By Randall Osborne

West Coast Editor

Getting taken over by a larger company edging toward profitability might seem an ¿insoluble¿ problem to some smaller firms, but Montreal-based RTP Pharma Inc. has started the process with SkyePharma plc, of London, through the latter¿s acquisition of 40.2 percent of privately held RTP¿s outstanding shares for $20 million.

¿If you read between the lines, there¿s a series of puts and calls through which Skye can acquire all of RTP,¿ said Gary Pace, president and CEO of RTP, which formulates drugs that are poorly soluble into versions that can be more easily assimilated by the body.

SkyePharma CEO Michael Ashton was unequivocal. ¿It¿s our desire to acquire the company,¿ he said.

Pace said RTP has been looking for such a deal for some time.

¿It was structured this way for a number of financial reasons,¿ Pace told BioWorld Today. ¿We need to be accretive so we don¿t affect their earnings targets.¿

Under the terms of the deal, SkyePharma¿s shareholders also have agreed to buy $10 million more in preferred shares, which will give RTP $15 million in cash ¿ enough to carry the firm to profitability.

The key part: Remaining RTP shareholders can require SkyePharma to buy the preferred shares within 90 days, and buy the remaining 59.8 percent of outstanding shares before Jan. 1, 2004, if certain milestones are achieved, including profitability, partnerships and licensing agreements.

SkyePharma has the right to buy the rest of RTP before the 2004 deadline, using its own shares in exchange. The maximum number of shares SkyePharma would issue under any arrangement is 50 million, and Ashton told BioWorld Today the ¿top end¿ of cash outlay would be $65 million.

¿We¿ve known this company for some time, and we wanted to get close to them, but I wasn¿t prepared to take the company on if it was going to have a negative impact on our moving toward profitability,¿ Ashton said. SkyePharma likely will ¿cross the profitability line¿ at the end of his year, he added.

Solubility is a major problem with new chemical entities, Pace said. About 50 percent are insoluble or poorly soluble, which compromises their bioavailability. Pace said RTP¿s technology ¿ which is being used to develop several products in varying stages ¿ represents a strong supplement to SkyePharma¿s portfolio of delivery methods.

¿Skye has always been one of our preferred partners,¿ Pace said. ¿We needed to reach critical mass, and the question was how to team up with the company that has the other part of the puzzle.¿

SkyePharma¿s stock (NASDAQ:SKYE) closed at $12.60, up $1.09.

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