<PAGE>

     As filed with the Securities and Exchange Commission on June 11, 2001
===============================================================================



                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION


                             Washington, D.C. 20549

                                   FORM 20-F

(Mark One)

|_|             REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
                 OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
                                       OR

|X|              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended: December 31, 2000
                                       OR

|_|                 TRANSITION REPORT PURSUANT TO SECTION 13
                 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
                                      1934
                   For the transition period from N/A to N/A

                        Commission file number : 0-29860


                                 SKYEPHARMA PLC

             (Exact name of Registrant as specified in its charter)

                               England and Wales
                (Jurisdiction of incorporation or organization)

                    105 Piccadilly, London W1J 7NJ, England
                    (Address of principal executive offices)


Securities registered or to be registered pursuant to Section 12(b) of the
Act: None

Securities registered or to be registered pursuant to Section 12(g) of the
Act:

                   ordinary shares of nominal value 10p each

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None.

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by this annual
report:

    ordinary shares, nominal value 10p each 517,322,768

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days:

         Yes  X           No

Indicate by check mark which financial statement item the registrant has
elected to follow:

         Item 17           Item 18  X

===============================================================================

<PAGE>
                               TABLE OF CONTENTS


                                                                           Page

                                     Part I

<TABLE>
<CAPTION>
<S>                                                                        <C>
Item 1: Identity of Directors, Senior Management and Advisers ..........       5

Item 2: Offer Statistics and Expected Timetable ........................       5

Item 3: Key Information ................................................       5

Item 4: Information on the Company .....................................      21

Item 5: Operating and Financial Review and Prospects ...................      64

Item 6: Directors, Senior Management and Employees .....................      74

Item 7: Major Shareholders and Related Party Transactions ..............      87

Item 8: Financial Information ..........................................      91

Item 9: The Offer and Listing ..........................................      93

Item 10: Additional Information ........................................      94

Item 11: Quantitative and Qualitative Disclosures About Market Risk ....     105

Item 12: Description of Securities Other than Equity Securities ........     105
</TABLE>



                                    Part II

<TABLE>
<CAPTION>
<S>                                                                        <C>
Item 13: Defaults, Dividend Arrearages and Delinquencies ...............     106

Item 14: Material Modifications to the Rights of Security Holders and
  Use of Proceeds.......................................................     106
</TABLE>



                                    Part III

<TABLE>
<CAPTION>
<S>                                                                        <C>
Item 17: Financial Statements ..........................................     106

Item 18: Financial Statements ..........................................     106

Item 19: Exhibits ......................................................     106
</TABLE>



                                      -2-

<PAGE>
                          PRESENTATION OF INFORMATION


    In this Annual Report on Form 20-F ("Form 20-F"), the term "ordinary
shares" refers to SkyePharma's ordinary shares, nominal value 10 pence each,
and the term "ADSs" refers to American Depositary Shares each representing the
right to receive 10 ordinary shares and evidenced by American Depositary
Receipts ("ADRs").

    The Company publishes its consolidated financial statements expressed in
pounds sterling. In this Form 20-F, references to "pounds sterling", "(L)",
"pence" or "p" are to the lawful currency of the United Kingdom; references to
"U.S. dollars" or "$" are to the lawful currency of the United States;
references to "French francs" or "Ffr" are to the lawful currency of France;
and references to "Swiss francs", "Chf" or "Sfr" are to the lawful currency of
Switzerland. Solely for the convenience of the reader, this Form 20-F contains
translations of certain pound sterling amounts into U.S. dollar amounts at
specified rates. Unless otherwise stated, the translations of pounds sterling
into U.S. dollars have been made at the noon buying rate in New York City for
cable transfers in pounds sterling, as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate"). No representation
is made that pounds sterling have been, could have been or could be converted
into U.S. dollars at the rates indicated or at any other rate.

    SkyePharma prepares its consolidated financial statements in accordance
with generally accepted accounting principles in the United Kingdom ("U.K.
GAAP"), which differ in certain significant respects from generally accepted
accounting principles in the United States ("U.S. GAAP"). The principal
differences between U.K. GAAP and U.S. GAAP as they relate to SkyePharma are
summarized in Note 29 of SkyePharma's Consolidated Financial Statements
included in Item 18 of this Form 20-F.

    In 1996, SkyePharma changed its fiscal year end to December 31 to conform
its fiscal year to that of Jago.


                              CERTAIN DEFINITIONS


    In this document:

    "Brightstone" refers to Brightstone Pharma Inc., a wholly owned subsidiary
of SkyePharma Holdings Inc., which is a wholly owned subsidiary of the
Company.

    "DepoCyt(R)" refers to the product combining SkyePharma's DepoFoam with
cytarabine, a drug used to treat certain cancers although in some countries
the trademark used is DepoCyte(TM).

    "Jago" refers to Jago Holding AG, and its subsidiaries. Jago Holding AG is
a wholly owned subsidiary of SkyePharma Holding AG, which is a wholly owned
subsidiary of the Company.

    "Joint Venture" refers to Genta-Jago Technologies B.V., a Netherlands
corporation in which the Company is a 50/50 partner with Genta Incorporated, a
Delaware corporation ("Genta").

    "Krypton" refers to Krypton Limited, a wholly owned subsidiary of
SkyePharma Holding AG, which is a wholly owned subsidiary of the Company.

    "Lyon" refers to SkyePharma Production SAS, a wholly owned subsidiary of
the Company.

    "SkyePharma", the "Company" or "we" refer to SkyePharma PLC and its
consolidated subsidiaries, including Jago, Lyon, Brightstone and SkyePharma
Inc., unless the context requires reference to SkyePharma PLC only;

    "SkyePharma Inc." refers to DepoTech Corporation, a California corporation,
which was renamed as of June 30, 1999 as SkyePharma Inc.; and

    "Solaraze(TM)" refers to the topical gel formulation of hyaluronan and the
non-steroidal, anti-inflammatory drug diclofenac and is being developed
primarily as a product for the treatment of actinic keratosis, a lesion of the
skin which may precede skin cancer, although in some countries the trademark
used may vary.


                                      -3-

<PAGE>
                                STATISTICAL DATA


    Except where otherwise indicated, figures included in this Form 20-F
relating to pharmaceutical market sales are based on syndicated industry
sources, including I.M.S. Health, Inc. ("IMS") or from the Company's
collaborative partners. IMS is a market research firm internationally
recognized by the pharmaceutical industry.


                           FORWARD-LOOKING STATEMENTS


    This Form 20-F contains certain forward-looking statements as defined in
Section 21E of the Securities Exchange Act of 1934 with respect to the
financial condition, results of operations and business of the Company and
certain of the plans and objectives of the board of directors of the Company
with respect thereto. Such statements may generally, but not always, be
identified by the use of words such as "anticipates", "should", "expects",
"estimates", "believes", or similar expressions. Such statements in this Form
20-F include, but are not limited to, statements under the following headings:
(1) "Item 4: Information on the Company"; (2) "Item 5: Operating and Financial
Review and Prospects"; (3) "Item 8: Financial Information"; and (4) "Item 11:
Quantitative and Qualitative Disclosures About Market Risk". Specific risks
faced by the Company are described under "Risk Factors" on pages 9 to 20. By
their nature, forward-looking statements involve risk and uncertainty, and the
factors described in the context of such forward-looking statements in this
Form 20-F could cause actual results and developments to differ materially
from those expressed in or implied by such forward-looking statements.


                           EXCHANGE RATE INFORMATION

    The table below sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rates for pounds sterling expressed in
U.S. dollars per pound. The period average data set forth below is the average
of the Noon Buying Rates on the last day of each full month during the period.

    Fluctuations in the exchange rate between the pound sterling and the U.S.
dollar will affect, among other things, the U.S. dollar equivalent of the
pound sterling price of the ordinary shares on the London Stock Exchange
("LSE"), which is likely to affect the market prices of the ADSs in the United
States.

<TABLE>
<CAPTION>
                                                             High                Low            Period Average        Period End
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
1996...............................................              1.7123              1.4948              1.5733              1.7123
1997...............................................              1.7035              1.5775              1.6397              1.6427
1998...............................................              1.7222              1.6114              1.6602              1.6628
1999...............................................              1.6765              1.5515              1.6146              1.6150
2000...............................................              1.6538              1.3997              1.5156              1.4955
2001 (through June 7, 2001)........................              1.5045              1.3900              1.4343              1.3900
</TABLE>


<TABLE>
<CAPTION>
                                                                                                      High                Low
                                                                                                ----------------    ----------------
<S>                                                                                            <C>                 <C>
December 2000 ..............................................................................              1.4955              1.4365
January 2001 ...............................................................................              1.5045              1.4570
February 2001 ..............................................................................              1.4775              1.4385
March 2001 .................................................................................              1.4725              1.4190
April 2001 .................................................................................              1.4470              1.4200
May 2001 ...................................................................................              1.4400              1.4103
June 2001 (through June 7, 2001) ...........................................................              1.4160              1.3900
</TABLE>


    For a discussion of the impact of exchange rate fluctuations on the
Company's operating results, see "Item 5: Operating and Financial Review and
Prospect--Operating Results".


                                      -4-

<PAGE>
                                     PART I


Item 1: Identity of Directors, Senior Management and Advisers

    Not applicable

Item 2: Offer Statistics and Expected Timetable

    Not applicable

Item 3: Key Information

Selected Financial Data

    The selected financial data set forth below for the Company as of December
31, 2000 and 1999, and for the years ended December 31, 2000, 1999 and 1998
have been derived from, and should be read in conjunction with the
Consolidated Financial Statements of the Company included in Item 18 of this
Form 20-F. The selected financial data set forth below for the Company as of
December 31, 1998, 1997 and 1996 and for the years ended December 31, 1997 and
1996 have been derived from audited Consolidated Financial Statements of the
Company. The Consolidated Financial Statements of the Company for the years
ended December 31, 2000, 1999 and 1998 have been audited by
PricewaterhouseCoopers, independent chartered accountants. The Consolidated
Financial Statements of the Company for the years ended December 31, 1997 and
1996 were audited by Price Waterhouse, independent chartered accountants.

    In this selected information, the Company has presented its operating
results from discontinued operations and the net loss on sale thereof on a
single line net basis for U.K. GAAP purposes, while the Company's U.K. GAAP
consolidated financial statements present these amounts on a gross basis.
Also, the Company has reclassified "share of operating profit/loss in joint
venture" outside of group operating profit/loss as required by U.K. FRS 9
"Associates and Joint Ventures", which is effective for all periods ending
after June 25, 1998. For purposes of comparison, the Company has also
reclassified this item for periods prior to the effectiveness of FRS 9 in the
table presented below. Turnover in the table below is net of share of turnover
related to the joint venture, and net interest below is net of share of
interest relating to the joint venture.

    The Company's current operations include the drug delivery business of Jago
which was acquired by the Company in May 1996, a manufacturing facility in
Lyon acquired in January 1997 and the operations of SkyePharma Inc. acquired
in March 1999.

    The four months of operations of Jago to April 30, 1996 and the results of
the Company for the year ended December 31, 1996 (which include eight months
of Jago operations), excluding discontinued operations, represent the
continuing operations of the Company in that period. The four months of
operations of Jago to April 30, 1996 include turnover of (L)1,056,000 which
relates to sales from Jago to the Company. The Company has included this
amount in its cost of sales for the year ended December 31, 1996.

    The Company's financial statements include the results of the Lyon
manufacturing facility from January 1997. The Company's 1997 results include
(L)5.4 million of turnover and (L)5.2 million cost of sales from the
manufacturing operations of that facility. Net assets of the acquired
operation were approximately (L)13.0 million.

    The Company's 1999 results include (L)3.5 million turnover and (L)2.7
million cost of sales from the operations of SkyePharma Inc. in March 1999.
Net assets of the acquired operation were approximately (L)3.4 million.

    The Company has calculated loss per share data using the weighted average
number of shares in issue for each period, adjusted for the effects of a
rights issue in January 1996 and a share consolidation in May 1996. The
information below does not include net loss per share for Jago because it was
a privately-held company, all of the shares of which were owned by a single

                                      -5-

<PAGE>
shareholder. Basic and diluted loss per ordinary share are set out in the
following table, there is no difference between basic and diluted loss per
share since all potential ordinary shares including convertible bonds,
warrants and options are anti-dilutive.

    The selected financial data has been prepared using U.K. GAAP which differs
in certain significant respects from U.S. GAAP. A reconciliation to U.S. GAAP
of the Company's net loss and shareholders' funds at December 31, 2000 and
1999 and for the years ended December 31, 2000, 1999 and 1998 is set out in
Note 29 of the Notes to the Consolidated Financial Statements of the Company.
Total assets for U.S. GAAP comprise total assets under U.K. GAAP adjusted for
the U.S. GAAP adjustments set out on page F-62.

    The Company has not paid dividends in the past ten years on its ordinary
shares and does not intend to pay dividends in the foreseeable future. The
Company currently intends to retain all of its earnings to finance its
operations and future growth. Moreover, under current U.K. law, the Company's
accumulated realized profits must exceed its accumulated realized losses (on a
non-consolidated basis) before dividends can be paid.

    For exchange rate information, see "Exchange Rate Information" on page 4 of
this Form 20-F. Solely for the convenience of the reader, the pound sterling
amounts as of and for the year ended December 31, 2000 have been translated
into U.S. dollars at the noon buying rate on December 31, 2000 of $1.4955 per
(L)1.00.

    For a discussion of the impact of exchange rate fluctuations on the
Company's operating results, see "Item 5: Operating and Financial Review and
Prospects: Operating Results".


                                      -6-

<PAGE>
SkyePharma PLC

<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                  ---------------------------------------------------------------------------------
Consolidated Income Statement Data                     1996        1997          1998          1999           2000          2000
                                                  ----------    ----------     ----------    ----------    ----------    ----------
                                                                        (in thousands, except per share data)
<S>                                               <C>           <C>           <C>           <C>           <C>           <C>
U.K. GAAP
Continuing:
Turnover(1)...................................      (L)9,013     (L)13,839      (L)10,925     (L)17,739     (L)24,292       $36,329
Cost of sales(2)..............................        (7,028)      (10,193)       (10,630)      (14,854)      (15,598)      (23,327)
                                                  ----------    ----------     ----------    ----------    ----------    ----------
Gross profit..................................         1,985         3,646            295         2,885         8,694        13,002
Selling, marketing & distribution expenses(3).        (2,539)       (3,063)        (4,230)       (3,161)       (3,844)       (5,749)
Administration expenses(4)....................        (6,384)       (6,422)        (6,781)      (12,584)      (12,630)      (18,888)
Research and development expenses(5)..........        (2,098)       (6,109)        (5,712)       (6,728)      (13,104)      (19,597)
Other operating income(6).....................           313            --             --            --         2,900         4,337
                                                  ----------    ----------     ----------    ----------    ----------    ----------
Group operating loss..........................        (8,723)      (11,948)       (16,428)      (19,588)      (17,984)      (26,895)
Share of operating (loss)/profit in Joint
  Venture(7)..................................          (492)         (346)            14           (48)           --            --
                                                  ----------    ----------     ----------    ----------    ----------    ----------
                                                      (9,215)      (12,294)       (16,414)      (19,636)      (17,984)      (26,895)
Group operating profit from discontinued
  operations..................................            27            --             --            --            --            --
                                                  ----------    ----------     ----------    ----------    ----------    ----------
Total operating loss..........................        (9,188)      (12,294)       (16,414)      (19,636)      (17,984)      (26,895)
(Provision)/reversal of provision for loss on
  disposal of fixed asset investment(8).......        (1,823)           --             --           381            --            --
Provision for loss on disposal of
  discontinued operations (net)...............          (121)           --             --            --            --            --
                                                  ----------    ----------     ----------    ----------    ----------    ----------
Loss on ordinary activities before interest
  and taxation................................       (11,132)      (12,294)       (16,414)      (19,255)      (17,984)      (26,895)
Interest receivable...........................         1,000           808          1,396         1,364         1,806         2,701
Interest payable..............................        (4,098)       (6,229)        (6,993)       (1,391)       (3,508)       (5,246)
Taxation......................................            72           (66)           (85)         (132)           (4)           (6)
                                                  ----------    ----------     ----------    ----------    ----------    ----------
Net loss......................................    (L)(14,158)   (L)(17,781)    (L)(22,096)   (L)(19,414)   (L)(19,690)     $(29,446)
                                                  ==========    ==========     ==========    ==========    ==========    ==========
Basic and diluted loss per ordinary share.....          (5.3)p        (5.1)p         (5.7)p        (4.2)p        (3.9)p      $(0.06)
U.S. GAAP
Loss from continuing operations...............    (L)(51,952)   (L)(18,658)    (L)(21,789)   (L)(28,218)   (L)(29,201)     $(43,670)
Net loss......................................    (L)(52,046)   (L)(18,658)    (L)(21,789)   (L)(28,218)   (L)(29,201)     $(43,670)
Per Share:
Loss from continuing operations...............         (19.3)p        (5.3)p         (5.7)p        (6.0)p        (5.7)p      ($0.09)
Net loss......................................         (19.3)p        (5.3)p         (5.7)p        (6.0)p        (5.7)p      ($0.09)
</TABLE>


    The notes on page 8 describe significant movements within the above
categories in respect of acquisitions made during specific financial periods.


                                      -7-

<PAGE>

<TABLE>
<CAPTION>
                                                                                 SkyePharma PLC
                                                                               As of December 31,
                                             --------------------------------------------------------------------------------------
Consolidated Balance Sheet Data                   1996         1997           1998           1999           2000           2000
                                             -----------    -----------    -----------    -----------    -----------    -----------
                                                                    (in thousands, except Number of shares)
<S>                                          <C>            <C>            <C>            <C>            <C>            <C>
U.K. GAAP
Fixed assets.............................       (L)9,297      (L)24,034      (L)30,337      (L)83,591     (L)112,374       $168,055
Cash and short term bank deposits........         21,318          8,671         30,925         13,674         42,878         64,124
Total assets.............................         34,354         42,430         68,855        106,734        163,825        245,000
Net Assets...............................        (44,486)       (46,110)         6,235         72,057         68,952        103,118
Share Capital............................         34,661         36,395         42,710         49,409         54,132         80,954
Number of shares.........................    346,612,777    363,950,609    427,098,454    494,086,980    517,322,768    517,322,768
U.S. GAAP
Total assets.............................        157,588        148,559        169,788        197,557        290,317        434,169
Net Assets...............................        141,320        129,847        146,668        157,362        145,929        218,237
</TABLE>


(1)   Turnover in 1996 includes (L)9,013,000 from acquisitions in respect of
      the operations of Jago. Turnover in 1997 includes (L)5,357,000 from
      acquisitions in respect of the manufacturing facility in Lyon. Turnover
      in 1999 includes (L)3,520,000 from acquisitions in respect of the
      operations of SkyePharma Inc.

(2)   Cost of sales in 1996 includes (L)7,028,000 from acquisitions in respect
      of the operations of Jago. Cost of sales in 1997 includes (L)5,153,000
      from acquisitions in respect of the manufacturing facility in Lyon. Cost
      of sales in 1999 includes (L)2,669,000 from acquisitions in respect of
      the operations of SkyePharma Inc.

(3)   Selling, marketing and distribution in 1996 includes (L)640,000 from
      acquisitions in respect of the operations of Jago. Selling, marketing
      and distribution in 1999 includes (L)1,870,000 from acquisitions in
      respect of the operations of SkyePharma Inc.

(4)   Administration in 1996 includes (L)3,064,000 from acquisitions in
      respect of the operations of Jago. Administration in 1997 includes
      (L)988,000 from acquisitions in respect of the manufacturing facility in
      Lyon. Administration in 1999 includes (L)4,559,000 from acquisitions in
      respect of the operations of SkyePharma Inc.

(5)   Research and development expenses in 1996 includes (L)1,808,000 from
      acquisitions in respect of the operations of Jago. Research and
      development expenses in 1999 includes (L)3,273,000 from acquisitions in
      respect of the operations of SkyePharma Inc.

(6)   Other operating income in 1996 relates to acquisitions in respect of the
      operations of Jago.

(7)   Share of operating loss in Joint Venture in 1996 relates to acquisitions
      in respect of the operations of Jago.

(8)   Provision for loss on disposal of fixed asset investment in 1996 relates
      to acquisitions in respect of the operations of Jago.


                                      -8-

<PAGE>
RISK FACTORS

    The Company is exposed to certain risks that arise from the activity of
developing and manufacturing drug products.

Extensive government regulation may cause increased costs and delays in
developing and marketing products

    The Company is subject to extensive government regulation. The U.S. Food
and Drug Administration ("FDA"), European and other national regulatory
authorities require rigorous pre-clinical testing, clinical trials and other
approval procedures for human drugs. Numerous regulations also govern the
manufacturing, safety, labeling, storage, record keeping, reporting and
marketing of human drugs. These requirements vary widely from country to
country and the time required to complete pre-clinical testing and clinical
trials and to obtain regulatory approvals to sell drugs is uncertain. The
process of obtaining these approvals and complying with applicable government
regulations is time consuming and expensive. If the FDA or other national
regulatory authorities require additional clinical trials, the Company could
face increased costs and significant development delays before the Company
will be able to sell its products commercially. In addition, changes in
regulatory policy or additional regulations adopted during product development
could also result in delays or rejections.

    Geomatrix(TM) is a range of technologies by which drugs taken orally in
tablet form are formulated so as to control the amount, timing and location of
the release of drug in the body. All of the improved outcome and new Geomatrix
products that the Company develops will require a new drug application filing
with the FDA before they can be marketed in the U.S. Based on current
practice, the Company expects that it will take approximately two years from
the date of filing for the FDA to approve a new drug application for a
Geomatrix product formulation, although the Company cannot predict the exact
time required with any certainty.

    DepoFoam(TM) is a technology by which drugs taken by injection are
formulated to release over an extended period of time. With the exception of
one product used to treat certain cancers, DepoCyt, products using the
Company's DepoFoam technology are at an early stage of development. In April
1999, the FDA approved DepoCyt for treatment of lymphomatous meningitis and
the product was launched in the U.S. in May 1999. In October 1999, SkyePharma
Inc. discovered that two lots of DepoCyt did not meet specifications and
recalled these lots. Investigations identified that changes in a supplier's
manufacturing process for a raw material resulted in product which did not
meet all specifications throughout the shelf-life. SkyePharma Inc. and Chiron
Corporation voluntarily withdrew DepoCyt from the market. There were no
adverse events attributed to the recalled batches and the product was made
available to patients on a compassionate basis. In March 2001, the FDA gave
clearance to return Depocyt to the market. In November 1999, SkyePharma Inc.
received marketing approval for DepoCyt from the Canadian regulatory
authorities. In April 2001, the Company received notification that the
European Committee on Proprietary Medicial Products ("CPMP") had recommended
the granting of marketing authorization for DepoCyt. The CPMP's recommendation
will be forwarded to the European Commission and when ratified the Company
will receive a single license for marketing throughout the European Union.

    The Company cannot be certain that it will obtain further regulatory
approvals of any of such products. To date, only three potential DepoFoam
products have been subjected to human testing. Potential DepoFoam products
will require expensive and lengthy testing and regulatory clearances before
they can be sold commercially. DepoFoam products may not prove safe and
effective in clinical trials, meet applicable regulatory standards, or be
capable of being made at acceptable cost or successfully commercialized. In
addition, pre-clinical or clinical testing may not accurately predict safety
or effectiveness in broader human use. Unexpected delays in the regulatory
approval process may also occur. Even if the FDA and other regulatory
authorities approve potential DepoFoam products for marketing, the products
still may not achieve broad market acceptance.


                                      -9-

<PAGE>
Competition and technological change may render the Company's products or
technologies uncompetitive or obsolete

    The drug development industry is highly competitive and rapidly evolving,
with significant developments expected to continue at a rapid pace. The
Company's success will depend on maintaining a competitive position and
developing efficient and cost-effective products and technologies. The
Company's products will compete with other drugs and methods for delivering
drugs. The Company cannot be certain that any of its products will have
advantages that will be significant enough to cause medical professionals to
use them. New drugs or further development in alternative drug delivery
methods may provide greater benefits or may offer comparable performance at
lower cost than the Company's methods. The Company cannot be certain that
developments by other companies will not render its products or technologies
uncompetitive or obsolete.

    Many of the Company's competitors have longer operating histories and
greater financial, marketing and other resources. Such competitors may prove
to be more successful in developing competing technologies, obtaining
regulatory approvals and marketing their products than the Company because of
greater financial resources, stronger sales and marketing teams or other
factors.

    The Company will face a variety of competitors with respect to the products
it is developing under its collaborative arrangements with leading
pharmaceutical companies. Specifically,

      o     products developed and produced by such collaborative arrangements
            may compete with products produced internally by one or more of
            the Company's other collaborative partners;

      o     proprietary and generic products developed and produced by such
            collaborative arrangements may face competition from generic
            substitutes produced by other companies; and

      o     generic products developed and produced by the Company may compete
            against branded products produced by one or more of the Company's
            collaborative partners.

    Due to the Company's reliance on the important financial and technological
contributions made by the Company's pharmaceutical company partners, any of
these outcomes could adversely affect the Company's business.

The Company's business may give rise to product liability claims not covered
by insurance or indemnification

    The design, development and manufacture of the Company's products involve
an inherent risk of product liability claims.

    The Company has obtained product liability insurance in respect of the
improved outcome or new pharmaceutical products the Company is developing in
conjunction with the Company's collaborative partners although the Company
generally relies on indemnity provisions in its agreements with such partners
to protect the Company against the possibility of product liability claims.
This product liability insurance also covers liabilities associated with the
commercial sale of products marketed by third parties using the Company's
technology.

    The Company has obtained clinical trial product liability insurance for
current human clinical trials and bioequivalence studies involving its
products under development and the Company intends to obtain insurance for
future clinical trials and bioequivalence studies of additional products under
development. The Company cannot be certain, however, that it will be able to
obtain or maintain insurance for any of its future human clinical trials or
bioequivalence studies.


                                      -10-

<PAGE>
    The Company believes that its product liability insurance, together with
the indemnity provisions in its collaborative agreements, is adequate for
current operations. However, the coverage limits of the Company's insurance or
the indemnity provisions in the Company's collaborative agreements may not be
adequate to cover all potential claims. Product liability insurance,
especially in respect of the Company's U.S. operations, is expensive and may
be difficult to maintain. In addition, product liability insurance may not be
available to the Company in the future on commercially reasonable terms, if at
all. A successful claim against the Company in excess of the Company's
insurance coverage or outside the scope of the indemnity given by its
collaborative partners could adversely affect the business.

The Company's revenues may be reduced and costs increased as a result of
third-party payor cost containment measures

    The Company's ability to achieve profitability in its businesses depends in
part on the extent to which appropriate levels of reimbursement for products
and related treatments are obtained from government authorities, private
health insurers and other organizations, such as health maintenance
organizations. These third-party payors are increasingly challenging the
pricing of pharmaceutical products. The trend toward managed healthcare in the
U.S. and the growth of organizations such as health maintenance organizations
in the U.S. could significantly influence the purchase of pharmaceutical
products, resulting in lower prices and reduced demand for the Company's
products under development. Such cost containment measures could affect the
Company's ability to sell products under development and may adversely affect
the Company.

Health care reform measures proposals may adversely affect the Company's
business

    The efforts of governments to contain or reduce the cost of health care
will continue to affect the business and financial condition of drug
companies. A series of health care reform proposals announced in recent years
have created uncertainty that could adversely affect the Company's ability to
raise funds and to identify and reach agreements with potential partners. If
such proposals are eventually adopted, business could be adversely affected.
Furthermore, the Company's ability to commercialize potential DepoFoam
products may be adversely affected to the extent that such proposals have an
adverse effect on the business, financial condition and profitability of other
companies that are current or prospective collaborators for some of such
products.

The Company's results of operations tend to fluctuate

    The Company's operating revenues principally derive from contract
development. Contract development revenues, except for revenue derived from
contract manufacturing, are tied to a number of unpredictable factors, such as
scientific developments, the timing of regulatory approvals, the market
introduction of new products and other factors. As a result, the Company's
results of operations tend to fluctuate materially on a monthly, semi-annually
and yearly basis and, therefore, make period-to-period and period-on-period
comparisons inappropriate at this stage in the Company's development. The
Company believes that its revenues will continue to fluctuate in the near to
medium term as a result of the factors described above.

The Company may not achieve future profitability

    The Company has not generated any earnings to date from its pharmaceutical
operations and has incurred substantial net losses in its recent fiscal years.
As of December 31, 2000, the Company had accumulated consolidated equity
shareholders' funds of (L)46.3 million. The time required to reach
profitability is uncertain. While the Company's internal forecasts indicate
that the Company may achieve profitability in the second half of 2001 with
full year profitability in 2002, this is dependent upon the level of milestone
payments and license fees received, the timing of contract development
revenues and the amount of discretionary investment the Company chooses to
make in furthering its own product portfolio and other factors, including
those described below, and therefore the Company cannot assure you that it
will be able to achieve profitability, or sustain profitability if it is
attained. See "Item 5: Operating and Financial Review and Prospects".


                                      -11-

<PAGE>
    The Company's future profitability will additionally depend, among other
things, on whether it will, alone or together with its partners, be able to:

      o     develop products utilizing its technologies, either independently
            or in collaboration with other pharmaceutical companies;

      o     receive necessary regulatory and marketing approvals;

      o     establish and enhance its manufacturing;

      o     achieve market acceptance for such products;

      o     receive royalties on products that have been approved, marketed or
            submitted for marketing approval with regulatory authorities in
            line with the Company's current forecasts; and

      o     maintain sufficient funds to finance its activities.

The Company is dependent on Geomatrix, DepoFoam and Inhalation technologies as
to which further successful development is uncertain

    The Company's ability to increase revenues and achieve profitability is
largely dependent on its Geomatrix, Depofoam and inhalation technologies.
Approximately 26% of the Company's revenues for the year ended December 31,
2000 was derived from royalties, contract development and milestone payments
relating to its Geomatrix technologies, approximately 7% relating to its
DepoFoam technologies and approximately 10% relating to its inhalation
technologies. In order to increase revenues from Geomatrix, DepoFoam and
inhalation technologies the Company must continue to obtain new development
contracts for third parties. The Company cannot assure you that it will be
able to obtain such contracts.

    The Company has successfully developed drug products incorporating three
Geomatrix technologies which are currently on the market. However, the Company
cannot assure that it will be able to develop successfully future products
incorporating these delivery systems. The development and formulation of oral
controlled-release products is difficult and time consuming. Each drug
compound is different, and there can be no assurance that a drug delivery
system that works with one product will work with another.

    The Company is currently formulating products utilizing other Geomatrix
technologies. However, the Company cannot assure that these efforts will be
successful. One of these technologies, the Multiple Pulse System, has only
been subject to limited in vivo (human) clinical testing. Consequently, the
Company cannot assure that drugs utilizing the Multiple Pulse System will be
successfully formulated and approved.

    The Company has successfully developed one drug product incorporating
DepoFoam technologies which was approved by the FDA in April 1999. However the
Company can not assure you that it will be able to develop successfully future
products utilizing the DepoFoam technologies. The development and formulation
of injectable controlled-release products is difficult and time-consuming.
Each drug compound is different and there can be no assurance that a drug
delivery system that works with one product will work with another.

    The Company is developing two advanced inhalation technologies to deliver
medicines via a patient's lungs without relying on CFC-based propellants. The
Company has successfully developed one drug product incorporating its
inhalation technologies which is currently in Phase III clinical trials.
However the Company can not assure you that it will be able to develop
successfully future products utilizing the inhalation technologies. The
development and formulation of inhalation products is difficult and time-
consuming. Each drug compound is different and there can be no assurance that
a drug delivery system that works with one product will work with another.


                                      -12-

<PAGE>
    Even after a product incorporating the Geomatrix, or DepoFoam or inhalation
technologies has been successfully formulated and approved, its commercial
success is not assured. In order to gain medical and commercial acceptance, a
product generally must demonstrate some performance improvements and other
benefits over products incorporating the same or similar drug compounds. In
some cases, these benefits may be difficult to establish.

The failure by the Company's collaborative partners to provide funding, obtain
regulatory approvals and conduct marketing activities could adversely affect
the Company's business

    Funding. The Company has entered into a number of collaborative
arrangements with leading pharmaceutical companies for the development and
commercialization of products using its technologies. The Company generally
depends upon its collaborative partners for the funding of such efforts. An
inability to continue to obtain funding for its development activities through
its collaborative arrangements would adversely affect the Company's business.

    Regulatory Approvals. In addition, the Company generally depends upon its
collaborative partners to secure the necessary regulatory approvals for
improved outcome and new pharmaceuticals utilizing its technologies. The
Company has no control over the timing and location of the regulatory filings.
Its partners may follow a regulatory strategy that does not maximize the
royalty income that the Company will receive from its technologies. In
addition, the Company's partners may choose not to file for regulatory
approval of a product successfully formulated with the technologies. Even if
the Company's partners do file for regulatory approval, they may fail to
devote the necessary resources and expertise to secure the approval.

    Marketing. At present the Company is not involved in the consumer marketing
of improved outcome or new products formulated with its technologies. The
Company depends on its collaborative partners for such marketing. The
Company's partners are not obligated to market products incorporating its
technologies, even if such products are successfully developed and approved.
Although the Company has no reason to believe that its partners will not
market a successfully developed and approved product, the Company cannot
assure you that this will be the case. The Company's future revenues largely
depend on the success of such marketing efforts, which are beyond its control.

If the Company is unable to obtain additional funding on favorable terms, it
will adversely affect the Company's research and development and ability to
commercialize its products

    The Company believes that its currently available funds will be sufficient
for the needs of its operations through at least the next twelve months.

    If the Company's currently available funds and internally generated cash
flow are not sufficient to satisfy its financing needs, the Company would be
required to seek additional funding through other arrangements with corporate
collaborators, through bank borrowings or through public or private sale of
its securities, including equity securities. Any such collaboration could
result in limitations on the Company's ability to control the research,
development and commercialization of resulting products, if any, as well as
its profits therefrom. In addition, the terms of any future bank borrowings
could place restrictions on the Company's ability to take certain actions, and
any equity financing could result in dilution to the Company's shareholders.
The Company does not currently have any committed sources of additional
capital. There can be no assurance that additional funds will be available on
a timely basis, on favorable terms or at all, or that such funds, if raised,
would be sufficient to permit the Company to continue to conduct its
operations. If adequate funds are not available, the Company may be required
to curtail significantly, or discontinue, one or more of its research and
development programs.

                                      -13-

<PAGE>
    The Company's ability to meet its future capital requirements will depend
on many factors. These include:

      o     the Company's ability to maintain existing collaborative
            arrangements and to establish and maintain new collaborative
            arrangements with others;

      o     the costs involved in preparing, filing, prosecuting, maintaining
            and enforcing patent claims;

      o     complying with regulatory requirements; competing technological
            and market developments;

      o     changes in the Company's existing research relationships; and

      o     the effectiveness of product commercialization activities and
            arrangements.

    For more information on the Company's liquidity and capital resources, see
"Item 4: Information about the Company - Business Overview - Collaborative
Arrangements" and "Item 5: Operating and Financial Review and Prospects".

A failure to obtain and maintain patents and proprietary rights may adversely
affect the Company's business

    The Company's success, competitive position and amount of royalty income
will depend in part on its ability to obtain and maintain patent and trade
secret protection, particularly of its drug delivery technologies.

    The Company believes that patent and other intellectual property protection
of its drug delivery and formulation technologies is important to its business
and that its future will depend in part on its ability to obtain patents,
maintain confidential and trade secret information and to operate without
infringing the intellectual property rights of others.

    There can be no assurance that the Company will be issued with any
additional patent or that if any patents are issued, they will provide the
Company with significant protection or will not be challenged by third parties
asserting claims against the Company concerning its existing products or with
respect to future products under development by the Company. The Company has
received notification from a third party asserting rights to one of the
Company's recently acquired technologies and notification of other alleged
infringements may be received by the Company in the future. The Company may
not, in all cases, be able to resolve such allegations through licensing
arrangements, settlement or otherwise. Furthermore the Company anticipates
that any attempt to enforce its patent would be time consuming and costly.
Moreover, the law of some foreign countries does not protect the Company's
proprietary rights in the products to the same extent, as does the law of the
U.S. The U.S. Patent and Trademark Office has instituted changes to the U.S.
patent law including changing the term to 20 years from the date of filing for
applications filed after June 8, 1995. The Company cannot predict the effect
that such changes on the patent laws may have on its business or on the
Company's ability to protect its proprietary information and sustain the
commercial viability of its products.

    The Company also relies on trade secrets and other unpatented proprietary
information in its product development activities. To the extent that the
company relies on trade secrets and unpatented know-how to maintain its
competitive technological position, there can be no assurance that others may
not independently develop the same or similar technologies. The Company seeks
to protect trade secrets and proprietary knowledge, in some cases through
clauses in confidentiality agreements with its employees, consultants,
advisors and collaborators. Nevertheless, these agreements may not effectively
prevent disclosure of the Company's confidential information and may not
provide the Company with an adequate remedy in the event of unauthorized
disclosure of such information. If the Company's employees, scientific
consultants or collaborators develop inventions or processes independently
that may be applicable to the Company's products under

                                      -14-

<PAGE>
development, disputes may arise about ownership of proprietary rights to those
inventions and processes. Such inventions and processes will not necessarily
become the Company's property, but may remain the property of those persons or
their employers. Protracted and costly litigation could be necessary to
enforce and determine the scope of the Company's proprietary rights. Failure
to obtain or maintain patent and trade secret protection, for any reason,
would adversely affect the Company's business.

    The Company has entered into a number of collaborative arrangements with
leading pharmaceutical companies for the development and commercialization of
improved outcome and new products. In connection therewith, the Company shares
certain of its proprietary knowledge with such collaborative partners.
Although the Company's patents and other proprietary rights are designed to
protect the Company from infringement by such collaborative partners, there
can be no assurance that the Company's patents or other proprietary rights
will prevent its collaborative partners from developing similar or
functionally equivalent products.

    The Company engages in collaborations, sponsored research agreements and
other arrangements with academic researchers and institutions some of which
have received and may receive funding from government agencies. Although the
Company seeks to retain ownership of all intellectual property rights
pertaining to inventions which may result from such collaborations, there can
be no assurance that the governments, the institutions or researchers or other
third parties will not have rights to such inventions to the extent permitted
under applicable law.

    For more information on the Company's patents and proprietary rights see
"Patents and Proprietary Rights".

The Company may not be able to maintain its exclusive technology rights to
DepoFoam from the Research Development Foundation

    The Company's DepoFoam business depends on its ability to continue to use
exclusive technology rights that the Research Development Foundation ("RDF")
assigned to a subsidiary of the Company. Under the RDF agreement, the
foundation has the right to terminate the agreement or to convert the
exclusive nature of the rights granted under the agreement into a nonexclusive
right if the subsidiary does not satisfy its contractual obligations,
including making certain minimum annual payments. RDF may also terminate the
agreement if the subsidiary becomes bankrupt, breaches the agreement or
contests the patents included in this technology. The termination of the
subsidiary's agreement with RDF or its conversion to a nonexclusive agreement
would adversely affect the Company's DepoFoam business.

Possible patent litigation arising from abbreviated new drug applications may
adversely affect the Company's business

    There has been substantial litigation in the pharmaceutical, biomedical and
biotechnology industries with respect to the manufacture, use and sale of new
products that are the subject of patent rights. Most of the brand-name
products of which the Company is developing generic versions are covered by
one or more patents. Under the Drug Price Competition and Patent Restoration
Act of 1984, known as the "Waxman-Hatch amendments", when a drug developer
files an abbreviated new drug application for a generic drug, and the
developer believes that an unexpired patent which has been listed with the FDA
as covering that brand-name product will not be infringed by the developer's
product or is invalid or unenforceable, the developer must so certify to the
FDA. That certification must also be provided to the patent holder, who may
challenge the developer's certification of non-infringement, invalidity or
unenforceability by filing a suit for patent infringement. If a suit is filed
within 45 days of the patent holder's receipt of such certification, the FDA
can review and approve the abbreviated new drug application, but is precluded
from granting final marketing approval of the product until the earlier of the
date a final judgment is rendered and the date that is 30 months from the date
the certification was received. Should a patent holder commence a lawsuit with
respect to alleged patent infringement by the Company, the uncertainties
inherent in patent litigation make the outcome of such litigation difficult to
predict. The delay in

                                      -15-

<PAGE>
obtaining FDA approval to market the Company's product candidates as a result
of litigation, as well as the expense of, and diversion of management
resources associated with, such litigation, whether or not the Company is
successful, could adversely affect the Company's business.

A failure to comply, or the costs of complying, with environmental, health and
safety regulations could adversely affect the Company's business

    The Company's business is also subject to regulation relating to the
protection of the environment and health and safety, including those governing
the use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials. The Company believes that it is in
compliance in all material respects with all such laws, rules, regulations and
policies applicable to the Company. However, there can be no assurance that
the Company will not be required to incur significant costs to comply with
such environmental and health and safety laws and regulations in the future.
The Company's research and development involves the controlled use of
hazardous materials. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by applicable regulations, the risk of contamination or injury from
these materials cannot be completely eliminated. In the event of such
contamination or injury, the Company could be held liable for any damages that
result and any such liability could have a material adverse effect on the
Company's business, financial condition or results of operations.

A failure to effectively manage expansion could adversely affect the Company's
business

    Management of the Company's growth, as well as the commencement of
commercial manufacturing and marketing of the Company's product candidates,
will require continued expansion and improvement of the Company's systems and
internal controls and an increase in the Company's manufacturing, marketing
and sales operations. In addition, the Company intends to continue to add new
personnel. Any failure to manage growth effectively and integrate new
personnel on a timely basis could adversely affect the Company's business.

If the Company's Lyon manufacturing facility fails to meet required standards,
it could result in delays in manufacturing and additional costs

    Currently, the Company conducts only limited manufacturing activities at
its principal facility in Muttenz, Switzerland. The Company acquired in 1997
an additional larger facility in Lyon, France that it plans to use for
additional scale-up manufacturing as well as for manufacturing commercial
quantities of its product candidates. The Company has completed its Geomatrix
manufacturing suite in the Lyon facility, is in the process of expanding its
operations at the Lyon facility to include production activities for dry
powder inhaler products and has substantially brought the facility into
compliance with current good manufacturing practices (cGMP) and FDA standards.
The FDA has inspected the Lyon facility in respect of two products and
notified the Company that it plans to approve the Lyon facility for commercial
manufacturing. This does not imply FDA approval of these products. Final FDA
approval of the Lyon site will be given upon approval by the FDA of a product
to manufacture. There can be no assurance that the Lyon facility will
ultimately be found to be in compliance with cGMP or other regulatory
requirements for the purposes for which the Company plans to use the facility.
Failure to comply could result in significant delays in the Company's planned
manufacturing efforts. The Company also could incur significant additional
expense in bringing the facility into compliance with cGMP or other regulatory
requirements. The Company cannot assure you that it will be able to
successfully complete its plans for additional scale-up manufacturing or for
manufacturing commercial quantities of its product candidates.

A failure to successfully maintain its existing or further scale-up the
Company's DepoFoam manufacturing operations could adversely affect the
Company's business.

    If the Company fails to successfully maintain its existing or further
scale-up its DepoFoam manufacturing operations or to comply with applicable
regulations, its business will be adversely affected. In particular, the
Company could lose its manufacturing rights for DepoCyt under its key
collaboration agreement with Chiron Corporation. Chiron Corporation is the
Company's U.S.

                                      -16-

<PAGE>
development and marketing partner for DepoCyt, the first approved injectable
drug product using its DepoFoam technology. The Company's DepoFoam
manufacturing operations in San Diego, California will need to meet ongoing
commercial requirements for all markets in which its products have been
approved. In addition, the Company's manufacturing operations for DepoCyt will
need to pass pre-approval inspections by regulatory agencies for countries in
which there are regulatory filings to market DepoCyt. In October 1999,
SkyePharma Inc. discovered that two lots of DepoCyt did not meet
specifications and recalled these lots. Investigations identified that changes
in a supplier's manufacturing process for a raw material resulted in product
that did not meet all specifications throughout the shelf-life. SkyePharma
Inc. and Chiron Corporation voluntarily withdrew DepoCyt from the market.
There were no adverse events attributed to the recalled batches and the
product was made available to patients on a compassionate basis. In March
2001, the FDA gave clearance to return Depocyt to the market. In April 2001,
the Company received notification that the European Committee on Proprietary
Medicinal Products ("CPMP") had recommended the granting of marketing
authorization for DepoCyt. The CPMP's recommendation will be forwarded to the
European Commission and when ratified the Company will receive a single
licence for marketing throughout the European Union. The CPMP has suggested
certain modifications to the DepoCyt manufacturing facility to improve
personnel and materials flows. These modifications are currently being
implemented and will be completed prior to production of DepoCyt for the
European market. The CPMP have not suggested any alterations to the DepoCyt
manufacturing equipment or production process. For all other DepoFoam
products, the Company will need to significantly scale-up its current
manufacturing operations. The Company will also need to comply with
regulations in the U.S. and foreign countries relating to achieving the
prescribed quality and required levels of production of its DepoFoam products
and obtaining marketing approval.

The Company may not be able to obtain the materials necessary to manufacture
its DepoFoam products

    The Company currently relies on a limited number of suppliers for materials
used to manufacture its DepoFoam products. Some of these materials are
purchased only from one supplier. If the Company cannot obtain the materials
it needs from its existing suppliers, the Company may not be able to access
alternative sources of supply within a reasonable period of time or at
commercially reasonable rates. In addition, regulatory requirements applicable
to drugs tend to make the substitution of suppliers costly and time-consuming.
The unavailability of adequate commercial quantities, the inability to develop
alternative sources, a reduction or interruption in supply or a significant
increase in the price of materials could adversely affect the Company's
ability to manufacture and market its DepoFoam products.

    One of the DepoFoam injectable products in development, DepoMorphine, has
morphine sulphate as its active ingredient. Morphine sulphate is classified as
a scheduled drug by the DEA. While SkyePharma Inc. has a DEA license to use
morphine sulphate in its research and manufacturing of DepoMorphine for
clinical studies, SkyePharma Inc. might not be able to obtain the required DEA
licenses to manufacture commercial quantities of DepoMorphine.

The Company's manufacturing process may not be suitable for all of the
DepoFoam products the Company desires to commercialize

    To date, SkyePharma Inc. has relied on a particular proprietary method of
manufacturing its potential DepoFoam products. The Company cannot be certain
that this method will be applicable to all potential products it desires to
commercialize. The problems that may arise include:

      o     the Company may not be able to meet manufacturing challenges that
            arise concerning particular drugs to be incorporated in DepoFoam;

      o     the Company's manufacturing process may not result in viable
            yields of DepoFoam products; and

      o     the physical and chemical stability of DepoFoam products may vary.


                                      -17-

<PAGE>
    If the Company decides to pursue alternative manufacturing methods for some
or all of its drugs, it cannot be certain that these methods will prove to be
commercially practical or that it will have the right to use any alternative
methods.

The Company may expend significant time and resources related to existing and
potential legal proceedings

    In April 1998, a class action lawsuit was filed against DepoTech (renamed
SkyePharma Inc.) and two of its former officers. The lawsuit alleges
violations of federal securities laws and seeks unspecified money damages on
behalf of a class of shareholders who purchased DepoTech common stock during
the period April 1, 1996 through December 18, 1997. On May 11, 1999, the Judge
granted SkyePharma Inc.'s motion to dismiss and dismissed the plaintiffs'
complaint with leave to amend by June 8, 1999. The plaintiffs timely filed an
amended complaint and the defendants responded with a motion to dismiss. After
completion of several rounds of briefing and supplemental briefing on the
motion, the Court denied the motion without prejudice to the defendants and
without addressing its merits, and instructed the parties to repeat the
process from the beginning. Pursuant to a Court-ordered schedule, the
plaintiffs filed their Second Amended Complaint by April 14, 2000. The
District Court dismissed the action on January 26, 2001. However, following
the dismissal the plaintiffs filed, on February 9, 2001 an appeal to the US
Court of Appeal, claiming that the District Court had erred in dismissing the
plaintiffs' complaint and also that the District Court had erred in permitting
certain motions to strike. The Company believes that this Appeal is without
merit and intends to defend such appeals.

    On June 13, 2000, a summons was filed in respect of a claim by RTP Pharma
Corporation ("RTP") against SkyePharma PLC and others in the U.S. District
Court for the District of Columbia. The lawsuit seeks the correction of
inventorship of a U.S. patent, U.S. Patent Number 5,858,410 together with
unspecified monetary damages on behalf of RTP. The defendants filed a motion
to dismiss in March 2001, which is being defended by the plaintiffs RTP. The
Company believes that this lawsuit is without merit and will, with the other
defendants, vigorously defend against the action.

    On May 8, 2001, a summons in a civil case was filed in respect of a claim
by Andrx Corporation, a generic drug manufacturer against SkyePharma Inc in
the US District Court, Southern District of Florida. The lawsuit alleges
violations of anti-trust law and common law of the United States and State of
Florida. The complainant seeks injunctive relief and unspecified monetary
damages from Elan Corporation PLC (who was the original defendant in this
case) and SkyePharma arising from an alleged agreement entered into by Elan
and SkyePharma to prevent competition for a controlled release version of the
product Naprelan(R) made with the active drug Naproxen. The Company believes
that this action is without merit and will vigorously defend against this
claim.

The Company may not be able to obtain the rights to the drugs it desires to
deliver through DepoFoam

    The Company's ability to develop and commercialize its DepoFoam technology
will depend on whether it and its partners can access the drugs that are to be
delivered through DepoFoam. At times, the Company intends to rely on its
partners' ability to provide this access. The Company cannot be certain,
however, that its partners will have appropriate drug candidates for its
DepoFoam technology. In addition, the Company or its partners may be alleged
or determined to be infringing on third parties' rights and may be prohibited
from using the drug or be found liable for damages. Any restriction on access
or liability for damages would adversely affect the Company's business.

The Company may incur substantial costs related to its use of hazardous
materials

    The Company's research and development on DepoFoam products involves the
use of hazardous materials, chemicals and various radioactive compounds. The
Company cannot completely eliminate the risk of accidental contamination or
injury from these materials. If such an

                                      -18-

<PAGE>
accident occurs, the Company could be held liable for any damages that result
and any such liability could exceed its resources. The Company may incur
substantial cost to comply with environmental regulations.

If the Company is unable to retain key personnel or attract new personnel, it
could have an adverse effect on the Company's business

    The Company relies upon a number of key executives and employees, including
Ian Gowrie-Smith, its Executive Chairman and Michael Ashton, its Chief
Executive Officer. In addition, the Company's future operating results depend
in part upon its ability to attract and retain other qualified management,
scientific, technical, marketing and support personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to continue to attract and retain such personnel. The loss of the
services of any of the Company's key executives or employees could materially
adversely affect the Company.

Potential conflicts of interests may arise from related party transactions

    The Company and certain of its principal shareholders or their affiliates
have engaged in several significant transactions among themselves in the past
and may continue to do so from time to time in the future. Certain of these
transactions provide for significant payments to certain principal
shareholders, directors and executive officers upon achievement of specified
milestones or profit hurdles.

    The Company acquired its Jago subsidiary in May 1996 from Dr. Jacques
Gonella, who was, up until June 6, 2001, a Director of the Company, for a
combination of cash and shares. In addition to the initial purchase price, the
Company agreed to an earn-out arrangement with Dr. Gonella whereby Dr. Gonella
is entitled to receive payments dependent on certain revenues related to
Geometrix technologies. For a description of the earn-out arrangement with Dr.
Gonella, see "Item 7: Major Shareholders and Related Party Transactions -
Certain Arrangements in Respect of the Jago Acquisition".

    The Company acquired its Krypton subsidiary in a share-for-share exchange
in January 1996 from a series of trusts in which Ian Gowrie-Smith, who is the
Executive Chairman of the Company, certain former directors and a former
employee of the Company had interests. Pursuant to an earn-out arrangement,
the Company agreed to pay additional consideration consisting of ordinary
shares and warrants dependent upon certain milestones relating to achieving
regulatory approvals for the sale of certain Krypton products and the sales
and profitability of such products. See "Item 7: Major Shareholders and
Related Party Transactions - Certain Arrangements in Respect of the Krypton
Acquisition".

    As a result of these arrangements, conflicts of interest may arise between
and among the Company, certain principal shareholders, directors and executive
officers because of their independent pecuniary interests. Although the
Company anticipates that all future related party transactions and agreements
will be on terms no less favorable to the Company than it could obtain in
comparable contracts with unaffiliated third parties, there can be no
assurance that conflicts of interest will not arise between the Company and
the principal shareholders or their affiliates in certain circumstances.

Principal shareholders may influence the outcome of shareholder approvals and
hinder a change in control that might be in your interest

    As of June 7, 2001, certain principal shareholders and the directors and
officers of the Company as a group owned approximately 23.6% of the
outstanding ordinary shares. As a result, certain directors, officers and such
shareholders may be in a position to exert influence in the election of the
Company's directors and officers and other corporate actions that require
shareholder approval. The Board of Directors of the Company consists of 9
people.


                                      -19-

<PAGE>
Exchange rate fluctuations may adversely affect the Company's results of
operations and financial position

    Approximately 46% of the Company's sales for the year ended December 31,
2000 were derived from customers located outside the United Kingdom. Since the
revenue and expenses of the Company's foreign operations are generally
denominated in U.S. dollars, French francs and Swiss francs, exchange rate
fluctuations between such currencies and the pound sterling will subject the
Company to foreign exchange risk with respect to the reported results of its
foreign operations. The Company does not currently hedge against the effect of
currency translation on its reported results but does, where appropriate, seek
to hedge its exchange rate risk on particular transactions. Fluctuations
between local currencies and pounds sterling may materially adversely affect
the Company's financial condition and results of operations. See "Item 5:
Operating and Financial Review and Prospects".

    The Company's ordinary shares trade on the London Stock Exchange in pounds
sterling and the ADSs trade on The Nasdaq National Market in U.S. dollars. The
value of the ADSs in U.S. dollars may fluctuate as a result of fluctuations in
the U.S. dollar/pound sterling exchange rate.

The market prices of the Company ordinary shares and ADSs may be adversely
affected by market volatility

    Companies like SkyePharma have, in recent years, experienced dramatic stock
price volatility. The following factors may cause the market price of the
Company's ordinary shares or ADSs to fluctuate significantly:

      o     announcements of technological innovations or new products by
            competitors and others;

      o     the status of submissions to the FDA or its international
            equivalent;

      o     variations in results of operations, market condition, analysts'
            estimates and the stock market generally; and

      o     stock market perceptions of the pharmaceutical, biotechnology and/
            or drug delivery industries specifically.

Sales of substantial amounts of the Company ordinary shares or ADSs could
adversely affect their market price

    Sales of substantial amounts of ordinary shares or ADSs could adversely
affect the market price of the ordinary shares and ADS. As of June 7, 2001,
certain principal shareholders and the directors and officers of the Company,
as a group, held 23.6% of the Company's outstanding ordinary shares. Shares
may be eligible for future sale subject to the conditions imposed by Rule 144
and Regulation S under the Securities Act.

The Company's shareholders may not receive a return on their shares other than
through the sale of their shares

    The Company intends to retain earnings, if any, for use in its business and
does not anticipate paying any cash dividends in the foreseeable future.
Accordingly, other than through the sale of their shares, the Company's
shareholders may not receive a return.


                                      -20-

<PAGE>
Item 4: Information on the Company

History and Development

Overview

    SkyePharma PLC is a public limited company organized under the laws of
England and Wales and whose registered office is situated at 105 Piccadilly,
London W1J 7NJ, telephone number +44 (0)20 7491 1777. SkyePharma PLC was
formerly named Black & Edgington plc and incorporated on March 10, 1910. It
was engaged in the provision of temporary structures for major events. In
January 1996 the Board changed the name of the Company to SkyePharma PLC and
the nature of its activities to pharmaceuticals.

    The Company, as currently operated, was formed substantially from the 1996
acquisition of Jago, and the 1999 acquisition of DepoTech Corporation.

Corporate Acquisitions

    Jago, a Swiss drug delivery company which commenced operations in 1983, was
acquired by the Company in May 1996 and constitutes one of the principal
operating subsidiaries of the Company. The total consideration paid by the
Company to acquire Jago was approximately (L)100.8 million in cash (plus a
prepayment of $6.0 million ((L)3.9 million)) and approximately 30.7 million
ordinary shares (valued at 75 pence per share). In the fund raising associated
with the transaction, Dr. Gonella, the vendor, purchased 84,789,463 ordinary
shares of the Company at a purchase price of 75 pence per share. The Company
agreed to pay additional consideration in respect of the Jago acquisition
pursuant to an earn-out arrangement. See "Item 7: Major Shareholders and
Related Party Transactions - Certain Arrangements in Respect of the Jago
Acquisition". At March 31, 2000 a settlement agreement was signed establishing
the full and final settlement of the deferred consideration payable to the
vendor of Jago, Dr Gonella. The settlement was approved by shareholders at the
Company's Annual General Meeting held on July 11, 2000 to be made entirely in
shares and 6 million ordinary shares and 24 million Deferred Shares were
issued. To finance the Jago acquisition and to provide additional working
capital for the Company, the Company issued and sold approximately 187.8
million ordinary shares in a public offering in the United Kingdom in May 1996
at a price of 75 pence per share.

    In October 1998 the Company acquired 16% of the common stock of DepoTech
Corporation of San Diego for a consideration of (L)2.9 million. On March 10,
1999, the Company completed the acquisition by issuing to the former DepoTech
shareholders 28,311,070 SkyePharma ordinary shares in the form of ADSs, valued
at (L)20.0 million, plus the right to receive additional shares if one or both
of two conditions occur. On April 1, 1999, the first condition, the approval
by the FDA of DepoCyt for sale to the public, occurred and the Company issued
to the former DepoTech shareholders an additional 16,177,849 SkyePharma
ordinary shares valued at (L)9.8 million, in the form of ADSs. On April 4,
2000 the Company announced that the final contingent payment on the
acquisition of DepoTech had been triggered following the signing of a contract
to utilize DepoFoam technology for a macromolecule which fulfilled the second
condition. As a result 12,132,600 shares were issued on April 25, 2000 at a
value of (L)13.3 million. In connection with the acquisition the Company
agreed that outstanding warrants to purchase DepoTech common stock on the
effective date of the merger would become warrants to purchase the Company's
ordinary shares. Following the issue of shares on April 25, 2000 the former
DepoTech shareholders became entitled to a further 458,144 warrants with a
value of (L)0.2 million. Taking into account these final payments, the total
consideration paid on the acquisition of DepoTech was (L)49.4 million.

    Krypton, a Gibraltar-based company which holds development rights to
certain generic drugs, was acquired by the Company in January 1996. The total
consideration paid by the Company to acquire Krypton was (L)12.0 million
satisfied by the issue of 30 million ordinary shares, and warrants to
subscribe for an additional 3 million ordinary shares at an effective exercise
price of 40 pence per share. The Company has agreed to pay additional
consideration in respect of the Krypton acquisition if certain milestones and
profit hurdles are met. See "Item 7: Major Shareholders and

                                      -21-

<PAGE>
Related Party Transactions - Certain Arrangements in Respect of the Krypton
Acquisition". To date, no payments have been made under the Krypton earn-out
arrangments.

    In January 1997, the Company acquired a pharmaceutical manufacturing and
production facility near Lyon, France. See "Item 4: Information about the
Company - Business Overview - Manufacturing".

Technology Acquisitions

    On July 30, 1999, the Company acquired certain nano-particulate technology
from Medac GmbH ("Medac") a private German pharmaceutical company. Initial
consideration for this purchase was in the form of 3,067,286 SkyePharma PLC
ordinary shares, with a market value at the date of acquisition of $2.5
million, and $2.5 million in cash. On July 21, 2000 the Company issued
1,461,455 shares with a market value of $2.0 million to Medac being deferred
consideration due upon the satisfactory transfer of the nano-particulate
technology and know-how to SkyePharma. The agreement provided for additional
consideration of a further $3.0 million in cash subject to compliance by the
vendor with certain terms specified in the agreement. This payment was made on
April 17, 2001.

    In October 1999, SkyePharma acquired the intellectual property of Hyal from
the court appointed receiver and administrator of Hyal for a total
consideration of (L)5.7 million plus acquisition expenses of (L)0.2 million.
The consideration was satisfied by (L)1.3 million in cash, (L)0.7 million of
secured loans and advances previously made by SkyePharma in the period from
May to September 1999, and (L)3.9 million of unsecured debentures assumed by
SkyePharma in August 1999. In addition, and because Hyal was in receivership
at this time, SkyePharma indemnified the receiver to the extent that (L)4.6
million exceeded the amount that SkyePharma would ultimately be entitled to
receive as a creditor of Hyal. This indemnity was secured by an irrevocable
letter of credit open for up to one year in the amount of Cdn $1.0 million.
During 2000 the letter of credit was called to recover the shortfall in the
receivership process. In return, SkyePharma, as one of the creditors of Hyal,
was awarded 7 shares for every dollar shortfall in the process. As a result,
in April 2001 SkyePharma received 8.0 million shares, representing
approximately 19.5% of Hyal. Since the shares are not currently traded on a
public market there is currently no value attributable to these shares and
they will be recorded at zero cost.

    In January 2001, SkyePharma announced that it had licensed rights to three
further topical drug delivery technologies, Crystalip, DermaStick and the ES-
Gel system, from Bioglan Pharma PLC. Under the terms of the agreement
SkyePharma paid $9 million in cash and will obtain certain exclusive
development and commercial rights in relation to new products from the
Crystalip and DermaStick technologies and also the right to develop with
Bioglan two new products using the

ES-Gel system.

Discontinued Operations

    Prior to 1998, the Company's strategy for the sale and distribution of its
generic pharmaceutical product candidates had been to develop its own
marketing capability through its Brightstone subsidiary in the U.S. However,
in late 1998, the Company concluded that it was unlikely to maximize the value
of its generic pharmaceutical product candidates using its own marketing
resources and decided to seek one or more strategic collaborative partners who
already have significant and complementary U.S. generic drug marketing
capability to sell and distribute the Company's generic product candidates in
the U.S. The Company therefore decided to discontinue its own generic drug
sales and marketing operations in the U.S. The Company incurred a one-time
charge in connection with this restructuring of approximately (L)1.3 million
in 1998.

Business Overview

    The Company develops methods for delivering drugs in the human body based
on five technology platforms in the following areas: oral, injectable,
inhalation, topical and nano-particulate. The Company's operations relate
wholly to one class of business, pharmaceuticals and a segmental

                                      -22-

<PAGE>
analysis of revenues is provided under "Item 5: Operating and Financial Review
and Prospects - Operating Results".

Oral

    A significant part of the Company's business is developing applications of
its Geomatrix(TM) technologies. Geomatrix is a range of technologies by which
drugs taken orally in tablet form are formulated so as to control the amount,
timing and location of the release of the drug in the body. The Company
focuses its research and development efforts on the reformulation of existing
drugs using its technologies rather than the discovery of new chemical
compounds.

    There are five drugs currently being marketed that use the Company's
Geomatrix technologies: one in several European countries (Xatral 10mg OD(R)),
one in the United States (Dilacor XR(R)), two in Germany (Cordicant-Uno(R) and
Diclofenac-ratiopharm-uno(R)) and one in Switzerland (Madopar DR(R)). In
February 1999, SmithKline Beecham (now part of GlaxoSmithKline) received
F.D.A. approval for the 12.5 and 25 mg. dosage forms of a new version of its
Paxil (Paxil CR(R)) anti-depressant drug using the Company's Geomatrix
technology. Paxil (also known as Seroxat) is the seventh largest selling drug
in the world based on 2000 sales data with sales of (L)1.6 billion. In early
2001 GlaxoSmithKline, the Company's collaborative partner in the development
of Paxil CR, announced that it had received an approvable letter from the FDA
for a second CR indication, panic disorder and gave notification that it was
working on a third indication, pre-menstrual dysphoric disorder, a severe form
of pre-menstrual syndrome. GlaxoSmithKline has not yet indicated when the
product will be launched. In January 2000, Sanofi-Synthelabo announced that it
had received the first batch of marketing approvals for its new once-daily
formulation of alfuzosin, Xatral 10mg OD, based on the Company's Geomatrix
technology and the product is now launched in France, the U.K., the
Netherlands, Denmark, Sweden and Switzerland.

    The Company is also collaborating with several other large international
pharmaceutical companies to commercialize its Geomatrix technologies,
including Abbott Laboratories, Hoffmann-La Roche, Pfizer and Merck KgaA. In
addition to Paxil, there are six other drugs using Geomatrix technologies
currently in human studies.

    Geomatrix technologies can improve the efficacy of orally administered
drugs and enhance compliance by patients with prescribed medical treatments by
permitting the drug to be taken less frequently, by reducing side effects and
by causing the drug to be released at more specific locations within the body.
The Geomatrix technologies use hydrophillicmethylcellulose, or HPMC, matrices
which govern the release profile of a drug depending on the viscosity of HPMC
used and the rate of surface area exposure. The "release profile" refers to
the rates at which a drug tablet releases the active drug component over the
period of time after the drug is taken.

    There are currently eight Geomatrix technologies which are designed to meet
a wide range of therapeutic objectives. The first Geomatrix system developed
by the Company, the Zero Order Release system, ensures a constant rate of drug
release over a specified period of time, allowing once or twice daily dosing.
Subsequently, the Company developed systems with more complex release
profiles. These include Geomatrix systems capable of delivering an initial
burst of a drug followed by controlled-release at a constant rate and systems
designed to deliver the drug to different areas of the patient's digestive
system. In addition, the Geomatrix systems can be used to allow the
simultaneous release of two different drugs, at different rates, which may
increase the effectiveness of the active components. The Company believes that
the Geomatrix systems enjoy a competitive advantage in the drug delivery
industry because of the ease with which Geomatrix tablets can be manufactured.
The Geomatrix technologies are flexible and can be modified to apply to a
variety of pharmaceutical products.

    The Company collaborates with large pharmaceutical companies to develop
Geomatrix formulations of their proprietary products. The products may be
novel pharmaceuticals (which may include new chemical entities) or already
existing and approved pharmaceuticals. In reformulating an existing drug, the
Company seeks to enhance the therapeutic and commercial value of the

                                      -23-

<PAGE>
product by creating an improved outcome formulation that may mitigate certain
side effects, reduce dosing or help protect against competition from generic
drug products. The Company conducts research and development of its Geomatrix
projects with its collaborative pharmaceutical company partners. The
pharmaceutical companies reimburse the Company for all or most of the research
and development costs associated with the collaborative arrangements and have
generally taken responsibility for clinical trials and regulatory filings. The
pharmaceutical companies obtain the marketing rights to the Geomatrix
formulations and, in return, pay the Company certain milestone payments and a
royalty based on net sales of any commercialized products.

Injectable

    On March 10, 1999, the Company acquired DepoTech Corporation (renamed
SkyePharma Inc.) in a stock-for-stock merger. As consideration for the merger,
the Company issued to the former DepoTech shareholders 28,311,070 SkyePharma
ordinary shares in the form of ADSs, plus the right to receive additional
shares if one or both of two conditions occur. On April 1, 1999, the first
condition, the approval by the FDA of DepoCyt for sale to the public, occurred
and the Company issued to the former DepoTech shareholders an additional
16,177,849 SkyePharma ordinary shares in the form of ADSs. On April 4, 2000,
the Company announced that it had signed an agreement on March 31, 2000 with
Amgen Inc. for an un-named Amgen product and that the second condition had
been met. On April 25, 2000 the Company therefore issued to the former
DepoTech shareholders an additional 12,132,600 ordinary shares in the form of
ADSs.

    SkyePharma Inc. develops potential drug products designed to release over a
period of time a drug which has already been shown to be useful or potentially
useful in humans. These potential drug products are based on the DepoFoam
technology and are generally designed to be administered to humans through
injection. SkyePharma Inc. does not conduct research and development to
discover new drugs. DepoFoam consists of microscopic, spherical particles
composed of hundreds to thousands of chambers each separated from adjacent
chambers by lipid membranes. SkyePharma Inc. has developed DepoFoam
formulations which release drugs over an extended period of time, such as
several weeks, or over a shorter period, such as a few days. SkyePharma Inc.
has combined many drugs with DepoFoam and performed studies on these
combinations showing that they often achieve controlled release of the drugs.
These features allow the Company to develop new formulations of drug products
aimed at treating different diseases and symptoms. The Company is currently
developing products in cancer, pain management and other medical fields both
alone and funded by corporate partners.

    SkyePharma Inc.'s first approved drug product is DepoCyt. DepoCyt combines
SkyePharma Inc.'s DepoFoam with cytarabine, a drug used for the treatment of
cancers which have spread to the fluid surrounding the brain and spinal cord
DepoCyt has been developed in collaboration with Chiron Corporation in the
U.S. and until June 2000 with Pharmacia & Upjohn S.p.A., an affiliate of
Pharmacia Corporation. Since April 1994, SkyePharma Inc. has been conducting
clinical trials of DepoCyt for the treatment of these cancers.

    In April 1997, SkyePharma Inc. completed the filing of a new drug
application ("NDA") for the treatment of cancers which have spread to the
fluid surrounding the brain and spinal cord from solid tumors with the FDA. In
December 1997, an advisory committee to the FDA declined to recommend approval
of DepoCyt for treatment of these cancers. In April 1998, SkyePharma Inc.
filed an amendment to its new drug application which provided information on
twice the number of patients included in the original filing. In May 1998, the
FDA informed SkyePharma Inc. that the amended new drug application did not
contain adequate information to support approval for DepoCyt for the treatment
of these cancers. In August 1998, the FDA sent a letter to SkyePharma Inc.
inviting it to submit a new drug application for DepoCyt for the treatment of
cancers which have spread to the fluid surrounding the brain and spinal cord
from the lymphatic system. This new drug application was filed in October
1998. In April 1999, the FDA approved DepoCyt for treatment of those cancers
and the product was launched in the U.S. in May 1999. In October 1999,
SkyePharma Inc. discovered that two lots of DepoCyt did not meet
specifications and recalled

                                      -24-

<PAGE>
these lots. Investigations identified that changes in a supplier's
manufacturing process for a raw material resulted in product which did not
meet all specifications throughout the shelf-life. SkyePharma Inc. and Chiron
Corporation voluntarily withdrew DepoCyt from the market. There were no
adverse events attributed to the recalled batches and the product was made
available to patients on a compassionate basis. In March 2001, the FDA gave
clearance to return DepoCyt to the market.

    In November 1999, SkyePharma Inc. received marketing approval for DepoCyt
from the Canadian regulatory authorities.

    Pharmacia Corporation filed for marketing approval of DepoCyt to be used in
the treatment of cancers which have spread to the brain and spinal cord from
both the lymphatic system and solid tumors in Europe but subsequently withdrew
the application until additional data could be provided. In October 1999,
Pharmacia Corporation refiled for marketing approval in Europe and its filing
was accepted by the regulatory authority. In June 2000, Pharmacia Corporation
notified the Company that it was terminating the marketing and distribution
agreement with the Company for DepoCyt. Pharmacia Corporation assigned the
European marketing application to the Company and the Company continued to
pursue European marketing approval. In April 2001, the Company received
notification that the European Committee on Proprietary Medicinal Products
("CPMP") had recommended the granting of marketing authorization for DepoCyt.
The CPMP's recommendation will be forwarded to the European Commission and
when ratified the Company will receive a single license for marketing
throughout the European Union. The Company is currently in negotiations with
several potential European marketing partners specialized in oncology.

    SkyePharma Inc.'s second potential drug product in this area is
DepoMorphine(TM), a sustained-release encapsulated morphine sulphate, for
acute pain management following surgery. In February 2000, the Company
announced that in Phase II clinical trials, DepoMorphine, when given to
patients as a single pre-operative epidural injection using hip replacement
surgery as the pain model showed a significant decrease in the requirement for
additional pain medication. In January 2001, the Company announced that it had
started its Phase III clinical trials for DepoMorphine. The Phase III clinical
trials will involve approximately 750 patients in the U.S. and Europe, in a
variety of surgical procedures. In January 2001, the Company also announced it
has entered into an Agreement with the Paul Capital Royalty Acquisition Fund,
L.P. to develop DepoMorphine. Details of the agreement with Paul Capital
Royalty Acquisition Fund are explained in "- Collaborative Arrangements".

    In addition to DepoCyt and DepoMorphine, SkyePharma Inc. is currently
working on the following potential drug products based on DepoFoam
formulations:

      o     DepoBupivacaine(TM), a DepoFoam formulation of the local
            anaesthetic bupivacaine, for the treatment of regional pain; and

      o     DepoAmikacin(TM) sustained-release encapsulated amikacin, an
            antibiotic for the treatment and prevention of bacterial
            infections.

    SkyePharma Inc. is also evaluating, in conjunction with Amgen Corporation,
Kirin Brewery Company Ltd and other undisclosed corporate partners the
DepoFoam encapsulation of several more drug products, including certain
macromolecules.

Inhalation

    The Company also is developing advanced technologies to deliver medicines
via a patient's lungs without relying on CFC-based propellants, which are
considered environmentally harmful. The Company is working with two types of
such inhalation systems. The first is a metered dose inhaler that relies on
non-CFC propellants to deliver the required therapy. The other is a dry powder
inhaler (under the brand name "SkyeHaler") that requires no propellant but
instead is breath-activated to deliver drugs in a fine powder suspension. In
its metered dose inhaler development work, the Company focuses on the
formulation of drugs for use in metered dose inhalers manufactured by

                                      -25-

<PAGE>
others. In its dry powder inhaler development work, the Company focuses both
on the development of the device and dry powder formulation.

    In October 1998, the Company and Sepracor Inc. agreed to jointly develop a
range of metered dose inhaler formulations containing Sepracor's chiral forms
of asthma drugs. In November 1998, the Company and Novartis agreed to jointly
develop a new formulation of Novartis' Foradil(R) asthma drug using the
Company's SkyeHaler. In October 1999, the Company and Novartis announced that
this new formulation of Foradil had entered clinical trials. The project moved
into Phase III clinical trials in the second half of 2000.

    On March 27, 2000, the Company announced that it had entered into a
collaboration with PA Recruitment Services Holding S.A. (part of the PA
Consulting Group) for the development of a range of non-CFC propelled metered
dose asthma products in conjunction with a breath actuated inhaler currently
under development by the PA Consulting Group.

Topical

    In October 1999, the Company acquired the tangible assets and intellectual
property of Hyal Pharmaceutical Corporation in Canada ("Hyal") from the court
appointed receiver and administrator of Hyal, for a purchase price of Cdn$14.0
million. Consideration was satisfied by the set-off of Cdn$11.6 million of
SkyePharma secured and unsecured debt owed by Hyal including the interest due
and Cdn$2.4 million in cash. In addition, and because Hyal was in receivership
at this time, SkyePharma indemnified the receiver to the extent that Cdn$11.6
million exceeded the amount that SkyePharma may ultimately be entitled to
receive as a creditor of Hyal. This indemnity was secured by an irrevocable
letter of credit open for up to one year in the amount of Cdn$1.0 million.
During 2000, the letter of credit was called to recover the shortfall in the
receivership process. As a result SkyePharma received 8.0 million shares
representing approximately 19.5% of Hyal in April 2001. Since the shares are
not currently traded on a public market there is currently no value
attributable to these shares and thus they will be recorded at zero cost. Hyal
was a drug delivery company that developed products based on its Hyaluronan
Induced Targeting ("HIT") and Hyaluronan Improved Liposome Technology
("HILT"). HIT and HILT are topical drug delivery technologies, based on
hyaluronan ("HA"), a natural polymer, which are primarily designed to maintain
efficacy and localize delivery of drugs to the skin for the treatment of a
variety of skin disorders.

    Solaraze, the principal product acquired from Hyal, is a topical gel used
to treat actinic keratosis, a pre-cancerous skin condition caused by constant
over exposure to the sun. The Company received FDA approval for this product
in October 2000, which had previously been approved for marketing in Canada,
France, Germany, Italy, Sweden and the U.K. On March 13, 2000, the Company
entered into an agreement with Bioglan Pharma PLC ("Bioglan") for the
manufacture, marketing and distribution of Solaraze in Europe. Under the terms
of the agreement, Bioglan paid the Company an up-front licensing fee and will
pay the Company royalties on sales of Solaraze by Bioglan or by sub-licensees
of Bioglan. In December 2000, the Company entered into a further agreement
with Bioglan for the license of marketing rights to the U.S., Canada and
Mexico for Solaraze. As a result of the agreement with Bioglan for the U.S.,
Canada, and Mexico, Bioglan paid a $14 million fee and will pay further
significant milestone payments upon commercialization of Solaraze. Additional
milestones may also be paid if Solaraze reaches certain sales targets in each
of the first 5 years together with a royalty on net sales. The Company expects
Bioglan to launch Solaraze in the U.S. and Europe during 2001.

    In January 2001, SkyePharma PLC entered into an agreement with Meditech
Research Limited which includes the terms of a license to commercialize
Solaraze in Australia, New Zealand, Malaysia and Singapore. SkyePharma will
receive a 15% share of all amounts Meditech receives from either
commercializing or licensing Solaraze and associated products in the above
territories. SkyePharma has agreed to work with Meditech to expedite approval.
Independently, Meditech obtained a non-exclusive license over the HIT
Technology to exclusively exploit its anti-cancer HyACT(TM) project worldwide.
Meditech will pay SkyePharma 10% of all net revenues it receives from the
HyACT

                                      -26-

<PAGE>
project. However, the first A$5 million Meditech receives by way of
reimbursement of development expenses will not be subject to the 10% royalty.

    In addition to Solaraze, Hyal had been working on the following potential
drug products based on its HIT and HILT technologies:

      o     Hyclinda, a topical gel to treat acne, which has been developed in
            conjunction with Shire Pharmaceuticals and for which pivotal Phase
            III trials have been completed;

      o     Oralease, a topical diclofenac gel to treat oral pain (primarily
            as a result of mouth ulcers and molar extraction), for which Phase
            II clinical trials have been performed;

      o     Cardi-Clear, an intravenous HA formulation to prevent restenosis;

      o     Cyclops, a cyclosporin gel to treat psoriasis; and

      o     Hyanalgese-D, a topical analgesic for osteoarthritis.

    The Company is currently in discussions with Shire to restructure the
agreement in respect of Hyclinda and to outlicence Oralease, Cardi-Clear,
Cyclops and Hyanalgese-D.

    In January 2001, SkyePharma announced that it had licensed rights to three
further topical drug delivery technologies, Crystalip, DermaStick and the ES-
Gel system, from Bioglan Pharma PLC. Under the terms of the agreement
SkyePharma paid $9 million in cash and will obtain certain exclusive
development and commercial rights in relation to new products from the
Crystalip and DermaStick technologies and also the right to develop with
Bioglan two new products using the ES-Gel system. SkyePharma will be entitled
to retain the first $9 million of all new income generated by SkyePharma from
the three technologies. After receipt of the first $9 million, all other
revenues received will be split equally between SkyePharma and Bioglan.
Bioglan will retain rights to use the patents and know-how related to the
technologies for existing marketed products utilizing the technologies,
products in development and projects for companies with whom Bioglan already
has such agreements.

    The three topical technologies licensed from Bioglan are:

      o     Crystalip - enhances stability of drugs by embedding them in lipid
            crystals. Suitable for hydrophilic or hydrophobic drugs, the drug
            is released as the lipid melts at skin temperature.

      o     DermaStick - presents the active ingredient in a wax stick, which
            facilitates controlled application to affected skin.

      o     ES-Gel - a semi-solid formulation producing enhanced solubility of
            drugs and providing substantially increased bioavailability by the
            transdermal route.

Nano-particulate technology

    On July 30, 1999, SkyePharma acquired intellectual property, license
agreements, know-how and trademarks related to nano-particulate drug delivery
technology for the delivery of poorly soluble drugs from Medac GmbH ("Medac")
a private German pharmaceutical company.

    As consideration for the acquisition, SkyePharma made an initial cash
payment of $2.5 million and issued 3,067,286 ordinary shares with a value of
$2.5 million to Medac on the date of signing the agreement. The agreement
provided for additional consideration in the form of cash and SkyePharma PLC
ordinary shares for a total value of $5.0 million. On July 21, 2000,
SkyePharma issued a further 1,461,455 ordinary shares with a market value of
$2.0 million as the first part of the additional consideration. The final
payment of $3.0 million in cash was paid on April 17, 2001. In addition,
future royalties will be paid to Medac on net sales of marketed products using
the nano-particulate technology.


                                      -27-

<PAGE>
    The nano-particulate technology acquired from Medac consists of three
separate techniques:

      -     nano-suspensions, a dispersion of pure drug without any matrix;

      -     solid lipid nano-particles, solid solutions of drugs in a lipid
            matrix; and

      -     solid polymer nano-particles, solid solutions of drugs in a solid
            polymer matrix.

    Rights to two of these techniques were acquired in the form of intellectual
property, know-how and trademarks and rights to the other technique were
acquired in the form of an exclusive license.

    Solubility of drugs is an essential factor for all drug delivery systems,
independent of the route of administration. Poor solubility leads to a range
of problems including poor bio-availability, variability of absorption when
taken with food and poor efficacy. The Company believes that a large number of
existing marketed drugs and newly synthesized compounds have solubility
problems. It is intended that the nano-particulate technology will be used to
complement and enhance the Company's other drug delivery systems.

Generics

    The Company historically applied the Geomatrix technologies to off-patent
(generic) drugs. In many of these cases, the Company developed controlled-
release versions of brand-name pharmaceuticals whose patent protection or
marketing exclusivity had expired or was about to expire. Prior to 1998 the
Company filed Abbreviated New Drug Applications ("ANDAs") for six generic
products, one for a Geomatrix formulation of Imdur(R) (ISMN), three for a
group of injectable drugs developed for the Company by Synthon, one for a
Geomatrix formulation of Naprelan (Naproxen) and one for a generic version of
Cylert (Pemoline) developed together with Oread.

    Prior to 1998, the Company's strategy for the sale and distribution of its
generic pharmaceutical product candidates had been to develop its own
marketing capability through its Brightstone subsidiary in the U.S. However,
in late 1998, the Company concluded that it was unlikely to maximize the value
of its generic pharmaceutical product candidates using its own marketing
resources and decided to seek one or more strategic collaborative partners who
already had significant and complementary U.S. generic drug marketing
capability to sell and distribute the Company's generic product candidates in
the U.S. The Company therefore decided to discontinue its own generic drug
sales and marketing operations in the U.S. The Company incurred a one-time
charge in connection with this restructuring of approximately (L)1.3 million
in 1998.

    The Company has signed one licensing agreement in respect of its generic
pharmaceutical product candidates and in November 1999, the Company announced
that the FDA had approved the Company's application to manufacture and market
its generic once-daily sustained release formulation of ISMN. The Company has
been in discussions with a number of potential marketing partners for this
product but has experienced difficulty in finalizing a marketing agreement
with a partner due to the number of generic formulations of Imdur already
available on the market. In addition, the Company does not believe that the
remaining four generic pharmaceutical product candidates will have commercial
value due to the number of generic formulations already available on the
market and has consequently withdrawn these four ANDAs.

