development projects are mainly focused on developing novel oral drug delivery technologies, such as Soctec™ and Oleotec™, to proof-of-concept with a view to out-licensing the technologies for use in partner-funded developments. Such oral developments would typically cost £1 million to £2 million over several years and additional amounts to develop manufacturing processes to commercial scale. The Group may also consider developing oral products to value-inflection points, especially to exemplify new technologies, at a cost of approximately £3 million to £5 million over several years. Such projects typically involve early partnering before proof-of-concept to bring in relevant therapy and late-stage development expertise even if much of the development cost to that stage is funded by Skyepharma. Oral products represent nearly half by value10 of all prescriptions.

The Board's strategy is to create a development pipeline with a balance of self- and partner-funded work where the average annual net R&D investment could be up to 10 to 15 percent of sales.

Whilst there is significant growth potential from the extensive portfolio of approved products, Skyepharma also aims to strengthen its product pipeline through carefully targeted acquisitions. Ideally, these would typically be near-term earnings accretive, though smaller acquisitions will also be considered where they strengthen the Group's pipeline, technology or capabilities and provide a good fit with the existing business, whilst also maintaining research and development expenditure within the overall target of10 to 15 percent of sales.

2016 Objectives

The key objectives for 2016 are to:

· Grow overall revenue from approved products and pipeline product candidates;

· Continue to grow operating profit and generate cash from operations;

· Progress and commence the development of additional products and technologies, including seeking new opportunities;

· Complete current expansion of flutiform® manufacturing capacity and further increase capacity and reduce risks; and

· Progress the development of new oral drug delivery technology platforms and seek development and out-licensing opportunities.

Outlook

With established momentum of the new products launched in key markets in the last four years, the Board expects further strong growth in revenues in 2016 compared with 2015. The key drivers of this include:

· Higher flutiform® royalties and product supply revenues due to increased customer demand supported by additional capacity scheduled to become available during the year

· Increased revenues from the Group's 3 percent share of net sales of EXPAREL® (on a cash received basis), which analysts who follow Pacira forecast will continue to grow to a level which would trigger the next sales milestone of U.S. $8.0 million (£5.4 million6) which is due when annual net sales (on a cash received basis) reach U.S. $250 million

· Further anticipated growth in royalties from higher sales of the GSK Ellipta® products incorporating the Group's technology

· The Group will only receive a half year of rental income (€1.0 million, or £0.76 million) in respect of the Lyon Facility as the leasing arrangements terminate on 30 June 2016

The Board is confident that the Group has good prospects for revenue growth from the portfolio of 16 approved products already being marketed and is looking forward to adding further growth potential from Skyepharma's proven inhalation and oral drug development capabilities.

15 March 2016

6 Using exchange rate at 31 December 2015.

7 LAMA = long acting antimuscarinic agent.

8 Using the average exchange rate for 2015.

9 Company analysis based on: i) Chronic obstructive pulmonary disease. Forecast. Datamonitor, DMKC0047510, Publication Date: 03/10/2014; ii) Asthma. Forecast, DMKC0146533, Publication Date: 12/11/2015; and iii) Extrapolation of main market sales to global sales numbers with a factor of 25 percent.

10 Company analysis based on Benchmarking the Pharmaceutical Market by Drug Delivery to 2014: R&D / Drug Delivery, Datamonitor, DMKC0062616, Publication Date 18/05/12.

FINANCIAL REVIEW

The results for the year ended 31 December 2015 reflect strong growth in revenues, primarily from flutiform® royalties and product supply, share of net sales of EXPAREL® and royalties from the GSK Ellipta® products and Solaraze® in the U.S.. Earnings also benefited from further expansion of the flutiform® supply chain margin and lower financing charges following debt repayments, which more than offset planned increases in net R&D investment and a higher tax charge with increased profitability.

Revenues

Revenues for the year ended 31 December 2015 were £95.9 million (2014: £73.8 million) comprising signing and milestone receipts, contract research and development, royalties, product supply, share of sales of EXPAREL® and rental income from the Lyon Facility. The 30 percent increase from 2014 is due to strong growth in flutiform® royalty and supply revenues, the Group's share of higher net sales of EXPAREL®, royalties from increased sales of the GSK Ellipta® products and higher than expected royalties from Solaraze® in the U.S.. Underlying recurring revenue excluding milestones was £88.1 million, 36 percent higher than 2014.

