RNS Number:0445Q
Skyepharma PLC
23 September 2003


FOR IMMEDIATE RELEASE                                       23rd SEPTEMBER 2003


                                 SkyePharma PLC

                           INTERIM FINANCIAL RESULTS
                    for the six months ended 30th June 2003

Part 2/2

CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 30 June 2003

                                                          Unaudited         Unaudited            Audited
                                                        6 months to       6 months to    12 months to 31
                                            Notes      30 June 2003      30 June 2002      December 2002
                                                              #'000             #'000              #'000
Turnover                                        2            22,586            27,676             69,573

Cost of sales                                   2          (12,702)          (12,268)           (24,830)
Gross profit                                                  9,884            15,408             44,743
Selling, marketing and distribution                         (2,518)           (2,140)            (4,769)
expenses
Administration expenses
  Amortisation                                              (3,226)           (2,808)            (6,506)
  Other administration expenses                             (7,478)           (8,072)           (13,686)
  Exceptional items                             4           (1,409)                 -                  -
                                                           (12,113)          (10,880)           (20,192)
Research and development expenses                          (16,420)          (12,092)           (29,285)
Other operating income                          3             4,173             7,660             14,219
Operating (loss)/profit                                    (16,994)           (2,044)              4,716
Interest receivable                                             512               380              1,081
Interest payable                                            (2,131)           (2,336)            (4,464)
(Loss)/profit on ordinary activities before     2          (18,613)           (4,000)              1,333
taxation                                        
Taxation                                                       (76)             (165)              (224)
Retained (loss)/profit                                     (18,689)           (4,165)              1,109
Earnings per Ordinary Share                     5
  Basic                                                      (3.1p)            (0.7p)               0.2p
  Diluted                                                    (3.1p)            (0.7p)               0.2p



There was no material difference between the (loss)/profit on ordinary
activities before taxation and the historical cost (loss)/profit before taxation
in 2003 and 2002.  All results represent continuing activities.

CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended 30 June 2003

                                                            Unaudited         Unaudited              Audited
                                                          6 months to       6 months to         12 months to
                                                         30 June 2003      30 June 2002     31 December 2002
                                                                #'000             #'000                #'000
(Loss)/profit attributable to shareholders                   (18,689)           (4,165)                1,109
Net currency translation effect                                  (37)             2,523                  903
Unrealised gain on contract development                         1,645                 -                    -
Lapse of warrants                                                   -                 -                1,096
Total recognised gains and losses for the period             (17,081)           (1,642)                3,108


RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 June 2003


                                                            Unaudited         Unaudited              Audited
                                                          6 months to       6 months to         12 months to
                                                         30 June 2003      30 June 2002     31 December 2002
                                                                #'000             #'000                #'000
Shareholders' funds at the beginning of the period            124,270            95,145               95,145
Total recognised gains and losses for the period             (17,081)           (1,642)                3,108
Goodwill adjustments on deferred consideration                      -             (188)                4,837
Equity shares issued/allocated, net of expenses                     -            31,146               43,816
Exercise of share options, net of expenses                         61               572                  700
Non-equity shares converted to equity shares                        -                 -             (11,310)
Increase/(decrease) in shares and warrants to be                2,565           (5,780)              (5,780)
issued
Revaluation of shares and warrants to be issued                     -               188              (4,837)
Issue of warrants                                                   -                 -                  311
Exercise of warrants                                                -              (37)                (624)
Lapse of warrants                                                   -                 -              (1,096)
Net movement in the period                                   (14,455)            24,259               29,125
Shareholders' funds at the end of the period                  109,815           119,404              124,270