Strategy

    The Company's strategy is to become one of the leading providers of
integrated drug delivery services to the pharmaceutical industry. The focus of
the Company is to provide a full complement of drug delivery products and
services to pharmaceutical companies ranging from formulation and development
through to commercial manufacturing. The Company's strategy for achieving this
objective consists of the following elements:

o     Selectively Fund a Number of Key Projects to a Later Stage of
      Development. The Company's strategy has historically been to focus on
      customer-funded development projects with typical

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<PAGE>
      licensing arrangements under which the Company received license fees and
      royalty payments for product sales. Such agreements typically provided
      for royalty rates under 5%. However, in recent years the Company has
      been able to increase its share of potential revenue stream by retaining
      manufacturing rights and by undertaking additional value added services,
      such as assuming responsibility for development activities. With the
      acquisition of SkyePharma Inc. in March 1999 and the acquisition of the
      tangible assets and intellectual property rights of Hyal, the Company
      has taken advantage of the opportunity to be able to increase
      significantly its share of potential income on certain development
      projects. Additionally, with the recent announcement of the commencement
      of Phase III DepoMorphine clinical trials , the Company believes that
      significantly higher value can be realized by taking this product and
      certain other key projects to a late stage of development, prior to
      licensing the products to marketing partners.

o     Further Development of the Company's Core Technologies. The Company
      currently has a portfolio of eight Geomatrix systems, of which three
      have already been commercialized. The Company is focusing on developing
      and commercializing the remaining five systems either in conjunction
      with its collaborative partners or through its own internal development
      activities. Similarly, the Company seeks to exploit its existing
      inhalation, DepoFoam injectable and other drug delivery technologies by
      entering into development contracts with established pharmaceutical
      companies. The Company believes that the expansion and integration of
      its existing capabilities will enable it to apply the technologies to a
      broader range of pharmaceutical products. In entering into collaborative
      arrangements, the Company's goal is to cover all or a large part of its
      research and development costs and receive milestone payments upon the
      achievement of specified objectives.

o     Realize research and development synergies between the Company's
      technologies. The Company believes that additional shareholder value can
      be created by the realization of research and development synergies
      between the Company's technologies. For example, the DepoFoam
      technology's ability to encapsulate a wide spectrum of water-soluble
      drugs, involving small molecules, proteins and peptides, could expand
      the scope of the Company's oral and inhalation technologies,
      particularly in the field of proteins and peptides.

o     Expand Scope of Technology Base. The Company's pharmaceutical customers
      are increasingly requesting a broader range of delivery solution. The
      Company is currently well placed with its oral Geomatrix and injectable
      technologies and the acquisition of nano-particulate and topical
      technologies has extended the Company's technology base to include the
      enhanced delivery of poorly soluble drugs and topical applications. The
      Company is also developing advanced inhalation drug development systems
      designed to deliver medication via a patient's lungs. In addition to
      these developments, the Company plans to develop and commercialize
      further drug delivery technologies. The Company intends to seek to
      acquire additional add-on technologies which are complementary to its
      existing technologies. Management intends to focus on technologies it
      believes are capable of commercial realization in the near term and will
      also seek to acquire or license new drug delivery platforms and enabling
      technologies.

      Expanding the scope of the technology base will enable the Company to:

      -     market a broader range of drug delivery solutions to its existing
            oral, inhalation and injectable customer base and to new
            customers.

      -     decrease the risk normally associated with a small number of
            technologies or products.

      -     be a more competitive Company in the drug delivery industry and
            better able to negotiate corporate partnerships on attractive
            terms.

o     Develop Existing and New Collaborative Agreements. In order to increase
      market exposure of its products and to capitalize on its collaborative
      partners' market position and distribution

                                      -29-

<PAGE>
      capabilities, the Company intends to continue to develop its projects
      with its existing collaborative partners and to seek new partners, who
      will fund further development projects incorporating the Company's
      technology. The Company's existing collaborative arrangements typically
      provide for a customer-funded development project and contemplate a
      licensing arrangement (which may be entered into at the same time as the
      development project or at a later date) under which, if a project is
      commercialized by the collaborative partner, the Company would receive
      license fees and royalty payments from product sales. The Company
      believes that such arrangements may also serve to validate the Company's
      technologies in the pharmaceutical markets and thereby assist the
      Company in attracting additional licensing arrangements on favorable
      terms.

o     Seek to Retain Manufacturing Rights on Future Collaborations. The
      Company believes that retaining manufacturing rights to its products
      should enable it to capture greater revenue and generate production
      economies of scale that may not be available to pharmaceutical companies
      seeking to apply the Company's technologies to only one or a few
      products. In order to manufacture products using the Company's
      technologies, the Company employs personnel who specialize in
      manufacturing, to commercial quantities, products utilizing the
      Company's technologies. With the acquisition of SkyePharma Inc., the
      Company acquired a 2,020 square meter (21,746 square feet) purpose built
      facility which is approved by the FDA for the commercial manufacture of
      DepoCyt. In addition to this facility, SkyePharma Inc. occupies a 7,600
      square meter (82,000 square feet) facility which houses its
      administrative, research and development and future injectable
      manufacturing activities. Both facilities are also approved by the U.S.
      Drug Enforcement Administration (the "DEA") for the manufacture of drug
      products containing opiates. The two facilities combined will provide
      sufficient capacity for the forecast demand for the Company's injectable
      products in the short to medium term. The Company's oral and inhalation
      manufacturing and production facility in Lyon has completed validation
      trials. The FDA has inspected the Lyon facility in respect of two
      products and notified the Company that it plans to approve the Lyon
      facility for commercial manufacturing (this does not imply the FDA will
      approve these products). Final FDA approval of the Lyon facility will be
      given on approval by the FDA of a product for manufacturing.


Drug Delivery Technologies

The Geomatrix Oral Technologies

    The original Geomatrix technology was developed by a team of researchers at
the University of Pavia in Italy in the early 1980s. Subsequently, the Company
acquired the technology and pursued the development of the Geomatrix platform
of oral controlled-release systems. The effort has produced a platform of
proprietary Geomatrix controlled-release systems that can be applied to a
broad range of drugs on a commercial scale.

    The Geomatrix systems control the amount, timing and location of the
release of drug compounds in the human body. This is achieved through the
construction of a tablet with two basic components: a core containing the
active drug or drugs in an hydrophillicmethylcellulose ("HPMC") matrix
formulation and one or two additional barrier layers that control the surface
area diffusion of the drug or drugs out of the core. In addition, the tablet
may be coated if, for example, this would ease any gastric irritation that
otherwise would be caused by the drug compound, or for other functional
purposes.

    The combination of different chemical components in the core and barrier
layers, each with different rates of swelling, gelling and erosion, allows the
production of tablets with a wide range of predictable and reproducible drug
release profiles. The rate of drug release is a function of the viscosity of
the HPMC and the exposed surface area from which the drug diffuses. When the
tablet is first swallowed, the drug concentration is high but the surface area
is small; as time goes by and the core swells, the surface area expands to
compensate for the decrease in drug concentration.


                                      -30-

<PAGE>
    The Company believes that the Geomatrix systems enjoy a competitive
advantage in the drug delivery industry because of the ease with which
Geomatrix tablets can be manufactured. Unlike certain competing drug delivery
systems that require off-site, customized production equipment and methods,
Geomatrix tablets can be manufactured by readily available equipment that can
be incorporated into widely used pharmaceutical production processes. In this
way, Geomatrix may afford the pharmaceutical partner direct control over its
production strategy while other drug delivery systems may entail incremental
risks or costs related to their off-site, customized production requirements.

    In addition to ease of manufacturing, the Company believes that the key
features of the Geomatrix technologies are as follows:

      o     Custom Design: Drugs can be formulated to deliver the release
            profile required by the client pharmaceutical company and drugs
            can be combined with other active substances to improve their
            effectiveness.

      o     Versatility: Geomatrix can be applied to a wide range of small
            molecule drugs, including some with poor water solubility, and can
            target the site of release.

      o     Controlled Rate of Diffusion: Geomatrix controls the rate of drug
            diffusion throughout the release process, ensuring 100% release of
            the active drug.

      o     Reproducibility: Use of conventional high speed tableting
            processes allows a high degree of product consistency and
            uniformity.

      o     Complete Disintegration: Geomatrix tablets disintegrate completely
            in the patient's digestive system and leave no solid residue.

Release Profiles


    The flexibility of the Geomatrix technologies has enabled the Company to
create a number of release profiles suitable for a broad variety of
pharmaceuticals.

    The following sets forth a brief description of the Geomatrix systems.

o   Zero Order Release      The Zero Order Release system provides a constant
                            rate of drug release over a defined period of time.
                            It is used primarily for drugs with short half-
                            lives so that constant blood levels of the active
                            drug compounds can be maintained with fewer doses.
                            The Company has three approved Zero Order Release
                            formulations currently on the market: Dilacor XR in
                            the United States, Cordicant-Uno in Germany and
                            Xatral OD in several European countries.

o   Binary Release          The Binary Release system is used to provide the
                            controlled-release of two different drugs in a
                            single formulation. The drugs may be released at
                            different rates and times, if desired. This system
                            is designed for drugs that work best in
                            combination. The Company has one Binary Release
                            formulation that was approved and launched in the
                            third quarter of 1997: Madopar- DR in Switzerland.

o   Quick Slow Release      The Quick Slow Release system provides a quick
                            burst of drug release followed by a constant rate
                            of release over a defined period of time. It is
                            used primarily in drugs, such as arthritis
                            medications, in which it is desirable to have an
                            initial burst of release to achieve maximum relief
                            in a short amount of time followed by a constant
                            rate of release for sustained therapy. The Company
                            has one approved Quick Slow Release formulation
                            currently on the market: Diclofenac-ratiopharm-uno
                            in Germany.


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<PAGE>
o   Slow Quick Release      The Slow Quick Release system provides an initial
                            constant rate of release followed by a quick burst
                            of drug release at a predetermined time. This
                            release profile is designed for medications to
                            treat diseases, such as angina, that would benefit
                            from increased therapy when the patient is sleeping
                            because of the high incidence of nocturnal attacks.

o   Positioned Release      The Positioned Release system is designed to
                            deliver the tablet to a predetermined position in
                            the digestive system before it begins to release
                            the active drug compounds. This system is best
                            suited to drugs for which it is desirable to begin
                            release at a certain point in the gastrointestinal
                            tract, for example in the case of drug compounds
                            that are best absorbed by the human body at
                            particular points in the upper gastrointestinal
                            tract.

o   Accelerated Release     The Accelerated Release system provides a
                            constantly accelerating rate of drug release. This
                            system is well suited for drugs such as H2-receptor
                            antagonists that are preferentially absorbed in the
                            upper part of the gastrointestinal tract.

o   Delayed Release         The Delayed Release system provides a predetermined
                            time lag before it begins releasing drug molecules.
                            This system is designed for drugs such as certain
                            cardiovascular medications for which the desired
                            dosing time may be several hours after the patient
                            takes the drug.

o   Multiple Pulse          The Multiple Pulse system provides an initial quick
                            burst of drug release followed by a predetermined
                            period of no release followed by a second burst of
                            drug release. This system is designed for drugs
                            that may have certain side effects, such as
                            appetite suppression, that are desired to be
                            minimized at predetermined times in the day, such
                            as mealtimes. To date, the Multiple Pulse system
                            has only been subject to limited in vivo (human)
                            clinical testing.

    Products formulated with the Zero Order, Quick Slow and Binary Release
systems are either currently on the market or about to be launched. There can
be no assurance, however, that the Company will be able to develop
successfully future products incorporating such delivery systems. At present,
there are no products on the market that have been formulated with the
Company's Slow Quick, Accelerated Release, Delayed Release, Multiple Pulse or
Positioned Release systems. The Company is actively developing formulations
utilizing some of these and other drug delivery systems, but there can be no
assurance that these efforts will be successful.

DepoFoam Injectable Technologies

    DepoFoam consists of microscopic, spherical particles composed of hundreds
to thousands of chambers containing the encapsulated drug, with each chamber
separated from adjacent chambers by a lipid membrane. DepoFoam formulations
can be delivered into the body by a number of routes, including under the
skin, within muscle tissue, into brain and spinal fluid, within joints and
within the abdominal cavity. Because the components of DepoFoam are synthetic
duplicates of lipids normally present in the body, the material is
biodegradable and biocompatible. Typically, a DepoFoam particle consists of
less than 10% lipid, with the remaining 90% consisting of drug in solution.
The resulting DepoFoam formulation is stored under refrigeration in ready-to-
use form.

    SkyePharma Inc. has tested DepoFoam formulations that release drugs over a
period of days to weeks with the period of release defined by characteristics
of DepoFoam and the drug. SkyePharma Inc. believes drugs may be released from
DepoFoam particles as the drugs diffuse through the walls, by gradual erosion
of the particles, and by processes involving the rearrangement of membranes.
The nature of drug release may also be determined by the characteristics of
each drug molecule. SkyePharma Inc. has demonstrated that DepoFoam can be used
to encapsulate a

                                      -32-

<PAGE>
wide spectrum of drugs, including small molecules, proteins, peptides,
antisense oligonucleotides and DNA, aimed at treating different diseases and
symptoms.

Advantages of DepoFoam

    The Company believes DepoFoam addresses many of the limitations associated
with traditional methods of delivering drugs. Most drugs are administered
orally, by injection in intermittent and frequent doses or by continuous
infusion. These methods of administration are not ideal for several reasons,
including difficulty in achieving appropriate drug levels over time, problems
with side effects, high costs due to frequent or continuous administration and
poor patient compliance. Furthermore, innovations in biotechnology have led to
an increase in the number of large-molecule protein and peptide drugs under
development. These drugs, because of their large molecular size and
susceptibility to degradation in the gastrointestinal tract or in the blood,
must usually be administered by multiple injections often in a hospital or
other clinical setting.

    The Company believes that DepoFoam's key advantage over traditional methods
of drug delivery, including injections and oral administration, is that the
sustained-release characteristics of DepoFoam allow drugs to be administered
less frequently and more conveniently. To attain the desired effect,
conventional drug delivery often results in a dosage that delivers an
initially high level of the drug followed by a sharp decline over a relatively
short period of time, whereas DepoFoam formulations can provide a more
consistent drug level over an extended period. As a result, DepoFoam products
can potentially improve safety and effectiveness. For example, DepoCyt
clinical trials to date have shown that DepoCyt has a therapeutic life of up
to two weeks after a single intrathecal injection compared to one day with
unencapsulated cytarabine.

    The Company believes that key features of DepoFoam, including lower initial
drug levels and delivery of appropriate drug levels over an extended period of
time, make it superior not only to traditional methods of delivering drugs,
but also to other sustained-release delivery formulations. The Company
believes DepoFoam may:

      o     Enhance safety and efficacy. DepoFoam drug delivery may improve
            the ratio of therapeutic effect to side effects by decreasing the
            initial concentrations of drug associated with side effects, while
            maintaining levels of drug at therapeutic, sub-toxic
            concentrations for an extended period of time.

      o     Improve convenience and lower overall treatment costs. DepoFoam
            formulations of drugs may offer cost savings by reducing the need
            for continuous infusion, the frequency of administration and the
            number of visits a patient must make to the doctor.

      o     Expand types of drugs which can be delivered over an extended
            period of time. DepoFoam may be able to deliver proteins, peptides
            and nucleic acids more effectively.

      o     Expand indications of currently marketed drugs. The appropriate
            release of drugs from a DepoFoam formulation may allow such drugs
            to be marketed for indications where they are currently not
            thought to be useful because of the limitations of current
            delivery methods.

      o     Improve products through reformulation. DepoFoam may offer the
            potential to produce new formulations of generic products that may
            be differentiated from the nonsustained-release versions by virtue
            of reduced dosing requirements, improved effectiveness, additional
            applications or decreased side effects.

Inhalation Technologies

    The Company is developing advanced inhalation drug delivery technologies
that are designed to deliver medicines via a patient's lungs without relying
on CFC-based propellants. CFC-based propellants have recently come under
pressure from the global environmental lobby. The 1997 Montreal protocol
signed by more than 140 countries aims to eliminate the manufacture, use and

                                      -33-

<PAGE>
sale of CFC propellants by 2005. This pressure for the phasing out of CFCs has
led to an increased focus on the development of both non-CFC metered dose
inhalers ("MDIs") and dry powder inhalers ("DPIs"). The Company is currently
working with two types of inhalation drug delivery systems: non-CFC MDIs and
DPIs. In its MDI development work, the Company focuses on the formulation of
drugs for use in MDIs manufactured by third parties. In its DPI development
work, the Company focuses both on the development of the device and on
formulating of drugs for use with the device.

    In both its MDI and DPI development work, the Company's objective is to
maximize the efficiency of the delivery system while addressing commercial
requirements for reproducibility, formulation, stability, safety and
convenience. The Company has assembled a team of researchers with substantial
experience in both powder and aerosol science and is applying this expertise
to develop proprietary techniques and methods that it believes will produce
stable and reproducible dry powder and aerosol formulations. To achieve this
goal, the Company is combining an understanding of lung biology, aerosol
science, chemical engineering and mechanical engineering.

o   MDI Technologies        Metered dose inhalers, the most widely used systems
                            for inhalation drug delivery, have been in
                            existence for more than 40 years and are primarily
                            used to deliver asthma medications and other small
                            molecule drugs to the lung, although significant
                            advances have been made in recent years in the
                            delivery of large molecule drugs, such as peptides
                            and proteins, via the lung. The drugs are typically
                            packaged in a portable canister as a suspension or
                            solution in a volatile propellant. The primary
                            technical challenge in developing a non-CFC MDI
                            results from the fact that the two most widely used
                            non-CFC propellants, HFA 134a and HFA 227, behave
                            differently from CFC gases because of their physio-
                            chemical characteristics. This has resulted in a
                            need for a complete reformulation of the MDI device
                            rather than a simple substitution. Among other
                            things, this means that the mechanical components
                            of the MDI device, especially the valves and
                            gaskets, must be completely reformulated to work
                            properly with non-CFC gases. The Company's work in
                            this area has resulted in a high level of expertise
                            in the evaluation of valves and gaskets utilized in
                            the MDI device. The Company is currently developing
                            aerosol formulations of a range of generic or off-
                            patent drugs for the treatment of asthma. In its
                            formulation work, the Company is working with both
                            the HFA 134a and HFA 227 propellants.

o   Dry Powder              Dry powder inhalation technology has emerged as an
    Technologies            effective means of delivering asthma medications to
                            the pulmonary system without the use of CFC
                            propellants. DPIs rely on the patient's own lung
                            power to deliver a fine dry powder suspension to
                            the lung. DPI drug compounds are formulated in
                            solid form and packaged in portable containers.
                            Most DPIs currently on the market provide medicine
                            in a pre-metered single dose form, such as a
                            gelatine capsule or blister pack. Under the brand
                            name "SkyeHaler" the Company is developing a DPI
                            with a drug reservoir with the capacity to deliver
                            up to 300 doses.

                            The primary technical challenge in developing a DPI
                            device is to design a product that offers accurate
                            and uniform dosing at variable flow rates of
                            inhalation. Although additional testing remains to
                            be performed, the Company believes that it has
                            solved this problem by designing and incorporating
                            valves in its DPI that make it flow-rate
                            independent at inhalation rates of between 25 and
                            60 litres per minute. The Company's DPI is fully
                            breath-actuated and offers an easy-to-use mechanism
                            that is capable of delivering uniform doses. In
                            addition, the device benefits from a counter that
                            keeps track of how many doses remain in the device.


                                      -34-

<PAGE>
                            Each drug designed for use with a DPI poses
                            different formulation challenges due to varying
                            physical and chemical characteristics and dosing
                            requirements. These challenges require significant
                            optimization work for each drug. The Company has
                            assembled a team with substantial experience in
                            formulation, dry powder science and aerosol science
                            and is applying this expertise to develop
                            proprietary techniques and methods that it believes
                            will produce stable, fillable and dispersible dry
                            powder drug formulations. Through its development
                            work, the Company is developing an extensive body
                            of knowledge of dry powder formulations, including
                            knowledge relating to powder flow characteristics
                            and solubility within the lung, as well as physical
                            and chemical properties of various excipients.

    In 1998, the Company entered into collaborative arrangements with Novartis
and Sepracor to commercialize its inhalation drug delivery technology.

    On March 27, 2000, the Company announced that it had entered into a
collaboration with PA Recruitment Services Holding S.A. (part of the PA
Consulting Group) for the development of a range of non-CFC propelled metered
dose asthma products in conjunction with a breath actuated inhaler currently
under development by the PA Consulting Group.

    The Company is continuing to seek additional collaborative partners to
further develop and commercialize its inhalation drug delivery technologies.
The Company's strategy is to enter into development contracts with established
pharmaceutical companies. In entering into collaborative arrangements, the
Company's goal is to cover all or a large part of its research and development
costs and receive milestone payments upon the achievement of specified
objectives. The Company intends to receive royalties from its partners based
on sales of products incorporating the Company's pulmonary drug delivery
technologies.

Topical Technologies

    HIT and HILT

    HIT and HILT are topical drug delivery technologies, based on hyaluronan
("HA"), a natural polymer, which are designed to maintain efficacy and
localize the delivery of drugs to the skin for the treatment of a variety of
skin disorders.

    HA is a long-chained polysaccharide that is a major constituent surrounding
cells in most animal tissues. In solution HA's coiled structure acts as a net
which can entrap a wide variety of drug compounds. HA is attracted to and
adheres to specific receptors on cell membranes which can be found in
increasing numbers at sites of damage and disease in the body. This means that
drugs can potentially be targeted to and held at the site where the drug is
needed.

    Advantages of HIT and HILT

    HA's safety profile, its ability to carry drugs and its potential targeting
characteristics make it an excellent vehicle for drug delivery. Hyal's focus
of product development had been largely on topical and to a lesser extent on
injectable formulations utilising HIT and HILT technologies. The Company
anticipates that by enhancing the delivery of a specific drug, treatment with
HIT and HILT formulations may require less drug compared to treatment with the
drug administered by itself. As a result the Company believes formulations
employing HIT and HILT technologies may result in decreased systemic side
effects or enhanced therapeutic effect.

    Crystalip, DermaStick and ES-Gel

    In January 2001, SkyePharma announced that it had licensed rights to three
topical drug delivery technologies, Crystalip, DermaStick and the ES-Gel
system, from Bioglan Pharma PLC.


                                      -35-

<PAGE>
    This gave SkyePharma access to three additional topical technologies:

      o     Crystalip - enhances stability of drugs by embedding them in lipid
            crystals. Suitable for hydrophilic or hydrophobic drugs, the drug
            is released as the lipid melts at skin temperature.

      o     DermaStick - presents the active ingredient in a wax stick, which
            facilitates controlled application to affected skin.

      o     ES-Gel - a semi-solid formulation producing enhanced solubility of
            drugs and providing substantially increased bioavailability by the
            transdermal route.

    Advantages of Crystalip DermaStick and ES-Gel

      o     Crystalip. The major advantage of Crystalip comes from its
            versatility, as it can be formulated as a spray, lotion, cream or
            paste. Additionally it can stabilize lipophilic and hydrophilic
            actives, provide photostabilization, and due to its anti-microbial
            effect can be free from preservatives leading to a low risk of
            toxic or allergic reactions. There are no direct competitors to
            Crystalip in providing both stabilization of lipophilic and
            hydrophilic drugs combined with an anti-microbial effect.

      o     DermaStick. A major advantage of DermaStick over existing stick
            technologies is that it avoids the problem of poor homogeneity of
            stick formulations. This poor homogeneity is experienced because
            the active is suspended in the vehicle, and during the
            solidification process the suspended active is allowed to
            sediment. The DermaStick avoids this issue by holding the active
            in solution and thereby allowing manufacture of homogeneous
            sticks.

      o     ES-Gel. The system will primarily compete with transdermal patch
            technologies. Other than the avoidance of the need for a patch,
            the major advantage is ES-Gel's ability to deliver low water
            soluble compounds through the skin and to do this without the use
            of penetration enhancers. The resultant products may also be
            significantly lower cost compared to patches and most other
            transdermal delivery systems.

Nano-particulate Technology

    The nano-particulate technology acquired from Medac GmbH ("Medac") a
private German pharmaceutical company was originally developed by a team of
researchers at the Free University of Berlin in the early 1990's and was
subsequently licensed to Medac which pursued the development of the
technology.

    Nano-particulate technology aims to improve a drug's solubility by reducing
the size of the particles. It has been demonstrated in laboratory testing that
the saturation solubility of many drugs can be improved by reducing particle
size below one micron in diameter.

    The nano-particulate technology acquired from Medac consists of three
separate techniques:

      o     nano-suspensions, a dispersion of pure drug without any matrix;

      o     solid lipid nano-particles, solid solutions of drugs in a lipid
            matrix; and

      o     solid polymer nano-particles, solid solutions of drugs in a solid
            polymer matrix.

    The acquisition of nano-particulate technology from Medac provides the
Company access to an important enabling technology for the enhanced delivery
of poorly water-soluble drugs.

    The nano-particles are produced via a process of homogenization whereby a
therapeutic compound dispersed in a solvent or a compound carrier system is
subjected to high pressure homogenization in a piston-gap homogenizer. A
piston-gap homogenizer is a device where material

                                      -36-

<PAGE>
is pushed through a narrow gap at very high pressure. The process breaks down
the particles of the compound and generates particles in the nanometer size
range.

    Solubility of drugs is an essential factor for all drug delivery systems,
independent of the route of administration. Poor solubility leads to a range
of problems including poor bio-availability, variability of absorption when
taken with food and poor efficacy. The Company believes that a large number of
existing marketed drugs and newly synthesized compounds have solubility
problems. It is intended that the nano-particulate technology acquired will be
used to complement and enhance the Company's other drug delivery systems.

    Advantages of nano-particulate technology

    The Company believes that the nano-particulate technologies acquired from
Medac offer a number of potential advantages over other nano-particulate
technologies being developed by pharmaceutical and biotechnology companies.
These include the following:

      o     A variety of solutions. The nano-particulate technology
            encompasses three different approaches: nano-suspensions, solid
            lipid nano-particles and solid polymer nano-particles, which offer
            a number of different methods to address solubility problems.

      o     Simplicity of manufacturing process. All three types of particles
            are produced on the same relatively simple equipment, which may
            reduce the investment cost and complexity of the manufacturing
            operation.

      o     Rapid manufacturing process. The homogenization part of the
            manufacturing process typically takes 1 to 2 hours which is
            significantly shorter than other processes used by competitors.

      o     Narrow particle size range. The particles produced are within a
            narrow size range.

Proprietary Products

Approved Geomatrix Products

    To date, six Geomatrix formulations of pharmaceutical products have
received regulatory approval. Of these products, one is currently being
marketed in the United States, one is currently being marketed in six European
countries, two are currently being marketed in Germany, one is currently being
marketed in Switzerland, and one has yet to be launched.

    The following table sets forth certain information regarding the approved
Geomatrix products.

<TABLE>
<CAPTION>
                                                                        Regulatory
                                                                       Approvals and
                                                                       Year of First                              Collaborative
Product                                       Indication                 Approval         Geomatrix System           Partner
 ---------------------------------   ----------------------------    -----------------    -----------------    --------------------
<S>                                  <C>                             <C>                  <C>                 <C>
Xatral OD                            Genito-Urinary                    Europe (2000)      Zero Order          Sanofi-Synthelabo

Paxil CR                             Depression                         U.S. (1999)       Positioned          GlaxoSmithKline
                                                                                          Release/Zero
                                                                                          Order

Dilacor XR                           Hypertension and Chronic           U.S. (1992)       Zero Order          Watson
                                     Stable Angina

Cordicant-Uno                        Hypertension                     Germany (1994)      Zero Order          Mundipharma

Diclofenac-ratiopharm-uno            Arthritis                        Germany (1995)      Quick Slow          Ratiopharm

Madopar DR                           Parkinson's Disease                Switzerland       Binary              Hoffmann-La Roche
                                                                          (1996)
</TABLE>



                                      -37-

<PAGE>
    Xatral OD is a once per day Zero Order Geomatrix formulation of alfuzosin
used for the treatment of the functional symptoms of benign prostatic
hyperplasia (BPH), a common disorder in men over the age of 50, that was
developed in conjunction with Sanofi-Synthelabo. Xatral is available in more
than 80 countries world-wide as a two or three times a day formulation. In
January 2000, Sanofi-Synthelabo received the first batch of European marketing
approvals and the product is now launched in France, the U.K., the
Netherlands, Denmark, Sweden and Switzerland with other launches pending in
the rest of Europe. In December 2000, Sanofi-Synthelabo submitted an NDA with
the FDA for Xatral OD. SkyePharma received royalty revenues of approximately
(L)0.2 million in 2000 that represented 1% of 2000 revenues for the Company.

    Paxil/Seroxat (paroxetine) is an FDA-approved drug that is currently
marketed primarily in the United States and Europe. The currently marketed
product is an immediate release formulation and is prescribed for central
nervous system disorders. Paxil CR, the version filed with the FDA by
SmithKline Beecham (now part of GlaxoSmithKline) in December 1997 and approved
by the FDA in February 1999 for the 12.5 and 25 mg dosage forms is a modified
release version using a combination of the Positioned Release and Zero Order
Geomatrix systems. In early 2001 GlaxoSmithKline, the Company's collaborative
partner in the development of Paxil CR, announced that it had received an
approvable letter from the FDA for a second CR indication, panic disorder and
gave notification that it was working on third CR indication, pre-menstrual
dysphoric disorder, a severe form of pre-menstrual syndrome. GlaxoSmithKline
has not yet indicated when the product will be launched.

    Dilacor XR is a once per day Zero Order Geomatrix formulation of diltiazem
hydrochloride, a calcium channel blocking agent indicated for hypertension and
for the management of chronic stable angina. Dilacor XR was developed in
conjunction with Rhone Poulenc Rorer (now part of Aventis Pharma). In June
1997, Rhone Poulenc Rorer granted Watson Pharmaceuticals an exclusive
worldwide license to market Dilacor XR. Dilacor XR had reported U.S. sales in
2000 of $31.4 million. The Company received royalty revenues of approximately
(L)0.5 million in 2000 that represented 2% of 2000 revenues for the Company.
In addition to being approved in the United States, Dilacor XR is also
approved for sale in Australia, New Zealand, Korea, the Philippines and
Germany. Marketing exclusivity for this product in the United States expired
in June 1995. Accordingly, increased competition from generic manufacturers of
controlled-release formulations of Dilacor XR has been experienced.

    Cordicant-Uno is a once per day Zero Order Geomatrix formulation of
nifedipine, a calcium channel blocking agent indicated for hypertension, which
is approved for sale in Germany. Cordicant-Uno was developed in conjunction
with and is marketed by Mundipharma, a private German pharmaceutical company.
The Geomatrix controlled release technology in Cordicant-Uno enhances patient
compliance and convenience by reducing the dosing requirement to once per day.

    Diclofenac-ratiopharm-uno is a once per day Quick Slow Geomatrix
formulation of diclofenac, a nonsteroidal anti-inflammatory drug indicated for
the acute and chronic treatment of rheumatoid arthritis. Diclofenac-
ratiopharm-uno, which is approved for sale in Germany, was developed in
conjunction with and is marketed by Ratiopharm, a private German
pharmaceutical company. The Geomatrix controlled-release technology in
Diclofenac-ratiopharm-uno optimizes patient therapy by providing an initial
burst of the drug for quick relief followed by a controlled-release for
sustained therapy. It also optimizes patient compliance and convenience by
reducing the dosing requirement to once per day.

    Madopar DR is a once per day Binary Geomatrix formulation of levodopa and
benzerazide, a combination therapy indicated for the treatment of Parkinson's
Disease which is approved for sale in Switzerland. Madopar DR was developed in
conjunction with Hoffmann-La Roche. The Binary Geomatrix formulation of
levodopa and benzerazide optimizes patient therapy and convenience by
providing for the release of an enzyme inhibitor along with the drug compound
without the co-administration of two pills. The Company is manufacturing this
product for the Swiss market on behalf of Hoffmann-La Roche at its facility in
Muttenz, Switzerland.


                                      -38-

<PAGE>
    No royalty revenue has been earned in respect of Cordicant-Uno and (L)0.1
million royalty revenues were earned in respect of Diclofenac-ratiopharm-uno
and Madopar in the accounting period to December 31, 2000.

Geomatrix Products in Development

    There are five products in clinical trials that utilize the Geomatrix
technologies, including two products that are in pivotal (Phase III) clinical
trials. In addition, the Company has a number of projects in earlier stages of
development. The following table sets forth certain information regarding some
of the products in the Company's development pipeline. For a description of
the development process, see "- Research and Development - Development Process
for Brand-Name Pharmaceuticals".

<TABLE>
<CAPTION>
                         Modified           Therapeutic             Development             Geomatrix              Collaborative
   Drug Compound         Release             Category                 Status                  System                  Partner
 ------------------   -------------    ---------------------     ------------------    ---------------------    -------------------

<S>                   <C>              <C>                      <C>                   <C>                      <C>
Undisclosed #1             Yes         Undisclosed              Pivotal Trials        Zero Order               Undisclosed

Ropinirole                             Central Nervous
                           Yes         System                   Phase II              Undisclosed              GlaxoSmithKline

Undisclosed #2             Yes         Undisclosed              Phase I               Undisclosed              Pfizer

Undisclosed #3             Yes         Undisclosed              Scale-up              Delayed Release          Merck KgaA
</TABLE>


    Undisclosed #1 is a new formulation of a drug that is currently marketed in
Europe. The Company is developing a once per day Zero Order Geomatrix
formulation that is expected to enhance patient compliance and convenience by
reducing the dosing requirement to once per day. The Geomatrix formulation is
currently in pivotal (Phase III) clinical trials in Europe. The Company
believes that the current market for this category of drugs is extremely
competitive. Accordingly, the extent to which the Company's collaborative
partner will elect to commercialize a successfully developed Geomatrix
formulation is uncertain.

    Ropinirole is an FDA-approved drug that is currently marketed as Requip(R),
primarily in the U.S. and Europe by GlaxoSmithKline. As it is currently
marketed, Requip is an immediate release formulation administered three times
daily and is prescribed for Parkinson's disease, a chronic progressive disease
in which the degeneration of nerve cells in the brain eventually impairs the
ability to control body movements. The Company is currently developing a once-
daily version using its Geomatrix technology. The Geomatrix formulation is
expected to provide a simplified regime for patients on Requip therapy that
will improve patient convenience. The once-daily version is in Phase II
clinical trials.

    Undisclosed #2 is a new formulation of a drug being developed for Pfizer
which is currently in Phase I clinical trials.

    Undisclosed #3 is a new formulation of a drug being developed for Merck
KgaA utilizing the Geomatrix delayed release technology to deliver the dose at
a precise time interval after administration. The new formulation being
developed by the Company is in the scale-up/bio-batch stage of development.

    In addition to the above Geomatrix products in development the Company has
developed a twice per day Quick Slow Geomatrix formulation of Zileuton for
Abbott Laboratories. Zileuton is currently a four times per day treatment for
mild to moderate asthma developed by Abbott Laboratories under the brand name
Zyflo(R). Zyflo was approved by the FDA in December 1996 for sale in the
United States. The Geomatrix formulation is designed to enhance patient
compliance and convenience by reducing the dosing requirement from four times
per day to twice per day. The Company believes that the Geomatrix formulation
of Zyflo completed pivotal (Phase III) clinical trials over two years ago and
that Abbott has since been looking for a marketing partner prior to filing an
NDA for the Geomatrix formulation of Zyflo. Due to the extended period during
which a suitable

                                      -39-

<PAGE>
marketing partner has not been identified for the product, the Company
believes that the Geomatrix formulation of Zileuton is unlikely to represent
significant commercial value to the Company.

    There can be no assurance that any of the above products will be
successfully formulated. In addition, even if a product is successfully
formulated, there can be no assurance of its regulatory approval or commercial
success. The decision to conduct clinical trials, secure regulatory approval
and market Geomatrix formulations of their products is taken by the
collaborative partners and not by the Company. There can be no assurance that
the Company's partners will elect to do so, or if they do that they will
devote the necessary resources and skill to commercialize successfully the
products formulated with the Geomatrix technologies.

DepoFoam Injectable Products

    The table below summarizes DepoFoam products currently under development.
The stages of the development process: pre-clinical, Phase I, Phase II and
Phase III are explained under "Research and Development - Development Process
for Brand-Name Pharmaceuticals".

<TABLE>
<CAPTION>
   Product Candidate (Active Compound)                      Intended Use                                    Status
 -----------------------------------------    -----------------------------------------    -----------------------------------------
<S>                                          <C>                                          <C>
DepoCyt (cytarabine)                         Cancers which have spread to the fluid
                                             surrounding the brain and spinal cord
                                             arising from:
                                             Lymphomas                                    FDA Approved April 1999
                                             Solid tumors                                 Approved November 1999 Canada
                                                                                          EMEA Approvable April 2001
DepoMorphine (morphine)                      Acute post-surgical pain                     Phase III
DepoBupivacaine (bupivacaine)                Regional pain                                Pre-clinical
DepoAmikacin (amikacin)                      Bacterial infections                         Phase I completed
</TABLE>


    The Company is also evaluating, in conjunction with Amgen Corporation and
the Kirin Brewery Company Ltd and other undisclosed corporate partners,
DepoFoam formulations of several additional compounds, including certain
macromolecules. These projects are all at the pre-clinical stage of
development.

DepoCyt

    SkyePharma Inc.'s first approved drug product is DepoCyt. DepoCyt combines
the Company's DepoFoam with cytarabine, a drug used to treat certain cancers.
DepoCyt is being developed in collaboration with Chiron in the United States,
and until June 2000 with Pharmacia Corporation outside the United States.

Background

    Cancer from either solid tumors, leukemia (a form of cancer involving white
blood cells) or lymphomas (a form of cancer involving tissues of the lymphatic
system) can spread to the soft tissue membrane of the brain and spinal cord.
This type of cancer is called neoplastic meningitis. Because of the blood-
brain barrier, drugs in the bloodstream do not penetrate well into the fluid
which surrounds the brain and spinal cord. Thus, when cancer cells spread to
this membrane, the most effective therapy is to inject anti-cancer drugs
directly into the fluid which surrounds the brain and spinal cord. Cytarabine
is one of the two drugs most commonly used for this therapy. Cytarabine acts
by inhibiting a vital enzyme in DNA synthesis, resulting in death of a
dividing cell. Therefore, the best results are obtained when the drug is
localized in the vicinity of dividing cancer cells for an extended period.

    Because cytarabine does not last long in the fluid which surrounds the
brain and spinal cord, frequent and repeated injections are necessary for
effective treatment. The result is that neoplastic meningitis cannot be
treated effectively without the use of repeated injections into the space
between the brain and/or spinal cord and the membrane which surrounds them.
These injections are inconvenient and uncomfortable for patients, require
physician supervision and increase the risk

                                      -40-

<PAGE>
of infection. Because of these and other factors, the disease is often under-
diagnosed and frequently left untreated. Without effective treatment, life
expectancy for patients diagnosed with this disease is between two and four
months. Clinical trials to date have shown that DepoCyt maintained
concentrations of cytarabine in the fluid which surrounds the brain and spinal
cord for two weeks after a single injection as compared to less than one day
with traditional injections of cytarabine. As a consequence, the use of
DepoCyt results in less frequent injections and may extend effective levels of
the drug in the fluid which surrounds the brain and spinal cord.

Clinical Development

    In the Phase III clinical trial as originally designed and initiated in
April 1994, patients with one of the three subtypes of neoplastic meningitis
selected from multiple centers received either DepoCyt or standard therapy.
Standard therapy for neoplastic meningitis from solid tumors is methotrexate
and the standard therapy for neoplastic meningitis from leukemia and lymphoma
is unencapsulated cytarabine. Within each subtype, at least 20 patients were
to receive DepoCyt and at least 20 patients were to receive standard therapy.
A total of 40 patients were to be treated for each subtype of the disease and
a minimum total of only 120 patients were required to complete all three arms
of the study. Enrollment of patients into the Phase III trial for neoplastic
meningitis from solid tumors was completed in May 1996 and the data from the
trial was analyzed subsequently based on a data cutoff date of October 1,
1996. An interim analysis of the Phase III trial for neoplastic meningitis
from lymphomas was included in a new drug application amendment in April 1998.
The amendment included data from 28 patients and led to an invitation by the
FDA to submit a new drug application for that indication. This new drug
application was filed in October 1998. In April 1999, the FDA approved DepoCyt
for treatment of neoplastic meningitis from lymphomas. In November 1999,
SkyePharma Inc. also received marketing approval for DepoCyt from the Canadian
regulatory authorities.

    In October 1999, SkyePharma Inc., discovered that two lots of DepoCyt did
not meet specifications and recalled these lots. Investigations identified
that changes in a supplier's manufacturing process for a raw material resulted
in product which did not meet all specifications throughout the shelf-life.
SkyePharma Inc. and Chiron Corporation voluntarily withdrew DepoCyt from the
market. There were no adverse events attributed to the recalled batches and
the product was made available to patients on a compassionate basis. In March
2001, the FDA gave clearance to return DepoCyt to the market. In April 2001,
the Company received notification that the European Committee on Proprietary
Medicinal Products ("CPMP") had recommended the granting of marketing
authorization for DepoCyt. The CPMP's recommendation will be forwarded to the
European Commission and when ratified the Company will receive a single
license for marketing throughout the European Union. The Company is currently
in negotiations with several potential European marketing partners specialized
in oncology.

Additional Territories and Indications

    The Company is planning to explore additional indications for DepoCyt,
including its use in the treatment of other cancers including ovarian, lung
and breast cancer, and AIDS-related non-Hodgkins lymphoma.

DepoMorphine

    The Company is developing DepoMorphine for use in moderating acute pain
following surgery. This product is intended for administration into a space
near the spinal cord (the epidural space) and may provide up to two days of
pain relief following surgery. DepoMorphine may replace repeated
administration of pain medicines.

    The Company has completed formulation development, initial manufacturing
scale-up and pre-clinical studies of DepoMorphine. Pre-clinical studies in
animals showed that DepoMorphine provided a minimum of two to three days of
pain control following a single injection. One characteristic of certain
DepoFoam formulations of drugs is that an enhanced local effect may occur

                                      -41-

<PAGE>
with limited side effects throughout the body. A number of studies in animals
have confirmed that there are high levels of morphine at the injection site
and in the fluid in the spinal cord with very low levels in the blood. These
data also show a sustained effect of the morphine.

    In December 1996, SkyePharma Inc. filed an investigational new drug
application with the FDA to begin human studies of DepoMorphine for the
management of acute pain following surgery. In December 1997, SkyePharma Inc.
completed a Phase I dose-escalation study that assessed the safety and level
of drug exposure in the blood of single doses of DepoMorphine administered to
healthy volunteers. The study was conducted at a single site under the
leadership of members of the Department of Anesthesiology at Stanford
University Medical Center. This study identified the maximum tolerated dose of
DepoMorphine and indicated that the drug has similar adverse effects to that
seen with free morphine administered in the same fashion.

    In February 2000, the Company announced that in pre-pivotal Phase II
clinical trials, pre-operative DepoMorphine administration resulted in a
statistically significant dose-related reduction in post-operative fentanyl
usage and pain intensity scores relative to placebo. For patients requesting
post-operative fentanyl, pain intensity at time of first request was rated
"severe" in 57% of placebo patients but rated "severe" in only 21%, 9% and 4%
of the 10mg, 20mg and 30mg DepoMorphine patients respectively.

    In January 2001, the Company announced that it had started its Phase III
clinical trials for DepoMorphine. The Phase III clinical trials will involve
approximately 750 patients in the U.S. and Europe, in a variety of surgical
procedures. In January 2001, the Company also announced that it had entered
into an Agreement with the Paul Capital Royalty Acquisition Fund, L.P. to
develop DepoMorphine. Details of the agreement with the Paul Capital Royalty
Acquisition Fund are explained in "- Collaborative Arrangements"

DepoBupivacaine

    SkyePharma Inc. has completed formulation studies of DepoBupivacaine, a
DepoFoam formulation of the widely used local pain medicine bupivacaine for
controlling post-surgical or post-injury pain. One dose of DepoBupivacaine is
expected to provide 24 hours of regional pain relief, compared to two to six
hours following conventional bupivacaine administration. SkyePharma Inc. has
successfully encapsulated bupivacaine into DepoFoam. Initial studies have
shown that DepoBupivacaine is released slowly from the site of injection,
resulting in prolonged duration (more than 24 hours) of pain relief following
a single-dose administration. The Company expects to begin Phase I clinical
trials for DepoBupivacaine in Europe in mid-2001. The Company believes that a
DepoFoam formulation of a local anesthetic may complement its current
DepoMorphine program and that the DepoMorphine and local anesthetic
formulations may give physicians improved drugs to manage post-operative pain.

    Pain associated with surgery or injury is often treated with local
anesthetics. However, the usefulness of local anesthetics is frequently
limited by their short period of effectiveness following administration which
results in recurrence of pain and the need for repeated drug administration by
a medical professional. A DepoFoam formulation of a local anesthetic may be
useful to provide long-lasting pain relief of approximately 24 hours. The
Company is currently in pre-clinical testing with a potential collaborative
partner.

DepoAmikacin

    Another product in the Company's development pipeline is DepoAmikacin, a
DepoFoam formulation of an antibiotic, amikacin. The Company believes that
DepoFoam offers the opportunity to reformulate amikacin, which became a
generic antibiotic in 1990, into a patented new product and to improve its
effectiveness and usefulness. SkyePharma Inc. has successfully encapsulated
amikacin in DepoFoam and has tested various formulations in animals.
SkyePharma Inc. completed a Phase I clinical trial for DepoAmikacin in April
1996 in which the drug was found to be well-tolerated for all dosage levels
studied. SkyePharma Inc. has conducted additional studies and

                                      -42-

<PAGE>
defined Phase II clinical targets. In order to focus SkyePharma Inc.'s
resources on DepoCyt, DepoMorphine, DepoBupivacaine and partner-funded
feasibility programs, SkyePharma Inc. has put on hold further development of
DepoAmikacin and this product is under ongoing consideration by the Company.

New Product Feasibility Programs

    The Company is also evaluating, in conjunction with Amgen Corporation,
Kirin Brewery Company and other undisclosed corporate partners, DepoFoam
formulations of several additional compounds including macromolecules. The
objectives of these programs are to:

      o     determine whether DepoFoam can be combined with the candidate
            drugs;

      o     evaluate drug release characteristics in the lab and in animal
            tissue; and

      o     conduct initial effectiveness and/or safety studies in animal
            models to demonstrate potential clinical utility and advantages of
            the DepoFoam formulations.

Inhalation Products

    MDI Products. The Company currently has the following three aerosol
formulations of generic pharmaceuticals in various stages of development for
use with non-CFC MDIs: formoterol, budesonide and salbutamol.

    DPI Products. The Company has developed a DPI device which is currently in
pilot clinical trials with the compound formoterol. Although the device is
subject to additional testing and validation, the Company believes that its
DPI benefits from the following features:

      o     Flow Rate Independent. The Company's DPI offers accurate and
            uniform dosing at variable flow rates of inhalation of between 25
            and 60 litres per minute.

      o     Breath Activated. The Company's DPI relies on the patient's own
            lung power to deliver a fine powder suspension to the lung.

      o     Uniform Delivery. The Company's DPI offers an easy-to-use
            mechanism to deliver consistent and uniform doses to the lung.

      o     Dose Counter. The Company's DPI incorporates an easy-to-read dose
            counter that keeps track of how many doses remain in the device.

    The Company has entered into three collaborative arrangements to
commercialize its inhalation drug delivery technology. In October 1998, the
Company and Sepracor Inc. agreed to jointly develop a range of metered dose
inhaler formulations containing Sepracor's chiral forms of asthma drugs. Under
the arrangement, the Company will be responsible for formulation development,
scale-up to pre-production quantities and will supply clinical trial
materials. Sepracor has retained commercial manufacturing rights, and has
received an exclusive license from the Company to distribute and sell the
resulting products worldwide. Sepracor has agreed to fund the Company's
development costs, to make certain milestone payments to the Company on
achievement of specified development objectives and to pay the Company future
royalties on Sepracor's net sales of the products.

    In November 1998, the Company and Novartis agreed to jointly develop a new
formulation of Novartis' Foradil asthma drug using the Company's multi-dose
dry powder inhaler. The Company will be responsible for development of the
drug in its finished form, to include supplying both the powder and the device
as a product to Novartis. The Company plans to produce the product at its Lyon
facility. Under the arrangement, Novartis has paid the Company a technology
access fee of (L)0.4 million and has made an equity investment in the Company
amounting to (L)6.1 million. Novartis has also agreed to pay the Company
royalty income on future worldwide sales of the drug. In return, the Company
has granted Novartis an exclusive worldwide license to market Foradil in the

                                      -43-

<PAGE>
new delivery form. Foradil (formoterol fumarate) is a long-acting
bronchodilator used in the treatment of chronic asthma. It is currently
marketed in over 60 countries and achieved worldwide sales in 2000 of CHF 332
million. In October 1999, the Company and Novartis announced that this new
formulation of Foradil had entered clinical trials. In 2000, the Company
produced at its Lyon facility approximately 35,000 DPIs filled with the new
formulation of Foradil to be used in the Phase III clinical trials which
commenced in the second half of 2000.

    On March 27, 2000, the Company announced that it had entered into a
collaboration agreement with PA Recruitment Services Holding S.A. (part of the
PA Consulting Group) for the development of a range of non-CFC propelled
metered dose asthma products in conjunction with a breath actuated inhaler.
Under the terms of the collaboration, the Company will provide its expertise
in non-CFC metered dose formulation and PA Consulting will provide its breath
actuated inhaler device currently under development. The first phase of the
development, which included the finalisation of the device design and the
formulation of two initial compounds to be delivered using the device, was
completed in early 2001 and pre-clinical lung deposition studies have started.
The collaboration is an exclusive arrangement in the field of asthma and
chronic obstructive pulmonary disease ("COPD"). The collaboration agreement
will terminate on December 31, 2001 unless both parties agree to either extend
the collaboration or to form a joint venture company to exploit commercially
the combined breath actuated inhaler device or non-CFC formulations.

Topical Products

    The table below summarizes topical products currently under development.
The stages of the development process: pre-clinical, Phase I, Phase II and
Phase III are explained under "Research and Development - Development Process
for Brand-Name Pharmaceuticals".

<TABLE>
<CAPTION>
Product Candidate (Active Compound)                          Intended Use                                    Status
 -------------------------------------------    ----------------------------------------    ----------------------------------------
<S>                                            <C>                                         <C>
Solaraze (diclofenac) ......................              Treatment of actinic keratosis                     Approved: U.S., France,
                                                                                                Germany, Italy, Sweden, U.K., Canada
Hyclinda (clindamycin) .....................                                        Acne                                   Phase III
Oralease (diclofenac) ......................                                   Oral pain                                    Phase II
Cardi-Clear ................................                    Prevention of restenosis                                Pre-clinical
Cyclops (cyclosporin) ......................                                   Psoriasis                                Pre-clinical
Hyanalgese-D (diclofenac) ..................                              Osteoarthritis                                    Phase II
</TABLE>


Solaraze

    The first approved drug product based on HIT and HILT technology is
Solaraze. Solaraze is a topical gel formulation of HA and the non-steroidal
anti-inflammatory drug diclofenac and is being developed primarily as a
product for the treatment of actinic keratosis, a lesion of the skin which may
precede skin cancer.

    Solaraze has been shown to be an effective topical product for actinic
keratosis. Compared to other actinic keratosis treatments, Solaraze is non-
invasive, non-scarring and is well tolerated by patients.

    During 1996, two positive Phase III clinical trials in the treatment of
actinic keratosis were completed and in 1997, a third Phase III clinical trial
was completed confirming the results of the previous two trials. In July 1997,
Solaraze received regulatory approval for marketing in the U.K. Subsequently,
in May 1998, Solaraze was approved for marketing in Germany, Sweden, Italy,
France and Canada.

    In October 1998, the Company submitted an NDA for the marketing of Solaraze
in the U.S., which was filed by the FDA in December 1998. The Company received
FDA approval for this product in October 2000.


                                      -44-

<PAGE>
    On March 13, 2000, the Company entered into an agreement with Bioglan for
the manufacture, marketing and distribution of Solaraze in Europe. Under the
terms of the agreement Bioglan paid the Company a licensing fee and will pay
the Company royalties on sales of Solaraze by Bioglan or by sub-licensees of
Bioglan. In December 2000 the Company entered into a further agreement with
Bioglan for the license of marketing rights to the U.S., Canada and Mexico for
Solaraze. As a result of the agreement with Bioglan for the U.S., Canada, and
Mexico, Bioglan paid $14 million on signing and will pay further significant
milestone payments for commercialization of Solaraze. Additional milestones
may also be paid if Solaraze reaches certain sales targets in each of the
first 5 years together with a royalty on net sales. Total milestone payments
could reach $29 million over the next 5 years depending on net sales. The
licenses granted under the two agreements with Bioglan will continue in effect
until 2013, the latest date on which any of the related patents expire. The
Company expects Bioglan to launch Solaraze in the U.S. and Europe during 2001.

    In January 2001, SkyePharma PLC entered into an agreement with Meditech
Research Limited which includes a license to commercialize Solaraze in
Australia, New Zealand, Malaysia and Singapore. SkyePharma will receive a 15%
share of all amounts Meditech receives from either commercializing or
licensing Solaraze and associated products in the above territories. After
Australian regulatory approval is obtained, Solaraze will be marketed by
Meditech, or its sub-licensee, Faulding Limited. SkyePharma has agreed to work
with Meditech to expedite approval. Independently Meditech obtained a non-
exclusive license over the HIT Technology to exclusively exploit its anti-
cancer HyACT project worldwide. Meditech will pay SkyePharma 10% of all net
revenue it receives from the HyACT project. However, the first A$5 million
Meditech receives by way of reimbursement of development expenses will not be
subject to the 10% royalty.

    During 2000, the Company entered into agreements with two companies in
order to obtain licenses in satisfaction of outstanding patent oppositions to
enable it to fully exploit the topical technology.

    In addition to Solaraze, the following drug products, based on HIT and HILT
topical technologies, are at varying stages of development:

      o     Hyclinda, a topical gel to treat acne, which has been developed in
            conjunction with Shire Pharmaceuticals, currently in pivotal Phase
            III trials;

      o     Oralease, a topical diclofenac gel for the treatment of oral pain
            (primarily as a result of mouth ulcers and molar extraction), for
            which Phase II clinical trials have been performed;

      o     Cardi-Clear, an intravenous HA formulation to prevent restenosis;

      o     Cyclops, a cyclosporin gel to treat psoriasis; and

      o     Hyanalgese-D, a topical analgesic for osteoarthritis.

    The Company is currently in discussions with Shire to restructure the
agreement in respect of Hyclinda and to outlicence Oralease, Cardi-Clear,
Cyclops and Hyanalgese-D.

Generic Product Candidates

    In addition to developing Geomatrix formulations of brand-name drugs, the
Company was historically engaged in the development, licensing and marketing
of a range of generic pharmaceuticals. The Company's generic drug development
strategy was to focus on those products for which competition was expected to
be less intense due to such factors as the complexity of the drug formulation
or the limited access to raw materials. Prior to 1998, the Company filed ANDAs
for six generic products, one for a Geomatrix formulation of Imdur (ISMN),
three for a group of injectable drugs developed for the Company by Synthon,
one for a Geomatrix formulation of Naprelan (Naproxen) and a generic version
of Cylert (Pemoline) developed together with Oread.


                                      -45-

<PAGE>
    Prior to 1998, the Company's strategy for the sale and distribution of its
generic pharmaceutical product candidates had been to develop its own
marketing capability through its Brightstone subsidiary in the U.S. However,
in late 1998, the Company concluded that it was unlikely to maximize the value
of its generic pharmaceutical product candidates using its own marketing
resources and decided to seek one or more strategic collaborative partners who
already had significant and complementary U.S. generic drug marketing
capability to sell and distribute the Company's generic product candidates in
the U.S. The Company therefore decided to discontinue its own generic drug
sales and marketing operations in the U.S. The Company incurred a one-time
charge in connection with this restructuring of approximately (L)1.3 million
in 1998.

    The Company has signed one licensing agreement in respect of its generic
pharmaceutical product candidates and in November 1999, the Company announced
that the FDA had approved the Company's application to manufacture and market
its generic once-daily sustained release formulation of ISMN. The Company has
been in discussions with a number of potential marketing partners for this
product but has experienced difficulty in finalizing a marketing agreement
with a partner due to the number of generic formulations of Imdur already
available on the market. In addition, the Company does not believe that the
remaining four generic pharmaceutical product candidates will have commercial
value due to the number of generic formulations already available on the
market and has consequently withdrawn these four ANDAs.

    Isosorbide Mononitrate (ISMN) is an organic nitrate indicated for the
prevention of angina pectoris due to coronary artery disease. The brand-name
product, Imdur, is a controlled-release version of ISMN which is marketed by
Key Pharmaceuticals, a subsidiary of Schering-Plough. The Company is applying
the Zero Order Release System to replicate the release profile of Imdur. The
U.S. patent for this product expired in April 1997. In November 1999, the
Company announced that the FDA had approved the Company's application to
manufacture and market its generic once-daily sustained release formulation of
ISMN. The Company has been in discussions with a number of potential marketing
partners for this product but has experienced difficulty finalizing a
marketing agreement with a partner due to the number of generic formulations
of Imdur already available on the market.

    Naproxen is a nonsteroidal anti-inflammatory drug indicated for the
treatment of rheumatoid arthritis, osteoarthritis, ankylosing spondylitis,
tendinitis, bursitis and acute gout. It is also indicated in the relief of
mild to moderate pain and the treatment of primary dysmenorrhea. The brand-
name product, Naprelan, is a controlled-release version of Naproxen which is
marketed by Elan Pharmaceuticals. Marketing exclusivity for this product
expired in the U.S. in April 1999. Naproxen is one of the products in the
Joint Venture portfolio and in January 2000, an agreement was reached with
Genta for the sharing of any revenues received for this product.

    There can be no assurance that any of the products in the Company's generic
drug portfolio will be successfully outlicensed or partnered, or if
outlicensed or partnered that the product can be successfully developed,
approved or commercialized. If any of the products in the generic drug
portfolio fail to be outlicensed or partnered, the Company is unlikely to
continue their development.

    ISMN and certain products in the early stage of development are subject to
an earn-out arrangement pursuant to which certain current directors and
officers of the Company will receive additional consideration if certain
regulatory and profit milestones are met. See " Item 7: Major Shareholders and
Related Party Transactions - Certain Arrangements in Respect of the Krypton
Acquisition".

Collaborative Arrangements

    The Company has collaborative arrangements with each of its pharmaceutical
partners, the terms of which vary considerably. Pursuant to these
arrangements, the Company's partners typically fund all or a large part of the
research and development expenses incurred in the development of new
formulations of their products. Most of the Company's development contracts
either provide for a flat fee for the Company's research and development
efforts or provide for an

                                      -46-

<PAGE>
agreed research and development budget. Some agreements have involved equity
investments in the Company by the Company's partners. In negotiating contracts
with its partners, the Company's strategy generally has been to cover its
costs in the research and development process. Substantially all potential
profits are expected to be generated by royalty payments or manufacturing fees
for successfully developed and marketed products. In some cases, the partners
have agreed to make specified payments to the Company upon the achievement of
certain milestones, which may be deducted from future royalty payments for
successfully developed and marketed products.

    In return the Company gives each of its partners an exclusive license to
market the products incorporating the Company's technologies. In some cases
the licenses are worldwide. In others they are limited to specific
territories. In all cases, however, partners are free to sublicense the
technologies, although the Company's consent may be required and royalties on
all sales must be paid to the Company. In addition, the majority of the
collaborative agreements do not prohibit the Company from developing
formulations of competitive products. In some cases, however, the Company will
agree not to develop formulations of specified compounds for an agreed period
of time. Most of the agreements do not prohibit partners from developing,
either internally or in collaboration with the Company's competitors,
controlled-release versions of the contract products.

    The Company's collaborative partners generally take responsibility for
conducting clinical trials and for preparing and pursuing all necessary
regulatory approvals although more recently the Company has taken
responsibility for managing clinical trials in some collaborations. The
Company may assist its partners in the conduct of such trials and the
preparation of regulatory filings, but its partners ultimately control the
process, including the selection of the jurisdictions in which regulatory
approval will be sought, if at all.

    The collaborative agreements do not obligate the partners to market any
successfully developed and approved products. The Company does not have any
control over whether and to what extent a partner will elect to commercialize
a product. A client may choose not to market a product for reasons wholly
independent of the Company's technologies. In most cases if a client does not
proceed to market the product once it has been successfully formulated and
approved, the Company will not receive any additional income in respect of the
product.

    During the formulation and development stages, the Company's partners are
generally free to terminate the collaborative relationship at any time and for
any reason. The Company's policy is to recognize income only when the earnings
process has culminated, that is when the Company has performed all of its
obligations under the collaborative arrangement and when the Company's ongoing
obligations under the arrangement are merely perfunctory. Certain refundable
income is treated as deferred income until the Company has no further
obligations to make refunds. As of December 31, 2000, the Company has no
obligation to refund any payments.

    The only collaborative arrangement under which the Company is currently
receiving significant royalty revenues is the development and license
agreement for Dilacor XR made with Rorer, a member of the Rhone Poulenc Rorer
Group (now part of Aventis Pharma) in 1988. Under the terms of that agreement,
Rorer bore all of the costs of research and development according to a budget
agreed by the Company and Rorer. For countries where a patent claiming Dilacor
XR has been issued and is in effect, Rorer is obligated to pay the Company
continuing royalties of 3% of net sales. For countries where no patent
claiming Dilacor XR has been issued, Rorer is obligated to pay the Company
continuing royalties of 1.5% of net sales. In return, the Company granted
Rorer an exclusive license to market Dilacor XR throughout the world.

    The agreement continues for ten years from the date of the first marketing
in each country or for the life of the patent in such country (which includes
all patents owned or controlled by the Company which would be infringed by the
manufacture, use or sale of the products covered by the license agreement),
whichever is longer. After termination of the agreement, Rorer may continue to
sell the product and use the Geomatrix technology in connection with the
product on a non-

                                      -47-

<PAGE>
exclusive basis without any obligations to the Company unless otherwise agreed
in writing. In 1997, Rorer granted to Watson Laboratories, Inc. (with the
consent of the Company) exclusive rights to market, advertise, promote, sell
and distribute Dilacor XR. The grant of rights to Watson Laboratories does not
affect any entitlements of the Company or any of the material terms of the
collaborative arrangement.

    The only collaborative arrangement involving Geomatrix technology in which
the Company is responsible for conducting clinical trials is the development
and licensing agreement for a once-daily version of Requip (Ropinirole) with
GlaxoSmithKline, which was entered into in September 1999 with SmithKline
Beecham (now part of GlaxoSmithKline). Under the terms of the agreement with
GlaxoSmithKline the Company is responsible for all development activities for
Requip oral controlled release tablets up to regulatory filing, in
collaboration with GlaxoSmithKline. As part of the agreement, GlaxoSmithKline
made an equity investment of (L)4.9 million in the Company and will pay
milestone payments at intervals up to product approval, including an up-front
payment. On commercialization of once-daily Requip, the Company will receive
royalties on product future sales. GlaxoSmithKline will take responsibility
for preparing and pursuing all necessary regulatory approvals. The once-daily
version has recently entered Phase II clinical trials.

    In March 1994, DepoTech (renamed SkyePharma Inc.) entered into a
collaboration agreement with Chiron. The objective of the collaboration is to
develop and commercialize DepoCyt for use in the treatment of cancer, and to
explore the use of DepoTech's DepoFoam for certain other Chiron compounds. The
Chiron agreement, as amended, grants Chiron rights to market and sell DepoCyt
in the U.S. Chiron has funded, and is obligated to fund, 50% of the clinical
development expenses in the U.S. Canadian registration expenses and the cost
of clinical trials required in Europe were funded by Chiron until June 1997,
when the Chiron agreement was amended in connection with the agreement with
Pharmacia & Upjohn (now known as Pharmacia Corporation) described below.
SkyePharma Inc. will manufacture DepoCyt, Chiron will market, sell, and
distribute DepoCyt in the U.S., and the parties will share all profits
equally. The Company will also fund 50% of the sales and marketing expenses
incurred for DepoCyt. Chiron also has a right of first refusal to obtain a
license to alternate DepoFoam formulations of cytarabine under terms and
conditions to be negotiated in the future. Following an evaluation of the
markets and certain other factors, DepoTech and Chiron mutually agreed not to
further develop certain additional generic cancer compounds named in the
Chiron agreement.

    In June 1997, DepoTech and Chiron amended their agreement, and DepoTech
repurchased rights to DepoCyt in Canada and Europe from Chiron for aggregate
cash payments of up to $13.7 million, of which $2.0 million was expensed and
paid to Chiron in December 1997. The remaining $11.7 million originally was
payable upon the earlier of six months following U.S. or European regulatory
notification that the application to market or sell DepoCyt is approvable or
approved. In March 1999, SkyePharma Inc. and Chiron further amended the
agreement with Chiron, such that SkyePharma Inc. issued a note payable for
$9.7 million on receipt of FDA approval of DepoCyt on April 1, 1999. During
2000 SkyePharma and Chiron amended the March 1999 agreement whereby SkyePharma
Inc. would have issued a note payable for $3.5 million to Chiron upon the
filing of an application for DepoCyt for pediatric indications in the U.S.
Under the amendment dated October 4, 2000 the note became payable on the
earlier of the filing of an application for DepoCyt for pediatric indications
in the U.S. or the date on which Phase IV clinical trials, required by the FDA
as a condition of product approval, commenced. The $3.5 million note was
issued in December 2000. The notes are secured on the rights to DepoCyt and
bear a floating rate of interest based on LIBOR. The principals are repayable
in equal installments on June 30, 2001 and 2002 for the first tranche and June
30, 2001, 2002 and 2003 for the second.

    Both the Company and Chiron have the ability to terminate a portion or all
of the collaboration at certain intervals and with advance notice.

    In July 1997, DepoTech entered into a marketing and distribution agreement
with Pharmacia & Upjohn (now known as Pharmacia Corporation). Under the
agreement, Pharmacia Corporation

                                      -48-

<PAGE>
acquired rights to market and sell DepoCyt in countries outside the United
States. Pharmacia Corporation would generally be responsible for submitting
regulatory filings, and for labeling, packaging, distributing, marketing and
selling DepoCyt in this territory. SkyePharma Inc. would manufacture DepoCyt
and receive a share of the net sales of this product from Pharmacia
Corporation, if any. DepoTech received a cash payment of $2.0 million when the
agreement was signed. The agreement also provides for reimbursement by
Pharmacia Corporation of certain clinical trial expenses and regulatory fees
incurred by SkyePharma Inc. In February 2000, the Company and Pharmacia
Corporation renegotiated certain aspects of this agreement relating to
milestone payments and reimbursement of clinical trials expenses. In addition,
the Company recovered the rights to DepoCyt for Japan and Canada. In June
2000, Pharmacia Corporation notified the Company that it was terminating the
1997 Marketing and Distribution Agreement. Subsequently, Pharmacia Corporation
assigned the European marketing application to the Company and the Company
continued to pursue the European marketing approval. In April 2001, the
Company received notification that the European Committee on Proprietary
Medicinal Products ("CPMP") had recommended the granting of marketing
authorization for DepoCyt. The CPMP's recommendation will be forwarded to the
European Commission and when ratified the Company will receive a single
license for marketing throughout the European Union. The Company is currently
in negotiations with several potential European marketing partners specialized
in oncology.

    In June 2000, SkyePharma entered into a research and development
collaboration with Kings College London for the investigation of the use of HA
as a carrier or vector for active substances in drug delivery applications,
principally for administration by the topical route. The projects being
pursued under this agreement are all at the pre-clinical stage of development.

    In January 2001, SkyePharma announced that it entered into an agreement
with the Paul Capital Royalty Acquisition Fund, L.P. to develop DepoMorphine.
Under the agreement, Paul Capital will provide a total of $30 million over the
next two years, to fund the clinical development and regulatory submission of
DepoMorphine, in return for the sale of a portion of potential future royalty
and revenue streams from DepoMorphine, Xatral OD, Solaraze and DepoCyt.
Between January 2003 and December 2014, Paul Capital will receive 15% of the
annual royalties and revenues from the stated products up to an agreed
ceiling. Once the predetermined ceiling is reached, the percentage
participation will fall to 3% for the remainder of the period until December
31, 2014.

Research and Development

    The Company's research and development activities are conducted primarily
at SkyePharma AG in Muttenz, Switzerland and at SkyePharma Inc. in San Diego,
California, U.S. The Company has 235 employees at these two facilities, the
majority of whom were engaged in research and development, including 148
scientists, 50 of whom hold Ph.D.s, masters or medical degrees.

    In all periods the amounts reimbursed by collaborative partners, including
milestone payments, were greater than the direct costs incurred in the
provision of such services, representing the contribution to general and
administrative costs. The Company generally attempts to break even on its
development work for third party customers and, therefore, product development
activities do not contribute significantly to current operating profit and
loss.

    The Company's research and development costs reimbursed by collaborative
partners are characterized as cost of sales in the financial statements of the
Company and the Company's own research and development is separately
characterized as research and development. The aggregate amount that the
Company spent on research and development and the aggregate amount that was
reimbursed by collaborative partners is shown in the table below. On March 10,
1999 the Company acquired DepoTech Corporation (renamed SkyePharma Inc.) and a
proportion of the increase in research and development costs between 1998 and
1999 is attributable to this acquisition.


                                      -49-

<PAGE>

<TABLE>
<CAPTION>
                                                                                                 The Company
                                                                                           Year ended December 31,
                                                                           --------------------------------------------------------
                                                                                 1998                1999                2000
                                                                           ----------------    ----------------    ----------------
                                                                                                (in thousands)
<S>                                                                        <C>                 <C>                 <C>
Research and Development:
Client sponsored product development...................................            (L)2,998            (L)5,780            (L)6,986
Internal sponsored product development.................................               5,712               6,728              13,104
                                                                           ----------------    ----------------    ----------------
                                                                                      8,710              12,508              20,090
                                                                           ================    ================    ================
Client sponsored developments reimbursed by:
Research and Development costs recharged...............................               2,117               6,078               4,808
Milestone payments.....................................................                 336               2,967              11,997
                                                                           ----------------    ----------------    ----------------
                                                                                   (L)2,453            (L)9,045           (L)16,805
                                                                           ================    ================    ================
</TABLE>


    Contract development income represents amounts invoiced to customers for
services rendered under development contracts or for milestone payments in
accordance with the contract terms. Such amounts are only treated as revenue
when the services have been rendered or the specified milestone has been met.
Certain refundable income is treated as deferred income until the Company has
no further obligations to make refunds. The Company's self-sponsored research
and development costs are expensed as incurred.

Development Process for Brand-Name Pharmaceuticals

    The development of improved outcome or new pharmaceuticals using one of the
Company's drug delivery technologies takes place in several steps. The first
step, called the "preliminary assessment", is to assess the suitability of the
drug candidate for a particular drug delivery system through the use of
sophisticated computer modeling. During the preliminary assessment, the
Company will analyze product specifications provided by the client. If the
preliminary assessment indicates that the drug candidate is suitable for
formulation with the drug delivery technology, the project will proceed to
development as follows:

o   Feasibility             At this stage, the Company conducts an in vitro
                            (laboratory) feasibility study to determine
                            whether, under laboratory conditions, the
                            formulation of the product candidate can be
                            achieved. The Company may develop up to 20
                            prototype formulations for in vitro feasibility
                            studies and selects the most promising two or three
                            for further study and analysis.

o   Pilot Trials            Once a successful feasibility study has been
                            conducted, small batches of the selected prototypes
                            are manufactured by the Company or its
                            collaborative partners for in vivo (human) testing
                            in pilot trials. Pilot trials involve approximately
                            12 patients. The purpose is to determine whether
                            the in vitro results can be replicated in humans.
                            Pilot trials are generally managed by the company
                            and conducted by a clinical research organization
                            (CRO). If the pilot trials demonstrate sub-optimal
                            results, the product candidate may be reformulated
                            and new pilot trials conducted.

o   Scale-up/Bio-Batch      After a successful pilot trial, the Company or its
                            collaborative partners will manufacture a
                            commercial scale batch or a "bio-batch" (at least
                            one-tenth of the projected commercial batch size).
                            The purpose of this stage is to develop and
                            validate the process by which the product will be
                            manufactured. If formulation changes are made
                            during scale-up/bio-batch, additional in vivo
                            testing may be performed in pre-pivotal trials
                            involving a small patient population.


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<PAGE>
                            The "Pre-clinical" phase of development referred to
                            in parts of this document means additional testing
                            following initial feasibility studies and other
                            studies, including additional animal studies,
                            necessary to prepare and file an Investigational
                            New Drug ("IND") application. For a more
                            comprehensive description of the requirements of an
                            IND, see
                            "- Government Regulation - United States - NDA
                            Process".

o   Phase I Trials          The first stage in the clinical development plan is
                            to conduct Phase I clinical trials. These studies
                            are usually performed to generate preliminary
                            information on the chemical action of the compound,
                            the activity or fate of the product in the human
                            body over a period of time including adsorption,
                            distribution, metabolism and elimination, and
                            safety of the drug using normal healthy volunteers
                            and patients. Phase I trials involve approximately
                            10-30 patients. These trials are generally managed
                            by the Company and conducted by a clinical research
                            organisation ("CRO") that has a Phase I clinical
                            study unit.

o   Phase II Trials         The second stage in the clinical development plan
                            is to conduct Phase II clinical trials. These
                            trials are generally carried out on patients with
                            the disease or condition of interest. The main
                            purpose is to provide preliminary information on:
                            the positive effects of the treatment and whether
                            the effects are correlated with the administered
                            doses in one or more demographic groups, assess
                            various measures of patient benefit as potential
                            candidates for use in Phase III trials, and to
                            supplement safety information obtained from Phase I
                            trials. The Company, in collaboration with its
                            partner, or the partner, manages the trial
                            activities (from protocol development through to
                            the writing of the study final reports). The
                            Company may use a CRO to complete the trials. Phase
                            II studies are not required for improved outcome
                            formulations of an existing drug if the improved
                            formulation is targeted at the same indication as
                            the existing drug.

o   Pivotal (Phase III)     The last step of the development process is a
    Trials                  pivotal (Phase III) trial of the product
                            formulation in an expanded patient population to
                            support the approval of marketing applications.
                            Typically, the studies will be performed in the
                            U.S., Canada and Europe to facilitate a multi-
                            national product registration process. The Company,
                            in collaboration with its partner, or the partner
                            manages the trial activities (from protocol
                            development until the writing of the final study
                            reports). The Company may use a CRO to complete the
                            studies on schedule.

o   Regulatory Filing       The Company, in collaboration with its partner, or
                            the partner manages all regulatory activities
                            during the product development phases until product
                            approval. These activities included submissions,
                            communication and meetings with health authorities
                            and preparation of marketing approval applications.

    The Company's research and development efforts in respect of its drug
delivery technologies are by their nature subject to risks and uncertainties.
There can be no assurance the products under development can be successfully
formulated using the drug delivery technologies. In addition, even if such
products can be successfully formulated, there can be no assurance that they
will secure regulatory approval for the appropriate indication or that
approved compounds would be capable of being produced in commercial quantities
at reasonable costs and successfully marketed.

Generic Drug Development Process

    In developing generic pharmaceuticals, it must be proven that the generic
product candidate will exhibit in vivo release characteristics equivalent to
those of the brand-name pharmaceutical. The

                                      -51-

<PAGE>
generic drug development process is similar to the development process for
brand-name pharmaceuticals except that Phase I and Phase II are not required
and in lieu of pivotal (Phase III) trials a smaller bioequivalence study may
be conducted. The process by which generic controlled-release products are
developed for manufacture and sale in the U.S. may be categorized into four
basic stages:

o   Formulation             During formulation, the Company attempts to develop
                            its own version of the brand-name drug. Once a
                            suitable generic version has been formulated, it is
                            then evaluated in in vitro dissolution studies to
                            determine whether in vivo bioequivalence studies
                            should be conducted.

o   Pilot Studies           Once a suitable formulation has been developed and
                            tested in in vitro studies, in vivo bioequivalence
                            studies are conducted which compare the generic
                            formulation to the brand-name drug. Because
                            bioequivalence studies can be relatively expensive
                            to perform, the Company may conduct a preliminary
                            bioequivalence study (pilot study) in which a small
                            batch of the product is manufactured for testing in
                            a limited number of humans.

o   Bioequivalence          If the formulation yields a blood level profile
    Studies                 comparable to the brand-name drug, full-scale
                            bioequivalence studies may be performed, which
                            require the manufacture of at least 100,000 dosage
                            units and usually involve 24 or more human
                            subjects. These studies are conducted to determine
                            the plasma concentrations of the drug in human
                            subjects under fasted and fed conditions as well as
                            under multiple dose administration. If successful,
                            the studies will demonstrate that the rate and
                            extent of absorption of the generic version is
                            equivalent to that of the brand-name drug. If the
                            studies demonstrate that the blood level profiles
                            of the generic product are not comparable to the
                            brand-name drug, the formulation will either be
                            modified or the drug delivery technology, if there
                            is one, will be altered. In some cases, the project
                            may be abandoned.

o   ANDA Filing             After a generic formulation has been shown to be
                            bioequivalent to the brand-name drug, an ANDA is
                            prepared for submission to the FDA. This ANDA
                            includes the results of the bioequivalence studies
                            and other data such as in vitro specifications for
                            the generic formulation, stability data, analytical
                            data, methods validation and manufacturing
                            procedures and controls. See "- Government
                            Regulation - United States - ANDA Process".

Patents and Proprietary Rights

    The Company believes that patent and other intellectual property protection
of its drug delivery and formulation technologies is important to its business
and that its future will depend in part on its ability to obtain patents,
maintain confidential and trade secret information and to operate without
infringing the intellectual property rights of others.

Geomatrix Technology

    The company has two granted patents in respect of its core Geomatrix
technologies. The first patent issued in Australia, New Zealand, Italy,
Europe, Japan, the U.S. and Canada will expire in 2002 in Australia and New
Zealand, 2005 in Italy, 2006 in the rest of Europe, Japan and the U.S., and
2009 in Canada. A second patent relating also to controlled rate release has
been granted in Italy, the U.S. and Europe, Canada and Japan. These patents
expire between 2009 and 2012.

    In addition the Company has several other granted patents, as well as
applications filed in the major markets (Europe, the U.S., Japan, Canada,
Australia and New Zealand), which continue to protect the technology to 2015.
Further applications have been filed as recently as summer 1999.


                                      -52-

<PAGE>
    The patents and applications represent the variety of different swellable
and gellable polymers for the core of a tablet containing an active drug and
various surfaces covering the core. Later applications cover recent
innovations and/or improvements to the original inventions.

    During the last twelve months the Company has had to defend a European
opposition relating to one of its Geomatrix patents. In the opposition the
European Patent Office ("EPO") upheld the opposition. The Company has fixed an
appeal to request that this decision be reversed.

DepoFoam Technology

    Through its acquisition of DepoTech Corporation (renamed SkyePharma Inc.)
in 1999 the company acquired a large portfolio of patents relating to the
DepoFoam technology. There are in excess of 20 patent families relating to
this technology, with patents granted in respect of these various families in
the U.S., Japan, Australia, New Zealand, Europe, Canada and many other
countries. The majority of these patents will continue in force until 2014.
Additional filings of patent applications have been made for improvements of
the initial technology and for innovative technology relating to this subject
matter. These applications have been filed in the U.S., Australia, New
Zealand, Canada, Japan and Europe and in many other countries throughout the
world and during the last twelve months, nine patents have been issued (one in
Europe, three in New Zealand and five in the U.S.).

    In addition, through a prior agreement entered into by SkyePharma Inc. with
the Research Development Foundation ("RDF"), RDF granted certain rights, on an
exclusive basis, relating to the DepoFoam technology to SkyePharma Inc. Under
the agreement SkyePharma Inc. is obligated to prosecute certain patent
applications and maintain issued patents relating to the licensed intellectual
property. RDF retains the right to terminate the agreement or to convert the
exclusive nature of the rights granted under the agreement, into a non-
exclusive licence in the event that SkyePharma Inc. does not satisfy its
contractual obligations including making certain minimum annual payments.
Additional termination events include bankruptcy and a material breach of the
agreement which is not remedied within a specified period. The termination of
this agreement or the conversion to a non-exclusive agreement would have a
material adverse effect on the Company.

Inhalation Technology

    The Company has three patent families in respect of this technology. The
granted patent covers the device itself as well as several of the structural
elements and features incorporated therein, and has been granted in
Switzerland, Europe, the U.S., Australia, Canada, Japan and New Zealand and
the first to expire of these patents, expires in 2015. The two other patent
families relate to the dry powder, for use with the Dry Powder Inhaler.
Applications for these two patents were filed in Switzerland and it is
expected that further country filings will be made in due course.

    The Company has, together with other companies working in the same area,
been involved in several European patent oppositions related to the use of
environmentally friendly hydrofluoroalkanes (HFA) as propellants. Of these
oppositions three have been settled and the remaining five are in various
stages within the European Patent Office. There is also a further opposition
relating to the use of micronised powder for inhalation. In all oppositions
SkyePharma has had to defend its rights together with several other major
inhalation companies, in Europe. There are six oppositions in which SkyePharma
is participating in relation to various aspects of inhalation technologies.

Topical Technology

    The portfolio of intellectual property rights acquired from Hyal is very
large and wide-ranging. Patents and applications covering many and varied uses
of hyaluronic acid have been filed throughout the world. Following these
filings, patents have been granted in, amongst others the U.S., Europe,
Australia, New Zealand and South Africa, expiring between 2010 and 2013. While
the Company recognises the benefit of many of these patents and the
corresponding applications, it will refocus the portfolio by the abandonment
of various patents and/or applications in non-key

                                      -53-

<PAGE>
markets (eg Estonia, Liechtenstein, Monrovia) during the course of the last
twelve months, eleven further patents relating to hyaluronic acid technology
have been granted in the United States together with six new cases being
filed. Additionally, in Europe, twelve patents were granted and eight were
filed during the last twelve months.

    The Company obtained licences required to enable it to develop and fully
exploit this technology. At the beginning of this year, as a result of an
opposition in Europe, one family of Solaraze patents was re-issued to take
account of the EPO's decision. The impact on the corresponding US patent
family is being reviewed.

Nano-particulate Technology

    The Company has acquired a portfolio of two patent families in respect of
the technology. These related to solid lipid nano-particles and to nano-
suspensions which are useful for drug delivery. The granted patents for this
technology are in Australia, Canada, Japan and Europe and will expire in 2012.
There are also applications pending for this technology in the U.S. In respect
of the nano-suspension technology there is a granted patent in the U.S.
expiring in 2015 and corresponding applications filed in Europe, Australia,
Canada and Japan as well as other countries. The company also has an exclusive
licence under two further patent families one relating to solid polymer nano-
particulate technology and the other to further developments in the areas of
solid lipid nano-particles and nano-suspensions.

Patent Protection

    There can be no assurance that the Company will be issued with any
additional patent or that if any patents are issued, they will provide the
Company with significant protection or will not be challenged by third parties
asserting claims against the Company concerning its existing products or with
respect to future products under development by the Company. A claim has been
filed by a third party asserting rights to one of the Company's recently
acquired technologies and notification of other alleged infringements may be
received by the Company in the future. The Company may not, in all cases, be
able to resolve such allegations through licensing arrangements, settlement or
otherwise. Furthermore the Company anticipates that any attempt to enforce its
patents would be time consuming and costly. Moreover, the law of some foreign
countries does not protect the Company's proprietary rights in the products to
the same extent, as does the U.S. The U.S. patent and trademark Office has
instituted changes to the U.S. patent law including changing the term to 20
years from the date of filing for applications filed after June 8, 1995. The
Company cannot predict the effect that such changes on the patent laws may
have on its business or on the Company's ability to protect its proprietary
information and sustain the commercial viability of its products.

    There can be no assurance that the Company's patents or any future patents
will prevent other companies from developing similar or functionally
equivalent products. Furthermore, there can be no assurance that (1) any of
the Company's future processes or products will be patentable, (2) any pending
or additional patents will be issued in any or all appropriate jurisdictions,
(3) the Company's processes or products will not infringe upon the proprietary
rights of third parties, or (4) the Company will have the resources necessary
to protect its patent rights against third parties. The inability of the
Company to protect its patent and proprietary rights or the infringement by
the Company of the patent or proprietary rights of others could have a
material adverse effect on the Company's business, financial condition or
results of operations.

