Todays update from SkyePharma (LSE: SKP) was, on the face of it, rather encouraging. After all, the oral and inhalation drug development company announced that its full year results for 2014 are expected to be in-line with boards previous guidance. However, shares in the company are down by over 15% at the time of writing, which makes them the biggest faller in the FTSE All-Share today. Heres why thats the case.
Disappointing News
The sale of products that use technology licensed by SkyePharma to GlaxoSmithKline were below market expectations in the third quarter. While disappointing, SkyePharma still expects the royalties it receives to reach the cap of 9 million per annum, but it now anticipates that this will take place a year later than had previously been expected. The impact of this on the companys share price, though, has been substantial, with investor sentiment sharply declining due to concerns regarding whether more disappointing sales numbers will be reported over the short to medium term.
In addition, there will be an exceptional cost included in SkyePharmas 2014 results. Thats because the company will now reimburse some of the restructuring costs related to its manufacturing business and premises in Lyon, France, which are currently leased to Aenova France. Although unlikely to be a hugely significant cost, this may also have hurt investor sentiment in SkyePharma.
Looking Ahead
Despite this, SkyePharma appears to be performing relatively well and, as mentioned, is expected to meet full-year expectations that will see it deliver a pre-tax profit for the first time since 2010. And, looking ahead, the company expects to ramp up investment in SKP-2075 and novel oral drug delivery platform technologies, as well as increasing net investment in research and development in a number of newly identified areas.
Furthermore, its performance in 2014 has benefitted from a 1.6 million milestone payment following the launch of Flutiform in Spain in the fourth quarter, with the company also receiving a slice of increased sales of Exparel. Both of these developments are encouraging and highlight that SkyePharma is well-placed to benefit from further sales growth in both of these areas.
In addition, SkyePharma continues to have a relatively robust balance sheet that seems to position it well to build on its anticipated return to profitability in 2014. And, with shares in the company trading on a price to earnings (P/E) ratio of just 10, they seem to offer good value for money at the present time. So, while investor sentiment may have taken a major knock today, SkyePharma could prove to be a sound long term buy.
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Peter Stephensowns shares of GlaxoSmithKline. The Motley Fool UK has recommended shares in GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
