SkyePharma : Proposed Placing and Open Offer to Raise £112m

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, HONG KONG, JAPAN OR NEW ZEALAND (THE "EXCLUDED TERRITORIES") AND SHOULD NOT BE DISTRIBUTED IN, FORWARDED TO OR TRANSMITTED INTO THOSE COUNTRIES OR INTO ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL SECURITIES LAWS OR REGULATIONS.

THIS ANNOUNCEMENT IS AN ADVERTISEMENT FOR THE PURPOSES OF THE UK PROSPECTUS RULES AND DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SECURITIES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF INFORMATION IN THE PROSPECTUS TO BE PUBLISHED BY SKYEPHARMA PLC (THE "COMPANY") IN DUE COURSE IN CONNECTION WITH THE ADMISSION TO LISTING OF ITS ORDINARY SHARES TO THE PREMIUM SEGMENT OF THE OFFICIAL LIST OF THE UNITED KINGDOM LISTING AUTHORITY AND TO TRADING ON THE LONDON STOCK EXCHANGE PLC'S MAIN MARKET FOR LISTED SECURITIES (TOGETHER, "ADMISSION"). COPIES OF THE PROSPECTUS WILL, FOLLOWING PUBLICATION, BE AVAILABLE FROM THE COMPANY'S REGISTERED OFFICE AT 46-48 GROSVENOR GARDENS, LONDON SW1W 0EB. . PLEASE SEE THE IMPORTANT NOTICES AT THE END OF THE SUMMARY.

31 March 2014

Skyepharma PLC
(the "Company " or "Group ")

Proposed Firm Placing and Placing and Open Offer to Raise £112 million

Summary

The Company has today announced that it proposes a share issue, by way of a Firm Placing and a Placing and Open Offer of 58,684,614 New Ordinary Shares at an issue price of 191 pence per New Ordinary Share, to raise gross proceeds of £112 million (approximately £104 million net of estimated expenses).

The Issue Price of 191 pence per New Ordinary Share represents a 4.3 per cent. discount to the closing price of an Ordinary Share of 199.5 pence on 28 March 2014 (being the latest practicable date prior to the announcement of the Capital Raising).

The Open Offer is an opportunity for Qualifying Shareholders to apply for Open Offer Shares pro rata to their existing holdings at the Issue Price on the basis of 11 Open Offer Shares for every 9 Existing Ordinary Shares held by them at the Record Date.

The majority of the net proceeds of the Firm Placing and Placing and Open Offer will be used for the early repayment and redemption of the Bonds as further described below and the balance will be used for general corporate purposes.

The Directors believe that the removal of the Bond debt from the Group's balance sheet and the associated reduction of financing costs in the future will provide the Company with more flexibility to execute its business strategy and invest in product development and corporate opportunities. The Directors further believe that the reduction in the portion of debt in the Group's capital structure will enable investors to assess the Company on conventional valuation metrics and thereby make the Company more attractive to investors generally.  The Directors have therefore determined that the Capital Raising, which will allow the Company to effect the Bond Proposals, is in the best interests of the Company and its Shareholders as a whole. The Capital Raising and Bond Proposals are inter-conditional and neither will proceed unless the other is also implemented.

Under the Firm Placing, 2,306,382 New Ordinary Shares have been placed firmly at the Issue Price.  The Firm Placed Shares will not be subject to clawback to satisfy Open Offer Entitlements taken up by Qualifying Shareholders under the Open Offer.

The remaining 56,378,232 New Ordinary Shares have been conditionally placed with certain institutional investors, including existing Shareholders, subject to clawback to satisfy Open Offer Entitlements taken up by Qualifying Shareholders under the Open Offer.

The Capital Raising is conditional on, among other things, the passing of Resolution 1 at the General Meeting. If Resolution 1 is passed and the other conditions to the Capital Raising are satisfied, it is expected that dealings in the New Ordinary Shares will commence at or shortly after 8.00 a.m. on 29 April 2014.

The Group today also announced its Final Results for the 12 months ended 31 December 2013.