    The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in some cases through confidentiality clauses in agreements
with its employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
from any breach or that the Company's trade secrets will not otherwise become
known or be independently developed by competitors.


                                      -54-

<PAGE>
    There has been substantial litigation in the pharmaceutical, biomedical and
biotechnology industries with respect to the manufacture, use and sale of new
products that are the subject of conflicting patent rights. Most of the brand
name controlled-release products of which the Company is developing generic
versions are covered by one or more patents. Under the Waxman-Hatch
amendments, when a drug developer files an ANDA for a generic drug, and the
developer believes that an unexpired patent, which has been listed with the
FDA as covering that brand name product, will not be infringed by the
developer's product or is invalid or unenforceable, the developer must so
certify to the FDA. That certification must also be provided to the patent
holder, who may challenge the developer's certification of non-infringement,
invalidity or unenforceability by filing a suit for patent infringement. If a
suit is filed within 45 days of the patent holder's receipt of such
certification, the FDA can review and approve the ANDA, but is precluded from
granting final marketing approval of the product until a final judgment in the
action has been rendered or 30 months from the date the certification was
received, whichever is sooner. Should a patent holder commence a lawsuit with
respect to alleged patent infringement by the Company, the uncertainties
inherent in patent litigation make the outcome of such litigation difficult to
predict. The Company evaluates the probability of patent infringement
litigation with respect to its ANDA submissions on a case by case basis. The
delay in obtaining FDA approval to market the Company's product candidates as
a result of litigation, as well as the expense of such litigation, whether or
not the Company is successful, could have a material adverse effect on the
Company's business, financial condition or results of operations.

Manufacturing

Geomatrix and Inhalation Manufacturing

    The Company presently manufactures three Geomatrix products, Cordicant-Uno,
Madopar DR and Diclofenac-ratiopharm-uno, and produces bio-batches for its
collaborative partners. Manufacturing operations have historically taken place
at the Company's 9,647 square meter (103,826 square feet) facility in Muttenz,
Switzerland. The chief limiting factor on the Company's manufacturing ability
was the lack of suitable space at its Muttenz site.

    To address this problem, in January 1997, the Company acquired an
approximately 17,000 square meter (183,000 square feet) pharmaceutical
manufacturing and production facility and an approximately 2,400 square meter
(25,850 square feet) adjoining office complex near Lyon, France by acquiring
100% of the issued and outstanding share capital of Laboratories Novalis
Production SAS ("Novalis"), a French company, from Wyeth-Lederle, a wholly-
owned subsidiary of American Home Products Inc. ("AHP"), for a total
consideration, excluding acquisition expenses, of two French francs and the
assumption of liabilities in the amount of (L)891,000 arising out of a loan
from Wyeth-Ayerst International, which is also a wholly-owned subsidiary of
AHP. After the acquisition, Novalis changed its name to Jago Production SAS.

    The terms of the acquisition allowed the Company to gradually transfer
manufacturing activities into the new facility over a three-year period (1997
to 1999) without assuming all of the operating costs of the facility up front.
The Company packaged certain pharmaceutical products and other products
("Contract Products") on behalf of certain subsidiaries of AHP. The current
manufacturing space was sufficient to allow the Company to continue to package
the Contract Products on behalf of AHP and to install the Company's own
manufacturing suite. The facility is in compliance with cGMP with respect to
the packaging operations and it had European regulatory approval to package
the Contract Products. Under the original contract with AHP, AHP's
subsidiaries compensated the Company on a sliding scale of 100%, 85% and 50%
during the first, second and third year of the agreement, respectively, for
the costs of operating the Lyon facility. AHP's subsidiaries were responsible
for the registration of the Contract Products with all proper health, customs
and other authorities under applicable law, but the Company furnished
assistance to AHP's subsidiaries from time to time in connection with their
filing of documentation as is necessary for such registrations. In consequence
of the expiration of the agreement on December 31, 1999, the Company and AHP
negotiated a new two-year agreement for the Company to continue to supply a
number of human pharmaceuticals, over-the-counter and food products to

                                      -55-

<PAGE>
AHP. Pricing for the products under the new two-year agreement have been
negotiated for each product.

    The Company has completed its Geomatrix manufacturing suite in the Lyon
facility at a capital cost of approximately (L)7.1 million. This facility will
be used to manufacture products for collaborative partners and for the
Company. The facility will enable the Company to manufacture its own products
in addition to contracting with third parties. The Muttenz facility will,
however, remain the Company's principal research and development and
laboratory facility for Geomatrix and inhalation products. The current
manufacturing and large pilot batch operations are being transferred to the
Lyon facility. Pilot batch operations began in November 1997 in the Lyon
facility.

    Currently, manufacturing operations for Cordicant-Uno and Madopar DR take
place at the Company's Muttenz site. During 2000 manufacturing operations for
Diclofenac-ratiopharm-uno were transferred from the Muttenz facility to the
Lyon facility and full scale commercial manufacturing commenced in the second
half of 2000.

    The Company is in the process of expanding its operations at the Lyon
facility to include production activities for dry powder inhaler products
pursuant to the Novartis development contract, see "- Proprietary Products -
Inhalation Products" at a capital cost to date of approximately (L)6.5 million.

    The Lyon facility was designed and built for drug production in 1993 by
American Cyanamid but was used instead for packaging activities. The Company
believes that it has substantially brought the facility into compliance with
cGMP and FDA standards at a cost of approximately (L)0.8 million. The Company
has hired a firm of U.S. FDA consultants to oversee the process. The FDA has
inspected the Lyon facility in respect of two products and notified the
Company that it plans to approve the Lyon facility for commercial
manufacturing. This does not imply FDA approval of these products. Final FDA
approval of the Lyon facility will be given on approval by the FDA of a
product to manufacture. There can be no assurance, however, that the Lyon
facility will ultimately be found to be in compliance with cGMP or other
regulatory requirements for the purposes for which the Company plans to use
the facility. Failure to comply could result in significant delays in the
Company's planned manufacturing efforts. The Company also could incur
significant additional expense in bringing the facility into compliance with
cGMP or other regulatory requirements.

    The Company currently has only a limited number of personnel experienced in
the commercial manufacture of pharmaceuticals. Accordingly, before the Company
commences manufacturing its product candidates in commercial quantities,
significant expenditures and additional personnel will be required. There can
be no assurance that the Company will be able to establish a successful
manufacturing operation.

DepoFoam Manufacturing

    In connection with its collaborative arrangements, the Company intends to
maintain exclusive formulation and manufacturing rights to any DepoFoam
encapsulated drugs, including products of corporate partners, and expects to
receive compensation based on both manufacturing costs of the product and the
value added by the Company to the partner's product. The Company commenced
manufacturing DepoCyt for commercial distribution and sale following approval
of this drug in April 1999. Manufacturing is in an approximately 2,020 square
meter (21,746 square feet) facility built for this purpose. This facility
complies with cGMP regulations and has been approved for the manufacture of
DepoCyt by the FDA and licensed for drug manufacturing by the State of
California. Clinical trial materials are also manufactured in this facility.
The Company must undergo and pass a pre-approval inspection for many countries
outside the U.S. in which applications to obtain marketing approval may be
filed. Prior to marketing DepoCyt (and any other drugs) outside the U.S., the
Company will need to meet applicable regulatory standards, achieve prescribed
product quality and reach necessary levels of production of such products and
obtain marketing approvals.


                                      -56-

<PAGE>
    In October 1999, SkyePharma Inc. discovered that two lots of DepoCyt did
not meet specifications and recalled these lots. Investigations identified
that changes in a supplier's manufacturing process for raw material resulted
in product that did not meet all specifications throughout the shelf-life.
SkyePharma Inc. and Chiron Corporation voluntarily withdrew DepoCyt from the
market. There were no adverse events attributed to the recalled batches and
the product was made available to patients on a compassionate basis. In March
2001, the FDA gave clearance to return Depocyt to the market.

    In addition, SkyePharma Inc. leases an approximately 7,600 square meter
(82,000 square feet) facility housing its administrative, research and
development and future manufacturing activities. Effective June 2000, the
Company subleased to a third party approximately 15,600 square feet of this
facility. This lease expires on July 31, 2002 and SkyePharma Inc. is currently
in negotiations with new tenants to sublease this area. Prior to commencing
commercial manufacturing operations from this facility, the Company will need
to comply with additional and necessary validation, regulatory and inspection
requirements.

    To date, SkyePharma Inc. has relied on a particular method of manufacture
for products based on its DepoFoam technology which involves processes known
only to SkyePharma Inc. There can be no assurance that this method will be
applicable to all pharmaceuticals the Company desires to commercialize.
Further, the yield of DepoFoam product may be highly variable for different
drugs. Finally, the Company will need to successfully meet any manufacturing
challenges associated with the characteristics of the drug to be encapsulated.
The physical and chemical stability of the DepoFoam formulation may vary with
each drug over time and under various storage conditions. There can be no
assurance that the manufacturing process will result in economically viable
yields of product or that it will produce formulations of therapeutic products
sufficiently stable under suitable storage conditions to be commercially
useful.

    In the event that the Company decides to pursue alternative manufacturing
methods for some or all of its injectible drugs utilizing DepoFoam, there can
be no assurance that these methods will prove to be commercially practical or
that the Company will have or be able to acquire rights to use such
alternative methods.

Product and Raw Material Supply

    The Company's collaborative pharmaceutical company partners rely on certain
suppliers of key raw materials. Certain of those materials are purchased from
single sources and others may be purchased from single sources in the future.
Although the Company has no reason to believe that its collaborative
pharmaceutical company partners will be unable to procure adequate supplies of
such raw materials on a timely basis, disruptions in supplies, including
delays due to the inability of the Company's pharmaceutical company partners,
the Company or its manufacturers to procure raw materials, would have a
material adverse effect on the Company's business.

    The Company currently relies on a limited number of suppliers to provide
the materials used to manufacture its DepoFoam products. Some of these
materials are purchased only from one supplier. In the event the Company could
not obtain adequate quantities of necessary materials from its existing
suppliers, the Company might not be able to access alternative sources of
supply within a reasonable period of time or at commercially reasonable rates.
Regulatory requirements for pharmaceutical products tend to make the
substitution of suppliers costly and time-consuming. The unavailability of
adequate commercial quantities, the inability to develop alternative sources,
a reduction or interruption in supply or a significant increase in the price
of materials could have a material adverse effect on the Company's ability to
manufacture and market its products.

    One of the DepoFoam Injectable products in development, DepoMorphine, has
morphine sulphate as its active ingredient. Morphine sulphate is classified as
a Scheduled Drug by the DEA. The DEA has determined that these drugs have a
high potential for abuse and could lead to severe psychological or physical
dependence. The DEA controls the national production and distribution of
certain Scheduled Drugs in the U.S. by allocating production quotas based, in
part, upon the DEA's

                                      -57-

<PAGE>
view of national demand. While SkyePharma Inc. has a DEA license to use
morphine sulphate in its research and manufacturing of DepoMorphine for
clinical studies, SkyePharma Inc. might not be able to obtain the required DEA
licenses to manufacture commercial quantities of DepoMorphine.

    The principal components used in the Company's generic product candidates
are active and inactive pharmaceutical ingredients and certain packaging
materials. Source suppliers for materials for the Company's products must be
approved by the FDA, and in some instances only one source supplier may be
available or approved for certain materials. Development and approval of the
Company's products are dependent upon the Company's ability to procure active
and inactive ingredients and certain packaging materials from FDA-approved
sources. FDA approval of a new supplier would be required if such active and
inactive ingredients or packaging materials were no longer available from an
initially approved supplier. The qualification of a new supplier would delay
the manufacture of the drug involved. The Company's policy is to seek, where
possible, a second qualifying source of raw materials for all of its product
candidates.

    Two of the Company's generic product candidates, which are in early stages
of formulation, require substances which are classified as Scheduled Drugs by
the DEA. The Company's generic product candidates, which are in early stages
of formulation, may not be successfully formulated and if successfully
formulated the Company might not be able to obtain commercial quantities of
the raw materials or obtain the required licenses from the DEA.

Joint Venture with Genta

    The Company has a Joint Venture with Genta to develop Geomatrix controlled-
release formulations of a range of drugs that have lost, or are about to lose,
marketing exclusivity or patent protection.

    The Joint Venture, established in 1992, gained rights from the Company to
develop, commercialize and manufacture Geomatrix versions of approximately 50
additional products. All of the development work in respect of the products in
the Joint Venture is performed by the Company at its research facility in
Muttenz, Switzerland. In October 1996, as a result of the then financial
difficulties being experienced by Genta, the Company acquired from the Joint
Venture the licenses to the Geomatrix technologies in respect of what it
considered to be the six most commercially viable compounds in the product
portfolio referred to. The products include AB-rated diclofenac (Voltaren-XR),
AB-rated naproxen (Naprelan) and AB-rated verapamil HCI (Covera HS). The
Company paid $1 million to the Joint Venture in consideration of this and
agreed to make additional payments if specified development milestones are
achieved on a product by product basis. In addition, the Company agreed to
assume the research and development costs of formulating the new products. If
such products are successfully formulated and approved, the Company expects
that they would be marketed in the U.S. by licensing partners. Not all of
these products are currently in active development.

    On March 4, 1999, an agreement was signed between the Company and Genta
concerning the future operation of the Joint Venture. Under the terms of this
agreement existing balances between the Joint Venture company and the parent
companies were waived. These are principally unpaid development cost invoices
due to the Company and the loan notes due to Genta. In addition, Genta is
released from future funding obligations.

    The Company also became responsible for all obligations under existing
development and license agreements between the Joint Venture and third parties
and the Company is solely responsible for the future development, marketing,
distribution, manufacturing and funding of future Joint Venture products.

    The Joint Venture's share of any future revenues arising from products
originating from the Joint Venture will be shared between the parent companies
according to agreed formulae and a distribution schedule which allows for
payment of sums which give recognition to the working

                                      -58-

<PAGE>
capital advances made by Genta before reverting to a 50/50 share. The intent
is to ensure that the rights of the parties, pre-existing the agreement, are
fully compensated.

    The Company is currently investigating the possibility of winding-up the
joint venture as it is no longer required.

Competition

    The pharmaceutical industry is highly competitive and is affected by new
technologies, governmental regulations, health care legislation, availability
of financing and other factors. Many of the Company's competitors have longer
operating histories and greater financial, marketing and other resources than
the Company.

    The Company expects that it will be subject to competition from numerous
other entities that currently operate, or intend to operate, in the
pharmaceutical industry. These include companies that are engaged in the
development of controlled-release technologies and products, as well as other
pharmaceutical manufacturers that may decide to undertake in-house development
of these products.

    As the pharmaceutical industry continues to consolidate and as pressures
increase for cost-effective research and development, some pharmaceutical
companies have reduced and may continue to reduce their funding of research
and development. Competition for limited client financing may therefore
increase, and this competition could include the clients' internal research
and development programs, other drug delivery programs and other technologies
and products of third parties.

Government Regulation

    All drugs and medical devices, including the Company's products under
development, are subject to extensive regulation in the U.S. and Europe, the
Company's two principal markets. In the U.S., the primary regulatory body is
the FDA, although to a lesser extent state and local authorities are also
involved in the regulatory process. In Europe, there are two regulatory
systems. There is a European Union system that is the responsibility of the
European Medicines Evaluation Agent ("EMEA"). In addition, each country has
its own regulatory agency. In both the U.S. and Europe, the applicable
regulations govern or influence the development, testing, manufacture, safety,
labeling, storage, record keeping, approval, advertising, promotion, sale and
distribution of prescription pharmaceutical products. Pharmaceutical
manufacturers are also subject to certain record keeping and reporting
requirements, establishment registration and product listing and agency
inspections.

United States

    The federal Food, Drug and Cosmetics Act ("FDCA"), the Public Health
Services Act, the Controlled Substances Act and other federal statutes and
regulations govern or influence all aspects of the Company's business.
Noncompliance with applicable requirements can result in fines and other
judicially imposed sanctions, including product seizures, injunctive actions
and criminal prosecutions. In addition, administrative or judicial actions can
result in the recall of products, and the total or partial suspension of the
manufacturing of products, as well as the refusal of the government to approve
pending applications or supplements to approved applications. The FDA also has
the authority to withdraw approvals of drugs in accordance with statutory due
process procedures.

    FDA approval is required before any dosage form of any new unapproved drug,
including a generic equivalent of a previously approved drug, can be marketed.
All applications for FDA approval must contain information relating to
evidence of safety and efficacy or bioequivalence to a listed reference drug,
product formulation, stability, manufacturing processes, packaging, labeling
and quality control. In addition, acts of foreign governments may affect the
price or availability of raw materials needed for the development or
manufacture of generic drugs.


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ANDA Process

    The Drug Price Competition and Patent Restoration Act of 1984, known as the
Waxman-Hatch Act, established abbreviated application procedures for obtaining
FDA approval for those drugs which are off-patent and whose non-patent
exclusivity under the Waxman-Hatch Act has expired and which are shown to be
bioequivalent to brand-name drugs. Approval to manufacture these drugs is
obtained by filing an ANDA. An ANDA is a comprehensive submission which
generally must contain data and information pertaining to the bioequivalence
of the drug covered by the ANDA to a referenced listed drug, formulation
specifications, stability data, analytical data, methods and manufacturing
validation data and quality control procedures. As a substitute for clinical
studies, the FDA requires data indicating that the ANDA drug formulation is
bioequivalent to a previously approved NDA drug. In order to obtain an ANDA
approval of a strength or dosage form which differs from the referenced brand-
name drug, an applicant must file and have granted an ANDA Suitability
Petition. A product is not eligible for ANDA approval if it is not
bioequivalent to the referenced brand-drug or if it is intended for a
different use. However, such a product might be approved under a Section
505(b)(1) or (b)(2) NDA with supportive data from clinical trials.

    The advantage of the ANDA approval process is that an ANDA applicant
generally can rely upon bioequivalent data in lieu of conducting pre-clinical
testing and clinical trials to demonstrate that a product is safe and
effective for its intended use(s). While the FDCA provides for a 180-day
review period, the Company believes the average length of time between initial
submission of an ANDA and receiving FDA approval is at least two years.

    While the Waxman-Hatch Act established the ANDA, it has also fostered
pharmaceutical innovation through such incentives as market exclusivity and
patent restoration. The Waxman-Hatch Act provides two distinct market
exclusivity provisions which either preclude the submission or delay the
approval of a competitive drug application. A five-year marketing exclusivity
period is provided for new chemical compounds and a three-year marketing
exclusivity period is provided for applications containing new clinical
investigations essential to the approval of the application. The non-patent
marketing exclusivity provisions apply equally to patented and non-patented
drug products. Any entitlement to patent marketing exclusivity under the
Waxman-Hatch Act is based upon the term of the original patent plus any patent
extension granted under the Waxman-Hatch Act as compensation for reduction of
the effective life of a patent as a result of time spent by the FDA in
reviewing the innovator's NDA. The patent and non-patent marketing exclusivity
provisions do not prevent the filing or the approval of a full Section
505(b)(1) NDA. Additionally, the Waxman-Hatch Act provides 180-day marketing
exclusivity against effective approval of another ANDA for the first ANDA
applicant who submits a certification challenging a listed patent as being
invalid or not infringed and successfully defends in court any patent
infringement action based on such certification.

NDA Process

    An NDA is a filing submitted to the FDA to obtain approval of a new drug or
a new formulation of an existing drug and must contain complete pre-clinical
and clinical safety and efficacy data or a right of reference to such data.
Before dosing a new drug in healthy human subjects or patients may begin,
stringent government requirements for pre-clinical data must be satisfied. The
pre-clinical data, typically obtained from studies in animal species, as well
as from laboratory studies, are submitted in an Investigational New Drug
application, or its equivalent in countries outside the U.S., where clinical
trials are to be conducted. The pre-clinical data must provide an adequate
basis for evaluating both the safety and the scientific rationale for the
initiation of clinical trials.

    Clinical trials are typically conducted in three sequential phases, Phase
I, II and III, although the phases may overlap. A description of each of these
phases of development is included in "Research and Development - Development
Process for Brand-Name Pharmaceuticals". Data from pre-clinical testing and
clinical trials are submitted to the FDA as an NDA for marketing approval. The
process of completing clinical trials for a new drug is likely to take several
years and require the expenditure of substantial resources. Preparing an NDA
or marketing authorization application

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involves considerable data collection, verification, analysis and expense, and
there can be no assurance that approval from the FDA will be granted on a
timely basis, if at all. The approval process is affected by a number of
factors, primarily the risks and benefits demonstrated in clinical trials as
well as the severity of the disease and the availability of alternative
treatments. The FDA may deny an NDA or marketing authorization application if
the regulatory criteria are not satisfied, or such authorities may require
additional testing or information.

    Even after initial FDA approval has been obtained, further studies,
including Phase IV post-marketing studies, may be required to provide
additional data on safety and will be required to provide approval for the use
of a product as a treatment for clinical indications other than those for
which the product was initially tested. Also, the FDA or other regulatory
authorities require post-marketing reporting to monitor the adverse effects of
the drug. Results of post-marketing programs may limit or expand the further
marketing of the products. Further, if there are any modifications to the
drug, including changes in indication, manufacturing process or labeling or a
change in manufacturing facility, an application seeking approval of such
changes must be submitted to the FDA or other regulatory authority.
Additionally, the FDA regulates post-approval promotional labeling and
advertising activities to assure that such activities are being conducted in
conformity with statutory and regulatory requirements. Failure to adhere to
such requirements can result in regulatory actions which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

    The FDCA provides for NDA submissions that may rely in whole or in part on
publicly available clinical data on safety and efficacy under section
505(b)(2) of the FDCA. The Company and its collaborative partners may be able
to rely on existing publicly available safety and efficacy data in filing NDAs
for extended-release products when such data exist for an approved immediate-
release version of the same chemical entity. However, there is no guarantee
that the FDA will accept such applications under section 505(b)(2), or that
such existing data will be publicly available or useful. Further, utilizing
the section 505(b)(2) application process is uncertain, because neither the
Company nor the FDA have had significant experience with it. Additionally,
under the Prescription Drug User Fee Act of 1992 (the "PDUFA"), all NDAs
require the payment of a substantial fee upon filing, and other fees must be
paid annually after approval. Under the PDUFA, there are circumstances when
waivers may be granted to the payment of user fees. No assurances exist that,
if approval of an NDA is required, such approval can be obtained in a timely
manner, if at all.

Other Regulation

    The Prescription Drug Marketing Act ("PDMA"), which amends various sections
of the FDCA, imposes requirements and limitations upon drug sampling and
prohibits states from licensing wholesale distributors of prescription drugs
unless the state licensing program meets certain federal guidelines that
include, among other things, state licensing of wholesale distributors of
prescription drugs under federal guidelines that include minimum standards for
storage, handling and record keeping. In addition, the PDMA sets forth civil
and criminal penalties for violations of these and other provisions. Various
sections of the PDMA are still being implemented by the FDA and the states.
Nevertheless, failure by the Company's distributors to comply with the
requirements of the PDMA could have a material adverse effect on the Company's
business, results of operations and financial condition.

    Manufacturers of marketed drugs must comply with cGMP regulations and other
applicable laws and regulations required by the FDA, the Environmental
Protection Agency, the DEA, the HPB in Canada, the EMEA in the European Union
and other regulatory agencies. Failure to do so could lead to sanctions, which
may include an injunction suspending manufacturing, the seizure of drug
products and the refusal to approve additional marketing applications. The
Company seeks to ensure that any third party with whom it contracts for
product manufacturing will comply with cGMP. The FDA conducts periodic
inspections to ensure compliance with these rules. However, there can be no
assurance that any such third parties will be found to be in compliance with
cGMP standards. Any such non-compliance could result in a temporary or
permanent interruption in the

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development and testing of the Company's planned products or in the marketing
of approved products, as well as increased costs. Such non-compliance could
have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, SkyePharma Inc.'s
manufacturing facility located in San Diego, California is regulated by the
State of California, Department of Health Services, Food and Drug Branch, and
the U.S. DEA.

European Union Regulation

    The European drug registration system is based on co-operation between the
European Medicines Evaluation Agency (EMEA), established in London, and
competent national authorities of the member states of the European Union.

    Since 1995, two new registration procedures have been available throughout
the European Union.

    The first of these is a centralized procedure which is compulsory for
medicinal products derived from biotechnology, and available at the request of
companies for other innovative new products. Applications are submitted
directly to the EMEA in London. At the conclusion of the EMEA's internal
scientific evaluation, the opinion of the EMEA's scientific committee is
transmitted to the European Commission, the approval of which will form the
basis of a single market authorization applying to the whole European Union.

    The second procedure is `mutual recognition' which is mandatory for most
conventional medicinal products. It is based upon the principle of mutual
recognition of national authorizations and it provides for the extension of a
marketing authorization granted by one member state of the European Union to
one or more other member states identified by the applicant. Should the
original national authorization not be recognized in another member state the
points in dispute are submitted to EMEA's scientific committee for
arbitration.

    In both cases, the final decision is adopted by the European Commission,
with the assistance of the EMEA or, in the event of serious disagreement
between the member states, by the European Council. In addition, certain
European countries outside the European Union follow the decisions of the
European Commission.

    In addition to the above forms of regulation, price constraints on
pharmaceutical products exist in most countries either through governmental
regulation or pressure from healthcare organizations. In some countries,
governments or governmental agencies are substantial purchasers of human
healthcare products and this also imposes an indirect form of regulation on
the industry.


                                      -62-

<PAGE>
Organizational Structure

    SkyePharma PLC is an international pharmaceutical company and has a number
of wholly owned principal subsidiary undertakings as detailed below:

<TABLE>
<CAPTION>
Company                                                                    Country of incorporation                           % Held
-------------------------------------                                 -----------------------------    -----------------------------
<S>                                                                  <C>                              <C>
Krypton Limited..................................................                         Gibraltar                             100%
SkyePharma Holding Inc*..........................................                              U.S.                             100%
Brightstone Pharma Inc...........................................                              U.S.                             100%
SkyePharma Inc...................................................                              U.S.                             100%
SkyePharma Holding AG*...........................................                       Switzerland                             100%
Jago Holding AG..................................................                       Switzerland                             100%
SkyePharma AG....................................................                       Switzerland                             100%
Jago Research AG.................................................                       Switzerland                             100%
Jagotec AG.......................................................                       Switzerland                             100%
SkyePharma Production SAS*.......................................                            France                             100%
                                                                      -----------------------------    -----------------------------
</TABLE>


*   Denotes investment directly held by the Company.

Property, Plants and Equipment

    In January 1997, the Company acquired an approximately 17,000 square meter
(183,000 square feet) pharmaceutical manufacturing and production facility and
an approximately 2,400 square meter (25,850 square feet) adjoining office
space near Lyon, France by acquiring 100% of the issued and outstanding share
capital of Laboratories Novalis Production SAS ("Novalis"), a French company,
from Wyeth-Lederle for a total consideration of two French francs and the
assumption of certain liabilities. See "Item 4: Information about the Company
- Business Overview - Manufacturing; Geomatrix and Inhalation Manufacturing".

    In addition, the Company owns a 3,435 square meter (36,961 square feet)
facility in Muttenz, Switzerland in which its principal research and
development, production, small-scale manufacturing, laboratory and workshop
operations are housed. In February 1999, the Company purchased a warehousing
and administration facility in Muttenz, Switzerland, of approximately 6,212
square meters (66,865 square feet), including approximately 2,040 square
meters (22,000 square feet) previously occupied by the Company under a leasing
agreement. The purchase price of (L)3.1 million was financed by bank mortgage
at 3% per annum with no repayments during the first five years. Interest and
repayment terms will be renegotiated at the end of the five-year period. The
building has since been extended and refitted to house additional
administrative, research and laboratory operations and the building was
officially re-opened on April 7, 2001.

    The Company's principal executive offices are located in an approximately
8,800 square meter (94,700 square feet) facility in London, England. The
premises are occupied pursuant to leases expiring December 2005 at a total
annual rent of approximately (L)522,000 per year. The Company also leases a
small office space in New York City, New York, for a total annual rent of
approximately $300,000 pursuant to a leasing agreement renewable in February
2001. The lease is currently being renegotiated and independent valuations
being obtained. Approximately one-third of this facility is subleased for an
annual rental of approximately $100,000.

    On March 10, 1999, the Company acquired SkyePharma Inc. (formerly named
DepoTech Corporation) which maintains its principal operations in a leased a
7,600 square meter (82,000 square feet) building in San Diego, California. The
facility houses production, research and development and administrative
functions. The future minimum annual rental commitment ranges from $2.7
million to $4.3 million per year over the balance of the remaining lease term
of approximately 15 years based upon pre-established annual rent increases.
Effective June 2000, the Company subleased to a third party approximately
15,600 square feet of this facility. Sublease income will total approximately
$998,000 over the term of the lease which expires July 31, 2002. With the
acquisition of SkyePharma Inc., the Company also acquired the leasehold of a
2,020

                                      -63-

<PAGE>
square meter (21,746 square feet) purpose built facility, approved by the FDA
for the commercial manufacture of DepoCyt. The lease expires in January 2006
and annual rentals range from $592,000 to $720,000 in this period.
Additionally the Company maintains a leased facility containing primarily
office space, with lease terms expiring in January 2006. The facility was
subleased effective January 1, 2001 with annual rental income ranging from
$306,000 to $352,000 for the terms of the sublease for which expires on
January 31, 2006.

    On January 1, 2000, the Company assumed a lease for an office facility in
Exton, Pennsylvania for a number of newly recruited U.S. business development
employees. The office consisted of 296 square meter (3,190 square feet) of
floor space and had an extended lease term of two years, expiring in December
2001. The annual rental for this office was approximately $74,000. On May 7,
2001 the office facility in Exton was completely destroyed by fire. Under the
terms of the lease SkyePharma's obligations expired as of the date of the
fire. The six employees located in this facility were unhurt and the Company
has assumed a short-term lease in a new location in Exton. The new office
consists of 85 square meters (920 square feet) and has a lease term of 3
months, expiring August 31, 2001. The monthly rental of this office is
approximately $6,400.

    The Company believes that its current facilities are adequate to meet its
anticipated needs for the foreseeable future.

Item 5: Operating and Financial Review and Prospects

    The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from the results discussed in such forward-looking statements as a result of
various factors, including those set forth under the caption "Risk Factors"
and elsewhere in this Form 20-F.

    The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
Consolidated Financial Statements and related notes of the Company contained
elsewhere in this Form 20-F. This discussion contains summarized financial
information which has been derived from such financial statements. You should
not rely solely upon such summarized information but should read this entire
document. The Financial Statements have been prepared under accounting
principles generally accepted in the United Kingdom which vary in certain
important respects from accounting principles generally accepted in the United
States. See Note 29 to the Consolidated Financial Statements included in Item
18 of this Form 20-F.

Operating Results

    The Company's revenues to date from continuing business have been
principally generated by contract development revenue, including milestone
payments from third parties, contract manufacturing and distribution, and
royalty revenue from sales by third parties of products developed by the
Company. See "Item 3: Key Information - Risk Factors - The Company's results
of operations tend to fluctuate".


                                      -64-

<PAGE>
    The Group's operations relate wholly to one class of business,
pharmaceuticals.

<TABLE>
<CAPTION>
                                                                                           Year ended December 31,
                                                                           --------------------------------------------------------
                                                                                 1998                1999                2000
                                                                           ----------------    ----------------    ----------------
                                                                                                (in thousands)
<S>                                                                        <C>                 <C>                 <C>
By class of business:
Pharmaceuticals
 Contract development, including Milestone payments
   Receivable from third parties.......................................            (L)2,401            (L)9,045           (L)16,805
   Receivable from the Joint Venture...................................                  52                  --                  --
                                                                           ----------------    ----------------    ----------------
                                                                                      2,453               9,045              16,805
 Manufacturing and distribution .......................................               6,485               4,597               3,476
 Royalties receivable .................................................               1,987               4,097               4,011
                                                                           ----------------    ----------------    ----------------
                                                                                  (L)10,925           (L)17,739           (L)24,292
                                                                           ================    ================    ================
By location of customer:
 U.K. .................................................................              (L)207            (L)2,237           (L)13,178
 Continental Europe ...................................................               6,865              10,812               6,095
 U.S. .................................................................               3,434               4,590               4,284
 Rest of the world ....................................................                 419                 100                 735
                                                                           ----------------    ----------------    ----------------
                                                                                  (L)10,925           (L)17,739           (L)24,292
                                                                           ================    ================    ================
</TABLE>


    Historically, the contributions to total revenues generated by each revenue
source have varied from period to period. Each of these sources results in
significantly different gross margins. In respect of contract development
revenue, the Company generally endeavors to recover its direct costs, its
objective being to generate long-term profits from royalties on successful
product commercializations. Royalty revenues generally result in higher gross
margins than contract development revenue, which is affected by the timing of
milestone payments. Accordingly, the comparability of gross margins from
period to period will be affected by the mix or sources of revenue earned.

    In 1998, the Company also received contract development revenue, including
milestone payments from the Joint Venture with Genta. On March 4, 1999 the
Company reached an agreement with Genta relating to the outstanding
liabilities and the future operation of the Joint Venture with Genta. The
existing balances between the Joint Venture company and the parent companies
have been waived and in addition Genta was released from future funding
obligations. The Company did not suffer any material adverse financial
consequences from its implementation of the agreement and fully recognized its
50% share of the net loss on operations in the Joint Venture in 1999. See
"Item 4: Information on the Company - Business Overview - Joint Venture with
Genta" for further details of the terms of this agreement.

    Commencing in 1997 the Company began generating revenue and incurring costs
relating to contract manufacturing at its Lyon facility. See "Item 4:
Information on the Company - Business Overview - Manufacturing".

    The results for the year ended December 31, 1999 include revenues from
SkyePharma Inc. which has been consolidated from the date of its acquisition
in March 1999. At this point the Company began to incur costs relating to non-
contract manufacturing at its San Diego facility. See "Item 4: Information on
the Company - Business Overview - Injectable".

    After cost of sales, the Company's principal expenditures have related to
administrative expenses, the Company's internal research and development
costs, the costs of the corporate

                                      -65-

<PAGE>
offices, interest expense and, prior to December 1998, the build-up of the
sales and marketing organization in the United States.

    As the majority of the Company's principal expenses are incurred in
Switzerland, France and the United States and the Company's revenues are
substantially in U.S. dollars, the Company's results of operations, as
reported in pounds sterling, can be materially influenced by changes in
exchange rates.

    Inflation did not have a significant impact on the Company's operations
during any of the periods presented.

Year Ended December 31, 2000 compared with the Year Ended December 31, 1999

<TABLE>
<CAPTION>
                                                Year to             Year to
                                              December 31,        December 31,
                                                  2000                1999
                                            ----------------    ----------------
                                                       (in thousands)
<S>                                         <C>                 <C>
Turnover................................           (L)24,292           (L)17,739
Cost of sales...........................             (15,598)            (14,854)
                                            ----------------    ----------------
Gross profit............................               8,694               2,885
Selling, marketing and distribution
  expenses..............................              (3,844)             (3,161)
Administration expenses.................             (12,630)            (12,584)
Research & development expenses.........             (13,104)             (6,728)
Other operating income..................               2,900                  --
                                            ----------------    ----------------
Operating loss..........................             (17,984)            (19,588)
Share of operating loss in Joint
  Venture...............................                  --                 (48)
                                            ----------------    ----------------
Loss on ordinary activities before
  interest and taxation.................             (17,984)            (19,636)
Reversal of provision for loss on
  disposal of fixed asset investment....                  --                 381
Interest receivable.....................               1,806               1,364
Interest payable........................              (3,508)             (1,391)
                                            ----------------    ----------------
Loss on ordinary activities before
  taxation..............................             (19,686)            (19,282)
Taxation................................                  (4)               (132)
                                            ----------------    ----------------
Retained loss...........................             (19,690)            (19,414)
                                            ================    ================
</TABLE>


    Turnover in the year ended December 31, 2000 increased by 37% to (L)24.3
million compared to (L)17.7 million in 1999. This represents a cumulative
annual growth rate of 28% since 1996.

    Contract research and development including milestone payments increased by
86% to (L)16.8 million in 2000. Milestone payments in 2000 include (L)8.9
million ($14 million) received from Bioglan on the licensing of Solaraze in
the US, Canada and Mexico. Manufacturing and distribution revenues decreased
to (L)3.5 million in 2000 compared to (L)4.6 million in 1999, mainly as a
result of the absence of revenues from the manufacture and sale of DepoCyt.
Royalty income was earned primarily from the licensing of part of the Group's
portfolio of generic products and from Dilacor XR and amounted to (L)4.0
million in 2000 compared to (L)4.1 million in 1999. The first royalty income
from Xatral was also received in the year. The Company also received (L)2.9
million during 2000 under its agreement to finance the development of
DepoMorphine shown above as "Other Operating Income". See "Note 29 (12):
Summary of Material Differences between UK and US GAAP" for the accounting
treatment of this transaction under U.S. GAAP.

    Cost of sales consists of research and development expenditure, including
the costs of certain clinical trials incurred on behalf of our collaborative
partners, the direct costs of contract manufacturing, direct costs of
licensing arrangements and royalties payable. Cost of sales were

                                      -66-

<PAGE>
(L)15.6 million in 2000 compared to (L)14.9 million in 1999. Gross profit
trebled to (L)8.7 million in 2000 compared to (L)2.9 million in 1999 as a
result of the increase in milestone payments received.

    Selling, marketing and distribution expenses were (L)3.8 million in 2000
compared to (L)3.2 million in 1999, primarily due to a full year's expenses
for SkyePharma's business development presence in North America. Research and
development expenses increased by 95% to (L)13.1 million compared to (L)6.7
million in 1999, due primarily to increased expenditure on DepoCyt and
DepoMorphine. Administrative expenses were (L)12.6 million in 2000, the same
as in 1999, including amortization of (L)3.3 million in 2000, compared to
(L)1.5 million in 1999.

    In December 2000 the Group received other operating income of (L)2.9
million ($4.4 million) under an agreement with Paul Capital Royalty
Acquisition Fund L.P. by which it will receive a total of $30 million over the
next two years to fund the clinical development and regulatory submission of
DepoMorphine in return for the sale of a proportion of potential future
royalty and revenue streams from DepoMorphine and certain SkyePharma products.
Research and Development costs for DepoMorphine were (L)4.3 million in 2000.
This is explained more fully in Note 3 to the Consolidated Financial
Statements included in Item 18 of this Form 20-F.

    Operating loss fell by 8% from (L)19.6 million in 1999 to (L)18.0 million
in the year. This was achieved at a time when research and development
expenses were almost doubled. The absence of DepoCyt from the market place in
2000 also adversely impacted SkyePharma's operating result by some (L)5.8
million. DepoCyt was re-introduced to the market in March 2001. The costs of
amortizing goodwill and recent intellectual property acquisitions more than
doubled to (L)3.3 million during the year.

    The Group's loss on ordinary activities before tax was (L)19.7 million in
2000, after a net interest payable increase of (L)1.7 million, compared to
(L)19.3 million in 1999. The loss per share for the year fell by 7% to 3.9
pence compared to 4.2 pence in 1999.

    Foreign currency exchange movements did not have a material impact on the
results of operations in 2000 compared with 1999.


                                      -67-

<PAGE>
Year Ended December 31, 1999 compared with the Year Ended December 31, 1998

<TABLE>
<CAPTION>
                                                                                                                       Year to
                                                                      Year to December 31, 1999                      December 31,
                                                       --------------------------------------------------------          1998
                                                           Existing          Acquisitions           Total               Total
                                                       ----------------    ----------------    ----------------    ----------------
                                                                                      (in thousands)
<S>                                                    <C>                 <C>                 <C>                 <C>
Turnover
Group and share of Joint Venture...................           (L)14,219            (L)3,520           (L)17,739           (L)11,038
Less: share of Joint Venture.......................                  --                  --                  --                (113)
                                                       ----------------    ----------------    ----------------    ----------------
Group turnover.....................................              14,219               3,520              17,739              10,925
Cost of sales......................................             (12,185)             (2,669)            (14,854)            (10,630)
                                                       ----------------    ----------------    ----------------    ----------------
Gross profit.......................................               2,034                 851               2,885                 295
Selling, marketing and distribution expenses.......              (1,291)             (1,870)             (3,161)             (4,230)
Administration expenses............................              (8,025)             (4,559)            (12,584)             (6,781)
Research & development expenses....................              (3,455)             (3,273)             (6,728)             (5,712)
                                                       ----------------    ----------------    ----------------    ----------------
Group operating loss...............................             (10,737)             (8,851)            (19,588)            (16,428)
                                                       ----------------    ----------------
Share of operating (loss)/profit in Joint Venture..                                                         (48)                 14
                                                                                               ----------------    ----------------
Loss on ordinary activities before interest and
  taxation.........................................                                                     (19,636)            (16,414)
Reversal of provision for loss on disposal of
  fixed asset investment...........................                                                         381                  --
Interest receivable................................                                                       1,364               1,396
Interest payable
 Group ............................................                                                      (1,391)             (6,619)
 Joint Venture ....................................                                                          --                (374)
                                                                                               ----------------    ----------------
Loss on ordinary activities before taxation........                                                     (19,282)            (22,011)
Taxation...........................................                                                        (132)                (85)
                                                                                               ----------------    ----------------
Retained loss......................................                                                     (19,414)            (22,096)
                                                                                               ================    ================
</TABLE>


    On March 10, 1999 the Company completed the acquisition of SkyePharma Inc.
The results of that company for the period March 10, 1999 to December 31, 1999
are included above under Acquisitions.

    During 1998 the Company recorded a one-time exceptional charge of
approximately (L)1.3 million relating to the restructuring of its activities
in North America, through the integration of Brightstone's clinical
development and finance functions with SkyePharma Inc. The exceptional charges
are recorded within cost of sales ((L)0.3 million) and selling, marketing and
distribution expenses ((L)1.0 million).

    Turnover in the year ended December 31, 1999 was (L)17.7 million, an
increase of (L)6.8 million, or 62% compared to (L)10.9 million in 1998. The
acquisition of SkyePharma Inc. in March 1999 contributed revenues of (L)3.5
million. Excluding the impact of SkyePharma Inc., turnover from the group's
existing businesses increased by 30%.

    Like other emerging pharmaceutical companies, SkyePharma can experience
fluctuations in year-on-year turnover due to the timing of development income,
milestone payments and licensing income. In addition major pharmaceutical
partners increasingly prefer equity participations in exchange for a reduction
in up front technology access fees and future milestone payments. In September
1999 the Company received an equity injection of (L)4.9 million from
SmithKline Beecham

                                      -68-

<PAGE>
(now part of GlaxoSmithKline) in association with an agreement for the
development of their anti-Parkinson's disease drug, Requip. In 1998 the
company also received an equity injection of (L)6.0 million from Novartis in
association with an agreement to jointly develop a new version of Foradil.

    Contract research and development revenues in 1999 including milestone
payments was (L)9.0 million compared to (L)2.5 million in 1998, an increase of
(L)6.5 million, due to the commencement of new projects for corporate partners
and the acquisition of SkyePharma Inc. ((L)2.7 million). Manufacturing and
distribution revenues decreased to (L)4.6 million in 1999 compared to (L)6.5
million in 1998. This was due to the cessation of direct generic sales in the
U.S. and the reduction of contract manufacturing revenues in accordance with
the arrangement with Wyeth at Lyon, partly offset by revenues from the
manufacture of DepoCyt of (L)0.8 million. Royalty and licensing income rose to
(L)4.1 million from (L)2.0 million reflecting additional licensing income from
the Group's portfolio of generic products. Royalty income is earned primarily
from Dilacor XR which fell from (L)1.9 million in 1998 to (L)0.8 million in
1999.

    Cost of sales consists of research and development expenditures, including
the costs of certain clinical trials incurred on behalf of our collaborative
partners, the direct costs of contract manufacturing, direct costs of
licensing arrangements and royalties payable. Cost of sales rose to (L)14.9
million, including (L)2.7 million from acquisitions, compared to (L)10.6
million in 1998 due to increased contract research and development activity.
Gross profit rose to (L)2.9 million in 1999 from (L)0.3 million in 1998,
primarily due to licensing income.

    Selling, marketing and distribution expenses were (L)3.2 million compared
to (L)4.2 million in 1998. This reflects savings generated by the
restructuring of North American generic drug activities in late 1998 partly
offset by an increase of (L)1.9 million, primarily SkyePharma Inc.'s share of
selling, marketing and distribution expenses for DepoCyt under its
collaboration agreement with Chiron Corporation. Research and development
expenses were (L)6.7 million in 1999 compared to (L)5.7 million in 1998. Of
the total research and development expenditure in 1999, (L)3.3 million related
to the operations of the San Diego facility acquired during the year, (L)1.8
million related to the development of the Company's Geomatrix and inhalation
technologies and (L)1.7 million was spent on its generic portfolio.
Administrative expenses were (L)12.6 million, including (L)4.5 million in
SkyePharma Inc., compared with (L)6.8 million in 1998. The increase included
costs relating to the Company's listing in the U.S., integration costs of and
surplus capacity at SkyePharma Inc. and a charge of (L)1.2 million for
goodwill amortization relating to the acquisition of DepoTech.

    Operating loss, including acquisitions, amounted to (L)19.6 million in 1999
compared to (L)16.4 million in 1998. Some 45% of the loss results from
acquisitions during the year. Eliminating the impact of acquisitions, the
operating loss for the existing business fell by 35% from (L)16.4 million to
(L)10.7 million.

    During 1999 an agreement was reached with Genta on the future operation of
the Joint Venture. At December 31, 1998 the Group held 232,056 unregistered
shares in Genta, the carrying value of which had been reduced to zero in 1996
as they remained unregistered pending resolution of the future of the Joint
Venture. Non-operating income of (L)0.4 million resulted from the sale of
these shares following conclusion of the agreement.

    The Group's loss on ordinary activities before tax was (L)19.3 million in
1999 compared to (L)22.0 million in 1998. Of this loss (L)9.7 million, or 50%
of the total net loss, resulted from the acquisition of SkyePharma Inc. in
March 1999. In 1998 (L)5.9 million was charged as interest payable being the
unwinding of the discount during the year on the provision for deferred
consideration relating to the acquisition of Jago. At March 31, 2000, as a
result of an agreement with Dr Gonella, the vendor of Jago, the Company
obtained the right to satisfy the deferred consideration in shares rather than
by cash. As such the fair value of the deferred consideration was reclassified
as shares and warrants to be issued at December 31, 1999. No further
discounting is required.


                                      -69-

<PAGE>
    The loss per share for the period was 4.2 pence, a 26% decrease compared to
1998. Losses decreased by 12% while the average number of shares rose by 21%.

    Foreign currency exchange movements did not have a material impact on the
results of operations in 1999 compared with 1998.

Liquidity and Capital Resources

Overview

    Since the inception of its pharmaceutical business in 1995, the Company has
financed its operations primarily by the sale of equity and debt securities,
interest income and cash from operations.

    In September 1997, the Company placed 17.3 million ordinary shares,
representing 5% of its existing share capital, with Directors and other
investors at a price of 45 pence per share. The placing raised approximately
(L)7.4 million, net of expenses. A total of 6.1 million shares, with an
aggregate value of (L)2.75 million at the placing price, were placed with
Directors of the Company and their associated companies and trusts.

    In March 1998, the Company issued unsecured debentures (the "Debentures")
in the aggregate principal amount of $18.6 million due February 2001,
providing it with approximately (L)9.8 million of funding, net of expenses.
The Debentures were issued at a discount equivalent to an annual rate of 3%.
The Debentures conferred upon the holders thereof the right to apply the
principal sum to subscribe for ordinary shares at any time in the three year
period following the issue. The subscription price was calculated as the
average of the three highest of the five lowest closing bid prices during the
20 day period prior to subscription, subject to a maximum subscription price
of 90 pence per ordinary share. The amount of the Debentures to be applied in
subscription for ordinary shares on any date was calculated by applying the 3%
per annum discount rate to the principal sum. To issue these Debentures the
Company required the approval of its Shareholders in a General Meeting.

    During the period March 1998 to January 2000 the Debentures were converted
to an aggregate of 21,388,756 ordinary shares at prices between 44 and 65
pence per share.

    In consideration for the services provided by GEM Advisors Inc. in
connection with the subscription for and issue of the Debentures, the Company
granted an option to GEM, Ltd. and Global Strategic Holdings, Ltd., affiliates
of GEM, on the terms of the agreement constituting the Class "C" Warrants, to
purchase up to 1.8 million ordinary shares at an exercise price of 120 pence
per ordinary share at any time up to March 11, 2001. The "C" Warrants were not
exercised and lapsed on that date.

    In July 1998 the Company issued 36 million ordinary shares in the form of
shares and ADSs in a public offering in the United States. Each ADS represents
10 ordinary shares. The offering raised (L)22.7 million net of expenses at an
offering price of 70 pence per share or $11.48 per ADS.

    In November 1998, the Company issued 8,628,500 ordinary shares to Novartis
Pharma in association with a collaborative agreement to jointly develop a new
formulation of Foradil, a drug used for the treatment of asthma. The issue
took place at a price of 70 pence per share and resulted in proceeds to the
Company of (L)6.0 million.

    In October 1998 the Company acquired 16% of the common stock of DepoTech
Corporation of San Diego (renamed SkyePharma Inc.) for a consideration of
(L)2.9 million. On March 10, 1999 the Company completed the acquisition by
issuing to the former DepoTech shareholders 28,311,070 SkyePharma ordinary
shares in the form of ADSs, valued at (L)20.0 million, plus the right to
receive additional shares if one or both of two conditions occur. On April 1,
1999, the first condition, the approval by the FDA of DepoCyt for sale to the
pubic, occurred and the Company issued to the former DepoTech shareholders an
additional 16,177,849 SkyePharma ordinary shares valued at

                                      -70-

<PAGE>
(L)9.8 million, in the form of ADSs. The second condition was the signing by
March 31, 2000, by a corporate partner of a development and commercialization
agreement for DepoMorphine or a macromolecule for the delivery of drugs using
DepoFoam. On April 4, 2000 the Company announced that the final contingent
payment on the acquisition of DepoTech had been triggered following the
signing of a contract to utilize DepoFoam technology for a macromolecule. As a
result 12,132,600 shares were issued on April 25, 2000 at a value of (L)13.3
million. In connection with the acquisition the Company agreed that
outstanding warrants to purchase DepoTech common stock on the effective date
of the merger would become warrants to purchase the Company's Ordinary Shares.
Following the issue of shares on April 25, 2000 the former DepoTech
shareholders became entitled to a further 458,144 warrants with a value of
(L)0.2 million. Taking into account these final payments, the total
consideration paid on the acquisition of DepoTech was (L)49.4 million.

    In April 1999, pursuant to the terms of a collaboration agreement with
Chiron Corporation of San Diego, SkyePharma Inc. issued a secured promissory
note for $9.7 million payable in three equal installments in June 2000, 2001
and 2002.

    In May 1999, the Company signed an agreement with Silicon Valley Bank for
the financing arrangements of SkyePharma Inc. Under the agreement, the Company
covenanted to hold cash balances at SkyePharma Inc. equivalent to the greater
of 75% outstanding loan balances or three months' cash burn, and the Company
covenanted to hold on a consolidated basis, cash balances equivalent to six
months' cash burn, all balances being held on an unrestricted basis. With
effect from April 1, 2000 the cash holding covenant on a consolidated basis
was removed and the required cash holding at SkyePharma Inc. was amended to
the greater of 1.5 times outstanding loan balances or three months' of its own
cash burn. At December 31, 2000 SkyePharma Inc.'s outstanding loan balances
amounted to (L)1.3 million. With effect from March 16, 2001 the required cash
holding at SkyePharma Inc. was amended to 1.5 times outstanding loan balances.

    In July 1999 the Company completed an agreement for the purchase of
intellectual property from Medac GmbH, a private German company. Initial
consideration for this purchase was in the form of 3.1 million SkyePharma PLC
ordinary shares with a market value of $2.5 million at the date of acquisition
and $2.5 million in cash. On July 21, 2000 the Company issued 1,461,455 shares
with a market value of $2.0 million to Medac being deferred consideration due
upon the satisfactory transfer of the nano-particulate technology and know-how
to SkyePharma. The agreement provides for additional consideration of a
further $3.0 million in cash subject to compliance by the vendor with certain
terms specified in the agreement. This payment was made on April 17, 2000.

    In September 1999 the Company issued 8.7 million shares to SmithKline
Beecham (now part of GlaxoSmithKline) in association with an agreement for the
development of their anti-Parkinson's disease drug, Requip. The issue took
place at a price of 56.95 pence per share and resulted in proceeds to the
Company of (L)4.9 million.

    In October 1999 the Company acquired the tangible assets and intellectual
property of Hyal from the court appointed receiver and administrator of Hyal
for a total consideration of (L)5.7 million plus acquisition expenses of
(L)0.2 million. The consideration was satisfied by (L)1.3 million in cash,
(L)0.7 million of secured loans and advances previously made by SkyePharma in
the period from May to September 1999, and (L)3.9 million of unsecured
debentures of Hyal acquired by SkyePharma in August 1999 in exchange for 5.4
million ordinary shares of the Company. In addition, and because Hyal was in
receivership at this time, SkyePharma indemnified the receiver to the extent
that (L)4.6 million exceeded the amount that SkyePharma would ultimately be
entitled to receive as a creditor of Hyal. This indemnity was secured by an
irrevocable letter of credit open for up to one year in the amount of Cdn $1.0
million. During 2000 the letter of credit was called to recover the shortfall
in the receivership process. In return, SkyePharma, as one of the creditors of
Hyal, was awarded 7 shares for every dollar shortfall in the process. As a
result, in April 2001 SkyePharma received 8.0 million shares, representing
approximately 19.5% of Hyal. Since the shares are not currently traded on a
public market there is currently no value attributable to these shares and
they will be recorded at zero cost.


                                      -71-

<PAGE>
    On June 16, 2000 the Company issued five year, 6% Convertible Bonds (the
"Bonds") raising approximately (L)57.4 million net of expenses. The Bonds have
an initial conversion price of 132 pence, representing a premium of 27% over
the prevailing market price of 104 pence on the pricing date May 17, 2000. The
conversion price may be recalculated based upon the average of the 10 dealing
days prior to June 19, 2001. However, in no event can the conversion price
fall below 83 pence.

    In December 2000 the Group received (L)2.9 million ($4.4 million) under an
agreement with Paul Capital Royalty Acquisition Fund, L.P. by which it will
receive a total of $30 million over the next two years to fund the clinical
development and regulatory submission of DepoMorphine in return for the sale
of a proportion of potential future royalty and revenue streams from
DepoMorphine and certain SkyePharma products. Research and development costs
for DepoMorphine were (L)4.3 million in 2000.

Cash Flow

    Total cash outflow from operations (before use of liquid resources and
financing) in 2000 was (L)26.8 million, including purchases of intangible
fixed assets of (L)7.2 million and purchases of tangible fixed assets of
(L)8.4 million. The Company's cash position including short-term bank deposits
at December 31, 2000 amounted to (L)40.0 million, net of bank overdrafts of
(L)2.8 million.

    Based upon the Company's business plan and given the recent funding
described above, the Directors anticipate that the Company will have
sufficient resources to fund its current operations through at least the next
twelve months. The additional funding will enable the Company to selectively
develop a number of key projects to a later stage of development prior to
licensing out, thereby potentially increasing its share of the profits.

    The Company is an emerging pharmaceutical company and expects to absorb
cash until products are fully commercialized. Much of the Company's cash
requirement is of an investment nature and is to a great extent discretionary.
Funds will be used for the Company's own product development efforts and
capital expenditure.

    The Company is reliant on collaborative partners and upon its ability to
continue to obtain new development contracts from third parties to further
develop and commercialize its drug delivery technologies. See "Item 3: Key
Information - Risk Factors". The Company is dependent on Geomatrix and
DepoFoam technologies as to which further successful development is uncertain;
the failure by the Company's collaborative partners to provide funding, obtain
regulatory approvals and conduct marketing activities could adversely affect
the Company's business.

Borrowings

    At December 31, 2000 the Company had short-term borrowings, including
obligations under finance leases, amounting to (L)7.0 million and long-term
borrowings, including obligations under finance leases and Debentures,
amounting to (L)69.2 million. Further information on the level of borrowings
is set out in Notes 15, 16, 17 and 25 to the Consolidated Financial Statements
included in Item 18 of this Form 20-F.

    Capital commitments, contracted for but not provided in the accounts, were
(L)0.4 million at December 31, 1999 and (L)0.3 million at December 31, 2000.
The Company had total annual commitments under operating leases for rentals
amounting to (L)3.0 million at December 31, 1999 and (L)3.5 million at
December 31, 2000. In addition, the Company had total annual commitments under
finance leases amounting to (L)1.3 million at December 31, 1999 and (L)1.0
million at December 31, 2000. The Company expects to fund its commitments from
its existing cash resources.

Deferred Consideration

    At March 31, 2000 a settlement agreement was signed establishing the full
and final settlement of the deferred consideration payable to the vendor of
Jago, Dr Gonella. The settlement to be made

                                      -72-

<PAGE>
entirely in shares, was approved by shareholders at the Company's Annual
General Meeting held on July 11, 2000. See "Item 7: Major Shareholders and
Related Party Transactions". On July 20, 2000, 6 million ordinary shares were
issued to Dr Gonella at a price of 94.25 pence. Also on July 20, 2000, 24
million Deferred non-equity shares were issued. The contingencies determining
the conversion of the Deferred Shares into ordinary shares are set out in Note
22 to the Consolidated Financial Statements included in Item 18 of this Form
20-F. In the event that these conditions are not satisfied prior to May 3,
2006 the Deferred Shares will not be converted and will be cancelled. The
vendor will not be entitled to any other compensation nor additional
compensation. On issue, the ordinary and Deferred Shares were recorded in
share capital and share premium. At December 31, 1999 prior to the issue of
the shares, in the Directors' opinion, 30 million ordinary shares were likely
to be issued under the terms of the Settlement Agreement and a figure of (L)33
million was recorded within "Shares and warrants to be issued", based upon a
closing price of 110 pence on March 31, 2000, the date of the Settlement
Agreement.

    At December 31, 1999 deferred consideration of (L)3.9 million on the
acquisition of Krypton and (L)1.2 million ($2.0 million) on the purchase of
intellectual property from Medac was recorded within "Shares and warrants to
be issued". In addition, (L)1.9 million was recorded within "Provisions for
liabilities and charges" for a $3.0 million cash payment due to Medac on March
31, 2001 under the terms of the purchase agreement. On July 21, 2000 the
Company issued 1,461,455 shares with a market value of $2.0 million to Medac
being deferred consideration due upon the satisfactory transfer of the nano-
particulate technology and know-how to SkyePharma. At December 31, 2000
deferred consideration of (L)5 million has been recorded within "Shares and
Warrants to be issued" on the acquisition of Krypton based on market prices at
that date, and (L)2.0 million ($3.0 million) has been recorded within
provisions on the purchase of intellectual property from Medac. This payment
was made on April 17, 2001. In addition the Company will need to renegotiate
elements of the Krypton acquisition agreement following the change in the
Company's strategy for the sale of its generics. This change in strategy did
not have an impact on direct costs during 2000. See the Company's Consolidated
Balance Sheets on page F-3 and the accompanying Notes.

Research and Development, Patents and Licenses

    For a discussion of the Company's research and development activities, see
"Item 4: Information on the Company - Business Overview - Research and
Development" and patents and licenses, see "Item 4: Information on the Company
- Business Overview - Patents and Proprietary Rights".

Trend information

    The Company's results of operations have fluctuated materially on a
monthly, semi-annually and yearly basis, partly as a result of acquisitions
and partly due to the timing of contract revenues. Therefore, period-to-period
and period-on-period comparisons are not meaningful at this stage in the
Company's development. The Company believes that it will continue to
experience fluctuations in its results of operations in the near to medium
term.


                                      -73-

<PAGE>
Item 6: Directors, Senior Management and Employees

Directors and Senior Management

<TABLE>
<CAPTION>
Name                                                            Age                                 Position
---------------------------------------                     -------------    ------------------------------------------------------
<S>                                                        <C>              <C>
Ian Gowrie-Smith(1)(5).................................                52                                        Executive Chairman
Michael Ashton(1)(5)...................................                55                                   Chief Executive Officer
Donald Nicholson(1)....................................                43                   Finance Director and Executive Director
Suzanne V. McLean(1)(2)................................                47                     Company Secretary and General Counsel
Air Chief Marshal Sir Michael Beavis(3)(4).............                71                 Senior Independent Non-Executive Director
R. Stephen Harris(3)(4)................................                58                                    Non-Executive Director
Dr. Keith Mansford(4)(5)...............................                69                                    Non-Executive Director
Tamar Howson(3)(5).....................................                52                                    Non-Executive Director
Dr Argeris (Jerry) Karabelas(3)(4).....................                48                                    Non-Executive Director
Walter Zeller(3).......................................                70                                    Non-Executive Director
</TABLE>

---------------

(1) Member of Executive Committee.

(2) Not a Director of the Company.

(3) Member of Audit Committee.

(4) Member of Remuneration Committee.

(5) Member of Nomination Committee.

    Ian Gowrie-Smith has been Executive Chairman of the Board of the Company
since January 1995. From January 1995 to November 1998 he was also Chief
Executive Officer of the Company. He has more than 13 years of management
experience in the pharmaceutical industry, most recently as Chief Executive
Officer of Medeva plc. He graduated with a Bachelor of Commerce degree from
the University of Melbourne in 1970.

    Michael Ashton was named Chief Executive Officer of the Company in November
1998. He joined the Company in January 1997 as Chief Executive Officer of
Jago, was appointed to the Board in March 1997 and was named Chief Operating
Officer of the Company in May 1998. He has 30 years of experience in the
pharmaceutical industry. Prior to joining the Company he was Chairman,
President and Chief Executive Officer of Faulding Inc. He obtained a B.Pharm
degree from Sydney University in 1968 and an MBA from Rutgers University in
1974.

    Donald Nicholson was named Finance Director in March 1997. He joined the
Company in February 1996 as Chief Financial Officer and was appointed to the
Board in March 1997. He has more than 11 years of experience in the healthcare
industry. Prior to joining the Company he was Corporate Strategy and Finance
Director at Corange Group. Mr. Nicholson is a member of the Institute of
Chartered Accountants of Scotland and obtained a B.Com (Hons) degree from the
University of Edinburgh in 1980.

    Suzanne V. McLean joined the Company in September 1999 as International
Legal Counsel and Company Secretary. She has 20 years of international legal
experience in commerce and industry. Prior to joining the Company she was
Legal Director and Company Secretary at Biocompatibles International plc. She
has a Business Law degree from Guildhall University and was called to the Bar
in 1979.

    Sir Michael Beavis was appointed to the Board in 1989 and was appointed
Senior Independent Non-Executive Director in May 2001. He retired from the
Royal Air Force in 1987 as an Air Chief Marshal. His last appointment was
Deputy Commander-in-Chief Allied Forces Central Europe. He became a defense
consultant with Burdeshaw Associates in 1987 and is Non-executive director of
the Alliance Aircraft Corp. US. He graduated from the Royal Air Force Staff
College in 1963 and from the Royal College of Defense Studies in 1974.

    R. Stephen Harris was appointed to the Board in November 1995. He has 35
years of commercial experience in the pharmaceutical industry, having worked
for ICI Pharmaceuticals,

                                      -74-

<PAGE>
Merck, Eli Lilly, Boots, Reckitt & Colman and Gensia; and was Director of
Development and Licensing with Medeva plc. He is Non-executive Chairman of
Proteome Sciences plc and Non-executive Director of Advanced Medical Solutions
Group Plc, Pharmaceutical Profiles Limited, Microscience Limited and Trigen
Ltd. He is a member of the Pharmaceutical Society of Great Britain and
graduated with a B.Sc in Pharmacy from the University of London in 1964.

    Tamar Howson was appointed to the Board in September 2000. Ms Howson was
Senior Vice President and Director Worldwide Business Development at
SmithKline Beecham plc until mid 2000. Ms Howson's previous appointments also
include Director of Worldwide Business Development and Licensing at Squibb
Corporation. She obtained an M.Sc. in Chemical Engineering from the City
College of New York and an MBA from Columbia University.

    Dr Argeris Karabelas was appointed to the Board in November 2000. Dr
Karabelas has more than 20 years' experience in the pharmaceutical industry
having spent the majority of his career with SmithKline Beecham plc. Dr
Karabelas was appointed Chairman of the Novartis Venture Fund in July 2000
having previously held the position of CEO of Novartis Pharma AG. He is also
an external director of Layton Biosciences, California; Fox Chase Cancer
Center, The University of the Sciences in Philadelphia, and a member of the
Scientific Advisory Committee of the Massachusetts General Hospital, Boston.
He received a Ph.D. in Pharmacokinetics from the Massachusetts College of
Pharmacy in 1979.

    Dr. Keith Mansford was appointed to the Board in March 1996. He has over 40
years' experience in the pharmaceutical and biotechnology sectors principally
with Beecham Group and SmithKline Beecham plc. From 1982 to 1992 he was
Chairman of Research and Development at SmithKline Beecham plc. He is an
external director of Sepracor Inc. and of Mindset Pharmaceuticals. He is
Chairman of Mansford Associates, an international healthcare consultancy. He
obtained a B.Sc in Chemistry and a M.Sc in Biochemistry from the University of
Durham and a Ph.D. in Biochemistry from the University of London.

    Walter Zeller was appointed to the Board in February 1996. He has more than
30 years' experience in the pharmaceutical industry. Until 1995 he was the
Chief Financial Officer of Corange Ltd., the parent company of Boehringer
Mannheim and DePuy. He is a Non-executive director of Henkel and Cie AG. He
obtained a B.Sc in Business Administration from State Commercial College,
Zurich.

    There are no arrangements or understandings with major shareholders,
customers or suppliers or others pursuant to which any person was selected to
serve as a director or senior manager.

    There are no provisions within the directors service contracts that provide
for any benefit to accrue to any director upon termination of employment save
that salary may be paid in lieu of notice.


                                      -75-

<PAGE>
Compensation

    The following table sets forth certain information regarding the
compensation paid to directors and officers of the Company in the year ended
December 31, 2000.

<TABLE>
<CAPTION>
                                                                                                                      All Other
                                                         Salary               Bonus           Pension Benefits     Compensation(1)
Name                                                     ((L))                ((L))                ((L))                ((L))
 -----------------------------                      -----------------   -----------------    -----------------    -----------------
<S>                                                <C>                  <C>                  <C>                  <C>
Ian Gowrie-Smith ...............................              376,250              60,200               47,031               20,051
Michael Ashton(1) ..............................              322,500              51,600               40,313               59,568
Donald Nicholson ...............................              161,250              25,840               20,156                9,828
Suzanne V. McLean(2) ...........................              116,667              19,200               14,583                9,000
Dr. Jacques Gonella(3) .........................               25,000                  --                   --                   --
Air Chief Marshal Sir Michael Beavis ...........               25,000                  --                   --                   --
Stephen Harris .................................               25,000                  --                   --                   --
Dr. Keith Mansford .............................               25,000                  --                   --                   --
Dr. Thomas Rinderknecht(4) .....................               32,548                  --                   --                   --
Nigel Wray(5) ..................................               20,833                  --                   --                   --
Walter Zeller ..................................               36,714                  --                   --                   --
Tamar Howson(6) ................................                6,442                  --                   --                   --
Dr. Argeris Karabelas(7) .......................                2,083                  --                   --                   --
</TABLE>

---------------

Includes company car allowance and medical insurance for directors, officers
and their families.

(1) Includes living allowance and school fees

(2) Miss McLean is an officer who is not a director

(3) Dr. Gonella resigned effective June 6, 2001

(4) Dr. Rinderknecht resigned effective November 3, 2000

(5) Mr Wray resigned effective November 30, 2000

(6) Ms. Howson was appointed effective September 28, 2000

(7) Dr. Karabelas was appointed effective November 30, 2000

    In the year ended December 31, 2000 the Company paid (L)1,552,657 in
aggregate compensation to its directors and officers as a group (13 persons).

    The Remuneration Committee of the Board of Directors administers a bonus
plan for the Company's executive directors and officers. Pursuant to the plan,
executive directors and officers may receive a bonus of up to 25% of their
base salary for periods to December 31, 2000. Bonuses are paid at the
discretion of the Remuneration Committee in recognition of the individual's
contribution to the success of the Company and the achievement of specified
objectives. A Deferred Share Bonus Plan has been introduced for 2001. Under
the Plan, the maximum bonus which an executive of the Company can earn has
been increased to 60% of salary but there will be a mandatory deferral,
currently 50%, of all bonuses in the form of Company shares which will
normally have to be held by recipients for a period of three years. As a
further inducement to retention of key personnel, the Company is currently
proposing to provide one matching share for each executive share acquired,
provided that the shares are held for three years. The primary performance
targets for the Executives of the Company for the financial year 2001 are that
the Company achieves its financial targets for 2001, substantially a break-
even position.

Pension and Savings Plans

    The Company operates various defined contribution plans for its employees
in the United Kingdom, Switzerland and the United States. The Company's
contributions to these plans are charged to the income statement in the year
to which they relate, and the assets are held in separate trustee administered
funds. In 2000, the Company contributed (L)532,000 (1999 (L)513,000) to
pension and savings plans.

    The Company operates a defined benefit scheme in respect of its employees
in France, the assets of which are not held by an externally administered
fund. On acquisition of Jago Production

                                      -76-

<PAGE>
SAS in 1997 the retirement commitments were valued and a provision set up. The
actuarial method used was the unit credit with service prorate actuarial cost
method. Main assumptions include a discount rate of 6.29% and a rate of salary
increase of 3.5%. The calculation of accrued benefits used in valuing the
retirement benefit commitment was prepared on the basis of the pharmaceutical
industry's collective bargaining agreement applying to the relevant employees.
In 1999 the scheme was revalued and a gain of (L)44,000 recognised. This
reflected a reduction in the number of employees covered by the scheme.

Board Practices

    The Company's Articles of Association provide that, except as otherwise
provided in the Articles or unless otherwise determined by ordinary resolution
of the Company, the Board of Directors shall consist of not less than three
directors. Directors of U.K. companies do not generally have fixed terms of
office. The Articles provide that at each Annual General Meeting, a number of
directors equal to as close as possible (but not exceeding) one-third of the
directors must retire from office by rotation, based principally on length of
term of office, and are eligible for re-election. Directors may be appointed
by the Company by ordinary resolution of the shareholders. In addition, the
Board of Directors may appoint directors to fill vacancies or as additional
directors. Any director so appointed by the Board of Directors must retire
from office at the next Annual General Meeting but is then eligible for re-
appointment by the shareholders at that meeting.

    The Board has an Executive Committee, an Audit Committee, a Remuneration
Committee and a Nomination Committee. The Executive Committee is responsible
for the executive management of the Company. It is chaired by the Chief
Executive Officer and is comprised of the executive directors and senior
management identified above. The Executive Committee generally meets monthly
between Board meetings.

    The Audit Committee is responsible for reviewing and appraising the
Company's financial reporting practices and procedures, the adequacy of its
system of internal accounting control, and any matters raised by its
independent auditors. It also is responsible for reviewing the half-year and
full-year results of the Company and its Interim and Annual Reports and
Accounts prior to their submission to the full Board. The Audit Committee is
comprised of the Non-executive directors identified above and is chaired by
Walter Zeller. It meets formally twice each year.

    The Remuneration Committee is responsible for approving the remuneration
and other benefits, including pension contributions, bonus payments, share
options and severance payments, of the executive directors and other members
of senior management. The Remuneration Committee is comprised of the Non-
executive directors identified above and is chaired by Sir Michael Beavis.

    The Nomination Committee is responsible for making recommendations to the
Board on any appointment to the Board. The Nomination Committee is comprised
of the Chairman and Chief Executive Officer and the Non-executive directors
identified above.


                                      -77-

<PAGE>
Employees

    The following table shows the distribution of the year end number of
employees for the last three fiscal years by activity and geographic location:

<TABLE>
<CAPTION>
                                                                                           Year ended December 31,
                                                                           --------------------------------------------------------
                                                                                 1998                1999                2000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
By category of activity:
 Corporate Management and Administration ..............................                  34                  50                  50
 Marketing operations .................................................                  26                   7                  10
 Research and Development .............................................                  99                 161                 169
 Manufacturing Operations .............................................                 115                 146                 146
                                                                           ----------------    ----------------    ----------------
                                                                                        274                 364                 375
                                                                           ----------------    ----------------    ----------------
By geographic location:
 U.K. .................................................................                  14                  15                  15
 Switzerland ..........................................................                 117                 126                 131
 France ...............................................................                 121                 124                 120
 U.S. .................................................................                  22                  99                 109
                                                                           ----------------    ----------------    ----------------
                                                                                        274                 364                 375
                                                                           ----------------    ----------------    ----------------
Number of employees with scientific qualifications:
 PhD's, masters or medical degrees ....................................                  32                  68                  68
 Scientists (including PhD's, masters or medical degrees) .............                  94                 155                 166
                                                                           ----------------    ----------------    ----------------
                                                                                        126                 223                 234
                                                                           ----------------    ----------------    ----------------
</TABLE>


    The Company believes that it has good relations with its employees and
labor unions.

Share Ownership

    The following table sets out the interests of Directors in the ordinary
shares of the Company (including the interests of their immediate families and
persons connected with the Directors) as at June 7, 2001.

<TABLE>
<CAPTION>
                                  Number of              Percentage of issued
Name                           ordinary shares               share capital
 ---------------------    -------------------------    -------------------------
<S>                      <C>                          <C>
Ian Gowrie-Smith .....                   25,122,972                       4.850%
Michael Ashton .......                      110,000                       0.021%
Donald Nicholson .....                      137,000                       0.026%
Air Chief Marshal Sir
Michael Beavis .......                      172,000                       0.033%
Stephen Harris .......                       46,500                       0.009%
Dr Keith Mansford ....                       16,000                       0.003%
Walter Zeller ........                       55,000                       0.011%
</TABLE>


    In addition to the interests shown above Dr A Karabelas had a beneficial
interest in 2,000 American Depositary Receipts and Mr I R Gowrie-Smith had a
beneficial interest in 20,000 convertible bonds, all issued by the Company.

    The aggregate number of ordinary shares underlying the Company's
outstanding options and warrants as of June 7, 2001 was 30,958,414.

Share Option Plans

    The Company has five share option schemes; grants between 1996 and 1998
being made under the 1988 Executive Share Option Scheme and the European and
North American Scheme

                                      -78-

<PAGE>
and grants from April 1999 being made under the SkyePharma PLC 1999 Share
Option Scheme, the European and North American 1999 Scheme and the SkyePharma
Holding Inc 1999 Stock Option Plan for SkyePharma Inc. Employees.

    During 2000, an independent firm of executive compensation consultants
carried out a review on behalf of the Board. The result of this review was
that the Board felt that the Company's existing arrangements (comprising share
options and the payment of an annual bonus) did not go far enough to enable
the Company to recruit and retain high caliber individuals. In particular, it
believed that the current arrangements did not provide sufficient retention of
executives at times when options became less effective due to external market
fluctuations independent of the Company's actual performance. In addition the
review concluded that the Company's Share Option Schemes needed to be amended
to bring them into line with current competitive practices within the markets
in which the Company operates. As a result of these concerns, the SkyePharma
PLC Deferred Share Bonus Plan (the "Deferred Share Bonus Plan") was introduced
and certain amendments were made to the Company's existing Option Schemes. In
drawing up these proposed changes, the Board also consulted with its largest
shareholders.

    The amendments to the SkyePharma PLC 1999 Share Option Scheme and the US
sub-plan, the 1999 SkyePharma Holdings Inc. Employees Stock Option Plan
(together the "Share Option Schemes") are as follows:-

      o     The removal of the individual participation limits of four times
            remuneration (normal options) and eight times remuneration (super
            options) and the introduction of an annual limit of 200% of
            remuneration. The Board proposed this change as the Company's
            grant policy for options is changing from a limit based on each
            executive holding four or eight times remuneration to annual
            grants of options.

      o     The removal of the flow limits on new issue shares contained in
            the Option Schemes and the replacement with a single corporate
            limit allowing the Company to issue 10% of its shares within a ten
            year period to satisfy awards to employees under the Option
            Schemes or any other Company share arrangement under which shares
            may be issued. Where awards are granted to executives which will
            be satisfied by the issue of shares no more than 5% of the
            Company's shares will be issued under the Option Schemes or any
            other Company share arrangements under which shares may be issued
            provided that this limit may be exceeded if the executives are
            required to satisfy more stretching performance requirements. The
            Remuneration Committee will be monitoring the issue of shares
            during the ten year period.

      o     The facility to issue an additional 5% of the Company's shares
            above the 10% in ten years limit. This was requested for the
            following reasons only:-

            -     to provide shares for options granted as replacement options
                  or new options to the employees of acquisitions. The Company
                  has undertaken a number of acquisitions and the resulting
                  exchange of options has put pressure on the Company's new
                  issue limits. In particular, taking into account the size of
                  the acquisitions and the relatively small issued share
                  capital of the Company;

            -     to provide additional flexibility to grant options to US
                  employees of the Company. Market practice in the US is to
                  grant higher levels of options in the pharmaceutical/
                  biotechnology area than in the UK. The Company has minimal
                  operations in the UK and significant operations in the US.
                  In order to be competitive with its US counterparts, who are
                  generally able to use a greater percentage of their share
                  capital for employee options, the Company sought shareholder
                  approval to issue this additional 5% in ten years.


                                      -79-

<PAGE>
            This additional flexibility relates only to Option Schemes. All
            other Company share arrangements under which shares may be issued
            will be restricted to the global 10% in ten years limit on new
            issue shares.

      o     The Company formerly granted options, the exercise of which, was
            subject to share price performance compared to the FT-SE All Share
            Index or the FT-SE 250 for Super Options. The performance period
            has a rolling base year. The exercise of any future grant of
            options will be subject to comparative total shareholder return
            performance against a comparator group of the UK Pharmaceuticals
            Sector and selected international drug delivery companies (the
            Company will review the performance measures at each grant to
            ensure their continued appropriateness). Future option grants will
            not be subject to re-testing and total shareholder return will be
            measured from a fixed base period at the end of the performance
            period. The Remuneration Committee will satisfy itself that the
            Company's total shareholder return performance is a genuine
            reflection of the Company's underlying performance.

    The Company has decided within the current rules of the SkyePharma PLC 1999
Share Option Scheme to normally transfer the employer's national insurance
contributions on the gain on the exercise of unapproved options to the option-
holder.

SkyePharma PLC 1999 Share Option Scheme

    The SkyePharma PLC 1999 Share Option Scheme (the "Scheme") is divided into
two parts, the first of which is approved by the Inland Revenue and the second
of which is unapproved. The unapproved part is designed for the grant of
options to employees the value of which may exceed the approved limit of
(L)30,000. Except to the extent required to obtain Inland Revenue approval,
the two parts of the Scheme are similar in all material respects.

    The Scheme is governed by the Rules of the Scheme and is administered by
the Board of Directors of the Company. Eligibility for participation in the
Scheme is limited to those employees of SkyePharma, including Directors, who
work for SkyePharma at least 25 hours per week as may from time to time be
invited to participate by the Board. No Director or employee will be entitled
as of right to participate in the Scheme.

    Options may be granted under the Scheme within six weeks of the day on
which the Company first announces its annual or interim results in any year in
which the Scheme is in operation or any date on which the Directors determine
that exceptional circumstances exist which justify the grant of options at
that date. Initially, offers to participate also had to be made within six
weeks of May 19, 1999, the date of approval of the Scheme by shareholders. No
consideration is payable on the grant of an option. An option may not be
granted to an individual selected to participate if the total subscription
price thereunder would exceed 200% of the participant's remuneration in that
year. Remuneration includes salary, commission and bonuses, but excludes
benefits in kind. In the case of the approved part of the Scheme, participants
may only be granted options up to a value of (L)30,000. The Directors will
only grant options to replace those already exercised if they are satisfied
that there has been sustained improvement in the performance of the Company
over not less than a two to three year period prior to such grant. Benefits
under the Scheme are not pensionable.

    The price per ordinary share at which a participant may acquire ordinary
shares (the "Option Price") on the exercise of an option will be at the
discretion of the Board, but shall not be less than the market value (as
defined in the Rules) of an ordinary share at the date of grant and shall not
in any event be less than the nominal value of an ordinary share.

    Options granted pursuant to the Scheme may not be exercised prior to the
third anniversary of their grant and must be exercised before the expiry of
ten years from the date of grant. Super options may not be exercised prior to
the fifth anniversary of their grant and must be exercised before the expiry
of ten years from the date of grant. Options may be exercised in whole or in
part in respect of any number of ordinary shares subject to a minimum of 1,000
ordinary shares. An

                                      -80-

<PAGE>
option granted under the Scheme may not be exercised unless the relevant
condition, as specified by the Directors or a committee thereof and notified
to the participant no later than the date of grant, is satisfied. In the case
of a super option, the performance condition specified by the Directors will
be more challenging and in accordance with criteria recommended by the
Association of British Insurers.

    If a participant leaves the service of the Company by reason of injury,
disability, redundancy or normal retirement, or because the company by which
such participant is employed ceases to be a member of the Company, such
participant will be entitled to exercise any options in accordance with the
rules of the Scheme. If a participant leaves the service of the Company by
reason of death, such participant's personal representative will be entitled
to exercise any options within 12 months following the date of such
participant's death. If a participant leaves the service of the Company for
any reason other than the foregoing, such participant will be entitled to
exercise any options within six months of leaving the service of the Company.

    If an offeror obtains control of the Company on the occurrence of (i) a
general offer to acquire the whole of the ordinary share capital of the
Company, (ii) pursuant to an offer, an offeror becoming entitled to acquire
the shares under Sections 428-430 of the Companies Act 1985 (the "Act") or
(iii) a compromise or arrangement being sanctioned by the Court under Section
425 of the Act, then an option holder and the offeror may agree that the
options held can be exchanged for equivalent options in the offeror.
Alternatively, if an offeror gains control pursuant to either a general offer
or a compromise or arrangement pursuant to Section 425 of the Act, then the
option holder may in the case of a general offer, exercise his options within
six months following the later of the date of the acquisition or the date upon
which the offer becomes unconditional, or in the case of a court order
sanctioning a compromise or arrangement, within six months of that date.

The European and North American Scheme

    The European and North American Scheme is in all material aspects identical
to the SkyePharma PLC 1999 Share Option Scheme, except that eligibility is
restricted to employees in Europe and North America. No further grants will be
made under this Scheme.

SkyePharma Holdings Inc 1999 Stock Option Plan for SkyePharma Inc. Employees

    The SkyePharma Holdings Inc 1999 Stock Option Plan (the "Plan") is governed
by the rules of the Plan and is administered by the Board of Directors of the
Company acting through the Remuneration Committee. The Plan will be available
to all officers and key employees of SkyePharma Holdings Inc. and its
subsidiaries who render services which contribute to its management growth or
financial success, at the discretion of the Remuneration Committee. No
Director or employee will be entitled as of right to participate in the Plan.

    Options may be granted under the Plan within six weeks of the day on which
the Company first announces its annual or interim results in the year which
the Plan is in operation or any date on which the Remuneration Committee
determines that exceptional circumstances exist which justify the grant of
options at that date. Initially, options may be granted within six weeks of
May 19, 1999, the date of approval of the Plan by shareholders. An option
could not be granted to an individual selected to participate if the total
subscription price thereunder exceeds 200% of his remuneration in that year.
Remuneration includes salary, commission and bonuses, but excludes benefits in
kind.

    If an option is to qualify for tax benefits under certain provisions of the
U.S. Internal Revenue code of 1986 as amended, ("income options") then the
aggregate exercise price of options first becoming exercisable in any one
calendar year may not exceed U.S.$100,000.