Revenue recognised from signing and milestone payments was £7.8 million in 2015, which was down from the £9.1 million reported for 2014. The first flutiform® sales milestone of €10.0 million (£7.4 million) was recorded in 2015 through the release of deferred income and no cash was received as it was used to satisfy a large part of the balance of Mundipharma's right to recover up to €25.0 million (£17.6 million) of previous development costs, as previously disclosed. The prior year included the first sales-related milestone of U.S.$8.0 million (£4.7 million) in respect of EXPAREL®, a €2.0 million (£1.7 million) milestone in respect of the launch of flutiform® in Spain and a €3.0 million (£2.5 million) milestone following the launch of flutiform® in France.

Contract research and development revenue decreased by 23 percent to £6.4 million in 2015 (2014: £8.3 million) reflecting an expected reduction in work for RespiVert, though this was partly offset by an increase from the work for Mundipharma on the breath-actuated version of flutiform®.

Royalty income was £22.5 million in 2015, £5.3 million higher than in 2014, representing an increase at constant exchange rates of 32 percent. Royalties from flutiform® benefited from a first full year of sales in Japan of the 120-puff version of the product following the December 2014 launch. There was also strong in-market sales growth across the other countries, boosted by the launch in Spain in December 2014. The Mundipharma royalty rate was slightly lower in 2015, at around a mid-single digit percentage due to the effect of a cap in total royalty and product supply revenues in the agreements with Mundipharma. This has, however, been more than offset by an increased margin on product supply. Royalty receipts were higher from the Ellipta® range of products for which GSK have reported growing sales, and also from Solaraze® in the U.S. which benefited from manufacturing issues at a competitor.

Product supply revenue totalled £53.0 million in 2015 (2014: £34.2 million), representing an increase of 71 percent at constant exchange rates, with substantial growth in sales of flutiform® in its first full year of supply to all the major European markets and Japan in both 56-puff and 120-puff versions.

Other revenue of £6.2 million in 2015 (2014: £5.0 million) comprises the Group's 3 percent share of Pacira's cash receipts from net sales of EXPAREL® in the U.S. and rental income from the Lyon Facility. Growth of other revenue over the prior year is due to the share of increased net sales of EXPAREL®.

Cost of sales

Cost of sales increased to £43.1 million (2014: £32.9 million) due to increased supplies of flutiform® and other products. Gross margin from flutiform® product supply was 24 percent (2014: 10 percent), benefiting from improved mix, a value-related price break with Sanofi and lower depreciation following a review of asset lives, partly offset by the effect of the weaker Euro against the Pounds Sterling reporting currency. Notwithstanding higher orders for flutiform®, initiatives to improve working capital management including faster manufacturing cycle time, year-end inventories decreased to £9.3 million (2014: £10.4 million). During 2015 the flutiform® supply chain recorded a gross profit of £11.5 million (2014: £3.0 million).

Research and development

Gross investment in research and development in 2015 increased to £14.9 million from £12.1 million in 2014 with lower contract development revenues of £6.4 million compared with £8.3 million in 2014. As a result, net investment in research and development (expenses, net of contract development revenues) was £8.5 million (9 percent of revenues for the year), up from £3.8 million in 2014. This is due to the planned increase in self-funded projects.

Finance costs

Interest costs totalled £1.3 million (2014: £7.0 million) and consisted of £0.7 million (2014: £2.8 million) in respect of the CRC Finance facility (including a make-whole charge of £0.4 million on early repayment), £0.3 million costs in respect of establishing the RCF and facility fees (2014: £0.1 million), £0.3 million (2014: £0.4 million) on other bank borrowings and £nil (2014: £3.7 million) in respect of the Bonds which were repaid in 2014.

Foreign exchange

Foreign exchange recognised in other comprehensive income in 2015 was £nil with net losses from translation of foreign subsidiaries into the Group's presentational currency offset by gains on permanent funding provided to overseas subsidiaries (2014: £0.5 million net loss).