Peter Grant, Chief Executive Officer at Skyepharma, said:

"Today we are announcing both further progress with our financial and operating results for 2013 and a Capital Raise which will transform the Group's balance sheet and enable us to invest in new products and corporate opportunities to drive future growth.  We go into 2014 with growing momentum from recent product launches and approvals, including the continued roll out of flutiform ® in Europe, Japan and other major markets; major revenue and milestone potential from Pacira's highly successful EXPAREL ®; and royalty potential from newly-launched GSK respiratory products which contain Skyepharma's technology.

"The Transaction announced today will significantly reduce our debt and enhance future earnings, enabling us to focus on delivering our strategy of maximising revenues from approved and pipeline products and strengthen our pipeline by developing new Oral and Inhalation products and technologies.  The opportunities for such developments may arise from our own work, from collaborations with partners and from targeted in-licensing or acquisition."

This summary should be read in conjunction with, and is subject to, the full text of this announcement as well as the Prospectus relating to the Capital Raising which will be sent to Qualifying Shareholders (other than, subject to certain exceptions, Qualifying Shareholders with a registered address in any of the Excluded Territories) and will also be made available on the Company's website www.skyepharma.com later today, except that the Prospectus will not be available, subject to certain exceptions, (whether through the website or otherwise) to Qualifying Shareholders with a registered address in any Excluded Territories. Further details are set out in the Prospectus. A copy of the Prospectus will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.Hemscott.com/nsm.dohttp://www.morningstar.co.uk/uk/NSM.

For further information please contact:

IMPORTANT NOTICES

The defined terms set out in the Appendix apply to this announcement. Unless otherwise stated, references to time contained in this announcement are to UK time.

This announcement is an advertisement and does not constitute a prospectus. Investors should not subscribe for or purchase any securities referred to in this announcement except on the basis of information in the prospectus to be published by the Company in due course in connection with Admission. Copies of the prospectus will, following publication, be available from the Company's registered office at 46-48 Grosvenor Gardens, London SW1W 0EB. Nothing in this announcement should be interpreted as a term or condition of or form a part of, and should not be construed as, any offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities in the Company must be made only on the basis of the information contained in and incorporated by reference into the Prospectus.

This announcement, and the Prospectus and any materials distributed in connection with this announcement or the Prospectus are not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any Excluded Territory or any other locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation which would require any registration or licensing within such jurisdiction.

Subject to certain exceptions, the securities referred to herein may not be offered or sold in Australia, Canada, Hong Kong, Japan or New Zealand or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada, Hong Kong, Japan or New Zealand. There will be no public offer of the ordinary shares in Australia, Canada, Hong Kong, Japan or New Zealand.

This announcement is not an offer of securities for sale, or a solicitation of an offer to buy securities, in the United States or in any other jurisdiction where such offer or solicitation would not be permitted. Securities may not be offered or sold in the United States absent registration with the United States Securities and Exchange Commission or an exemption from registration. The securities described in this announcement, when and if offered, will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act "), or with any regulatory authority or under the applicable securities laws of any state or other jurisdiction of the United States, or the relevant laws of any state, province or territory of any other Excluded Territory and the New Ordinary Shares may not be offered, sold, pledged, or otherwise transferred directly or indirectly, within the United States (as defined in Regulation S under the Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state or local securities law. This announcement does not constitute an offer to sell or a solicitation of an offer to buy New Ordinary Shares in any jurisdiction in which such offer or solicitation is unlawful. This announcement is not a prospectus or other offering document. There will be no public offering of securities in the United States.

N+1 Singer Advisory LLP (N+1 Singer), which is authorised and regulated in the United Kingdom by the FCA, is acting for the Company only and no-one else in connection with the Capital Raising and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for providing advice in relation to the Capital Raising.

Apart from any responsibilities and liabilities, if any, which may be imposed on N+1 Singer by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, N+1 Singer accepts no responsibility whatsoever and makes no representation or warranty, express or implied, concerning the contents of this announcement including its accuracy, completeness or verification or for any other statement in connection with the Company, the Company's shares or the Capital Raising. N+1 Singer accordingly disclaims all and any liability, responsibility whatsoever, whether arising in tort, contract or otherwise which it might otherwise have in respect of this announcement.

