BioWorld International Correspondent

LONDON - SkyePharma plc is the latest UK biotech to get involved in a dispute with a big pharma partner over a licensing agreement, as it announced it is in discussions with GlaxoSmithKline plc because SkyePharma believes it is entitled to an increase in the royalty rate for the antidepressant Paxil CR.

At the same time, London-based SkyePharma admitted failing to conclude three licensing agreements it said previously would be signed before the end of December, and as a result will not make a profit for 2003 as indicated when half-year results were published in September.

The revelations came in a trading update Jan. 5, when it said not concluding the three deals meant revenues for 2003 would be substantially below the £85 to £100 million (US$154.9 million to US$182.2 million) forecast in September, and below the £70 million achieved in 2002, when the company moved into profit for the first time.

Michael Ashton, CEO, said in a conference call that the dispute with GSK arose because SkyePharma believes it is entitled to a higher royalty rate for Paxil CR (controlled-release paroxetine) following the U.S. launch of a generic version of the product last September.

Paxil CR incorporates SkyePharma's Geomatrix, an oral, controlled-release technology.

"We have been through the process of discussing it [with GSK], and currently we believe there is a position here and we are talking to GSK about a resolution," Ashton said, adding that he would be prepared to invoke an arbitration process to settle the matter.

SkyePharma is the third UK biotech in recent months to find itself in dispute with a pharma partner over a potential blockbuster drug. Just last month Celltech Group plc, of Slough, took back rights to CDP870 in the treatment of rheumatoid arthritis after partner Pfizer Inc., of New York, asked to renegotiate financial terms of the $280 million deal agreed in March 2001. And Cambridge Antibody Technology Group plc, of Cambridge, has been forced to resort to legal action to try and prevent partner Abbott Laboratories, of Abbott Park, Ill., from reducing the royalty rate for Humira, an antibody treatment for rheumatoid arthritis.

Ashton said SkyePharma's dispute with GSK was "not a CAT and Abbott situation." SkyePharma currently receives a single-digit royalty rate for Paxil CR. There is no question of that going down, but the company's legal stand is that it is entitled to a "substantial increase" in the rate from the date of entry of generic paroxetine in the U.S. market.

However, Ashton admitted that SkyePharma's inability to complete three licensing agreements is a sign that pharmaceutical companies are becoming harder to negotiate with.

"In mid-sized pharma there is a greater time frame of internal discussions, and these are now going up to board level," he said. "I'm now meeting more CEOs and boards than I would have done 18 months ago. As a result, it takes longer to do deals and due diligence has increased."

Ashton added, "I can assure you [pharma] interest remains high and strong, and this is why I am confident we will get deals done in 2004." He said the deals would involve milestone payments of up to $200 million and double-digit royalty income.

One consequence of failing to do the deals is that research and development costs have not been transferred to partners, and as a result SkyePharma is cutting 10 percent of its 450-person work force.