Operating profit and profit before tax

Pre-exceptional operating profit in 2015 was £31.5 million (2014: £22.7 million). An exceptional operating cost of £1.1 million was recognised in 2014 in relation to the restructuring of the Lyon Facility.

Profit before tax for 2015 was £30.5 million (2014: £9.9 million loss). In addition to the exceptional operating cost in respect of the Lyon Facility, the prior year loss included exceptional financing costs of £25.5 million related to the 2024 Bond Repayment and Capital Raise.

There were no exceptional items in 2015.

Taxation

Total income tax expense in the year was £4.2 million (2014: £1.8* million). This comprised a current income tax charge of £4.1 million (2014: £0.6 million) and a deferred tax charge of £0.1 million (2014: £1.2* million) resulting in an effective taxation rate for the Group of 13.8 percent (2014: 10.8* percent before exceptional items).

The increase in current income tax reflects higher pre-tax profits including the €10 million (£7.4 million) flutiform® sales milestone and the release of remaining Swiss foreign exchange reserves into the local Swiss GAAP income statement and utilising final expiring tax losses that were previously available to offset trading profits. The deferred tax charge for 2015 was due to the utilisation of overseas. tax losses and deferred tax movements explained in Note 12.

Following the expiry of the remaining relevant Swiss tax losses (that were available to offset taxable profits) from 1 January 2016 onwards, the rate of tax on Swiss profits is expected to be a low teens percentage depending on the mix of revenue streams. Income in the U.S. (principally in relation to EXPAREL®) was largely offset by tax losses and intercompany interest in 2015 and is expected to be taxed at a circa 30 percent effective rate in 2016 rising to circa 35 percent effective rate through 2017 as the interest deduction reduces. These rates are subject to any changes in tax legislation in the relevant jurisdictions.

Net result

Profit for 2015 after exceptional items and taxation was £26.3 million (2014: £11.7* million loss).

Earnings per share

For 2015, basic earnings per share were 25.1 pence per share and diluted earnings per share were 24.6 pence per share (2014: 13.7* pence loss per share for basic and diluted earnings per share).

For the year ended 31 December 2015, the difference between the basic and diluted earnings per share is due to the dilutive impact of the employee share awards on an IAS 33: Earnings Per Share basis as at 31 December 2015.

For the year ended 31 December 2014 there were no differences between the basic and diluted loss per share amounts, since the result was a loss and all additional shares would have been anti-dilutive.

As at 31 December 2015 there were 104,812,259 Ordinary Shares in issue (31 December 2014: 104,812,259).

In addition, as at 31 December 2015 there were the following potential obligations to issue Ordinary Shares:

The Directors believe that the options in respect of the deferred consideration relating to the acquisition of Krypton in 1996 are unlikely to be exercised. This is because the exercise price is very substantially above the prevailing market price of shares in Skyepharma PLC and the exercise price increases by 10 percent per annum.

There are currently 2,940,822 nil cost option share awards that have been granted as share awards under the 2012 Long-Term Incentive Plan. The dilutive impact of potential employee share awards is calculated, in accordance with IAS 33: Earnings Per Share, as the number of ordinary shares that would theoretically vest if all performance periods ended on 31 December 2015. On that basis 2,174,562 shares would potentially vest and this would cause a dilution to basic earnings per share of 0.5 pence per share.

Cash position and liquidity

As at 31 December 2015 the Group had cash and cash equivalents of £41.1 million (31 December 2014: £32.4 million). During 2015, the Group generated a cash inflow from operations of £25.7 million compared with an inflow of £30.2 million in 2014. Prior year cash inflow from operations included £9.2 million of milestone receipts (2015: £0.1 million).

In 2015, the Group's total cash outflow in respect of capital expenditure was £4.5 million (2014: £2.9 million) mainly comprising the ongoing investment in the step-up of flutiform® manufacturing capacity announced in March 2015, support for R&D activities and IT improvement projects.