    The price per ordinary share at which a participant may acquire ordinary
shares (the "Option Price") on the exercise of an option will be at the
discretion of the Remuneration Committee, but shall not (in the case of
Incentive Options) be less than the market value (as defined in the rules of
the Plan), or (in the case of options which are not Incentive Options) 85% of
the market value (as so

                                      -81-

<PAGE>
defined) of an ordinary share at the date of grant and shall not in any event
be less than the nominal value of an ordinary share.

    Options must be exercised before the expiry of ten years from the date of
grant. The earliest date at which an option may be exercised is at the
discretion, in each case, of the Remuneration Committee. The Remuneration
Committee may, but is not obliged, to impose conditions on the exercise of an
option. In exercising its discretion in these respects, the Remuneration
Committee will seek to act in the best interests of the Company, having regard
to the conflicting requirements of, on the one hand, the custom and practice
in the U.S. with regard to the grant of share options, and the expectations of
U.S.-based employees, and on the other hand, the need to operate the Plan in
such a way as complies with best U.K. practice.

    If a participant leaves the service of the Company by reason of injury,
disability, redundancy or normal retirement, or because the company by which
such participant is employed ceases to be a member of the Company, such
participant will be entitled to exercise any options in accordance with the
rules of the Plan. If a participant leaves the service of the Company by
reason of death, such participant's personal representative will be entitled
to exercise any options within 12 months following the date of such
participant's death. If a participant leaves the service of the Company for
any reason other than the foregoing, such participant will be entitled to
exercise any options within 90 days of leaving the service of the Company.

    If an offeror obtains control of the Company on the occurrence of (i) a
general offer to acquire the whole of the ordinary share capital of the
Company, (ii) pursuant to an offer, an offeror becoming entitled to acquire
the shares under Sections 428-430 of the Companies Act 1985 (the "Act") or
(iii) a compromise or arrangement being sanctioned by the Court under Section
425 of the Act, then an option holder and the offeror may agree that the
options held can be exchanged for equivalent options in the offeror.
Alternatively, if an offeror gains control pursuant to either a general offer
or a compromise or arrangement pursuant to Section 425 of the Act, then the
option holder may in the case of a general offer, exercise his options within
six months following the later of the date of the acquisition or the date upon
which the offer becomes unconditional, or in the case of a court order
sanctioning a compromise or arrangement, within six months of that date.

Outstanding Options

    The following table sets forth certain information concerning the options
issued to certain directors and officers of the Company pursuant to the
Company's share option plans as of June 7, 2001:

Ordinary Options

<TABLE>
<CAPTION>
                                        Number of ordinary
                                        shares Underlying           Exercise
Name                                     Options Granted              Price           First Exercise Date      Last Exercise Date
 ---------------------------------   -----------------------    -----------------    ---------------------    ---------------------
<S>                                  <C>                        <C>                  <C>                      <C>
Ian Gowrie-Smith(1)(2) ...........                 1,234,568                81.0p         December 6, 1999         December 6, 2006
                                                     575,539                69.5p           April 19, 2002           April 19, 2009
Donald Nicholson(1) ..............                   533,333                75.0p           April 29, 1999           April 29, 2006
                                                      86,022                93.0p           March 31, 2001           March 31, 2008
                                                     172,662                69.5p           April 19, 2002           April 19, 2009
Michael Ashton(3) ................                   639,077                93.0p           March 31, 2001           March 31, 2008
                                                     871,451                69.5p           April 19, 2002           April 19, 2009
</TABLE>

---------------

(1) Issued pursuant to the Executive Share Option Scheme. (This scheme has
    subsequently expired in respect of further grants and new options are now
    granted under the SkyePharma PLC 1999 Share Option Scheme).

(2) Also holds "B" Warrants. See "- Warrants".

(3) 639,077 issued pursuant to the European and North American Scheme (This
    scheme has subsequently been amended and options are now granted under the
    European and North American 1999 Scheme) and 871,451 issued pursuant to
    the SkyePharma PLC 1999 Share Option Scheme.


                                      -82-

<PAGE>
Super Options

<TABLE>
<CAPTION>
                                        Number of ordinary
                                        shares Underlying           Exercise
Name                                     Options Granted              Price           First Exercise Date      Last Exercise Date
 ---------------------------------   -----------------------    -----------------    ---------------------    ---------------------
<S>                                  <C>                        <C>                  <C>                      <C>
Ian Gowrie-Smith .................                 2,385,009               56.67p             May 25, 2004             May 25, 2009
Donald Nicholson .................                 1,022,147               56.67p             May 25, 2004             May 25, 2009
Michael Ashton ...................                 2,044,293               56.67p             May 25, 2004             May 25, 2009
</TABLE>


    The aggregate number of ordinary shares underlying outstanding options as
of June 7, 2001 was 25,289,168. Such options have exercise prices ranging
between 44.8 pence and 93 pence and expire between April 29, 2006 and November
3, 2010.

Deferred Share Bonus Plan

    The Deferred Share Bonus Plan has been designed to align the interests of
participants with those of the shareholders by encouraging executives to build
up and maintain shareholdings which are meaningful in the context of their
remuneration. The Deferred Share Bonus Plan requires that there is a mandatory
deferral of part of each annual bonus, in the form of Company shares
("Executive Shares"), for a period of normally three years. The mandatory
deferred proportion of the bonus is currently set at 50%. The Company is
currently proposing to provide one Matching Share for each Executive Share
acquired. The release of Matching Shares will not be subject to the
satisfaction of performance requirements.

    For the financial year 2001 the maximum bonus an executive of the Company
will be able to earn is 60% of salary. The primary performance targets for the
executives of the Company for the financial year 2001 is that the Company
achieves its financial targets for 2001, substantially a break-even position.
Therefore, the maximum award of matching shares will be 30% of salary. The
Company has purchased sufficient shares to fund the estimated requirement for
matching shares for the first year of the operation of the Deferred Share
Bonus Plan.

    The Deferred Share Bonus Plan is operated by the Directors of the Company
(the "Committee"). The Remuneration Committee, the members of which are Non-
executive Directors, supervise the operation of the Deferred Share Bonus Plan
in respect of the executive directors of the Company. Eligible participants
are any employees of the Company selected by the Committee, or a trustee
acting on behalf of such an employees ("Eligible Employee").

    Awards may be granted in the form of Matching Shares or Deferred Shares
("Award"). Awards will be made as a deferred and conditional grant of shares.
Shares will normally be purchased by executives with the amount of the bonus
(net of tax) mandatorily deferred ("Executive Shares"). Matching Shares will
always be granted in consideration for the purchase of Executive Shares.
Deferred Shares may be granted subject to such terms and conditions as the
Committee determines. It is the current intention of the Committee that only
Awards of Matching Shares will be granted.

    For the year ended December 31, 2001 the Committee has determined that 50%
of bonus earned will be subject to a mandatory deferral and that the ratio of
Matching Shares granted to Executive Shares purchased shall be 1:1. The
Committee may change the amount of bonus subject to a mandatory deferral and
the matching ratio from time to time. The number of Executive Shares will be
calculated by dividing the market value of a share of the Company by the bonus
deferred (net of tax) at the date of grant of the Award. Awards will be made
within a reasonable period of time following the determination of the annual
bonus provided that no Award may be made during a close period, normally the
period before the announcement of the Company's interim and annual results.
Awards are subject to a holding period which is set by the Committee, and is
normally three years. The grant of Awards shall be dependent upon the extent
that the performance requirements attaching to the annual bonus plan have been
achieved. The performance requirements applicable to the annual bonus plan
will vary depending upon the seniority of the employee but will consist of a

                                      -83-

<PAGE>
combination of corporate financial measures, divisional financial measures and
individual non-financial objectives. Unless the Committee so determines, there
will normally be no further performance requirements relating to the release
of awards unless the ratio of Matching Shares to Executive Shares proposed
exceeds 1:1 when the Committee may attach additional performance conditions to
the release of the Matching Shares (the maximum matching ratio is three
Matching Shares for each Executive Share).

    The maximum value of shares subject to an Award for financial year 2001 is
30% of the relevant Eligible Employee's salary. It is the current intention of
the Committee that the maximum value of an Award will not exceed 50% of the
relevant Eligible Employee's salary and/or bonus after the deduction of tax.

    The Company may issue 10% of its shares within a ten year period to satisfy
Awards to employees under the Deferred Share Bonus Plan and any other share
scheme operated by the Company under which shares are issued. Where Awards are
granted to executives which will be satisfied by the issue of shares no more
than 5% of the Company's shares will be issued under the Deferred Share Bonus
Plan or any other share scheme operated by the Company where shares are issued
provided that this limit may be exceeded if the executives are required to
satisfy more stretching performance requirements. The Remuneration Committee
will be monitoring the issue of shares during the ten year period.

    If the Company decides to grant Deferred Shares the maximum value that may
be granted to an individual in any year is 100% of the participant's salary
and/or bonus. This type of Award will normally be subject to the attachment of
performance conditions. Participants shall have no rights to vote or receive
dividends in respect of the shares subject to the Award during the holding
period. Awards will normally be released at the end of the applicable holding
period subject to the satisfaction of any additional conditions determined at
the date of grant of the relevant Award. The release of Awards is conditional
upon the participant paying any taxes due as a result of such a release.

    Shares subscribed will not rank for dividends payable by reference to a
record date falling before the date on which the shares are acquired but will
otherwise rank pari passu with existing shares. Application will be made to
the relevant exchange on which the shares are listed for admission to trading
on the relevant exchange for new shares that are to be issued following the
release of an Award.

    If a participant disposes of his Executive Shares during the holding period
or ceases employment, his Award will lapse unless the Committee in its
absolute discretion determines otherwise. Awards are not transferable and will
lapse if the participant attempts to do so. If a participant leaves employment
prior to the expiration of the holding period then the Award will lapse unless
the Committee in its absolute discretion determines otherwise. In the event of
a takeover, reconstruction, amalgamation or winding up of the Company then all
Awards will be released unless in certain circumstances they are exchanged for
Awards over shares in the acquiring company. In the event of a merger or
demerger of the Company, the Committee may determine that all Awards will be
released or the number of shares comprised in an Award may be adjusted.

    On a variation of the capital of the Company, the number of shares subject
to an Award may be adjusted in such manner as the Committee determines and a
professional advisor of the Company confirms to be fair and reasonable.

    The Committee may not grant Awards under the Deferred Share Bonus Plan more
than five years after its adoption unless the Deferred Share Bonus Plan is
extended pursuant to shareholder authority for a further period of up to five
years.

    Amendments to the rules may be made at the discretion of the Committee.
However, the provisions governing eligibility requirements, equity dilution,
share utilisation and individual participation limits and the adjustments that
may be made following a rights issue or any other

                                      -84-

<PAGE>
variation of capital and the limitations on the number of shares that may be
issued cannot be altered to the advantage of participants without prior
shareholder approval, except for minor amendments to benefit the
administration of the Deferred Share Bonus Plan, to take account of a change
in legislation or to obtain or maintain favourable tax, exchange control or
regulatory treatment for participants or for the Company and any subsidiary.

    The Committee may add to, vary or amend the rules of the Deferred Share
Bonus Plan by way of a separate schedule in order that the Deferred Share
Bonus Plan may operate to take account of local legislative and regulatory
treatment for participants or Company or any subsidiary, provided that the
parameters of these arrangements will provide no greater benefits than the
rules of the Deferred Share Bonus Plan as summarised above.

    Shares acquired, awards and any other rights granted pursuant to the
Deferred Share Bonus Plan are non-pensionable.

    At the Annual General Meeting of the Company held on June 6, 2001 the
Company received approval of two amendments to the Deferred Share Bonus Plan:-

      o     The first is to incorporate the facility to use new issue shares
            under the Deferred Share Bonus Plan. Any shares issued under this
            Deferred Share Bonus Plan would be subject to the limits set out
            above for the Option Schemes (i.e. the shares issued under this
            Deferred Share Bonus Plan would be aggregated with the shares
            issued under the Option Schemes when calculating the number of
            shares issued against the limits).

      o     The second is to allow the Company to provide that the provision
            of matching shares may be subject to the satisfaction of
            performance conditions. The attachment of performance conditions
            to matching shares means that the Deferred Share Bonus Plan would
            be classified as a long-term incentive plan requiring shareholder
            approval. It is the Company's current intention to provide
            additional performance conditions to matching shares where the
            ratio of matching shares to executive shares is greater than 1:1.

Warrants

"B" Warrants

    In January 1996, in connection with the Krypton acquisition, the Company
issued 59,443,235 "B" Warrants to subscribe for ordinary shares.

    7,500,000 of these warrants were issued for no consideration on the basis
of one "B" Warrant for every 10 ordinary shares on the placing of 75,000,000
ordinary shares. 17,354,522 of these warrants were issued for no consideration
on the basis of one "B" Warrant for every 10 ordinary shares taken up by then
existing shareholders under a rights issue of 173,545,215 ordinary shares.

    4,589,180 "B" Warrants were issued on the capitalization of certain Loan
Notes.

    A further 30,000,000 "B" Warrants to subscribe for ordinary shares to
certain directors and officers of the Company and an unrelated third party. In
addition, the Company agreed to issue up to 37,500,000 additional "B" Warrants
pursuant to an earn-out arrangement. See "Item 7: Major Shareholders and
Related Party Transactions - Certain Arrangements in Respect of the Jago
Acquisition".

    All the "B" Warrants issued in January 1996 entitle the holders of such
warrants to subscribe for ordinary shares. Effective upon the Company's May
1996 ten-to-one reverse stock split, each "B" Warrant entitles the holder
thereof to subscribe for one-tenth of one ordinary share at an exercise price
of 4p. Accordingly, the 30,000,000 outstanding "B" Warrants entitle the
holders thereof to subscribe for 3,000,000 ordinary shares at an effective
exercise price of 40 pence per share, and the 37,500,000 "B" Warrants that may
be issued in connection with the Krypton earn-out

                                      -85-

<PAGE>
would entitle the holders thereof to subscribe for 3,750,000 ordinary shares
at an effective exercise price of 40 pence per share.

    "B" Warrants may be exercised in whole or in part on any number of
occasions prior to December 31, 2002, which is the final "B" exercise date.
The ordinary shares issued pursuant to the exercise of the "B" Warrants will
rank pari passu in all respects from the date of their issue with the existing
ordinary shares then in issue.

    In the event of the voluntary winding-up of the Company or any other return
of capital prior to the final "B" exercise date, the "B" Warrantholders will
be entitled to be treated as if they had immediately before the date of the
winding-up resolution fully exercised their rights to acquire ordinary shares
pursuant to the exercise of the "B" Warrants and in that event shall be
entitled to receive out of the available assets pari passu with the holders of
the ordinary shares such a sum as they would have received had they been the
holders of such ordinary shares.

    If while any "B" Warrants remain outstanding any offer or invitation by or
on behalf of the Company by way of rights is made to the holders of the
ordinary shares, the Company shall ensure that a like offer or invitation is
made at the same time to each "B" Warrantholder as if "B" Warrants had been
validly exercised in full on the date immediately preceding the record date
for such offer or invitation.

    While "B" Warrants remain which have not been exercised the Company shall
not make any issue of ordinary shares or of any other rights or securities by
way of capitalization of profits or reserves (including any share premium
account and capital redemption reserve) to the holders of ordinary shares nor
shall the Company make any distribution out of its capital or capital
reserves, except that these restrictions shall not prevent the issue of any
ordinary shares by way of capitalization of profits or reserves at the option
of a holder of ordinary shares in lieu of a cash dividend.

    If while any "B" Warrants remain outstanding the ordinary shares shall be
consolidated or sub-divided, then the number of ordinary shares (as so
consolidated or sub-divided) to be issued on the exercise of the Warrants
shall be adjusted pro rata accordingly.

    The ordinary shares and "B" Warrants were listed on the London Stock
Exchange's Alternative Investment Market on January 9, 1996 and on May 3, 1996
they were admitted to the London Stock Exchange's Official List; however, the
"B" Warrants were not marketed or made available to the public. The "B"
Warrantholders shall not be deemed to be shareholders of the Company. The "B"
Warrants are transferable by instrument in writing in any usual or common form
(or in such other form as the directors of the Company may approve).

    The following table sets forth certain information concerning the "B"
Warrants exercisable over the Company's ordinary shares:

<TABLE>
<CAPTION>
                                                                                               Ordinary Shares
                                                                                                Issuable Upon
                                                                              Number of            Exercise           Effective
Name                                                                         "B" Warrants        "B" Warrants          Exercise
-----------------------------------------------------------------------    ----------------    ----------------    ----------------
                                                                                               At June 7, 2001
<S>                                                                        <C>                 <C>                 <C>
Ian Gowrie-Smith(1)....................................................          19,797,143           1,979,714                 40p
Air Chief Marshal Sir Michael Beavis...................................              84,000               8,400                 40p
Directors and officers as a group (10 persons).........................          19,881,143           1,988,114                 40p
</TABLE>


    1,317,143 "B" Warrants in which Ian Gowrie-Smith is shown above as having
an interest are owned by and registered in the name of Estuary Investments
Limited. The entire issued share capital of Estuary Investments Limited is
held on behalf of The I.R. Gowrie-Smith Family Trust, the beneficiaries of
which are certain members of Mr. Gowrie-Smith's family. In addition,
18,387,000

                                      -86-

<PAGE>
"B" Warrants are registered in the name of Buttress Nominees Limited, and
93,000 "B" Warrants are registered in the name of Fortress Nominees Limited.
All of the "B" Warrants registered in the name of Buttress Nominees Limited
and Fortress Nominees Limited are owned by Cangary Limited as trustee of The
I.R. Gowrie-Smith Family Trust.

Assumption of SkyePharma Inc. Warrants

    In connection with the acquisition of DepoTech, the Company agreed that
outstanding warrants to purchase DepoTech common stock on the effective date
of the merger would become warrants to purchase the Company's ordinary shares.
The following table sets forth certain information concerning these warrants
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                             Exercise price
Ordinary Shares issuable upon exercise        per Ordinary
  of warrants                                    Share          Expiration date
----------------------------------------    ----------------    ----------------
<S>                                         <C>                 <C>
1,322,728...............................              $2.399                2001
291,778.................................              $1.453                2005
</TABLE>


    The above table includes the additional warrants that the former DepoTech
shareholders became entitled to when FDA approval was granted for DepoCyt in
the U.S. in April 1999. On March 31, 2000 an additional 12.1 million shares
became issuable on the signing of a development agreement for a macromolecule
using DepoFoam. See "Item 4: Information on the Company - Business Overview -
Overview - Injectable". Following the issue of these shares on April 25, 2000
the number of outstanding warrants has been adjusted as shown below. No
additional exercise price was payable.

<TABLE>
<CAPTION>
                                             Exercise price
Ordinary Shares issuable upon exercise        per Ordinary
  of warrants                                    Share          Expiration date
----------------------------------------    ----------------    ----------------
<S>                                         <C>                 <C>
1,683,472...............................              $1.885                2001
371,353.................................              $1.178                2005
</TABLE>


Item 7 - Major Shareholders and Related Party Transactions

Major Shareholders

    As far as the Company is aware, it is neither directly nor indirectly owned
or controlled by another corporation or any government and there are no
arrangements in place the operation of which may result in the change in its
control.

    As of June 7, 2001, the Company had notice that the following persons owned
more than 5% of the outstanding ordinary shares:

<TABLE>
<CAPTION>
                                               Number of
                                            Ordinary Shares        % Holding
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Dr. Jacques Gonella.....................          96,472,890               18.62
</TABLE>


    Dr. Jacques Gonella also has an interest in 12 million `A' Deferred Shares
and 12 million `B' Deferred Shares, both of which do not confer upon the
holder the right to receive notice of or attend or vote at any general meeting
of the Company. There have been two changes to Dr. Gonella's shareholding
since June 7, 1998. On December 2, 1998 Dr Gonella sold 17,622,200 ordinary
shares of 10p each and on July 20, 2000 Dr. Gonella acquired 6,000,000
ordinary shares of 10p each.

    As of June 7, 2001, there were 18,784 holders of record of ordinary shares
and 29 of such holders were beneficial U.S. holders representing 17% of the
ordinary shares. In addition, at June 7,

                                      -87-

<PAGE>
2001 there were 147 holders of record of American Depositary Shares ("ADSs")
representing 7% of the ordinary shares.

Certain Arrangements in Respect of the Jago Acquisition

    The Company acquired Jago from Dr. Jacques Gonella, the sole shareholder of
Jago, on May 3, 1996 at an initial purchase price of approximately (L)101
million in cash (plus a prepayment of $6 million) and 30,711,856 ordinary
shares (valued at 75 pence per share or approximately (L)23 million). In the
fund raising associated with the transaction, Dr. Gonella purchased 84,789,463
ordinary shares of the Company, at a purchase price of 75 pence per share. In
addition, the Company agreed to pay Dr. Gonella up to $5 million of any
license income, royalties, milestones and contract fees received by the
Company from the Joint Venture. The Company also agreed to pay Dr. Gonella up
to $5 million in connection with any licensing, contract fees or other
compensation payable by a third party to the Company (under the terms of a
joint venture agreement or otherwise) in respect of the pulmonary drug
delivery technologies acquired in the Jago acquisition.

    The Company agreed to pay additional consideration in respect of the Jago
acquisition pursuant to an earn-out arrangement. The agreement provides that
the Company would pay Dr. Gonella an earn-out of the lesser of

      (1)   $250 million or

      (2)   the aggregate of (A) 20% of the Company's consolidated gross
            Geomatrix license income (which is generally defined to include
            all income received by the Company relating to its Geomatrix
            technologies, but excludes intracompany payments, reimbursements
            from third parties relating to the Company's contract research and
            development expenses, and any royalty payments from sales of
            Dilacor XR) and (B) 2% of its consolidated gross Geomatrix sales
            revenues (which is generally defined to include any income
            received by the Company relating to the sale of any products that
            directly or indirectly use the Geomatrix technologies, but
            excludes intra-company sales), over a period of 10 years
            commencing May 1996.

    The Company was obligated to make any payments due under the earn-out
arrangement on a semi-annual basis over a period of 10 years, subject to the
sum of the Company's consolidated gross Geomatrix license income and 10% of
the Company's consolidated gross Geomatrix sales revenues reaching a threshold
of $30 million in any given year. Each installment was to be equal to 20% of
the Company's consolidated gross Geomatrix license income and 2% of the
Company's consolidated gross Geomatrix revenues during the six months
preceding the date of the semi-annual payment. The Company had the option to
prepay the earn-out arrangements in cash for the present value of $250
million, discounted from 2006 at an annual rate of 8.5%, less any amount paid
under the amount prior to the exercise of this option. Additionally, the
Company had the option to pay $123 million to Dr. Gonella when the first $30
million threshold was reached, in full satisfaction of its earn-out
obligation.

    Under U.K. Generally Accepted Accounting Standards, the Directors are
obliged to provide a reasonable estimate of the fair value of the earn-out
likely to be payable in preparing the accounts. Having regard to these matters
at December 31, 1998 a provision of approximately (L)40 million was recognized
based upon the Directors' then estimate of the maximum amount likely to be due
under a proposed Settlement Agreement with Dr Gonella.

    The Directors believed that it was in the best interests of the Company to
settle the deferred consideration to remove a significant uncertainty that
complicated the evaluation of the Group. As a result, at March 31, 2000, the
following amendments were made to the 1996 Acquisition Agreement for Jago as
set out below:


                                      -88-

<PAGE>
    1. An amendment was signed by which the Company obtained the right to
satisfy the deferred consideration in shares rather than cash.

    2. A Settlement Agreement was signed establishing the full and final
settlement, in shares, of the deferred consideration payable to the vendor of
Jago, Dr Gonella. The Settlement Agreement received shareholder approval on
July 11, 2000 and the following shares were issued on July 20, 2000:

      (i)   6 million ordinary shares;

      (ii)  12 million `A' Deferred Shares. These Deferred Shares
            automatically convert into 12 million ordinary shares on the first
            commercial sale of Paroxetine/Paxil in combination with Geomatrix
            technology under the current Licence Agreement; and

      (iii) 12 million `B' Deferred Shares. These Deferred Shares
            automatically convert into 12 million ordinary shares on the
            Company's receipt of a royalty statement under the current Licence
            Agreement stating that reported sales of Paroxetine/Paxil in
            combination with the Geomatrix technology have exceeded $1,000
            million during any calendar year prior to January 1, 2006, or
            exceeded $337 million between 1 January 2006 and 3 May 2006.

    In the event that any of the conditions set out above are not satisfied
prior to 3 May 2006 the Deferred `A' and `B' Shares will not be converted and
will be cancelled. The vendor shall not be entitled to any other compensation
nor additional compensation.

    As a result of the above agreement, the deferred consideration payable was
re-classified and recorded as `Shares and warrants to be issued', at December
31, 1999. In the Directors' opinion, 30 million ordinary shares were likely to
be issued under the terms of the Settlement Agreement. This represented a
settlement valued at (L)33 million based upon a closing share price of 110
pence on March 31, 2000, the date of the agreement.

    The 6 million Ordinary Shares and 12 million Deferred `A' and `B' shares
were issued on July 20, 2000. On issue, the Ordinary Shares were recorded as
share capital and share premium at a price of 94.25 pence. The Deferred Shares
were recorded within non-equity share capital and non-equity share premium at
a price of 94.25 pence, the fair value of those shares, on July 20, 2000.

    In the years ended December 31, 1998 and 1999, the Company made no payments
to Dr. Gonella in respect to the foregoing earn-out arrangement. In the year
ended December 31, 2000 no payments were made to Dr. Gonella except the issue
of shares described above.

Certain Arrangements in Respect of the Krypton Acquisition

    The Company acquired Krypton on January 8, 1996 from a series of trusts in
which Ian Gowrie-Smith, Richard Stewart and Joseph Bozman (each of whom was
then a director or officer of the Company), Amy Ikerd (an employee of the
Company) and an unrelated third party had interests. At the time of the
acquisition, Gowrie-Smith held a 64% interest, Stewart held a 3.8% interest
and Bozman held a 11.7% interest in Krypton through their respective trusts.
The total consideration paid by the Company (as adjusted to reflect the
Company's 1996 reverse stock split) was 30 million ordinary shares and 30
million "B" Warrants that entitle the holders to subscribe for an additional 3
million ordinary shares at an effective exercise price of 40 pence per share.
The Company agreed to pay additional consideration pursuant to an earn-out
arrangement of up to 37.5 million additional ordinary shares and 37.5 million
additional "B" Warrants that would entitle the holders to subscribe for 3.75
million ordinary shares at an effective exercise price of 40 pence per share.

    The agreement provides that these be issued contingent on a change in
control of the company at a share price of not less than 80 pence compounded
at an annual rate of 10 per cent, or on satisfaction of the following
conditions and hurdles:


                                      -89-

<PAGE>
      (a)   for each of the first three Krypton Products (as defined below)
            that obtains ANDA approval before December 31, 2003, an additional
            2.5 million ordinary shares and 2.5 million additional "B"
            Warrants shall be issued;

      (b)   in the event that the aggregate annual sales of the Krypton
            Products exceed $50 million and the Company is profitable in
            respect of such products before December 31, 2003, 10 million
            additional ordinary shares and 10 million additional "B" Warrants
            shall be issued;

      (c)   in the event that the aggregate annual sales of the Krypton
            Products and the annual revenues of the Company exceed $200
            million and the Company is profitable in respect of such products
            before December 31, 2003, an additional 10 million ordinary shares
            and 10 million additional "B" Warrants shall be issued; and

      (d)   in the event that the aggregate annual sales of the Krypton
            Products and the annual revenues of the Company exceed $275
            million and the Company is profitable in respect of such Products
            before December 31, 2003, an additional 10 million ordinary shares
            and 10 million additional "B" Warrants shall be issued.

    In the event that any two of hurdles (a), (b) and (c) are satisfied in
relation to any single year's sales, only the first such hurdle shall be
considered as satisfied. For purposes of this paragraph, the term "Krypton
Products" refers to glipizide, glyburide, ISMN, midazolam HCL and vecuronium
bromide.

    Immediately prior to the acquisition of Krypton, Gowrie-Smith held 13.9%,
Stewart held 0.5% and Bozman held 1.6% of the ordinary shares of the Company.
At that time, if all of the outstanding Convertible Preference Shares and then
existing "A" Warrants had been exercised, Gowrie-Smith would have held an
interest of 19.58%, Stewart an interest of 0.4% and Bozman an interest of
1.35% in the Company. Immediately after the acquisition, Gowrie-Smith held
24.7%, Stewart held 1.2% and Bozman held 3.9% of the ordinary shares of the
Company. At that time, if all of the outstanding Convertible Preference
Shares, "A" Warrants and "B" Warrants had been exercised, Gowrie-Smith would
have held an interest of 26.38%, Stewart an interest of 1.17% and Bozman an
interest of 3.63% in the Company.

    During 1998, the Company revised its strategy for the sale and distribution
of its generic products in the U.S. and is currently in discussions with
potential collaborative partners to sell and distribute its generic products,
including the products acquired as part of the acquisition of Krypton. Certain
of the hurdles relating to the Krypton acquisition were not formulated to take
account of the detailed arrangements currently envisaged by the Company.
Should any of the Krypton products be approved and marketed, the Company will
need to renegotiate elements of the Krypton acquisition agreement primarily
hurdles (b), (c) and (d) above should hurdle (a) be met.

    The Directors have formed the opinion that until agreement is reached with
the Krypton vendors, certain elements of deferred consideration cannot be
estimated with any degree of certainty. Therefore the deferred consideration
recognized in the accounts at December 31, 1999 relates to the extent that the
hurdle discussed above is reasonably expected to be met. Consequently, an
estimate of (L)3.9 million has been recognized as contingent consideration
payable in respect of the Krypton acquisition at December 31, 1999 for 7.5
million ordinary shares and 7.5 million "B" Warrants (based on the market
price for the ordinary shares at December 31, 1999).

    In January 1996, the Company repaid an amount of approximately (L)1 million
that had been loaned interest-free to Krypton by the Ian Gowrie-Smith Family
Trust to fund certain drug development and milestone payments.

Certain Arrangements in Respect of VECAP

    Dr. Thomas Rinderknecht, a Non-executive Director of the Company until
November 2000, is the sole director and manager of VECAP Venture Capital
Partners AG, a Swiss company that

                                      -90-

<PAGE>
specializes in raising finance and investing in commercial opportunities. In
1993, Jago purchased for Sfr 700,000 certain exclusive marketing rights to a
dry powder inhaler that was being developed pursuant to a collaborative
arrangement between VECAP and NEOTEK Pharmaceutical Technologies AG. The
development of the inhaler was abandoned, and in June 1996 VECAP agreed to
reimburse Jago Sfr 532,500 of the purchase price.

    In 1994, VECAP provided Jago with $1.5 million of working capital in
exchange for an option over the worldwide rights for the development of
products by Jago. Subsequently, however, as part of the Joint Venture
arrangement, Jago, VECAP and Genta agreed that VECAP would waive its right to
exercise the option and that the Joint Venture would repay VECAP the $1.5
million it had loaned Jago out of revenues it may receive from third parties.
Such repayment is to be made in return for the Joint Venture's obtaining the
same rights over the same products in respect of which VECAP had waived its
option. The Joint Venture also agreed to pay Jago a $1.5 million manufacturing
license fee also payable out of future revenues. In 1996, the Joint Venture
received revenues that triggered the obligation to pay VECAP and Jago each
$500,000. Jago agreed to defer this payment but VECAP refused to do so. In
February 1997 Jago loaned $0.5 million to the Joint Venture to enable it to
satisfy, in part, its obligation to VECAP. Thus, as of December 31, 1998, the
Joint Venture was still obligated to pay $1 million to VECAP and $1.5 million
to Jago out of future qualifying income and to repay a $0.5 million loan to
Jago.

    In March 1999, an agreement was signed between the Company and Genta Inc.
concerning the future operations of the joint venture. The agreement reflects
the above obligations in an agreed distribution schedule. Under the agreement,
an amount of $1,000,000 became payable to VECAP as its share of the Joint
Venture's license fees. This charge was recognized during the year ended
December 31, 1999 and the payment made in 2000. During 1999, Dr Gonella, who
was up until June  6, 2001, a Director of the Company, became a shareholder of
VECAP.

Other Arrangements

    Dr. Thomas Rinderknecht, a Non-executive Director of the Company until
November 2000, is a partner at the law firm Rinderknecht, Klein & Stadelhofer,
based in Switzerland. During 2000 fees of (L)69,000 (1999: (L)99,000) were
paid to Rinderknecht, Klein & Stadelhofer in respect of legal advice to
SkyePharma AG and the Company.

    At the end of December 1998, Ian Gowrie-Smith, (through a family owned
trust), acquired a 50% interest in 10 East 63rd Street Inc., the company which
owns 10 East 63rd Street, a property in New York. SkyePharma PLC has been in
occupation of that property since January 1997, subject to a tenancy agreement
which expired in January 1999, under which it paid a rent of US $300,000 per
annum. In January 1999 the lease was renewed on the same terms. Approximately
one third of the premises are subleased to Fifth Avenue Capital Inc., an
unrelated company. In February 2001 the lease became renewable. The lease is
currently being renegotiated and an independent valuation obtained.

Item 8: Financial Information

Legal Proceedings

    In April 1998, a class action lawsuit was filed against DepoTech (renamed
SkyePharma Inc.) and two of its former officers. The lawsuit alleges
violations of federal securities laws and seeks unspecified money damages on
behalf of a class of shareholders who purchased DepoTech common stock during
the period April 1, 1996 through December 18, 1997. On May 11, 1999, the Judge
granted SkyePharma Inc.'s motion to dismiss and dismissed the plaintiffs'
complaint with leave to amend by June 8, 1999. The plaintiffs timely filed an
amended complaint and the defendants responded with a motion to dismiss. After
completion of several rounds of briefing and supplemental briefing on the
motion, the Court denied the motion without prejudice to the defendants and
without addressing its merits, and instructed the parties to repeat the
process from the beginning. Pursuant to a Court-ordered schedule, the
plaintiffs filed their Second Amended Complaint by April 14, 2000. The
District Court dismissed the action on January 26, 2001. However,

                                      -91-

<PAGE>
following the dismissal the plaintiffs filed, on February 9, 2001 an appeal to
the US Court of Appeal, claiming that the District Court had erred in
dismissing the plaintiffs' complaint and also that the District Court had
erred in permitting certain motions to strike. The Company believes that this
Appeal is without merit and intends to defend such appeals.

    On June 13, 2000, a summons was filed in respect of a claim by RTP Pharma
Corporation ("RTP") against SkyePharma PLC and others in the U.S. District
Court for the District of Columbia. The lawsuit seeks the correction of
inventorship of a U.S. patent, U.S. Patent Number 5,858,410 together with
unspecified monetary damages on behalf of RTP. The defendants filed a motion
to dismiss in March 2001, which is being defended by the plaintiffs RTP. The
Company believes that this lawsuit is without merit and will, with the other
defendants, vigorously defend against the action.

    On May 8, 2001, a summons in a civil case was filed in respect of a claim
by Andrx Corporation, a generic drug manufacturer against SkyePharma Inc in
the US District Court, Southern District of Florida. The lawsuit alleges
violations of anti-trust law and common law of the United States and State of
Florida. The complainant seeks injunctive relief and unspecified monetary
damages from Elan Corporation PLC (who was the original defendant in this
case) and SkyePharma arising from an alleged agreement entered into by Elan
and SkyePharma to prevent competition for a controlled release version of the
product Naprelan made with the active drug Naproxen. The Company believes that
this action is without merit and will vigorously defend against this claim.

    Contingent liabilities and guarantees are summarized in Note 20 to
Consolidated Financial Statements included in Item 18 of this Form 20-F.

Dividend Policy

    The Company has not paid dividends in the last 10 years on its ordinary
shares and does not intend to pay dividends in the foreseeable future. The
Company currently intends to retain all of its earnings to finance its
operations and future growth. Moreover, under current U.K. law, the Company's
accumulated realized profits must exceed it's accumulated realized losses (on
a non-consolidated basis) before dividends can be paid.


                                      -92-

<PAGE>
Item 9: The Offer and Listing

Stock Price History

    The principal trading market for the ordinary shares is the London Stock
Exchange (the "LSE").

    The table below sets forth, for the periods indicated, the highest and
lowest middle-market quotations for the Company's ordinary shares as derived
from the Daily Official List of the LSE and the highest and lowest sales
prices of the Company ADSs on The Nasdaq National Market. The mid-closing
price for the ordinary shares on the LSE and the last sale price for the ADSs
on The Nasdaq National Market on June 7, 2001 was 82.0 pence per ordinary
share and $10.90 per ADS. See "- Exchange Rate Information" with respect to
the exchange rates applicable to the periods set forth below.

<TABLE>
<CAPTION>
                                                                    SkyePharma                              SkyePharma
                                                                 Ordinary Shares                               ADSs
                                                       ------------------------------------    ------------------------------------
                                                             High                Low                 High                Low
                                                       ----------------    ----------------    ----------------    ----------------
                                                         (Pence per the Company Ordinary                ($ per the Company
                                                                      Share)                                   ADS)
<S>                                                    <C>                 <C>                 <C>                 <C>
Year ended December 31, 1996.......................               100.0                69.0                  --                  --
Year ended December 31, 1997.......................                93.0                48.0                  --                  --
Year ended December 31, 1998.......................               103.5                44.5               13.56                7.13
Year ended December 31, 1999.......................                88.0                45.3               15.13                6.38
Year ended December 31, 2000.......................               190.0                49.8               29.38                7.38

Year ended December 31, 1999
First Quarter......................................                88.0                62.0               15.13                9.38
Second Quarter.....................................                75.0                49.5               11.75                7.50
Third Quarter......................................                60.5                45.3                9.69                6.38
Fourth Quarter.....................................                62.0                46.8                9.75                7.38

Year ended December 31, 2000
First Quarter......................................               190.0                49.8               29.38                7.38
Second Quarter.....................................               133.0                85.5               21.00               12.75
Third Quarter......................................                95.3                80.0               15.00               10.94
Fourth Quarter.....................................                88.5                63.0               13.00                8.63

Year ended December 31, 2001
First Quarter......................................               108.0                63.5               15.50                9.06
Second Quarter (through June 7, 2001)..............                97.5                82.0               13.85               10.90

Monthly Data
December 2000......................................                69.0                63.5                9.44                8.63
January 2001.......................................                91.0                63.5               13.50                9.06
February 2001......................................               108.0                87.5               15.50               12.63
March 2001.........................................               105.0                71.0               15.50                9.75
April 2001.........................................                97.5                86.8               13.85               11.63
May 2001...........................................                92.5                83.0               13.50               11.90
</TABLE>


Stock Exchanges on which the Company's Shares are Listed

    The ordinary shares were admitted to the Official List of the LSE on May 3,
1996 and are quoted under the symbol "SKP". Prior to that time, the ordinary
shares traded on the LSE's Alternative Investment Market, from January 9, 1996
to May 2, 1996, and on the LSE's Unlisted Securities Market, from October 26,
1987 to January 8, 1996.

    The LSE classifies equity securities based on 12 levels of normal market
size, ranging from 200,000 to 500 shares. These levels of normal market size
reflect the turnover by value in each of the Company's shares over the past 12
months. The ordinary shares have a normal market size of

                                      -93-

<PAGE>
10,000 shares. The normal market size classification for each equity security
is subject to quarterly review in the light of trading volumes in the previous
quarter and to adjustment, as appropriate. U.K. market makers are normally
required to make a two-way market in sizes of not less than the normal market
size and to report all transactions to the LSE within three minutes. In
respect of securities with a normal market size greater than 2,000,
transactions of not more than three times normal market size are published
immediately as to size and price, but transactions in excess of three times
normal market size are not published until after 60 minutes.

    The Company's ADSs are quoted on The Nasdaq National Market under the
symbol "SKYE". ADSs are issued by the Bank of New York as depositary under the
Deposit Agreement dated as of July 8, 1998. Each ADS represents ten ordinary
shares.

Item 10: Additional Information

Memorandum and Articles of Association

    The following summarizes certain provisions of SkyePharma PLC's memorandum
and articles of association and applicable English law. The summary is
qualified in its entirety by reference to the UK Companies Act and
SkyePharma's memorandum and articles of association. Investors can obtain
copies of the memorandum and articles of association by contacting the Company
Secretary at the registered office of the Company.

Objects and Purposes

    The Company was incorporated in England and Wales on March 10, 1910 under
the Companies Act 1908 as a Company limited by shares and was re-registered in
1982 as a public limited company under the Companies Act 1948 to 1980. The
Company is registered under company number 107582. The Company was re-
registered as SkyePharma PLC on January 8, 1996.

    The objects of the Company are set out in full in clause 4 of its
memorandum of association which provides, among other things, that the
Company's objects are to carry on in any part of the world any business which,
in the opinion of the directors, may seem conveniently carried on in
connection with or ancillary to any of several diverse businesses, including
applying for, purchasing or otherwise acquiring and holding, using,
developing, selling, licensing or otherwise disposing of or dealing with
patents, copyrights, designs, trade marks, secret processes, know-how and
inventions and any interest therein.

Directors

    The business and affairs of the Company shall be managed by the directors.

    A director may not vote or count towards the quorum on any resolution
concerning any proposal in which he (or any connected person) has a material
interest (other than by virtue of his interest in securities of the Company).
This prohibition does not apply to any of the following matters:-

(i)   a contract or arrangement for giving to the director security or as
      guarantee or indemnity in respect of

      a)    money lent by him or obligations undertaken by him or by any other
            person at the request of or for the benefit of the Company or any
            of its subsidiaries; or

      b)    a debt or obligation of the Company or any of its subsidiaries for
            which he himself has assumed responsibility in whole or part under
            a guarantee or indemnity or by the giving of security.


                                      -94-

<PAGE>
(ii)  where the Company or any of its subsidiary undertakings is offering
      securities in which offer the director is, or may be, entitled to
      participate as a holder of securities or in the underwriting or sub
      underwriting of which the director is to participate;

(iii) relating to another company in which he and any persons connected to him
      do not to his knowledge hold an interest in shares representing 1 per
      cent or more of any class of the equity share capital or of the voting
      rights in that company;

(iv)  relating to a pension, superannuation or similar scheme or retirement,
      death or disability benefits scheme or employees' share scheme which has
      been approved by the inland revenue or is conditional upon that approval
      or does not award him any privilege or benefit not awarded to the
      employees to whom the scheme relates; or

(v)   concerning insurance which the Company proposes to maintain or purchase
      for the benefit of persons including directors.

    A director may not vote or be counted in the quorum on any resolution which
concerns his or her own appointment with the Company or any other company in
which the Company is interested.

    The UK Companies Act requires a director of a company who is in any way
interested in a contract or proposed contract with the Company to declare the
nature of his interest at a meeting of the directors of the Company.

    The directors may exercise all the powers of the Company to borrow money.
The borrowing powers contained in the articles of association may only be
varied by amending the articles of association.

    A director must retire at the conclusion of the first annual general
meeting after he reaches the age of 70 and thereafter annually, and being
eligible, may stand for re-election.

    A director is not required to hold an interest in the shares of the
Company.

    At each annual general meeting of the Company one-third of the directors
for the time being (rounded down if necessary) are required to resign from
office.

Classes of Shares

    The authorised share capital of the Company is (L)111,400,000 divided into
1,090,000,000 ordinary shares of 10p each, 12,000,000 "A" Deferred Shares of
10p each and 12,000,000 "B" Deferred Shares of 10p each.

    Provisions set out applying to the Ordinary Shares of 10p each: -

(a) Dividends

    Under English law, dividends are payable on the Company's ordinary shares
only out of profits available for distribution etc, as determined in
accordance with accounting principles generally accepted in the UK and by the
Companies Act 1985. The Company in general meeting may declare dividends by
ordinary resolution, but such dividend may not exceed the amount recommended
by the directors. The directors may pay interim dividends if it appears they
are justified by the Company's financial position.

    Dividends unclaimed for 12 years after they become due for payment shall,
unless the directors resolve otherwise, be forfeited and revert to the
Company.

(b) Voting Rights

    Every member who is present in person or represented at any general meeting
of the Company and who is entitled to vote has one vote on a show of hands. On
a poll every member who is present or represented has one vote for every share
held.


                                      -95-

<PAGE>
    Holders of ordinary shares may appoint a proxy, including a beneficial
owner of those shares, to attend, speak and vote on their behalf at any
shareholder's meeting.

    If any sum remains unpaid in relation to a member's shareholding that
member is not entitled to vote that share unless the board otherwise
determines.

(c) Rights to share in the Company's profits

    The profits of the Company available for dividend and resolved to be
distributed shall be applied in the payment of dividends (if any are declared)
to members in accordance with their respective rights and priorities.

(d) Rights to share in any surplus in the event of liquidation

    On a winding up of the Company, the balance of the assets available for
distribution, after deduction of any provision made under the Companies Act
1985 and subject to any special rights attaching to any class of share, shall
be applied in repaying to the members of the Company the amounts paid up on
the shares held by them. Any surplus assets will belong to the holders of any
ordinary shares then in issue according to the numbers of shares held by them.

(e) Redemption and sinking provisions

    The Company may by special resolution create and sanction the issue of
shares which are, or at the option of the Company or the holder are to be
liable, to be redeemed, subject to and in accordance with the provisions of
the Companies Act 1985. The special resolution sanctioning the issue shall
also make such alterations to the articles of the Company as are necessary to
specify the terms on which and the manner in which the shares are to be
redeemed. The Company has no redeemable shares in issue and there are no
provisions relating to sinking funds in the articles of the Company. The
Company has not established a sinking fund

(f) Liability to further capital calls by the Company.

    The directors may make calls upon the members in respect of any monies
unpaid on their shares. Each member shall pay to the Company at the time and
place specified the amount called on his shares. A call may be revoked or
postponed as the directors determine.

    Provisions set out applying to the `A' Deferred Shares:-

    The "A" Deferred Shares do not confer any right to participate in any
profits of the Company or to receive notice of or attend any general meeting
of the Company. Each "A" Deferred Share will be redesignated as an ordinary
share within thirty days of the sale of a Geomatrix version of Paroxetine/
Paxil in accordance with the Company's existing license agreement with
SmithKline Beecham, PLC.

    The right of redesignation attaching to the "A" Deferred Shares will lapse
if this event has not taken place by May 3, 2006.

    Provisions set out applying to the `B' Deferred Shares:-

    The "B" Deferred Shares do not confer any right to participate in any
profits of the Company or to receive notice of or attend any general meeting
of the Company. Each "B" Deferred Share will be redesignated as an ordinary
share on the first occasion that total reported sales of Geomatrix versions of
Paroxetine/ Paxil exceed US $1 billion in any calendar year ending prior to
January 1, 2006 or, if that does not happen, then if such sales exceed US$ 337
million in the period January 1, 2006 to May 3, 2006.

    The right of redesignation attaching to the "B" Deferred Shares will lapse
if this event has not taken place by May 3, 2006.


                                      -96-

<PAGE>
(g) Substantial shareholders

    There are no provisions contained in the articles of the Company which
discriminate against any existing or prospective holder of securities as a
result of such shareholder owning a substantial number of shares.

Variation of rights

    Whenever the capital of the Company is divided into different classes of
shares the special rights attached to any class of shares may be modified
either with the consent in writing of the holders of three quarters of the
issued shares of the class or with the sanction of an extraordinary resolution
passed at a separate general meeting of the holders.

Shareholders' Meetings and Notices

    The Company is required to hold a general meeting each year as its annual
general meeting in addition to other meetings (called extraordinary general
meetings) as the directors think fit. The type of meeting will be specified in
the notice calling it. Not more than 15 months may elapse between the date of
one annual general meeting and the next.

    In the case of an annual general meeting or the meeting for the passing of
a special resolution (requiring the consent of a 75% majority) 21 clear days'
notice is required. In other cases 14 clear days' notice is required. The
notice must specify the place, the date, and the hour of the meeting, and the
general nature of the business to be transacted.

Limitations on foreign shareholders

    There are no limitations imposed by English law or the Company's memorandum
or articles of association on the right of non-residents or foreign persons to
hold or vote the Company's ordinary shares other than the limitations that
would generally apply to all of the Company's shareholders.

Change of Control

    There are no provisions in the articles of association that would have an
effect of delaying, deferring or preventing a change in control of the Company
and that would operate only with respect to a merger, acquisition or corporate
restructuring involving the Company or any of its subsidiaries.

Disclosure of Interests in Shares

    The UK Companies Act gives the Company the power to require persons whom it
believes to have, or to have acquired in the previous three years, an interest
in its voting shares to disclose certain information with respect to those
interests. Failure to supply the information required may lead to
disenfranchisement of the relevant shares and a prohibition on their transfer
and receipt of dividends and other payments in respect of those shares. In
this context the term "interest" is widely defined and will generally include
an interest of any kind whatsoever in voting shares, including an interest of
a holder of SkyePharma ADSs.

Material Contracts

    At March 31, 2000, a Settlement Agreement was signed establishing the full
and final settlement of the deferred consideration payable to the vendor of
Jago, Dr Gonella. The settlement was approved by shareholders at the Company's
Annual General Meeting held on July 11, 2000 to be made entirely in shares. On
July 20, 2000, 6 million ordinary shares were issued to Dr Gonella at a price
of 94.25 pence. Also on July 20, 2000, 24 million Deferred non-equity Shares
were issued. The contingencies determining the conversion of the Deferred
Shares into ordinary shares are set out in Note 22 to the Consolidated
Financial Statements. In the event that these conditions are not satisfied
prior to May 3, 2006, the Deferred Shares will not be converted and will be
cancelled. The vendor will not be entitled to any other compensation nor
additional compensation. On issue, the ordinary and Deferred Shares were
recorded in share capital and share premium. At December 31,

                                      -97-

<PAGE>
1999 prior to the issue of shares, in the Directors' opinion, 30 million
ordinary shares were likely to be issued under the terms of the Settlement
Agreement and a figure of (L)33 million was recorded within shares and
warrants to be issued, based upon a closing share price of 110 pence on March
31, 2000, the date of the Settlement Agreement.

Exchange Controls

    There are currently no limitations, either under the laws of the United
Kingdom or in the Articles of Association of the Company, on the rights of
non-residents to hold, or to vote on Ordinary Shares. Additionally, there are
currently no United Kingdom foreign exchange control restrictions on the
conduct of the Company's operations or affecting the remittance of dividends
on unrestricted shareholders' equity.

Taxation

    The following is a summary of the material U.S. federal income tax
consequences and the material United Kingdom tax consequences of the ownership
and disposition of ordinary shares or ADSs by a U.S. Holder and a Non-U.S.
Holder that holds the ordinary shares or ADSs as capital assets.

    This summary does not take into account the specific circumstances of any
particular investors (such as tax-exempt entities, certain insurance
companies, dealers in securities and currencies, traders in securities that
elect to mark to market, investors liable for alternative minimum tax,
investors that actually or constructively own 10% or more of the voting stock
of the Company, investors that hold ordinary shares or ADSs as part of a
straddle or a hedging or conversion transaction or investors whose functional
currency is not the U.S. dollar), some of which may be subject to special
rules.

    This summary is based on the tax laws of the United States (including the
Internal Revenue Code of 1986, as amended, its legislative history, existing
and proposed regulations thereunder, published rulings and court decisions)
and on the tax laws of the United Kingdom as in effect on the date hereof, as
well as on the Convention Between the Government of the United States of
America and the Government of the United Kingdom of Great Britain and Northern
Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income and Capital Gains as in effect on the
date hereof (the "Treaty") and on the Convention between the Government of the
United States and the Government of the United Kingdom of Great Britain and
Northern Ireland for the Avoidance of Double Taxation and Prevention of Fiscal
Evasion with respect to Taxes on Estates of Deceased Persons and on Gifts as
in effect on the date hereof (the "Estate Tax Treaty"), all of which are
subject to change (or changes in interpretation), possibly with retroactive
effect. In addition, the summary is based in part upon the representations of
the Depositary and the assumption that each obligation in the Deposit
Agreement and any related agreement will be performed in accordance with their
respective terms.

    For purposes of this discussion, a "U.S. Holder" is any beneficial owner of
ordinary shares or ADSs that is

      (1)   a citizen or resident of the United States,

      (2)   a corporation organized under the laws of the United States or any
            State thereof,

      (3)   an estate the income of which is subject to United States federal
            income tax without regard to its source, or

      (4)   a trust if a court within the United States is able to exercise
            primary supervision over the administration of the trust and one
            or more United States persons have the authority to control all
            substantial decisions of the trust.


                                      -98-

<PAGE>
    A "Non-U.S. Holder" is any beneficial owner of ordinary shares or ADSs that
is not a United States person for United States federal income tax purposes.

    The discussion does not address any aspects of United States taxation other
than federal income taxation. In addition, the following summary of certain
U.K. tax considerations does not address the tax consequences of a U.S. Holder

      (1)   that is resident (or, in the case of an individual, ordinarily
            resident) in the United Kingdom for U.K. tax purposes,

      (2)   whose holding of ordinary shares or ADSs is effectively connected
            with a permanent establishment in the United Kingdom through which
            such U.S. Holder carries on business activities or, in the case of
            an individual who performs independent personal services, with a
            fixed base situated therein,

      (3)   that is a corporation which alone or together with one or more
            associated corporations, controls directly or indirectly, 10% or
            more of the Company,

      (4)   who is not otherwise eligible for benefits under the Treaty with
            respect to income and gain from the ordinary shares or ADSs.

    Prospective investors are urged to consult their own tax advisors regarding
the United States federal, state and local tax consequences and the United
Kingdom and other tax consequences of acquiring, owning and disposing of
ordinary shares and ADSs.

    In general, and taking into account the earlier assumptions, for United
States federal income and United Kingdom tax purposes, holders of ADRs
evidencing ADSs will be treated as the beneficial owners of the ordinary
shares represented by those ADSs.

Taxation of Capital Gains

United Kingdom Taxation

    U.S. Holders who are not resident or (in the case of individuals only)
ordinarily resident for tax purposes in the United Kingdom will not be liable
for U.K. tax on capital gains realized on the disposal of their ADSs or
ordinary shares unless such ADSs or ordinary shares are used, held or acquired
for the purposes of a trade, profession or vocation carried on in the United
Kingdom through a branch or agency.

United States Taxation

    U.S. Holders

    Subject to the PFIC rules discussed below, upon a sale or other disposition
of ordinary shares or ADSs, a U.S. Holder will recognize gain or loss for
United States federal income tax purposes in an amount equal to the difference
between the U.S. dollar value of the amount realized and the U.S. Holder's tax
basis (determined in U.S. dollars) in such ordinary shares or ADSs. Generally,
such gain or loss will be capital gain or loss, will be long-term capital gain
or loss if the U.S. Holder's holding period for such ordinary shares or ADSs
exceeds one year and any such gain or loss will be from sources within the
United States for foreign tax credit limitation purposes.
Long-term capital gain of a non-corporate U.S. Holder is generally subject to
a maximum tax rate of 20%.

    Non-U.S. Holders

    A Non-U.S. Holder will not be subject to United States federal income tax
in respect of a gain recognized on a sale or other disposition of ordinary
shares or ADSs unless

      (1)   the gain is effectively connected with a trade or business of the
            Non-U.S. Holder in the United States (and is attributable to a
            permanent establishment maintained in the United

                                      -99-

<PAGE>
            States by such Non-U.S. Holder, if an applicable income tax treaty
            so requires as a condition for such Non-U.S. Holder to be subject
            to United States taxation on a net income basis in respect of gain
            from the sale or other disposition of the ordinary shares or ADSs)
            or

      (2)   in the case of a Non-U.S. Holder who is an individual, such holder
            is present in the United States for 183 or more days in the
            taxable year of the sale and certain other conditions apply.

    Effectively connected gains realized by a corporate Non-U.S. Holder may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty.

Taxation of Dividends

United Kingdom Taxation

    The taxation of dividends paid in respect of the ordinary shares depends
upon the law and practice in force at the time dividends are paid. The
following summary is based upon current law and practice, which may change by
the time that any dividends become payable.

    For dividends paid on or after April 6, 1999, under the Treaty an Eligible
U.S. Holder is entitled to receive from the U.K. a tax credit ("Tax Credit
Amount") in respect of any dividend received equal to one-ninth of the amount
of the cash dividend. The payment is reduced by an amount equal to 15% of the
sum of the dividend payment and the tax credit amount ("the 15% U.K.
withholding tax"). The 15% U.K. withholding tax will not, however, exceed such
amount as reduces the Tax Credit Amount to $0.

    For dividends paid on or after April 6, 1999, the available tax credit is
an amount equal to
one-ninth of the amount of the cash dividend. Accordingly, an Eligible U.S.
Holder will not be entitled to a Treaty Payment after that date. The 15% U.K.
Withholding Tax will not, however, exceed such amount as reduces the Tax
Credit Amount to $0.

    For the purposes of this document, the term "Eligible U.S. Holder" means a
U.S. Holder that is a beneficial owner of an ordinary share or an ADS and the
cash dividend paid with respect thereto and that

      (1)   is an individual or a corporation resident in the United States
            for purposes of the Treaty (and, in the case of a corporation, is
            not also resident in the United Kingdom for U.K. tax purposes),

      (2)   is not a corporation which, alone or together with one or more
            associated corporations, controls, directly or indirectly, 10% or
            more of the voting stock of the Company,

      (3)   holds the ordinary share or ADS in a manner which is not
            effectively connected with a permanent establishment in the United
            Kingdom through which such U.S. Holder carries on business or with
            a fixed base in the United Kingdom from which such holder performs
            independent personal services,

      (4)   under certain circumstances, is not an investment or holding
            company, 25% or more of the capital of which is owned, directly or
            indirectly by persons that are not individuals resident in, and
            are not nationals of, the United States,

      (5)   under certain circumstances, is not exempt from federal income tax
            on dividend income in the United States, and

      (6)   is eligible for benefits under the Treaty with respect to income
            and gain from the ordinary shares or ADS's.


                                     -100-

<PAGE>
    An Eligible U.S. Holder may claim the Treaty Payment to which he is
entitled from the Inland Revenue. However, under Rev. Proc. 2000-13 an
Eligible U.S. Holder may elect to be treated as receiving the Tax Credit
Amount due under the Treaty without affirmatively making a claim to the Inland
Revenue. Please see a complete discussion of these rules below in the
discussion of U.S. taxation.

    While a claim for payment is no longer necessary, if a claim for payment is
made, it must be made within 6 years of the U.K. year of assessment
(generally, the 12 month period ending April 5 in each year) in which the
related dividend was paid. The first such claim by an Eligible U.S. Holder for
payment under these procedures is made by sending the appropriate U.K. forms
in duplicate to the Philadelphia Service Center, Foreign Certification Unit,
P.O. Box 16347, DP535B, Philadelphia, PA 19114. If the Eligible U.S. Holder
qualifies as a U.S. resident, the Internal Revenue Service will certify the
form to that effect and forward it to the U.K. Inland Revenue. Forms may be
obtained by writing to the U.S. Internal Revenue Service, Assistant
Commissioner International, 950 L'Enfant Plaza South, S.W., Washington, D.C.
20024, Attention: Taxpayers Service Division. Because a refund claim is not
considered made until the U.K. tax authorities receive the appropriate form
from the Internal Revenue Service, forms should be sent to the Internal
Revenue Service well before the end of the applicable limitation period. Any
claim under these procedures after the first claim should be filed directly
with the U.K. Financial Intermediaries and Claims Office, Fitzroy House,
P.O. Box 46, Nottingham NG2 1BD, England.

    U.S. Holders who are not resident or ordinarily resident for tax purposes
in the United Kingdom and have no other source of U.K. income are not required
to file a U.K. income tax return.

United States Taxation

    U.S. Holders

    Under the United States federal income tax laws, and subject to the passive
foreign investment company ("PFIC") rules discussed below, U.S. Holders will
include in gross income the gross amount of any dividend paid (including the
Tax Credit Amount) by the Company out of its current or accumulated earnings
and profits (as determined for United States federal income tax purposes) as
ordinary income when the dividend is actually or constructively received by
the U.S. Holder, in the case of ordinary shares, or by the Depositary, in the
case of ADSs. The dividend will not be eligible for the dividends-received
deduction generally allowed to United States corporations in respect of
dividends received from other United States corporations. The amount of the
dividend distribution includible in income of a U.S. Holder will be the U.S.
dollar value of the British pounds sterling payments made, determined at the
spot British pound sterling/U.S. dollar rate on the date such dividend
distribution is includible in the income of the U.S. Holder, regardless of
whether the payment is in fact converted into U.S. dollars. Generally, any
gain or loss resulting from currency exchange fluctuations during the period
from the date the dividend payment is includible in income to the date such
payment is converted into U.S. dollars will be treated as ordinary income or
loss. Such gain or loss will generally be from sources within the United
States for foreign tax credit limitation purposes. Distributions in excess of
current and accumulated earnings and profits, as determined for United States
federal income tax purposes, will be treated as a return of capital to the
extent of the U.S. Holder's basis in the ordinary shares or ADSs and
thereafter as capital gain.

    Subject to certain limitations, the United Kingdom tax withheld in
accordance with the Treaty will be creditable against the U.S. Holder's United
States federal income tax liability. The Internal Revenue Service has recently
confirmed, in Rev. Proc. 2000-13 in the case of qualifying U.S. Holders,
subject to certain limitations, the 15% U.K. Withholding Tax as determined by
the Treaty (i.e., limited in any event to an amount equal to 1/9 of the cash
dividend) will be treated as a foreign income tax that is eligible for credit
against the U.S. Holders' federal income tax. To qualify for such credit, U.S.
Holders may elect to be treated as receiving the Tax Credit Amount due under
the Treaty without affirmatively making a claim to the Inland Revenue. This
election has been made available because the net of the Tax Credit Amount and
15% U.K. withholding tax should be $0. The election is made on line 5 of Form
8833, "Treaty-Based Return Position Disclosure Under

                                     -101-

<PAGE>
Section 6114 or 7701(b)". If the election is made, the Eligible U.S. Holder is
treated as having received an additional dividend and paid the 15% U.K.
withholding tax. The Eligible US Holder is not required to obtain a receipt to
substantiate the 15% U.K. withholding tax, but rather may rely on secondary
evidence. Form 8833 is filed with the Eligible U.S. Holder's U.S. income tax
return, in addition to any other filings that may be required. Rev. Proc.
2000-13 applies to distributions made to Eligible U.S. Holders on or after
April 6, 1999 by corporations resident in the U.K.At the end of the calendar
year during which the dividends are paid, U.S. Holders will receive a Form
1099 confirming the amount of dividends received.

    For foreign tax credit limitation purposes, the dividend will be income
from sources without the United States, but generally will be treated
separately, together with other items of "passive income" (or, in the case of
certain holders, "financial services income").

    Non-U.S. Holders

    Dividends paid to a Non-U.S. Holder in respect of ordinary shares or ADSs
will not be subject to United States federal income tax unless such dividends
are effectively connected with the conduct of a trade or business within the
United States by such Non-U.S. Holder (and are attributable to a permanent
establishment maintained in the United States by such Non-U.S. Holder, if an
applicable income tax treaty so requires as a condition for such Non-U.S.
Holder to be subject to United States taxation on a net income basis in
respect of income from ordinary shares or ADSs), in which case the Non-U.S.
Holder generally will be subject to tax in respect of such dividends in the
same manner as a U.S. Holder. Any such effectively connected dividends
received by a non-United States corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.

Additional United States Federal Income Tax Considerations

    PFIC Rules

    In general, the Company will be a PFIC with respect to a U.S. Holder if,
for any taxable year in which the U.S. Holder holds the Company's ordinary
shares or ADSs, either

      (1)   at least 75% of the gross income of the Company for the taxable
            year is passive income or

      (2)   at least 50% of the value (determined on the basis of a quarterly
            average) of the Company's assets is attributable to assets that
            produce or are held for the production of passive income.

    For this purpose, passive income generally includes dividends, interest,
royalties, rents (other than certain rents and royalties derived in the active
conduct of a trade or business), annuities and gains from assets that produce
passive income. If a foreign corporation owns at least 25% by value of the
stock of another corporation, the foreign corporation is treated for purposes
of the PFIC tests as owning its proportionate share of the assets of the other
corporation, and as receiving directly its proportionate share of the other
corporation's income. Although the matter is not entirely clear, the Company
believes that its ordinary shares and ADSs should not be treated as the stock
of a PFIC for United States federal income tax purposes, but this conclusion
is a factual determination made annually and thus may be subject to change.

    If the Company is treated as a PFIC, a U.S. Holder that did not make a QEF
or mark-to-market election, each as described below, would be subject to
special rules with respect to (a) any gain realized on the sale or other
disposition of ordinary shares or ADSs and (b) any excess distribution by the
Company to the U.S. Holder (generally, any distributions to the U.S. Holder in
respect of the ordinary shares or ADSs during a single taxable year that are
greater than 125% of the average annual distributions received by the U.S.
Holder in respect of the ordinary shares or ADSs during

                                     -102-

<PAGE>
the three preceding taxable years or, if shorter, the U.S. Holders holding
period for the ordinary shares or ADSs). Under these rules:

      (1)   the gain or excess distribution would be allocated ratably over
            the U.S. Holders holding period for the ordinary shares or ADSs,

      (2)   the amount allocated to the taxable year in which the gain or
            excess distribution was realized would be taxable as ordinary
            income,

      (3)   the amount allocated to each prior year, with certain exceptions,
            would be subject to tax at the highest tax rate in effect for that
            year, and

      (4)   the interest charge generally applicable to underpayments of tax
            would be imposed in respect of the tax attributable to each such
            year.

    The special PFIC tax rules described above will not apply to a U.S. Holder
if the U.S. Holder elects to have the Company treated as a qualified electing
fund (a "QEF election") and the Company provides certain required information
to holders. If necessary, the Company intends to provide U.S. Holders with
such information as may be required to make a QEF election effective.

    A U.S. Holder that makes a QEF election will be currently taxable on its
pro rata share of the Company's ordinary earnings and net capital gain (at
ordinary income and capital gain rates, respectively) for each taxable year of
the Company, regardless of whether or not distributions were received. The
U.S. Holder's basis in the ordinary shares or ADSs will be increased to
reflect taxed but undistributed income. Distributions of income that had
previously been taxed will result in a corresponding reduction of basis in the
ordinary shares or ADSs and will not be taxed again as a distribution to the
U.S. Holder.

    Special rules apply with respect to the calculation of the amount of the
foreign tax credit with respect to excess distributions by a PFIC or, in
certain cases, QEF inclusions.

    A U.S. Holder will not be subject to the PFIC tax rules described above if
the U.S. Holder makes a mark-to-market election with respect to its ordinary
shares or ADS. Instead, in general, an electing shareholder will include in
each year, as ordinary income, the excess, if any, of the fair market value of
the ordinary shares or ADSs at the end of the taxable year over its adjusted
basis and will be permitted an ordinary loss in respect of the excess, if any,
of the adjusted basis of the ordinary shares of ADSs over their fair market
value at the end of the taxable year (but only to the extent of the net amount
of previously included income as a result of the mark-to-market election). The
electing U.S. Holder's basis in the ordinary shares or ADSs will be adjusted
to reflect any such income or loss amounts.

    A U.S. Holder who owns ordinary shares or ADSs during any year that the
Company is a PFIC must file Internal Revenue Service Form 8621.

Additional United Kingdom Considerations

Gift and Inheritance Taxes

    An individual who is domiciled in the United States for the purposes of the
Estate Tax Treaty and who is not a national of the United Kingdom for the
purposes of the Estate Tax Treaty will normally not be subject to U.K.
inheritance tax in respect of the ordinary shares or ADSs on the individual's
death or on a gift of the ordinary shares or ADSs during the individual's
lifetime, provided that any applicable U.S. federal gift or estate tax
liability is paid, unless the ordinary shares or ADSs are part of the business
property of a permanent establishment of an enterprise of the individual in
the United Kingdom or pertain to a fixed base in the United Kingdom of the
individual used for the performance of independent personal services.

    Where the ADSs or ordinary shares have been placed in trust by a settlor
who, at time of settlement, was a U.S. Holder, the ADSs or ordinary shares
will normally not be subject to U.K.

                                     -103-

<PAGE>
inheritance tax unless the settlor, at the time of settlement, was not
domiciled in the United States and was a U.K. national. In the exceptional
case where the ADSs or ordinary shares are subject both to U.K. inheritance
tax and to U.S. federal gift or estate tax, the Estate Tax Treaty generally
provides for the tax paid in the United Kingdom to be credited against tax
paid in the United States or for tax paid in the United States to be credited
against tax payable in the United Kingdom based on priority rules set out in
that Treaty.

Stamp Duty and Stamp Duty Reserve Tax

    A transfer for value of the ordinary shares will generally be subject to
U.K. ad valorem stamp duty, normally at the rate of 0.5% of the amount or
value of the consideration given for the transfer, rounded up to the nearest
(L)5. Stamp duty is normally a payable by the Purchaser.

    An agreement to transfer ordinary shares for money or money's worth will
normally give rise to a charge to stamp duty reserve tax ("SDRT") at the rate
of 0.5% of the amount or value of the consideration unless an instrument of
transfer of the ordinary shares has been executed in pursuance of the
agreement and duly stamped. SDRT is a liability of the purchaser.

    Stamp duty is charged at the higher rate of 1.5%, rounded up to the nearest
(L)5, or SDRT at the rate of 1.5%, of the amount or value of the
consideration, or in some circumstances the value of the ordinary shares, on a
transfer or issue of the ordinary shares (a) to, or to a nominee for, a person
whose business is or includes the provision of clearance services or (b) to,
or to a nominee for, a person whose business is or includes issuing depositary
receipts. An election is available whereby clearance services may, under
certain conditions, elect for the 0.5% rate of SDRT to apply to a transfer of
shares into, and to transactions within, the service.

    In accordance with the terms of the Deposit Agreement, any tax or duty
payable by the Depositary or the Custodian of the Depositary on the deposit of
ordinary shares will be charged by the Depositary to the holder of the ADS.

    No U.K. stamp duty will be payable on the acquisition or transfer of an ADS
evidenced by an ADR or beneficial ownership of an ADR, provided that any
instrument of transfer or written agreement to transfer remains at all times
outside the United Kingdom. An agreement for the transfer of an ADR or
beneficial ownership of an ADR will not give rise to a liability to SDRT.

    Any transfer for value of the underlying ordinary shares represented by
ADSs evidenced by ADRs, may give rise to a liability to U.K. stamp duty or
SDRT at the rate of 0.5% as indicated above. However, on a transfer from the
Custodian of the Depositary to a holder of an ADS upon cancellation of the ADS
a fixed U.K. stamp duty of (L)5 per instrument of transfer only will be
payable.

Documents on Display

    It is possible to read and copy documents referred to in this annual report
on Form 20-F that have been filed with the SEC at the SEC's public reference
room located at 450 Fifth Street, NW, Washington D.C. 20549. Please call the
SEC at 1(800) SEC 0330 for further information on the public reference rooms
and their copy charges.

Item 11: Quantitative and Qualitative Disclosures about Market Risk

    The Company holds financial instruments to finance its operations and to
manage the currency, interest rate and liquidity risks that arise from those
operations. A discussion of the Company's Treasury Policies employed to manage
these risks is set down in Note 25: Financial Instruments to the Consolidated
Financial Statements filed at Item 18 to this Form 20-F. Further, under Note
25 (e) there is a tabular presentation of the book and fair values of all of
the Company's financial instruments at December 31, 2000 divided between those
instruments held to finance the Company's operations and those held to manage
the Company's interest rate and currency profile. Details of the contractual
terms of these financial instruments are provided under Notes 25 (a) and

                                     -104-

<PAGE>
25 (b) and a description of the future financial statement impact of any
difference between book and fair values in Note 25 (g). The maturity profile
of financial liabilities, demonstrating anticipated cash flows over the next
five years is provided under Note 25 (c).

    Beginning in June 1996 and where natural hedges have not been sufficient or
possible, the Company has selectively entered into forward currency contracts
to fix certain of the non-sterling funding requirements of its principal
subsidiaries. The primary non-sterling exposures are denominated in U.S.
dollars, Swiss francs and French francs. The contracts generally have
maturities not exceeding six months. Gains or losses on these contracts are
not recorded until the maturity of the contracts at which time they are
recorded as an adjustment to administrative expenses, consistent with the
underlying non-sterling expenses that are required to be funded. Losses on
forward contracts maturing during 1998 were (L)126,000. No forward contracts
were entered into during 1999. During 2000, (L)59.4 million of funding was
raised in sterling and as a result the Group has actively used forward
currency contracts and currency options. No gain or loss was recognised on
these contracts during 2000.

    At December 31, 1998 and 1999 the Company had no outstanding contracts to
buy foreign currency. At December 31, 2000, the Company had written options to
purchase (L)7.2 million euros and (L)5.3 million US dollars. There were no
other forward foreign currency contracts open at December 31, 2000. The
unrecognized gains from such contracts at December 31, 2000 were (L)117,000.

    At December 31, 2000 the Company had outstanding overdrafts and loans
amounting to (L)76.6 million. Of this, (L)30 million of the (L)59.4 million
convertible bond liability has been the subject of a cancelable interest rate
swap agreement for the life of the bonds. The Company will pay 5.6% on (L)30
million until June 19, 2001 and thereafter will pay LIBOR minus 0.725 per
cent. The Company's management have assessed remaining interest rate exposures
and deemed them not to be material.

Item 12: Description of Securities other than Equity Securities

    Not applicable


                                     -105-

<PAGE>
                                    PART II


Item 13: Defaults, Dividend Arrearages and Delinquencies

    None

Item 14: Material Modifications to the Rights of Security Holders and Use of
Proceeds

    None

Item 15: Reserved

Item 16: Reserved


                                    PART III


Item 17: Financial Statements

    (Not supplied as Item 18 is complied with)

Item 18: Financial Statements

    The following financial statements, together with the report thereon, by
PricewaterhouseCoopers, are filed as part of this Form 20-F:

<TABLE>
<CAPTION>
<S>                                                             <C>
Report of Independent Accountants...........................                 F-1
SkyePharma PLC Consolidated Financial Statements
 Consolidated Income Statements for the years ended
December 31, 1998, 1999 and 2000............................                 F-2
 Consolidated Balance Sheets at December 31, 1999 and 2000 .                 F-3
 Consolidated Cash Flow Statements for the years ended
December 31, 1998; 1999 and 2000............................                 F-4
 Notes to the Consolidated Cash Flow Statements ............                 F-5
 Statement of Total Recognized Gains and Losses ............                 F-7
 Reconciliation of Movement in Shareholders' Funds .........                 F-8
 Notes to the Consolidated Financial Statements ............                 F-9
</TABLE>



                                     -106-

<PAGE>
                                   SIGNATURES


    The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf.

Date: June 11, 2001


SKYEPHARMA PLC
(Registrant)


                                            By:   /s/ Donald Nicholson
                                                  -----------------------------

                                                 Name: Donald Nicholson
                                                 Title: Finance Director



                                     -107-

<PAGE>
SKYEPHARMA PLC

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of SkyePharma PLC

    In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows, of total recognized
gains and losses and of movements in shareholders' funds present fairly, in
all material respects, the financial position of SkyePharma PLC and its
subsidiaries at December 31, 2000 and 1999 and the results of their operations
and their cash flows for the years ended December 31, 2000, 1999 and 1998 in
conformity with accepted accounting principles in the United Kingdom. These
financial statements are the responsibility of the Company's Directors; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

    Accounting principles generally accepted in the United Kingdom vary in
certain important respects from accounting principles generally accepted in
the United States. The application of the latter would have affected the
determination of consolidated net loss expressed in pounds sterling for the
years ended December 31, 2000, 1999 and 1998 and the determination of
consolidated financial position also expressed in pounds sterling at December
31, 2000 and 1999 to the extent summarised in Note 29 to the Consolidated
Financial Statements.

PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
London,
United Kingdom

April 2, 2001

(Except for information in Notes 20, 21 and 29 for which the date is June 11,
2001)


                                      F-1

<PAGE>
SKYEPHARMA PLC



Consolidated Income Statements

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                           ----------------    ----------------    ----------------
                                                            Notes              (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Turnover
Group and share of Joint Venture...................                                  11,038              17,739              24,292
Less: share of Joint Venture.......................                                    (113)                 --                  --
                                                                           ----------------    ----------------    ----------------
Group turnover.....................................                   2              10,925              17,739              24,292
Cost of sales......................................                   2             (10,630)            (14,854)            (15,598)
                                                                           ----------------    ----------------    ----------------
Gross profit.......................................                                     295               2,885               8,694
Selling, marketing and distribution expenses.......                                  (4,230)             (3,161)             (3,844)
Administration expenses............................                                  (6,781)            (12,584)            (12,630)
Research and development expenses..................                                  (5,712)             (6,728)            (13,104)
Other operating income.............................                   3                  --                  --               2,900
                                                                           ----------------    ----------------    ----------------
Operating loss.....................................                2, 5             (16,428)            (19,588)            (17,984)
Share of operating profit/(loss) in Joint Venture..                  12                  14                 (48)                 --
                                                                           ----------------    ----------------    ----------------
Loss on ordinary activities before interest and
  taxation.........................................                                 (16,414)            (19,636)            (17,984)
                                                                           ----------------    ----------------    ----------------
Reversal of provision for loss on disposal of
  fixed asset investment...........................                  12                  --                 381                  --
Interest receivable................................                                   1,396               1,364               1,806
Interest payable
- Group............................................                   7              (6,619)             (1,391)             (3,508)
- Joint Venture....................................                                    (374)                 --                  --
                                                                           ----------------    ----------------    ----------------
Total interest payable.............................                                  (6,993)             (1,391)             (3,508)
                                                                           ----------------    ----------------    ----------------
Loss on ordinary activities before taxation........                                 (22,011)            (19,282)            (19,686)
Taxation...........................................                   8                 (85)               (132)                 (4)
                                                                           ----------------    ----------------    ----------------
Retained loss......................................                                 (22,096)            (19,414)            (19,690)
                                                                           ----------------    ----------------    ----------------
Basic and diluted loss per Ordinary Share (pence)..                   9                (5.7)p              (4.2)p              (3.9)
                                                                           ----------------    ----------------    ----------------
</TABLE>

---------------

There was no material difference between the loss on ordinary activities
before taxation and historic cost loss before taxation for these periods. All
results represent continuing activities.

See Notes to the Consolidated Financial Statements.


                                      F-2

<PAGE>
SKYEPHARMA PLC



Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                 December 31,        December 31,
                                                                                                     1999                2000
                                                                                      Notes        (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Fixed assets
Intangible assets......................................................                  10              49,753              72,086
Tangible assets........................................................                  11              33,838              40,288
                                                                                               ----------------    ----------------
                                                                                                         83,591             112,374
                                                                                               ----------------    ----------------
Current assets
Stocks.................................................................                  13               1,134               1,636
Debtors................................................................                  14               8,335               6,937
Cash and short-term bank deposits......................................                                  13,674              42,878
                                                                                               ----------------    ----------------
                                                                                                         23,143              51,451
                                                                                               ----------------    ----------------
Creditors: amounts falling due within one year.........................                  15             (16,632)            (20,541)
                                                                                               ----------------    ----------------
Net current assets.....................................................                                   6,511              30,910
                                                                                               ----------------    ----------------
Total assets less current liabilities..................................                                  90,102             143,284
Creditors: amounts falling due after more than one year
Other creditors........................................................                  16             (15,855)            (14,667)
Convertible debentures due February 2001...............................                                    (103)                 --
Convertible bonds due June 2005........................................                  17                  --             (57,546)
                                                                                               ----------------    ----------------
                                                                                                        (15,958)            (72,213)
                                                                                               ----------------    ----------------
                                                                                                         74,144              71,071
                                                                                               ================    ================
Provisions for liabilities and charges
Deferred consideration.................................................                  18               1,861               2,008
Other..................................................................                  18                 226                 111
                                                                                               ----------------    ----------------
                                                                                                          2,087               2,119
                                                                                               ----------------    ----------------
Capital and reserves
Share capital..........................................................                  22              49,409              54,132
Share premium..........................................................                  24             221,091             261,569
Other reserves.........................................................                  24              11,058              11,212
Currency translation reserve...........................................                  24              (2,185)             (1,427)
Shares and warrants to be issued.......................................                  23              38,131               4,985
Profit and loss account................................................                  24            (245,447)           (261,519)
                                                                                               ----------------    ----------------
Shareholders' funds
Attributable to equity interests.......................................                                  72,057              46,332
Attributable to non-equity interests...................................                                      --              22,620
                                                                                               ----------------    ----------------
                                                                                                         72,057              68,952
                                                                                               ----------------    ----------------
                                                                                                         74,144              71,071
                                                                                               ================    ================
</TABLE>

---------------

For details of contingent liabilities and commitments, see Notes 20 and 21 to
Consolidated Financial Statements.

See Notes to the Consolidated Financial Statements.


                                      F-3

<PAGE>
SKYEPHARMA PLC



Consolidated Cash Flow Statements

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                Notes          (L)'000             (L)'000             (L)'000
                                                               --------    ----------------    ----------------    ----------------
<S>                                                           <C>          <C>                 <C>                 <C>
Net cash outflow from operating activities ................         (b)             (10,302)            (15,139)             (9,312)
Returns on investments and servicing of finance
Interest received .........................................                           1,237               1,449               1,297
Interest paid .............................................                            (284)             (1,337)             (2,941)
Interest element of finance lease payments ................                             (34)                (92)               (232)
                                                                           ----------------    ----------------    ----------------
                                                                                        919                  20              (1,876)
                                                                           ----------------    ----------------    ----------------
Taxation ..................................................                             (77)               (194)                 (8)
                                                                           ----------------    ----------------    ----------------
Capital expenditure and financial investment
Purchase of intangible fixed assets .......................                            (444)             (4,029)             (7,180)
Purchase of tangible fixed assets .........................                          (4,310)             (7,820)             (8,470)
Purchase of fixed asset investment ........................                          (2,939)                 --                  --
Proceeds from sale of tangible fixed assets ...............                              72                  --                  --
Proceeds from sale of fixed asset investment ..............                                                 381                  --
                                                                           ----------------    ----------------    ----------------
                                                                                     (7,621)            (11,468)            (15,650)
                                                                           ----------------    ----------------    ----------------
Acquisitions and disposals ................................         (d)
Purchase of subsidiary undertakings .......................                              --              (2,998)                 --
Net cash acquired with subsidiary .........................                              --                  48                  --
                                                                           ----------------    ----------------    ----------------
                                                                                         --              (2,950)                 --
                                                                           ----------------    ----------------    ----------------
Cash outflow before use of liquid resources and financing .                         (17,081)            (29,731)            (26,846)
                                                                           ----------------    ----------------    ----------------
Management of liquid resources
Net(increase)/decrease in amounts held in short-term bank
  deposits.................................................         (a)             (20,147)             19,989             (21,641)
                                                                           ----------------    ----------------    ----------------
Financing
Issue of Ordinary Share capital ...........................                          31,490               5,038               2,088
Expenses of share issue ...................................                          (2,456)                 --                  --
Issue of convertible debt .................................                          10,259                  --              59,400
Expenses of convertible debt issue ........................                            (486)                 --              (2,022)
Debt due within one year:
 Increase in borrowings ...................................                             382                  --               1,187
 Repayment of loans .......................................                            (166)               (460)             (2,846)
Debt due beyond one year:
 Increase in borrowings ...................................                              --               2,998                  --
 Repayment of loans .......................................                              --              (1,357)             (1,226)
Lease payment received under sale and leaseback
  transaction..............................................                              --               2,999                  --
Repayment of capital element of finance lease payments ....                            (268)               (944)               (891)
                                                                           ----------------    ----------------    ----------------
                                                                                     38,755               8,274              55,690
                                                                           ----------------    ----------------    ----------------
Increase/(decrease) in cash ...............................         (a)               1,527              (1,468)              7,203
                                                                           ================    ================    ================
</TABLE>



                                      F-4

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Cash Flow Statements

(a) Reconciliation of movements in net funds/(debt) (Note (c))

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Increase/(decrease) in cash in the year................................               1,527              (1,468)              7,203
Cash outflow/(inflow) from change in debt and lease financing..........                  52              (3,236)              3,776
Cash outflow/(inflow) from change in liquid resources..................              20,147             (19,989)             21,641
Issue of convertible debt..............................................              (9,773)                 --             (57,378)
                                                                           ----------------    ----------------    ----------------
Change in net funds (debt) resulting from cash flows...................              11,953             (24,693)            (24,758)
Loans and finance leases acquired with subsidiary......................                  --              (5,187)                 --
Short-term bank deposits acquired with subsidiary......................                  --               3,223                  --
Issue of loan note.....................................................                  --              (6,008)             (2,307)
New finance leases.....................................................                 (34)                (34)                 --
Conversion of debentures...............................................               7,626               2,337                 103
Issue of `C' Warrants..................................................                 271                  --                  --
Debenture interest.....................................................                (419)               (116)                 --
Expenses of convertible bonds..........................................                  --                  --                (167)
Translation differences................................................                (432)                921                (907)
                                                                           ----------------    ----------------    ----------------
Movement in net funds /(debt) in the year..............................              18,965             (29,557)            (28,036)
Net funds/(debt) at beginning of the year..............................               2,338              21,303              (8,254)
                                                                           ----------------    ----------------    ----------------
Net funds/(debt) at end of the year....................................              21,303              (8,254)            (36,290)
                                                                           ================    ================    ================
</TABLE>

---------------

Net funds/(debt) is defined as cash and liquid resources less borrowings.