CONSOLIDATED BALANCE SHEET
as at 30 June 2003




                                                                Unaudited         Unaudited             Audited
                                                  Notes      30 June 2003      30 June 2002    31 December 2002
                                                                    #'000             #'000               #'000
Fixed assets
Intangible assets                                     6           101,572           101,453             100,015
Tangible assets                                                    44,533            46,342              45,504
Investments                                           7            24,198            17,382              19,902
                                                                  170,303           165,177             165,421
Current assets
Stock                                                               1,156             1,342               1,256
Debtors                                                            21,973             9,086              35,207
Investments                                                         1,905             2,353               1,961
Cash and short-term bank deposits                                  22,181            51,233              28,061
                                                                   47,215            64,014              66,485
Creditors: amounts falling due within one year
Deferred income                                                  (17,310)          (16,073)            (15,069)
Other creditors                                                  (18,520)          (23,730)            (19,402)
                                                                 (35,830)          (39,803)            (34,471)
Net current assets                                                 11,385            24,211              32,014
Total assets less current liabilities                             181,688           189,388             197,435
Creditors: amounts due after more than one
year
Convertible bonds due 2005                                       (58,584)          (58,169)            (58,377)
Deferred income                                                   (1,843)                 -             (2,960)
Other creditors                                                  (10,840)          (11,636)            (11,627)
                                                                 (71,267)          (69,805)            (72,964)
Provisions for liabilities and charges                9             (606)             (179)               (201)
Net assets                                                        109,815           119,404             124,270

Capital and reserves
Share capital                                        10            62,559            62,325              62,546
Share premium                                                     316,467           315,152             316,419
Shares and warrants to be issued                     11             2,565             5,025                   -
Other reserves                                                      9,311            10,683               9,311
Profit and loss account                                         (281,087)         (273,781)           (264,006)
Shareholders' funds
  Attributable to equity interests                                 98,505            96,784             112,960
  Attributable to non-equity interests                             11,310            22,620              11,310
                                                                  109,815           119,404             124,270

CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 June 2003

                                                                  Unaudited         Unaudited           Audited
                                                             6 months to 30    6 months to 30   12 months to 31
                                                                  June 2003         June 2002     December 2002
                                                                      #'000             #'000             #'000

Operating (loss)/profit                                            (16,994)           (2,044)             4,716
Depreciation and amortisation                                         6,451             5,878            12,607
Decrease/(increase) in working capital                               17,518             9,824          (15,771)
Net cash inflow from operating activities                             6,975            13,658             1,552
Returns on investments and servicing of finance
Interest received                                                       473               308               943
Interest paid                                                       (3,752)           (3,963)           (3,913)
Interest element of finance lease payments                             (15)              (65)             (130)
                                                                    (3,294)           (3,720)           (3,100)
Taxation                                                                (5)                 -             (224)
Capital expenditure and financial investment
Purchase of intangible fixed assets                                 (2,239)             (433)           (3,035)
Purchase of tangible fixed assets                                   (2,385)           (2,152)           (3,238)
Purchase of fixed asset investments                                 (4,498)           (3,356)           (6,285)
                                                                    (9,122)           (5,941)          (12,558)
Acquisitions
Purchase of drug delivery business of Bioglan AB                          -           (3,595)           (3,595)

Cash (outflow)/inflow before use of liquid resources and            (5,446)               402          (17,925)
financing
Management of liquid resources
Net decrease/(increase) in amounts held on short-term                 1,734          (23,135)           (3,872)
bank deposit
Financing
Issue of Ordinary Share capital                                          61            25,902            26,168
Issue of warrants                                                       672                 -               311
Debt due within one year:
  Repayment of loans                                                      -              (72)           (2,992)
Debt due beyond one year:
  Repayment of loans                                                  (137)             (139)             (929)
Capital element of finance lease payments                             (550)             (458)             (937)
                                                                         46            25,233            21,621
(Decrease)/increase in cash                                         (3,666)             2,500             (176)



NOTES TO THE INTERIM FINANCIAL STATEMENTS
for the six months ended 30 June 2003

1          ACCOUNTING POLICIES AND THE BASIS OF PREPARATION

            The interim financial statements have been prepared using accounting
policies consistent with those adopted by the Group in its financial statements
for the year ended 31 December 2002.

            The interim report is unaudited and does not constitute statutory
financial statements within the meaning of section 240 of the Companies Act
1985. The results for the period to 30 June 2003 have been formally reviewed and
reported upon by the auditors on page 21 to this report. The figures for the
year ended 31 December 2002 are an extract from the audited financial statements
for that period which have been delivered to the Registrar of Companies and on
which the auditors have issued an unqualified report which contained no
statement therein under section 237(2) or section 237(3) of the Companies Act
1985.

