Agreements

Date: 2011-08-01

Type of information: Production agreement

Compound:

Company: SkyePharma (UK) Aenova (Germany)

Therapeutic area:

Type agreement: manufacturing - production

Action mechanism:

Disease:

Details:

• SkyePharma has agreed to enter into an alliance with the Aenova Group to increase utilisation of SkyePharma's manufacturing facility in Saint Quentin-Fallavier, Lyon, France. Aenova France SAS, a wholly-owned subsidiary of Aenova Holding GmbH, a German-based pharmaceutical contract manufacturing organisation, has agreed to lease the entire pharmaceutical manufacturing business and the premises at Saint Quentin-Fallavier, Lyon for an initial period of two years, extendable for a further three years. During the lease period the parties may have further discussions to extend the Alliance beyond the fifth anniversary.
• The Alliance will provide Aenova with access to an FDA-registered pharmaceutical manufacturing facility which has significant available capacity and SkyePharma will benefit from rental income from Aenova. By introducing additional products to the Facility, the Alliance aims to increase utilisation rates and reduce the dependency on relatively few products and the risk of losses in the Manufacturing Business. The Alliance agreements will come into effect once Aenova has completed certain formalities required to register the Facility as a drug establishment with the US Food and Drug Administration. The effective date is expected to be in August 2011, at which point the Manufacturing Business will be transferred to Aenova as a going concern, including all employees, raw materials and work in progress, and, from that date, Aenova will manage and run the Facility. SkyePharma will retain all its current contractual arrangements with its partners and Aenova will continue to manufacture all SkyePharma products currently manufactured at the Facility and supply them to SkyePharma. SkyePharma plans to work with Aenova to continue to utilise the Facility to manufacture oral products in development by SkyePharma. Aenova intends to carry out technical transfer and development work in order to be able to introduce the manufacture of additional products into the Facility from 2013 onwards.

Financial terms:

• Aenova will pay rent at a rate of €1 million (£0.9 million) per annum in cash for the first two years (with the first six months' rent free) from 1 July 2011. On renewal at the end of the first two years the rent is increased to 2m (£1.8 million) per annum in cash. Aenova will supply products and services to SkyePharma initially on a pass-through basis. SkyePharma has the opportunity to earn a margin on the sales of these products and services, in the first two years based on the level of net revenues to Aenova from SkyePharma products and services and after that time based on total revenues of Aenova at the Facility. -The lease is for an initial period of two years subject to certain termination rights of Aenova, related to performance or projected performance of the Manufacturing Business (to the extent it relates to SkyePharma products manufactured and services provided at the Facility). At the end of the first two years, SkyePharma has a 12 month option to renew the lease until the end of the fifth anniversary from commencement. If SkyePharma terminates the lease or does't renew it within the 12 month option period, Aenova has a 2 year rent free termination period during which the parties will discuss arrangements either for the continued production and supply by SkyePharma of Aenova products at the Facility or termination of that production.
• On termination or expiry of the lease, the entire Manufacturing Business including all employees, raw materials and work in progress at that time will be transferred back to SkyePharma on similar terms to the transfer to Aenova at inception. On termination or expiry, capital investments made by Aenova during the term of the lease and necessary for manufacturing SkyePharma products will transfer to SkyePharma. These transfers will be free of charge except for certain capital investments related to increase of capacity and/or capabilities to manufacture SkyePharma products, and large environmental protection projects, in which case they will be transferred at net book value and paid for over time. - The estimated value of the Gross Assets, the subject of the proposed agreement, at 31 December 2010 in the consolidated SkyePharma Group accounts was £9.4m. The profit attributable to the assets, the subject of the transaction, in 2010 would have been a profit before tax of £1.3m.

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