(b) Reconciliation of group operating loss to net cash outflow from operating
    activities

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Group operating loss...................................................             (16,428)            (19,588)            (17,984)
Exceptional charges within operating loss (Note 4).....................               1,325                  --                  --
                                                                           ----------------    ----------------    ----------------
Operating loss excluding exceptional items.............................             (15,103)            (19,588)            (17,984)
Depreciation...........................................................               2,479               3,842               3,945
Amortisation...........................................................                  82               1,540               3,339
Decrease/(increase) in stocks..........................................                 111                 325                (426)
Decrease/(increase) in debtors.........................................               2,158              (1,627)              3,247
Increase/(decrease) in creditors.......................................                 177               1,124              (1,283)
Increase/(decrease) in provisions......................................                  29                (755)               (150)
Other..................................................................                   6                  --                  --
                                                                           ----------------    ----------------    ----------------
                                                                                    (10,061)            (15,139)             (9,312)
Outflow related to exceptional items...................................                (241)                 --                  --
                                                                           ----------------    ----------------    ----------------
Net cash outflow from operating activities.............................             (10,302)            (15,139)             (9,312)
                                                                           ================    ================    ================
</TABLE>



                                      F-5

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Cash Flow Statements (continued)

(c) Analysis of net funds/(debt)

<TABLE>
<CAPTION>
                                                                       Acquisitions                                         At
                                       At January 1,                   (excl cash &      Other non       Exchange      December 31,
                                            1998         Cash flow      overdrafts)    cash changes      movements         1998
                                          (L)'000         (L)'000         (L)'000         (L)'000         (L)'000        (L)'000
                                        ------------    ------------    ------------   ------------    ------------    ------------
<S>                                     <C>            <C>             <C>             <C>             <C>             <C>
Cash at bank and in hand............           1,805           2,222              --             --             (44)          3,983
Overdrafts..........................          (1,127)           (695)             --             --             (95)         (1,917)
Short-term bank deposits............           6,866          20,147              --             --             (71)         26,942
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                               7,544          21,674              --             --            (210)         29,008
Debt due within one year............            (792)           (216)             --           (166)            (60)         (1,234)
Debt due after one year.............          (3,750)         (9,773)             --          7,644            (141)         (6,020)
Finance leases......................            (664)            268              --            (34)            (21)           (451)
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                              (5,206)         (9,721)             --          7,444            (222)         (7,705)
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                               2,338          11,953              --          7,444            (432)         21,303
                                        ============    ============    ============   ============    ============    ============
</TABLE>


<TABLE>
<CAPTION>
                                                                       Acquisitions                                         At
                                       At January 1,                   (excl cash &      Other non       Exchange      December 31,
                                            1999         Cash flow      overdrafts)    cash changes      movements         1999
                                          (L)'000         (L)'000         (L)'000         (L)'000         (L)'000        (L)'000
                                        ------------    ------------    ------------   ------------    ------------    ------------
<S>                                     <C>            <C>             <C>             <C>             <C>             <C>
Cash at bank and in hand............           3,983            (296)             --             --            (222)          3,465
Overdrafts..........................          (1,917)         (1,172)             --             --             280          (2,809)
Short-term bank deposits............          26,942         (19,989)          3,223             --              33          10,209
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                              29,008         (21,457)          3,223             --              91          10,865
Debt due within one year............          (1,234)            460          (1,751)        (2,002)            103          (4,424)
Debt due after one year.............          (6,020)         (1,641)         (2,404)        (1,785)            545         (11,305)
Finance leases......................            (451)         (2,055)         (1,032)           (34)            182          (3,390)
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                              (7,705)         (3,236)         (5,187)        (3,821)            830         (19,119)
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                              21,303         (24,693)         (1,964)        (3,821)            921          (8,254)
                                        ============    ============    ============   ============    ============    ============
</TABLE>


<TABLE>
<CAPTION>
                                                                       Acquisitions                                         At
                                        At January 1,                   (excl cash &      Other non       Exchange     December 31,
                                            2000         Cash flow      overdrafts)    cash changes      movements         2000
                                          (L)'000         (L)'000         (L)'000         (L)'000         (L)'000        (L)'000
                                        ------------    ------------    ------------   ------------    ------------    ------------
<S>                                     <C>            <C>             <C>             <C>             <C>             <C>
Cash at bank and in hand............           3,465           7,014              --             --             290          10,769
Overdrafts..........................          (2,809)            189              --             --            (228)         (2,848)
Short-term bank deposits............          10,209          21,641              --             --             259          32,109
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                              10,865          28,844              --             --             321          40,030
Debt due within one year............          (4,424)          1,659              --         (3,055)           (411)         (6,231)
Debt due after one year.............         (11,305)        (56,152)             --            684            (768)        (67,541)
Finance leases......................          (3,390)            891              --             --             (49)         (2,548)
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                             (19,119)        (53,602)             --         (2,371)         (1,228)        (76,320)
                                        ------------    ------------    ------------   ------------    ------------    ------------
                                              (8,254)        (24,758)             --         (2,371)           (907)        (36,290)
                                        ============    ============    ============   ============    ============    ============
</TABLE>

---------------

Cash at bank and in hand and short term deposits are aggregated on the balance
sheet. Debt includes a secured mortgage and convertible bonds and debentures.
Other non-cash changes in 2000 relate to the conversion of debentures,
amortisation of the issue costs on the convertible bonds and the issue of a
further portion of the Chiron loan note (see Note 16: Creditors: Amounts
falling due after more than one year).


                                      F-6

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Cash Flow Statements (continued)

(d) Purchase of subsidiary undertakings

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Net assets acquired....................................................                  --               3,378                  --
Goodwill...............................................................                  --              32,306                  --
                                                                           ----------------    ----------------    ----------------
Purchase consideration.................................................                  --              35,684                  --
                                                                           ----------------    ----------------    ----------------
Satisfied by:
Initial purchase of shares.............................................                  --               2,939                  --
Share issue on acquisition.............................................                  --              19,959                  --
Share issue on approval of DepoCyt.....................................                  --               9,788                  --
Expenses relating to the transaction...................................                  --               2,998                  --
                                                                           ----------------    ----------------    ----------------
                                                                                         --              35,684                  --
                                                                           ================    ================    ================
Expenses relating to transaction.......................................                  --              (2,998)                 --
Net cash acquired with subsidiary......................................                  --                  48                  --
                                                                           ----------------    ----------------    ----------------
Net cash outflow on purchase of subsidiary.............................                  --              (2,950)                 --
                                                                           ================    ================    ================
</TABLE>


    During year ended December 31, 1999 SkyePharma Inc. contributed (L)7.8
million to the Group's net cash outflow from operating activities and utilised
(L)0.6 million for capital expenditure.

Statement of Total Recognised Gains and Losses

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Loss attributable to shareholders......................................             (22,096)            (19,414)            (19,690)
Net currency translation effect
 Group ................................................................               1,105              (2,220)                758
 Share of Joint Venture ...............................................                 197                (627)                 --
                                                                           ----------------    ----------------    ----------------
                                                                                      1,302              (2,847)                758
                                                                           ----------------    ----------------    ----------------
Total recognised gains and losses for the year.........................             (20,794)            (22,261)            (18,932)
                                                                           ================    ================    ================
</TABLE>


    This statement discloses the component gains and losses that have been
recognised in the periods in so far as they are attributable to shareholders.
Recognised gains and losses include the net loss accounted for in the
consolidated statements of income and those directly taken to shareholders'
equity.


                                      F-7

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Cash Flow Statements (continued)

Reconciliation of Movement in Shareholders' Funds

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Shareholders' (deficit)/funds at the beginning of the year.............             (46,110)              6,235              72,057
                                                                           ----------------    ----------------    ----------------
Total recognised gains and losses for the year.........................             (20,794)            (22,261)            (18,932)
Reinstatement on dissolution of joint venture of goodwill previously
  written-off to reserves..............................................                  --               5,760                  --
Goodwill adjustments on deferred consideration.........................              45,671               8,900               3,618
Equity shares issued, net of expenses..................................              36,662              41,573              22,581
Non-equity shares issued, net of expenses..............................                  --                  --              22,620
Increase/(decrease) in shares and warrants to be issued................                  --              40,750             (29,528)
Revaluation of shares and warrants to be issued........................              (9,463)             (8,900)             (3,618)
Issue of warrants......................................................                 269                  --                 154
                                                                           ----------------    ----------------    ----------------
Net movement in the year...............................................              52,345              65,822              (3,105)
                                                                           ----------------    ----------------    ----------------
Shareholders' funds at the end of the year.............................               6,235              72,057              68,952
                                                                           ================    ================    ================
</TABLE>

---------------

See Notes to the Consolidated Financial Statements.


                                      F-8

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements

1   Accounting Policies

    Accounting convention and presentation

    The financial statements have been prepared under the historical cost
convention and in accordance with applicable UK accounting standards. The
principal accounting policies, which have been applied consistently, are set
out below. The results for the year all relate to continuing operations. In
1998 there was a minor reclassification of manufacturing expenses, the effect
of which was immaterial. The financial statements have been prepared on a
going concern basis.

    The Group prepares its consolidated financial statements in accordance with
accounting principles generally accepted in the U.K. ("U.K. GAAP"). A
reconciliation to U.S. GAAP of certain amounts at December 31, 1998, 1999 and
2000 and for the years ended December 31, 1998, 1999 and 2000 is set forth in
Note 29 of the Notes to the Consolidated Financial Statements.

    The Group has applied two new accounting standards during the period. The
publication of FRS 15 and FRS 16 has not required any amendment to the Group's
existing accounting policies.

    Consolidation

    The consolidated financial information includes the financial statements
for the Company and its subsidiary undertakings. Intra-group sales and profits
are eliminated fully on consolidation. The results of subsidiaries sold or
acquired are included in the consolidated profit and loss account up to the
date of their sale or from their date of acquisition respectively.

    Investments which are held for the long-term and where the Group exercises
joint control are accounted for using the gross equity method. Where the Group
has certain contractual agreements with other participants to engage in joint
activities that do not create an entity carrying on a trade or business of its
own, they are accounted for as a joint arrangement. The Group includes its
share of the assets, liabilities and cashflows in such joint arrangements
measured in accordance with the terms of each arrangement which is usually
pro-rata to the Group's interest in the joint arrangement.

    Accounting estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    Revenue recognition

    Turnover comprises contract development, manufacturing and distribution,
and royalty income. Contract development income represents amounts invoiced or
billable to customers for services rendered under development contracts or for
non-refundable milestone payments and technology access fees in accordance
with the contract terms. Manufacturing and distribution revenues principally
comprise manufacturing fees invoiced to Wyeth-Ayerst International Inc. and
its affiliated companies formerly under a three year manufacturing contract
entered into on the acquisition of the Group's manufacturing facility in Lyon
which expired in 1999 and subsequently under a new two-year agreement, non-
contract manufacturing revenues under a collaboration agreement with Chiron
Corporation, plus other contract manufacturing revenue and income from product
sales. Revenue arising from manufacturing and distribution is recognised on
dispatch of finished products. Royalty income represents income earned as a
percentage of product sales. Advance royalties received are treated as
deferred income until earned, when they are recognised as income.


                                      F-9

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

1   Accounting Policies (continued)

    Research and development costs

    Research costs are charged as an expense in the period in which they are
incurred. Development costs are also recognised as an expense in the period in
which they are incurred, unless all of the criteria are met for asset
recognition. The major asset recognition criteria include: the ability to
clearly define the product or process, demonstration of its technical
feasibility and that a market for it exists. Development costs recognised as
an asset do not exceed the probable net amount to be recovered in marketing
the product or process and they are amortised over the estimated economic
life.

    Foreign currencies

    Foreign currency transactions by Group companies are booked in local
currency at the exchange rate ruling on the date of transaction. Assets and
liabilities expressed in foreign currencies are translated into sterling at
the exchange rates ruling at the balance sheet date. Unrealised gains and
losses on forward contracts undertaken to manage foreign currency exposure are
deferred and are recognised in the same period that the foreign currency
exposure is recognised. Exchange differences which relate to the translation
of net assets of overseas companies are taken directly to reserves. All other
foreign exchange differences are taken to the profit and loss account in the
year in which they arise. The Group uses the average of exchange rates
prevailing during the year to translate the results of overseas subsidiaries
into sterling and year-end rates to translate the net assets of those
undertakings.

    Tangible fixed assets

    Tangible fixed assets are included in the balance sheet at cost less
accumulated depreciation. Depreciation is provided on tangible fixed assets at
rates calculated to write off the cost, less estimated residual value, of each
asset over its expected useful life. The rates and bases are as follows:

Freehold land                            not depreciated

Freehold buildings                       2%-5% straight line

Short leasehold property                 period of lease

Plant, equipment and fixtures            10%-33% straight line

Motor vehicles                           20% straight line

Finance leases                           period of lease

    Intangible fixed assets

    Intangible fixed assets comprise goodwill, intellectual property and
capitalised development costs. Goodwill, both positive and negative, being the
difference between the purchase consideration in subsidiary undertakings and
the Group's share of the fair value of the net assets acquired, is capitalised
and amortised over a period of 20 years or less in line with the Directors'
view of its useful economic life. Prior to the introduction of FRS 10, the
policy adopted was to write off goodwill to reserves. As permitted by FRS 10
goodwill written off to reserves in previous years has not been reinstated on
the balance sheet and adjustments to such goodwill have been taken directly to
reserves. Goodwill previously written off to reserves is charged to the profit
and loss account in the event of disposal of the related business.


                                      F-10

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

1   Accounting Policies (continued)

    Intellectual property comprises acquired patents, trade marks, know-how and
other similarly identified rights. These are recorded at their fair value at
acquisition date and are amortised in equal instalments over their estimated
economic lives, from the date when the transfer of technology is complete. The
period over which the Group expects to derive economic benefits does not
exceed 20 years. Prior to 1999, intellectual property was amortised over the
lower of the legal or estimated economic lives, not to exceed five years. This
change in estimate regarding the amortisation period associated with
intellectual property brings the policy in line with other intangible assets,
principally goodwill. Had the change occurred in 1998, the profit and loss
account would not have been materially impacted. Costs associated with
internally developed intellectual property are generally treated as research
and development costs. Development costs are recognised under the criteria
stated above. Intangible fixed assets are reviewed for impairment and any
provision charged to the profit and loss account.

    Fixed asset investments

    Group fixed asset investments of marketable equity securities are recorded
at cost, less provision for permanent diminution in value. In addition, the
Company has fixed asset investments relating to equity and loan investments in
subsidiaries.

    Stocks and work-in-progress

    Stocks and work-in-progress are valued at the lower of cost and net
realisable value and calculated using the first-in, first-out basis.

    Liquid resources

    Liquid resources comprise short-term bank and commercial deposits with a
maturity of less than one year.

    Deferred consideration

    The provision for deferred consideration comprises the fair value of
contingent consideration arising from acquisitions. The eventual outcome is
subject to the Group's future performance and certain contractual terms. The
provision is reviewed annually by the Directors and changes to the estimated
fair value of the contingent consideration are recorded as an adjustment to
goodwill or the underlying asset value. Where the effect of the time value of
money is material the provision is reflected at its present value and the
interest element arising on discounting the liability is recorded as interest
payable in the profit and loss account as it unwinds.

    Deferred taxation

    Deferred taxation is provided on timing differences using the liability
method where it is probable that tax liabilities or assets will crystallise
within the foreseeable future.

    Leased and hired assets

    Assets acquired under hire purchase and finance lease agreements are
included in tangible fixed assets. The capital element of amounts owed to the
finance company at the balance sheet date is included in creditors as amounts
falling due either within or after more than one year. Repayments are treated
as consisting of both capital and interest with the interest element being
charged to the profit and loss account in proportion to the outstanding
obligations. Payments under operating leases and short-term hire contracts are
charged to profit and loss account as they fall due.


                                      F-11

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

1   Accounting Policies (continued)

    Pension costs

    The costs of the Group's defined contribution pension arrangements are
charged to the income statement in the year to which they relate. The costs of
the Group's defined benefits scheme are charged to the income statement on a
systematic basis allowing for the expected pension cost over the service lives
of employees, based on actuarial advice.

    Convertible debt

    On issue, convertible debt is stated at the amount of net proceeds after
deducting issue costs. On conversion the amount recognised in shareholders'
funds in respect of the shares issued is equal to the carrying value at the
date of conversion. Convertible debentures were issued during 1998 at a
discount equivalent to an annual interest rate of 3%. Convertible bonds were
issued during 2000 (Note 17: Issue of convertible bonds). Interest payable on
convertible debt is calculated to unwind the issue costs and any discount on
issue at a constant rate over the term of the debt.

2   Segmental Analysis

    SkyePharma's strategy is to be a provider of integrated drug delivery
services to the Pharmaceutical industry, providing a full complement of drug
delivery products and services ranging from formulation and development
through to commercial manufacturing. As such SkyePharma's operations represent
a single business segment, Pharmaceuticals, served by a range of drug delivery
technologies and services.

    The tables below present an analysis of turnover, loss before interest,
total assets, total long-lived assets and net assets by geographical area
together with an analysis of cost of sales, capital expenditure and
depreciation. A breakdown of turnover and cost of sales is also presented
based upon the various drug delivery products and services provided.

    As there is only one business segment the totals shown in the following
tables represent the total for the segment and the consolidated financial
statements.


                                      F-12

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

2   Segmental Analysis (continued)

(a) Turnover

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
By class of business:
Pharmaceuticals
Contract development, including milestone payments:
 Receivable from third parties ........................................               2,401               9,045              16,805
 Receivable from the Joint Venture ....................................                  52                  --                  --
                                                                           ----------------    ----------------    ----------------
                                                                                      2,453               9,045              16,805
Manufacturing & distribution...........................................               6,485               4,597               3,476
Royalties receivable...................................................               1,987               4,097               4,011
                                                                           ----------------    ----------------    ----------------
Total and consolidated.................................................              10,925              17,739              24,292
                                                                           ================    ================    ================
Contract development split:
 R&D costs recharged ..................................................               2,117               6,078               4,808
 Milestone payments ...................................................                 336               2,967              11,997
                                                                           ----------------    ----------------    ----------------
                                                                                      2,453               9,045              16,805
                                                                           ================    ================    ================
By location of customer:
 U.K. .................................................................                 207               2,237              13,178
 Continental Europe ...................................................               6,865              10,812               6,095
 U.S.A. ...............................................................               3,434               4,590               4,284
 Rest of the world ....................................................                 419                 100                 735
                                                                           ----------------    ----------------    ----------------
Total and consolidated.................................................              10,925              17,739              24,292
                                                                           ================    ================    ================
By location of operation:
 Continental Europe ...................................................              10,085              14,219              22,646
 U.S.A. ...............................................................                 840               3,520               1,646
                                                                           ----------------    ----------------    ----------------
Total and consolidated.................................................              10,925              17,739              24,292
                                                                           ================    ================    ================
</TABLE>


    Royalties receivable in 1998, 1999 and 2000 related predominantly to one
customer.


                                      F-13

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

2   Segmental Analysis (continued)

    In 2000, (L)2,106,000 (1999: (L)2,485,000, 1998: (L)4,054,000) of
manufacturing & distribution revenues represent toll manufacturing fees
invoiced to Wyeth-Ayerst International Inc. and affiliated companies.

(b) Cost of sales

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
By class of business:
Pharmaceuticals
 Contract development .................................................              (2,998)             (5,780)             (6,986)
 Manufacturing and Distribution .......................................              (6,592)             (8,241)             (7,073)
 Royalties payable ....................................................              (1,040)               (833)             (1,539)
                                                                           ----------------    ----------------    ----------------
Total and consolidated.................................................             (10,630)            (14,854)            (15,598)
                                                                           ================    ================    ================
</TABLE>


(c) Operating Loss

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
By class of business:
 Pharmaceuticals ......................................................             (16,428)            (19,588)            (17,984)
                                                                           ----------------    ----------------    ----------------
Total and consolidated.................................................             (16,428)            (19,588)            (17,984)
                                                                           ----------------    ----------------    ----------------
By location of operation:
 U.K. .................................................................              (3,336)             (4,733)             (5,291)
 Continental Europe ...................................................              (8,629)             (4,776)                973
 U.S.A. ...............................................................              (4,463)            (10,079)            (13,666)
                                                                           ----------------    ----------------    ----------------
Total and consolidated.................................................             (16,428)            (19,588)            (17,984)
                                                                           ================    ================    ================
</TABLE>


    Turnover and operating results of the Joint Venture relates wholly to
pharmaceuticals and arises in continental Europe.


                                      F-14

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

2   Segmental Analysis (continued)

    Reconciliation of reported operating loss to consolidated retained loss.

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Operating Loss.........................................................             (16,428)            (19,588)            (17,984)
Share of operating profit/(loss) in Joint Venture......................                  14                 (48)                 --
                                                                           ----------------    ----------------    ----------------
Loss on ordinary activities before interest and taxation...............             (16,414)            (19,636)            (17,984)
Reversal of provision for loss on disposal of fixed asset investment...                  --                 381                  --
Interest receivable....................................................               1,396               1,364               1,806
Interest payable
 - Group ..............................................................              (6,619)             (1,391)             (3,508)
 - Joint Venture ......................................................                (374)                 --                  --
                                                                           ----------------    ----------------    ----------------
Total interest payable.................................................              (6,993)             (1,391)             (3,508)
                                                                           ----------------    ----------------    ----------------
Loss on ordinary activities before taxation............................             (22,011)            (19,282)            (19,686)
Taxation...............................................................                 (85)               (132)                 (4)
                                                                           ----------------    ----------------    ----------------
Retained loss..........................................................             (22,096)            (19,414)            (19,690)
                                                                           ================    ================    ================
</TABLE>


(d) Total assets and net (liabilities)/assets

<TABLE>
<CAPTION>
                                                                   Total assets                             Net assets
                                                       ------------------------------------    ------------------------------------
                                                         December 31,        December 31,        December 31,        December 31,
                                                             1999                2000                1999                2000
                                                           (L)'000             (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
By class of business:
 Pharmaceuticals ..................................             106,734             163,825              72,057              68,952
                                                       ----------------    ----------------    ----------------    ----------------
By location of operation:
 U.K. .............................................               7,453              30,340             105,405              95,764
 Continental Europe ...............................              45,603              60,097             (62,508)            (67,138)
 U.S.A. ...........................................              53,678              73,388              29,160              40,326
                                                       ----------------    ----------------    ----------------    ----------------
 Total and consolidated ...........................             106,734             163,825              72,057              68,952
                                                       ================    ================    ================    ================
</TABLE>


(e) Capital expenditure

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
By class of business:
 Pharmaceuticals ......................................................               4,308               7,656               8,736
                                                                           ================    ================    ================
</TABLE>



                                      F-15

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

2   Segmental Analysis (continued)

(f) Depreciation & amortisation

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
By class of business:
 Pharmaceuticals ......................................................               2,731               5,382               7,281
                                                                           ================    ================    ================
</TABLE>


(g) Long lived assets

<TABLE>
<CAPTION>
                                                                                                    Year to             Year to
                                                                                                  December 31,        December 31,
                                                                                                      1999                2000
                                                                                                    (L)'000             (L)'000
                                                                                                ----------------    ----------------
<S>                                                                                            <C>                 <C>
By location of operation:
 U.K .......................................................................................                 271                 214
 Continental Europe ........................................................................              37,929              52,477
 U.S.A. ....................................................................................              45,391              59,683
                                                                                                ----------------    ----------------
                                                                                                          83,591             112,374
                                                                                                ================    ================
</TABLE>


3   Other operating income

    Other operating income in 2000 consists of (L)2.9 million ($4.4 million)
earned under the agreement with Paul Capital Royalty Acquisition Fund, L.P.
(`PCRAF') to develop DepoMorphine. Under the agreement, PCRAF will provide a
total of $30 million over the next two years, to fund the clinical development
and regulatory submission of DepoMorphine, in return for the sale of a portion
of potential future royalty and revenue streams from DepoMorphine, Xatral OD,
Solaraze and DepoCyt. Between January 2003 and December 2014, PCRAF will
receive 15% of the annual royalties and revenues from the stated products, up
to an agreed ceiling. Once the predetermined ceiling is reached, the
percentage participation will fall to 3% for the remainder of the period until
31 December 2014.

4   Exceptional Items

Items included in operating loss

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Provision for withdrawal from sales and marketing activities of
  Brightstone Pharma Inc...............................................               1,325                  --                  --
                                                                           ----------------    ----------------    ----------------
                                                                                      1,325                  --                  --
                                                                           ================    ================    ================
</TABLE>


    There were no exceptional items in 1999 or 2000.

    1998 exceptional costs consisted of a provision against the cost of
reorganisation and associated write-down of fixed assets and inventory
following a decision that was made in November 1998 to withdraw from the sales
and marketing activities of Brightstone Pharma Inc. The major actions
comprising this plan were;


                                      F-16

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

4   Exceptional Items (continued)

      i     To identify and provide for costs of exit from these activities in
            particular severance compensation and costs associated with
            termination of on going contracts with suppliers.

      ii    To provide against the value of related inventory and fixed assets
            rendered obsolete.

    The total provision amounted to approximately (L)1.3 million made up as
follows:

<TABLE>
<CAPTION>
                                                                    (L)'000
                                                                ----------------
<S>                                                             <C>
Write down of tangible fixed assets.........................                 170
Write down of inventory.....................................                 346
Provision made for costs of closure.........................                 809
                                                                ----------------
                                                                           1,325
                                                                ================
</TABLE>


    Included in the provision for costs of closure is (L)506,000 relating to
severance compensation. This represents the termination benefits for 22 staff
involved in sales and marketing activities. This amount has been charged to
selling, marketing and distribution expenses.

    The related inventory and tangible fixed assets were written off in 1998
resulting in (L)516,000 being charged to the provision.

    The exit plan was substantially completed by April 30, 1999 and the actual
costs incurred were not materially different from the provision. The remainder
of the provision was utilised in 2000.

5   Group Operating Loss

    The group operating loss is stated after charging:

<TABLE>
<CAPTION>
                                                                                Year to             Year to             Year to
                                                                              December 31,        December 31,        December 31,
                                                                                  1998                1999                2000
                                                                                (L)'000             (L)'000             (L)'000
                                                                            ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Auditors remuneration (details of non-audit services shown below)
 Audit of SkyePharma PLC - U.K. ........................................                  32                  39                  64
 Audit of subsidiary undertakings-overseas .............................                  59                 101                 117
Depreciation of tangible fixed assets
 owned assets ..........................................................               2,332               3,508               3,501
 assets held under finance leases ......................................                 147                 334                 441
 exceptional write down of assets ......................................                 170                  --                  --
Amortization of intangible fixed assets
 amortization of goodwill ..............................................                  --               1,211               2,099
 amortization of intellectual property .................................                  82                 329               1,082
Research and development expenses
 current year expenses .................................................               5,712               6,728              13,104
 amortized from deferred expenses ......................................                  --                  --                 158
Operating lease rentals
 hire of plant and machinery ...........................................                  69               1,844               2,593
 other .................................................................                 823                 486                 373
                                                                            ================    ================    ================
</TABLE>



                                      F-17

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

5   Group Operating Loss (continued)

    In addition to the above, the Auditors have earned remuneration in respect
of non-audit services. It is the Group's policy to employ
PricewaterhouseCoopers on assignments additional to their statutory audit
duties where their expertise and experience with the Group are important,
principally tax advice and due diligence reporting on acquisitions, or where
they are awarded assignments on a competitive basis. During the year
PricewaterhouseCoopers earned the following fees from the Group:

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Due diligence and other audit-related work.............................                 620                 152                 159
Tax advice.............................................................                  29                 230                 231
Other services.........................................................                  --                  66                 144
                                                                           ----------------    ----------------    ----------------
Total non-audit fees...................................................                 649*                448                 534
                                                                           ================    ================    ================
</TABLE>

---------------

*Non-audit fees of (L)649,000 for PricewaterhouseCoopers in 1998 include
(L)95,000 paid to Price Waterhouse and (L)17,000 paid to Coopers & Lybrand
prior to the date of appointment of PricewaterhouseCoopers as auditors.

6   Employees

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Employment costs
Wages and salaries.....................................................               9,085              11,559              13,506
Social security costs..................................................               1,209               1,815               2,011
Pension costs..........................................................                 526                 469                 532
                                                                           ----------------    ----------------    ----------------
                                                                                     10,820              13,843              16,049
                                                                           ================    ================    ================
</TABLE>


    The average number of persons employed by the Group during the year was as
follows:

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                                Number              Number              Number
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Pharmaceuticals........................................................                 279                 354                 373
                                                                           ================    ================    ================
</TABLE>



                                      F-18

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

6   Employees (continued)

    Directors' Remuneration The tables below set out details of the Directors'
aggregate emoluments and pension contributions for the years ended December
31, 1998, 1999 and 2000.

<TABLE>
<CAPTION>

                                                                                           Compensation
                                                           Base Salary                     for loss of
                                                              & Fees        Benefits          office           Bonuses       Total
Year to December 31, 1998                                    (L)'000         (L)'000         (L)'000           (L)'000      (L)'000
                                                           -------------    ---------    ----------------    -----------    -------
<S>                                                       <C>              <C>           <C>                 <C>            <C>
Executive Directors
I R Gowrie-Smith (Executive Chairman).................               250           21                  --             63        334
M Ashton..............................................               142           50                  --             36        228
J F Bozman Jr. (to October 30, 1998)..................               148           21                 154             --        323
D Nicholson...........................................               120            9                  --             30        159
R A B Stewart (to November 20, 1998)..................                98            9                  --             --        107
Dr J Gonella (to April 22, 1998)......................                49            6                  --             --         55
                                                           -------------    ---------    ----------------    -----------    -------
                                                                     807          116                 154            129      1,206
                                                           =============    =========    ================    ===========    =======
Non-Executive Directors
Sir M G Beavis........................................                20           --                  --             --         20
Dr J Gonella (Executive Director prior to
  April 22, 1998).....................................                13           --                  --             --         13
R S Harris............................................                20           --                  --             --         20
D J Lees..............................................                20           --                  --             --         20
Dr K Mansford.........................................                20           --                  --             --         20
Dr T Rinderknecht.....................................                33           --                  --             --         33
N W Wray..............................................                20           --                  --             --         20
W Zeller..............................................                32           --                  --             --         32
                                                           -------------    ---------    ----------------    -----------    -------
                                                                     178           --                  --             --        178
                                                           -------------    ---------    ----------------    -----------    -------
                                                                     985          116                 154            129      1,384
                                                           =============    =========    ================    ===========    =======
</TABLE>


<TABLE>
<CAPTION>
                                                        Base Salary &
                                                             Fees              Benefits            Bonuses              Total
Year to December 31, 1999                                  (L)'000             (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Executive Directors
I R Gowrie-Smith (Executive Chairman)..............                 350                  22                  60                 432
M Ashton...........................................                 300                  60                  51                 411
D Nicholson........................................                 150                  10                  37                 197
                                                       ----------------    ----------------    ----------------    ----------------
                                                                    800                  92                 148               1,040
                                                       ----------------    ----------------    ----------------    ----------------
Non-Executive Directors
Sir M G Beavis.....................................                  25                  --                  --                  25
Dr J Gonella.......................................                  25                  --                  --                  25
R S Harris.........................................                  25                  --                  --                  25
D J Lees (to 19 May 1999)..........................                  10                  --                  --                  10
Dr K Mansford......................................                  25                  --                  --                  25
Dr T Rinderknecht..................................                  37                  --                  --                  37
N W Wray...........................................                  25                  --                  --                  25
W Zeller...........................................                  37                  --                  --                  37
                                                       ----------------    ----------------    ----------------    ----------------
                                                                    209                  --                  --                 209
                                                       ----------------    ----------------    ----------------    ----------------
                                                                  1,009                  92                 148               1,249
                                                       ================    ================    ================    ================
</TABLE>



                                      F-19

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

6   Employees (continued)

<TABLE>
<CAPTION>
                                                       Fees and Salary         Benefits            Bonuses              Total
Year ended December 31, 2000                               (L)'000             (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Executive Directors
I R Gowrie-Smith (Executive Chairman)..............                 376                  20                  60                 456
M Ashton...........................................                 323                  59                  52                 434
D Nicholson........................................                 161                  10                  26                 197
                                                       ----------------    ----------------    ----------------    ----------------
                                                                    860                  89                 138               1,087
                                                       ----------------    ----------------    ----------------    ----------------
Non-Executive Directors
Sir M G Beavis.....................................                  25                  --                  --                  25
Dr J Gonella.......................................                  25                  --                  --                  25
R S Harris.........................................                  25                  --                  --                  25
D J Lees (to 19 May 1999)..........................                  --                  --                  --                  --
T Howson (from 28 September 2000)..................                   6                  --                  --                   6
A N Karabelas (from 30 November 2000)..............                   2                  --                  --                   2
Dr K Mansford......................................                  25                  --                  --                  25
Dr T Rinderknecht (to 3 November 2000).............                  33                  --                  --                  33
N W Wray (to 30 November 2000).....................                  21                  --                  --                  21
W Zeller...........................................                  37                  --                  --                  37
                                                       ----------------    ----------------    ----------------    ----------------
                                                                    199                  --                  --                 199
                                                       ----------------    ----------------    ----------------    ----------------
                                                                  1,059                  89                 138               1,286
                                                       ================    ================    ================    ================
</TABLE>


    The emoluments of Dr T Rinderknecht and W Zeller include remuneration in
respect of their capacity as Non-executive Director of subsidiary companies.
Benefits for M Ashton include a living allowance and school fees.

Pensions

    Contributions made to defined contribution pension schemes on behalf of the
Directors are set out below:

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
I R Gowrie-Smith.......................................................                  31                  44                  47
M Ashton...............................................................                  14                  37                  40
J F Bozman Jr. (to October 30, 1998)...................................                  19                  --                  --
D Nicholson............................................................                  15                  19                  20
R A B Stewart (to November 20, 1998)...................................                  12                  --                  --
Dr J Gonella...........................................................                   6                  --                  --
                                                                           ----------------    ----------------    ----------------
                                                                                         97                 100                 107
                                                                           ================    ================    ================
</TABLE>



                                      F-20

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

6   Employees (continued)

Directors' Interests
    The following tables set out the interests of Directors (including the
interests of their immediate families and persons connected with the
Directors) as at December 31, 1998, December 31, 1999 and December 31, 2000.
All interests are beneficial unless otherwise stated in the notes to the
table.

<TABLE>
<CAPTION>
                                                                             December 31,        December 31,        December 31,
Number of ordinary shares                                                        1998                1999                2000
                                                                           ----------------    ----------------    ----------------
                                                                                           (or date of appointment)
<S>                                                                        <C>                 <C>                 <C>
I R Gowrie-Smith.......................................................          37,122,972          37,122,972          25,122,972
Dr J Gonella...........................................................          90,472,890          90,472,890          96,472,890
M Ashton...............................................................             110,000             110,000             110,000
D Nicholson............................................................             137,000             137,000             137,000
Sir M G Beavis.........................................................             172,000             172,000             172,000
R S Harris.............................................................              46,500              46,500              46,500
D J Lees (to May 19, 1999).............................................           6,967,376                  --                  --
Dr K Mansford..........................................................              16,000              16,000              16,000
Dr T Rinderknecht (to November 3, 2000)................................           5,785,065           5,785,065                  --
N W Wray (to November 30, 2000)........................................           8,367,560           8,367,560                  --
W Zeller...............................................................              55,000              55,000              55,000
                                                                           ----------------    ----------------    ----------------
                                                                                149,252,363         142,284,987         122,132,362
                                                                           ================    ================    ================
</TABLE>


    In addition to the interests shown above at December 31, 2000, Dr A N
Karabelas had a beneficial interest in 2,000 American Depository Receipts; Dr
J Gonella had a beneficial interest in 12 million Deferred 'A' Shares and 12
million Deferred 'B' Shares and Mr I R Gowrie-Smith had a beneficial interest
in 20,000 convertible bonds, all issued by the Company.

    The interests of Dr T Rinderknecht and N W Wray in the ordinary shares of
the Company at December 31, 2000 are not shown as they ceased to be a Director
during the year.

Number of 'A' warrants

    All 'A' Warrants were exercised in December 1998 resulting in the issue of
2,437,670 ordinary shares for a consideration of (L)243,767.

<TABLE>
<CAPTION>
                                                                             December 31,        December 31,        December 31,
Number of 'B' warrants                                                           1998                1999                2000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
I R Gowrie-Smith.......................................................          19,797,143          19,797,143          19,797,143
Sir M G Beavis.........................................................              84,000              84,000              84,000
D J Lees (to May 19, 1999).............................................           1,693,475                  --                  --
N W Wray (to November 30, 2000)........................................           1,589,510           1,589,510                  --
                                                                           ----------------    ----------------    ----------------
                                                                                 23,164,128          21,470,653          19,881,143
                                                                           ================    ================    ================
</TABLE>



                                      F-21

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

6   Employees (continued)

<TABLE>
<CAPTION>
                                                                                                       Date from
                                                                                                     which options
Ordinary Options over               January 1,                      December 31,       Exercise          can be
shares of 10 pence each                2000           Granted           2000             price         exercised       Expiry date
                                   -------------   -------------    -------------    -------------   -------------    -------------
<S>                                <C>             <C>              <C>              <C>             <C>              <C>
I R Gowrie-Smith...............        1,234,568              --        1,234,568             81.0p       12-06-99         12-06-06
                                         575,539              --          575,539             69.5p       04-19-02         04-19-09
M Ashton.......................          639,077              --          639,077             93.0p       03-31-01         03-31-08
                                         871,451              --          871,451             69.5p       04-19-02         04-19-09
D Nicholson....................          533,333              --          533,333             75.0p       04-29-99         04-29-06
                                          86,022              --           86,022             93.0p       03-31-01         03-31-08
                                         172,662              --          172,662             69.5p       04-19-02         04-19-09
</TABLE>


<TABLE>
<CAPTION>
                                                                                                       Date from
                                                                                                     which options
Super Options over                  January 1,                      December 31,       Exercise          can be
shares of 10 pence each                2000           Granted           2000             price         exercised       Expiry date
                                   -------------   -------------    -------------    -------------   -------------    -------------
<S>                                <C>             <C>              <C>              <C>             <C>              <C>
Directors
I R Gowrie-Smith...............        2,385,009              --        2,385,009            56.67p       05-25-04         05-25-09
M Ashton.......................        2,044,293              --        2,044,293            56.67p       05-25-04         05-25-09
D Nicholson....................        1,022,147              --        1,022,147            56.67p       05-25-04         05-25-09
</TABLE>


    The above options are granted to Directors under the terms of the
SkyePharma Executive Share Option Scheme, the European and North American
Scheme and the SkyePharma PLC 1999 Share Option Scheme described on pages 78
to 82.

    As at December 31, 2000, none of the Directors had any interests in shares
of any other Group company. The market value of ordinary shares at December
31, 2000 was 64.0 pence. The market value of ordinary shares during 2000
ranged from the lowest closing mid price of 49.75 pence to the highest closing
mid price of 190.0 pence. There has been no change in the total interest of
each Director since December 31, 2000.

    Details of the rights of warrant holders and terms of the Share Option
schemes are shown in Note 22.

7   Group Interest Payable

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Interest payable on bank loans, overdrafts and other loans:
 Repayable within five years, not by instalments ......................                 (56)               (242)               (268)
 Repayable within five years, by instalments ..........................                  --                (630)               (715)
 Repayable wholly or partly in more than five years ...................                (230)               (311)               (241)
Finance leases.........................................................                 (34)                (92)               (232)
Interest on convertible debentures.....................................                (419)               (116)                 --
Interest on convertible bonds..........................................                  --                  --              (2,052)
Interest on deferred consideration.....................................              (5,880)                 --                  --
                                                                           ----------------    ----------------    ----------------
                                                                                     (6,619)             (1,391)             (3,508)
                                                                           ================    ================    ================
</TABLE>



                                      F-22

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

7   Group Interest Payable (continued)

    In prior years and in accordance with Financial Reporting Standard No 7:
Fair Values in Acquisition Accounting, the Group recorded a reasonable
estimate of the fair value of future amounts expected to be payable to the
vendor in respect of the acquisition of Jago. This amount was discounted at
the Group's estimated cost of debt and the interest amount charged in 1998
represented the unwinding of that discount during that year.

    At March 31, 2000, as a result of an agreement with the vendor of Jago (Dr
Gonella), it has been determined that the deferred consideration will be
settled by shares rather than by cash. As such the fair value of the deferred
consideration was re-classified as shares and warrants to be issued at
December 31, 1999. No further discounting is required. Following shareholder
approval of the settlement agreement in July 2000, 6 million ordinary shares
and 24 million Deferred Shares were issued to Dr Gonella.

8   Taxation

    Loss from ordinary activities before taxes, as shown in the consolidated
statements of income, is analysed over its component parts as follows:

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
United Kingdom.........................................................                 207                 234               4,069
Overseas...............................................................             (22,218)            (19,516)            (23,755)
                                                                           ----------------    ----------------    ----------------
                                                                                    (22,011)            (19,282)            (19,686)
                                                                           ================    ================    ================
</TABLE>


    Taxation charge based on results for the period:

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
U.K. corporation tax...................................................                  --                  --                  --
Overseas taxation......................................................                 (85)                (57)                (19)
(Under provision)/over provision in previous years.....................                  --                 (75)                 15
                                                                           ----------------    ----------------    ----------------
                                                                                        (85)               (132)                 (4)
                                                                           ================    ================    ================
</TABLE>


    There was no deferred tax component in the tax charge for the years
presented.

    The Group has estimated total tax losses available to be set off against
future taxable profits of (L) (L)165.5 million (December 31, 1999: (L)105.0
million, December 31, 1998: (L)53.2 million). These losses arise primarily in
the U.K., Switzerland and U.S.A. Of the (L)165.5 million of losses carried
forward, (L)1.3 million expire in 2001, (L)24.0 million expire between 2002
and 2004, (L)127.0 million expire from 2005 onwards and (L)13.2 million of
losses may be carried forward indefinitely.


                                      F-23

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

8   Taxation (continued)

    The above charges, including exceptional items reconcile with the
applicable U.K. statutory corporation tax rates as follows:

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                                  %                   %                   %
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Statutory U.K. Corporation tax rate....................................                31.0                30.3                30.0
Tax rate differences...................................................                (7.0)                9.0                12.0
Tax losses not recognised as deferred tax assets.......................               (15.9)              (26.1)              (21.9)
Prior year items.......................................................                  --                (0.4)                0.1
Other items not recognised as deferred tax assets......................                (3.1)                0.2               (35.2)
Other..................................................................                (5.4)              (13.7)               15.0
                                                                           ----------------    ----------------    ----------------
Effective tax rate.....................................................                (0.4)               (0.7)               (0.0)
                                                                           ================    ================    ================
</TABLE>


9   Loss per Ordinary Share

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Attributable loss ((L)'000)............................................             (22,096)            (19,414)            (19,690)
Weighted average number of shares in issue ('000)......................             384,871             467,214             508,228
                                                                           ----------------    ----------------    ----------------
Loss per share (pence).................................................                (5.7)p              (4.2)p              (3.9)
                                                                           ================    ================    ================
</TABLE>


    There is no difference between basic and diluted loss per share since all
potential ordinary shares including convertible bonds, warrants and options
are anti-dilutive.


                                      F-24

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

10  Intangible Fixed Assets

<TABLE>
<CAPTION>
                                                                             Intellectual        Development
                                                           Goodwill            property             costs               Total
                                                           (L)'000             (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Cost
At January 1, 1999.................................                  --                 460               1,491               1,951
Acquisition of subsidiary undertaking..............              32,306                 557                  --              32,863
Exchange adjustments...............................                  --                (786)               (254)             (1,040)
Additions..........................................                  --              17,605                 294              17,899
                                                       ----------------    ----------------    ----------------    ----------------
At December 31, 1999...............................              32,306              17,836               1,531              51,673
Exchange adjustments...............................                  --               1,918                 161               2,079
Additions..........................................              13,720              10,017                  --              23,737
                                                       ----------------    ----------------    ----------------    ----------------
At December 31, 2000...............................              46,026              29,771               1,692              77,489
                                                       ----------------    ----------------    ----------------    ----------------
Amortization
At January 1, 1999.................................                  --                 273                 279                 552
Exchange adjustments...............................                  --                (118)                (54)               (172)
Charge for the year................................               1,211                 329                  --               1,540
                                                       ----------------    ----------------    ----------------    ----------------
At December 31, 1999...............................               1,211                 484                 225               1,920
Exchange adjustments...............................                  --                 113                  31                 144
Charge for the year................................               2,099               1,082                 158               3,339
                                                       ----------------    ----------------    ----------------    ----------------
At December 31, 2000...............................               3,310               1,679                 414               5,403
                                                       ----------------    ----------------    ----------------    ----------------
Net book value at December 31, 1999................              31,095              17,352               1,306              49,753
                                                       ================    ================    ================    ================
Net book value at December 31, 2000................              42,716              28,092               1,278              72,086
                                                       ================    ================    ================    ================
</TABLE>


    On April 4, 2000 the Company announced that the final contingent payment on
the acquisition of DepoTech had been triggered following the signing of a
contract to utilise DepoFoam technology for a macromolecule. As a result 12.1
million shares were issued on April 25, 2000 at a value of (L)13.3 million.

    In connection with the acquisition of DepoTech, the Company agreed that
outstanding warrants to purchase DepoTech common stock on the effective date
of the merger would become warrants to purchase the Company's ordinary shares.
Following the issue of shares on April 25, 2000, the former DepoTech
shareholders became entitled to a further 458,144 warrants with a value of
(L)0.2 million.

    Taking into account the final payments above, the total consideration paid
on the acquisition of DepoTech was (L)49.4 million.

    Significant additions to intellectual property during the year comprised
(L)5.9 million ($9 million) paid to Bioglan for certain exclusive development
and commercial rights in relation to new products from the Crystalip and
DermaStick technologies and also the right to develop with Bioglan two new
products in the ES-Gel system, (L)2.3 million ($3.5 million) capitalised on
the Chiron Loan note (see Note 16: Amounts falling due after more than one
year) and an additional Cdn$1.3 million paid to the receiver of Hyal (see Note
12: Investments).


                                      F-25

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

11  Tangible Fixed Assets

<TABLE>
<CAPTION>
                                                     Laboratory     Assets in the     Office and
                                     Land and      equipment and      course of          other           Motor
                                     buildings        machines      construction       equipment        vehicles          Total
                                      (L)'000         (L)'000          (L)'000          (L)'000         (L)'000          (L)'000
                                   -------------   -------------    -------------    -------------   -------------    -------------
<S>                                <C>             <C>              <C>              <C>             <C>              <C>
Cost
At January 1, 1999.............           20,197           8,785              505            1,861             303           31,651
Acquisition of subsidiary
  undertakings.................            2,381           4,278                5              634              --            7,298
Exchange adjustments...........           (2,440)         (1,242)            (101)            (166)            (27)          (3,976)
Additions......................            3,301           3,086              696              498              75            7,656
Disposals......................               --            (248)              --             (214)            (74)            (536)
                                   -------------   -------------    -------------    -------------   -------------    -------------
At December 31, 1999...........           23,439          14,659            1,105            2,613             277           42,093
Exchange adjustments...........              851           1,092              171              176              15            2,305
Additions......................              330           5,113            2,334              930              29            8,736
Disposals......................               --            (277)              (1)             (76)             --             (354)
                                   -------------   -------------    -------------    -------------   -------------    -------------
At December 31, 2000...........           24,620          20,587            3,609            3,643             321           52,780
                                   -------------   -------------    -------------    -------------   -------------    -------------
Depreciation
At January 1, 1999.............            2,151           2,227               --            1,138             136            5,652
Exchange adjustments...........             (312)           (479)              --             (107)            (15)            (913)
Disposals......................               --            (126)              --             (172)            (28)            (326)
Charge for the period..........            1,420           1,855               --              511              56            3,842
                                   -------------   -------------    -------------    -------------   -------------    -------------
At December 31, 1999...........            3,259           3,477               --            1,370             149            8,255
Exchange adjustments...........              155             319               --               72              10              556
Disposals......................               --            (197)              --              (64)             --             (261)
Charge for year................            1,407           1,929               --              546              60            3,942
                                   -------------   -------------    -------------    -------------   -------------    -------------
At December 31, 2000...........            4,821           5,528               --            1,924             219           12,492
                                   -------------   -------------    -------------    -------------   -------------    -------------
Net book value at December 31,
  1999.........................           20,180          11,182            1,105            1,243             128           33,838
                                   =============   =============    =============    =============   =============    =============
Net book value at December 31,
  2000.........................           19,799          15,059            3,609            1,719             102           40,288
                                   =============   =============    =============    =============   =============    =============
</TABLE>


    Land and buildings, at net book value, is as follows:

<TABLE>
<CAPTION>
                                                Year to             Year to
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Freehold property.......................              17,812              17,365
Long leaseholds.........................               2,306                  --
Short leaseholds........................                  62               2,434
                                            ----------------    ----------------
                                                      20,180              19,799
                                            ================    ================
</TABLE>


    Included in freehold property is an amount of (L)4,561,000 (December 31,
1999: (L)4,335,000) in respect of land which is not depreciated.


                                      F-26

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

11  Tangible Fixed Assets (continued)

    Laboratory equipment and machinery include cost of (L)3,982,000 (December
31, 1999: (L)4,764,000) and accumulated depreciation of (L)1,119,000 (December
31, 1999: (L)842,000) in respect of assets held under finance leases and hire
purchase contracts.

    Land and buildings at December 31, 2000 include cost of (L)nil (December
31, 1999: (L)1,588,000) and accumulated depreciation of (L)nil (December 31,
1999: (L)12,000) in respect of assets held under finance leases and hire
purchase contracts. The assets held under finance leases in 1999 were held by
SkyePharma Inc (formerly Depotech) which was acquired in 1999. All such leases
expired during 2000.

12  Joint Venture and Investments

 Joint Venture

    The Group, through Jago, has a 50% interest in a Joint Venture with Genta
Incorporated, a U.S. public biotechnology company, which is based in
California.

    The Joint Venture, Genta Jago Technologies BV, was formed in 1992 on a 50/
50 basis with Genta. The purpose of the Joint Venture was to develop Geomatrix
controlled release formulations of a range of drugs that have lost, or are
about to lose, marketing exclusivity or patent protection. Pursuant to a
Working Capital Agreement, Genta was obligated to fund the Joint Venture's
operations. For its part, Jago contributed to the Joint Venture licences to
the Geomatrix technologies. All of the development work in respect of the
products in the Joint Venture was performed by Jago at its research facility
in Switzerland.

    The Joint Venture was structured such that funding from Genta was required
to be made in the form of interest bearing Working Capital Loans which were
repayable in full in October 1998. If any products in the Joint Venture were
successfully developed and commercialised, the Joint Venture was required to
repay the outstanding Working Capital Loans to Genta and pay Jago a pre-
determined royalty on net sales of such products. Following such payments, all
earnings on the Joint Venture were to be shared equally by Jago and Genta.

    In 1996, the Group acquired from the Joint Venture rights to develop what
were considered to be the six most commercially viable compounds in the
product portfolio of the Joint Venture.

    Over recent years Genta has been unwilling or unable to continue to meet
its funding obligations to the Joint Venture. In addition the Joint Venture
was not able to repay the Working Capital Loans due in 1998. Consequently, the
Group has been in negotiations with Genta for some time to resolve outstanding
issues and the future operation of the Joint Venture.

    On March 4, 1999 an agreement was signed between SkyePharma PLC and Genta
Inc. concerning the future operations of the Joint Venture. Under the terms of
this agreement existing balances between the Joint Venture company and the
parent companies have been waived. These are principally unpaid development
cost invoices due to Skyepharma and the loan notes due to Genta. In addition
Genta was released from future funding obligations.

    SkyePharma becomes responsible for all obligations under existing
development and licence agreements between the Joint Venture and third parties
and SkyePharma is solely responsible for the future development, marketing,
distribution, manufacturing and funding of future Joint Venture products.


                                      F-27

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

12  Joint Venture and Investments (continued)

    The Joint Venture's share of any future revenues arising from products
originating from the Joint Venture will be shared between the parent companies
according to a distribution schedule which allows for payment of sums which
give recognition to the working capital advances made by Genta before
reverting to a 50/50 share. The intent is to ensure that the rights of the
parties, pre-existing the agreement, are fully compensated. As such the
agreement between the two parent companies will be viewed as a joint
arrangement. In future periods the Group will account for its share of any
assets, liabilities and cash flows in the joint arrangement according to the
agreement set out above.

    At January 1, 1999 the Group held 232,056 unregistered shares in Genta the
carrying value of which had been reduced to zero in 1996 as they remained
unregistered pending resolution of the future of the Joint Venture. Subsequent
to the March 4, 1999 agreement the necessary steps were taken to enable the
Group to dispose of the shares. A profit of (L)381,000 was realised which is
shown as a reversal of the provision of loss on disposal of fixed asset
investment.

    For the year ended December 31, 2000 there was no profit or loss on
operations in the Joint Venture recognised in the financial statements. The
net loss arising in the Joint Venture included in the income statement for the
year to December 31, 1999 was (L)48,000.

 Investments

<TABLE>
<CAPTION>
                                                                     Other
                                                                  Investments
                                                                     Listed
                                                                    (L)'000
                                                                ----------------
<S>                                                             <C>
Cost
At January 1, 1999                                                         4,762
Transfer to shares in Group undertakings....................              (2,939)
Disposals...................................................              (1,823)
                                                                ----------------
At December 31, 1999 and December 31, 2000..................                  --
                                                                ----------------
Provision
At January 1, 1999..........................................              (1,823)
Reversal of provision.......................................               1,823
                                                                ----------------
At December 31, 1999 and December 31, 2000..................                  --
                                                                ----------------
Net book value at December 31, 1999.........................                  --
                                                                ================
Net book value at December 31, 2000.........................                  --
                                                                ================
</TABLE>


    At January 1, 1999 the Group held 232,056 unregistered shares in Genta. A
provision for loss on disposal amounting to (L)1,823,000, representing the
historical cost of the shares, was made in the year to December 1996, as the
shares remained unregistered pending resolution of the future of the Joint
Venture. This reduced the carrying value to zero. Subsequent to the March 4,
1999 agreement the necessary steps were taken to enable the Group to dispose
of the shares. A profit of (L)381,000 was realised which is shown as a
reversal of the provision of loss on disposal of fixed asset investment.


                                      F-28

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

12  Joint Venture and Investments (continued)

    On October 19, 1998 the Group acquired 2,857,143 shares representing
approximately 16% of Common Stock in DepoTech Corporation of San Diego,
California, a company listed on the Nasdaq National Market for a consideration
of (L)2,939,000 ($5,000,000). On March 10, 1999 the Group completed the
acquisition and accordingly the investment was reclassified as shares in
subsidiary undertakings (see Note 12: Investments). The market value of the
listed investment in DepoTech at January 1, 1999 was (L)3,971,000.

    On October 28, 1999 Skyepharma completed its acquisition of the tangible
assets and intellectual property of Hyal Pharmaceutical Corporation of
Mississauga, Ontario ('Hyal') for a purchase price of Cdn$14.0 million.
Consideration was satisfied by the set-off of Cdn$11.6 million of SkyePharma's
secured and unsecured debt owed by Hyal including the interest due and $2.4
million in cash. In addition, and because Hyal was in receivership at this
time, SkyePharma indemnified the receiver to the extent that Cdn$11.6 million
exceeded the amount that SkyePharma may ultimately be entitled to receive as a
creditor of Hyal. This indemnity was secured by an irrevocable letter of
credit open for up to one year in the amount of Cdn$1.0 million.

    During 2000 the letter of credit was called to recover the shortfall in the
receivership process. In return, SkyePharma, as one of the creditors of Hyal,
was awarded seven Hyal shares for every dollar shortfall in the process. As a
result, SkyePharma received 8.0 million shares, representing approximately
19.5% of Hyal in 2001. Since the shares are not currently traded on a public
market there is currently no value attributable to these shares and thus they
have been recorded in 2001 at zero cost.

13  Stocks

<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Raw materials and consumables...........               1,082               1,428
Work in progress........................                  32                 206
Finished goods..........................                  20                   2
                                            ----------------    ----------------
                                                       1,134               1,636
                                            ================    ================
</TABLE>


    The replacement cost of stocks is not materially different from original
cost.

14  Debtors

<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Trade debtors...........................               5,403               1,118
Other debtors...........................               1,219               1,261
Royalties receivable....................                 224                 102
Prepayments and accrued income..........               1,410               2,914
Interest receivable.....................                  79               1,542
                                            ----------------    ----------------
                                                       8,335               6,937
                                            ================    ================
</TABLE>


    Trade debtors includes allowance for doubtful accounts amounting to (L)Nil
(December 31, 1999: (L)Nil).


                                      F-29

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

15  Creditors: Amounts Falling Due within One Year

<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Bank overdrafts.........................               2,809               2,848
Bank loans..............................               2,263               3,120
Current portion of secured Mortgage
  (note 16).............................                 155                 165
Current portion of Chiron loan note
  (note 16).............................               2,006               2,946
Trade creditors.........................               3,279               2,836
Corporation tax.........................                   7                   3
Other taxation and social security
  costs.................................               1,406                 233
Royalties payable.......................                 106               1,119
Accrued legal and professional fees.....                 306                 605
Accrued convertible bond interest.......                  --                 991
Obligations under hire purchase and
  finance leases........................               1,132                 861
Other creditors and accruals............               3,163               4,814
                                            ----------------    ----------------
                                                      16,632              20,541
                                            ================    ================
</TABLE>


    At December 31, 2000 the Group had a secured overdraft facility of (L)2.0
million with the Basellandschaftliche Kantonalbank. In addition, and included
within bank loans, the Kantonalbank has extended a fixed credit facility of
(L)0.6 million and a construction loan of (L)1.3 million. Both loans are
renewable annually and bear interest at 6.0% and 3.0% respectively. The
overdraft and bank loans are all secured on the assets of Jago with the
overdraft and credit facility also guaranteed by SkyePharma PLC.

    At December 31, 2000 the Group also had an overdraft facility with Societe
Generale of (L)0.8 million, secured by the trade debtors of SkyePharma
Production SAS and guaranteed by SkyePharma PLC.

    Obligations under hire purchase and finance leases at December 31, 2000
derive from the purchase of laboratory equipment and machinery, the sale and
leaseback of certain equipment and other capital leases.


                                      F-30

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

16  Creditors: Amounts Falling Due After More Than One Year

<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Bank loans..............................               1,222                  71
Secured Mortgage........................               5,969               6,197
Chiron loan note........................               4,011               3,727
Deferred income.........................               2,395               2,985
Convertible debt:
Convertible debentures due February
  2001..................................                 103                  --
Convertible bonds due June 2005.........                  --              57,546
Obligations under finance leases........               2,258               1,687
                                            ----------------    ----------------
                                                      15,958              72,213
                                            ================    ================
Bank and other loans are repayable as
  follows:
Between one and two years...............               3,316               3,181
Between two and three years.............               2,227                 946
Between three and four years............                 155               3,139
Between four and five years.............               2,946                 166
After five years........................               2,558               2,563
                                            ----------------    ----------------
                                                      11,202               9,995
                                            ================    ================
Obligations under finance leases are
  repayable as follows:
Between one and two years...............                 758                 842
Between two and three years.............                 743                 844
Between three and four years............                 757                   1
                                            ----------------    ----------------
                                                       2,258               1,687
                                            ================    ================
</TABLE>


    At December 31, 2000 the Group had a property mortgage facility with the
Basellandschaftliche Kantonalbank of (L)6.4 million. The mortgage is in two
tranches, both secured by the assets of Jago, and guaranteed by SkyePharma
PLC. The first tranche bears interest at 5.0% and is repayable by instalments
over 21 years semi-annually. The second tranche bears interest at 3.0% and is
repayable in 2004.

    At December 31, 2000 the Group had (L)1.3 million outstanding on a loan
payable to the Silicon Valley Bank of which (L)1.2 million is shown within
current liabilities. The loan is secured upon specific fixed assets of
SkyePharma Inc. and is guaranteed by SkyePharma PLC. The loan bears a floating
rate of interest set at the U.S. prime rate plus 0.5% and the principal is
repayable in monthly instalments until February 2002.

    At December 31, 2000 the Group had (L)6.7 million outstanding on the Chiron
loan note of which (L)2.9 million is shown within current liabilities. The
original note was issued in 1999 on the acquisition of SkyePharma Inc.
(formerly DepoTech Corporation). Under a collaboration agreement with Chiron
Corporation, DepoTech had an obligation to pay Chiron $11.7 million within six
months of U.S. or European marketing approval of DepoCyt. Consequent upon the
acquisition, SkyePharma, DepoTech and Chiron further amended the agreement
with Chiron in March 1999 such that the Group issued a note payable to Chiron
of $9.7 million on the receipt of FDA approval of DepoCyt on April 1, 1999.


                                      F-31

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

16  Creditors: Amounts Falling Due After More Than One Year (continued)

    During 2000, SkyePharma and Chiron amended the March 1999 agreement whereby
SkyePharma would have issued a note payable for $3.5 million to Chiron upon
the filing of an application for DepoCyt for pediatric indications in the U.S.
Under the amendment dated October 4, 2000 the note became payable on the
earlier of the filing of an application for DepoCyt for pediatric indications
in the U.S. or the date on which Phase IV clinical trials, required by the
U.S. FDA as a condition of product approval, commenced. The $3.5 million note
was issued in December 2000. The notes are secured on the rights to DepoCyt
and bear a floating rate of interest based on LIBOR. The principals are
payable in equal instalments on June 30, 2001 and 2002 for the first tranche
and June 30, 2001, 2002 and 2003 for the second.

17  Issue of Convertible Bonds

    On June 16, 2000, the Company issued (L)59.4 million 6% Convertible Bonds
(the `Bonds') due 2005. The Bonds are convertible at the option of the holder
into fully paid 10 pence Ordinary Shares in the Company at an initial
conversion price of 132 pence at any time up to June 19, 2005. The initial
conversion price represents a premium of 27% over the prevailing market price
of 104 pence on the pricing date of May 17, 2000. The conversion price will be
recalculated on June 19, 2001 based upon the average of the closing bid
quotations of an ordinary share for the previous 10 dealing days. Where this
price is less than 132 pence, the conversion price will be reduced accordingly
to a minimum of 83 pence. Unless previously redeemed or converted, the Bonds
will be redeemed by the Company at their principal amount on June 19, 2005.

    The net proceeds recognised on issue were (L)57,328,000 being gross
proceeds of (L)59,400,000 less expenses of (L)2,072,000, of which (L)2,022,000
were paid in the period.

    Of the gross proceeds of the Bond issue, (L)30 million has been subject to
a cancellable interest rate swap agreement by which the Company has swapped a
fixed obligation to floating and will pay 5.6% until June 2001 and then LIBOR
minus 0.725% over the life of the Bond.

    During 1998, debentures were issued at a discount equivalent to an annual
interest rate of 3%. All such debentures were converted in the six months
ended June 30, 2000.

18  Provisions for Liabilities and Charges

<TABLE>
<CAPTION>
                                                                                          Other
                                                       ----------------------------------------------------------------------------
                                       Deferred                             Restructuring          National
                                    consideration          Pension            Provision           Insurance             Total
                                       (L)'000             (L)'000             (L)'000             (L)'000             (L)'000
                                   ----------------    ----------------    ----------------    ----------------    ----------------
<S>                                <C>                 <C>                 <C>                 <C>                 <C>
At January 1, 1999.............              39,500                 230                 809                  --               1,039
Utilised in the year...........                  --                  --                (737)                 --                (737)
Charged in the year............               1,861                  --                  --                  --                  --
Revaluation....................                  --                 (44)                 --                  --                 (44)
Reclassification...............             (39,500)                 --                  --                  --                  --
Exchange adjustments...........                  --                 (56)                 24                  --                 (32)
                                   ----------------    ----------------    ----------------    ----------------    ----------------
At December 31, 1999...........               1,861                 130                  96                  --                 226
Charged in the year............                  --                  --                  --                  26                  26
Utilised.......................                  --                 (49)               (102)                 --                (151)
Exchange adjustments...........                 147                   4                   6                  --                  10
                                   ----------------    ----------------    ----------------    ----------------    ----------------
At December 31, 2000...........               2,008                  85                  --                  26                 111
                                   ================    ================    ================    ================    ================
</TABLE>



                                      F-32

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

18  Provisions for Liabilities and Charges (continued)

Medac Deferred consideration

    Deferred consideration at December 31, 2000 consists of (L)2.0 million
($3.0 million) cash payable to Medac GmbH under the purchase agreement for
their intellectual property. The payment is subject to compliance by the
vendor with terms specified in the agreement and became due on March 31, 2001.

Pension provision

    The pension provision relates to the retirement commitments under a defined
benefit scheme for SkyePharma Production SAS employees (Note 26: Pension
Arrangements).

Restructuring provision

    The restructuring provision, established in 1998, for the reorganisation
and associated write down of fixed assets and inventory following a decision
to withdraw from the sales and marketing activities of Brightstone Pharma
Inc., was fully utilised during the year.

National Insurance provision

    Following the Social Security Act of 1998 and the introduction of a
national insurance charge on U.K. employers on the gains made by employees
upon the exercise of options issued under certain unapproved share schemes, a
provision of (L)26,000 has been recognised at December 31, 2000 in accordance
with UITF 25.

19  Deferred Taxation

<TABLE>
<CAPTION>
                                                                  Full Potential                             Provided
                                                       ------------------------------------    ------------------------------------
                                                              At                  At                  At                  At
                                                         December 31,        December 31,        December 31,        December 31,
                                                             1999                2000                1999                2000
                                                           (L)'000             (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Accelerated capital allowances.....................               3,535               4,030                  --                  --
Other timing differences...........................               4,469              10,891                  --                  --
Tax benefits from losses carried forward...........               1,896               1,893                  --                  --
U.S. tax benefits from losses carried forward......              27,414              31,480                  --                  --
                                                       ----------------    ----------------    ----------------    ----------------
Potential deferred tax asset.......................              37,314              48,294                  --                  --
                                                       ================    ================    ================    ================
</TABLE>


    No deferred tax asset is recognised, given the uncertainty of the
recoverability of the Group's tax losses carried forward.

20  Contingent Liabilities and Guarantees

    At December 31, 2000 the Company had provided guarantees on various bank
borrowings of its subsidiaries as set out in Note 15: Creditors - amounts
falling due within one year and Note 16: Creditors - amounts falling due after
more than one year. In addition, at December 31, 2000 the Company has provided
Cdn$1.0 million ((L)0.6 million) in a guarantee supported by a letter of
credit to the Receiver of Hyal. In February 2001, Cdn$1.3 million was paid to
the Receiver of Hyal and the letter of credit cancelled.

    At December 31, 2000, the Company has guaranteed the obligations of
SkyePharma Inc, on its capital equipment lease with LMSI Venture Finance to an
amount of $0.4 million ((L)0.3 million).


                                      F-33

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

20  Contingent Liabilities and Guarantees (continued)

    In December 1999 SkyePharma Production SAS entered into a leasing
arrangement with Lombard North Central PLC by which certain pharmaceutical
manufacturing and laboratory equipment was the subject of a four year sale and
leaseback arrangement. The Company has guaranteed the obligations of the
lessee under this lease to an amount of FF30 million ((L)2.8 million).

    SkyePharma Inc. maintains its principal operations in a leased 7,600
square meter (82,000 square feet) building in San Diego, California. The
facility houses production, research and development and administrative
functions. The future minimum annual rental commitment ranges from $2.7
million to $4.3 million per year over the balance of the remaining lease term
of approximately 15 years based upon pre-established annual rent increases.
Effective June 2000, the Company subleased to a third party approximately
15,600 square feet of this facility. Sublease income will total approximately
$998,000 over the term of the lease which expires July 31, 2002. Additionally
the Company maintains a leased facility containing primarily office space,
with lease terms expiring in January 2006. The facility was subleased
effective January 1, 2001 with annual rental income ranging from $306,000 to
$352,000 for the terms of the sublease for which expires on January 31, 2006.

    On June 13, 2000, a summons was filed in respect of a claim by RTP Pharma
Corporation against SkyePharma PLC and others in the U.S. District Court for
the District of Columbia. The lawsuit seeks the correction of inventorship of
a U.S. Patent Number 5,858,410, together with unspecified monetary damages on
behalf of RTP Pharma Corporation. In March 20001 SkyePharma PLC together with
the other defendants filed a motion to dismiss the claim and will continue to
strongly defend it. The defendants filed a motion to dismiss in March 2001,
which is being defended by the plaintiffs RTP. The Company believes that this
lawsuit is without merit and will, with the other defendants, strongly defend
the action.

    In common with most business enterprises, group companies are subject to a
number of potential claims from third parties, the outcome of which cannot at
present be determined. These claims and potential claims are not considered to
be material in the context of these Financial Statements. Provision has been
made in these accounts for any liabilities which are expected to materialise
from such potential claims.

21  Commitments

<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Capital commitments
Contracted for but not provided in the
  accounts..............................                 390                 344
                                            ================    ================
</TABLE>


<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Commitments under operating leases from
  December 31
2000....................................               2,738                  --
2001....................................               2,653               3,479
2002....................................               2,550               3,178
2003....................................               2,619               3,215
2004....................................               2,461               3,299
2005 onwards............................                  --              27,983
                                            ----------------    ----------------
                                                      13,021              41,154
                                            ================    ================
</TABLE>



                                      F-34

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

21  Commitments (continued)

<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Commitments under operating leases to
  pay rentals for the next year
Operating leases on land and buildings
  which expire:
In one year or less.....................                  20                 238
In two to five years....................                 186                 642
In five years or more...................               2,369               2,378
                                            ----------------    ----------------
                                                       2,575               3,258
                                            ================    ================
</TABLE>


<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Other operating leases which expire:
In one year or less.....................                 246                 152
In two to five years....................                 223                  69
In five years or more...................                  --                  --
                                            ----------------    ----------------
                                                         469                 221
                                            ================    ================
Commitments under finance leases from
  December 31
2000....................................               1,346                  --
2001....................................                 907               1,024
2002....................................                 845                 943
2003....................................                 789                 878
2004....................................                  --                   1
Less interest payable under finance
  leases................................                (497)               (298)
                                            ----------------    ----------------
                                                       3,390               2,548
                                            ================    ================
</TABLE>


    At December 31, 2000 total future minimum rentals under non-cancellable sub
leases were (L)1,660,000.

    In addition, contingent upon the achievement of specified milestones by the
collaborative partner, the total amounts payable under collaborative
agreements at December 31, 2000 amounted to (L)nil million (December 31, 1999:
(L)nil, December 31, 1998: (L)0.4 million).


                                      F-35

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

21  Commitments (continued)

    At December 31, 2000 the Group had (L)6.7 million outstanding on the Chiron
loan note of which (L)2.9 million is shown within current liabilities. The
original note was issued in 1999 on the acquisition of SkyePharma Inc.
(formerly DepoTech Corporation). Under a collaboration agreement with Chiron
Corporation, DepoTech had an obligation to pay Chiron $11.7 million within six
months of U.S. or European marketing approval of DepoCyt. Consequent upon the
acquisition, SkyePharma, DepoTech and Chiron further amended the agreement
with Chiron in March 1999 such that the Group issued a note payable to Chiron
of $9.7 million on the receipt of FDA approval of DepoCyt on April 1, 1999.
During 2000, SkyePharma and Chiron amended the March 1999 agreement whereby
SkyePharma would have issued a note payable for $3.5 million to Chiron upon
the filing of an application for DepoCyt for pediatric indications in the U.S.
Under the amendment dated October 4, 2000 the note became payable on the
earlier of the filing of an application for DepoCyt for pediatric indications
in the U.S. or the date on which Phase IV clinical trials, required by the
U.S. FDA as a condition of product approval, commenced. The $3.5 million note
was issued in December 2000. The notes are secured on the rights to DepoCyt
and bear a floating rate of interest based on LIBOR. The principals are
payable in equal instalments on June 30, 2001 and 2002 for the first tranche
and June 30, 2001, 2002 and 2003 for the second.

Significant research and development arrangements

    The Group conducts R&D activities under a number of collaboration
arrangements with pharmaceutical companies to develop products utilising its
technologies. These activities are conducted under varying fixed price or cost
plus arrangements which are designed to permit the Group to recover its
development costs. The Group does not have any actual or contingent
obligations to deliver successful results under any of these arrangements, and
amounts earned under these contracts are not refundable, even if the research
effort is unsuccessful. Except as described below, the Group does not consider
any individual contract to be significant.

 Dilacor

    The only collaborative arrangement under which the Company is currently
receiving significant royalty revenues is the development and license
agreement for Dilacor XR made with Rorer, a member of the Rhone Poulenc Rorer
Group (now part of Aventis Pharma) in 1988. Under the terms of that agreement,
Rorer bore all of the costs of research and development according to a budget
agreed by the Company and Rorer. For countries where a patent claiming Dilacor
XR has been issued and is in effect, Rorer is obligated to pay the Company
continuing royalties of 3% of net sales. For countries where no patent
claiming Dilacor XR has been issued, Rorer is obligated to pay the Company
continuing royalties of 1.5% of net sales. In return, the Company granted
Rorer an exclusive license to market Dilacor XR throughout the world. The
agreement continues for ten years from the date of the first marketing in each
country or for the life of the patent in such country (which includes all
patents owned or controlled by the Company which would be infringed by the
manufacture, use or sale of the products covered by the license agreement),
whichever is longer. After termination of the agreement, Rorer may continue to
sell the product and use the Geomatrix technology in connection with the
product on a non-exclusive basis without any obligations to the Company unless
otherwise agreed in writing. In 1997, Rorer granted to Watson Laboratories,
Inc. (with the consent of the Company) exclusive rights to market, advertise,
promote, sell and distribute Dilacor XR. The grant of rights to Watson
Laboratories does not affect any entitlements of the Company or any of the
material terms of the collaborative arrangement.

    The Group recognises royalty income on the sale of Dilacor. Revenue
resulting from this contract amounted to (L)1,880,000, (L)758,000 and
(L)464,000 in the years ended December 31, 1998, 1999 and 2000 respectively.
Royalties payable and included in cost of sales relating to this contract
amounted to (L)1,142,000, (L)275,000 and (L)284,000 in the years ended
December 31, 1998, 1999 and 2000 respectively.


                                      F-36

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

21  Commitments (continued)

 Requip

    The only collaborative arrangement involving Geomatrix technology in which
the Company is responsible for conducting clinical trials is the development
and licensing agreement for a once-daily version of Requip (Ropinirole) with
GlaxoSmithKline, which was entered into in September 1999 with SmithKline
Beecham (now part of GlaxoSmithKline). Under the terms of the agreement with
GlaxoSmithKline the Company is responsible for all development activities for
Requip oral controlled release tablets up to regulatory filing, in
collaboration with GlaxoSmithKline. As part of the agreement, GlaxoSmithKline
made an equity investment of (L)4.9 million in the Company and will pay
milestone payments at intervals up to product approval, including an up-front
payment. On commercialization of once-daily Requip, the Company will receive
royalties on product future sales. GlaxoSmithKline will take responsibility
for preparing and pursuing all necessary regulatory approvals. The once-daily
version has recently entered Phase II clinical trials.

 DepoCyt

    In March 1994, DepoTech (renamed SkyePharma Inc.) entered into a
collaboration agreement with Chiron. The objective of the collaboration is to
develop and commercialize DepoCyt for use in the treatment of cancer, and to
explore the use of DepoTech's DepoFoam for certain other Chiron compounds. The
Chiron agreement, as amended, grants Chiron rights to market and sell DepoCyt
in the U.S. Chiron has funded, and is obligated to fund, 50% of the clinical
development expenses in the United States. Canadian registration expenses and
the cost of clinical trials required in Europe were funded by Chiron until
June 1997, when the Chiron agreement was amended in connection with the
agreement with Pharmacia & Upjohn (now known as Pharmacia Corporation)
described below. SkyePharma Inc. will manufacture DepoCyt, Chiron will market,
sell, and distribute DepoCyt in the U.S., and the parties will share all
profits equally. The Company will also fund 50% of the sales and marketing
expenses incurred for DepoCyt. Chiron also has a right of first refusal to
obtain a license to alternate DepoFoam formulations of cytarabine under terms
and conditions to be negotiated in the future. Following an evaluation of the
markets and certain other factors, DepoTech and Chiron mutually agreed not to
further develop certain additional generic cancer compounds named in the
Chiron agreement.

    In June 1997, DepoTech and Chiron amended their agreement, and DepoTech
repurchased rights to DepoCyt in Canada and Europe from Chiron for aggregate
cash payments of up to $13.7 million, of which $2.0 million was expensed and
paid to Chiron in December 1997. The remaining $11.7 million originally was
payable upon the earlier of six months following U.S. or European regulatory
notification that the application to market or sell DepoCyt is approvable or
approved. In March 1999, SkyePharma Inc. and Chiron further amended the
agreement with Chiron such that SkyePharma Inc. issued a note payable for $9.7
million on receipt of FDA approval of DepoCyt on April 1, 2000. During 2000
SkyePharma and Chiron amended the agreement of March 1999 whereby SkyePharma
Inc. would have issued a note payable for $3.5 million to Chiron upon the
filing of an application for DepoCyt for pediatric indications. Under the
amendment dated October 4, 2000 the note became payable on the earlier of the
filing of an application for DepoCyt for pediatric indications in the U.S. or
the date on which Phase IV clinical trials, required by the FDA as a condition
of product approval, commenced. The $3.5 million note was issued in December
2000. The notes are secured on the rights to DepoCyt and bear a floating rate
of interest based on LIBOR. The principals are payable in equal installments
on June 30, 2001 and 2002 for the first tranche and June, 2001, 2002 and 2003
for the second.

    Both the Company and Chiron have the ability to terminate a portion or all
of the collaboration at certain intervals and with advance notice.


                                      F-37

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

21  Commitments (continued)

    In connection with the agreement of March 1994, Chiron made a $2.5 million
equity investment in DepoTech In addition, Chiron paid $1.0 million in March
1994 for a warrant which was converted in January 1995 to a DepoCyt marketing
rights fee. Further, in January 1995, upon achievement of a development
milestone, Chiron reimbursed DepoTech approximately $2.5 million for Chiron's
share of DepoCyt's clinical trial and development costs from July 1993 through
December 1994 and continued to share equally in DepoCyt's United States
clinical trials and development costs. Finally, in 1997, DepoTech received a
$1.0 million milestone payment from Chiron upon completing the filing of the
new drug application for DepoCyt in the U.S.

    In July 1997, DepoTech entered into a marketing and distribution agreement
with Pharmacia & Upjohn (now known as Pharmacia Corporation). Under the
agreement, Pharmacia Corporation acquired rights to market and sell DepoCyt in
countries outside the United States. Pharmacia Corporation would generally be
responsible for submitting regulatory filings, and for labeling, packaging,
distributing, marketing and selling DepoCyt in this territory. SkyePharma Inc.
would manufacture DepoCyt and receive a share of the net sales of this product
from Pharmacia Corporation, if any. DepoTech received a cash payment of $2.0
million when the agreement was signed. The agreement also provides for
reimbursement by Pharmacia Corporation of certain clinical trial expenses and
regulatory fees incurred by SkyePharma Inc. In February 2000, the Company and
Pharmacia Corporation renegotiated certain aspects of this agreement relating
to milestone payments and reimbursement of clinical trials expenses. In
addition, the Company recovered the rights to DepoCyt for Japan and Canada. In
June 2000, Pharmacia Corporation notified the Company that it was terminating
the 1997 Marketing and Distribution Agreement. Subsequently, Pharmacia
Corporation assigned the European marketing application to the Company and the
Company continued to pursue the European marketing approval. In April 2001,
the Company received notification that the European Committee on Proprietary
Medicial Products ("CPMP") had recommended the granting of marketing
authorization for DepoCyt. The CPMP's recommendation will be forwarded to the
European Commission and when ratified the Company will receive a single
license for marketing throughout the European Union. The Company is currently
in negotiations with several potential European marketing partners specialized
in oncology.

 DepoMorphine

    In December 2000, SkyePharma announced that it entered into an Agreement
with the Paul Capital Royalty Acquisition Fund, L.P. to develop DepoMorphine.
Under the Agreement with Paul Capital, SkyePharma will receive $30 million
over the next two years to fund the clinical development and regulatory
submission of DepoMorphine, in return for the sale of a portion of potential
future royalty and revenue streams from DepoMorphine and certain SkyePharma
products. Between January 2003 and December 2014, Paul Capital stand to
receive 15% of the annual royalties and revenues from DepoMorphine and three
other SkyePharma products, namely Xatral OD, Solaraze and DepoCyt up to an
agreed ceiling. Once the predetermined ceiling is reached the percentage
participation will fall to 3% for the remainder of the period until December
31, 2014.

 Joint Venture development activities

    The arrangements with the joint venture for the development of products
utilising Geomatrix technologies are discussed in Note 12: Investments.


                                      F-38

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

22  Share Capital

Equity share capital

<TABLE>
<CAPTION>
                                                Ordinary Shares of 10p each
                                            ------------------------------------
Authorised                                   No. of shares          (L)'000
----------------------------------------    ----------------    ----------------
<S>                                         <C>                 <C>
At December 31, 1999....................       1,090,000,000             109,000
                                            ================    ================
At December 31, 2000....................       1,114,000,000             111,400
                                            ================    ================
</TABLE>


<TABLE>
<CAPTION>
                                            Ordinary Shares
                                              of 10p each        Nominal Value
                                                 Number             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Issued, allotted and fully paid
At January 1, 1999......................         427,098,454              42,710
Exercise of `B' Warrants................               6,206                   1
Exercise of share options...............             214,073                  21
Conversion of debentures................           5,099,348                 510
Shares issued to acquire DepoTech.......          44,488,919               4,449
Shares issued to SmithKline Beecham.....           8,671,240                 867
Shares issued to Medac..................           3,067,286                 307
Shares issued to acquire Hyal
  debentures............................           5,441,454                 544
                                            ----------------    ----------------
At December 31, 1999....................         494,086,980              49,409
Exercise of `B' Warrants................             196,356                  20
Exercise of share options...............           3,226,173                 322
Conversion of debentures................             219,204                  22
Shares issued to acquire DepoTech.......          12,132,600               1,213
Shares issued to Dr Gonella.............           6,000,000                 600
Shares issued to Medac..................           1,461,455                 146
                                            ----------------    ----------------
At December 31, 2000....................         517,322,768              51,732
                                            ================    ================
</TABLE>


    On July 11, 2000 the authorised share capital of the Company was increased
to 1,114,000,000 ordinary shares. Shareholders' funds at December 31, 1998 and
1999 comprised entirely equity interests. At December 31, 2000, non-equity
interests are set out below.