Expected Timetable:

Notes :

(1) The times and dates set out in the expected timetable of principal events above and mentioned in the Prospectus, the Application Form and in any other document issued in connection with the Capital Raising are subject to change by the Company, in which event details of the new times and dates will be notified to the UK Listing Authority, the London Stock Exchange and, where appropriate, to Shareholders.

(2) Any reference to a time, is to London time, unless otherwise specified.

(3) The ability to participate in the Open Offer is subject to certain restrictions relating to Shareholders with registered addresses or located or resident in countries outside the UK, details of which are set out in the Prospectus.

PROPOSED CAPITAL RAISING

1.  Introduction to the Capital Raising

The Capital Raising

The Company has today announced that it proposes a share issue, by way of a Firm Placing and a Placing and Open Offer of 58,684,614 New Ordinary Shares at an issue price of 191 pence per New Ordinary Share, to raise gross proceeds of £112 million (approximately £104 million net of estimated Transaction expenses). The majority of the net proceeds of the Firm Placing and Placing and Open Offer will be used for the early repayment and redemption of the Bonds as further described below and the balance will be used for general corporate purposes.

Shareholder and Bondholder Approval

The Capital Raising requires Shareholder approval. The Capital Raising is subject to the passing of Resolution 1. Resolution 2 is conditional upon the passing of Resolution 1. Resolution 1 is interconditional with the Bond Resolution, and, therefore, if either Resolution 1 or the Bond Resolution is not passed at either the General Meeting or the Bondholder Meeting, the Firm Placing and Placing and Open Offer and the Bond Proposals will not proceed .

2014 LTIP Awards

In conjunction with, and conditional upon, the Capital Raising, it is proposed that in relation to the annual awards timetable for grant in 2014 under the terms of LTIP 2012 (the "2014 Awards ") the performance conditions applying to the 2014 Awards shall be based entirely on the growth in the Company's share price, adjusted for the value of any dividends paid, over a fixed measurement period. The awards will be granted after the completion of the Capital Raising.

2.  Information relating to Skyepharma

Skyepharma combines proven scientific expertise with validated proprietary drug delivery technologies to develop innovative oral and inhalation pharmaceutical products. The Group has long-term agreements for recurring revenue related to product sales by partners. Such agreements currently include 15 approved products in the areas of inhalation, oral, topical and injectable drug delivery and, in some cases, also include product supply and milestone payments. The Group also generates income from contract development work and development milestone payments and supplies.

The products developed by the Group are marketed throughout the world by big pharma, as well as speciality pharmaceutical companies. The Group has a track record of successful development of diverse and complex inhalation and oral pharmaceutical products.

Skyepharma's strategy is to apply its proven scientific expertise and proprietary drug delivery technologies to develop oral and inhalation pharmaceutical products which provide benefits to patients, meet market needs and create value for the Group's stakeholders. Whilst continuing to maximise revenues from approved and pipeline product candidates, the Group aims to strengthen its product pipeline by developing new products and technologies. This may be through own development, collaborations with partners and targeted in-licensing and/or acquisition.

The Group has significant long-term recurring revenue potential from seven recently approved or launched products.

3.  Current trading, trends and prospects

The audited final results of the Group for the 12 months ended 31 December 2013 have been announced today.

The Group achieved revenues of £62.6 million for 2013, up to 25 per cent. from the £49.9 million in 2012. The increase was primarily due to growth in supply revenues of flutiform ®, reflecting its first full year of sales in certain countries and new launches in Europe and Japan, as well as additional contract development revenues and growth in the Group's share of EXPAREL® net sales.

The growth in revenues, particularly product supply revenue, is reflected in increases in 2013 in both cost of sales to £33.2 million (2012: £21.9 million) and in net operating costs to £15.8 million in 2013 (2012: £15.4 million), resulting in pre-exceptional operating profit from continuing operations of £13.6 million, up eight per cent. from the £12.6 million earned in 2012.

The profit after tax from continuing operations was £0.8 million (2012: £10.6 million loss) and basic earnings per share from continuing operations was 1.8 pence (2012: 36.0 pence loss per share). The profit after tax from continuing and discontinued operations for 2013 was £0.8 million (2012: £4.4 million loss) and basic earnings per share from continuing and discontinued operations for 2013 was 1.8 pence (2012: 14.9 pence loss per share).