            Consolidation

            The consolidated financial information includes the financial
statements for the Company and its subsidiary undertakings.  Intra-group sales
and profits are eliminated fully on consolidation.  The results of subsidiaries
sold or acquired are included in the consolidated profit and loss account up to
the date of their sale or from their date of acquisition respectively.

            Revenue recognition

            Turnover comprises contract development and licensing, royalty and
manufacturing and distribution income. Contract development and licensing income
represents amounts invoiced to customers for services rendered under development
and licensing agreements, including milestone payments and technology access
fees.  Contract revenue is recognised when earned and non-refundable and to the
extent that there are no future obligations pursuant to the revenue, in
accordance with the contract terms.  Refundable contract revenue is treated as
deferred until such time as it is no longer refundable. Royalty income
represents income earned as a percentage of product sales. Advance royalties
received are treated as deferred income until earned, when they are recognised
as income.  Manufacturing and distribution revenues principally comprise
contract manufacturing fees invoiced to third parties and income from product
sales.

            Research and development costs

            Research costs are charged as an expense in the period in which they
are incurred.  Development costs are also recognised as an expense in the period
in which they are incurred, unless all of the criteria are met for asset
recognition.  The major asset recognition criteria include: the ability to
define clearly the product or process, demonstration of its technical
feasibility and that a commercial market for it exists.  Development costs
recognised as an asset do not exceed the probable net amount to be recovered in
marketing the product or process and they are amortised over the estimated
economic life.

            Intangible fixed assets

            Intangible fixed assets comprise goodwill, intellectual property and
capitalised development costs. Goodwill, being the difference between the fair
value of the purchase consideration and the Group's share of the fair value of
the net assets acquired, is capitalised and amortised over a period of 20 years
or less in line with the Directors' view of its useful economic life.  Prior to
the introduction of FRS 10; Goodwill and intangible assets, the policy adopted
was to write off goodwill to reserves. As permitted by FRS 10 goodwill written
off to reserves in previous years has not been reinstated on the balance sheet
and adjustments to such goodwill have been taken directly to reserves.  Goodwill
previously written off to reserves is charged to the profit and loss account in
the event of disposal of the related business.

            Intellectual property comprises acquired patents, trade marks,
know-how and other similarly identified rights. These are recorded at their fair
value at acquisition date and are amortised in equal instalments over their
estimated useful economic lives, from the date when the transfer of technology
is complete.  The period over which the Group expects to derive economic
benefits does not exceed 20 years.  Costs associated with internally developed
intellectual property are generally treated as research and development costs.
Development costs are recognised under the criteria stated above.

            Fixed asset investments

            Investments that are held for continuing use in the business are
classified as fixed asset investments and recorded in the balance sheet at cost
or Directors' valuation, less provision for permanent diminution in value.

            Impairment of fixed assets

            The carrying values of fixed assets are reviewed for impairment when
there is an indication that the assets may be impaired.  First year impairment
reviews are conducted for acquired goodwill and intangible assets.  Impairment
is determined by reference to the higher of net realisable value and value in
use, which is measured by reference to discounted future cash flows.  Any
provision for impairment is charged to the profit and loss account in the year
concerned.

2          SEGMENTAL ANALYSIS

            The Group's operations relate wholly to one class of business,
pharmaceuticals.  Further analysis of turnover and loss/profit on ordinary
activities before taxation by geographical area is set out below, together with
an analysis of cost of sales.


                                                            Unaudited        Unaudited             Audited
                                                       6 months to 30   6 months to 30     12 months to 31
                                                            June 2003        June 2002       December 2002
                                                                #'000            #'000               #'000
(a) Turnover
By class of business:
Pharmaceuticals
Contract development and licensing
  Milestone payments                                            8,581           18,138              47,736
  Research and development costs recharged                      2,793            4,582               7,705
                                                               11,374           22,720              55,441
Royalties receivable                                            8,027            1,818               6,751
Manufacturing and distribution                                  3,185            3,138               7,381
                                                               22,586           27,676              69,573
By location of customer:
  North America                                                 4,618            3,878              34,047
  UK                                                            7,103           17,050              21,000
  Europe                                                        8,222            4,913              10,333
  Rest of the world                                             2,643            1,835               4,193
                                                               22,586           27,676              69,573
By location of operation:
  Europe                                                       19,019           19,611              34,449
  North America                                                 3,567            8,065              35,124
                                                               22,586           27,676              69,573
(b) Cost of sales
By class of business:
Pharmaceuticals
Contract development and licensing                            (4,076)          (6,399)            (12,649)
Royalties payable                                             (1,737)            (666)             (1,374)
Manufacturing and distribution                                (6,889)          (5,203)            (10,807)
                                                             (12,702)         (12,268)            (24,830)