    Consideration received on issue of ordinary shares in 2000 amounted to
(L)2,088,000 (year to December 31, 1999: (L)5,038,000). Consideration received
on exercise of share options in 2000 amounted to (L)2,010,000 (year to
December 31, 1999: (L)97,000).


                                      F-39

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

22  Share Capital (continued)

Non-equity share capital

<TABLE>
<CAPTION>
                                                         December 31,        December 31,        December 31,        December 31,
                                                             2000                1999                2000                1999
                                                       Number of shares    Number of shares        (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Authorised and issued
Deferred `A' Shares of 10p each....................          12,000,000                  --               1,200                  --
Deferred `B' Shares of 10p each....................          12,000,000                  --               1,200                  --
                                                       ----------------    ----------------    ----------------    ----------------
                                                             24,000,000                  --               2,400                  --
                                                       ================    ================    ================    ================
</TABLE>


    The Deferred `A' and `B' shares were issued to Dr Gonella, the vendor of
Jago, on July 20, 2000 under the Settlement Agreement that established the
full and final settlement of the deferred consideration payable on the
acquisition of Jago. The holders of Deferred `A' and `B' shares have no rights
to participate in the profits of the Company, no voting rights and on a
winding up or other return of capital only receive the nominal value of their
shares if the holders of ordinary shares in the capital of the Company have
received the sum of (L)1,000,000 per ordinary share and, as such, are
classified as non-equity shares.

    The Deferred Shares automatically convert into Ordinary Shares on the
happening of the following contingent events:

      (i)   12 million `A' Deferred Shares. These Deferred Shares
            automatically convert into 12 million ordinary shares on the first
            commercial sale of Paroxetine/Paxil in combination with Geomatrix
            technology under the current Licence Agreement;

      (ii)  12 million `B' Deferred Shares. These Deferred Shares
            automatically convert into 12 million ordinary shares on the
            Company's receipt of a royalty statement under the current Licence
            Agreement stating that reported sales of Paroxetine/Paxil in
            combination with the Geomatrix technology have exceeded $1,000
            million during any calendar year prior to 1 January 2006 or
            exceeded $337 million between 1 January 2006 and 3 May 2006.

      In the event that the conditions set out in (i) and (ii) above are not
      satisfied prior to May 3, 2006, the Deferred `A' and `B' shares will not
      be converted and will be cancelled. The vendor will not be entitled to
      any other compensation nor additional compensation.

      The Deferred Shares were issued on July 20, 2000 when the price of an
      ordinary share was 94.25 pence. The difference between the nominal value
      of the Deferred Shares and the fair value of those shares, taken to be
      94.25 pence, at issue has been recorded as non-equity share premium. See
      Note 24: Reserves.


                                      F-40

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

22  Share Capital (continued)

Warrants

    The Company has the following warrants outstanding:

(a) 'B' Warrants

<TABLE>
<CAPTION>
                                                                     Number
                                                                ----------------
<S>                                                             <C>
At December 1, 1999.........................................          58,771,115
Warrants exercised..........................................             (62,060)
                                                                ----------------
At December 31, 1999........................................          58,709,055
Warrants exercised..........................................          (1,963,560)
                                                                ----------------
At December 31, 2000........................................          56,745,495
                                                                ================
</TABLE>


    The `B' Warrants, which were issued in January 1996 on the basis of one
warrant for every ten existing ordinary shares subscribed pursuant to the
placing, rights issue and capitalisation of loan notes and in consideration
for the outstanding warrants of Krypton, entitle the holders to subscribe for
5,674,550 ordinary shares at any time during the period beginning six months
after the date of issue and ending on December 31, 2002 at an effective price
of 40 pence per ordinary share. The fair value of the `B' Warrants issued in
January 1996 was determined by applying the ratio of the relative trading
prices of the `B' warrants and ordinary shares in the week following the
issuance, to the total proceeds of the issuance, and amounted to 3.04 pence
per `B' Warrant. The total fair value allocated to the `B' warrants, amounting
to (L)1,809,000 was recorded as a separate component of shareholders' funds,
see reserves note 24, with the respective elements recorded as cash proceeds,
reduction of loan notes and as purchase consideration. Consequent upon the
consolidation of existing ordinary shares in May 1996 the terms under which
the `B' Warrants may be exercised were amended so that a holder is required to
exercise ten `B' Warrants to acquire one Ordinary Share.

    The market value of `B' warrants as at December 31, 2000 was 2.5 pence
(December 31, 1999: 3.5 pence). The market value of `B' warrants during the
period from January 1, 2000 to December 31, 2000 ranged from the lowest
midprice of 2.5 pence to the highest midprice of 19.5 pence per `B' warrant.

(b) `C' Warrants

    The class `C' Warrant issued in March 1998 in consideration of services
provided in connection with the debenture issue entitles holders to purchase
up to 1.8 million ordinary shares at an exercise price of 120 pence per
ordinary share at any time up to three years from March 11, 1998. There was no
activity relating to this warrant in 1999 or 2000.The aggregate number of
ordinary shares which may be issued under the terms of the class `C' Warrant
and the Debentures (note 16; Creditors - Amounts falling due after more than
one year) shall not exceed 30 million. The total number of shares issued to
Debenture holders amounted to 21.4 million. The fair value of the Warrant at
issue was (L)271,000. As at March 11, 2001 the `C' Warrant lapsed,
unexercised.

(c) Warrants issued on the acquisition of DepoTech

    In connection with the acquisition of DepoTech Corporation, the Company
agreed that outstanding warrants to purchase DepoTech common stock on the
effective date of the merger would become warrants to purchase the Company's
ordinary shares. Subsequent to the acquisition, additional warrants were
issued to the former DepoTech shareholders, as contingent consideration became
payable. The fair value of the warrants at issue was (L)212,000. The Company
has the following warrants outstanding at 31 December 2000:


                                      F-41

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

22  Share Capital (continued)

<TABLE>
<CAPTION>
                                             Exercise Price
                                              Per Ordinary
Ordinary Shares Issuable Upon Exercise           Share
  of Warrants                                      $            Expiration Date
------------------------                    ----------------    ----------------
<S>                                         <C>                 <C>
1,683,472...............................              $1.885                2001
371,353.................................              $1.178                2005
</TABLE>


 Share options

    The Company encourages employee participation in its shares through
ownership and continues to operate various Share Option Schemes and the
Unapproved Share Option Scheme. Under the terms of these Schemes the Board may
offer options to purchase ordinary shares in the Company to employees,
including directors, at a price not less than the higher of the nominal value
and the market value of the shares.

    Options granted to U.K. and European employees are only exercisable between
the third and tenth anniversary of the date of grant, and are subject to the
Company's Code of Conduct for dealing in Shares, and the Model Code. Options
granted to U.S. employees vest at 25% per annum from the date of grant and
currently there are no performance criteria. U.K. and European options may
only be exercised if the growth in the Company's share price over a
consecutive three-year period exceeds the growth over the same period in the
FT-SE All Share Index. This condition was satisfied for the first time in
March 2000. Employees with options that are within their exercise period are
now able to exercise those options within any one-year period from the date
the performance condition is satisfied. Super Options are exercisable after
five years and are subject to higher performance conditions in accordance with
those recommended by the Association of British Insurers.

    The following table summarises the activity in share options for the year
to December 31, 1999 and the year to December 31, 2000:

<TABLE>
<CAPTION>
                                          Share Options          Option Price
                                        ------------------    ------------------
<S>                                    <C>                   <C>
At January 1, 1999.................             15,341,644        44.8p - 145.0p
Granted............................             15,446,096        56.7p -  69.5p
Exercised..........................               (214,073)                44.8p
Cancelled or expired...............             (2,786,354)       75.0p - 145.0p
                                        ------------------
At December 31, 1999...............             27,787,313        44.8p -  93.0p
Granted............................              4,059,406        81.7p -  91.3p
Exercised..........................             (3,226,174)       44.8p -  81.5p
Cancelled or expired...............             (2,303,717)       44.8p -  93.0p
                                        ------------------    ------------------
At December 31, 2000...............             26,316,828        44.8p -  93.0p
                                        ==================    ==================
</TABLE>


    The market value of ordinary shares as at December 31, 2000 was 64.0 pence
(December 31, 1999: 48.25 pence). The market value of ordinary shares during
2000 ranged from the lowest closing mid-price of 49.75 pence to the highest
closing mid-price of 190.0 pence per share.


                                      F-42

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

22  Share Capital (continued)

    At December 31, 2000 the following ordinary shares were under option to
employees or former employees of the Group:

<TABLE>
<CAPTION>
                   Option
                  Price for
                    each         Number of Options
                  ordinary         over ordinary
                  share of           shares of                 Expiration
                  10 pence            10 pence                    Date
                  ---------   -----------------------    -----------------------
<S>                   <C>                   <C>                         <C>
                      75.0p                 1,525,744                   04-29-06
                      92.0p                   417,255                   05-28-06
                      81.0p                 1,234,568                   12-06-06
                      66.5p                 1,074,414                   04-07-07
                      51.0p                   124,073                   01-28-08
                      93.0p                   872,974                   03-31-08
                      44.8p                 2,380,903                   10-05-08
                      69.5p                 3,813,725                   04-19-09
                      56.7p                 9,673,700                   05-25-09
                      56.9p                 1,298,066                   09-07-09
                      91.3p                 1,514,609                   06-06-10
                      81.7p                 2,386,797                   11-03-10
                              -----------------------
                                           26,316,828
                              =======================
</TABLE>


23  Shares and Warrants to be issued

<TABLE>
<CAPTION>
                                                                   (L)'000
                                                              ------------------
<S>                                                          <C>
                  At January 1, 1999 .....................                 6,281
                  Reclassification .......................                39,500
                  Increase ...............................                 1,250
                  Revaluation ............................                (8,900)
                                                              ------------------
                  At December 31, 1999 ...................                38,131
                  Revaluation ............................                (3,618)
                  Issue of equity shares .................                (6,908)
                  Issue of non-equity shares .............               (22,620)
                                                              ------------------
                  At December 31, 2000 ...................                 4,985
                                                              ==================
</TABLE>


Jago Deferred Consideration

    At March 31, 2000, a Settlement Agreement was signed establishing the full
and final settlement of the deferred consideration payable to the vendor of
Jago, Dr Gonella. The settlement was approved by shareholders at the Company's
Annual General Meeting held on July 11, 2000 to be made entirely in shares. On
July 20, 2000, 6 million ordinary shares were issued to Dr Gonella at a price
of 94.25 pence. Also on July 20, 2000, 24 million Deferred non-equity Shares
were issued. The contingencies determining the conversion of the Deferred
Shares into ordinary shares are set out in Note 22: Share Capital. In the
event that these conditions are not satisfied prior to May 3, 2006, the
Deferred Shares will not be converted and will be cancelled. The vendor will
not be entitled to any other compensation nor additional compensation. On
issue, the ordinary and Deferred Shares were recorded in share capital and
share premium. At December 31, 1999 prior to the issue of shares, in the
Directors' opinion, 30 million ordinary shares were likely to be issued under
the terms of the Settlement Agreement and a figure of (L)33 million was
recorded within shares and warrants to be issued, based upon a closing share
price of 110 pence on March 31, 2000, the date of the Settlement Agreement.


                                      F-43

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

23  Shares and Warrants to be issued (continued)

Krypton Deferred Consideration

    The deferred consideration on the acquisition of Krypton was revised on
April 26, 1996, such that a maximum of 37.5 million ordinary shares and 37.5
million `B' Warrants would be issued contingent on a change in control of the
Company at a share price of not less than 80 pence compounded at an annual
rate of 10 percent, or satisfaction of the following conditions and hurdles:

      (i)   2.5 million ordinary shares and 2.5 million `B' Warrants on each
            Krypton product obtaining ANDA approval subject to a maximum of
            7.5 million ordinary shares and 7.5 million `B' Warrants;

      (ii)  an additional 10 million ordinary shares and 10 million `B'
            Warrants in the event that the aggregate annual sales of the
            Krypton products exceeds $50 million and the Company is profitable
            in respect of these products before December 31, 2003;

      (iii) an additional 10 million ordinary shares and 10 million `B'
            Warrants in the event that the aggregate annual sales of the
            Krypton products and annual revenues of the Company exceeds $200
            million and the Company is profitable in respect of these products
            before December 31, 2003;

      (iv)  an additional 10 million ordinary shares and 10 million `B'
            Warrants in the event that the aggregate annual sales of the
            Krypton products and annual revenues of the Company exceeds $275
            million and the Company is profitable in respect of these products
            before December 31, 2003.

    In the event that two of hurdles (i), (ii) and (iii) are satisfied in
relation to any single year's sales, only the first such hurdle will be
considered as having been satisfied.

    Certain of the hurdles relating to the Krypton acquisition were not
formulated to take account of the detailed arrangements currently envisaged by
the Company. Should any of the Krypton products be approved and marketed,
SkyePharma will need to renegotiate elements of the Krypton acquisition
agreement.

    The Directors have formed the opinion that until products are marketed and
agreement is reached with the Krypton vendors, certain elements of deferred
consideration cannot be estimated with any degree of certainty. Therefore the
deferred consideration recognised in the accounts at December 31, 2000 relates
only to the extent that hurdle (i) is reasonably expected to be met.

    Consequently, an estimate of (L)5.0 million has been recognised as deferred
consideration at December 31, 2000 (December 31, 1999: (L)3.9 million) based
on market prices on December 31, 2000 and 1999 for 7.5 million ordinary shares
and 7.5 million `B' Warrants.

Medac Deferred Consideration

    At December 31, 1999, (L)1.2 million was recorded within shares and
warrants to be issued for the $2.0 million of ordinary shares to be issued to
Medac GmbH under the purchase agreement for their intellectual property. On
July, 21 2000, 1,461,455 ordinary shares, with a market value of $2.0 million
were issued to Medac. A final payment of $3.0 million was made on April 17,
2001 (see Note 18: Provisions for liabilities and charges).


                                      F-44

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

24  Reserves

<TABLE>
<CAPTION>
                                                                                                       Currency
                                                Equity Share       Non-Equity          Other         Translation       Profit and
                                                   Premium       Share Premium       Reserves          Reserve        loss account
                                                   (L)'000          (L)'000           (L)'000          (L)'000           (L)'000
                                                -------------     -------------    -------------     -------------    -------------
<S>                                            <C>               <C>              <C>               <C>              <C>
At January 1, 1998 .........................          155,868                --           10,791              (640)       (264,268)
On issue of shares and warrants ............           24,328                --              271                --               --
On conversion of debentures ................            6,019                --               --                --               --
On exercise of warrants ....................               --                --               (2)               --               --
Goodwill adjustment on deferred
  consideration.............................               --                --               --                --           45,671
Exchange adjustments .......................               --                --               --             1,302               --
Loss for the year ..........................               --                --               --                --          (22,096)
                                                -------------     -------------    -------------     -------------    -------------
At December 31, 1998 .......................          186,215                --           11,060               662        (240,693)
On issue of shares and warrants ............           33,046                --               --                --               --
On conversion of debentures ................            1,828                --               --                --               --
On exercise of warrants ....................                2                --               (2)               --               --
Goodwill adjustment on deferred
  consideration.............................               --                --               --                --            8,900
Write-off of goodwill attributable to Joint
  Venture...................................               --                --               --                --            5,760
Exchange adjustments .......................               --                --               --            (2,847)              --
Loss for the year ..........................               --                --               --                --          (19,414)
                                                -------------     -------------    -------------     -------------    -------------
At December 31, 1999 .......................          221,091                --           11,058            (2,185)        (245,447)
On issue of shares and warrants ............           20,121            20,220              212                --               --
On exercise of warrants ....................               58                --              (58)               --               --
On conversion of debentures ................               79                --               --                --               --
Goodwill adjustments on deferred
  consideration.............................               --                --               --                --            3,618
Exchange adjustments .......................               --                --               --               758               --
Loss for the year ..........................               --                --               --                --          (19,690)
                                                -------------     -------------    -------------     -------------    -------------
At December 31, 2000 .......................          241,349            20,220           11,212            (1,427)        (261,519)
                                                =============     =============    =============     =============    =============
</TABLE>


    Other reserves at December 31, 2000 relate to merger reserve on acquisition
and warrant reserve on issue of warrants.

    As at December 31, 2000, the cumulative amount of goodwill eliminated
against reserves was (L)152,617,000 (1999: (L)156,235,000; 1998:
(L)170,895,000).

    The non-equity share premium account was created during the year on issue
of 24 million Deferred Shares. See Note 22: Share Capital.


                                      F-45

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

25  Financial Instruments

    The Group holds financial instruments to finance its operations and to
manage the currency risk that arises from these operations. The Group finances
its operations through a combination of shareholders' funds, convertible
bonds, bank loans and long-term borrowings. The main risks arising from the
Group's financial instruments are liquidity risk, foreign currency, interest
rate risk and credit risk.

Liquidity risks

    The Group's policy is to maintain continuity of funding through a mixture
of long-term debt and bank loans, raised to cover specific projects, and
through the issue of shares to collaborative partners, where necessary, to
obtain development contracts. During the year (L)59.4 million of funding was
raised in sterling through the issue of convertible bonds. Further debt
finance was raised through the issue of a note to a collaborative partner,
Chiron. Short-term flexibility is provided through the use of overdrafts. The
maturity profile of the Group's debt is set out below at note (c).

Foreign currency risk

    All of the Group's operations are based overseas in Continental Europe and
the U.S. giving rise to exposures to changes in foreign exchange rates notably
the Swiss Franc, French Franc and U.S. dollar. To minimise the impact of any
fluctuations, the Group's policy has historically been to maintain natural
hedges by relating the structure of borrowings to the trading cash flows that
generate them. Where subsidiaries are funded centrally, this is achieved by
the use of long-term loans the exchange differences on which are taken to
reserves. Where it was not possible to use natural hedges, forward currency
contracts were used. During 2000, (L)59.4 million of funding was raised in
sterling. As a result the Group has actively used forward currency contracts
and currency options during the year to minimise the currency exposure on
operational transactions. Foreign currency exchange movements did not have a
material impact on the results of operations in 2000 compared with 1999.

Interest rate risk

    The Group borrows at fixed and floating rates of interest as deemed
appropriate for its circumstances. Where necessary the Group uses interest
rate swaps to achieve the desired interest rate profile. During the year the
Group entered a cancellable, floating rate, interest rate swap on (L)30
million of the 6% convertible bond liability. The interest rate profile of the
Group's financial assets and liabilities is set out in note (a) and (b)
respectively.

Credit risk

    The Group is exposed to credit related losses in the event of non-
performance by third parties to financial instruments. The Group does not
expect any third parties to fail to meet their obligations given the policy of
selecting only parties with high credit ratings and minimising its exposure to
any one institution.

    In the numerical disclosures that follow, short-term debtors and creditors
that arise directly as a result of the Group's operations are excluded from
all disclosures with the exception of note (f) on currency exposures.


                                      F-46

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

25  Financial Instruments (continued)

(a) Interest Rate and Currency Profile of Financial Assets
    December 31, 2000

<TABLE>
<CAPTION>
                                                                               Floating
                                                                                 rate            Non interest           Total
                                                                              financial            bearing            financial
Currency                                                                        assets         financial assets       net assets
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Sterling...............................................................              32,170                 252              32,422
$US....................................................................               8,993                 215               9,208
French francs..........................................................                   7                  --                   7
Swiss francs...........................................................                  23                  --                  23
Other..................................................................               1,218                  --               1,218
                                                                           ----------------    ----------------    ----------------
                                                                                     42,411                 467              42,878
                                                                           ================    ================    ================
</TABLE>


    Financial assets primarily comprise cash and short-term bank deposits.

    Included within the sterling denominated financial assets shown above for
2000, is (L)4 million, placed on deposit for 18 months in December 2000, at a
capped rate. The Group will receive 6.5% for each successive week that the
two-year sterling swap rate stays below 7.0%. If the two-year sterling swap
rate sets above 7.0%, no coupon will accrue for that week.

    All other of the Group's financial assets, in both 2000 and 1999, either
bear interest at floating rates based upon the floating bank rate in the
country in which the funds are held or are non interest bearing.

December 31, 1999

<TABLE>
<CAPTION>
                                                                               Floating          Non interest           Total
                                                                                 rate              bearing            financial
Currency                                                                   financial assets    financial assets       net assets
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Sterling...............................................................               6,046                 305               6,351
$US....................................................................               4,679                 197               4,876
French francs..........................................................               1,749                 620               2,369
Swiss francs...........................................................                  68                  --                  68
Other..................................................................                  --                  10                  10
                                                                           ----------------    ----------------    ----------------
                                                                                     12,542               1,132              13,674
                                                                           ================    ================    ================
</TABLE>



                                      F-47

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

25  Financial Instruments (continued)

(b) Interest Rate and Currency Profile of Financial Liabilities
    December 31, 2000

<TABLE>
<CAPTION>
                                                                                               Weighted average
                                      Fixed rate        Floating rate                          interest rate on    Weighted average
                                      financial           financial        Total financial     fixed financial      time for which
Currency                             liabilities         liabilities         liabilities         liabilities        rate is fixed
                                       (L)'000             (L)'000             (L)'000                %                (months)
                                   ----------------    ----------------    ----------------    ----------------    ----------------
<S>                                <C>                 <C>                 <C>                 <C>                 <C>
Sterling.......................              29,400              30,000              59,400                6.00                53.5
$US............................                  --               7,989               7,989                  --                  --
French francs..................               2,391                 767               3,158                6.25                27.9
Swiss francs...................               4,386               6,089              10,475                3.04                35.0
                                   ----------------    ----------------    ----------------    ----------------    ----------------
                                             36,177              44,845              81,022                5.66                49.2
                                   ================    ================    ================    ================    ================
</TABLE>


    Financial liabilities primarily comprise bank and other loans and
convertible bonds.

    The sterling denominated, floating rate financial liability shown above
represents (L)30 million of the (L)59.4 million convertible bond liability
that has been subject to an interest rate swap agreement for the life of the
bonds. The Company will pay 5.6% on (L)30 million until June 19, 2001 and
thereafter will pay LIBOR less 0.725 per cent. The weighted average interest
rate on the convertible bond during 2000 was 5.8%.

    Total financial liabilities does not agree to the total of the balance
sheet captions due to the presence of (L)1,854,000 of unamortised issue costs
within value shown on the balance sheet for convertible bonds.

    All other floating rate financial liabilities, in both 2000 and 1999, are
interest bearing financial liabilities that bear interest at interest rates
based on LIBOR, prime and other bank based lending rates in the country in
which the liability arises, which are fixed for periods of up to 12 months.

    The non-equity Deferred 'A' and 'B' Shares hold no rights to dividends. See
Note 22: Share Capital.

December 31, 1999

<TABLE>
<CAPTION>
                                                                                               Weighted average
                                      Fixed rate        Floating rate           Total          interest rate on    Weighted average
                                      financial           financial           financial        fixed financial      time for which
                                     liabilities         liabilities         liabilities         liabilities        rate is fixed
Currency                               (L)'000             (L)'000             (L)'000                %                (months)
                                   ----------------    ----------------    ----------------    ----------------    ----------------
<S>                                <C>                 <C>                 <C>                 <C>                 <C>
Sterling.......................                 103                  --                 103               5.68%                13.6
$US............................                 370               8,921               9,291              10.84%                 4.6
French francs..................               2,801                 598               3,399               6.25%                48.0
Swiss francs...................               3,591               5,544               9,135                5.0%                21.9
                                   ----------------    ----------------    ----------------    ----------------    ----------------
                                              6,865              15,063              21,928               5.84%                31.5
                                   ================    ================    ================    ================    ================
</TABLE>



                                      F-48

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

25  Financial Instruments (continued)

(c) Maturity of Financial Liabilities

<TABLE>
<CAPTION>
                                                                                                 December 31,        December 31,
                                                                                                     2000                2000
                                                         December 31,        December 31,         Fixed rate        Floating rate
                                                             1999                2000             financial           financial
                                                            Total               Total            liabilities         liabilities
                                                           (L)'000             (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Within one year....................................               8,365               9,940               2,117               7,823
Between one and two years..........................               4,177               4,023                 842               3,181
Between two and three years........................               2,970               1,790                 844                 946
Between three and four years.......................                 912               3,141               2,974                 167
Between four and five years........................               2,946              59,565              29,400              30,165
Beyond five years..................................               2,558               2,563                  --               2,563
                                                       ----------------    ----------------    ----------------    ----------------
                                                                 21,928              81,022              36,177              44,845
                                                       ================    ================    ================    ================
</TABLE>


    The non-equity Deferred 'A' and 'B' shares will convert to ordinary shares
on the occurrence of certain future contingent events. See Note 22: Share
Capital.

(d) Borrowing Facilities

    As at December 31, 2000 the Group had the following undrawn committed
borrowing facilities available.

<TABLE>
<CAPTION>
                                              December 31,        December 31,
                                                  1999                2000
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Expiring within one year................               1,608                  --
                                            ================    ================
</TABLE>



                                      F-49

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

25  Financial Instruments (continued)

(e) Fair Values

    The comparison of fair and book values of all the Group's financial
instruments as at December 31, 2000 is set out below. Market values have been
used to determine the fair values of all swaps and foreign currency contracts.
The fair value of the non-equity Deferred 'A' and 'B' shares has been
calculated by reference to the Ordinary Share price at December 31, 2000,
based upon the Director's opinion that 24 million Ordinary Shares will be
issued in settlement of the deferred consideration payable on the acquisition
of Jago. See Note 22: Share Capital for details of the contingencies that
shall determine the issuance of the Ordinary Shares. The fair values of all
other items have been calculated by discounting future cash flows at interest
rates prevailing at December 31, 2000. At December 31, 1999 there was no
material difference between the estimate fair values of the Group's financial
instruments and their book values.

<TABLE>
<CAPTION>
                                              Book Values         Fair values
                                                (L)'000             (L)'000
                                            ----------------    ----------------
<S>                                         <C>                 <C>
Financial instruments held or issued to
  finance the Group's operations:
Cash at bank and in hand................              10,769              10,769
Short-term bank deposits................              32,109              32,109
                                            ----------------    ----------------
Total financial assets..................              42,878              42,878

Short-term borrowings and current
  portion of long-term borrowings.......              (9,940)             (9,940)
Long-term convertible debt..............             (59,400)            (46,022)
Other long-term debt....................             (11,682)            (10,942)
                                            ----------------    ----------------
Total financial liabilities.............             (81,022)            (66,904)
Non-equity Deferred 'A' and 'B' Shares..             (22,620)            (15,360)
                                            ----------------    ----------------
At December 31, 2000....................             (60,764)            (39,386)
                                            ================    ================
Derivative financial instruments held
  to manage the Group's interest rate
  and currency profile:
Interest rate swap......................                  --                 822
Euro currency options...................                  --                 221
US$ currency options....................                  --                (104)
                                            ----------------    ----------------
At December 31, 2000....................                  --                 939
                                            ================    ================
</TABLE>


    The fair value of the interest rate swap is based upon the agreement
continuing for the life of the convertible bonds. At current interest rates
and forward rates it is probable that the Royal Bank of Scotland will cancel
the agreement at the end of the first year.


                                      F-50

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

25  Financial Instruments (continued)

(f) Currency Exposures

    The following analysis shows the net monetary assets and liabilities of
Group companies that are not denominated in their functional currency and
therefore give rise to exchange gains and losses in the income statements in
both 2000 and 1999.

At December 31, 2000
<TABLE>
<CAPTION>
                                                                                   French        Swiss
Functional currency of Operating Company               Sterling        $US         francs       francs        Other         Total
                                                        (L)'000      (L)'000       (L)'000      (L)'000      (L)'000       (L)'000
                                                       ---------     ---------    ---------    ---------     ---------    ---------
                                                                    Net foreign currency monetary assets/(liabilities)
<S>                                                    <C>          <C>          <C>           <C>          <C>          <C>
Sterling...........................................           --         4,179            7           --            --        4,186
$US................................................       (2,254)           --           --           --            --       (2,254)
French francs......................................       (1,528)           80           --           --            --       (1,448)
Swiss francs.......................................       (1,445)         (870)          --           --         1,197       (1,118)
                                                       ---------     ---------    ---------    ---------     ---------    ---------
                                                          (5,227)        3,389            7           --         1,197         (634)
                                                       =========     =========    =========    =========     =========    =========
</TABLE>


At December 31, 1999

<TABLE>
<CAPTION>
Functional currency of Operating Company                                           French        Swiss
                                                       Sterling        $US         francs       francs        Other         Total
                                                        (L)'000      (L)'000       (L)'000      (L)'000      (L)'000       (L)'000
                                                       ---------     ---------    ---------    ---------     ---------    ---------
                                                                    Net foreign currency monetary assets/(liabilities)
<S>                                                    <C>          <C>          <C>           <C>          <C>          <C>
Sterling...........................................           --           246            7           (8)          (38)         207
$US................................................       (1,083)           --           --           73            48         (962)
French francs......................................       (1,182)           --           --           --            --       (1,182)
Swiss francs.......................................       (1,776)         (133)         623           --           (15)      (1,301)
                                                       ---------     ---------    ---------    ---------     ---------    ---------
                                                          (4,041)          113          630           65            (5)      (3,238)
                                                       =========     =========    =========    =========     =========    =========
</TABLE>


(g) Hedging

    As explained above, the Group's policy is to hedge interest rate exposures
through the use of interest rate swaps and currency exposures through the use
of currency options and forward foreign currency contracts. Gains and losses
on instruments used for hedging are not recognised until the exposure that is
being hedged is recognised.

    At December 31, 2000, the Company had written options to purchase (L)7.2
million Euros and (L)5.3 million U.S. dollars. These outstanding contracts
have maturities of less than twelve months. There were no other forward
foreign currency contracts open at December 31, 2000. The excess of fair
values over book values for currency options shown in Note 25 (e) represents
the unrecognised hedging gain on these instruments as at December 31, 2000.
The actual gains or losses arising on these currency options will be dependent
on future exchange rates and will be recognised in the income statement, in
2001, as the operational transactions to which they are linked, occur.


                                      F-51

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

25  Financial Instruments (continued)

    The excess of fair values over book values for interest rate swaps shown in
Note 25 (e) represents the unrecognised hedging gain on the swap as at
December 31, 2000. This is based upon the agreement continuing for the life of
the convertible bonds and as such the gain would be spread in the profit and
loss account until 2005 . However, it is unlikely that the entire gain will be
recognised in the profit and loss account since at current interest rates and
forward rates it is probable that the Royal Bank of Scotland will cancel the
agreement at the end of the first year.

    There were no derivative interest rate or currency instruments at December
31, 1999 to generate a hedging gain or loss.

26  Pension Arrangements

    The Group operates various defined contribution plans for its employees in
the U.K., Switzerland and the U.S. The Group's contributions to these plans
are charged to the income statement in the year to which they relate, and the
assets are held in separate trustee administered funds. The charge for the
year ended December 31, 2000 amounted (L)532,000 (1999: (L)513,000; 1998:
(L)497,000).

    The Group operates a defined benefit scheme in respect of its employees in
France, the assets of which are not held by an externally administered fund.
On acquisition of SkyePharma Production SAS in January 1997, the retirement
commitments were valued and a provision set up. The actuarial method used was
the unit credit with service prorate actuarial cost method. Main assumptions
include a discount rate of 6.29% and a rate of salary increase of 3.5%. The
calculation of accrued benefits used in valuing the retirement benefit
commitment was prepared on the basis of the pharmaceutical industry's
collective bargaining agreement applying to the relevant employees. In 2000
(L)49,000 of the provision was utilised. In 1999 the scheme was revalued and a
gain of (L)44,000 (Year to December 31, 1998: (L)29,000 charge) was
recognised.

27  Related Party Transactions

    During the year fees amounting to (L)69,000 (1999: (L)99,000; 1998:
(L)66,000), were paid to Rinderknecht, Klein & Stadelhofer in which Dr
Rinderknecht, a Director of the Company until November 2000, is a partner, in
respect of legal advice to SkyePharma AG and to the Company.

    At the end of December 1998, Ian Gowrie-Smith, (through a family owned
trust), acquired a 50% interest in 10 East 63rd Street Inc., the company which
owns 10 East 63rd Street, a property in New York. SkyePharma PLC has been in
occupation of that property since January 1997, subject to a tenancy agreement
which expired in January 1999, under which it paid a rent of US$300,000 per
annum. In January 1999 the lease was renewed on the same terms. Approximately
one third of the premises are subleased to Fifth Avenue Capital Inc., an
unrelated company. In February 2001 the lease became renewable. The lease is
currently being renegotiated and an independent valuation obtained.

    In 1999, under the agreement for the winding up of the Joint Venture, an
amount of $1,000,000 became payable to VECAP, a company of which Dr
Rinderknecht is a director, as their share of the Joint Venture's licence
fees. This charge was recognized during 1999 and the payment made in 2000.


                                      F-52

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

28  Principal Group Undertakings

<TABLE>
<CAPTION>
                                 Country of
Company                          Incorporation       Percentage held     Principal activities
-------------------              ----------------    ----------------    ----------------------------------------------------------
<S>                              <C>                 <C>                 <C>
Krypton Limited                  Gibraltar           100%                Exploitation of intellectual property
SkyePharma Holding Inc.*         U.S.                100%                Holding company
Brightstone Pharma Inc.          U.S.                100%                Development of pharmaceuticals and licensing
SkyePharma Inc.                  U.S.                100%                Development of pharmaceuticals
SkyePharma Holding AG*           Switzerland         100%                Holding company
Jago Holding AG                  Switzerland         100%                Holding company
SkyePharma AG                    Switzerland         100%                Research and development
Jago Research AG                 Switzerland         100%                Exploitation of intellectual property
Jagotec AG                       Switzerland         100%                Exploitation of intellectual property
SkyePharma Production SAS*       France              100%                Manufacturing of pharmaceuticals
</TABLE>

---------------

*   Denotes investment directly held by the Company

29  Summary of Material Differences between U.K. and U.S. GAAP

    The principal differences between U.K. and U.S. GAAP arise from accounting
for the acquisitions made by SkyePharma PLC during 1996, 1997 and 1999, the
treatment of deferred consideration and differences associated with revenue
recognition.

(1) Business combinations

    Under both U.K. and U.S. GAAP the acquisitions of Jago Holdings AG,
SkyePharma Production SAS (formerly Laboratories Novalis Production SAS) and
SkyePharma Inc. (formerly DepoTech Corporation) are accounted for as
acquisitions/purchases. Both U.K. and U.S. GAAP require the purchase
consideration to be allocated to the net assets acquired at their fair value
at the date of acquisition, with the difference between the consideration and
the fair value of the net assets acquired treated as goodwill. In the
allocation of consideration, and the treatment of deferred consideration,
differences between U.K. and U.S. GAAP arise as set out below.

(a) Goodwill and intangible fixed assets

    U.K. GAAP requires an allocation of purchase consideration to intangible
assets which are separable from the business. Under U.K. GAAP no intangible
assets have been recognised as a result of purchase accounting as the
intangible assets were considered to be an integral part of the business
acquired and are, therefore, included within goodwill and eliminated against
shareholders' funds. Following the introduction of FRS10 there is a
requirement to capitalise such goodwill as an intangible asset and amortize it
over a suitable period not normally exceeding 20 years. The Company has
adopted transitional provisions under FRS10 not to reinstate goodwill,
previously eliminated against reserves, as an intangible asset.

    U.S. GAAP requires an allocation of consideration to identifiable
intangible assets, including any resulting from research and development,
irrespective of whether they are separable. Intangible fixed assets recognized
under U.S. GAAP purchase accounting requirements are depreciated over their
estimated revenue earning life. For the purposes of U.S. GAAP, the estimated
revenue earning life has been taken to be 20 years, being the estimated
remaining life of the Geomatrix patents plus five years. In addition the
Company effected its dissolution of the Joint Venture with Genta. Under U.K.
GAAP, goodwill arising before the introduction of FRS 10, which had been
written-off directly to reserves, must be charged to the profit and loss
account on the dissolution of the Joint Venture. Under U.S. GAAP, goodwill
arising from the acquisition less amounts previously amortized must be charged
to the profit and loss account on the dissolution of the Joint Venture.


                                      F-53

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

    The carrying value of intangible assets is reviewed annually for any
permanent impairment in value. Goodwill impairment is evaluated in relation to
events or changes in circumstances that indicate that the carrying amount may
not be recoverable. Where such events or changes have occurred, the carrying
value of goodwill is evaluated against an estimate of future cash flows from
the related business and assets acquired, and where appropriate, reduced to
fair value measured in conjunction with such related assets.

(b) Negative goodwill on acquisition

    Prior to the introduction of FRS10 under U.K. GAAP for business
acquisitions, where the aggregate of the fair values of the net assets
acquired exceeds the cost of the acquired net assets resulting in negative
goodwill, such excess was credited directly to reserves. Negative goodwill
arising on the acquisition of Jago Production SAS has been accounted for
according to this policy. Under U.S. GAAP such excess is eliminated by
proportionately reducing the value of the non-current assets acquired.

(c) Acquired in-process research and development

    Under U.S. GAAP acquired in-process research and development which does not
have an alternative future use is separately identified and written off
directly to net income in the period that the acquisition was made. The write-
off of in-process research and development under U.S. GAAP will result in a
lower amortization charge for goodwill capitalized under both U.K. and U.S.
GAAP.

    Acquired in-process research and development of (L)4,268,000 in 1999
related to the fair value of certain efforts undertaken internally by DepoTech
to further develop its DepoFoam technology. As of the acquisition date, these
particular efforts had not resulted in any licensed, commercial products or
tangible assets with alternative future use. The amount allocated to in-
process research and development was based upon an independent valuation of
the research and development efforts. Any expenditure on technologies other
than DepoCyt, which had been licensed, was considered to have not yet been
proven and, due to the specific nature of the development efforts, was
regarded as having no alternative future use.

(d) Measurement of purchase consideration

    The Company effected its acquisition of Krypton through the exchange of
shares and warrants and recorded the consideration at the estimated fair value
of the shares and warrants.

    Under U.K. GAAP, the fair value of the shares and warrants issued for the
acquisition was estimated by reference to the price that the Company's shares
were issued for on the same day under a rights issue and public placing. U.S.
GAAP, APB Opinion 16 requires that the fair value of shares and warrants
issued to effect a business combination be based on the market price for a
reasonable period before and after the date the terms of the acquisition were
agreed to and announced. The market prices of the shares issued in the
acquisition, after adjusting for the 1 for 10 reverse stock split in May 1996,
was 76.10 pence per ordinary share. The market price of the warrants was 6.75
pence. The effect of this difference was to increase the value measurement of
purchase consideration which is allocated to acquired in-process research and
development with an offsetting adjustment to share premium on acquisition.

(e) Deferred consideration

    U.K. GAAP requires a reasonable estimate of the fair value of any deferred
consideration to be included in the cost of acquisition. Under U.S. GAAP
deferred consideration is only recognized when the amount is determinable
beyond reasonable doubt.


                                      F-54

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

(2) Deferred Tax

    Under U.K. GAAP, deferred tax is recognized to the extent that it is
probable that a tax liability will become payable or an asset will be
recoverable in the foreseeable future. Under U.S. GAAP, full provision is
required for deferred tax liabilities and deferred tax assets including losses
carried forward recognized subject to valuation allowances. Given the
uncertainty of the recoverability of the Group's tax losses carried forward,
no deferred tax asset is recognized under U.K. GAAP and a valuation allowance
has been provided in full for the deferred tax assets recognized under U.S.
GAAP (December 31, 2000: (L)48,294,000; December 31, 1999: (L)37,314,000;
December 31, 1998: (L)13,155,000).

(3) Financial instruments

 Concentrations of Credit Risk

    Financial instruments that potentially subject the Group to concentration
of credit risk consists primarily of cash and cash equivalents and short-term
bank deposits.

    The Group places its cash and cash equivalents and short-term bank deposits
through high credit quality financial institutions diversifying its holdings
of short-term financial instruments across a range of money market instruments
of a variety of counterparties and, by policy, limits the amount of credit
exposure with any one counterparty.

 Disclosure About Fair Value of Financial Instruments

    The carrying amounts of cash and cash equivalents, short-term bank deposits
and accounts payable approximate fair value because of the short maturity of
these items.

    The carrying amount of the secured mortgage and debt issued pursuant to the
Group's bank credit arrangements approximate fair values because the interest
rates on these instruments are variable and negotiated each year. Long-term
debt at December 31, 1998 included deferred consideration amounting to
(L)39,500,000 and represented the directors' estimate of the current value of
the earn-out payment payable to the vendor in respect of the acquisition of
Jago. Following the agreement to settle this liability in shares rather than
cash, (L)39,500,000 was shown as shares and warrants to be issued at December
31, 1999. These shares were issued during the year ended December 31, 2000.
Further details are provided in Note 22: Share Capital and Note 23: Shares and
Warrants to be issued.


                                      F-55

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

    The carrying value and estimated fair values of the Group's financial
instruments at December 31:

<TABLE>
<CAPTION>
                                                       Carrying amount        Fair value       Carrying Amount        Fair value
                                                             1999                1999                2000                2000
                                                           (L)'000             (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
On balance sheet
Assets
Cash and cash equivalents..........................               3,465               3,465              10,769              10,769
Short-term bank deposits...........................              10,209              10,209              32,109              32,109
                                                       ----------------    ----------------    ----------------    ----------------
                                                                 13,674              13,674              42,878              42,878
                                                       ================    ================    ================    ================
Liabilities
Short-term borrowings..............................               8,365               8,365               9,940               9,940
Long-term debt.....................................              13,563              13,563              71,082              56,964
                                                       ----------------    ----------------    ----------------    ----------------
                                                                 21,928              21,928              81,022              66,904
                                                       ================    ================    ================    ================
Off balance sheet
Interest rate swap.................................                  --                  --                  --                 822
Euro currency options..............................                  --                  --                  --                 221
US $ currency options..............................                  --                  --                  --                (104)
                                                       ----------------    ----------------    ----------------    ----------------
                                                                     --                  --                  --                 939
                                                       ================    ================    ================    ================
</TABLE>


 Financial Instruments with off-balance sheet risk

    Beginning in June 1996 and where natural hedges have not been sufficient or
possible, the Group has selectively entered into forward currency contracts to
fix certain of the non-sterling funding requirements of its principal
subsidiaries. The primary non-sterling exposures are denominated in U.S.
dollars, Swiss francs and French francs. The contracts generally have
maturities not exceeding six months. Gains or losses on these contracts are
not recorded until the maturity of the contracts, where upon they are recorded
as an adjustment to administrative expenses, consistent with the underlying
non-sterling expenses that are required to be funded. Losses on forward
contracts maturing during 1998 were (L)126,000. No forward contracts were
entered into during 1999. During 2000, (L)59.4 million of funding was raised
in sterling and as a result the Group has actively used forward currency
contracts and currency options. No gain or loss was recognised on these
contracts during 2000.

    At December 31, 1998 and 1999 the Company had no outstanding contracts to
buy foreign currency. At December 31, 2000, the Company had written options to
purchase (L)7.2 million euros and (L)5.3 million U.S. dollars. There were no
other forward foreign currency contracts open at December 31, 2000. The
unrecognized gains from such contracts at December 31, 2000 were (L)117,000.

(4) Fixed asset investments

    Under U.K. GAAP, fixed asset investments are stated at cost less provision
for permanent diminution in value. Under U.S. GAAP, fixed asset investments
classified as available for sale are stated at market value and the unrealised
gains/losses are accounted for in shareholders' funds. In the year to December
31, 2000 there were no unrealised gains or losses accounted for in
shareholders' equity. In the year to December 31, 1999 there were no
unrealised gains or losses accounted for in shareholders' equity as the fixed
asset investment to which the 1998 balance related was transferred to shares
in group undertakings in conjunction with the acquisition of DepoTech. (Year
to December 31, 1998 (L)1,032,000 increase).


                                      F-56

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

(5) Shares to be issued

    Under U.K. GAAP, consideration payable in the future in shares only is
included in shareholders' funds as shares to be issued. Under U.S. GAAP, such
amounts would be recorded in provisions when the amount is determinable beyond
reasonable doubt until such time as shares are actually issued.

(6) Joint arrangements

    Under U.K. GAAP, where the Group has certain contractual agreements with
other participants to engage in joint activities that do not create an entity
carrying on a trade or business of its own, they are accounted for as a joint
arrangement. The Group includes its share of the assets, liabilities and cash
flows in such joint arrangements measured in accordance with the terms of each
arrangement which is usually pro-rata to the Group's interest in the joint
arrangement. Under U.S. GAAP, such arrangements are viewed as synthetic Joint
Ventures and accounted for under the gross equity method. This difference does
not have an impact on the overall net loss of the Group but under U.S. GAAP,
selling and marketing costs and research and development costs would be
reduced by (L)2,250,000 and (L)2,665,000 respectively and be shown net as the
Group's share of the operating loss in the Joint Venture. The difference has
no impact on the Group's overall consolidated cash flow although under U.S.
GAAP operating cash outflows would be (L)4,915,000 higher and cash outflows
from investing activities would be (L)4,915,000 lower.

(7) Consolidated Cash Flow Statements

    The consolidated cash flow statements prepared in accordance with FRS 1
(Revised) presents substantially the same information as that required under
U.S. GAAP, however, there are certain differences from U.K. GAAP with regard
to the classification of items within the cash flow statement and with regard
to the definition of cash and cash equivalents.

    Under U.K. GAAP, cash flows are presented separately for trading
activities, returns on investments and servicing of finance, taxation, capital
expenditure, acquisitions and disposals, management of liquid resources and
financing activities. Under U.S. GAAP, however, only three categories of cash
flow activities are reported, being operating activities, investing activities
and financing activities. Cash flows from taxation and returns on investments
and servicing of finance would, with the exception of dividends paid, be
included as operating activities under U.S. GAAP. Cashflows from capital
expenditure, acquisitions and disposals would be combined as investing
activities under U.S. GAAP.

    Under U.S. GAAP, cash and cash equivalents do not include overdrafts, but
do include investments with remaining maturities of less than 3 months when
acquired.


                                      F-57

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

    Set out below, for illustrative purposes, is a summary consolidated
statement of cash flows under U.S. GAAP.

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                               (L)'000             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Net cash used in operating activities..................................              (9,460)            (15,313)            (11,196)
Net cash used in investing activities..................................              (5,321)            (11,195)            (15,650)
Net cash provided by financing activities..............................              39,450               9,446              55,501
                                                                           ----------------    ----------------    ----------------
Net increase/(decrease) in cash and cash equivalents...................              24,669             (17,062)             28,655
Cash and cash equivalents at beginning of year.........................               6,371              30,925              13,674
Exchange adjustments...................................................                (115)               (189)                549
                                                                           ----------------    ----------------    ----------------
Cash and cash equivalents at end of year...............................              30,925              13,674              42,878
                                                                           ================    ================    ================
</TABLE>


(8) Stock compensation plans

    The Company has adopted Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation" (FAS 123). In accordance with the provisions of
FAS 123, the Company has elected to continue to apply the recognition
principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans. For awards under the
Company's option plans where the exercise price of the option equals the
market price of the shares on the date of grant and the number of options
granted is known (fixed plan), no compensation expense is recognised. For
awards under the Company's option plans which are variable plans an estimate
of compensation expense is made when it is probable that the relevant
performance targets will be achieved. Compensation cost under these plans is
measured based on the market value of the shares at the date the number of
options to ultimately be awarded is known less the exercise price of the
option. Periodic charges to expense are made for the difference between the
market price and the exercise price when it is probable that the performance
criteria will be met. Based on the Company's share price performance since the
respective grant dates in relation to the underlying performance conditions,
in 1998 and 1999 it was considered not yet probable that the performance
conditions would be met. As a result, no compensation expense was recognized
under APB 25 in 1998 or 1999. Had the Company elected to recognize
compensation expense based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed by FAS 123, the
Company's U.S. GAAP net income and earnings per share would have been reduced
in the year to December 31, 1999 by (L)1,487,820 and 0.3p per share and in the
year to December 31, 1998 by (L)1,119,198 and 0.3p per share. In the year
ended December 31, 2000 a compensation expense of (L)734,000 has been
recognized under APB 25 in relation to those options where it is considered
probable that the performance criteria will be met. Had the Company elected to
recognize compensation expense consistent with the methodology prescribed by
FAS 123, the Company's U.S. GAAP net income would have been reduced in the
year to December 31, 2000 by (L)2,459,247 and earnings per share by 0.5p per
share.

    These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years. The
fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for the year ended December 31, 2000: dividend yield 0.0% (1999
and 1998: 0.0%); expected volatility 55.0% (1999: 76.8%, 1998: 57.6%); risk-
free interest rate 5.5% (1999: 5.0% to 5.28%, 1998: 6.75%); and expected
option term 7 years (1999 and 1998: 7 years). The weighted average fair value
of options granted during the year ended December 31, 2000 for which the
exercise price equals the market price on the grant date was 49.0p (1999:
44.6p, 1998: 36.3p). No options were granted for which the exercise price was
below or exceeded the market price.


                                      F-58

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

    At December 31, 2000 there were 26,316,828 outstanding options with a
weighted average option price of 66.0 pence (December 31, 1999: 27,787,313 and
63.0 pence). During the year ended December 31, 2000 4,059,406 options were
granted at a weighted average option price of 85.0 pence and 2,303,717 options
were cancelled or expired at a weighed average option price of 73.0 pence.

    The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

(9) Earnings per share

    Diluted "earnings per share" (EPS) is not presented since the group
reported a net loss under U.S. GAAP and the common equivalent shares from
warrants, stock options and contingent issuance of shares would have an
antidilutive effect on earnings per share. There is no difference between the
net loss for computing basic and diluted loss per share. The effect of
securities that could potentially dilute basic EPS in future are set out
below:

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                                                Number              Number              Number
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Stock outstanding in terms of basic earnings per share.................         384,871,000         467,214,000         508,228,000
'B' Warrants outstanding...............................................           5,877,112           5,870,906           5,674,550
'C' Warrants outstanding...............................................           1,800,000           1,800,000           1,800,000
Warrants assumed from SkyePharma Inc...................................                  --           1,679,864           2,054,825
Employee stock options outstanding.....................................          15,341,644          27,787,313          26,316,828
Convertible debentures.................................................           3,230,269             227,587                  --
Convertible bonds......................................................                  --                  --          45,000,000
                                                                           ----------------    ----------------    ----------------
Stock outstanding in terms of diluted EPS..............................         411,120,025         504,579,670         589,074,203
Contingent shares relating to Krypton consideration (see note 23;
  Shares and Warrants to be issued)....................................           7,500,000           7,500,000           7,500,000
Contingent warrants relating to Krypton consideration (see note 23;
  Shares and Warrants to be issued)....................................             750,000             750,000             750,000
Contingent shares relating to Jago consideration (see note 23; Shares
  and Warrants to be issued)...........................................                  --          30,000,000                  --
Deferred 'A' and 'B' Shares relating to Jago consideration (see note
  22; Share Capital)...................................................                  --                  --          24,000,000
                                                                           ----------------    ----------------    ----------------
                                                                                419,370,025         542,829,670         621,324,203
                                                                           ================    ================    ================
</TABLE>


    Contingent shares and warrants to be issued relating to Krypton and Jago
have been set out above. While these are potentially dilutive, they would not
be used for calculating diluted EPS under U.S. GAAP as the amount is not
determinable beyond reasonable doubt.


                                      F-59

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

    In March 1998, the Company issued convertible unsecured debentures (the
"Debentures") and 'C' Warrants. The aggregate number shares which may be
issued under the terms of the Warrants and Debentures shall not exceed
30,000,000. The Debentures issued had an aggregate principal amount of
U.S.$18,576,359 were due February 2001 with the option to convert at any time
prior to that. During the first six months, conversion may only take place at
a price of 90 pence per share. Thereafter, the subscription price depends on
the share price during the 20 day period prior to subscription subject to a
maximum of 90 pence per share. The Warrants can be converted to shares at an
exercise price of 120 pence per ordinary share at any time up to 3 years from
issue. All Debentures were converted in the six months ended June 30, 2000. On
March 11, 2001 the 'C' Warrants lapsed, unexercised.

    In March 1999, 28 million ordinary shares were issued on the acquisition of
DepoTech Corporation. In April 1999 a further 16 million ordinary shares were
issued to the former shareholders of DepoTech as deferred consideration
following the approval for sale of DepoCyt in the U.S. on April 1, 1999. In
April 2000 an additional 12 million ordinary shares were issued following the
announcement that a contract had been signed with Amgen to use DepoFoam
technology for macromolecule. This was the final contingent payment on the
acquisition of DepoTech.

    The contingent events determining the conversion of the Deferred 'A' and
'B' Shares into ordinary shares are described in Note 22: Share Capital.

(10)   Revenue Recognition

    The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) 101 'Revenue Recognition in Financial Statements' in December 1999. SAB
101 has been adopted by the Group as of January 1, 2000. A cumulative catch-up
adjustment has been recorded under U.S. GAAP to reflect the difference between
the amount of shareholders' funds at the beginning of the period of the change
in accounting principle, January 1, 2000, and the amount of shareholders'
funds that would have been reported at that date if the new accounting
principle had been applied retroactively for all periods that would have been
affected. Under U.K. GAAP, the Group has recognised (L)189,000 of revenue in
2000 that does not meet the criteria for revenue recognition under SAB 101.

(11)   Sale of Royalty Interests

    Under U.K. GAAP, payments received from a third party, to fund the internal
research and development of a product, in return for the sale of a portion of
potential future royalty streams from a selection of products, are reflected
within other operating income where the risk of reimbursement has effectively
been transferred to the third party. Under U.S. GAAP, Emerging Issues Task
Force (EITF) 88-18, 'Sales of Future Revenues', requires such payments to be
recorded as debt where there is continuing involvement in the generation of
the cash flows due to the third party.

(12)   Deferred Shares

    Under U.K. GAAP, deferred shares issued which are convertible to ordinary
shares upon the happening of certain contingent events have been recorded at
fair value in shareholders' funds. Fair value is based upon the market price
of ordinary shares at the date of the deferred share issue. Under U.S. GAAP,
the fair value of the deferred share issue would be the nominal value of the
deferred shares issued. At the date the occurrence of the contingent events
becomes probable, a fair value adjustment would be made under U.S. GAAP based
upon the ordinary share price at that date.


                                      F-60

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

(13)   Impact of recently issued accounting standards

    The U.S. Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" in June 1998. SFAS No. 133 requires
extensive fair value disclosure, for financial instruments. In June 1999, FASB
issued SFAS no. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133". SFAS
137 delays the adoption of SFAS 133 until the 2001 financial year. SFAS 133
requires all derivative instruments to be recorded as assets or liabilities on
the balance sheet at their fair value. Changes in the fair value of
derivatives from period to period are to be recorded within current earnings
or other comprehensive income, depending on whether a derivative is part of a
hedge transaction and, if it is, the type of hedge transaction. The Group has
undertaken a review of its derivative instruments and contracts which may
contain possible embedded derivatives. The fair value and book value of
derivative instruments in respect of financial assets and liabilities as at
December 31, 2000 is disclosed in the table in Note 25 (e): Financial
Instruments: Fair values. It is not expected that the adoption of FAS 133 for
derivatives or embedded derivatives will have a material impact on the
financial results or financial position of the Group in 2001.

Reconciliation to U.S. Accounting Principles

    The tables below summarise the material adjustments to the loss for the
period and shareholders' funds which would be required if U.S. GAAP (Generally
Accepted Accounting Principles) had been applied instead of U.K. GAAP.

<TABLE>
<CAPTION>
                                                                               Year to             Year to             Year to
                                                                             December 31,        December 31,        December 31,
                                                                                 1998                1999                2000
                                                           Note 29             (L)'000             (L)'000             (L)'000
                                                       ----------------    ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>                 <C>
Loss under U.K. GAAP...............................                                 (22,096)            (19,414)            (19,690)
U.S. GAAP adjustments:
Purchase accounting and goodwill
 Amortisation of intangible assets (Jago) .........                 (1a)             (6,374)             (6,134)              (6086)
 Depreciation of tangible fixed assets (Novalis) ..                 (1b)                801                 782                 727
 Write-off of purchased research and development
  expenditure......................................                 (1c)                 --              (4,268)                 --
 Amortization effect of in-process research and
  development write-off............................                 (1c)                 --                  --                 213
 Goodwill written off previously amortised under
  U.S. GAAP........................................                 (1d)                 --                 816                  --
 Interest on deferred consideration (Jago) ........                 (1e)              5,880                  --                  --
Stock based compensation...........................                  (8)                 --                  --                (734)
Revenue Recognition
 Cumulative effect of change in accounting
  principle under SAB 101..........................                 (10)                 --                  --                (542)
 Current year effect of revenue recognition
  differences related to SAB 101...................                 (10)                 --                  --                (189)
 Funding ..........................................                 (11)                 --                  --              (2,900)
                                                                           ----------------    ----------------    ----------------
Approximate net loss under U.S. GAAP...............                                 (21,789)            (28,218)            (29,201)
                                                                           ================    ================    ================
Represented by:
Loss from continuing operations before tax on
  income...........................................                                 (21,704)            (28,086)            (29,197)
Taxes on income....................................                                     (85)               (132)                 (4)
                                                                           ----------------    ----------------    ----------------
Approximate net loss under U.S. GAAP
  (all continuing operations)......................                                 (21,789)            (28,218)            (29,201)
                                                                           ================    ================    ================
Approximate net loss per ordinary share per U.S.
  GAAP (pence).....................................                  (9)               (5.7)p              (6.0)p              (5.7)
                                                                           ================    ================    ================
</TABLE>



                                      F-61

<PAGE>
SKYEPHARMA PLC

Notes to the Consolidated Financial Statements (continued)

29  Summary of Material Differences between U.K. and U.S. GAAP (continued)

Reconciliation to U.S. Accounting Principles (continued)

Shareholders' Funds

<TABLE>
<CAPTION>
                                                                                                 December 31,        December 31,
                                                                                                     1999                2000
                                                                               Note 29             (L)'000             (L)'000
                                                                           ----------------    ----------------    ----------------
<S>                                                                        <C>                 <C>                 <C>
Shareholders' funds under U.K. GAAP....................................                                  72,057              68,952
U.S. GAAP adjustments:
Purchase accounting and goodwill
 Intangible fixed assets - gross (Jago) ...............................                 (1a)            121,723             121,723
 Intangible fixed assets - accumulated amortisation (Jago) ............                 (1a)            (22,315)            (28,188)
 Tangible fixed assets - gross (Novalis) ..............................                 (1b)            (10,813)            (10,928)
 Tangible fixed assets - accumulated depreciation (Novalis) ...........                 (1b)              2,228               3,003
 Deferred consideration charged to goodwill reserve (Krypton and Jago)                  (1e)             36,881              33,260
 Shares and warrants to be issued (Krypton) ...........................                 (1e)            (38,131)             (4,985)
 Share market price and warrant reserve (Krypton) .....................                 (1d)             11,942              11,942
 Share premium ........................................................                 (13)                 --             (28,275)
 Acquired in-process research and development (Krypton) ...............                 (1d)            (11,942)            (11,942)
 In-process research and development written off on acquisition of
  DepoTech.............................................................                 (1c)             (4,268)             (4,268)
Stock based compensation...............................................                  (9)                 --                (734)
Revenue Recognition
 Cumulative effect of change in accounting principle under SAB 101 ....                 (11)                 --                (542)
 Current year effect of revenue recognition differences related to SAB
  101..................................................................                 (11)                 --                (189)
 Funding ..............................................................                 (11)                 --              (2,900)
                                                                                               ----------------    ----------------
Approximate shareholders' funds under U.S. GAAP........................                                 157,362             145,929
                                                                                               ================    ================
</TABLE>



                                      F-62

<PAGE>
                               Item 19: Exhibits


The following exhibits are filed as part of this Form 20-F:

1.1           Memorandum and Articles of Association of SkyePharma PLC

              1.1.1    Memorandum of Association of SkyePharma PLC

              1.1.2    Articles of Association of SkyePharma PLC

4.1           Solaraze agreements with Bioglan

              4.1.1.   Licensing and manufacturing agreement for Europe dated
                       March 13, 2000 between JagoTech AG and Bioglan Pharma
                       PLC*

              4.1.2    Addendum agreement for U.S. dated December 28, 2000
                       between JagoTech AG and Bioglan Pharma PLC*

4.2           Directors and Officers Service Contracts

              4.2.1.   Contract of employment between the Company and Donald
                       Nicholson dated February 28, 1996

              4.2.2.   Contract of employment between the Company and Suzanne
                       V. McLean dated May 24, 1999

              4.2.3.   Proforma letter of appointment in respect of the
                       appointment of Non-executive Directors

4.3           Amendments to the 1996 Acquisition Agreement, dated April 7, 2000
              and May 11, 2000 between Dr Jacques Gonella and SkyePharma PLC**

8.1           List of SkyePharma PLC's subsidiaries

10.1          Consent of the Independent Accountants (SkyePharma PLC)
---------------

*   Confidential treatment has been requested with respect to certain portions
    of this exhibit. Omitted portions have been filed separately with the
    Securities and Exchange Commission.

**  Filed with SkyePharma PLC's Annual Report on 20-F for the year ended
    December 31, 1999, Commission File Number 0-29860.


                                      E-1

<PAGE>
                                 EXHIBIT 1.1.1

                             THE COMPANIES ACT 1985
                       A PUBLIC COMPANY LIMITED BY SHARES

                           MEMORANDUM OF ASSOCIATION
                                       OF
                                 SKYEPHARMA PLC


(As amended by Special Resolution passed on 27 July 1966, by Resolution of the
Board passed on 19 January 1982 and by Special Resolution passed on 19 October
1987).

1.            The Company's name is "SKYEPHARMA PLC".1

2.            The Company is to be a public company.

3.            The Company's registered office is to be situated in England.

4.            The objects for which the Company is established are:

              (A)      To acquire and hold for investment shares, stocks,
                       debentures, debenture stock, bonds, obligations and
                       securities issued or guaranteed by any company, and
                       debentures, debenture stock, bonds, obligations and
                       securities issued or guaranteed by any government,
                       sovereign, ruler, commissioners, public body or
                       authority, supreme, municipal, local or otherwise,
                       whether at home or aboard, and to leave money on deposit
                       or otherwise with any Bank or Building Society and to
                       act as and perform all the functions of a holding
                       company or investment company.

              (B)      To carry on the business of wholesale and retail
                       pharmacists, consulting, analytical, manufacturing,
                       pharmaceutical, dispensing and general chemists,
                       druggists, manufacturers, compounders, refiners, owners
                       and vendors of and dealers in all kinds of drugs,
                       chemicals, pharmaceutical, medicinal, general, remedial,
                       alleviative, restorative and chemical preparations,
                       articles and compounds; to acquire rights in
                       formulations and carry on development of medicines, to
                       be proprietors and managers of health and other care
                       clinics and centres offering consultancy, remedial and
                       therapeutic treatment; to be agents for and
                       manufacturers, importers and exporters of and dealers in
                       medical, surgical, electrical, chemicals photographic
                       and scientific apparatus, appliances and materials of
                       all kinds; and generally to offer any supplies or
                       services which may be required by persons, firms,
                       companies, organisations and authorities having dealings
                       with the Company; to carry out researches,
                       investigations and experimental work of every
                       description and to develop, manufacture, distribute and
                       otherwise deal in howsoever any materials, substances,
                       products, subjects or items connected with or calculated
                       to benefit any of the business of the Company, and to
                       manufacture, buy, sell, install, maintain, repair and
                       deal in plant, machinery, tools, articles and things of
                       all kinds capable of being dealt with for the purposes
                       of the businesses of the Company or any of them.

              (C)      To carry on business as iron founders, steel makers,
                       refiners and rollers, blast furnace proprietors,
                       smelters, tinplate makers, brass, copper, bronze, lead
                       and zinc workers, and metal and alloy makers, refiners
                       and workers generally, colliery and mine proprietors,
                       shipowners, shipbuilders, dock proprietors, barge
                       owners, lightermen, wharfingers, warehousemen,
                       storekeepers, shipping and
---------------

1   The Company's name was changed to SkyePharma PLC on 8 January 1996.


                                      E-2

<PAGE>
                       forwarding agents, carriers, garage proprietors, oil
                       merchants, engineers, electricians, metallurgists, metal
                       merchants, machinery merchants, joiners and woodworkers,
                       wood and timber merchants, coal, coke and fuel
                       merchants, manufacturing chemists, quarry owners and
                       stone, sand, gravel, lime and cement merchants, glass
                       manufacturers, brick and tile makers, pottery
                       proprietors, metallic residue and by-product dealers,
                       ironmongers and hardware dealers.

                       (1)     To carry on business as manufacturers of, and
                               dealers in. forgings, castings, steel and armour
                               plates, locomotives, boilers engines, turbines,
                               dynamos, motors, pumps, wagons, carriages,
                               machinery, tools and metal goods and plant and
                               apparatus of all descriptions.

                       (2)     To search for, win, work, get, raise, import,
                               crush, manipulate and prepare for the market,
                               iron and other ore, coal, clay and minerals
                               generally.

                       (3)     To acquire whether by way of manufacture
                               purchase leasing or otherwise and to erect
                               assemble dismantle hire out sell or otherwise
                               dispose or contract for the provision of tubular
                               steel barriers scaffolding and other like
                               articles materials or equipment.

              (D)      To carry on the business of general merchants, to buy,
                       sell, manufacture and deal in goods, stores and
                       consumable articles of all kinds, both wholesale and
                       retail, and to transact every kind of agency business,
                       including, without limiting the generality of the
                       foregoing commission agents, passenger and cargo
                       brokers, shop freight and insurance brokers and agents
                       and land, sea and air transportation agents generally.

              (E)      To purchase, take on lease or on hire or otherwise
                       acquire, hold, develop, sell, hire out, grant leases or
                       licences or otherwise dispose of or deal with real and
                       personal property of all and any kinds and any interest,
                       right or privilege therein, for such consideration and
                       on such terms as may be consideration expedient.

              (F)      To purchase, subscribe for or otherwise acquire, and
                       hold and deal with, any shares, stocks, debentures,
                       bonds or securities of any other Company.

              (G)      To sell or otherwise dispose of the whole or any part of
                       the business and/or undertaking of the Company, either
                       together or in portions for such consideration and on
                       such terms as may be considered expedient.

              (H)      To purchase or otherwise acquire and undertake, and to
                       supervise and manage, all or any part of the business,
                       property, assets and liabilities of any person or
                       company.

              (I)      To invest and deal with the monies of the Company not
                       immediately required for the purpose of its business in
                       or on such investments or securities and in such manner
                       as may be considered expedient, and to dispose of or
                       vary any such investments or securities.

              (J)      To enter into any partnership or into any arrangement
                       for sharing profits or to amalgamate with any person or
                       company carrying on or proposing to carry on any
                       business.

              (K)      To lend or advance money or give credit to such persons
                       or companies and on such terms and on as may be
                       considered expedient, and to receive money on deposit or
                       loan from any person or company.


                                      E-3

<PAGE>
              (L)      To borrow or raise money on such terms and on such
                       security as may be considered expedient and, in
                       particular, but without limiting the generality of the
                       foregoing, by the issue or deposit of debentures, and to
                       secure the repayment of any money borrowed, raised or
                       owing by mortgage, charge or lien upon the whole or any
                       part of the undertaking, property and assets of the
                       Company both present and future, including its uncalled
                       capital.

              (M)      To give indemnity for, or to guarantee, support or
                       secure the performance of all or any of the obligations
                       of any person or company whether by personal covenant or
                       by mortgage, charge or lien on the whole or any part of
                       the undertaking, property and assets of the Company both
                       present and future, including its uncalled capital, or
                       by all or any of such methods; and in particular, but
                       without limiting the generality of the foregoing, to
                       give indemnity for, or to guarantee, support or secure
                       whether by personal covenant or by any such mortgage,
                       charge or lien, or by all or any of such methods, the
                       performance of all or any of the obligations (including
                       the repayment or payment of the principal and premium
                       of, and interest on, any securities) of any company
                       which is for the time being the Company's holding
                       company or subsidiary or another subsidiary or any such
                       holding company.

              (N)      To pay for any property, assets or rights acquired by
                       the Company, and to discharge or satisfy any debt,
                       obligation or liability of the Company, either in cash
                       or in shares with or without preferred or deferred
                       rights in respect of dividend or repayment of capital or
                       otherwise, or by any other securities which the Company
                       has power to issue, or partly in one way and partly in
                       another, and generally on such terms as may be
                       considered expedient.

              (O)      To accept payment for any property, assets or rights
                       disposed of or dealt with or for any services rendered
                       by the Company, or in discharge or satisfaction of any
                       debt, obligation or liability to the Company, either in
                       cash or in shares, with or without deferred or preferred
                       rights in respect of dividend or repayment of capital or
                       otherwise, or in any other securities, or partly in one
                       way and partly in another, and generally on such terms
                       as may be considered expedient.

              (P)      To form, promote, finance or assist any other company,
                       whether for the purpose of acquiring all or any of the
                       undertaking, property and assets of the Company or for
                       any other purpose which may be considered expedient.

              (Q)      To issue, place, underwrite or guarantee the
                       subscription of, or concur or assist in the issuing or
                       placing, underwriting or guaranteeing the subscription
                       of shares, stocks, debentures, bonds and other
                       securities of any company on such terms as to
                       remuneration and otherwise as may be considered
                       expedient.

              (R)      To apply for, purchase or otherwise acquire and hold,
                       use, develop, sell, licence or otherwise dispose of or
                       deal with patents, copyrights, designs, trade marks,
                       secret processes, know-how and inventions and any
                       interest therein.

              (R)      To draw, make, accept, endorse, negotiate, discount,
                       execute, and issue promissory notes, bills of' exchange,
                       scrip warrants and other transferable or negotiable
                       instruments.

              (S)      to establish and maintain or procure the establishment
                       and maintenance of, any pension, superannuation funds,
                       or retirement benefit schemes (whether contributory or
                       otherwise) for the benefit of, and to give or procure
                       the giving of donations, gratuities, pensions,
                       allowances, emoluments and any other relevant benefits
                       to any persons who are or were at any time in the
                       employment or service of the Company, or of any company
                       which is a subsidiary or holding

                                      E-4

<PAGE>
                       company of the Company or which is a subsidiary of any
                       such holding company or is allied to or associated with
                       the Company, or any such subsidiary or of any of the
                       predecessors of the Company or any such other company as
                       aforesaid, or who may be or have been directors or
                       officers of the Company, or of any such other company as
                       aforesaid, and the wives, widows, families and
                       dependents of any such persons, and to establish,
                       subsidise and subscribe to any institutions,
                       associations, societies, clubs, trusts or funds
                       calculated to be for the benefit of, or to advance the
                       interests and well being of, the Company or of any other
                       company as aforesaid, or of any such persons as
                       aforesaid, and to make payments for or towards the
                       insurance of any such persons as aforesaid, and to do
                       any of the matters aforesaid either alone or in
                       conjunction with any such other company as aforesaid
                       without prejudice to the generality of the foregoing to
                       act either alone or jointly as trustee or administrator
                       for the furtherance of any of the aforesaid purposes.

              (T)      To establish, on and subject to such terms as may be
                       considered expedient, a scheme or schemes for or in
                       relation to the purchase of, or subscription for, any
                       fully or partly paid shares in the capital of the
                       Company by, or by trustees for, or otherwise for the
                       benefit of, employees of the Company or of its
                       subsidiary or associated companies.

              (U)      To the extent permitted by law, to give financial
                       assistance for the purpose of the acquisition of shares
                       of the Company or for the purpose of reducing or
                       discharging, a liability incurred for the purpose of
                       such an acquisition and to give such assistance by means
                       of a gift, loan, guarantee, indemnity, the provision of
                       security or otherwise.

              (V)      To subscribe or guarantee money for any national,
                       charitable, benevolent, public, general, political or
                       useful object, and to undertake and execute any trusts
                       the undertaking whereof may be considered expedient, and
                       either gratuitously or otherwise.

              (W)      To enter into any arrangement with any Government or
                       other authority, supreme, municipal, local or otherwise,
                       and to obtain from any such Government or authority any
                       rights, concessions, privileges, licences and permits,
                       and to promote any legislation as may be considered
                       expedient.

              (Y)      To distribute among the Members in specie any property
                       of the Company, or any proceeds of sale or disposal of
                       any property of the Company, and for such purpose to
                       distinguish and separate capital from profits, but so
                       that no distribution amounting to a reduction of capital
                       shall be made except with the sanction (if any) for the
                       time being required by law.

              (Z)      To remunerate any person or company rendering service to
                       the Company in any manner and to pay all costs, charges
                       and expenses incurred or sustained in or about the
                       promotion and established of the Company and of any
                       other company formed, promoted, financed or assisted by
                       the Company, or which the Company shall consider to be
                       in the nature of preliminary expenses in relation to the
                       Company or any such other company, including the cost of
                       advertising, commissions for underwriting, brokerage,
                       printing and stationery, and the legal and other
                       expenses of the promoters.

              (AA)     To carry on any business which, in the opinion of the
                       Directors of the Company, may seem capable of being
                       conveniently carried on in connection with or as
                       ancillary to any of the above businesses or calculated
                       directly or indirectly to enhance the value of or render
                       profitable any of the property of the Company or

                                      E-5

<PAGE>
                       to further any of its objects and to do all other things
                       as may be incidental or conducive to the attainment of
                       any of the objects of the Company.

              (BB)     To do all or any of the above things in any part of the
                       world, either alone or in conjunction with others, and
                       either as principals, agents, contractors, trustees or
                       otherwise and either by or through agents, contractors,
                       trustees or otherwise. It is hereby declared (1) that
                       the expressions "subsidiary" and "holding company" where
                       they appear in this Clause shall have the meanings
                       ascribed to those expressions by Section 736 of the
                       Companies Act 1985; (2) that, where the context so
                       admits, the word "company" in this Clause shall be
                       deemed to include any partnership or other body of
                       persons whether or not incorporated and, if
                       incorporated, whether or not a company within the
                       meaning of the Companies Act 1985; and (3) that the
                       objects specified in each of the sub-clauses of this
                       Clause shall be regarded as independent objects and
                       accordingly shall in no way be limited or restricted
                       (except where otherwise expressed therein) by reference
                       to or inference from the terms of any other sub-clause
                       or the name of the Company, but may be carried out in as
                       full and ample a manner and construed in as wide a sense
                       as if each defined the objects of a separate and
                       distinct company.

5.            The liability of the members is limited.

6.            The Capital of the Company is (L)100,000 divided into 100,000
              shares of (L)1 each2. The Company has power from time to time to
              increase or reduce its Capital and to issue any Shares in the
              original or increased Capital as Ordinary, Preferred or Deferred
              Shares, and to attach to any class or classes of such Shares any
              preferences, rights, privileges or conditions or to subject the
              same to any restrictions or limitations. Provided always that if
              and whenever the Capital of the Company is divided into Shares of
              various classes, the rights and privileges of any class shall not
              be modified or varied, except in the manner following, namely:
              Any such modification or variation may be effected when
              sanctioned by an Extraordinary Resolution of the holders of the
              Shares of such class passed at a separate meeting of such holders
              at which there shall be present in person, or represented by
              proxy, the holders of not less than three-fourths of the issued
              Shares of such class.



---------------

2   At the date of reprinting this Memorandum of Association the Company's
    share capital is (L)111,400,000 divided into 1,090,000,000 Ordinary Shares
    of 10p each, 12,000,000 "A" Deferred Shares of 10p each and 12,000,000 "B"
    Deferred Shares of 10p each.

                                      E-6

<PAGE>
                                 EXHIBIT 1.1.2


Company No 107582

                             The Companies Act 1985

                        Public Company Limited by Shares

                                      NEW

                            ARTICLES OF ASSOCIATION

            (Adopted by Special Resolution passed on 8 January 1996
          and amended by a Special Resolution passed on 29 April 1996)

                                       of

                                 SkyePharma PLC

                       Incorporated on 18th February 1910


                                      E-7

<PAGE>
Interpretation

1             In these Articles, if not inconsistent with the subject or
              context, the following words and expressions shall have the
              meanings stated:

              "ACT"                     the Companies Act 1985

              "THESE ARTICLES"          these Articles of Association as from
                                        time to time altered

              "AUDITORS"                the auditors of the Company

              "BOARD" or "DIRECTORS"    the directors of the Company or a
                                        quorum of the directors present at a
                                        board meeting

              "DEBENTURE" and           include debenture stock and debenture
              "DEBENTURE HOLDER"        stockholder

              "LONDON STOCK EXCHANGE"   The London Stock Exchange Limited

              "MONTH"                   calendar month

              "OFFICE"                  the registered office of the Company

              "SEAL"                    the common seal of the Company and, as
                                        appropriate, any official seal kept by
                                        the Company by virtue of section 40 of
                                        the Act

              "STATUTES"                the Act and every other Act or
                                        statutory instrument concerning
                                        limited companies and affecting the
                                        Company

              "UNITED KINGDOM"          Great Britain and Northern Ireland

              "IN WRITING"              written, printed, typewritten,
                                        lithographed or expressed in any other
                                        mode representing or reproducing
                                        words, or partly one and partly
                                        another.

              "YEAR"                    calendar year

              Reference to a statutory provision includes any amendment or re-
              enactment.

              Except for the above definitions, words or expressions defined in
              the Statutes shall, if not inconsistent with the subject or
              context, bear the same meaning in these Articles.

              The headings are inserted for convenience and do not affect the
              construction of these Articles.

Table A excluded

2             The regulations contained in Table A in the Schedule to the
              Companies Act (Tables A to F) Regulations 1985 shall not apply to
              the Company.

Business

3             Any branch or kind of business which the Company is either
              expressly or by implication authorised to undertake may be
              undertaken by the Directors at such times as they think fit, and
              may be permitted by them to be in abeyance, whether the branch or
              kind of business commenced or not, so long as the Directors deem
              it expedient not to commence or proceed with it.


                                      E-8

<PAGE>
Registered office

4             The Office shall be at such place in England or Wales as the
              Directors appoint.

Capital

5*            At the date of adoption of these Articles the share capital of
              the Company is (L)14,624,658.40 divided into 837,465,840 ordinary
              shares of 1p each ("Ordinary Shares") and 6,250,000 convertible
              preference shares of (L)1 each ("Convertible Preference
              Shares").3

5A            The special rights, restrictions and provisions, applicable to
              the Convertible Preference Share are as follows:

        (1)   Income

                       The Convertible Preference Shares shall not confer upon
                       the holders thereof ("the Convertible Preference
                       Shareholders") the right to any payment or distribution
                       by way of dividend or otherwise out of the profits of
                       the Company available for distribution.

        (2)   Capital

                       In the event of a winding-up of the Company or other
                       return of capital the assets of the Company available
                       for distribution among the members remaining after
                       payment of its debts and liabilities and of the costs,
                       charges and expenses of such winding-up shall be applied
                       first in repaying to each Convertible Preference
                       Shareholder a sum of 20p on each Convertible Preference
                       Share held by such holder in priority to all other
                       shareholders. The Convertible Preference Shares shall
                       then rank pari passu with the Ordinary shares as if 80
                       per cent of the Convertible Preference Shares had been
                       converted at the Conversion Rate (as defined below) save
                       that the Convertible Preference Shareholders shall,
                       after repayment of the nominal value of such Ordinary
                       Shares then be entitled to receive an amount equal to
                       any premium paid or credited as paid upon such Ordinary
                       Shares which would have arisen upon conversion of such
                       80 per cent of the Convertible Preference Shares in
                       priority to any other shareholders. The provisions of
                       this paragraph are without prejudice to the other
                       provisions of these Articles (as from time to time
                       amended) as to conversion.

---------------

NOTES

(A) On 25 March 1996, all of the Convertible Preference Shares of (L)1 each in
    the Company were converted into Ordinary Shares of 1p each in the Company
    on the basis of 20 Ordinary Shares for each existing Convertible
    Preference Share.

(B) By operation of Resolutions passed from time to time up to and including
    29 April 1996, the authorised share capital of the Company has been
    reorganised and consolidated and is now (29 April 1996) (L)54,500,000
    divided into 545,000,000 Ordinary Shares of 10p each.

(C) By ordinary resolution passed on 19 May 1999 the authorised share capital
    was increased to (L)109,000,000 divided into 1,090,000,000 Ordinary Shares
    of 10p each.

(D) By ordinary resolution passed on 11 July 2000 the authorized share capital
    was increased to (L)111,400,000 divided into 1,090,000,000 Ordinary Shares
    of 10p each, 12,000,000 "A" Deferred Shares of 10p each and 12,000,000 "B"
    Deferred Shares of 10p each.


                                      E-9

<PAGE>
        (3)   Conversion

                       (i)     Subject as hereinafter provided, the Convertible
                               Preference Shares shall be capable of conversion
                               by the Convertible Preference Shareholders at
                               the times and in the manner set out in this
                               Article and any requisite sub-division,
                               consolidation and/or reclassification or
                               redemption shall be effected pursuant to the
                               authority given by the adoption of this Article
                               at the rate of twenty 1p Ordinary Shares
                               (ranking pari passu with the Ordinary Shares in
                               existence at the date of conversion save in
                               respect of any entitlement to any dividend the
                               record date for which precedes the Conversion
                               Date (as defined below)) (or such rate, as
                               adjusted from time to time as provided in
                               subparagraph (ii), (iii) and (iv) of paragraph
                               4, the "Conversion Rate") for each Convertible
                               Preference Share so converted ("Conversion")
                               such Conversion to take place on the relevant
                               Conversion Date if the holder thereof shall have
                               notified the Company in writing of the holder's
                               intention so to convert ("the Conversion
                               Notice"), such Conversion Notice to be received
                               by the Company not less than twenty eight days
                               before the relevant Conversion Date and to
                               specify the relevant Conversion Date.

                       (ii)    Any Conversion pursuant to the rights granted by
                               sub-paragraph (i) of this paragraph (3) shall be
                               made on the following terms:

                               (a)   the Conversion shall be effected and shall
                                     take place on the relevant Conversion
                                     Date;

                               (b)   for the purposes of the provisions of this
                                     Article a "Conversion Date" shall be any
                                     date falling 12 months after but before
                                     the fifth anniversary of the date of issue
                                     of those Convertible Preference Shares
                                     which are the subject of Conversion;

                               (c)   the holders of the Convertible Preference
                                     Shares the subject of the Conversion shall
                                     deliver to the Company the certificate or
                                     certificates in respect of such
                                     Convertible Preference Shares at the same
                                     time as the Conversion Notice (or such
                                     later time as the Directors may at their
                                     discretion permit) and the Company shall
                                     within 14 days after the Conversion Date
                                     issue (free of charge) to such holders
                                     respectively a certificate or certificates
                                     for the Ordinary Shares resulting from
                                     Conversion and, if appropriate, a
                                     certificate or certificates for any
                                     Convertible Preference Shares remaining
                                     unconverted and a cheque in respect of any
                                     fractional entitlement.