As at 31 December 2013 the Group had cash and cash equivalents of £16.5 million (2012: £16.4 million). During 2013, the Group generated a cash inflow from operations of £14.4 million compared with an inflow of £18.5 million in 2012. During 2013, the Group's cash position benefited from the receipt of milestones of €2.0 million (£1.7 million at that time) from Mundipharma following their launch of flutiform ® in Italy, several million United States dollars from Kyorin following their launch of flutiform ® in Japan, and a milestone payment by Fougera following Tolmar's launch in the United States of a generic competitor of Solaraze®.

As at 31 December 2013, the Group had liquidity of £17.3 million (2012: £17.2 million), consisting of cash of £16.5 million and an undrawn overdraft facility of £0.8 million.

Whilst continuing to maximise revenues from approved and pipeline product candidates, the Group aims to strengthen its product pipeline by developing new products and technologies, through its own research, through collaborations with partners and targeted in-licensing and/or acquisition.

The key objectives for 2014 are to:

·      Maximise revenue from approved products and pipeline product candidates;

·      Continue to grow operating profit and operating cash generation;

·      Seek further opportunities, which may be from the Company's own development, collaborations with partners, targeted in-licensing and/or acquisition, to develop additional products and technologies;

·      Progress the development of a new oral drug delivery technology platform to proof of concept and seek development and out-licensing opportunities; and

·      Strengthen the balance sheet through reduction of debt.

Outlook

The Board expects further substantial growth in revenues in 2014 compared with 2013 mainly from the products launched in 2012 to date, especially flutiform ®, Relvar® Ellipta®/Breo® Ellipta®, Anoro™ Ellipta™, and EXPAREL®.

A milestone of €3 million (£2.5 million) has been received following the launch of flutiform ® in France and continuation of the growth of EXPAREL® to achieve U.S.$100 million in annual net sales (on a cash received basis) would lead to a milestone of U.S.$8 million (£4.9 million) during 2014. The Directors believe that the growth of royalties from recently launched products is likely to offset the decline in royalties from products which are off patent, such as Zyflo CR® and Solaraze® (in Europe and certain other territories), or which are otherwise facing generic competition. The Directors also believe that revenues from product supply are likely to continue to grow to support increasing market penetration of flutiform ® and this would lead to flutiform ® supply generating a positive gross profit during 2014. A full years' rental income relating to the Lyon Facility and growing EXPAREL® sales would increase "Other income" substantially in 2014 compared with 2013.

Currently the Group has increased demand for contract development work and, as a consequence, additional skilled technical and support staff are being recruited at the research and development facility in Muttenz, Switzerland, with most focussed on projects paid for by partners. Operating costs are, therefore, expected to increase to support the customer-funded work as well as plans to increase the Group's own expenditure on developing technologies and products once the

Transaction is completed.

At the time of the interim results announcement in August 2013, the Board stated that its plan was to allocate between £5 million and £10 million per annum on own-funded research and development, subject to suitable opportunities being available, including £2 million to £3 million per annum on supporting flutiform ®. The flutiform ® support costs are now mainly recorded in cost of sales as they relate to supply rather than new product development. For 2014, the Board's guidance is for net expenditure on research and development of between £3 million and £6 million. Once the Transaction is concluded, and subject to suitable opportunities being available, the Board will consider whether it would be in the interests of Shareholders to increase the level of research and development expenditure in future years as the Group's net income rises.

The Group will continue to support its partners, Mundipharma, Kyorin and Sanofi, in making further progress with flutiform ® in Europe, Japan and Latin America respectively. The Board looks forward to building on recent successes to drive future growth and to further exploit the Group's proven inhalation drug development and oral drug delivery technologies and expertise.

4.  Reasons for the Capital Raising and use of proceeds

The Directors believe that the Company's level of indebtedness is serviceable by net cash generation from operations over the next few years, but this focus on repayment of debt constrains opportunities to grow the business through product and corporate development and this could in turn have an impact on its attractiveness to investors.

