Drug development is never cheap, even for drugs that aren't completely new molecular entities. Despite this fact, investors are never happy to see costs for a drug's projects going up. If given the choice between higher expenditures or a delayed development timeline though, spending the extra cash to find out whether a drug is effective is usually worth the extra expense. So, then, what to make of drug developer SkyePharma (NASDAQ:SKYE) announcing yesterday that it was raising more cash via financing and also upping the costs of its Flutiform asthma treatment development program?
Skye announced that it would take another $70 million to complete development of Flutiform. With the sale of its injectable business taking slightly longer than expected and its cash draining, Skye did the sensible thing and also stocked up its balance sheet with a 10-year $70 million loan. Not only will this cash buy Skye another couple of years in development time but it will also strengthen its hands in its negotiations over the injectable business, as it is now no longer in such dire need for more cash, which had fallen to roughly $40 million.
With the upcoming sale of its injectable business, Flutiform is by far Skye's most important developmental program. Skye expects Flutiform's phase 3 program to be completed and for a new drug application to be submitted to the FDA in the second half of next year and in Europe in 2008. This timeline puts flutiform on the market no later than 2009 if clinical trials are successful and there are no regulatory delays.
Since Skye is not extending the timeline for Flutiform's development, these additional development costs aren't such a big deal. Besides, we're not talking about a situation like with Pfizer's (NYSE:PFE) Torcetrapib, a drug that incurred $800 million in development expenses. Flutiform has been a relatively cheap drug to develop thus far. If Skye's estimates for peak Flutiform sales to be above $1 billion come to fruition, then another couple of millions of dollars in development expenses will be nothing more than an afterthought to shareholders.
For more on companies that deal with asthma, check out:
Pfizer is a Motley Fool Inside Value recommendation, and bargains can come in all shapes and sizes. To see where lead analyst Philip Durell is bargain-hunting, click here for afree trial.
Time is running out for the 2006 Foolanthropy charity drive. Take a look at the five great charities chosen for this year's event, and click the links from there to make a donation today. Thanks for your support.
Fool contributor Brian Lawler does not own shares of any company mentioned in this article.