(c) (Loss)/profit on ordinary activities before
taxation
By class of business:
Pharmaceuticals                                              (18,613)          (4,000)               1,333
By location of operation:
  UK                                                          (5,198)          (4,633)             (7,695)
  Europe                                                        3,317            7,515               7,652
  North America                                              (15,113)          (4,926)               4,759
Operating (loss)/profit                                      (16,994)          (2,044)               4,716
Net interest payable                                          (1,619)          (1,956)             (3,383)
(Loss)/profit on ordinary activities before                  (18,613)          (4,000)               1,333
taxation

3          OTHER OPERATING INCOME

            Paul Capital Royalty Acquisition Fund provided a total of $30
million between 2000 and 2002, in return for the sale of a portion of future
royalty and revenue streams from DepoMorphine, Xatral OD, Solaraze and DepoCyt.
Income of #1.2 million was recognised as other operating income under this
agreement on a cost to complete basis.  All of the income under this agreement
has now been recognised.  Royalty payments of #0.4 million have been expensed
during the period.

            In 2002 the Group announced another transaction under which Paul
Capital will pay SkyePharma a further $30 million during 2002 and 2003, in
return for a portion of the potential future royalty and revenue streams from
nine products from the Group's drug pipeline.  Income of #3.0 million was
recognised as other operating income under this agreement on a cost to complete
basis.  Royalty payments of #0.9 million have been expensed during the period.

4          EXCEPTIONAL ITEMS

            Following a strategic reorganisation of research centres involving a
substantial reduction in staff at SkyePharma Canada, with certain activities
outsourced to other sites in San Diego and Muttenz, provisions of #0.7 million
were established against the cost of the reorganisation (note 9; Provisions for
Liabilities and Charges).  In addition #0.7 million was written down against
fixed assets.

5          EARNINGS PER ORDINARY SHARE


                                                           Unaudited          Unaudited              Audited
                                                      6 months to 30     6 months to 30      12 months to 31
                                                           June 2003          June 2002        December 2002
Basic and diluted attributable (loss)/profit                (18,689)            (4,165)                1,109
(#'000)

Basic weighted average number of shares in issue ('          609,177            566,452              577,018
000)
Dilutive potential Ordinary Shares ('000)                          -                  -               20,077
Diluted weighted average number of shares in issue           609,177            566,452              597,095
('000)

Earnings per Ordinary Share
  Basic                                                       (3.1p)             (0.7p)                 0.2p
  Diluted                                                     (3.1p)             (0.7p)                 0.2p

            In the half years 2003 and 2002 there was no difference between
basic and diluted earnings per Ordinary Share since all potential Ordinary
Shares were anti-dilutive.  In 2002 the weighted average number of Ordinary
Shares in issue was adjusted to assume conversion of all dilutive potential
Ordinary Shares.  Shares held by the SkyePharma PLC General Employee Benefit
Trust are excluded from the weighted average number of shares.

6              INTANGIBLE FIXED ASSETS

                                                                 Intellectual    Development
                                                    Goodwill         property          costs         Total
                                                       #'000            #'000          #'000         #'000
Cost
At 1 January 2003                                     80,017           34,560          1,778       116,355
Exchange adjustments                                       -            (335)           (24)         (359)
Additions                                              2,713            2,437              -         5,150
At 30 June 2003                                       82,730           36,662          1,754       121,146
Amortisation
At 1 January 2003                                      9,953            5,539            848        16,340
Exchange adjustments                                       -               23           (15)             8
Charge for the period                                  2,004            1,112            110         3,226
At 30 June 2003                                       11,957            6,674            943        19,574
Net book value at 31 December 2002                    70,064           29,021            930       100,015
Net book value at 30 June 2003                        70,773           29,988            811       101,572

            As part of the 2001 RTP acquisition, deferred consideration became
payable at 30 June 2003.  In July 2003 3,690,211 SkyePharma Ordinary Shares were
issued to the former RTP shareholders.