In 2008, the Company took steps to restructure the then outstanding Convertible Bonds by amending certain terms of those bonds, whilst simultaneously conducting a placing and open offer to provide the Company with working capital and funds to invest in product development. Further, in 2012, the Group implemented an additional bond restructuring, whereby a proportion of the outstanding Convertible Bonds were converted into Ordinary Shares and certain other amendments were made to the terms and conditions of the Convertible Bonds. Following this restructuring, the 2025 Convertible Bonds were exchanged for 2024 Convertible Bonds, and as part of the amendments to the terms and conditions, the 2024 Convertible Bonds were amended such that, amongst other things, they were no longer convertible into Ordinary Shares. The bonds currently outstanding comprise the "Bonds" (as defined in the Prospectus) and are the subject of the Bond Proposals. As at the date of this announcement, the Bonds have an aggregate principal amount of £60.8 million (£83.2 million at face value) and pay basic interest of 6.5 per cent. per annum, plus additional interest of three per cent. per annum although the payment of all of the additional interest and some of the basic interest has been deferred (in accordance with the Bond Conditions) until 4 November 2017. The earliest date when the Bondholders may ordinarily redeem the Bonds is 4 November 2017. Upon any such redemption, Skyepharma (Jersey) Limited would be required to pay deferred basic interest, the cumulative additional interest of three per cent. per annum to 4 November 2017 (up to £9.3 million) and a redemption premium of 47.3 per cent. (£28.8 million).

Whilst the steps described above have enabled the Group to progress and successfully exploit its products, expertise and technologies, the Board has reviewed the structure of the Group to seek to improve the Group's growth potential going forward. As a result of this review, the Board has determined that the early repayment and redemption of the Bonds would be beneficial to the Group's business strategy and would be likely to enhance Shareholder value. Accordingly the Company has approached key Bondholders (representing approximately 79 per cent. of the aggregate nominal amount of the Bonds outstanding) who have indicated their support for the early repayment and redemption of the Bonds in full and have provided irrevocable undertakings to participate in the Tender Offer (and thereby automatically vote in favour of the Bond Resolution).

The Directors believe that the removal of the Bond debt from the Group's balance sheet and the associated reduction of financing costs in the future will provide the Group with more flexibility to execute its business strategy and invest in product development and corporate opportunities. The Directors further believe that the reduction in the portion of debt in the Group's capital structure will enable investors to assess the Company on conventional valuation metrics and thereby make the Company more attractive to investors generally.

The Directors have therefore determined that the Capital Raising, which will allow the Company to effect the Bond Proposals, is in the best interests of the Company and its Shareholders as a whole.

The majority of the proceeds of the Capital Raising will be applied to the repayment and redemption of the Bonds in full pursuant to the Bond Proposals and the balance will be used for general corporate purposes.

The total amount payable in respect of the Bonds between 30 April 2014, being the anticipated date for the repurchase and redemption of the majority of the Bonds pursuant to the Bond Proposals and the anticipated redemption of the Bonds on 4 November 2017 is £120.8 million, compared with £95.6 million which is payable to repurchase and redeem the Bonds early pursuant to the Bond Proposals. This represents a discount of £25.2 million, and is equivalent to an internal rate of return (IRR) to the Group of 7.25 per cent. prior to the estimated expenses relating to the Bond Proposals of £0.4 million.

The Capital Raising and Bond Proposals are inter-conditional and neither will proceed unless the other is also implemented.

5.  Details of the Capital Raising

The Company is proposing to raise approximately £112 million (before expenses) pursuant to a Firm Placing and Placing and Open Offer at an issue price of 191 pence per New Ordinary Share.

The Issue Price of 191 pence per New Ordinary Share represents a 4.2 per cent. discount to the closing price of an Ordinary Share of 199.5 pence on 28 March 2014 (being the latest practicable date prior to the announcement of the Capital Raising).