                       (iii)   Conversion of the Convertible Preference Shares
                               may be affected in such manner as the Directors
                               shall from time to time determine (subject to
                               the provisions of the Statutes) and without
                               prejudice to the generality of the foregoing may
                               be effected by redeeming the Convertible
                               Preference Shares on any Conversion Date at (L)1
                               per share either out of the profits of the
                               Company which would otherwise be available for
                               dividend or out of the proceeds of a fresh issue
                               of Ordinary Shares, provided the Directors shall
                               first have obtained all requisite authorities
                               for the purpose of enabling them to allot the
                               Ordinary Shares which fall to be allotted
                               pursuant to this sub-paragraph (iii) and/or
                               grant rights to subscribe therefor. A
                               Convertible Preference Share (if the Directors
                               elect to redeem out of the profits of the
                               Company which would otherwise be available for
                               dividend) shall confer on the holder thereof the
                               right to subscribe for the appropriate number of
                               Ordinary Shares at the applicable Conversion
                               Rate at such premium as shall represent the
                               amount (if any) by which the

                                      E-10

<PAGE>
                               redemption monies exceed the nominal amount of
                               the Ordinary Shares to which the holder is so
                               entitled; in any such case the Conversion Notice
                               given by a holder of the Convertible Preference
                               Shares shall be deemed irrevocably to authorise
                               and instruct the Directors to apply the
                               redemption monies payable to him in subscribing
                               for such Ordinary Shares at such premium (if
                               any) as aforesaid. A Convertible Preference
                               Share (if the Directors elect to redeem out of a
                               fresh issue) shall confer on the holder thereof
                               the right to subscribe and shall authorise the
                               Secretary (or any other person appointed for the
                               purpose by the Directors) to subscribe as agent
                               on the holder's behalf for the appropriate
                               number of Ordinary Shares (which authority shall
                               include the right to borrow money) at the
                               applicable Conversion Rate at such premium (if
                               any) as shall represent the amount by which the
                               holder is so entitled; in any such case, the
                               Conversion Notice given by a holder of
                               Convertible Preference Shares shall be deemed
                               irrevocably to authorise and instruct the
                               Directors to apply the redemption monies payable
                               to him in full in payment of the subscription
                               price for such appropriate number of Ordinary
                               Shares to which he is entitled on the relevant
                               conversion. If all or any of the Convertible
                               Preference Shares remain unconverted, and not
                               subject to any Conversion Notice, 5 years from
                               their date of issue, the Directors shall be
                               required to carry out the Conversion themselves
                               and to issue to the Convertible Preference
                               Shareholders the Ordinary Shares to which they
                               are entitled upon the Conversion.

              (4)      Other Provisions

                       (i)     If any offer or invitation by way of a rights
                               issue is made to the holders of the Ordinary
                               Shares the Company shall make or, so far as it
                               is able, procure that there is made a like offer
                               at the same time to each holder of Convertible
                               Preference Shares as if his Conversion Rights
                               had been exercisable and had been exercised in
                               full on the record date for such offer or
                               invitation on the basis of the Conversion Rate
                               (as adjusted if applicable).

                       (ii)    If, while any Convertible Preference Shares
                               remain capable of being converted into Ordinary
                               Shares, the Company shall make any issue of
                               Ordinary Shares by way of capitalisation of
                               profits or reserves (including any share premium
                               account and capital redemption reserve) to the
                               holders of Ordinary Shares, then, subject to the
                               provisions of sub-paragraph (v) of this
                               paragraph (4), the number of Ordinary Shares to
                               result from any subsequent conversion of
                               Convertible Preference Shares shall be increased
                               pro rata and if any doubt shall arise as to the
                               amount of the increase in the number of Ordinary
                               Shares the certificate of the auditors of the
                               Company shall be conclusive and binding on all
                               concerned. No adjustment shall be made in the
                               event of an issue of shares by way of
                               capitalisation of profits or reserves in lieu of
                               cash dividends.

                       (iii)   If, while any Convertible Preference Shares
                               remain capable of being converted into Ordinary
                               Shares, the Ordinary Shares shall be
                               consolidated or sub-divided then the number of
                               Ordinary Shares to result from any subsequent
                               conversion of the Convertible Preference Shares
                               shall be reduced or increased pro rata
                               accordingly and if any doubt shall arise as to
                               the number thereof the certificate of the
                               auditors of the Company shall be conclusive and
                               binding on all concerned.


                                      E-11

<PAGE>
                       (iv)    If, while any Convertible Preference Shares
                               remain capable of being converted into Ordinary
                               Shares the Company shall make any capital
                               distribution to the holders of the Ordinary
                               Shares then, subject to the provisions of sub-
                               paragraph (v) of this paragraph (4), the number
                               of Ordinary Shares to result from any subsequent
                               conversion of the Convertible Preference Shares
                               shall be increased by an amount determined to be
                               appropriate by the auditors of the Company whose
                               certificate shall be conclusive and binding on
                               all concerned. For the purposes of this sub-
                               paragraph (iv) "capital distribution" means any
                               dividend or other distribution of capital
                               profits (whether realised or not) or capital
                               reserves, or profits or reserves arising after
                               the date of the passing of the resolution
                               creating the Convertible Preference Shares from
                               a distribution of capital profits (whether
                               realised or not) or capital reserves by a
                               subsidiary, except by means of a capitalisation
                               issue or any redemption or purchase of the
                               Company's own shares (other than a redemption or
                               purchase of redeemable shares in accordance with
                               the terms of issue thereof); for the purposes of
                               this sub-paragraph (iv), insofar as the relevant
                               audited accounts do not distinguish between
                               capital and revenue profits or reserves, the
                               Company shall be entitled to rely upon a written
                               estimate by the auditors of the Company as to
                               the extent to which any part of any profit or
                               reserve should be regarded as of a capital
                               nature and, in any case where the Company shall
                               purchase any Ordinary Shares, the amount of the
                               capital distribution per Ordinary Share shall be
                               that amount which is the gross amount paid on
                               such purchase divided by the number of Ordinary
                               Shares remaining in issue following such
                               purchase.

                       (v)     The Company shall not do any act or thing
                               resulting in an adjustment of the Conversion
                               Rate if in consequence such rate would involve
                               the issue of Ordinary Share capital at a
                               discount.

                       (vi)    Any fractions of Ordinary Shares arising on
                               Conversion shall not be allotted to the holders
                               of the relevant Convertible Preference Shares
                               otherwise entitled thereto but (if any such
                               arrangement can be made) such fractions shall be
                               aggregated and sold on behalf of such holders at
                               the best price reasonably obtainable and the net
                               proceeds of sale distributed pro rata among such
                               holders unless in respect of any holding of the
                               relevant Convertible Preference Shares the
                               amount to be distributed would be less than
                               (L)2.50 in which case such amount shall not be
                               distributed but shall be retained for the
                               benefit of the Company. For the purpose of
                               implementing the provision of this subparagraph
                               (vi) the Directors may appoint some person to
                               execute transfers or renunciations on behalf of
                               persons otherwise entitled to any such fractions
                               and generally make all arrangements which appear
                               to them necessary or appropriate for the
                               settlement and disposal of fractional
                               entitlements.

                       (vii)   The Company may from time to time create and
                               issue further preference shares ("Further
                               Preference Shares") save that these Further
                               Preference Shares shall not be entitled to rank
                               (as regards participation in profits or assets
                               or otherwise of the Company) pari passu with or
                               in priority to the Convertible Preference Shares
                               unless the Company has called a class rights
                               meeting of the Convertible Preference
                               Shareholders at which the Convertible Preference
                               Shareholders have passed an Extraordinary
                               Resolution consenting to the creation of Further
                               Preference Shares ranking (as regards
                               participation in profits or assets or otherwise
                               of the

                                      E-12

<PAGE>
                               Company) pari passu with or in priority to the
                               Convertible Preference Shares.

                       (viii)  So long as any Convertible Preference Shares
                               remain capable of being converted into Ordinary
                               Shares then without such consent or sanction on
                               the part of the holders of the Convertible
                               Preference Shares as is required for a variation
                               of the rights attached to such shares:

                               (a)   no equity share capital (as defined in
                                     Section 744 of the Act) or other share
                                     capital shall be in issue which is not in
                                     all respects uniform with a class of
                                     shares of the Company in issue on the date
                                     of adoption of this Article or with the
                                     Ordinary Shares of the Company in issue
                                     from time to time, save:

                                     (1)   as to the date from which such
                                           capital shall rank for dividend; and

                                     (2)   for equity share capital issued in
                                           connection with or pursuant to any
                                           employees' share scheme (as defined
                                           in Section 743 of the Act) approved
                                           by the Company in general meeting;
                                           and

                                     (3)   for equity share capital issued
                                           pursuant to an offer or invitation
                                           which is extended to the holders of
                                           the Convertible Preference Shares
                                           pursuant to sub-paragraph (i) of
                                           this paragraph (4); and

                                     (4)   for the Convertible Preference
                                           Shares; and

                                     (5)   for Further Preference Shares issued
                                           in accordance with subparagraph
                                           (vii) of this paragraph (4).

                               (b)   no resolution shall be passed for the
                                     reduction of the share capital or the
                                     share premium account or the capital
                                     redemption reserve of the Company which
                                     involves a capital distribution (as
                                     defined in sub-paragraph (iv) of paragraph
                                     (4)) to the holders of any shares in the
                                     capital of the Company from time to time
                                     (except as authorised by Section 146(2) or
                                     in connection with the writing-off of
                                     goodwill arising on consolidation or
                                     otherwise) of any part of the amount (if
                                     any) for the time being standing to the
                                     credit of its share premium account or
                                     capital redemption reserve in any manner
                                     for which the consent of the Court would
                                     be required pursuant to the Statutes;

                               (c)   the Company shall not purchase any of its
                                     Convertible Preference Shares otherwise
                                     than pursuant to paragraph (3) of this
                                     Article but may, if authorised to purchase
                                     its own Ordinary Shares, purchase such
                                     Ordinary Shares;

                               (d)   no resolution shall be passed whereby the
                                     rights attaching to the Ordinary Shares or
                                     the Convertible Preference Shares shall be
                                     modified, varied or abrogated;

                               (e)   no shares shall be allotted pursuant to a
                                     capitalisation of profits or reserves
                                     including any share premium account and
                                     capital redemption reserve except Ordinary
                                     Shares, credited as fully paid and upon
                                     any such allotment the Conversion Rate
                                     shall, subject to subparagraph (v) of this
                                     paragraph (4) be adjusted as appropriate
                                     under subparagraph (ii) of this paragraph
                                     (4);


                                      E-13

<PAGE>
                               (f)   the Company may not authorise, create,
                                     issue or increase the amount of any shares
                                     of any class or any security convertible
                                     into shares of any class ranking as
                                     regards rights to participate in the
                                     profits or assets of the Company (other
                                     than on a redemption or purchase by the
                                     Company of any such shares) in priority to
                                     or pari passu with the Convertible
                                     Preference Shares save for the issue of
                                     Ordinary Shares ranking pari passu with
                                     the Ordinary Shares of the Company in
                                     issue from time to time;

                       (ix)    If, while any Convertible Preference Shares
                               remain capable of being converted into Ordinary
                               Shares, the Company is placed in liquidation the
                               Company shall forthwith give notice thereof in
                               writing to all holders of Convertible Preference
                               Shares and each holder of Convertible Preference
                               Shares shall in respect of all or any of his
                               Convertible Preference Shares be entitled within
                               six weeks after the date of such notice ("the
                               Operative Date") by notice in writing to the
                               Company to elect to be treated as if his
                               conversion rights had been exercisable and had
                               been exercised immediately before the Operative
                               Date on the basis of conversion as provided
                               above and in that event he shall be entitled to
                               be paid in satisfaction of the amount due in
                               respect of such of his Convertible Preference
                               Shares as are to be treated as if converted a
                               sum equal to the amount to which he would have
                               become entitled in such liquidation if he had
                               been the holder of the Ordinary Shares to which
                               he would have become entitled by virtue of such
                               conversion (fractions being disregarded for this
                               purpose). At the expiration of the said period
                               of six weeks, any outstanding Convertible
                               Preference Shares shall cease to be capable of
                               conversion.

                       (x)     If any offer or invitation (not being an offer
                               falling within sub-paragraph (i) of this
                               paragraph (4)) is made or extended by any third
                               party to the holders of the Ordinary Shares and
                               pursuant to such offer any person (or persons
                               acting in concert with such person) may acquire
                               shares in the Company carrying 30% or more of
                               the voting rights at general meetings of the
                               Company, the Company shall, so far is it is
                               able, procure that a like offer or invitation is
                               made or extended at the same time to each holder
                               of Convertible Preference Shares as if his
                               conversion rights had been exercisable and
                               exercised in full and as if the Conversion Date
                               for such conversion had been immediately prior
                               to the record date for such offer or invitation
                               at the Conversion Rate then applicable. The
                               expressions "acting in concert" and "voting
                               rights" shall bear the meaning described in The
                               City Code on Takeovers and Mergers. This
                               obligation shall not for the avoidance of doubt,
                               apply in respect of such offers or invitations
                               made by Directors of the Company to acquire
                               Ordinary Shares in each calendar year up to a
                               limit of 2% of the issued Ordinary Shares of the
                               Company as at the beginning of such calendar
                               year provided that such Directors, together with
                               any person or persons acting in concert with
                               such Directors, do not acquire or hold shares
                               which in total carry 50% or more of the voting
                               rights exercisable at general meetings of the
                               Company.

                       (xi)    Except in the event that arrangements are or
                               have been offered to holders of the Convertible
                               Preference Shares which ensure that the rights
                               of such holders would not be prejudiced, the
                               Company will procure that no scheme of
                               compromise or arrangement within the meaning of
                               Section 425 of the Act affecting the Ordinary
                               Shares shall become effective

                                      E-14

<PAGE>
                               unless the holders of Convertible Preference
                               Shares shall be party to the scheme and unless
                               the scheme shall be approved by such holders in
                               the manner prescribed by the said section.

                       (xii)   The Company shall procure that at all times
                               while any Convertible Preference Shares remain
                               capable of being converted into Ordinary Shares
                               there shall be sufficient unissued Ordinary
                               Share capital available for the purposes of
                               satisfying the requirements of any Conversion
                               Notice.

                       (xiii)  Any consolidation and/or sub-division and/or
                               reclassification of shares to be effected on
                               Conversion shall be effected pursuant to the
                               authority given by the resolution of the Company
                               creating the Convertible Preference Shares and
                               making provision for rights and restrictions
                               attaching to the Convertible Preference Shares.

                       (xiv)   The Company may not be wound up by way of a
                               Members' voluntary winding up resolution, in
                               accordance with the provisions of the Insolvency
                               Act 1986 (as amended), unless the Company has
                               called a separate class meeting of the
                               Convertible Preference Shareholders at which the
                               Convertible Preference Shareholders have passed
                               an Extraordinary Resolution consenting to the
                               Members' voluntary winding up of the Company.

                       (xv)    The Company shall apply to the Council of the
                               Stock Exchange for the grant of permission to
                               deal in the Ordinary Shares into which the
                               Convertible Preference Shares are from time to
                               time converted in the Unlisted Securities Market
                               (or such other approved Stock Exchange as the
                               Ordinary Shares shall from time to time be
                               dealt) and shall use its best endeavours to
                               procure that such permission is effective from
                               the date or dates of conversion of the
                               Convertible Preference Shares and shall use its
                               reasonable endeavours that such permission
                               remains effective.

(5)           Voting

              (i)      The Convertible Preference Shares shall entitle the
                       holders to receive notice of and to attend at any
                       general meeting of the Company, to speak and vote on any
                       resolution to be proposed at any general meeting of the
                       Company abrogating, varying or modifying any of the
                       rights or privileges of the holders of the Convertible
                       Preference Shares and to call a poll in relation to any
                       such resolution.

              (ii)     Whenever the holders of the Convertible Preference
                       Shares are entitled to vote at a general meeting of the
                       Company on a resolution proposed at such a general
                       meeting on a show of hands, every holder thereof who
                       (being an individual) is present in person or (being a
                       corporation) is present by a duly authorised
                       representative or by proxy shall have one vote and, on a
                       poll, every holder thereof who (being an individual) is
                       present in person or by proxy or (being a corporation)
                       is present by a duly authorised representative or by
                       proxy shall have twenty votes in respect of each fully
                       paid Convertible Preference Share registered in the name
                       of such holder.

5B            The special rights and restrictions applicable to the "A"
              Deferred Shares and the "B" Deferred Shares are as follows:


                                      E-15

<PAGE>
5B.1          The "A" Deferred Shares ("the "A" Shares") shall have a nominal
              value of 10p (ten pence) and shall confer upon the holders
              thereof the rights, and be subject to the restrictions, as
              follows:

5B.1.1        Income

              The "A" Shares shall not confer any right to participate in any
              profits of the Company.

5B.1.2        Capital

5B.1.2.1      On a winding up or other return of capital payable by reference
              to a record date on or after 4 May 2006 each `A' Share shall
              entitle the holder thereof to receive the nominal value thereof
              if and only if the holders of ordinary shares in the capital of
              the Company have received the sum of (L)1,000,000 (One Million
              Pounds Sterling) per ordinary share.

5B.1.2.2      On a return of capital (whether on a liquidation or otherwise)
              payable by reference to a record date on or before 3 May 2006 and
              prior to the First Relevant Event then the "A" Shares shall
              provisionally rank pari passu with the ordinary shares save that
              no distribution shall be made to the holders of the "A" Shares
              until the happening on or prior to 3 May 2006 of the First
              Relevant Event. If the First Relevant Event shall not have
              happened on or prior to 3 May 2006 then the rights of the "A"
              Shares shall revert to those set out in paragraph 5B.1.2.1 above
              and the capital provisionally allocated to the "A" Shares shall
              belong to the holders of the ordinary shares.

5B.1.3        Voting

              The "A" Shares shall not confer upon the holders thereof the
              right to receive notice of or attend or vote at any general
              meeting of the Company.

5B.1.4        Redesignation

              Each "A" Share shall (unless the Company has previously served an
              "A" Redemption Notice) be automatically redesignated as an
              ordinary share on the date failing 30 days after the first
              commercial sale of Paroxetine/Paxil in combination with GEOMATRIX
              Technology by SmithKIine Beecham PLC ("SB") or any sub licensee
              or contract partner of SB under a licence agreement dated 20
              March 1996 ("the First Relevant Event").

5B.1.5        Redemption

5B.1.5.1      Within 14 days of the occurrence of the First Relevant Event the
              Company may serve written notice ("an "A" Redemption Notice") on
              the holders of the "A" Shares that it intends to redeem all (and
              not part only) of such shares in accordance with the following
              provisions and that it requires the delivery to it of all
              certificates for the "A" Shares.

5B.1.5.2      Upon receipt of an "A" Redemption Notice each registered holder
              of "A" Shares shall surrender at the holder's risk to the Company
              the certificate for the shares held by him which are to be
              redeemed so that they may be cancelled.

5B.1.5.3      Upon the later of surrender of the relevant share certificates or
              the date 30 days after the First Relevant Event the Company will
              pay to the holder of those shares the amount payable in respect
              of the redemption.

5B.1.5.4      Upon the redemption of the "A" Shares the Company will pay in
              respect of each share so redeemed an amount per "A" Share equal
              to the average of the middle market closing price of an ordinary
              share as traded on the London Stock Exchange over the period of
              the ten trading days ending on the day 30 days after the First
              Relevant Event, as taken from the Daily Official List published
              by the UK Listing Authority for those days.


                                      E-16

<PAGE>
5B.1.6        Takeover offers

              In the event that prior to the First Relevant Event and prior to
              3 May 2006 more than fifty per cent in nominal value of the
              issued ordinary share capital of the Company is acquired by a
              person or persons acting in concert pursuant to an offer for such
              shares ("the Ordinary Offer") then the following provisions shall
              apply:

5B.1.6.1      If the consideration for the Ordinary Offer is the issue of
              ordinary shares of the purchaser listed on a recognised
              investment exchange (as defined in Section 207 Financial Services
              Act 1986) then the holders of the "A" Shares shall be entitled to
              receive an offer (at the election of the purchaser) under which
              the purchaser either

5B.1.6.1.1    offers to acquire the "A" Shares as if they had already been
              redesignated as ordinary shares of the Company on the same terms
              as the Ordinary Offer;

5B.1.6.1.2    offers to acquire the "A" Shares in exchange for a new class of
              deferred share in the purchaser with the same rights (mutatis
              mutandis) as those of the "A" Shares (including this provision
              and including in particular the right for each such share to be
              redesignated as an ordinary share in the purchaser on the
              happening of the First Relevant Event on or prior to 3 May 2006).
              The number of such shares of the purchaser to be issued shall be
              calculated by applying the same factor which applied in the
              Ordinary Offer.

              In the event that a holder of "A" Shares shall fail to accept
              either offer then the Redemption Value for each such share
              following the happening of the First Relevant Event on or prior
              to 3 May 2006 shall be the value attributed to an ordinary share
              of the Company in the Ordinary Offer.

5B.1.6.2      In any other case the holders of the "A" Shares shall be entitled
              to receive an offer that the purchaser will pay or otherwise give
              value to the holders of the "A" Shares as if they had already
              been redesignated as ordinary shares on the same terms as the
              Ordinary Offer SAVE THAT such consideration shall be contingent
              upon the happening of the First Relevant Event on or prior to 3
              May 2006. If a holder of "A" Shares shall fail to accept such
              offer, the Redemption Value for each such share following the
              happening of the First Relevant Event on or prior to 3 May 2006
              shall be the value attributed to an ordinary share of the Company
              in the Ordinary Offer.

5B.2          The "B" Deferred Shares ("the "B" Shares") shall have a nominal
              value of 10p (ten pence) and shall confer upon the holders
              thereof the rights, and be subject to the restrictions, as
              follows:

5B.2.1        Income

              The "B" Shares shall not confer any right to participate in any
              profits of the Company.

5B.2.2        Capital

5B.2.2.1      On a winding up or other return of capital payable by reference
              to a record date on or after 4 May 2006 each "B" Share shall
              entitle the holder thereof the right to receive the nominal value
              thereof if and only if the holders of ordinary shares in the
              capital of the Company have received the sum of (L)1,000,000 (One
              Million Pounds Sterling) per ordinary share.

5B.2.2.2      On a return of capital (whether on a liquidation or otherwise)
              payable by reference to a record date on or before 3 May 2006 and
              prior to the Second Relevant Event then the "B" Shares shall
              provisionally rank pari passu with the ordinary shares save that
              no distribution shall be made to the holders of the "B" Shares
              until the happening on or prior to 3 May 2006 of the Second
              Relevant Event. If the Second Relevant Event shall

                                      E-17

<PAGE>
              not have happened on or prior to 3 May 2006 then the rights of
              the "B" Shares shall revert to those set out in paragraph
              5B.2.2.1 above and the capital provisionally allocated to the "B"
              Shares shall belong to the holders of the ordinary shares.

5B.2.3        Voting

              The "B" Shares shall not confer upon the holders thereof the
              right to receive notice of or attend or vote at any general
              meeting of the Company.

5B.2.4        Redesignation

              Each "B" Share shall (unless the Company has previously served a
              "B" Redemption Notice) be automatically redesignated as an
              ordinary share on the date thirty days after receipt by the
              Company of a royalty statement from SB stating that the reported
              sales of Paroxetine/Paxil in combination with the Geomatrix
              Technology marketed by SB or a sub-licensee or contract partner
              of SB during any calendar year ending prior to 1 January 2006
              exceed US$ 1,000,000,000 (One Billion US Dollars) or during the
              period 1 January 2006 to 3 May 2006 (both dates inclusive) exceed
              US$337,000,000 (Three Hundred and Thirty Seven Million US
              Dollars) ("the Second Relevant Event").

5B.2.5        Redemption

5B.2.5.1      Within 14 days of the occurrence of the Second Relevant Event the
              Company may serve written notice ("a "B" Redemption Notice") on
              the holders of the "B" Shares that it intends to redeem all (and
              not part only) of such shares in accordance with the following
              provisions and that it requires the delivery to it of all
              certificates for the "B" Shares.

5B.2.5.2      Upon receipt of a "B" Redemption Notice each registered holder of
              "B" Shares shall surrender at the holder's risk to the Company
              the certificate for the shares held by him which are to be
              redeemed so that they may be cancelled.

5B.2.5.3      Upon the later of surrender of the relevant share certificates or
              the date 30 days after the Second Relevant Event the Company will
              pay to the holder of those shares the amount payable in respect
              of the redemption.

5B.2.5.4      Upon the redemption of the "B" Shares the Company will pay in
              respect of each share so redeemed an amount per "B" Share equal
              to the average of the middle market closing price of an ordinary
              share as traded on the London Stock Exchange over the period of
              the ten trading days ending on the day 30 days after the Second
              Relevant Event, as taken from the Daily Official List published
              by the UK Listing Authority for those days.

5B.2.6        Takeover offers

              In the event that prior to the Second Relevant Event and prior to
              3 May 2006 more than fifty per cent in nominal value of the
              issued ordinary share capital of the Company is acquired by a
              person or persons acting in concert pursuant to an offer for such
              shares ("the Ordinary Offer") then the following provisions shall
              apply

5.B.2.6.1     If the consideration for the Ordinary Offer is the issue of
              ordinary shares of the purchaser listed on a recognised
              investment exchange (as defined in Section 207 Financial Services
              Act 1986) then the holders of the "B" Shares shall be entitled to
              receive an offer (at the election of the purchaser) under which
              the purchaser either:

5B.2.6.1.1    offers to acquire the "B" Shares as if they had already been
              redesignated as ordinary shares of the Company on the same terms
              as the Ordinary Offer;


                                      E-18

<PAGE>
5B.2.6.1.2    offers to acquire the "B" Shares in exchange for a new class of
              deferred share in the purchaser with the same rights (mutatis
              mutandis) as those of the "B" Shares (including this provision
              and including in particular the right for each such share to be
              redesignated as an ordinary share in the purchaser on the
              happening of the Second Relevant Event on or prior to 3 May
              2006). The number of such shares of the purchaser to be issued
              shall be calculated by applying the same factor which applied in
              the Ordinary Offer.

              In the event that a holder of "B" Shares shall fail to accept
              either offer then the Redemption Value for each such share
              following the happening of the Second Relevant Event on or prior
              to 3 May 2006 shall be the value attributed to an ordinary share
              of the Company in the Ordinary Offer.

5B.2.6.2      In any other case the holders of the "B" Shares shall be entitled
              to receive an offer that the purchaser will pay or otherwise give
              value to the holders of the "B" Shares as if they had already
              been redesignated as ordinary shares on the same terms as the
              Ordinary Offer SAVE THAT such consideration shall be contingent
              upon the happening of the Second Relevant Event on or prior to 3
              May 2006. If a holder of "B" Shares shall fail to accept such
              offer, the Redemption Value for each such share following the
              happening of the Second Relevant Event on or prior to 3 May 2006
              shall be the value attributed to an ordinary share of the Company
              in the Ordinary Offer.

5B.2.6.3      With effect from 4 May 2006, or, if later, the date on which any
              dispute as to whether the First Relevant Event or the Second
              Relevant Event respectively has occurred is resolved pursuant to
              paragraph 5B.2.6.4 below ("the Repurchase Date") the following
              provisions shall apply to such of the "A" Shares and "B" Shares
              as shall not have been redesignated as ordinary shares (such
              shares being referred to in this paragraph as "Deferred Shares"):

5B.2.6.3.1    The Company shall have irrevocable authority to appoint any
              person to execute on behalf of the holders of the Deferred Shares
              a transfer/cancellation of the Deferred Shares and/or an
              agreement to transfer/cancel the same, without making any payment
              to the holders of the Deferred Shares to such person or persons
              as the Company may determine as custodian thereof and, pending
              such transfer and/or cancellation and/or purchase, to retain the
              certificate for such shares. The Company may, at its option at
              any time after 4 May 2006 or, if later, the Repurchase Date,
              purchase all or any of the Deferred Shares then in issue, at a
              price not exceeding one penny for all the Deferred Shares so
              purchased or may cancel such shares by way of reduction of
              capital for no consideration.

5B.2.6.3.2    Neither the passing by the Company of any resolution for the
              cancellation of the Deferred Shares for no consideration by means
              of a reduction of capital requiring the confirmation of the Court
              nor the obtaining by the Company nor the making by the Court of
              any order confirming any such reduction of capital nor the
              becoming effective of any such order shall constitute a
              variation, modification or abrogation of the rights attaching to
              the Deferred Shares and accordingly the Deferred Shares may at
              any time be cancelled for no consideration by means of a
              reduction of capital effected in accordance with the Act without
              sanction of the part of the holders of the Deferred Shares.

5B.2.6.4      Any dispute between the Company and any holder of the "A" Shares
              or the "B" Shares as to whether, and if so when, the First
              Relevant Event or the Second Relevant Event has occurred or as to
              the amount payable on redemption thereof shall be referred at the
              request of either party to such dispute to the auditors of the
              Company for the time being for determination. The Company shall
              provide the auditors with all necessary information to enable
              them to make their determination and in reaching their decision

                                      E-19

<PAGE>
              the auditors shall act as experts and not as arbitrators. The
              finding of the auditors shall be final and binding on the parties
              and the costs of the auditors shall be borne by the parties to
              the dispute in such proportion as the auditors shall in their
              absolute discretion determine.

5B.2.6.5      For the purposes of the foregoing provisions "Geomatrix
              Technology" shall have the meaning ascribed thereto in a Stock
              Purchase Agreement dated 18 March 1996 between Dr J Gonella (1)
              and the Company (2).

5B.2.6.6      If the Company's ordinary shares shall be subdivided or
              consolidated between the issue of the "A" Shares and the "B"
              Shares and their respective redesignation as ordinary shares then
              the rights of the "A" Shares and the "B" Shares shall be adjusted
              in such manner as the auditors of the Company (acting as experts
              and not as arbitrators) shall determine.

6             Without prejudice to any special rights previously conferred on
              the holders of any shares or class of shares already issued
              (which special rights shall not be modified or abrogated except
              with such consent or sanction as is provided in the Company's
              memorandum of association and in the next following Article), a
              share (whether forming part of the original capital or not) may
              be issued with such preferred, deferred or other special rights
              or such restrictions, whether in regard to dividend, return of
              capital, voting or otherwise, as the Company by ordinary
              resolution determines.

Modification of rights

7             Whenever the capital of the Company is divided into different
              classes of shares or groups and either whilst the Company is a
              going concern or during or in contemplation of a winding up, the
              special rights attached to any class or group may be modified or
              abrogated, subject to the provisions of the Company's Memorandum
              of Association and unless otherwise provided by the terms of
              issue of the shares of that class or group, either with the
              consent In Writing of the holders of three-quarters of the issued
              shares of the class or group, or with the sanction of any
              extraordinary resolution passed at a separate general meeting of
              the holders (but not otherwise). The consent or resolution shall
              be binding upon all the holders of shares of the class or group.
              To every separate general meeting all the provisions of these
              Articles relating to, or to the proceedings at, general meetings
              shall, mutatis mutandis, apply, except that (a) the necessary
              quorum shall be two persons at least holding or representing by
              proxy one-third in nominal amount of the issued shares of the
              class or group (but, if at any adjourned meeting of the holders a
              quorum as above defined is not present, those members who are
              present shall be a quorum); (b) any holder of shares in the class
              or group present in person or by proxy may demand a poll; and (c)
              the holders of shares of the class or group shall, on a poll,
              have one vote in respect of every share of the class or group
              held by them respectively. The special rights conferred upon the
              holders of any shares or class or group of shares issued with
              preferred or other rights shall not, unless otherwise expressly
              provided by the conditions of issue, be deemed to be modified by
              the creation or issue of further shares ranking pari passu with
              them.

Shares

8             Subject to the provisions of the Statutes and any restrictions
              contained in these Articles and to any direction to the contrary
              given by the Company in general meeting, the Directors may allot,
              grant options over, or otherwise dispose of shares or rights to
              subscribe for, or to convert any security into, shares to such
              persons (including a Director) and on such terms as they think
              fit, but no share shall be issued at a discount.

9             The Company, in connection with the issue of any share, may
              exercise the powers of paying commissions conferred or permitted
              by the Statutes provided that the

                                      E-20

<PAGE>
              percentage rate or the amount of the commission paid or agreed to
              be paid is disclosed as required by law and does not exceed the
              rate of 10 per cent of the issue price of the shares in respect
              of which it is paid. Where permitted by the Statutes, the
              commission may be satisfied wholly or partly by the allotment of
              fully or partly paid shares. The Company may also on an issue of
              shares pay such brokerage as is lawful.

10            Except as required by law, no person shall be recognised by the
              Company as holding any share upon any trust. The Company shall
              not be bound by or be compelled in any way to recognise (even
              when having notice) any equitable, contingent, future or partial
              interest in any share, or any interest in any fractional part of
              a share, or (except as otherwise provided by these Articles or as
              by law required or under an order of court) any other rights in
              respect of any share except an absolute right to the entirety of
              it in the registered holder. The Company shall not be bound to
              register more than four persons as the joint holders of a share
              (except in the case of executors or trustees of a deceased
              member).

Certificates

11            Every person, except a recognised clearing house or a nominee of
              a recognised clearing house or of a recognised investment
              exchange in respect of whom the Company is not by law required to
              complete and have ready for delivery a certificate, whose name is
              entered as a member in the register of members shall be entitled
              without payment to receive within two months after allotment or
              lodgment of transfer (or within such other period as the
              conditions of issue provide) one certificate for all his shares
              of each class of shares held by him or, upon payment of such sum
              not exceeding (L)1 for every certificate after the first as the
              Directors determine, several certificates, each for one or more
              of his shares. Shares of different classes may not be included in
              the same certificate. Where a member who is entitled to a
              certificate has transferred part of the shares comprised in his
              holding he shall be entitled to a certificate for the balance of
              his holding free of charge. Every certificate for shares shall be
              issued under the Seal or in such other manner as the Directors,
              having regard to the terms of issue, the Statutes and any
              applicable regulations of the London Stock Exchange, may
              authorise. The certificate shall specify the shares or securities
              to which it relates and the amount paid up and (subject as
              provided below) shall bear the autographic signatures of at least
              one Director and the Secretary provided that the Directors may by
              resolution determine that such signatures, or either of them,
              shall be dispensed with or shall be affixed by such other person
              as may be authorised by the Directors or some method or system of
              mechanical signature. In the case of a share held jointly by
              several persons, the Company shall not be bound to issue more
              than one certificate. Delivery of a certificate for a share to
              one of several joint holders shall be sufficient delivery to all.

12            If a share certificate is defaced, lost or destroyed it may be
              replaced without fee but on such terms (if any) as to evidence
              and indemnity and to payment of the costs and any exceptional
              out-of-pocket expenses of the Company in investigating the
              evidence and preparing the indemnity as the Board thinks fit and,
              in case of defacement, on delivery of the old certificate to the
              Company.

Lien

13            Subject to the provisions of section 150 of the Act the Company
              shall have a first and paramount lien on every share (not being a
              fully paid share) for all moneys, whether presently payable or
              not, called or payable at a fixed time in respect of the share
              whether the period for the payment has actually arrived or not,
              and notwithstanding that it is the joint debt or liability of the
              member or his estate and any other person, whether a member of
              the Company or not. The Company's lien (if any) on a share shall
              extend to all dividends or other moneys payable on or in respect
              of it, together with any interest

                                      E-21

<PAGE>
              or expenses which may have accrued. The Directors may resolve
              that any share is wholly or in part exempt from the provisions of
              this Article.

14            The Company may sell, in such manner as the Directors think fit,
              any shares on which the Company has a lien, but no sale shall be
              made unless some sum in respect of which the lien exists is
              presently payable, nor until the expiration of 14 days after a
              notice in writing, stating and demanding payment of the sum
              presently payable, and giving notice of intention to sell in
              default, has been given to the holder of the share or the person
              entitled to it by reason of his death or bankruptcy.

15            To give effect to the sale the Directors may authorise some
              person to transfer the shares sold to, or in accordance with the
              directions of, the purchaser. The purchaser shall be registered
              as the holder of the shares and he shall not be bound to see to
              the application of the purchase money and his title to the shares
              shall not be affected by any irregularity or invalidity in the
              proceedings in reference to the sale. The net proceeds of sale,
              after payment of the costs of sale, shall be applied in or
              towards payment or satisfaction of the debt or liability in
              respect of which the lien exists, so far as it is presently
              payable. Any residue shall (subject to a like lien for sums not
              presently payable as existed upon the shares before the sale) be
              paid to the person entitled to the shares at the time of the
              sale.

Calls on shares

16            The Directors may make calls upon the members in respect of any
              moneys (whether on account of the nominal value of the shares or
              by way of premium) unpaid on their shares and not by the
              conditions of allotment made payable at fixed times, provided
              that (except as otherwise fixed by the conditions of application
              or allotment) no call on any share may exceed one-quarter of the
              nominal amount of the share or be payable within 14 days from the
              last call. Each member shall (subject to receiving at least 14
              days' notice specifying the time and place of payment) pay to the
              Company at the time and place specified the amount called on his
              shares. A call may be revoked or postponed as the Directors
              determine.

17            A call shall be deemed to have been made at the time when the
              resolution of the Directors authorising it was passed. A call may
              be made payable by instalments.

18            The joint holders of a share shall be jointly and severally
              liable to pay all calls in respect of it.

19            If a call or instalment payable in respect of a share is not paid
              before or on the day appointed for payment, the person from whom
              the sum is due shall pay interest on it from the day appointed
              for payment to the time of actual payment at such rate, not
              exceeding 15 per cent per annum, as the Directors determine. He
              shall also pay all costs, charges and expenses which the Company
              has incurred or become liable for in order to procure payment of
              or in consequence of the non-payment of the call or instalment.
              The Directors shall be at liberty to waive payment of the
              interest, costs, charges and expenses, wholly or in part.

20            Any sum which by the terms of issue of a share becomes payable
              upon allotment or at any fixed date, whether on account of the
              nominal value of the share or by way of premium, shall for all
              the purposes of these Articles be deemed to be a call duly made
              and payable on the date on which, by the terms of issue, it
              becomes payable. In case of non-payment all the relevant
              provisions of these Articles as to payment of interest, costs,
              charges and expenses, forfeiture or otherwise shall apply as if
              the sum had become payable by virtue of a call duly made and
              notified.


                                      E-22

<PAGE>
21            The Directors may, on the issue of shares, differentiate between
              the holders in the amount of calls to be paid and the times of
              payment.

22            The Directors may receive from any member all or any part of the
              money unpaid upon the shares held by him beyond the sums actually
              called up as a payment in advance of calls. The payment in
              advance of calls shall extinguish, so far as the same shall
              extend, the liability upon the shares in respect of which it is
              advanced. Upon the money received, or so much of it as exceeds
              the amount of the calls then made upon the shares in respect of
              which it has been received, the Company may pay interest at such
              rate as the member and the Directors agree. The member shall not
              be entitled to participate in respect of the advance in a
              dividend subsequently declared. The Directors may repay the
              amount advanced upon giving to the member one month's notice in
              writing.

Transfer of shares

23            All transfers of shares may be effected by transfer In Writing in
              any usual or common form, or in any other form approved by the
              Directors.

24            The instrument of transfer of a share shall be signed by or on
              behalf of the transferor and (in the case of a partly paid share)
              the transferee. The transferor shall be deemed to remain the
              holder of the share until the name of the transferee is entered
              in the register of members in respect of it. Subject to the
              provisions of these Articles, transfers of shares and other
              documents relating to or affecting the title to any shares shall
              be registered without payment of any fee. All instruments of
              transfer which are registered shall be retained by the Company.

24A           Notwithstanding anything to the contrary contained in these
              Articles of Association, the shares of the Company (or any class
              thereof) may be held in uncertificated form and title to the
              shares of the Company (or any class thereof) may be transferred
              by means of a relevant system within the meaning of the
              Undercertificated Securities Regulations 1995.

25            The Directors may, in their absolute discretion and without
              assigning any reason therefor, decline to register the transfer
              of a share (not being a fully paid share) to a person of whom
              they shall not approve, and they may also decline to register the
              transfer of a share (not being a fully paid share) on which the
              Company has a lien, provided that, where any such shares are
              admitted to the official list of the London Stock Exchange, such
              discretion may not be exercised in such a way as to prevent
              dealings in the shares from taking place on an open and proper
              basis. Subject to the foregoing, the Directors may also decline
              to register any instrument of transfer unless:

              (a)      the instrument of transfer, duly stamped, is deposited
                       at the Office or such other place as the Directors may
                       appoint accompanied by the certificate of the shares to
                       which it relates, and such other evidence as the
                       Directors may reasonably require to show the right of
                       the transferor to make the transfer;

              (b)      the instrument of transfer is in respect of only one
                       class of share; and

              (c)      in the case of a transfer to joint holders, they do not
                       exceed four in number.

26            If the Directors refuse to register a transfer they shall, within
              2 months after the date on which the transfer was lodged with the
              Company, send to the transferee notice of the refusal and any
              instrument of transfer which the Directors decline to register
              shall (except in the case of fraud) be returned to the person
              depositing it.

27            The register of transfers may be closed at such times and for
              such periods (not exceeding 30 days in any year) as the Directors
              determine.


                                      E-23

<PAGE>
28            Subject to section 80 of the Act, nothing in these Articles shall
              preclude the Directors from allowing the allotment of any share
              to be renounced by the allottee in favour of some other person.
              For all purposes of these Articles relating to the registration
              of transfers of shares, this renunciation shall be deemed to be a
              transfer and the Directors shall have the same power of refusing
              to give effect to it as if the renunciation were a transfer.

29            The Company shall be entitled to destroy (a) all instruments of
              transfer of shares and all other documents on the faith of which
              entries are made in the register of members at any time after the
              expiration of 6 years from the date of registration, (b) all
              dividend mandates and notifications of change of name or address
              at any time after the expiration of 2 years from the date of
              recording, and (c) all share certificates which have been
              cancelled at any time after the expiration of 1 year from the
              date of cancellation. If the Company destroys a document in good
              faith and without notice of any claim (regardless of the parties)
              to which the document might be relevant, it shall conclusively be
              presumed in favour of the Company that every instrument of
              transfer so destroyed was a valid and effective instrument duly
              and properly registered, every share certificate so destroyed was
              a valid and effective document duly and properly cancelled and
              every other document mentioned above so destroyed was a valid and
              effective document in accordance with the recorded particulars in
              the books or records of the Company. Nothing in this Article
              shall be construed as imposing upon the Company any liability in
              respect of the destruction of any document at an earlier date
              than that provided above or if the condition as to good faith and
              absence of notice is not met. References in this Article to the
              destruction of any document include references to its disposal in
              any manner.

Transmission of shares

30            In the case of the death of a member the survivor or survivors
              where the deceased was a joint holder, and the executors or
              administrators of the deceased where he was a sole or only
              surviving holder, shall be the only persons recognised by the
              Company as having any title to his shares. Nothing in this
              Article shall release the estate of a deceased holder (whether
              sole or joint) from any liability in respect of any share solely
              or jointly held by him.

31            Subject to any other provisions of these Articles, any person
              becoming entitled to a share in consequence of the death or
              bankruptcy of a member or otherwise by operation of the law may,
              upon such evidence as to his title being produced as may be
              required by the Directors and subject as provided below, either
              be registered himself as holder of the share or elect to have
              some person nominated by him registered as transferee.

32            Subject to any other provisions of these Articles, if the person
              becoming entitled as above elects to be registered himself, he
              shall give to the Company notice In Writing to that effect. If he
              elects to have his nominee registered, he must execute in favour
              of his nominee a transfer of the share. All the limitations,
              restrictions and provisions of these Articles relating to the
              right to transfer and the registration of transfers of shares
              shall be applicable to the notice or transfer as if the event
              giving rise to the transmission had not occurred and the notice
              or transfer were a transfer executed by the member.

33            Subject to any other provisions of these Articles, a person
              becoming entitled to a share in consequence of the death or
              bankruptcy of a member may, at the discretion of the Directors,
              receive and give a discharge for any dividends or other moneys
              becoming payable in respect of the share but shall not otherwise
              be entitled to receive notices of or to attend or vote at
              meetings of the Company or to any of the rights or privileges of
              a member until he has become a member in respect of the share. If
              he fails either to

                                      E-24

<PAGE>
              transfer the share or to elect to be registered as a member in
              respect of it within 60 days of being required by the Directors
              to do so, he shall in the case of shares which are fully paid up
              be deemed to have elected to be registered as a member in respect
              of them and may be registered accordingly.

Forfeiture of shares

34            If a member fails to pay the whole or any part of any call or
              instalment of a call on or before the day appointed for payment,
              the Directors may, whilst any part of the call or instalment
              remains unpaid, serve a notice on him requiring payment of so
              much of the call or instalment as is unpaid, together with any
              accrued interest and any costs, charges and expenses incurred by
              the Company by reason of the non-payment.

35            The notice shall name a further day (not being less than 7 days
              from the date of the notice) on or before which and the place
              where the payment required by the notice is to be made and shall
              state that, in the event of non-payment at or before the time and
              at the place appointed, the shares in respect of which the call
              was made or instalment is payable will be liable to be forfeited.
              The Directors may accept the surrender of any share liable to be
              forfeited and, in such case, references in these Articles to
              forfeiture shall include surrender.

36            If the requirements of the notice are not complied with, any
              share in respect of which it has been given may before payment of
              all calls and interest and expenses due in respect of it has been
              made be forfeited by a resolution of the Directors. Forfeiture
              shall include all dividends declared in respect of the forfeited
              shares and not actually paid before forfeiture.

37            A forfeited share shall become the property of the Company and
              may be sold, re-allotted or otherwise disposed of, either to the
              person who was before forfeiture the holder or entitled to it, or
              to any other person, upon such terms and in such manner as the
              Directors think fit. At any time before a sale or disposition,
              the forfeiture may be cancelled on such terms as the Directors
              think fit, subject always to the provisions of section 146 of the
              Act.

38            A shareholder whose shares have been forfeited shall cease to be
              a member in respect of the forfeited shares, but shall remain
              liable to pay to the Company all sums which at the date of
              forfeiture were presently payable by him to the Company in
              respect of the shares, with interest from the date of forfeiture
              until payment at such rate not exceeding 15 per cent per annum as
              the Directors determine. The Directors shall be at liberty to
              waive payment of interest wholly or in part and may enforce
              payment without any allowance for the value of the shares at the
              time of forfeiture.

39            When a share has been forfeited, notice of the forfeiture shall
              be served upon the person who was before forfeiture the holder of
              the share. No forfeiture shall be invalidated by any failure to
              give notice.

40            A statutory declaration in writing that the declarant is a
              director or the secretary of the Company and that a share has
              been duly forfeited on a date stated in the declaration shall be
              conclusive evidence of the facts stated in it as against all
              persons claiming to be entitled to the share. The declaration and
              the receipt of the Company for the consideration (if any) given
              for the share on the sale, re-allotment or disposal, together
              with the relevant share certificate delivered to a purchaser or
              allottee shall (subject to the execution of a transfer if
              required) constitute a good title to the share. The person to
              whom the share is sold, re-allotted or disposed of shall be
              registered as the holder of the share and shall not be bound to
              see to the application of the purchase money (if any), nor shall
              his title to the share be affected by any irregularity or
              invalidity in the proceedings in reference to the forfeiture,
              sale, or disposal of the share. Every Director

                                      E-25

<PAGE>
              is authorised to execute on behalf of the shareholder whose share
              is forfeited a proper instrument of transfer of the share.

41            The provisions of these Articles as to forfeiture shall apply in
              the case of non-payment of any sum which, by the terms of issue
              of a share, becomes payable at a fixed time, whether on account
              of the nominal value of the share or by way of premium, as if it
              had been payable by virtue of a call duly made and notified.

Untraced shareholders

42            (A)      The Company may sell (in such manner and for such price
                       as the Directors think fit) the shares of a member or
                       the shares to which a person is entitled by virtue of
                       transmission on death or bankruptcy if:

                       (i)     during the period of 12 years prior to the date
                               of the publication of the advertisements
                               referred to in paragraph (ii) below (or, if
                               published on different dates, the first date),
                               being a period during which at least three
                               dividends have been payable, all warrants and
                               cheques in respect of the shares in question
                               sent in the manner authorised by these Articles
                               have remained uncashed; and

                       (ii)    the Company on expiry of the period of 12 years
                               has given notice, by advertisement in both a
                               national newspaper and a newspaper circulating
                               in the area in which the last known address of
                               the member or the address at which service of
                               notices may be effected in the manner authorised
                               by these Articles is located, of its intention
                               to sell the shares; and

                       (iii)   during the period of 12 years and the period of
                               3 months following the publication of the
                               advertisements, or following the later
                               publication if the two advertisements are
                               published on different dates, the Company has
                               received no indication either of the whereabouts
                               or of the existence of the member or person; and

                       (iv)    notice has been given to the London Stock
                               Exchange of its intention to make the sale.

              (B)      To give effect to a sale the Company may appoint any
                       person to execute as transferor an instrument of
                       transfer of the shares. The instrument of transfer shall
                       be as effective as if it had been executed by the
                       registered holder of, or person entitled by transmission
                       to, the shares and the title of the transferee shall not
                       be affected by any irregularity or invalidity in the
                       proceedings. The net proceeds of sale shall belong to
                       the Company which shall be obliged to account to the
                       former member or other person previously entitled for an
                       amount equal to the proceeds and shall enter the name of
                       the former member or other person in the books of the
                       Company as a creditor for that amount. No trust shall be
                       created in respect of the debt, no interest shall be
                       payable in respect of it and the Company shall not be
                       required to account for any money earned on the net
                       proceeds, which may be employed in the business of the
                       Company or invested in such investments (other than
                       shares of the Company or its holding company, if any) as
                       the Directors think fit.

Stock

43            The Company may by ordinary resolution convert any paid-up shares
              into stock, or re-convert any stock into paid-up shares of any
              denomination.


                                      E-26

<PAGE>
44            The holders of stock may transfer all or any part in the same
              manner, and subject to the same regulations as and subject to
              which, the shares from which the stock arose might previously to
              conversion have been transferred, or as near thereto as
              circumstances admit. The Directors may fix the minimum amount of
              stock (not exceeding the nominal amount of the shares from which
              the stock arose) which is transferable, in which case no stock
              shall be transferable except in sums of, or in multiples of, the
              minimum amount. No warrants to bearer shall be issued in respect
              of any stock.

45            The holders of stock shall, according to the amount of the stock
              held by them, have the same rights, privileges and advantages as
              regards dividends, participation in assets on a winding-up,
              voting at meetings and other matters as if they held the shares
              from which the stock arose. No privilege or advantage (except
              participation in dividends and in assets on a winding-up) shall
              be conferred by any stock as would not have been conferred if it
              existed in shares.

46            All the provisions of these Articles (other than those relating
              to share warrants) which are applicable to paid-up shares shall
              apply to stock, and the words "share" and "shareholder" include
              "stock" and "stockholder".

47            The Directors may issue warrants ("share warrants") in respect of
              fully paid up shares stating that the bearer is entitled to the
              shares specified, and may provide by coupons or otherwise for the
              payment of future dividends on the shares included in the
              warrants. The Directors may determine and vary the conditions
              upon which share warrants are issued and upon which a new share
              warrant or coupon is issued in the place of one worn out, defaced
              or destroyed. No new share warrant or coupon shall be issued to
              replace one that has been lost unless the Directors are satisfied
              beyond reasonable doubt that the original has been destroyed. The
              Directors may also determine and vary the conditions upon which
              the bearer of a share warrant is entitled to receive notices of
              and attend and vote at general meetings or to join in
              requisitioning general meetings, and upon which a share warrant
              may be surrendered and the name of the holder entered in the
              register in respect of the shares specified in it. The Directors
              may require the holder or person who claims to be the holder of a
              share warrant to produce his warrant and to satisfy them that he
              continues to be the holder. Subject to such conditions and to
              these Articles, the bearer of a share warrant shall be a member
              to the full extent. The holder of a share warrant shall hold it
              subject to the conditions for the time being in force with regard
              to share warrants whether made before or after the issue of such
              warrant.

Increase of capital

48            The Company in general meeting may by ordinary resolution
              increase its capital by such sum, to be divided into shares of
              such amounts, as the resolution prescribes.

49            Unless the Company by ordinary resolution at the general meeting
              at which the capital is increased otherwise directs, any new
              shares proposed to be issued shall be offered in the first
              instance in accordance with section 89 of the Act (save to the
              extent disapplied from time to time by Special Resolution) to all
              the shareholders for the time being, on the same or on more
              favourable terms than those offered or to be offered to persons
              other than shareholders, in proportion to the number of shares of
              the same class held by them.

50            The new shares shall be subject to the provisions of these
              Articles with reference to payment of calls, lien, transfer,
              transmission, forfeiture and otherwise.


                                      E-27

<PAGE>
Purchase of own shares

51            (A)      Subject to, and in accordance with, the provisions of
                       the Statutes and subject to paragraphs (B) and (C), the
                       Company may purchase its own shares (including any
                       redeemable shares).

              (B)      The Company may not purchase its own shares if at the
                       time of purchase there are outstanding any convertible
                       securities of the Company, unless either there are
                       provisions in the relevant trust deed or terms of issue
                       permitting the purchase or the purchase has been
                       sanctioned by an extraordinary resolution passed at a
                       separate class meeting of the holders of the convertible
                       securities.

              (C)      Purchases by the Company of its own redeemable shares
                       shall, where the shares are listed on the London Stock
                       Exchange, be limited to a maximum price which, in the
                       case of purchases through the market of redeemable
                       shares other than those which are normally bought and
                       traded in by a limited number of investors who are
                       particularly knowledgeable in investment matters, must
                       not exceed 5 per cent above the average market value for
                       the 10 business days before the purchase is made. If the
                       purchases are by tender, tenders shall be made available
                       to all holders of the shares alike.

Alteration of capital

52            The Company may by ordinary resolution:

              (i)      consolidate and divide all or any of its share capital
                       into shares of larger amount than its existing shares;

              (ii)     cancel any shares which, at the date of the passing of
                       the resolution, have not been taken, or agreed to be
                       taken, by any person, and diminish the amount of its
                       capital by the nominal amount of the shares cancelled,
                       subject to the provisions of sections 146-149 of the
                       Act; and

              (iii)    sub-divide all or any of its shares into shares of
                       smaller amount than is fixed by the Memorandum of
                       Association and the resolution may determine that, as
                       between the holders of the shares resulting from the
                       sub-division, one or more of the shares may have any
                       such preferred or other special rights over, or may have
                       such deferred rights, or be subject to any such
                       restrictions as compared with the others as the Company
                       has power to attach to unissued or new shares.

53            Upon a consolidation of fully paid shares into shares of larger
              amount the Directors may settle any difficulty which arises and
              in particular may, as between the holders of shares consolidated,
              determine which shares are consolidated into each consolidated
              share. In the case of any shares registered in the name or names
              of one or more members being consolidated with shares registered
              in the name or names of another member or members, the Directors
              may make such arrangements for the sale of the consolidated share
              or for the issue, acceptance or sale of fractional certificates
              and may sell the consolidated share or the fractions represented
              by fractional certificates, either upon the market or otherwise,
              to such person or persons at such times and at such prices as
              they think fit. The Directors shall distribute the net proceeds
              of sale among the members rateably in accordance with their
              interests in the consolidated share or the fractions represented
              by the fractional certificates. For the purpose of giving effect
              to a sale the Directors may appoint some person to transfer the
              shares or fractions sold to the purchasers save where the amount
              to be distributed to a member in respect of any such interest or
              fraction amount to less than (L)3.00 (or such greater amount as
              the London Stock Exchange Limited shall from time to time
              permit), in which case any such amount may be retained for the
              benefit of the Company.


                                      E-28

<PAGE>
54            The Company may by special resolution reduce its share capital
              and any capital redemption reserve fund or any share premium
              account in any manner subject to any conditions and consents
              required by law.

Redeemable shares

55            The Company may by special resolution create and sanction the
              issue of shares which are, or at the option of the Company or the
              holder are to be liable, to be redeemed, subject to and in
              accordance with the provisions of the Statutes. The special
              resolution sanctioning the issue shall also make such alterations
              to these Articles as are necessary to specify the terms on which
              and the manner in which the shares are to be redeemed.

General meetings

56            A general meeting shall be held in each year at such time (within
              a period of not more than 15 months after the holding of the last
              preceding general meeting) and place as may be determined by the
              Directors. The general meetings referred to in this Article shall
              be called annual general meetings. All general meetings other
              than annual general meetings shall be called extraordinary
              general meetings.

57            The Directors may convene an extraordinary general meeting
              whenever they think fit. On the requisition of members in
              accordance with the Statutes, the Directors shall convene an
              extraordinary general meeting. Whenever the Directors convene an
              extraordinary general meeting on the requisition of members, they
              shall convene it for a date not more than 6 weeks after the date
              when the requisition is deposited at the Office (unless the
              requisitionists consent In Writing to a later date being fixed).
              If there are not within the United Kingdom sufficient Directors
              capable of acting to form a quorum, any Director or any two
              members of the Company may convene an extraordinary general
              meeting in the same manner as nearly as possible as that in which
              meetings may be convened by the Directors.

Notice of general meetings

58            In the case of the annual general meeting or of a meeting
              convened to pass a special resolution at least 21 clear days'
              notice and in other cases at least 14 days' notice must be given
              (exclusive in each case of the day on which the notice is served
              or deemed to be served and of the day for which the notice is
              given). The notice shall specify the place, the day and the hour
              of meeting (and in the case of an annual general meeting shall
              specify the meeting as such) and state with reasonable prominence
              that a member entitled to attend and vote is entitled to appoint
              a proxy, who need not also be a member, to attend and vote
              instead of him. In the case of special business, the notice must
              specify the general nature of the business (and, in the case of a
              meeting convened for passing a special or extraordinary
              resolution, the intention to propose the resolution as a special
              or extraordinary resolution as the case may be). The notice shall
              be given to the Auditors and the Directors and to such members as
              are, under these Articles, entitled to receive notices from the
              Company. With the consent In Writing of all, or such less number
              as is required by the Statutes, of the members entitled to attend
              and vote, a meeting may be convened by a shorter notice and in
              such manner as those members think fit. The Company shall comply
              with the provisions of the Statutes as to giving notice of
              resolutions and circulating statements on the requisition of
              members.

59            The accidental omission to give notice of any meeting, or to send
              a form of proxy with a notice where required by these Articles,
              or the non-receipt of a notice or form of proxy, shall not
              invalidate the proceedings at any general meeting.


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<PAGE>
Proceedings at general meetings

60            All business shall be deemed special that is transacted at an
              extraordinary general meeting, and also all business that is
              transacted at an annual general meeting, with the exception of
              declaring dividends, the reading and consideration and adoption
              of the accounts and balance sheet and the ordinary reports of the
              Directors and Auditors and other documents required to be annexed
              to the balance sheet, the re-election of Directors retiring, the
              election of Directors in the place of those retiring, the voting
              of remuneration or extra remuneration to the Directors, the
              appointment of and the fixing of the remuneration of the Auditors
              and the grant, renewal, limitation, extension or variation of any
              authority of or to the Board, under section 80 of the Act, to
              allot securities.

61            No business shall be transacted at any general meeting unless a
              quorum is present when the meeting proceeds to business. Except
              as otherwise provided in these Articles, two members present in
              person or by proxy and entitled to vote shall be a quorum for all
              purposes. A corporation which is a member shall be deemed to be
              personally present for the purpose of this Article if represented
              by its representative duly authorised in accordance with Article
              78.

62            If within half an hour from the time appointed for the meeting a
              quorum is not present, the meeting, if convened on the
              requisition of members, shall be dissolved. In any other case it
              shall stand adjourned to the same day in the next week, at the
              same time and place, or to such other day and at such other time
              and place as the Directors determine.

63            The chairman (if any) of the Board or, in his absence, a deputy
              chairman (if any) shall preside as chairman at every general
              meeting. If there is no chairman or deputy chairman, or if at any
              meeting neither the chairman nor a deputy chairman is present
              within 5 minutes after the time appointed for holding it, or if
              neither of them is willing to act as chairman, the Directors
              present shall choose one of their number to act, or if one
              Director only is present he shall preside as chairman if willing
              to act. If no Director is present, or if each of the Directors
              present declines to take the chair, the persons present and
              entitled to vote on a poll may elect one of their number to be
              chairman.

64            The chairman may, with the consent of any meeting, adjourn the
              meeting from time to time and from place to place, but no
              business shall be transacted at an adjourned meeting except
              business which might lawfully have been transacted at the meeting
              from which the adjournment took place. When a meeting is
              adjourned for 30 days or more, notice of the adjourned meeting
              shall be given as in the case of an original meeting. It shall
              not otherwise be necessary to give notice of an adjournment or of
              the business to be transacted at an adjourned meeting.

65            At a general meeting a resolution put to the vote shall be
              decided on a show of hands unless, before or on the declaration
              of the result of the show of hands, a poll is demanded by the
              chairman or by at least three members present in person or by
              proxy and entitled to vote or by a member or members entitled to
              vote and holding or representing by proxy at least one-tenth part
              of the total voting rights of all the members having the right to
              vote at the meeting or by a member or members holding shares
              conferring a right to vote at the meeting on which an aggregate
              sum has been paid up equal to not less than one-tenth of the
              total sum paid up on all the shares conferring that right. Unless
              a poll is demanded as above, a declaration by the chairman that a
              resolution has been carried, or carried unanimously, or by a
              particular majority, or lost, and an entry to that effect in the
              minute book shall be conclusive evidence of the fact without
              proof of the number or proportion of the votes recorded in favour
              of or against the resolution.


                                      E-30

<PAGE>
66            If any votes are counted which ought not to have been counted, or
              might have been rejected, the error shall not vitiate the
              resolution unless it is pointed out at the same meeting, or at an
              adjournment, and it is, in the opinion of the chairman of the
              meeting, of sufficient magnitude to vitiate the resolution.

67            If a poll is duly demanded, it shall be taken at such time
              (either at the meeting at which the poll is demanded or within 30
              days of the meeting) and place and in such manner as the chairman
              directs (including the use of ballot or voting papers or
              tickets). The result of a poll shall be deemed to be the
              resolution of the meeting at which the poll was demanded. A poll
              demanded on the election of a chairman or on a question of
              adjournment shall be taken immediately. No notice need be given
              of a poll not taken immediately. The chairman may appoint
              scrutineers and may adjourn the meeting to some place and time
              fixed by him for declaring the result of the poll. The demand for
              a poll may be withdrawn before the close of the meeting or the
              taking of the poll, whichever is the earlier, but, if a demand is
              withdrawn, the chairman of the meeting or other members entitled
              to require a poll may himself or themselves demand a poll.

68            In the case of an equality of votes, whether on a show of hands
              or on a poll, the chairman of the meeting at which the show of
              hands takes place or at which the poll is demanded shall be
              entitled to a second or casting vote in addition to any votes to
              which he may be entitled as a member.

69            The demand for a poll shall not prevent the continuance of a
              meeting for the transaction of any business other than the
              question on which the poll has been demanded.

Votes of members

70            Subject to any special rights or restrictions as to voting
              attached to any shares by or in accordance with these Articles,
              on a show of hands every member, who (being an individual) is
              present in person or (being a corporation) is present by a
              representative not being himself a member, shall have one vote
              and on a poll every member who is present in person or by proxy
              shall have one vote for every share of which he is the holder.

71            Where there are joint holders of a share, any one of them may
              vote at any meeting either personally or by proxy in respect of
              the share as if he were solely entitled to it, but if more than
              one joint holder is present at a meeting either personally or by
              proxy, that one of them whose name stands first in the register
              of members in respect of the share shall alone be entitled to
              vote in respect of it.

72            A member, in respect of whom an order has been made by a
              competent court or official on the ground that he is or may be
              suffering from mental disorder or is otherwise incapable of
              managing his affairs, may vote, whether on a show of hands or on
              a poll, by any person authorised to do so on his behalf and that
              person may on a poll vote by proxy, provided that such evidence
              as the Directors require of his authority has been deposited at
              the Office not less than 3 days before the time for holding the
              meeting.

73            No member shall be entitled to vote at any general meeting either
              personally or by proxy, or to exercise any privilege as a member,
              unless all calls or other sums presently payable by him in
              respect of shares in the Company have been paid.

74            A member holding unclassified shares shall be entitled to vote at
              any general meeting in respect of those shares, provided that no
              ordinary share is in issue.

75            No objection shall be raised to the qualification of any vote
              except at the meeting or adjourned meeting at which the vote
              objected to is given or tendered. Every vote not

                                      E-31

<PAGE>
              disallowed at the meeting shall be valid for all purposes. An
              objection made in due time shall be conclusive.

76            On a poll votes may be given either personally or by proxy.

77            The instrument appointing a proxy must be in writing under the
              hand of the appointor or of his attorney duly authorised in
              writing, or if the appointor is a corporation either under its
              common seal or under the hand of an officer or attorney so
              authorised. The Directors may, but shall not be bound to, require
              evidence of the authority of the officer or attorney. A proxy
              need not be a member of the Company.

78            A corporation holding shares conferring the right to vote may, by
              resolution of its directors or other governing body, authorise
              any of its officials or any other person to act as its
              representative at any meeting of the Company or at any meeting of
              holders of any class of shares of the Company. The authorised
              person shall be entitled to exercise the same powers on behalf of
              the corporation which he represents as if he had been an
              individual member of the Company.

79            The instrument appointing a proxy and the power of attorney or
              other authority (if any) under which it is signed, or a
              notarially certified copy of the power or authority, must be
              deposited, not less than 48 hours before the time appointed for
              holding the meeting or adjourned meeting at which the person
              named in the instrument proposes to vote, at the Office or at
              such other place as is nominated by the Board. In default the
              instrument of proxy shall not be treated as valid.

80            An instrument of proxy must be in a common form or form which the
              Directors approve. Proxies need not be witnessed. The proxy shall
              be deemed to include the right to demand or join in demanding a
              poll and generally to act at the meeting for the member giving
              the proxy. The proxy shall, unless it states the contrary, be
              valid for an adjournment of the meeting as well as for the
              meeting to which it relates.

81            A vote given in accordance with the terms of an instrument of
              proxy shall be valid, notwithstanding the previous death or
              incapacity of the principal or revocation of the proxy, or of the
              authority under which the proxy was executed, or the transfer of
              the share in respect of which the proxy is given, provided that
              no intimation In Writing of the death, incapacity, revocation or
              transfer has been received at the Office at least 48 hours before
              the commencement of the meeting or adjourned meeting at which the
              proxy is used.

82            (A)      If a member, or a person appearing to be interested in
                       shares held by a member, has been duly served with a
                       notice under section 212 of the Act ("statutory notice")
                       and is in default for the prescribed period in supplying
                       to the Company the required information or makes a
                       statement which in the opinion of the Board is false or
                       misleading in any material particular, then not earlier
                       than 28 days or such less number of days as may be
                       permitted from time to time by The London Stock Exchange
                       after service of the statutory notice, the Directors may
                       at any time, by notice (a "direction notice") to the
                       member, direct that in respect of the shares in relation
                       to which the default occurred (the "default shares") the
                       member is not entitled to vote, either personally or by
                       proxy, at a general meeting or a meeting of the holders
                       of any class of shares of the Company or to exercise any
                       other right conferred by membership in relation to
                       general meetings of the holders of any class of shares
                       of the Company.

              (B)      Where the default shares represent at least 0.25 per
                       cent of the issued shares of a class, the direction
                       notice may additionally direct:


                                      E-32

<PAGE>
                       (i)     that any dividend or other money which would
                               otherwise be payable in respect of each of the
                               default shares shall (in whole or part) be
                               retained by the Company without any liability to
                               pay interest when the dividend or money is paid
                               to the member;

                       (ii)    that no transfer of the default shares which is
                               not an approved transfer shall be registered
                               unless:

                               (a)   the member is not himself in default as
                                     regards supplying the information
                                     required; and

                               (b)   the transfer is of part only of the
                                     member's holding and, when presented for
                                     registration, is accompanied by a
                                     certificate by the member in a form
                                     satisfactory to the Directors to the
                                     effect that, after due and careful
                                     enquiry, the member is satisfied that none
                                     of the shares the subject of the transfer
                                     is a default share.

              (C)      The Company shall send a copy of the notice to each
                       other person appearing to be interested in the shares
                       the subject of a direction notice but the failure or
                       omission by the Company to do so shall not invalidate
                       the notice.

              (D)      A direction notice shall have effect in accordance with
                       its terms for so long as the default in respect of which
                       it was issued continues and (unless the direction notice
                       otherwise determine) for a further period of one week
                       but shall cease to have effect in relation to any
                       default shares which are transferred by the member by
                       means of an approved transfer.

              (E)      For the purpose of this Article:

                       (i)     a person shall be treated as appearing to be
                               interested in shares if the member holding the
                               shares has given to the Company a notification
                               under section 212 which either (a) names that
                               person as being interested; or (b) fails to
                               establish the identities of those interested in
                               the shares and (after taking into account the
                               notification and any other relevant section 212
                               notification) the Company knows or has
                               reasonable cause to believe that the person in
                               question is or may be interested in the shares;

                       (ii)    the prescribed period is 14 days from the date
                               of service of the notice under section 212; and

                       (iii)   a transfer of shares is an approved transfer if:

                               (a)   it is a transfer of shares to an offeror
                                     by way or in pursuance of acceptance of a
                                     take-over offer for a company (as defined
                                     in section 14 of the Companies Securities
                                     (Insider Dealing) Act 1985); or

                               (b)   the Directors are satisfied that the
                                     transfer is made pursuant to a sale of the
                                     whole of the beneficial ownership of the
                                     shares to a party unconnected with the
                                     member and with other persons appearing to
                                     be interested in the shares; or

                               (c)   the transfer results from a sale made
                                     through a recognised investment exchange
                                     as defined in the Financial Services Act
                                     1986 or any other stock exchange outside
                                     the United Kingdom on which the Company's
                                     shares are normally traded.


                                      E-33

<PAGE>
              (F)      Nothing contained in this article shall limit the power
                       of the Directors under section 216 of the Act.

Directors

83            Unless otherwise determined by ordinary resolution, the number of
              Directors (other than the alternate directors) shall not be
              subject to a maximum but shall not be less than three.

84            The Directors shall be paid out of the funds of the Company by
              way of remuneration for their services such sums as the Company
              by ordinary resolution determine. The remuneration shall be
              divided among them in such proportions and manner as the
              Directors determine and, in default of a determination within a
              reasonable period, equally, except that any Director holding
              office for less than a year or other period for which
              remuneration is paid shall rank in the division in proportion to
              the fraction of the year or other period during which he has held
              office. The remuneration shall be deemed to accrue from day to
              day. The Directors may also be paid all travelling, hotel and
              other expenses properly incurred by them in attending and
              returning from meetings of the Directors or committees of the
              Directors or general meetings of the Company or in connection
              with the business of the Company.

85            Subject to the provisions of these Articles and without prejudice
              to the powers of the Directors under these Articles to appoint
              any person to be a Director, the Company may by ordinary
              resolution elect any person to be a Director, either to fill a
              casual vacancy or as an addition to the existing Board, but the
              total number of Directors must not at any time exceed any maximum
              number fixed by or in accordance with these Articles.

86            Any Director who at the request of the Board performs special
              services or goes or resides abroad for any purposes of the
              Company may (unless otherwise expressly resolved by the Company
              in general meeting) receive such extra remuneration by way of
              salary, percentage of profits or otherwise as the Board
              determines.

87            No shareholding qualification for Directors is required.

88            Each Director may attend and speak at any general meeting of the
              Company.

89            The office of a Director shall be vacated in any of the following
              events, namely:

              (i)      if (not being an executive Director whose contract
                       precludes resignation) he resigns his office by notice
                       In Writing left at the Office;

              (ii)     if he becomes bankrupt or has a receiving order made
                       against him or compounds with his creditors;

              (iii)    if he becomes of unsound mind or a patient for any
                       purpose of any statute relating to mental health and the
                       Directors resolve that his office should be vacated;

              (iv)     if he is absent from meetings of the Directors for 6
                       months without leave, and his alternate Director (if
                       any) does not during that period attend in his stead,
                       and the Directors resolve that his office should be
                       vacated;

              (v)      if he is removed or becomes prohibited from being a
                       Director under any provision of the Statutes;

              (vi)     if he is requested In Writing by all the other Directors
                       to resign his office.

90            (A)      A Director may hold any other office or place of profit
                       with the Company (except that of Auditor) in conjunction
                       with his office of Director for such period and

                                      E-34

<PAGE>
                       upon such terms as the Board determines, and may be paid
                       such extra remuneration for it (whether by way of
                       salary, commission, participation in profits or
                       otherwise) as the Board determines. The extra
                       remuneration shall be in addition to any remuneration
                       provided for by or pursuant to any other Article.

              (B)      A Director may act by himself or his firm in a
                       professional capacity for the Company (otherwise than as
                       Auditor) and he or his firm shall be entitled to
                       remuneration for professional services as if he were not
                       a Director.

              (C)      A Director may be or become a director or other officer
                       of, or otherwise interested in, a company promoted by
                       the Company or in which the Company is interested, and
                       shall not be liable to account to the Company or the
                       members for any remuneration, profit or other benefit
                       received by him as a director or officer of or from his
                       interest in that company. The Board may cause the voting
                       power conferred by the shares in another company held or
                       owned by the Company to be exercised in such manner as
                       it thinks fit, including the exercise in favour of a
                       resolution appointing any of the Directors to be
                       directors or officers of that company, or voting or
                       providing for the payment of remuneration to the
                       directors or officers of that company.

              (D)      A Director shall not vote or be counted in the quorum on
                       a resolution of the Board concerning his own appointment
                       as the holder of an office or place of profit with the
                       Company or another company in which the Company is
                       interested (including the arrangement or variation of
                       its terms or its termination).

              (E)      Where arrangements are under consideration concerning
                       the appointment (including the arrangement or variation
                       of the terms or the termination of the appointment) of
                       two or more Directors to offices or places of profit
                       with the Company or another company in which the Company
                       is interested, a separate resolution may be put in
                       relation to each Director. In such case, each of the
                       Directors concerned shall be entitled to vote (and be
                       counted in the quorum) in respect of each resolution
                       except that concerning his own appointment (or the
                       arrangement or variation of its terms or its
                       termination) and except (in the case of an office or
                       place of profit with another company) where the other
                       company is a company in which the Director owns 1 per
                       cent or more.

              (F)      Subject to the Statutes and to the next paragraph of
                       this Article, no Director or proposed or intending
                       Director shall be disqualified by his office from
                       contracting with the Company, either with regard to his
                       tenure of any office or place of profit or as vendor or
                       purchaser or in any other manner. No contract or
                       arrangement in which a Director is interested shall be
                       liable to be avoided. The Director shall not be liable
                       to account to the Company or the members for any
                       remuneration, profit or other benefits realised by the
                       contract or arrangement by reason of his holding that
                       office or of the resulting fiduciary relationship.

              (G)      A Director who to his knowledge is interested, whether
                       directly or indirectly, in a contract or arrangement or
                       proposed contract or arrangement with the Company must
                       declare the nature of his interest at the meeting of the
                       Board at which the question of entering into the
                       contract or arrangement is first taken into
                       consideration, if he knows his interest then exists, or,
                       in any other case, at the first meeting of the Board
                       after he knows that he is or has become interested. A
                       general notice to the Board given by a Director to the
                       effect that he is a member of a specified company or
                       firm and is to be regarded as interested in any contract
                       or arrangement which may after the date of the notice be
                       made with the company or firm shall be a sufficient
                       declaration of interest under this Article in relation
                       to any contract or arrangement made with the

                                      E-35

<PAGE>
                       company or firm. A notice shall not be effective unless
                       either it is given at a meeting of the Board or the
                       Director giving it takes reasonable steps to secure that
                       it is brought up and read at the next Board meeting
                       after it is given.

              (H)      Except as otherwise provided by these Articles, a
                       Director must not vote on (or be counted in the quorum
                       in respect of) any resolution of the Board concerning a
                       contract or arrangement or other proposal which
                       (together with any interest of any person connected to
                       him) is to his knowledge, directly or indirectly, a
                       material interest otherwise than by virtue of his
                       interests in shares or debentures or other securities
                       of, or otherwise through, the Company. If he does, his
                       vote shall not be counted. This prohibition does not
                       apply to any of the following matters, namely:

                       (i)     a contract or arrangement for giving to the
                               Director security or a guarantee or indemnity in
                               respect of

                               (a)   money lent by him or obligations
                                     undertaken by him or by any other person
                                     at the request of or for the benefit of
                                     the Company or any of its subsidiaries; or

                               (b)   a debt or obligation of the Company or any
                                     of its subsidiaries for which he himself
                                     has assumed responsibility in whole or
                                     part under a guarantee or indemnity or by
                                     the giving of security;

                       (ii)    where the Company or any of its subsidiary
                               undertakings is offering securities in which
                               offer the Director is, or may be, entitled to
                               participate as a holder of securities or in the
                               underwriting or subunderwriting of which the
                               director is to participate;

                       (iii)   relating to another company in which he and any
                               persons connected to him do not to his knowledge
                               hold an interest in shares (as that term is used
                               in Sections 198 to 211 of the Act) representing
                               1 per cent or more of any class of the equity
                               share capital or of the voting rights in that
                               company;

                       (iv)    relating to a pension, superannuation or similar
                               scheme or retirement, death or disability
                               benefits scheme or employees' share scheme which
                               has been approved by the Inland Revenue or is
                               conditional upon that approval or does not award
                               him any privilege or benefit not awarded to the
                               employees to whom the scheme relates; or

                       (v)     concerning insurance which the Company proposes
                               to maintain or purchase for the benefit of
                               Directors or the benefit of persons including
                               Directors.

              (I)      A company shall be deemed to be a company in which a
                       Director owns 1 per cent or more if and so long as he is
                       (either directly or indirectly) the holder of or
                       beneficially interested in 1 per cent or more of any
                       class of its equity share capital or of the voting
                       rights available to its members. For the purpose of this
                       paragraph there shall be disregarded any shares held by
                       a Director as bare or custodian trustee and in which he
                       has no beneficial interest, any shares comprised in a
                       trust in which the Director's interest is in reversion
                       or remainder if and so long as some other person is
                       entitled to receive the trust income, and any shares
                       comprised in an authorised unit trust scheme in which
                       the Director is interested only as a unit holder.


                                      E-36

<PAGE>
              (J)      Where a company in which a Director owns 1 per cent or
                       more is materially interested in a transaction, he shall
                       also be deemed materially interested in the transaction.

              (K)      If any question arises at any meeting of the Board as to
                       the materiality of the interest of a Director or as to
                       the entitlement of a Director (in each case, other than
                       the chairman of the meeting) to vote or be counted in
                       the quorum and the question is not resolved by his
                       voluntarily agreeing to abstain from voting or not to be
                       counted in the quorum, it shall be referred to the
                       chairman of the meeting. His ruling shall be final and
                       conclusive except in a case where the nature or extent
                       of the interest of the Director concerned as known to
                       the Director has not been fairly disclosed to the Board.
                       If the question relates to the chairman of the meeting,
                       it shall be decided by a resolution of the Board (for
                       which purpose the chairman shall be counted in the
                       quorum but may not vote). The resolution shall be final
                       and conclusive except in a case where the nature or
                       extent of the interest of the chairman as known to him
                       has not been fairly disclosed to the Board.

              (L)      The Company may by ordinary resolution suspend or relax
                       the provisions of this Article to any extent or ratify
                       any transaction not duly authorised by reason of a
                       contravention of this Article.

Powers of directors

91            The business of the Company shall be managed by the Directors,
              who may exercise all such powers of the Company as are not by the
              Statutes or by these Articles required to be exercised by the
              Company in general meeting, but subject to any regulations of
              these Articles, to the provisions of the Statutes, and to such
              regulations, which are not inconsistent with those regulations or
              provisions, as may be prescribed by extraordinary resolution of
              the Company in general meeting. No regulation made by the Company
              in general meeting shall invalidate any prior act of the
              Directors which would have been valid if the regulation had not
              been made. The general powers given by this Article are not
              limited or restricted by any special authority or power given to
              the Directors by any other Article.

92            The Directors may arrange that any branch of the business carried
              on by the Company or any other business in which the Company is
              interested shall be carried on by or through one or more
              subsidiaries. They may on behalf of the Company make such
              arrangements as they think advisable for taking the profits or
              bearing the losses of any branch or business or for financing,
              assisting or subsidising any subsidiary or guaranteeing its
              contracts, obligations or liabilities. They may appoint, remove
              and reappoint any person (whether a member of their own body or
              not) to act as a director, managing director or manager of a
              subsidiary or any other company in which the Company is
              interested, and may determine his remuneration (whether by way of
              salary, commission on profits or otherwise). A Director may
              retain any remuneration payable to him in respect of the
              appointment.

93            The Directors may by power of attorney appoint any person to be
              the attorney of the Company for such purposes and with such
              powers, authorities and discretions (not exceeding those vested
              in or exercisable by the Directors under these Articles) and for
              such period and subject to such conditions as they think fit. The
              power of attorney may contain such provisions for the protection
              and convenience of persons dealing with the attorney as the
              Directors think fit and may authorise the attorney to sub-
              delegate all or any of the powers, authorities and discretions
              vested in him.

94            (A)      The Directors may procure the establishment and
                       maintenance of or participation in or contribution to
                       any non-contributory or contributory pension

                                      E-37

<PAGE>
                       or superannuation fund, scheme or arrangement or life
                       assurance scheme or arrangement for the benefit of, and
                       pay, provide for or procure the grant of donations,
                       gratuities, pensions, allowances, bonuses, benefits or
                       emoluments to, any person (including directors and other
                       officers whether of the Company or of any other company
                       referred to in this paragraph) who is or has been in the
                       employment of the Company, or of any company which is a
                       subsidiary of the Company or a predecessor in business
                       of the Company or a subsidiary, or of any allied or
                       associated companies of the Company or any such
                       companies and the spouses, widows, widowers, families,
                       dependants or connections of any such persons. No
                       pension, annuity or other allowance or benefit (except
                       as provided for by or in accordance with any other
                       Article) shall be granted to a Director or former
                       Director who has not been an executive Director or held
                       any other office or place of profit under the Company or
                       any of its subsidiaries or to a person who has no claim
                       on the Company except as a relation, connection or
                       dependant of a Director or former Director, without the
                       approval of an ordinary resolution of the Company.

              (B)      The Directors may establish, maintain and give effect to
                       any scheme approved by an ordinary resolution for the
                       allotment of or the grant of options to subscribe for
                       shares of the Company to persons (including Directors)
                       in the employment of the Company or any subsidiary of
                       the Company and may exercise all the powers conferred on
                       them by the scheme (including any power to alter or add
                       to its provisions). These Articles shall be deemed to be
                       modified so far as may be necessary to give effect to
                       the scheme in respect of any shares in issue or under
                       option.

              (C)      The Directors may procure any of the matters referred to
                       in this Article are done by the Company either alone or
                       in conjunction with any other company.

95            All cheques, promissory notes, drafts, bills of exchange and
              other negotiable or transferable instruments, and all receipts
              for moneys paid to the Company, shall be signed, drawn, accepted,
              endorsed or otherwise executed in such manner as the Directors
              determine.

Borrowing

96            (A)      The Directors may exercise all the powers of the Company
                       to borrow money, and to mortgage or charge all or any
                       part of its undertaking, property and assets (both
                       present and future), including its uncalled capital and,
                       subject to the Statutes, to issue Debentures and other
                       securities, whether outright or as collateral security,
                       for any debt, liability or obligation of the Company or
                       of any third party.

              (B)      The Board must restrict the borrowings of the Company
                       and exercise all voting and other rights or powers of
                       control exercisable by the Company in relation to its
                       subsidiaries (if any) so as to secure (but as regards
                       subsidiaries only in so far as, by the exercise of the
                       rights or powers of control, the Board can secure) that
                       the aggregate principal amount outstanding of all
                       borrowings by the Group (exclusive of borrowings owing
                       by one member of the Group to another member) does not,
                       without the previous sanction of an ordinary resolution,
                       exceed the greater of (a) (L)30,000,000 or (b) four
                       times the Adjusted Capital and Reserves.