In 2015, the Group met scheduled financing commitments comprising £1.0 million of interest paid (2014: £3.2 million) primarily relating to the CRC Finance facility and the property mortgages. During the year, the Group also redeemed, and terminated early, the remaining CRC Finance facility and the secured amortising Swiss bank loan at a total cost of £11.3 million including an early settlement amount of £0.4 million, saving £1.0 million in future finance costs.

At 31 December 2015, the Group had liquidity of £66.1 million (31 December 2014: £32.4 million) consisting of cash of £41.1 million and undrawn committed facilities of £25.0 million.

Net cash

The Group's total net cash, measured in accordance with IFRS, comprises:

Non-current borrowings amounted to £4.8 million at 31 December 2015 (2014: £11.8 million), consisting of a property mortgage secured on the land and buildings of Skyepharma AG.

Balance sheet

At 31 December 2015, the consolidated statement of financial position shows total shareholders' equity of £49.9 million (2014: £26.3* million).

Deferred income

Part of an initial upfront milestone of €15.0 million (£10.1 million at the time) and additional funding by Mundipharma in respect of the development of a high strength version of flutiform® has been recorded in deferred income in the Group's balance sheet and is being recognised in the Group's income statement as the recoverable costs are recovered by Mundipharma through reduction of royalties and sales-related milestones. As at 31 December 2015, the balance of deferred income amounted to £0.9 million (2014: £9.9 million).

Non-current assets marketed for sale

One of the sites in Switzerland has been marketed for sale since January 2011. As at 31 December 2015, the net book value of the site was £4.1 million and was recorded in the Group's balance sheet under assets held for sale. On 11 March 2016, an agreement was signed to sell the site for CHF 9.8 million (£6.9 million), resulting in a profit-on-sale of CHF 1.3 million (£0.9 million11). Further detail is provided in Note 15: Post balance sheet events. In accordance with IFRS 5: Assets Held for Sale, no depreciation or impairment has been recorded during the year on this site.

Commitments

The Group's contractual minimum commitments to its manufacturing partner for flutiform®  expired at the end of 2015.

Going concern

At the time of approving the financial statements the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Annual Report 2015.

Foreign exchange risks

The Group is subject to exposure on the translation of the net assets of foreign currency subsidiaries into its reporting currency. The Group's primary balance sheet translation exposures are to the Swiss Franc, Euro and U.S. Dollar. The Group aims to minimise balance sheet translation exposures, where it is practical to do so, by funding subsidiaries with long-term loans whereby the exchange differences are taken to reserves.

The Group faces currency exposures arising from the translation of profits earned in foreign currency. These exposures are not hedged.

Exposures also arise from foreign currency denominated trading transactions undertaken by subsidiaries. The Group's policy is to manage this exposure through natural hedges in the form of offsetting inflows and outflows in the same foreign currency and maintaining borrowings and cash balances in the currency of forecast cash inflows and outflows. Where it has not been possible to use natural hedges, currency options and forward currency contracts may be used. No options or forward contracts have been entered into in 2015 and 2014.

Exchange translation gains and losses relating to funding (cash and debt) are included in foreign exchange gain or loss on net debt, other realised exchange gains and losses and exchange translation gains and losses are included within the revenue or expense line to which they most closely relate. Where subsidiaries are funded centrally, this is achieved by the use of long-term intercompany loans. Where settlement of such intra-group loans is neither planned nor likely to occur in the foreseeable future, they are treated as part of the net investment and exchange differences are taken to reserves.

Forward-looking statements

The foregoing disclosures contain certain forward-looking statements. Although the Board believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will materialise. Because the expectations are subject to risks and uncertainties, actual results may vary significantly from those expressed or implied by the forward-looking statements based upon a number of factors. Such forward-looking statements include the statements under "Outlook", prospects and the continued commercial success of flutiform® and other existing revenue-generating products, the development of new products, risks related to obtaining and/or maintaining regulatory approval for existing, new or expanded indications of existing and new products, risks related to the Group's ability or that of its sub-contractors and partners to manufacture products on a large scale or at all, risks related to the Group's and its marketing partners' ability to market products on a large scale to maintain or expand market share in the face of changes in customer requirements, competition and regulatory and technological change, risks related to the ownership and use of intellectual property, risks related to the Group's ability to manage growth, and the risk of costs associated with the termination of the lease of the Lyon Facility in June 2016. Skyepharma undertakes no obligation to revise or update any forward-looking statement to reflect events or circumstances after the date of this Annual Report.