In setting the Issue Price, the Directors have considered the price at which the New Ordinary Shares need to be offered to investors to ensure the success of the Capital Raising and have held discussions with a number of key institutional investors who have agreed to subscribe for the New Ordinary Shares at that price. The level of discount reflects the need, due to the size of the Capital Raising relative to the existing market capitalisation of the Group, to generate demand from both existing Shareholders of the Group and new investors. The Directors believe that both the Issue Price and the discount are appropriate. In structuring the Capital Raising, the Directors have had regard, among other things, to the current market conditions, the level of the Company's share price and the importance of pre-emption rights to Shareholders. After considering these factors, the Directors have concluded that the Firm Placing and the Placing and the Open Offer is the most suitable option available to the Company and its Shareholders. The Open Offer component of the fundraising provides an opportunity for all Qualifying Shareholders to participate by subscribing for Open Offer Shares pro rata to their current holding of Ordinary Shares.

Under the Firm Placing, 2,306,382 New Ordinary Shares have been placed firm at the Issue Price, to raise gross proceeds of approximately £4.4 million. The Firm Placed Shares will not be subject to clawback to satisfy Open Offer Entitlements taken up by Qualifying Shareholders under the Open Offer.

The remaining 56,378,232 New Ordinary Shares have been conditionally placed with certain institutional investors, including existing Shareholders, subject to clawback to satisfy Open Offer Entitlements taken up by Qualifying Shareholders under the Open Offer.

Pursuant to the Firm Placing and the Placing, Placees (other than the Directors subscribing pursuant to the Firm Placing) will be paid a commission of 1.0 per cent. of the value, at the Issue Price, of the New Ordinary Shares they have committed to take up in the Placing.

The Open Offer is being made on a pre-emptive basis, allowing all Qualifying Shareholders the opportunity to participate, subject to compliance with all applicable securities laws . The Open Offer is not conditional upon the level of applications made to subscribe under the Open Offer.

To the extent that applications are made for Open Offer Shares, some or all of the Open Offer Shares will be clawed back from the Placees at the discretion of N+1 Singer and the number of shares placed pursuant to the Placing will be reduced.

The Open Offer is an opportunity for Qualifying Shareholders to apply for Open Offer Shares pro rata to their existing holdings at the Issue Price on the basis of:

11 Open Offer Shares for every 9 Existing Ordinary Shares

held by them and registered in their name at the Record Date and so on in proportion to any other number of Existing Ordinary Shares then held and otherwise on the terms and conditions as set out in the Prospectus and, in the case of Qualifying Non-CREST Shareholders, the Application Form. Qualifying Shareholders may apply for any whole number of Open Offer Shares up to their Open Offer Entitlement.

The latest time and date for receipt of completed Application Forms and payment in full or the settlement of the relevant CREST instruction (as applicable) will be 11.00 a.m. on 16 April 2014.

Shareholders should be aware that the Open Offer is not a rights issue. As such, Qualifying Non- CREST Shareholders should note that their Application Forms are not negotiable documents and cannot be traded. Qualifying CREST Shareholders should note that, although the Open Offer Entitlements will be admitted to CREST, and be enabled for settlement, the Open Offer Entitlements will not be tradeable or listed and applications in respect of the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim. New Ordinary Shares for which application has not been made under the Open Offer will not be sold in the market for the benefit of those who do not apply under the Open Offer and Qualifying Shareholders who do not apply to take up their entitlements will have no rights, and will not receive any benefit, under the Open Offer. Any New Ordinary Shares which are not applied for under the Open Offer will be allocated to Placees, subject to the terms and conditions of the Placing Agreement, with the proceeds retained for the benefit of the Company.

The Capital Raising will result in 58,684,614 New Ordinary Shares being issued, representing 127.2 per cent. of the Company's Existing Ordinary Shares. The actual number of New Ordinary Shares that will be issued pursuant to the Capital Raising will be notified by the Company via a Regulatory Information Service announcement prior to Admission.

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends or other distributions declared, made or paid after the date of the allotment and issue of the New Ordinary Shares and will carry the same voting rights as the Existing Ordinary Shares.

New Ordinary Shares representing fractional entitlements will not be allotted to Qualifying Shareholders and, where necessary, entitlements to New Ordinary Shares will be rounded down to the nearest whole number (or to zero in the case of Shareholders holding fewer than nine Existing Ordinary Shares at the close of business on the Record Date). It is expected that Admission will become effective and dealings in the New Ordinary Shares will commence at 8.00 a.m. on 29 April 2014.

