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Skyepharma – problems solved, price still down
Either the market is simply not prepared to be anything but negative on Skyepharma or I am missing something. The problems with Paxil continue, but Skyepharma has been shielded from the effects of this by a new agreement with Glaxosmithkline’s which gives Skyepharma the royalties on the budgeted sales until normal sales resume.
Some investors may have been disappointed by the increase in royalty rates which is also part of the new agreement, but it is a substantial increase (from 3% to 4%) and it appears to be quite a positive deal for Skyepharma.
The full year results were good and Skyepharma should now be expected to reach sustained profitability this year. However the price, at 55p, is still well below the level before the announcement of the problems with Paxil CR (61p) despite the net good news since. It is now trading at a PE of 19× 2006 earnings which is not cheap in absolute terms, but is pretty good given that Skyepharma will still be very much a growth stock at that stage.
The price can partly be explained by good news elsewhere in the sector which has encouraged switching to other stocks – Skyepharma’s comparatively small size would strengthen the effect of switching and the fact that it has a different risk profile to the rest of the sector also means that it is likely to under perform when investor’s become more bullish about the sector per se.
None of this really explains the price so I am inclined to think that this is a company that is difficult to sell to the market – it is not quite like anything else listed in the UK (as a drug delivery specialist it has a lower risk pipeline than pharmaceutical companies), it has disappointed the market too many times for investors to fell confidence and its earnings can be lumpy.
Comments(7)
I have followed Skyepharma for 6 years now through thick and thin.The share price has bounced from anything as high as 200p per share down to 40p. The company has developed products slowly but surely and can not be faulted for that. The market however has a different set of timetables and is sentiment based.
The best advice I would give anybody holding SkyePharma shares is patience.They will hit 200p + per share or will be taken out by a bid,all this over the next 18 months.
The list of SkyePharma’s collaboration partners reads like a “who’s who of the Pharma industry – Novartis , Glaxo and Astra to name but some”.
SkyePharma’s share price should be far higher than its current level of 54p……….keep buying and keep the faith.The fools out there will soon see value.
I am inclined to agree with you on fundamentals, however I have taken that view on the company since I started covering them over four years ago, so I would not count on the price moving up on any fixed time scale.
The market is quite likely to stick with the current rating until there is clear evidence of sustained profitability, which may take a long time given that Skyepharma has earnings that are clearly likely to be lumpy.
Seems it paid to wait until they have hit what appears to be their low. With drug approval a long way off, late 2008 for CNC. I would am buying on the basis that they will look cheap for a buyout nearer the FDA approval, as it would save on R’n’D costs. A punt all the same, as they look cheap.
I wrote a comment on Skyepharma way back when (10 May 07) , before a rights issue at 35p and a subsequent disposal of the injectables business.
I was wrong at the time and could be still wrong now, but I think not ! The share price is a lowly 15p per share, valuing the company at £120m. I must admit that I don’t know the forward PE ratio , cheap or not. I do however know that SKP will have an approved combined therapy asthma drug soon , this alone will make the big boys nervous , heavens forbid this asthma drug makes it to market ! Would be cheaper for them to buy Skyepharma out at £250m than have a challenger ! The risk is great but the reward maybe even more so………..mmmmm !!!!
I have not been following the company since the disposal of injectable, which was a business I always liked. It does look interesting again at this price though.
I took on board your comments with regrads the injectables. The company had no choice but to sell as the cash burn was too fast and it was debatable if SKP would have enough to complete the Flutiform trials. I believe this drug if approved will transforn SKP but so many people have lost faith (hence the price). The opportunity for rebound is massive and if sentiment changes then the price will too. Look at how fast sentiment has changed on Banks , now they are not such a good bet as they were , say 6 months ago. At 14.75p the risk / reward is high. Would be interested in your thoughts here , will you be looking again at SKP ?
SKP has managed to stop the fall in price, in my eyes this is the start of the company turn around, with the new management team in a strong position and good news on the horizon lets just sit back and watch over the next six to eight months. BUY, BUY, BUY. Don’t let me have to tell you I told you so.
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