            During the period the Group paid Enzon #2.2 million ($3.5 million)
for access to its PEG modification technology, which has been included within
intellectual property.

7              FIXED ASSET INVESTMENTS
                                                               Unlisted
                                                            investments
                                                                               Own shares             Total
Cost                                                              #'000             #'000             #'000
At 1 January 2003                                                18,874             1,028            19,902
Additions                                                         3,572               925             4,497
Charge for the period                                                 -             (201)             (201)
At 30 June 2003                                                  22,446             1,752            24,198

            Astralis Limited

            During the period the Group acquired the final 250,000 series A
convertible preferred shares of Astralis Limited, an emerging biotechnology
company based in the US, for #1.6 million ($2.5 million).  The total holding as
at 30 June 2003 was 200,000 common shares, 20,000 warrants and 2,000,000 series
A convertible preferred shares.

            Micap plc

            During the period the Group acquired 5,000,000 ordinary shares of
Micap plc, a science based technology company, for #2 million.  Micap plc was
listed on the Alternative Investment Market in August 2003.

            Own shares

            During the period the SkyePharma PLC General Employee Benefit Trust
purchased 2 million shares.

8          ANALYSIS OF NET DEBT


                                     At 1 January                    Non-cash      Exchange    At 30 June
                                             2003                     changes     movements
                                                      Cash flow                                      2003
                                           #000's        #000's         #'000        #000's        #000's
Cash at bank and in hand                    7,394       (3,394)             -         (696)         3,304
Bank overdraft                                  -         (272)             -             5         (267)
Short-term bank deposits                   20,667       (1,734)             -          (56)        18,877
                                           28,061       (5,400)             -         (747)        21,914

Debt due within one year                  (1,842)             -         (606)             6       (2,442)
Debt due after one year                   (8,123)           137           606            36       (7,344)
Convertible bonds                        (58,377)             -         (207)             -      (58,584)
Finance leases                            (1,320)           550          (23)          (67)         (860)
                                         (69,662)           687         (230)          (25)      (69,230)
Total                                    (41,601)       (4,713)         (230)         (772)      (47,316)

Cash at bank and in hand and short-term bank deposits are aggregated on the
balance sheet.

9          PROVISIONS FOR LIABILITIES AND CHARGES


                                                                Pension     Restructuring             Total
                                                                  #'000             #'000             #'000
At 1 January 2003                                                   201                 -               201
Exchange adjustments                                                 23                14                37
Charge in the period                                                 34               670               704
Utilised                                                              -             (336)             (336)
At 30 June 2003                                                     258               348               606

            Restructuring Provision

            The restructuring provision relates to the reorganisation of
research centres involving a substantial reduction in staff at SkyePharma Canada
(note 4; Exceptional items).

10         SHARE CAPITAL

            Equity share capital


                                                                Ordinary Shares
                                                                    of 10p each        Nominal value
                                                                         Number                #'000
Issued, allotted and fully paid
At 1 January 2003                                                   613,458,067               61,346
Exercise of share options                                               130,020                   13
At 30 June 2003                                                     613,588,087               61,359

            Non-equity share capital

                                                                       Deferred
                                                                      'B' Shares
                                                                     of 10p each        Nominal value
                                                                         Number                #'000
Authorised and issued
At 1 January 2003 and 30 June 2003                                   12,000,000                1,200


11         SHARE AND WARRANTS TO BE ISSUED
                                                                                                #'000
At 1 January 2003                                                                                   -
Shares to be issued in respect of RTP Pharma Inc.                                               2,565
At 30 June 2003                                                                                 2,565

            As part of the 2001 RTP acquisition, deferred consideration became
payable at 30 June 2003.  In July 2003. 3,690,211 SkyePharma Ordinary Shares
were issued to the former RTP shareholders.

                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

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