6.  Details of the Bond Proposals

The Bond Proposals involve:

a)   an offer by Skyepharma (Jersey) Limited as issuer of the Bonds to repurchase the Bonds for a cash purchase price of £1,148.50 per Bond, (being equal to 114.85 per cent. of the face amount of each Bond) (the "Tender Offer ");

b)   certain modifications to the Bond Conditions to (i) provide Skyepharma (Jersey) Limited the option to redeem all, but not some only, of the Bonds remaining (if any) on completion and settlement of the Tender Offer, at an early redemption price of £1,148.50 per Bond (being equal to 114.85 per cent. of the face amount of each Bond) and (ii) extend the first date on which the Bonds may be redeemed at the option of the Bondholders to 30 April 2019; and

c)   the waiver of any requirement to repay Deferred Interest (as defined in the Bond Conditions) following receipt of the proceeds after the closing date of the Capital Raising pursuant to Condition 5(d) of the Bonds (the amendments and waivers in sub-paragraphs (b) and (c) together being referred to as the "Bond Amendments "),

in each case, subject to certain conditions being satisfied.

A meeting of the Bondholders has been convened for 11.00 a.m. on 28 April 2014 at which an extraordinary resolution to approve the Bond Amendments will be proposed (the "Bond Resolution ").

Irrevocable undertakings have been received from holders of approximately 79 per cent. of the outstanding Bonds to participate in the Tender Offer (and thereby automatically vote in favour of the Bond Resolution). Bondholders who tender their Bonds pursuant to the Tender Offer will automatically instruct the appointment of a proxy to vote in favour of the Bond Resolution at the Bondholder Meeting.

If holders of 75 per cent. or more in principal amount of the Bonds are represented at the Bondholder

Meeting and not less than 75 per cent. of the votes cast are in favour of the Bond Resolution, the Bond Resolution will be passed on the first call. If the Bondholder Meeting is not quorate on the first call, it will be adjourned for not less than 14 days and not more than 42 days. In order for the Bondholder Meeting to be quorate at an adjourned meeting, holders of not less than 25 per cent. in principal amount of the Bonds are required to be represented at the adjourned Bondholder Meeting.

The Bond Resolution will be passed at an adjourned Bondholder Meeting if not less than 75 per cent. of the votes cast are cast in favour of the Bond Resolution.

The Capital Raising is conditional upon the Bond Resolution being passed. The Bond Resolution is conditional upon Resolution 1 being passed at the General Meeting and will not be effective until receipt by the Company of the Capital Raising proceeds.

Following the Bond Resolution becoming effective, the Supplemental Trust Deed will be executed to implement the Bond Amendments.

7.  Intentions of the Directors in relation to the Capital Raising

The Directors are interested in an aggregate of 274,812 Ordinary Shares (representing 0.596 per cent. of the Existing Ordinary Shares). Two Directors who do not currently hold Shares have agreed to subscribe at the Issue Price for an aggregate of 93,534 New Ordinary Shares (representing 0.09 per cent. of the Enlarged Share Capital) with a value of £178,650 under the Firm Placing. The other Directors who are currently Shareholders intend to take up all or part of their Open Offer Entitlements.

7. Conditionality

The Capital Raising is conditional on the following:

a)   Resolution 1 having been passed by Shareholders at the General Meeting;

b)   the Bond Resolution having been passed at the Bondholder Meeting;

c)   the Placing Agreement having become unconditional in all respects, save for the conditions relating to Admission and the passing of Resolution 1 and not having been terminated in accordance with its terms before Admission occurs; and

d)   Admission having become effective by not later than 8.00 a.m. on 29 April 2014 (or such later time and date as N+1 Singer and the Company may agree, being not later than 8.00 a.m. on 30 May 2014).

Accordingly, if any of the conditions are not satisfied, or, if applicable, waived, the Capital Raising will not proceed.

The Capital Raising is conditional upon the passing of Resolution 1. Resolution 2 is conditional upon the passing of Resolution 1. Resolution 1 is interconditional with the Bond Resolution, and, therefore, if either Resolution 1 or the Bond Resolution is not passed at either the General Meeting or the Bondholder Meeting the Capital Raising and Bond Proposals will not proceed.