11 Using exchange rate as at 11 March 2016.

Consolidated Income Statement

For the year ended 31 December 2015

The 2014 comparative has been restated to recognise a net 2014 charge of £0.3 million, comprising a £1.2 million charge to the income statement and a £0.9 million credit within the Consolidated Statement of Comprehensive Income, in respect of additional deferred tax assets and liabilities as explained in Note 9.

All results are attributable to the owners of the parent company. The notes to the preliminary announcement form an integral part of these financial statements. All results are derived from continuing operations.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2015

The 2014 comparative has been restated to recognise a net 2014 charge of £0.3 million, comprising a £1.2 million charge to the income statement and a £0.9 million credit within the Consolidated Statement of Comprehensive Income, in respect of additional deferred tax assets and liabilities as explained in Note 9.

All results are attributable to the owners of the parent company. The notes to the preliminary announcement form an integral part of these financial statements.

Consolidated Balance Sheet

As at 31 December 2015

The 2014 comparative has been restated to recognise a net closing liability of £3.6 million in respect of additional deferred tax assets and liabilities as explained in Note 9. This includes £2.7 million arising upon long-term funding where the Group controls the reversal of the temporary difference.

The notes to the preliminary announcement form an integral part of these financial statements. Subsequent to the balance sheet date, all assets held for sale were sold in March 2016 (see Note 15).

Company Balance Sheet

As at 31 December 2015

The notes to the preliminary announcement form an integral part of these financial statements.

Approved by the Board of Directors on 15 March 2016 and signed on its behalf by:

Peter Grant and Andrew Derodra

Consolidated Statement of Changes in Equity

For year ended 31 December 2015

The 2014 comparative has been restated to recognise additional deferred tax balances. Refer to Note 9: Deferred taxation.

A separate share-based payment reserve has been presented ahead of the 2012 Employee Long-Term Incentive Plan vesting in March 2016. Other transfers are explained in Note 13: Reserves.

The notes to the preliminary announcement form an integral part of these financial statements.

For year ended 31 December 2014

The 2014 comparative has been restated to recognise additional deferred tax assets and liabilities as explained in Note 9.

The notes to the preliminary announcement form an integral part of these financial statements.

Company Statement of Changes in Equity

For the year ended 31 December 2015

The balance of the merger reserve presented in other reserves has been transferred to the retained loss reserve as a separate reserve is no longer required under the Companies Act (see Note 13: Reserves).

For the year ended 31 December 2014

The notes to the preliminary announcement form an integral part of these financial statements.

Consolidated Cash Flow Statement

For the year ended 31 December 2015

The notes to the preliminary announcement form an integral part of these financial statements.

Notes to the Consolidated Cash Flow Statement

(a) Cash generated by operations

The 2014 comparative has been restated to recognise a net 2014 charge of £0.3 million, comprising a £1.2 million charge to the income statement and a £0.9 million credit within the Consolidated Statement of Comprehensive Income, in respect of additional deferred tax assets and liabilities as explained in Note 9.

Company Cash Flow Statement

For the year ended 31 December 2015

(a) Cash used in operations

1 Accounting policies

Basis of preparation

The preliminary announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") as they apply to the financial statements of the Group for the year ended 31 December 2015 and applied in accordance with the Companies Act 2006.

The financial information within this preliminary announcement does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 for the years 31 December 2014 and 31 December 2015. The financial information for the years ended 31 December 2014 and 31 December 2015 has been extracted from the Group's audited consolidated accounts for the year ended 31 December 2015. The auditors' opinion on those accounts was unmodified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The audited accounts for the year ended 31 December 2014 have been delivered to the Registrar of Companies.

The accounts have been prepared under the historic cost convention. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. All values are rounded to the nearest £0.1 million.

