EU Approval Of SkyePharma's Flutiform Prompts Share Rally
Edison | Jul 05, 2012 12:30AM ET
The European Commission’s adoption of a legally binding decision in favour of granting marketing authorisations for Flutiform effectively marks the conclusion of the tortuous EU regulatory process and prompted a 30% rally in SkyePharma (SKP.L) shares yesterday. Flutiform’s launch by Mundipharma in the initial EU markets – the UK and Germany – can now be assumed for late Q3. The EU approval and launch is an essential condition for SkyePharma to restructure its balance sheet, and, once achieved, this should mean shareholders at last see returns that reflect its operating performance.
All we like sheep have gone astray
SkyePharma’s tortuous process to gain approval for Flutiform may have at times seemed to have gone astray, but it is now firmly back on track. National marketing authorisations in the 21 EU states should start being granted in the next one to three months and launch, by MundiPharma, can take place in the territories where no pricing approval is required (UK and Germany) in September. This will trigger milestones to SkyePharma. Ev’ry valley shall be exalted
Ev’ry valley shall be exalted
Mundipharma will have to navigate carefully through a valley between the brand leaders Symbicort (AstraZeneca) and Seretide (GSK), potentially new products such as Relovair (GSK) and potential generics. Nonetheless, the approval promotes Flutiform to an exalted list of inhaled combination therapies for asthma.
Let us break their bonds… and cast away their yokes
Flutiform approval is effectively a necessary condition for a restructuring of SkyePharma’s balance sheet, which has £83m of convertible bonds, some £63m of which have put options exercisable in November 2013. We expect a transaction to occur this year that may include raising new equity and/or debt, or a renegotiation of the bonds’ terms or some combination thereof. Once achieved, it should at long last allow the share price to reflect the fundamental operating activities.
Valuation: Worthy is the Lamb
Edison’s DCF model yields an equity value of £78.2m, or 327p per share, ignoring any potential dilutive effect from a bond restructuring or refinancing. Accordingly, although there is considerable upside, this has to be considered in light of a likely future refinancing, the terms of which can only be speculated on at present.
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