8.  2014 Awards

The Skyepharma PLC Long-Term Incentive Plan 2012 (the "LTIP 2012 ") was approved by the Company's shareholders in December 2012.

The LTIP 2012 provides for a discretionary annual grant policy of share-based awards to the Executive Directors and other selected senior executives. Awards under the LTIP 2012 ordinarily vest three years from grant subject to the grantee's continued service and to the extent the performance conditions set for the relevant awards are satisfied.

In relation to the annual awards timetabled for grant under the LTIP in 2014 (the "2014 Awards ") these are to be granted on or shortly following the publication of the Prospectus and will be subject to performance conditions relating to growth in the Company's share price over a fixed measurement period. The performance conditions would provide that no part of the 2014 Awards would ordinarily be capable of vesting under the terms of the LTIP 2012 unless the Company's adjusted share price as at the end of the measurement period was at least equal to a 30 per cent. increase from the Issue Price.

For such 30 per cent. increase from Issue Price performance, one quarter of the number of Ordinary Shares comprised in each 2014 Award would be capable of vesting, rising on a straight-line basis to full vesting of the 2014 Awards if the Company's adjusted share price as at the end of the measurement period was equal to or in excess of a 100 per cent. increase from the Issue Price.

The measurement period would commence at the time of the grant of the 2014 Awards and would expire on 31 March 2017.

The Remuneration Committee intends to set a further condition for the 2014 Awards for the Executive

Directors being that they must invest from personal resources in the New Ordinary Shares to an extent to at least meet the Company's current shareholding expectation for the Executive Directors, namely that they build up a shareholding in the Company equal in value (based on the Issue Price) to at least 100 per cent. of base salary in the case of the Chief Executive Officer (based on existing shares held and new investment in New Ordinary Shares) and 50% of base salary in the case of the Chief Financial Officer (based on new investment in New Ordinary Shares). In the event that an Executive Director disposes of shares (other than for compassionate reasons agreed at the discretion of the Remuneration Committee) during the measurement period of the 2014 Awards which results in his shareholding falling to a level below the shareholding expectation detailed above their 2014 Awards would lapse pro-rata to the percentage shortfall.

In the interest of following best practice and to give Shareholders an opportunity to show support for the proposal for the 2014 Awards, Resolution 2 seeks Shareholder consent for the proposed 2014 Awards and the related performance conditions.

9.  Shareholder and Bondholder Support

The Company's largest Shareholder is supportive of the Capital Raising. Shareholders holding, in aggregate, approximately 47 per cent. of the current issued share capital of the Company, have undertaken to vote in favour of the Resolutions.

In addition, certain Bondholders who in aggregate hold approximately 79 per cent. of the Bonds, have given irrevocable undertakings to participate in the Tender Offer (and thereby automatically vote in favour of the Bond Resolution).

10.        Dilution

Assuming 58,684,614 New Ordinary Shares are issued pursuant to the Capital Raising, if a Qualifying Shareholder does not take up any of his Open Offer Entitlements such Qualifying Shareholder's holding, as a percentage of the Enlarged Share Capital, will be diluted by 56.0 per cent.

If a Qualifying Shareholder takes up his Open Offer Entitlement in full, such Qualifying Shareholder's holding, as a percentage of the Enlarged Share Capital, will be diluted by 2.2 per cent.

11.   Shareholder Approvals and General Meeting

A General Meeting to approve the Resolutions will be held at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD, at 9.00 a.m. on 25 April 2014. The Notice of General Meeting will be distributed to Shareholders shortly.

12.        Recommendations

The Board, which has received financial advice from N+1 Singer, believes that the Resolutions and the Capital Raising and Bond Proposals are in the best interests of the Company and its Shareholders as a whole. In providing advice to the Board, N+1 Singer has taken into account the Directors' commercial assessment of the Capital Raising and Bond Proposals.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of each of the Resolutions to be proposed at the General Meeting, as those Directors who are Shareholders intend to do in respect of their own shareholdings of, in aggregate, 274,812 Ordinary Shares, representing approximately 0.596 per cent. of the issued share capital of the Company as at 28 March 2014 (being the latest practicable date prior to publication of the Prospectus).

APPENDIX

DEFINITIONS