The consolidated financial statements provide comparative information in respect of the previous period. In addition, the Group presents an additional balance sheet at the beginning of the earliest period presented when there is a retrospective restatement of items in financial statements. An additional balance sheet as at 1 January 2014 is presented in these consolidated financial statements due to the restatement of the prior period. Refer Note 9.

Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. 

2 Segmental reporting

For management purposes, the Group is treated as one reportable operating segment - being the development and supply of pharmaceutical products.

Revenue from external customers

As required by IFRS 8 Segmental reporting, the geographical split of revenue is based on the location of the customer which is invoiced for sales and does not reflect the country in which related products are sold.

Information about major customers

Revenue earned from the Group's largest customers and licensees is as follows: Customer 1 - £43.2 million (2014: £30.4 million), Customer 2 - £20.4 million (2014: £10.0 million) and Customer 3 - £6.6 million (2014: £4.1 million).

Non-current assets by location

Non-current assets consist of intangible assets, property, plant and equipment and other financial assets.

3 Revenue by income stream

During the year ended 31 December 2015, flutiform® generated £7.4 million in milestone payments (2014: £4.1 million), £3.9 million of contract development revenue (2014: £3.5 million), £5.8 million of royalties (2014: £3.9 million) and £47.2 million in product supply revenues (2014: £29.0 million). Other revenue includes £4.7 million (2014: £3.3 million) from the Group's share of net sales of EXPAREL® in the United States and £1.5 million (2014: £1.6 million) in rental income in respect of the lease to the Aenova Group of the Group's manufacturing facility in Lyon, France.

4 Cost of sales

During the year ended 31 December 2015, cost of sales related to the supply of flutiform® totalled £35.7 million (2014: £26.0 million).

5 Research and development expenses

6 Exceptional costs

There were no exceptional items during the year (2014: £26.6m). During 2014, the Capital Raise and Bond repayment on 30 April 2014 resulted in a £25.5 million exceptional finance cost.

Also in 2014, the Aenova Group finalised a restructuring plan for the Facility in Lyon. Under these arrangements some restructuring costs were agreed to be reimbursed by Skyepharma and accordingly a £1.1 million exceptional operating cost was recognised. The outstanding amount as at 31 December 2015 of £0.4m is presented within current provisions as this liability is expected to be settled in 2016.

7 Finance costs and income

Finance costs include a gain on revaluation of liabilities due to Paul Capital and CRC of £0.2m (2014: £0.4m). Foreign exchange gains on net debt were £0.1m (2014: £0.5m).

8 Taxation

The tax on the Group's profit (2014: loss) before tax differs from the amounts that would arise using the standard rate of corporation tax in the UK. The differences are explained below:

8 Taxation continued

Total income tax expense in the year was £4.2 million (2014: £1.8 million). This comprised a current income tax charge of £4.1 million (2014: £0.6 million) and a deferred tax charge of £0.1 million (2014: £1.2 million) resulting in an effective taxation rate for the Group of 13.8 percent (2014: 10.8 percent before exceptional items).

The increase in current income tax reflects higher pre-tax profits including the €10 million (£7.4 million) flutiform® sales milestone and the release of remaining Swiss foreign exchange reserves into the local Swiss GAAP income statement and utilising final expiring tax losses that were previously available to offset trading profits. The deferred tax charge for 2015 was due to the utilisation of overseas. tax losses and deferred tax movements explained in Note 12.

Following the expiry of the remaining relevant Swiss tax losses (that were available to offset taxable profits) from 1 January 2016 onwards, the rate of tax on Swiss profits is expected to be a low teens percentage depending on the mix of revenue streams. Income in the U.S. (principally in relation to EXPAREL®) was largely offset by tax losses and intercompany interest in 2015 and is expected to be taxed at a circa 30 percent effective rate in 2016 rising to circa 35 percent effective rate through 2017 as the interest deduction reduces. These rates are subject to any changes in tax legislation in the relevant jurisdictions.

The main UK corporation tax rate reduced from 21 percent to 20 percent effective from 1 April 2015. The Finance (No. 2) Act 2015, which provides for a reduction in the main rate of corporation tax from 20 percent to 19 percent effective from 1 April 2017 and a further reduction to 18 percent effective from 1 April 2020, was enacted on 18 November 2015.

9 Deferred taxation

Restatement of 2014 comparative deferred taxation

The effects of the comparative restatement to deferred taxation as per Note 2.6 accounting policies are set out below:

The impact to opening reserves as at 1 January 2014 is as follows:

The impact to the 2014 income statement is as follows:

 The impact to the 2014 statement of comprehensive income is as follows:

All deferred tax assets and liabilities are shown as non-current in accordance with IAS 1.56. The cumulative net impact to 2014 closing reserves is a £3.7m decrease due to a movement in 2014 of £0.3m.

9 Deferred taxation continued

Under IAS 12: Income taxes, deferred tax is recognised in respect of taxable temporary differences arising between the tax written down value and the book value of certain assets and liabilities. The Group has maintained different accounting treatment for certain items within the Group accounts compared with the local accounting policies that apply in the relevant jurisdiction of overseas subsidiaries.

In particular, the temporary differences applicable to the Group, where deferred tax arises, include the following items:

· Swiss defined-benefit pension schemes;

· Foreign exchange on realised and unrealised gains deferred under the Swiss Code of Obligations to the balance sheet;

· Employee share schemes;

· Fair value adjustments on intellectual property.

As the requirements for the recognition of these balances have not changed since 1 January 2014, the Group has restated the 2014 comparative results and 2014 opening reserves for the recognition of these items. The adjustment to opening reserves as at 1 January 2014 was to recognise deferred tax assets of £1.0 million and deferred tax liabilities of £4.4 million resulting in an overall reduction in opening reserves of £3.4 million. Of this, £3.2 million arises upon long-term funding where the Group controls the reversal of temporary differences.

The adjustment to the 31 December 2014 closing balance sheet was £3.7 million as a result of the previously unrecognised 2014 net movements of £0.3 million to the 2014 opening reserves entry. The net movements arose from a £1.2 million charge to the income statement being offset by an increase in other comprehensive income of £0.9 million. The reconciliation of the resulting deferred tax asset and liabilities position between 1 January 2015 and 31 December 2015 is presented within the tables below.

2015 Deferred taxation

The amounts of deferred tax related to overseas subsidiaries accounted for in the consolidated balance sheet comprise the following deferred tax assets:

The amounts of deferred tax related to overseas subsidiaries accounted for in the consolidated balance sheet comprise the following deferred tax liabilities:

9 Deferred taxation continued

Unrecognised deferred tax assets

Deferred tax assets are recognised for tax losses and temporary differences to the extent that the realisation of the related tax benefit through future taxable profits is considered probable. The Group did not recognise deferred tax assets on losses amounting to £142.0 million (2014: £168.9 million) and temporary differences of £5.0 million (2014: £3.9 million) as they are not available to be offset against future trading profits.

The expiry profile of the tax losses of the Group is estimated as follows:

The majority of the losses presented above are not available to be offset against future taxable profits. The Company has tax losses included in the table above of £125.2 million which do not expire and may be available to offset future taxable profits.

10 Earnings per share

Basic earnings per share ("EPS") amounted to 25.1 pence per share and diluted EPS 24.6 pence per share (2014 restated: 13.7 pence per share loss for basic and diluted EPS). For the year ended 31 December 2014 there were no differences between the basic and diluted loss per share amounts since the result was a loss and as a result, all potential shares from stock options, warrants and contingent issuance of shares are anti-dilutive.

As there were no exceptional items during the year, pre-exceptional basic and dilutive EPS amounted to basic EPS of 25.1 pence per share (2014 restated: 17.5 pence per share) and diluted EPS of 24.6 pence per share (2014 restated: 17.1 pence per share).

As at 31 December 2015 there were 104,812,259 Ordinary Shares in issue (2014: 104,812,259). The Directors believe that the options in respect of the deferred consideration relating to the acquisition of Krypton in 1996 are unlikely to be exercised in the foreseeable future as the exercise price of £54.01 is very substantially above the prevailing market price of shares in Skyepharma PLC and the exercise price increases by 10 per cent per annum. Therefore, these options are not considered dilutive. Therefore, the only possible dilutive factors are due to employee share schemes.