              (C)      For this purpose:

                       (i)     "the Adjusted Capital and Reserves" means at any
                               time the aggregate of:


                                      E-38

<PAGE>
                               (a)   the amount paid up or credited as paid up
                                     on the issued share capital of the
                                     Company; and

                               (b)   the amount standing to the credit of the
                                     reserves (including any share premium
                                     account, capital redemption reserve and
                                     credit balance on profit and loss account)
                                     all as shown by the then latest audited
                                     balance sheet and without making any
                                     provision for Goodwill unless already
                                     written off against the Company's profit
                                     and loss account but after deducting any
                                     debit balance on profit and loss account
                                     (except to the extent that the deduction
                                     has already been made) and making
                                     adjustments to reflect any variation in
                                     the amount of the paid up share capital,
                                     share premium account or capital
                                     redemption reserve since the date of the
                                     audited balance sheet;

                       (ii)    "borrowings" include the following except in so
                               far as otherwise taken into account:

                               (a)   the nominal amount of any issued share
                                     capital and the principal amount of any
                                     Debentures or borrowed moneys of any
                                     person, the beneficial interest in which
                                     is not owned by a member of the Group and
                                     the payment or repayment of which is the
                                     subject of a guarantee or indemnity by a
                                     member of the Group, but excluding
                                     acceptances of trade bills for the
                                     purchase of goods in the ordinary course
                                     of business;

                               (b)   the outstanding amount raised by
                                     acceptances by a bank or accepting house
                                     under an acceptance credit opened on
                                     behalf of and in favour of a member of the
                                     Group, excluding acceptances of trade
                                     bills for the purchase of goods in the
                                     ordinary course of business;

                               (c)   the principal amount of any Debenture of a
                                     member of the Group owned otherwise than
                                     by another member of the Group;

                               (d)   the principal amount of any preference
                                     share capital of a subsidiary owned
                                     otherwise than by a member of the Group;
                                     and

                               (e)   any premium payable on repayment on any
                                     borrowing or deemed borrowing; but does
                                     not include:

                               (f)   borrowings for the purposes of repaying
                                     the whole or any part of borrowings by a
                                     member of the Group within 6 months of
                                     being borrowed, pending their application
                                     for that purpose within that period; and

                               (g)   borrowings for the purpose of financing a
                                     contract in respect of which any part of
                                     the price receivable by a member of the
                                     Group is guaranteed or insured by the
                                     Export Credits Guarantee Department of the
                                     Department of Trade and Industry or by any
                                     other Governmental department fulfilling a
                                     similar function, to an amount not
                                     exceeding the part of the price which is
                                     guaranteed or insured;

                       (iii)   when the aggregate principal amount of
                               borrowings to be taken into account for the
                               purposes of this Article on any particular date
                               is being ascertained:


                                      E-39

<PAGE>
                               (a)   moneys denominated or repayable in a
                                     currency other than sterling shall be
                                     converted for the purpose of calculating
                                     the sterling equivalent at the rate of
                                     exchange prevailing on that date in London
                                     or, if the amount of borrowings would as a
                                     result be less, at the rate of exchange
                                     prevailing in London 6 months before that
                                     date. For this purpose the rate of
                                     exchange shall be taken as the middle
                                     market rate as at the close of business;
                                     and

                               (b)   where under the terms of borrowing the
                                     amount of money that would be required to
                                     discharge the principal amount in full if
                                     it fell to be repaid (at the option of the
                                     Company or by reason of default) on that
                                     date is less than the amount that would
                                     otherwise be taken into account in respect
                                     of that borrowing for the purpose of this
                                     Article, the amount of the borrowing shall
                                     be taken to be the lesser amount;

                       (iv)    "audited balance sheet" means the then latest
                               audited balance sheet of the Company prepared
                               for the purposes of the Statutes unless there
                               has then been prepared for those purposes and
                               audited a consolidated balance sheet of the
                               Company and its subsidiaries (with such
                               exceptions as may be permitted in the case of a
                               consolidated balance sheet prepared for the
                               purposes of the Statutes); and in the latter
                               event "audited balance sheet" means the audited
                               consolidated balance sheet, the references to
                               reserves and profit and loss account being
                               references to the consolidated reserves and
                               consolidated profit and loss accounts
                               respectively, any amounts attributable to
                               outside interests in subsidiaries being
                               excluded. The Company may change the accounting
                               convention on which the audited balance sheet is
                               based, provided it complies with the
                               requirements of the Statutes. If the Company
                               prepares its main audited balance sheet on the
                               basis of one convention but a supplementary
                               audited balance sheet or statement on the basis
                               of another, the main audited balance sheet shall
                               be taken as the audited balance sheet for the
                               purposes of this Article;

                       (v)     "the Group" means the Company and its
                               subsidiaries (if any).

              (D)      A certificate or report by the Auditors as to the amount
                       of the Adjusted Capital and Reserves or the amount of
                       any borrowings or to the effect that the limit imposed
                       by this Article has not been or will not be exceeded at
                       any particular time or times shall be conclusive for the
                       purposes of this Article.

              (E)      Notwithstanding the foregoing, no lender or other person
                       dealing with the Company shall be concerned to see or
                       enquire whether the limit imposed by this Article is
                       observed. No borrowing incurred or security given in
                       excess of the limit shall be invalid or ineffectual,
                       except in the case of express notice to the lender or
                       the recipient of the security given that the limit had
                       been or would be exceeded.

Executive directors

97            The Directors may appoint one or more of their number to an
              executive office including the office of chairman, vice-chairman,
              managing Director, joint managing Director, assistant managing
              Director or manager or any other salaried office for such period
              and on such terms as they think fit. Without prejudice to any
              claim a Director may have for damages for breach of any contract
              of service between him and the Company, his appointment shall
              automatically determine if he ceases from any cause to be a
              Director, or (subject to the terms of any contract between him
              and the Company) if the Directors resolve that his term of office
              as an executive Director should be determined.


                                      E-40

<PAGE>
98            A Director holding office pursuant to the last preceding Article
              shall receive such remuneration (whether by way of salary,
              commission or participation in profits, or partly in one way and
              partly in another) as the Directors determine. The remuneration
              shall, unless otherwise agreed, be additional to such
              remuneration (if any) as is payable to him as a Director. The
              Director shall be a director for the purposes of and subject to
              the provisions of section 319 of the Act.

99            The Directors may entrust to and confer upon a Director holding
              executive office any of the powers exercisable by them as
              Directors upon such terms and conditions and with such
              restrictions as they think fit, and either collaterally with or
              to the exclusion of their own powers, and may revoke, withdraw or
              vary any of the powers.

Rotation of directors

100           At every annual general meeting any Directors who are bound to
              retire under Article 106 and one-third of the other Directors or,
              if their number is not a multiple of three, then the number
              nearest to but not exceeding one-third shall retire from office.
              A Director retiring at a meeting shall retain office until the
              close of the meeting.

101           The Directors to retire on each occasion shall be those who have
              been longest in office since their last election but, as between
              persons who became or were re-elected Directors on the same day,
              those to retire shall (unless they otherwise agree among
              themselves) be determined by lot. The Directors to retire on each
              occasion (both as to number and identity) shall be determined by
              the composition of the Board at the date of the notice convening
              the annual general meeting. No Director shall be required to
              retire or be relieved from retiring by reason of any change in
              the number or identity of the Directors after the date of the
              notice but before the close of the meeting.

102           A retiring Director shall be eligible for re-election.

103           Subject to the provisions of these Articles, the Company at the
              meeting at which a Director retires may elect a person to fill
              the vacated office. In default, the retiring Director shall, if
              willing to continue to act, be deemed to have been re-elected,
              unless at the meeting it is expressly resolved not to fill the
              vacated office or unless a resolution for the re-election of the
              Director has been put to the meeting and lost.

104           No person other than a Director retiring at the meeting shall,
              unless recommended by the Directors, be eligible for election to
              the office of Director at any general meeting, unless not less
              than 7 nor more than 42 days before the date appointed for the
              meeting there has been left at the Office a notice In Writing,
              signed by a member (not being the person to be proposed) duly
              qualified to attend and vote at the meeting, of his intention to
              propose the person for election, and a notice In Writing signed
              by that person of his willingness to be elected.

105           The Company in general meeting may increase or reduce the number
              of Directors and may determine in what rotation the increased or
              reduced number is to go out of office.

106           The Directors may appoint any person to be a Director, either to
              fill a casual vacancy or as an addition to the existing Board,
              but so that the total number of Directors does not exceed the
              maximum number fixed by or in accordance with these Articles. The
              Director shall hold office only until the next following annual
              general meeting and shall then be eligible for re-election. A
              Director who retires under this Article shall not be taken into
              account in determining the Directors who are to retire by
              rotation at the meeting.

107           The Company may, by ordinary resolution of which special notice
              has been given in accordance with section 379 of the Act, remove
              any Director (including a managing

                                      E-41

<PAGE>
              Director or other executive Director, but without prejudice to
              any claim for damages under any contract) before the expiration
              of his period of office and may by an ordinary resolution appoint
              another person in his place. The person who is appointed shall be
              subject to retirement at the same time as if he had become a
              Director on the day on which the Director in whose place he is
              appointed was last elected a Director.

Proceedings of directors

108           The Directors may meet together for the despatch of business,
              adjourn and otherwise regulate their meetings as they think fit.
              Questions arising at any meeting shall be determined by a
              majority of votes and in case of an equality of votes the
              chairman shall have a second or casting vote. A Director may at
              any time, and the Secretary on the requisition of a Director
              shall, summon a Board meeting.

109           Notice of a Board meeting may be given to a Director personally
              or by word of mouth or sent In Writing to him at his last known
              address or any other address given by him to the Company for this
              purpose. A Director absent or intending to be absent from the
              United Kingdom may request the Board that notices of Board
              meetings during his absence are sent to him In Writing at his
              last known address or any other address given by him to the
              Company for this purpose. In the absence of a request it shall
              not be necessary to give notice of a Board meeting to a Director
              who is absent from the United Kingdom. A Director may waive
              notice of a meeting either prospectively or retrospectively.

110           The quorum necessary for the transaction of the business of the
              Directors may be fixed by the Directors and, unless fixed at any
              other number, shall be two.

111           The continuing Directors or a sole continuing Director may act
              notwithstanding any vacancies in the Board. If and so long as the
              number of Directors is reduced below the minimum number fixed by
              or in accordance with these Articles, the continuing Directors or
              Director may act for the purpose of filling vacancies in the
              Board or of summoning general meetings of the Company, but not
              for any other purpose. If there are no Directors or no Director
              able or willing to act, any two members may summon a general
              meeting of members for the purpose of appointing Directors.

112           If the Directors have not appointed a chairman or vice-chairman
              pursuant to Article 97, or if at any meeting neither the chairman
              nor the vice-chairman is present within 5 minutes after the time
              appointed for holding it, the Directors present may choose one of
              their number to be chairman of the meeting.

113           The Board may establish local boards or agencies for managing any
              of the affairs of the Company, either in the United Kingdom or
              elsewhere, and may appoint any persons to be members of the local
              boards, or to be managers or agents, and may fix their
              remuneration. The Board may delegate to any local board, manager
              or agent any of the powers, authorities and discretions vested in
              or exercisable by the Board (other than the power to borrow and
              make calls), with power to sub-delegate, and may authorise the
              members of any local board or any of them to fill any vacancies
              and to act notwithstanding vacancies. An appointment or
              delegation may be made upon such terms and subject to such
              conditions as the Board thinks fit. The Board may remove any
              person appointed as above and may revoke or vary any delegation,
              but a person dealing in good faith and without notice of the
              revocation or variation shall not be affected by it.

114           A meeting of the Directors at which a quorum is present shall be
              competent to exercise all powers and discretions exercisable by
              the Directors.


                                      E-42

<PAGE>
115           The Directors may delegate any of their powers to committees
              consisting of such number of members of their body as they think
              fit and may revoke a delegation and discharge a committee in
              whole or in part. A committee shall in the exercise of the powers
              delegated to it conform to any regulations that are imposed by
              the Directors.

116           The meetings and proceedings of a committee consisting of two or
              more members shall be governed by the provisions of these
              Articles regulating the meetings and proceedings of the
              Directors, so far as they are applicable and are not superseded
              by any regulations made by the Directors under the last preceding
              Article.

117           A member of the Board, or of a committee of the Board, may
              participate in a meeting of the Board or the committee by means
              of a conference telephone or any communication equipment which
              allows all persons participating in the meeting to hear each
              other. A participant shall be deemed to be present in person at
              the meeting and shall be entitled to vote or be counted in a
              quorum accordingly. The meeting shall be deemed to take place
              where the largest group of those participating is assembled or,
              if there is no such group, where the chairman of the meeting then
              is.

118           A resolution In Writing, signed by all or a majority of the
              Directors entitled to notice of a meeting of the Directors or by
              all of the members of a committee, shall be as valid as if it had
              been passed at a Board meeting or a meeting of the committee duly
              called and constituted. The resolution may consist of several
              documents in the like form each signed by one or more of the
              Directors or members of the committee. For the purpose of this
              Article, the signature of an alternate Director entitled to
              notice of a meeting of Directors shall suffice in lieu of the
              signature of the Director appointing him.

119           The Directors shall cause minutes to be made in books provided
              for the purpose:

              (a)      of all appointments of officers made by the Directors;

              (b)      of the names of all the Directors present at each Board
                       meeting and meeting of a committee of Directors;

              (c)      of all resolutions and proceedings at meetings of the
                       Company and of any class of members of the Company and
                       of the Directors and of any committee of Directors.

              The minutes, if purporting to be signed by the chairman of the
              meeting at which the appointments were made, or the Directors
              were present, or the resolutions were passed or proceedings held
              (as the case may be), or by the chairman of the next succeeding
              meeting of the Company, or class of members of the Company, or
              Directors or committee (as the case may be), shall be sufficient
              evidence without any further proof of the facts stated in it.

120           All actions done by any Board meeting, or meeting of a committee
              of Directors, or by a person acting as a Director, shall as
              regards all persons dealing in good faith with the Company,
              notwithstanding that there was some defect in the appointment of
              any Director, or of the person acting as a Director, or that they
              or any of them were disqualified, or had vacated office or were
              not entitled to vote, be as valid as if each of them had been
              duly appointed, and was qualified and had continued to be a
              Director and had been entitled to vote.

121           The Directors may appoint any person to an office or employment
              having a title including the word "director" or attach such a
              title to any existing employment with the Company and may
              terminate the appointment or the use of the title. The inclusion
              of the word "director" in the title of any office or employment
              (other than the office of managing or joint managing or deputy or
              assistant managing director) does not imply

                                      E-43

<PAGE>
              that the employee is a Director and the employee shall not as a
              result be empowered in any respect to act as a Director or be
              deemed to be a Director for any of the purposes of these
              Articles.

Secretary

122           The Secretary shall be appointed by the Directors at such
              remuneration and upon such terms as they think fit. The Secretary
              may be removed by the Directors. The Directors may appoint an
              assistant Secretary or assistant Secretaries and temporary
              substitutes for the Secretary. An assistant Secretary or
              temporary substitute shall for the purpose of these Articles be
              deemed to be and may fulfil the duty of the Secretary subject to
              any limitation prescribed by the Directors.

123           A provision of the Statutes or these Articles requiring or
              authorising a thing to be done by or to a Director and the
              Secretary shall not be satisfied by its being done by or to the
              same person acting both as Director and as, or in the place of,
              the Secretary.

The seal

124           The Seal shall be used only by the authority of the Directors or
              of a committee of Directors authorised by the Directors. The
              Directors may determine who shall sign any instrument to which
              the Seal is affixed. Unless otherwise determined and except as
              provided in Article 11, it shall be signed by a Director and by
              the Secretary or by a second Director or some other person
              approved by the Board.

125           The Company may exercise the powers conferred by section 39 of
              the Act with regard to having an official seal for use abroad,
              and the powers shall be vested in the Board.

126           A document signed by a Director and by the Secretary or another
              Director and expressed, in whatever form of words, to be executed
              by the Company shall have the same effect as if it were under
              seal. A document executed in this way which makes it clear on its
              face that it is intended to be a deed, in whatever form of words,
              has effect, upon delivery, as a deed.

Authentication of documents

127           Any Director or the Secretary or any person appointed by the
              Directors for the purpose shall have power to authenticate any
              documents affecting the constitution of the Company (including
              the Memorandum and Articles of Association) and any resolutions
              passed by the Company or the Board, and any books, records,
              documents and accounts relating to the business of the Company,
              and to certify copies or extracts as true copies or extracts.
              Where any books, records, documents or accounts are elsewhere
              than at the Company's head office, the local manager or other
              officer of the Company having the custody of them shall be deemed
              to be a person appointed by the Directors under this Article.

Alternate directors

128           (A)      A Director may appoint any person who is approved by the
                       Board to be an alternate Director, and may remove from
                       office an alternate Director appointed by him.

              (B)      An alternate Director shall be entitled (subject to his
                       giving to the Company an address within the United
                       Kingdom at which notices may be served upon him) to
                       receive notices of all meetings of the Board and of any
                       committee of the Board of which his appointor is a
                       member and to attend and vote as a Director at any of
                       the meetings at which the Director appointing him is not
                       personally present, and generally to perform all the
                       functions of his appointor as a Director in the absence
                       of the appointor. When acting also as a Director or as
                       an

                                      E-44

<PAGE>
                       alternate Director for more than one Director, an
                       alternate Director shall have one vote for every
                       Director he represents, in addition to his own if he is
                       himself a Director, and, where the quorum exceeds two,
                       he shall be considered as two Directors for the purpose
                       of making a quorum.

              (C)      An alternate Director shall cease to be an alternate
                       Director if his appointor ceases for any reason to be a
                       Director. If a Director retires by rotation but is re-
                       elected by the meeting at which the retirement takes
                       effect, an appointment made by him under this Article
                       which was in force immediately prior to his retirement
                       shall continue to operate after his re-election as if he
                       had not retired.

              (D)      All appointments and removals of alternate Directors
                       shall be effected by notice In Writing by the Director
                       making or revoking the appointment given to the Company
                       at the Office or at a duly convened and held meeting of
                       the Board.

              (E)      An alternate Director may be repaid by the Company such
                       expenses as might properly be repaid to him if he were a
                       Director. He shall be entitled to receive from the
                       Company such proportion (if any) of the remuneration
                       otherwise payable to his appointor as his appointor by
                       notice In Writing to the Company directs. He shall not
                       otherwise in respect of the appointment be entitled to
                       receive any remuneration from the Company. An alternate
                       Director may be indemnified by the Company to the same
                       extent as a Director.

              (F)      An alternate Director shall be an officer of the
                       Company. He shall alone be responsible to the Company
                       for his own acts or defaults and shall not be deemed to
                       be the agent of or for the Director appointing him.

Dividends

129           The profits of the Company available for dividend and resolved to
              be distributed shall be applied in the payment of dividends to
              the members in accordance with their respective rights and
              priorities. The Company in general meeting may declare dividends
              accordingly. No dividend or interim dividend may be paid
              otherwise than in accordance with Part VIII of the Act.

130           No dividend shall be payable except out of the profits of the
              Company (including profits set aside to any reserve fund under
              Article 144) or in excess of the amount recommended by the
              Directors.

131           Dividends must be declared and paid according to the amounts paid
              on the shares in respect of which the dividends are paid. For the
              purposes of this Article, no amount paid on a share in advance of
              calls shall be treated as paid on the share. Dividends shall be
              apportioned and paid pro rata according to the amounts paid on
              the shares during any portions of the period in respect of which
              the dividend is paid but, if any share is issued on terms
              providing that it ranks for dividend as from a particular date,
              the share shall rank for dividend accordingly.

132           The Directors must transfer to share premium account as required
              by the Statutes sums equal to the amount or value of any premiums
              at which any shares of the Company are issued.

133           The Directors may pay such interim dividends as appear to them to
              be justified by the profits of the Company. If the capital of the
              Company is divided into different classes of shares the Directors
              may pay interim dividends in respect of those shares which confer
              on the holders deferred or non-preferred rights as well as in
              respect of those shares which confer on the holders preferential
              or special rights with regard to dividends. Provided that the
              Directors act bona fide, they shall not incur any responsibility
              to the

                                      E-45

<PAGE>
              holders of any shares for any damage that they suffer by reason
              of the payment of an interim dividend on any shares. The
              Directors may also pay half yearly or at other suitable intervals
              to be settled by them any dividend which is payable at a fixed
              rate if they are of the opinion that the profits justify the
              payment.

134           A general meeting declaring a dividend or bonus may direct
              payment of the dividend or bonus wholly or partly by the
              distribution of specific assets and, in particular, of paid up
              shares or Debentures of another company or in any one or more of
              these ways. The Directors shall give effect to the resolution
              and, where a difficulty arises in regard to the distribution, the
              Directors may settle it as they think expedient. In particular
              they may issue certificates in respect of fractions and fix the
              value for distribution of specific assets, may determine that
              cash payments are made to any members upon the footing of that
              value in order to adjust the rights of all parties and may vest
              the assets in trustees as may seem expedient to the Directors.

135           A resolution of the Company or of the Directors declaring a
              dividend may specify any date as the record date for the
              dividend, whether or not prior to the date on which the
              resolution is passed.

136           The Directors may deduct from any dividend or bonus payable to a
              member any sums presently payable by him to the Company on
              account of calls or otherwise in respect of shares of the
              Company.

137           No unpaid dividend, bonus or interest shall bear interest as
              against the Company.

138           The Directors may retain any dividends and bonuses payable on
              shares on which the Company has a lien permitted by the Statutes
              and may apply them in or towards satisfaction of the debts,
              liabilities or engagements in respect of which the lien exists.

139           The Directors may retain the dividends and bonuses payable upon
              shares in respect of which any person is, under the provisions of
              these Articles relating to the transmission of shares, entitled
              to become a member, or which any person under those provisions is
              entitled to transfer, until he becomes a member in respect of the
              shares or duly transfers them.

140           A dividend may be paid by cheque or warrant sent through the post
              to the registered address of the member or person entitled to it,
              or by direct bank transfer to such bank account as the member or
              person entitled to it directs, and in case of joint holders to
              any one of them or to such person and such address or such bank
              account as the joint holders may direct. The cheque or warrant
              shall be made payable to the order of the person to whom it is
              sent or to such person as the member, person entitled or joint
              holders direct. Payment of the cheque or warrant shall be a good
              discharge to the Company. Every cheque or warrant shall be sent
              at the risk of the person entitled to the money which it
              represents.

141           If several persons are registered as joint holders of a share,
              any one of them may give an effectual receipt for any dividend or
              other moneys payable on or in respect of the share.

142           All unclaimed dividends may be invested or otherwise made use of
              by the Directors for the benefit of the Company until claimed.
              Dividends unclaimed for 12 years after they became due for
              payment shall, unless the Directors otherwise resolve, be
              forfeited and revert to the Company.

Scrip dividends

143           (A)      The Directors may, if authorised by an ordinary
                       resolution, offer any holders of ordinary shares one or
                       more of the following options:


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<PAGE>
                       (a)     instead of taking the net cash amount due to
                               them in respect of all or any part (to be
                               determined by the Directors) of any dividend
                               declared or payable on any ordinary shares held
                               by them, either to invest the cash in
                               subscribing for unissued ordinary shares,
                               payable in full or by instalments, or in paying
                               up in full or by instalments any unpaid or
                               partly paid ordinary shares held by them; or

                       (b)     instead of taking the net cash amount due to
                               them in respect of all or any part (to be
                               determined by the Directors) of any dividend
                               declared or payable on any ordinary shares held
                               by them, to elect to receive new ordinary shares
                               credited as fully paid; or

                       (c)     to forego their entitlement to all or any part
                               (to be determined by the Directors) of any
                               dividend declared or payable on any ordinary
                               shares held by them and to take instead fully
                               paid bonus ordinary shares; or

                       (d)     any other option in respect of all or any part
                               (to be determined by the Directors) of any
                               dividend on any ordinary shares held by them as
                               the Directors determine.

              (B)      In relation to the above options, the following
                       provisions apply:

                       (a)     the ordinary resolution may specify a particular
                               dividend (whether or not already declared) or
                               may specify all or any dividends declared within
                               a specified period;

                       (b)     the entitlement of each holder of ordinary
                               shares to new ordinary shares shall be such that
                               the relevant value of the entitlement shall be,
                               as nearly as possible, equal to (but not greater
                               than) the cash amount (disregarding any tax
                               credit) of the dividend that the holder elects
                               to forego. In calculating the entitlement, the
                               Directors may, at their discretion, adjust the
                               figure obtained by dividing the relevant value
                               by the amount payable on the ordinary shares up
                               or down so as to procure that the entitlement of
                               each shareholder to new ordinary shares is
                               represented by a simple numerical ratio. For
                               this purpose, "relevant value" shall be
                               calculated by reference to the average of the
                               middle market quotations for the Company's
                               ordinary shares on the London Stock Exchange as
                               derived from the Daily Official List, on such
                               five consecutive dealing days as the Directors
                               determine, provided that the first day is on or
                               after the day on which the ordinary shares are
                               first quoted "ex" the relevant dividend, or in
                               such other manner as may be determined by or in
                               accordance with the ordinary resolution;

                       (c)     on or as soon as practicable after announcing
                               that they are to declare or recommend any
                               dividend the Directors, if they intend to offer
                               an election in respect of that dividend, shall
                               also announce that intention and shall, after
                               determining the basis of allotment if they
                               decide to proceed with the offer, notify the
                               holders of ordinary shares In Writing of the
                               right of election offered to them and specify
                               the procedure to be followed and the place at
                               which and the latest time by which elections
                               must be lodged in order for elections to be
                               effective;

                       (d)     the Directors shall not proceed with any
                               election unless the Company has sufficient
                               unissued shares authorised for issue and
                               sufficient reserves or funds that may be
                               capitalised to give effect to it after the basis
                               of allotment is determined;


                                      E-47

<PAGE>
                       (e)     the Directors may exclude from any offer any
                               holders of ordinary shares where the Directors
                               believe that the making of the offer to them
                               would or might involve the contravention of the
                               laws of any territory or that for any other
                               reason the offer should not be made to them;

                       (f)     the dividend (or that part of the dividend in
                               respect of which a right of election has been
                               offered) shall not be payable on ordinary shares
                               in respect of which an election has been made
                               (the "elected ordinary shares") and instead
                               additional ordinary shares shall be allotted to
                               the holders of the elected ordinary shares on
                               the basis of allotment calculated as stated
                               above. For this purpose the Directors may
                               capitalise, out of any amount standing to the
                               credit of any reserve or fund (including the
                               profit and loss account, share premium account,
                               capital redemption reserve or any other
                               undistributable reserve) whether or not it is
                               available for distribution as the Directors
                               determine, a sum equal to the aggregate nominal
                               amount of the additional ordinary shares to be
                               allotted on that basis and apply it in paying up
                               in full the appropriate number of unissued
                               ordinary shares for allotment and distribution
                               to the holders of the elected ordinary shares on
                               that basis;

                       (g)     the additional ordinary shares when allotted
                               shall rank pari passu in all respects with the
                               fully paid ordinary shares then in issue except
                               that they will not be entitled to participate in
                               the relevant dividend or in that part of the
                               dividend in respect of which the right of
                               election was offered;

                       (h)     the Directors may also from time to time
                               establish or vary a procedure for election
                               mandates, under which a holder of ordinary
                               shares may elect to receive ordinary shares
                               credited as fully paid instead of cash in
                               respect of all future rights offered to that
                               holder under this Article until the election
                               mandate is revoked or deemed to be revoked in
                               accordance with the procedure;

                       (i)     the Directors may undertake and do such acts and
                               things as they consider necessary or expedient
                               for the purpose of giving effect to this Article
                               including (without limitation) making such
                               provisions as they think fit in relation to any
                               fraction of an ordinary share which may or would
                               arise from the application of this paragraph (B)
                               (including provisions whereby, in whole or in
                               part, fractional entitlements are disregarded
                               and the benefit of them accrues to the Company
                               rather than to the shareholders concerned or
                               under which fractional entitlements are accrued
                               or retained and in each case accumulated on
                               behalf of any shareholder and the accruals or
                               retentions are applied to the allotment of fully
                               paid ordinary shares by way of bonus to, or cash
                               subscription on behalf of, the shareholder).

Reserves

144           The Directors may, before recommending any dividend, set aside
              out of the profits of the Company such sums as they think proper
              as a reserve which shall, at the discretion of the Directors, be
              applicable for any purpose to which the profits of the Company
              may be properly applied. Pending application the sum reserved may
              either be employed in the business of the Company or be invested
              in such investments (other than shares of the Company) as the
              Directors think fit. The Directors may, without placing them to
              reserve, carry forward any profits which they think it prudent
              not to divide.


                                      E-48

<PAGE>
Capitalisation of profits and reserves

145           Subject to section 80 and Part VIII of the Act, the Company in
              general meeting may, upon the recommendation of the Directors,
              resolve that it is desirable to capitalise an amount standing to
              the credit of any of the Company's reserve accounts or to the
              credit of the profit and loss account or otherwise available for
              distribution, and accordingly that it is set free for
              distribution among the members who would have been entitled to it
              if distributed by way of dividend and in the same proportions on
              condition that it is not paid in cash but is applied either in or
              towards paying up any amounts unpaid on shares held by the
              members or paying up in full unissued shares or Debentures of the
              Company to be allotted and distributed, credited as fully paid
              up, to and among those members in those proportions, or partly in
              the one way and partly in the other. The Directors shall give
              effect to the resolution.

146           Whenever a resolution is passed under the preceding Article, the
              Directors shall make all appropriations and applications of the
              undivided profits resolved to be capitalised. Subject to section
              80 of the Act, the Directors shall make all allotments and issues
              of fully paid shares, Debentures or securities, if any, and
              generally shall do all acts and things required to give effect to
              the resolution. The Directors may make such provision by the
              issue of certificates in respect of fractions or by payment in
              cash or otherwise as they think fit for the case of shares,
              Debentures or securities becoming distributable in fractions. The
              Directors may authorise any person to enter into an agreement
              with the Company, on behalf of the members interested, providing
              for the allotment to them, credited as fully paid up, of any
              shares, Debentures or securities to which they may be entitled
              upon the capitalisation, or (as the case may require) for the
              payment up by the Company on their behalf, by the application of
              their proportions of the profits resolved to be capitalised, of
              the amounts or any part of the amounts remaining unpaid on their
              existing shares. Any agreement made under the authority shall be
              effective and binding on all the members.

Discovery and secrecy

147           No member shall be entitled to require discovery of or any
              information respecting any detail of the Company's trading or any
              matter in the nature of a trade secret or secret process which
              relates to the conduct of the business of the Company and which,
              in the opinion of the Directors, it would be inexpedient in the
              interests of the members of the Company to communicate to the
              public.

Accounts

148           The Directors shall cause true accounts to be kept:

              (a)      of the sums of money received and expended by the
                       Company and the matters in respect of which the receipt
                       and expenditure takes place;

              (b)      of all sales and purchases of goods by the Company; and

              (c)      of the assets and liabilities of the Company.

149           The books of account shall be kept at the Office, or at such
              other place as the Directors think fit, and shall always be open
              to the inspection of the Directors. No member (other than as
              Director) shall have any right of inspecting any account, book or
              document of the Company except as conferred by statute or
              authorised by the Directors or by the Company in general meeting.

150           The Directors shall not be bound, unless expressly instructed so
              to do by an extraordinary resolution of the Company in general
              meeting, to publish any list or

                                      E-49

<PAGE>
              particulars of the securities or investments held by the Company
              or to give to any shareholder any information relating to them.

151           Once at least in every year the Directors shall lay before the
              Company in general meeting a profit and loss account giving a
              true and fair view of the profit or loss of the Company for the
              financial year to which it relates and a balance sheet giving a
              true and fair view of the state of affairs of the Company as at
              the date at which it is made out and containing a general summary
              of the capital, the assets and the liabilities of the Company
              arranged under suitable heads, both made up to a date not more
              than 7 months before the meeting. If the Company is a holding
              company as defined by the Statutes, there shall also (except in
              so far as the Statutes otherwise permit) be laid before the
              Company in general meeting a consolidated balance sheet dealing
              with the state of affairs at the end of the Company's financial
              year of the Company and its then subsidiary undertakings and a
              consolidated profit and loss account dealing with the profit or
              loss for the Company's financial year of the Company and its then
              subsidiary undertakings. The Directors shall in preparing every
              such profit and loss account and balance sheet and consolidated
              profit and loss account and consolidated balance sheet have
              regard to the applicable provisions of the Statutes.

152           Every balance sheet, profit and loss account, consolidated
              balance sheet and consolidated profit and loss account shall be
              signed in such manner as is required by the Statutes. There shall
              be attached to the balance sheet a report by the Directors as
              required by the Statutes.

153           Except as provided in the next following Article, a copy of the
              report by the Directors and of the Auditors' report, accompanied
              by the balance sheet (including every document required by law to
              be annexed or attached to it), and profit and loss account,
              consolidated balance sheet and consolidated profit and loss
              account, shall, at least 21 days before the annual general
              meeting, be delivered or sent by post to the registered address
              of every member and every holder of Debentures of the Company. If
              any shares or securities of the Company are listed on the London
              Stock Exchange, the required number of copies of each of these
              documents shall at the same time be forwarded to its appropriate
              department.

154           The Company may, in accordance with section 251 of the Act and
              any regulations made under it, send a summary financial statement
              to any member instead of or in addition to the documents referred
              to in the preceding Article.

Auditors

155           The Company shall at each annual general meeting appoint Auditors
              to hold office until the next annual general meeting.

156           No Director or other officer of the Company and no person who is
              a partner of or in the employment of an officer of the Company,
              and no corporation may be appointed as an Auditor. The duties of
              the Auditors shall be regulated in accordance with the Statutes.

157           Subject to the provisions of the Statutes, all acts done by any
              person acting as an Auditor shall, as regards all persons dealing
              in good faith with the Company, be valid, notwithstanding that
              there was some defect in his appointment or that at the time of
              his appointment he was not qualified for appointment.

Notices

158           Any notice or document may be served by the Company on any member
              either personally or by sending it through the post in a prepaid
              letter addressed to him at his registered address as appearing in
              the register of members. A member is entitled to receive notices
              from the Company notwithstanding that his registered address as

                                      E-50

<PAGE>
              appearing in the register of members is outside the United
              Kingdom. In the case of joint holders of a share, notices shall
              be given to that one of the joint holders whose name stands first
              in the register of members and notice given to him shall be
              sufficient notice to all the joint holders.

159           Any notice or other document, if served by post, shall be deemed
              to have been served at the expiration of 24 hours after the time
              when the letter containing it is posted. In proving service it
              shall be sufficient to prove that the letter containing the
              notice or document was properly addressed, stamped and posted.

160           Any notice or document delivered or sent by post to or left at
              the registered address of any member shall, notwithstanding that
              the member is then dead or bankrupt and whether or not the
              Company has notice of his death or bankruptcy, be deemed to have
              been duly served in respect of any share registered in his name
              as sole or joint holder, unless at the time of the service of the
              notice or document his name has been removed from the register as
              the holder of the share. The service shall for all purposes be
              deemed a sufficient service of the notice or document on all
              persons interested in the share (whether jointly with or as
              claiming through or under him).

161           A notice required to be given by the Company to members and not
              expressly provided for by these Articles shall be sufficiently
              given if given by advertisement. A notice required to be or which
              may be given by advertisement shall be advertised once in one
              national daily newspaper and shall be taken as given on the day
              on which the advertisement appears. If by reason of the
              suspension or curtailment of postal services within the United
              Kingdom the Company is unable effectively to convene a general
              meeting by notice sent through the post, it may be convened by
              notice advertised in at least two leading daily newspapers with
              appropriate circulation, of which one is a leading London daily
              newspaper. The notice shall be deemed to have been duly served on
              all members entitled to it at noon on the day when the
              advertisement appears. The Company shall send confirmatory copies
              of the notice by post if at least 48 hours prior to the meeting
              the posting of notices to addressees within the United Kingdom
              again becomes practicable.

162           Every person who by operation of law, transfer or other means
              becomes entitled to any share shall be bound by every notice in
              respect of the share which, prior to his name and address being
              entered in the register of members, has been duly given to the
              person from whom he derives his title other than a notice given
              under Article 82 or section 212 of the Act.

Winding up

163           On a winding up of the Company, the balance of the assets
              available for distribution, after deduction of any provision made
              under section 719 of the Act and subject to any special rights
              attaching to any class of shares, shall be applied in repaying to
              the members of the Company the amounts paid up on the shares held
              by them. Any surplus assets will belong to the holders of any
              ordinary shares then in issue according to the numbers of shares
              held by them or, if no ordinary shares are then in issue, to the
              holders of any unclassified shares then in issue according to the
              numbers of shares held by them.

164           If the Company is wound up (whether the liquidation is voluntary,
              under supervision or by the court) the liquidator may, with the
              authority of an extraordinary resolution, divide among the
              members in specie or kind the whole or any part of the assets of
              the Company, whether or not the assets consist of property of one
              kind or of properties of different kinds. He may for that purpose
              set such value as he deems fair upon any one or more class or
              classes of property and may determine how the division is carried
              out as between the members or different classes of members. He
              may, with the same

                                      E-51

<PAGE>
              authority, vest any part of the assets in trustees upon such
              trusts for the benefit of members as the liquidator with the same
              authority thinks fit, but no contributory shall be compelled to
              accept any shares in respect of which there is a liability.

165           The power of sale of a liquidator includes a power to sell wholly
              or partially for shares or Debentures, or other obligations of
              another company either then already constituted or about to be
              constituted, for the purpose of carrying out the sale.

Indemnity

166           Except so far as the provisions of this Article are avoided by
              any provisions of the Statutes, the Directors, executive
              Directors, Auditors, Secretary and other officers of the Company,
              and their respective executors or administrators, shall to the
              extent permitted by the Statutes be indemnified out of the assets
              of the Company against all actions, costs, charges, losses,
              damages and expenses which they may incur or sustain by reason of
              any act done, concurred in or omitted in or about the execution
              of their duty or supposed duty in their respective offices,
              unless incurred through their own wilful neglect or default. None
              of them shall be answerable for the acts, neglects or defaults of
              any other of them, or for joining in any receipt for the sake of
              conformity, or for any bankers or other persons with whom any
              moneys or assets of the Company are lodged or deposited for safe
              custody, or for the insufficiency or deficiency or any security
              upon which any moneys of the Company are placed out or invested,
              or for any other loss or damage which happens in the execution of
              their offices, unless resulting from their own wilful neglect or
              default. Subject to the provisions of the Act, the directors may
              purchase and maintain insurance at the expense of the Company for
              the benefit of any director or other officer or auditor of the
              Company against any liability which may attach to him or loss or
              expenditure which he may incur in relation to anything done or
              alleged to have been done or omitted to be done by him as a
              director, officer or auditor.


                                      E-52

<PAGE>
                                 EXHIBIT 4.1.1

                     LICENSING AND MANUFACTURING AGREEMENT


THIS Licence and Manufacturing Agreement is made the 13th day of March 2000
(the "Effective Date")

BETWEEN:

BIOGLAN PHARMA PLC, of 5, Hunting Gate, Hitchin, Hertfordshire SG4 0TJ
(hereinafter referred to, together with its Associated Companies, as
"BIOGLAN"); and

JAGOTEC AG having a place of business at Eptingerstrasse 51, CH-4132 Muttenz,
Switzerland (hereinafter referred to, together with its Associated Companies,
as "JAGO").

INTRODUCTION

A.            JAGO has certain marketing authorisations for the Product (as
              such term is defined herein) granted by various European
              countries including The United Kingdom, France, Germany, Italy
              and Sweden; and

B.            JAGO has the right to grant licences with respect to the Product

C.            BIOGLAN has experience and expertise in the manufacture,
              distribution and sale of certain pharmaceutical products in
              accordance with Good Manufacturing Practice.

D.            JAGO wishes to grant BIOGLAN an exclusive licence to Manufacture,
              distribute and sell the Product and BIOGLAN wishes to accept such
              licence in accordance with the terms and conditions of this
              Agreement.

OPERATIVE PARTS

1.      Definitions

1.1           In this Agreement and the recitals and schedule the following
              words and expressions shall have the meanings set opposite them:

              "Active Ingredient" means diclofenac.

              "Agency" means the body responsible for the licensing of the
              Product for commercial marketing and sales of the Product in the
              Territory and/or the licensing of premises and equipment and
              facilities of BIOGLAN for the Manufacture of the Product.

              "Associated Companies" means any entity that directly or
              indirectly owns, is owned by or is under common ownership, where
              own or ownership means direct or indirect possession of at least
              fifty percent (50%) of the outstanding voting securities of a
              corporation or a comparable equity interest in any other type of
              entity.

              "Condition Precedent" means the condition that prior to JAGO
              entering into this Agreement BIOGLAN shall have evidenced in a
              form acceptable to JAGO that it has withdrawn from all matters
              relating to or connected with JAGO's acquisition from the
              receiver of all assets of Hyal Pharmaceutical Corporation and
              further that BIOGLAN warrants and represents that it will not
              seek to reinstate or re-activate any actions brought against JAGO
              or any of its subsidiaries in relation to this matter whatsoever.

              "Confidential Information" means all information and data
              provided by the parties to each other in written or other
              tangible medium and which is by its nature and type reasonably to
              be regarded as confidential but shall not include any portion
              thereof which:


                                      E-53

<PAGE>
              (i)      is known to the receiving party as evidenced by the
                       receiving party's written records, before receipt
                       thereof under this Agreement;

              (ii)     is disclosed to the receiving party by a third person
                       who is under no obligation of confidentiality to the
                       disclosing party hereunder with respect to such
                       information and who otherwise has a right to make such
                       disclosure;

              (iii)    is or becomes generally known in the trade through no
                       fault of the receiving party;

              (iv)     is independently developed by the receiving party as
                       evidenced by the receiving party's written records,
                       without access to such information.

              "Field of Use" means the use of the Product for actinic
              keratosis.

              "Good Manufacturing Practice" means the standards of
              manufacturing practice for the manufacture of medicinal products
              prevailing, which shall at least comply with the principles and
              guidelines of good manufacturing practice for medicinal products
              for human use published from time to time by the European
              Commission pursuant to Council Directive 91/356 and the like
              principles and guidelines published by the World Health
              Organisation.

              "Intellectual Property" and "Intellectual Property Rights" means
              the trade marks, Patent Rights and any registered design or
              similar protection, a right of ownership of, or a right under
              licence or otherwise to, any patent, trade or service mark, trade
              name, registered design, Confidential Information, know-how,
              trade secret, copyright, design right, or other intellectual
              property right or right of a like nature as now or may hereafter
              be conferred by the laws in force throughout the world whether
              registered or unregistered including without limitation all
              rights in methods, techniques, discoveries, formulae,
              specifications, plans, drawings, computer programs, technical
              information, data and materials which are in existence at the
              Effective Date and are the property of JAGO.

              "Manufacture" means any process carried out in the course of
              making the Product and includes the production of the Product in
              accordance with the Specification from the Active Ingredient and
              shall include blending, assembly, packaging, analysis, testing
              stability studies and quality control and "Manufactured", and
              "Manufacturer" shall be interpreted accordingly.

              "Manufacturing Records" means all documentation associated with
              Manufacture of the Product, including, without limitation, all
              information regarding analysis, testing supply and Manufacture.

              "Net Sales" means gross sales from the sale of the Product less
              all commissions, discounts, refunds, replacements or credits
              allowed to purchasers for return of such Products or as
              reimbursement for damaged products, freight postage, insurance,
              and other shipping charges, sales and use taxes, customs duties
              and any other governmental tax or charge, (except income tax)
              imposed on or at the time of the production, importation use or
              sales of such Products.

              "Patent Rights" means

              (i)      the patents and patent applications listed in the
                       Schedule to this Agreement;

              (ii)     all patent applications that may hereafter be filed in
                       the Territory by or on behalf of JAGO which either are
                       based on or claim priority from any of the foregoing
                       patents and applications or which are in respect of any
                       improvements to which either party is exclusively
                       entitled; and


                                      E-54

<PAGE>
              (iii)    all patents which may be granted pursuant to any of the
                       foregoing patent applications

              "Process Improvements" means all improvements, modifications or
              adaptations to the process, or method of Manufacture used by
              BIOGLAN and are solely and specifically related to the
              Manufacture of the Product which arise in association with the
              processes of Manufacture of the Product.

              "Product" means the topical gel comprising up to 3% diclofenac
              and up to 2.5% hyaluronic acid.

              "Specifications" means requirements and specifications for the
              Manufacture of Product and all amendments to those requirements
              and specifications.

              "Technical Information" means all registration data, know-how,
              experience, instructions, standards, methods, analysis record,
              test and trial results, manufacturing and formulation processes,
              hazard assessments, quality control standards, formulae,
              specifications, storage and data, samples, drawings, designs,
              description of packaging materials and all other relevant
              information relating to the Product or its design, Manufacture,
              formulation, composition, purity handing, storage and use.

              "Territory" means the United Kingdom, France, Germany, Italy,
              Spain, Sweden, Norway, Denmark and Iceland, Finland, The
              Netherlands, Belgium, Luxembourg, Republic of Ireland, Austria,
              Portugal, Switzerland and Greece.

1.2           In this agreement and the recitals and the schedule:

              (a)      reference to any statute or statutory provision includes
                       a reference to that statute or statutory provision as
                       amended, extended or re-enacted and to any regulation,
                       order, instrument or subordinate legislation under the
                       relevant statute or statutory provision;

              (b)      reference to any singular includes a reference to the
                       plural and vice versa;

              (c)      references to persons include bodies corporate,
                       unincorporated associations and partnerships and any
                       reference to any party who is an individual is also
                       deemed to include their respective legal personal
                       representative(s);

2.      Licence

2.1           Subject to the Condition Precedent and the terms and conditions
              hereof JAGO hereby grants to BIOGLAN and BIOGLAN accepts from
              JAGO an exclusive right and licence to use the Intellectual
              Property and the Technical Information to Manufacture (or procure
              the Manufacture) distribute and sell the Product for the Field of
              Use in the Territory.

2.2           In the event that BIOGLAN obtains from the necessary regulatory
              authorities in the Territory approval for further indications of
              use for the Product, then the licensed Field of Use shall be so
              extended to include such indications.

2.3           JAGO also grants BIOGLAN the exclusive right to extend the
              Territory to include any countries which may during the term of
              this Agreement join the European Union. Such right is subject to
              a) BIOGLAN's obtaining all necessary Product and marketing
              approvals in each additional country; and b) the payment to JAGO
              of o for each new country approval.

2.4           BIOGLAN shall be entitled to grant sublicences on the condition
              that BIOGLAN shall remain responsible to JAGO for ensuring that
              such sublicences fully comply with Clauses 4.2, 5.4.5, 5.8, 8.1,
              8.2, 9.1, 10.1, 11, 14.4 and 19.3 of this Agreement and that

                                      E-55

<PAGE>
              any such sublicences so granted shall terminate immediately on
              termination of this Agreement.

2.5           BIOGLAN shall be entitled to the right of first refusal to make,
              distribute and sell the Product in all other countries of the
              world, provided that JAGO shall be free to grant such further
              rights. In the event that JAGO is or becomes able to grant any
              such further rights for any additional country or countries
              ("Additional Territories") it shall inform BIOGLAN in writing.
              Once JAGO has negotiated Heads of Terms with a prospective
              licensee for Additional Territories, JAGO shall evidence such
              Heads of Terms to BIOGLAN in writing and BIOGLAN shall have the
              right to enter into a licensing agreement with JAGO in such
              Additional Territories on the same terms as were negotiated
              between JAGO and its prospective licensee. BIOGLAN's preferential
              right to obtain a licence for such Additional Territories under
              this Clause 2.5 is subject to BIOGLAN's acceptance of such Heads
              of Terms within 5 (five) working days of receipt. In the event
              that BIOGLAN declines such Heads of Terms JAGO shall not
              subsequently contract with the said prospective licensee or with
              another third party on terms materially less onerous than those
              offered to BIOGLAN under this Clause 2.5 without first informing
              BIOGLAN and giving BIOGLAN the opportunity to match such
              materially less onerous terms within 5 (five) working days.

3.      Fees and Royalties

3.1           In consideration for the licence and rights granted in Clause 2
              above BIOGLAN shall, subject to Clause 4.1 below, pay to JAGO
              within thirty (30) days of the date of execution of this
              Agreement a licence fee in the amount of o

3.2           In further consideration of the grant of the rights and licence
              set out in Clause 2 above, BIOGLAN shall pay to JAGO royalties in
              the following amounts

              Years 1 - 2                                o on Net Sales

              Year 3 - March 2006                        o on Net Sales

              April 2006 - term                          o on Net Sales

3.3           In each twelve month period following the date of first marketing
              of the Product in the Territory until expiry or earlier
              termination of this Agreement the minimum value of royalties
              payable by BIOGLAN to JAGO will be o. In the event that BIOGLAN
              has not received sufficient revenues in the first twelve months
              of marketing of the Product in the Territory to generate the
              minimum royalty due under this Clause 3.3, the shortfall may be
              carried forward to the second twelve month period of marketing,
              provided always that the minimum royalty paid to JAGO for the
              first twenty four months of marketing the Product in the
              Territory shall be o.

3.4           In the event that BIOGLAN grants sub-licences in any countries of
              the Territory, JAGO shall receive o of any and all net sums
              received by BIOGLAN under such sub-licensing agreements in lieu
              of any royalties due under Clause 3.2 in respect of such
              countries. All royalties payable under this Clause 3.4 shall be
              paid in accordance with Clause 4.3. Other monies, such as licence
              fees, shall be paid to JAGO within 30 (thirty) days of receipt by
              BIOGLAN.

3.5           BIOGLAN shall also pay JAGO new country approval fees as set out
              below:

              Spain                                      o
              Benelux                                    o
              All other countries in the Territory       o


                                      E-56

<PAGE>
              Such payments shall be made within 30 (thirty) days of receipt of
              such new country approval.

3.6           If any royalty due to JAGO under this Agreement is not paid by
              the due date, then BIOGLAN will pay interest on such sum from the
              date when the amount in question became due until the actual date
              of payment at the rate of three percent (3%) above the current
              LIBOR.

3.7           All fees and payments referred to in this Clause 3 exclude any
              value added tax and similar taxes and BIOGLAN shall be
              responsible for all and any such value added or similar tax due
              provided that a valid invoice is issued to BIOGLAN.

3.8           JAGO shall transfer to BIOGLAN the individual marketing
              authorisations for the Product in the United Kingdom, France,
              Germany, Italy and Sweden as soon as practicable after the
              Effective Date, and BIOGLAN shall then immediately accept full
              liability and responsibility for maintaining marketing
              authorisations and ensuring that all of each Agency's reporting
              requirements are fully complied with. BIOGLAN shall at its own
              expense use reasonable efforts to obtain marketing authorisations
              for the Product in the Field of Use in all other countries of the
              Territory and to obtain such other approvals, including pricing
              approvals, as may be necessary for the marketing, sale and
              distribution of the Product.

4.      Obligations Of The Parties

4.1           Within 90 (ninety) days of the Effective Date JAGO shall provide
              to BIOGLAN  a written declaration from o that the exercise by
              BIOGLAN of the rights licensed to it hereunder do not infringe
              any Intellectual Property Rights of o and an undertaking by o
              that neither o nor any Affiliate of o nor its successors will
              commence any action against BIOGLAN in respect of the use by
              BIOGLAN of such of JAGO's Intellectual Property as is licensed to
              it hereunder. In the event that such written declaration and
              undertaking is not provided to BIOGLAN in accordance with the
              terms of this Clause 4.1 JAGO shall immediately repay to BIOGLAN
              all sums paid by BIOGLAN to JAGO pursuant to Clause 3.1 above.

4.2           Having due regards to the size and value of the market BIOGLAN
              shall use all reasonable commercial efforts to market the product
              in the Territory as soon as possible and shall use all reasonable
              efforts to enhance and maintain the demand for Products in the
              Territory.

4.3           Within 30 (thirty) days after each January 31, April 30, July 31
              and October 31 (the "Quarter Dates") following the first
              marketing of the Product in the Territory, BIOGLAN shall deliver
              a report to JAGO detailing the number of units and Net Sales
              values of the Product sold by BIOGLAN, its Affiliates and
              sublicensees in each country of the Territory recorded during the
              quarter ended on that Quarter Date, and showing the aggregate Net
              Sales in the Territory and the royalties due thereon owed to
              JAGO. The quarterly report shall be accompanied by payment of the
              royalties due to JAGO. Royalties shall be paid in Sterling and
              net of any deductions or withholdings which are required to be
              deducted under relevant legislation in the Territory. BIOGLAN
              shall give all reasonable assistance to JAGO to enable JAGO to
              recover (wholly or in part) the sums withheld and to enable JAGO
              to take advantage of such double taxation agreements as may be
              available.

4.4           BIOGLAN shall keep accurate books of account containing an
              accurate record of all data necessary for the proper computation
              of royalties under this Agreement. For the purpose of verifying
              amounts which may be due and the accuracy of BIOGLAN's reports
              hereunder, JAGO shall have the right once each calendar year to
              have a certified public accountant reasonably acceptable to
              BIOGLAN inspect such records within two (2) years after the end
              of the calendar year to which they pertain at

                                      E-57

<PAGE>
              reasonable times and upon thirty (30) days prior written notice
              by JAGO. In the event that such inspection reveals that the
              royalties paid for the period covered by such inspection have
              been understated by more than (L)10,000 or 5% of the royalties
              due (whichever shall be greater) then the cost of such inspection
              (including for the avoidance of doubt the costs of JAGO's
              certified public accountant) shall be borne by the other party.
              In all other cases the costs of such inspection shall be borne by
              JAGO. JAGO shall require the certified public accountant only to
              disclose to JAGO the amount of the royalty payable for the period
              under audit, and the accountant shall hold in confidence all
              other information obtained from the inspection.

5.      Right to Manufacture

5.1           JAGO hereby appoints BIOGLAN for the term of this Agreement to
              Manufacture or to procure the Manufacture of the Product in
              accordance with Good Manufacturing Practice and in a manner which
              will ensure that the Product achieves the Specifications and
              BIOGLAN hereby accepts that appointment.

5.2           As soon as practicable after the Effective Date and in no event
              later than 45 (forty five) days of the Effective Date of this
              Agreement JAGO shall transfer to BIOGLAN all necessary
              manufacturing information, Intellectual Property and Technical
              Information to enable BIOGLAN to manufacture the Product in
              accordance with current Good Manufacturing Practice.

5.3           Notwithstanding BIOGLAN's right to procure the manufacture of the
              Product pursuant to Clause 5.1 above, in the event of BIOGLAN's
              undertaking the Manufacture of the Products itself it shall do so
              at either or both of its facilities at Malmo, Sweden and Andover,
              UK in accordance with the process description, quality controls
              during production, process controls and environmental monitoring
              as more fully set out in the documentation received from JAGO and
              approved by the relevant Agencies in the Territory.

5.4           BIOGLAN undertakes with JAGO that:

              5.4.1    it will carry out the Manufacture in accordance with
                       this Agreement, and in accordance with its marketing
                       authorisation for the Product.

              5.4.2    all raw materials used by BIOGLAN in the Manufacture of
                       the Product will comply with Specifications as set out
                       in the marketing authorisations;

              5.4.3    it will allow, periodically (in the case of JAGO and its
                       Associated Companies no more than once in any calendar
                       year) upon reasonable notice (except in each case the
                       representatives of any Agency who are entitled to
                       immediate access) representatives of JAGO, Associated
                       Companies and any Agency to inspect the relevant parts
                       of its premises and equipment where the Manufacture of
                       the Product is carried out or the Product, Active
                       Ingredient or raw materials are stored and to inspect
                       the process of Manufacture and to audit and observe
                       BIOGLAN's operations in relevant parts of the premises
                       and equipment where Manufacture of the Product is
                       carried out, and to assess BIOGLAN's compliance with
                       current Good Manufacturing Practice.

              5.4.4    it will Manufacture all Product in compliance with
                       current Good Manufacturing Practice.

              5.4.5    it will immediately notify JAGO of any recall or
                       advisory of the Product of which it becomes aware and
                       will provide JAGO with any and all information in
                       connection with such recall of the Products as may
                       reasonably be requested by JAGO. In the event of any
                       recall, voluntary or mandatory BIOGLAN shall meet

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<PAGE>
                       the cost of any such recall. If such recall has occurred
                       other than as a result of a failure by BIOGLAN to adhere
                       to the provisions of this Clause 5.4 the parties shall
                       meet to determine the effect of the recall on the
                       royalty obligations of BIOGLAN hereunder. In the event
                       of any recall due to a defect in the Product
                       manufactured by BIOGLAN, JAGO shall in addition to its
                       rights under Clause 5.4.3 be entitled upon 3 (three)
                       working days' notice to inspect the relevant parts of
                       BIOGLAN's premises and equipment relating to the
                       Manufacture of the recalled Product and to examine the
                       Manufacturing Records pertaining thereto.

5.5           If and to the extent that BIOGLAN considers it necessary, in
              order to comply with the terms of this Agreement, to purchase and
              install any tooling, parts or equipment then it shall do so at
              the expense and risk of BIOGLAN.

5.6           BIOGLAN shall package the Product in a tube which shall in turn
              be packaged within an outer packaging carton. The carton shall be
              printed with all relevant statutory information and shall also
              contain a patient information leaflet. The tube, carton and
              patient information leaflet shall all conform strictly to all
              relevant statutory requirements and to the Specifications and
              shall not be removed amended or altered in any way by BIOGLAN
              without the prior written authorisation of the relevant Agency.

5.7           BIOGLAN shall market the Product under any trade mark chosen by
              BIOGLAN. BIOGLAN shall meet all responsibilities of maintaining
              such trade mark in the Territory. It is hereby agreed that all
              rights in such trade mark rest absolutely in BIOGLAN. In the
              event that BIOGLAN decides to use the mark "Solarase", it shall
              grant to JAGO the right to acquire such mark on the expiration of
              this Agreement on terms to be agreed, but in no case shall the
              amount paid be greater than three times the average annual gross
              sales of the Product in the Territory during the final two years
              of this Agreement.

5.8           BIOGLAN shall be responsible for informing itself and keeping
              itself informed in a timely manner of the relevant statutory
              requirements in force from time to time relating to the tube,
              packaging carton and the patient information leaflet.

6.      Manufacturing

6.1           BIOGLAN shall be responsible for the Manufacture of the Product,
              and the way in which each batch of the Product is to be
              Manufactured, checked for compliance with, and adherence to, the
              Specifications. Further it is responsible for amongst other
              things, purchasing materials, testing and releasing materials,
              undertaking production, assembly, packaging and quality control,
              including in-process controls, sampling and analysis of the
              Product and for local release of the Product for commercial sale.

6.2           BIOGLAN shall be responsible for ensuring the safe operation of
              the process of Manufacture of the Product and in particular that
              the Technical Information supplied can be safely used in
              BIOGLAN's premises and on its equipment or those of its contract
              manufacturer.

7.      Liaison

7.1           The parties shall meet at least once every (6) six months or at
              such other frequency as may be agreed between the parties to
              share information gained by each of them in relation to this
              Agreement, trading conditions, competitive products and any other
              information relevant to the performance of the parties'
              respective obligations under this Agreement including any
              complaints, alleged defects, changes and improvements to existing
              procedures, and to discuss the performance of their respective
              obligations under this Agreement.


                                      E-59

<PAGE>
8.      Warranties

8.1           BIOGLAN undertakes and guarantees to JAGO that all Product sold
              by BIOGLAN will have been produced in accordance with Good
              Manufacturing Practice and fully in accordance with the
              Specifications. In the event that BIOGLAN discovers or is
              notified that the Product does not conform to the Specification
              BIOGLAN shall at its expense seek to remedy or rectify the
              defect, which may include recall of the Product. It shall be a
              condition of this warranty that BIOGLAN shall have stored the
              Product in accordance with the conditions set out in the
              marketing authorisations and that the shelf life of the Product
              shall not have expired.

8.2           BIOGLAN undertakes to ensure that it has in place product
              liability insurance with a reputable insurer in an amount
              appropriate for its business including the Manufacture, marketing
              and sale of the Product but in any event for not less than (L)10
              MILLION (ten million pounds Sterling) each and every claim. At
              JAGO's request, BIOGLAN shall provide JAGO with evidence of the
              existence and maintenance of such insurance cover.

8.3           BIOGLAN undertakes to register and maintain the trade mark in
              each country of the Territory during the term of this Agreement.

8.4           JAGO represents and warrants to BIOGLAN that:

              8.4.1    as at the date hereof JAGO is the sole and exclusive
                       owner of the Intellectual Property including, without
                       limitation, the Patent Rights and is properly entitled
                       thereto;

              8.4.2    JAGO has not created any liens or encumbrances over the
                       Intellectual Property and to the best of its knowledge
                       no other person or entity has created any liens or
                       encumbrances over the Intellectual Property.

8.5           JAGO undertakes during the term of this Agreement to pay all
              renewal fees in a timely manner and do all such acts and things
              as may be necessary to maintain in force the patents contained in
              the Patent Rights, and in respect of the patent applications
              contained therein to pay all costs and fees and to use all
              reasonable endeavours to obtain grant of letters patent. JAGO
              shall produce to BIOGLAN upon request copies of receipts for such
              renewal fees or other evidence of payment. If JAGO fails to pay
              any such fees BIOGLAN shall be entitled to pay them and set off
              any such payments against any other sums payable by BIOGLAN to
              JAGO pursuant to the terms of this Agreement.

8.6           JAGO undertakes during the term of this Agreement not to abandon
              or allow to lapse any of the Patent Rights or to amend the
              specification of any of them without the consent of BIOGLAN, such
              consent not to be unreasonably withheld or delayed.

8.7           Save as aforesaid, JAGO does not give any warranties or
              representations that the use of intellectual property and/or
              manufacture, sale and distribution or use of the Product does not
              infringe the intellectual property rights of any third parties
              (save for o) and all warranties and conditions to that effect are
              hereby excluded.

9.      Liability

9.1           Save in respect of any claim arising or threatened against JAGO
              in respect of its ownership or use of the Intellectual Property
              or Technical Information or its entitlement to enter into this
              Agreement, BIOGLAN shall indemnify and hold harmless JAGO against
              any claim made against JAGO by a third party arising out of the
              Manufacture, distribution or sale of the Product by BIOGLAN or
              BIOGLAN's agents, employees, representatives, or others entrusted
              by BIOGLAN with the execution of this Agreement, whether such
              claim is in statute, contract or in tort or on any other basis
              and whether

                                      E-60

<PAGE>
              relating to product liability, product safety or otherwise
              (whether before or after termination or expiry of this Agreement
              and whether liability arises before or after termination or
              expiry of this Agreement). Such claims and all costs (including
              legal costs and other costs including those of litigation/
              arbitration) and expenses of or incidental to such claims and
              such indemnity shall continue in full force and effect
              notwithstanding any termination or expiration of this Agreement
              and for the purposes of this clause BIOGLAN agrees to submit to
              the jurisdiction of any court in which proceedings may be brought
              against JAGO (or its officers or employees) and if any such claim
              is made against any person then or at any time previously an
              officer or employee of JAGO then JAGO shall be entitled to
              indemnify such person against such claim and all costs and
              expenses thereof provided that JAGO has obtained BIOGLAN's
              written authority to do so and the indemnity given by BIOGLAN to
              JAGO hereunder shall extend to all sums paid by JAGO under or in
              consequence of its indemnity to such person.

10.     Infringement

10.1          Each of BIOGLAN and JAGO agrees to promptly notify the other of
              any infringement of any rights contained within the Intellectual
              Property in the Field of Use of which they become aware.

10.2          Action by BIOGLAN. BIOGLAN may initiate proceedings alleging
              infringement by third parties of any rights with the Intellectual
              Property licensed under this Agreement in its own name and at its
              own expense. JAGO shall at the request and cost of BIOGLAN (as to
              out of pocket expenses) give BIOGLAN any assistance it may
              reasonably request in connection with such proceedings. BIOGLAN
              shall keep JAGO fully informed as to the conduct of such
              proceedings. Any sums recovered in the course of such proceedings
              from the infringer whether by way of damages, account of profits,
              costs or otherwise, shall be applied first to reimbursing BIOGLAN
              for its costs and expenses of such proceedings and subject to
              such reimbursement shall belong to BIOGLAN and to JAGO
              proportionate to their respective losses. BIOGLAN shall pay to
              JAGO its share promptly on receipt of such sums recovered by
              BIOGLAN. If so requested by BIOGLAN, JAGO shall join in any such
              infringement proceedings as co-plaintiff with BIOGLAN or allow
              BIOGLAN to take such proceedings in JAGO's name. BIOGLAN shall,
              while this Agreement is in force and subsequently (provided that
              JAGO shall take no part in such proceedings without the prior
              written request of BIOGLAN), indemnify JAGO against all
              reasonable expenses of external legal advisers incidental to such
              proceedings or any appeal, including any costs or damages awarded
              against JAGO where such expenses have not been recovered from the
              infringer or the action against the alleged infringer is
              unsuccessful.

10.3          Action by JAGO. If BIOGLAN does not, within three months after
              having any infringement of a Patent Right drawn to its attention
              by JAGO, commence an action for such infringement, or does not
              prosecute in a reasonably timely fashion any action commenced by
              it, then JAGO shall be entitled to commence proceedings for
              infringement in its own name (or continue any proceedings
              commenced by BIOGLAN, as appropriate) at its own expense. BIOGLAN
              shall at the request and cost of JAGO (as to out of pocket
              expenses only) give any necessary consent to enable JAGO to do so
              and shall give JAGO any assistance reasonably requested by JAGO
              in connection with such proceedings. Any sums recovered in the
              course of such proceedings from the infringer, whether by way of
              damages, account of profits, costs or otherwise, shall be applied
              first in reimbursing JAGO for its costs and expenses of such
              proceedings and then, in cases where JAGO takes over proceedings
              previously begun by BIOGLAN in reimbursing to BIOGLAN its costs
              and expenses of such proceedings incurred prior to the time when
              they were taken over by JAGO. Subject to such reimbursement, such
              sums recovered shall belong to JAGO and to BIOGLAN, proportionate
              to their respective losses and JAGO shall pay to BIOGLAN its
              share promptly on receipt of

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<PAGE>
              such sums recovered by JAGO. If so requested by JAGO, BIOGLAN
              shall join in any such infringement proceedings as co-plaintiff
              with JAGO or allow JAGO to take such proceedings in BIOGLAN's
              name JAGO shall, while this Agreement is in force and
              subsequently (provided that BIOGLAN shall take no part in such
              proceedings without the prior written request of JAGO), indemnify
              BIOGLAN against all reasonable expenses of external legal
              advisers incidental to such proceedings or any appeal including
              any costs or damages awarded against BIOGLAN where such expenses
              have not been recovered from the infringer or the action against
              the alleged infringer is unsuccessful.

Allegations of Invalidity or Breach of Third Party Rights

10.4          If any allegation or claim be made that any Patent Rights are
              invalid (whether such allegations or claims be made in the course
              of any infringement suit or separately) the following provisions
              shall apply:

              10.4.1   the party against whom such allegation or claim shall
                       have been made shall forthwith notify the other party
                       providing all necessary details; and

              10.4.2   thereafter JAGO shall at its own expense defend against
                       such claims or allegations such that the value of
                       BIOGLAN's rights under this Agreement is preserved.

10.5          In the event that the said claims of invalidity are upheld by a
              court or competent authority in the Territory, the royalty rate
              payable by BIOGLAN to JAGO pursuant to Clause 3.2 shall be
              reduced by 50% from the date that the judgement of the court or
              decision of the competent authority is delivered and this
              provision shall apply for the remaining period of this Agreement.
              In the event that JAGO appeals successfully against the said
              judgement or decision the royalty rate payable to JAGO by BIOGLAN
              shall forthwith be restored to level provided for in Clause 3.2.

10.6          In the event that the use of the Technical Information or
              Intellectual Property in the licensed Field of Use is held by a
              court or competent authority to infringe the intellectual
              property rights of any third party, then JAGO will repay the
              license fee paid to it pursuant to Clause 3.1 above and any sums
              paid to it pursuant to Clause 3.2 above which have not been
              offset against royalties and will indemnify BIOGLAN its
              customers, sub-contractors, officers, employees and agents for
              and against any and all claims, damages, costs (including
              reasonable legal fees) and losses of any nature whatsoever.

10.7          In the event that, as a result of such claims or allegations of
              invalidity or infringement of a third party's intellectual
              property rights, it is determined by both BIOGLAN and JAGO that
              utilisation of the JAGO Intellectual Property and/or Technical
              Information in the licensed Field of Use would be impractical or
              impossible without obtaining an additional royalty bearing
              licence from a third party, then JAGO shall enter into such a
              licence provided that BIOGLAN shall not suffer any diminution of
              rights hereunder nor shall BIOGLAN be required to make any
              payment whatsoever to the third party nor shall any additional
              payment or increased royalty rate be payable to JAGO by BIOGLAN
              as a result of JAGO's obtaining the said licence. In the event
              that JAGO is unable or unwilling to obtain such a licence,
              BIOGLAN may enter into such licence. BIOGLAN shall thereafter be
              permitted to offset a proportion as agreed with JAGO of any other
              royalties as may be payable against any fees, royalties or other
              amounts owed by BIOGLAN to JAGO, unless the third party is an
              Affiliate of BIOGLAN.

10.8          In the event that this Agreement becomes inoperable in any part
              of the Territory without infringing the intellectual property
              rights of a third party and if neither party of this Agreement is
              able or willing to obtain a  licence from the said third party,
              without prejudice to BIOGLAN's rights under 10.6 above BIOGLAN
              may at its sole discretion continue to pursue its rights
              hereunder in any other country within the Territory unless it

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<PAGE>
              considers it uneconomic to do so, in which case BIOGLAN may
              terminate this Agreement immediately upon serving written notice
              on JAGO.

11.     Secrecy

11.1          BIOGLAN acknowledges that any Confidential Information now or
              hereafter disclosed to it by JAGO has or will be disclosed to it
              in confidence by JAGO and that, as between BIOGLAN and JAGO, JAGO
              is entitled to all rights in the same and  BIOGLAN shall before
              and after termination of this Agreement keep (and use all
              reasonable endeavours to ensure that its officers, employees and
              agents keep) the same (whether supplied before or after the date
              of this Agreement) confidential and not use the same other than
              for the purposes of this Agreement. These restrictions upon
              disclosure and use of such information shall extend for a period
              of five (5) years beyond the termination of this Agreement, but
              shall immediately cease to apply to any specific portion of such
              information:

              (a)      which BIOGLAN can demonstrate by credible written
                       documentation to have been in its possession at the
                       earlier of either its receipt from JAGO or the date of
                       this Agreement; or

              (b)      which is or later becomes generally available to the
                       public at large other than by JAGO's neglect or default
                       or the neglect or default of an Associated Company of
                       BIOGLAN; or

              (c)      which is lawfully received by BIOGLAN from a third party
                       having no obligation direct or indirect of
                       confidentiality to JAGO;

              (d)      which is required to be disclosed by law, government
                       regulation or any Agency.

11.2          The provisions of Clause 11.1 shall apply in the same manner to
              the disclosure of any Confidential Information of BIOGLAN to JAGO
              as if JAGO was substituted for BIOGLAN and BIOGLAN was
              substituted for JAGO.

11.3          Each party shall only allow access to the other's Confidential
              Information exclusively to those of its employees or contractors
              or agents or prospective sublicensees who have a reasonable need
              to see and use it for the purposes of this Agreement and shall
              inform each of such employees or other receiving parties of the
              confidential nature of the Confidential Information and of the
              obligations on the recipient with respect to such Confidential
              Information and shall ensure that each of its employees or other
              receiving parties having access to the Confidential Information
              is contractually bound by obligations of confidentiality and
              shall take such steps as may be reasonable to enforce such
              obligations.

11.4          Each party shall take all reasonable precautions in dealing with
              the Product and with any information, documents and papers
              provided to it by the other so as to prevent any unauthorised
              person from having access to such Product information, documents
              or papers or to any report on or records of any analysis, tests
              or trials carried out.

12.     Disclaimer

12.1          JAGO DISCLAIMS ANY AND ALL LIABILITY OR RESPONSIBILITY (WHETHER
              ARISING IN CONTRACT, TORT, BREACH OF STATUTORY DUTY OR IN ANY
              OTHER BASIS WHATSOEVER) FOR ANY DEATH, INJURY, HARM, LOSS OR
              DAMAGE ARISING OR ALLEGED TO ARISE OUT OF THE DESIGN,
              MANUFACTURE, SALE, DISPOSAL OR USE OF LICENSED PRODUCTS WHICH ARE
              MANUFACTURED, SOLD OR DISPOSED OF BY OR ON BEHALF OF BIOGLAN OR
              ITS SUBLICENSEES, EXCEPT TO THE EXTENT THAT SUCH LIABILITY ARISES
              FROM JAGO'S OWN NEGLIGENCE OR WILFUL MISCONDUCT. JAGO DOES NOT
              WARRANT THAT SUCH LICENSED

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<PAGE>
              PRODUCTS ARE OR WILL BE SAFE, OF SATISFACTORY QUALITY OR FIT FOR
              ANY PARTICULAR PURPOSE FOR WHICH THEY MAY BE BOUGHT OR SOLD AND
              ANY WARRANTIES TO THAT EFFECT (EXCEPT AS SET OUT ABOVE) WHETHER
              EXPRESS OR IMPLIED (WHETHER BY WAY OF LAW, STATUTE, CUSTOM, TRADE
              PRACTICE OR OTHERWISE HOWSOEVER) ARE HEREBY EXCLUDED. IT IS FOR
              BIOGLAN TO SATISFY ITSELF AS TO THE SAFETY AND EFFICACY OF THE
              LICENSED PRODUCTS AND AS TO THEIR SUITABILITY FOR ANY PURPOSES
              FOR WHICH THEY MAY BE MANUFACTURED, BOUGHT OR SOLD.

12.2          IN ANY EVENT, AND SUBJECT ALWAYS TO THE OTHER PROVISIONS OF THIS
              AGREEMENT, EACH PARTY'S TOTAL LIABILITY TO THE OTHER FOR ALL
              BREACHES OF ITS OBLIGATIONS ARISING UNDER THIS AGREEMENT SHALL
              NOT EXCEED (L)10 (TEN) MILLION POUNDS STERLING) IN RESPECT OF ALL
              EVENTS AND CIRCUMSTANCES GIVING RISE TO ANY AND ALL SUCH
              LIABILITIES.

12.3          IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY
              INDIRECT OR CONSEQUENTIAL LOSS ARISING BY REASON OF ANY BREACH OF
              THIS AGREEMENT INCLUDING (WITHOUT LIMITATION) LOSS OF PROFIT,
              LOSS OF TURNOVER, LOSS OF BARGAIN OR LOSS OF OPPORTUNITY.

13.     Statements and Amendments of the Agreement

13.1          This Agreement sets forth the entire understanding between the
              parties in respect of the subject matter of this Agreement and
              supersedes all prior agreements, arrangements, and/or
              understandings related to said subject matter. Save as aforesaid
              there are no promises, representations, conditions, provisions,
              or terms related hereto other than those set forth in this
              Agreement.

13.2          This Agreement may not be changed, modified or amended except in
              writing and signed as exhibits to this agreement and numbered
              consecutively by the parties.

14.     Termination of the Agreement

14.1          Unless earlier terminated, the licence granted pursuant to Clause
              2 of this Agreement, shall continue in effect until the latest
              date on which any of the Patent Rights listed in the Schedule
              expires.

14.2          In the event that BIOGLAN wishes to continue to manufacture,
              sell, market and distribute the Product after expiration of this
              Agreement it shall so notify JAGO and the parties shall in good
              faith negotiate royalty terms which are substantially similar to
              the terms of this Agreement, taking into account market
              conditions and any competitive products, under which Technical
              Information relating to the Product may continue to be licensed
              to BIOGLAN. In the event that the parties are unable to agree on
              royalty rates, the parties shall submit such dispute to expert
              determination.

14.3          The parties' right to terminate the Agreement without notice for
              good cause shall not be affected by the Clause 14.6.

14.4          Notices of termination are only valid if given in writing.

14.5          In addition to termination under Clause 14.6 JAGO shall be
              entitled to terminate the agreement upon ninety (90) days'
              written notice if BIOGLAN does not maintain the necessary
              official authorisations, permits or certificates required to
              enable it to perform all its obligations under this Agreement and
              fails to rectify the matter within the notice period and/or it
              fails for reasons within the control of BIOGLAN or neglects to
              submit them to JAGO within ninety days of JAGO's written request
              for the production of specific documents.


                                      E-64

<PAGE>
14.6          Furthermore, the parties shall be entitled to terminate the
              Agreement immediately upon written notice if:

              14.6.1   either party defaults or commits a material breach of
                       any of the provisions of this Agreement or otherwise
                       acts in a manner that the other party cannot reasonably
                       be expected to continue to operate this Agreement, the
                       other party may terminate this Agreement by giving the
                       defaulting or breaching party forty five (45) days
                       written notice thereof. However, if the defaulting or
                       breaching party, within the forty five (45) days period
                       referred to, fully cures said default or breach, this
                       Agreement shall continue in full force and effect as if
                       such default or breach had not occurred; or

              14.6.2   an order is made or an effective resolution is passed
                       for the liquidation or winding up (or any similar
                       judicial process) of the other party; or

              14.6.3   the other party seeks or enters into any composition or
                       arrangement with its creditors or fails to pay its
                       employees on time or suffers or permits any constraint
                       or distress proceedings or an encumbrancer takes
                       possession or a receiver, manager, administrative
                       receiver or administrator is appointed of all or any
                       part of its assets or undertaking or if it takes or
                       suffers any similar action in consequence of debt, or

              14.6.4   the other party ceases or threatens to cease or carry on
                       its business or substantially the whole of the business
                       or disposes of its undertaking or stops or threatens to
                       stop payment of its debts.

15.     Notices

15.1          All communications hereunder shall be in writing and shall be
              deemed to have been duly given upon receipt by the addressee at
              the address set forth below or such other address as either party
              may specify by notice sent in accordance with this section:

                       Bioglan Pharma PLC
                       1, The Cam Centre
                       Wilbury Way,
                       Hitchin, Hertfordshire SG4 0TW
                       ENGLAND

                       Attention: Mrs Susan J Keast,
                                  Corporate Affairs Director and Company
                                  Secretary

              And:

                       SkyePharma PLC
                       105 Piccadilly
                       London W1V 9FN ENGLAND

                       Attention: Miss Suzanne V. McLean
                                  International Counsel and Company Secretary

16.     Severability

16.1          In case individual provisions of this agreement are or shall
              become null, void, illegal or unenforceable this shall not affect
              or impair the validity, legality or enforceability of any other
              provision. The void, illegal or unenforceable provision shall be
              replaced by a valid provision corresponding to the aim and object
              of this agreement which the parties undertake to negotiate
              promptly and in good faith.


                                      E-65

<PAGE>
17.     Applicable Law and Jurisdiction

17.1          This Agreement shall be governed and construed in accordance with
              the laws of England and Wales.

18.     Assignment

              The rights and obligations of each of the parties to this
              agreement are personal to such party and may not be assigned or
              subcontracted by either party without the prior written consent
              of the other party.

19.     Miscellaneous

19.1          No omission, forbearance or delay on the part of either of the
              parties to enforce fully any provision of this Agreement or any
              right, power, privilege or remedy hereunder shall be deemed to be
              a waiver of any such rights or operate so as to bar the exercise
              or enforcement of the same at any subsequent time or times.

19.2          No press or other public statement or circular shall be made or
              issued in connection with the subject matter of this agreement
              unless previously approved in writing by the parties hereto.

19.3          In the event that BIOGLAN makes any improvement or modification
              in the use, composition, Manufacture or otherwise of the product
              during the subsistence of this Agreement BIOGLAN shall
              immediately make any such improvement or modification available
              to JAGO under a perpetual royalty-free non-exclusive worldwide
              licence to enable JAGO to use the same in connection with the
              Product in the Field of Use. JAGO shall use reasonable efforts to
              ensure that all its other licensees for the Product shall be
              subject to conditions comparable to those in this Clause 19.3 and
              that any improvements and modifications made by such other
              licensees shall be made available to BIOGLAN under a perpetual
              royalty-free licence to use in connection with the Product in the
              Field of Use in the Territory.

19.4          Nothing in this Agreement, or in the arrangements hereby
              contemplated shall constitute or be taken to mean that BIOGLAN
              acts as the agent of the JAGO for any purpose whatsoever. Without
              prejudice to the terms of this Agreement BIOGLAN shall not
              describe itself or hold itself out as being a subsidiary or agent
              of JAGO or otherwise associated with JAGO except as a licensee
              and subcontractor of JAGO for the Manufacture, sale and
              distribution of the Product for the Field of Use in the Territory
              as defined. BIOGLAN shall not make any warranty or representation
              or do any act in the name of or on behalf of JAGO and shall not
              in any way pledge the credit of JAGO.

19.5          "Force Majeure" means any circumstances beyond the reasonable
              control of either party (including without limitation, any
              strike, lock-out or other form of industrial action). Without
              prejudice to the generality of the foregoing force majeure shall
              include:

              (a)      act of God, weather conditions, explosion, flood,
                       tempest, fire or accident;

              (b)      war or threat of war sabotaging civil disturbance or
                       requisition;

              (c)      acts, restrictions, regulations, bye-laws, prohibitions
                       or measures of any kind on the part of any governmental,
                       parliamentary, state, regional or local authority;

              (d)      import and export regulations or embargoes;

              (e)      strikes, lockouts or other industrial actions or trade
                       disputes, whether involving employees of a party or a
                       third party;

              (f)      difficulty in obtaining raw material, labour, fuel,
                       parts or equipment; or


                                      E-66

<PAGE>
              (g)      unavailability or shortage of materials from the usual
                       sources of supply.

              19.5.1   If either party is affected by Force Majeure it shall
                       forthwith notify the other party of the nature and
                       extent thereof.

              19.5.2   Neither party shall be deemed to be in breach of this
                       Agreement, or otherwise be liable to the other, by
                       reason of any delay in performance, or non-performance,
                       of any of its obligations hereunder to the extent that
                       such delay or non-performance is due to any Force
                       Majeure of which it has notified the other party, and
                       the time for performance of that obligation will be
                       extended accordingly.

              19.5.3   If the Force Majeure in question prevails for a
                       continuous period in excess of 6 (six) months, the
                       parties shall enter into bona fide discussions with a
                       view to alleviating its effects or to agreeing upon such
                       alternative arrangements as may be fair and reasonable.


                                      E-67

<PAGE>
This agreement has been entered into on the date first written above.

<TABLE>
<CAPTION>
<S>                                                                 <C>
BIOGLAN PHARMA PLC                                                  JAGOTEC AG
[graphic]                                                           [graphic]
-------------------------------------------------------             ---------------------------------------------------------
BY: Terry I. Sadler                                                 BY: Walter Zeller
TITLE: CHAIRMAN & CEO                                               TITLE: DIRECTOR
DATE: 13 March 2000                                                 DATE: 13 March 2000
[graphic]                                                           [graphic]
-------------------------------------------------------             ---------------------------------------------------------
BY: Sue J. Keast                                                    BY: Suzanne V. McLean
TITLE: COMPANY SECRETARY                                            TITLE: DIRECTOR
       AND CORPORATE AFFAIRS
       DIRECTOR
DATE: 13 March 2000                                                 DATE: March 13 2000
</TABLE>



                                      E-68

<PAGE>
                                    SCHEDULE

                               The Patent Rights


Related to WO 91/04058 (herein known as "Solarase I"):

              European patent no. EP-B-0445255
              Divisional European patent application no. 95100186.6 / EP-A-
              0656213

Related to WO 93/16732 (herein known as "Solarase II"):

              European patent application no. 93903754.5 / EP-A-0626863
              Norwegian patent application no. 943044

Related to WO 93/16733 (herein known as Solarase "III"):

              European patent application no. 93903755.2 / EP-A-0626864


                                      E-69

<PAGE>
                                 EXHIBIT 4.1.2

                               ADDENDUM AGREEMENT


EXECUTION VERSION

                               Addendum Agreement

This Addendum Agreement is made this 28 day of December 2000, between Bioglan
Pharma PLC of 5, Hunting Gate, Hitchin, Hertfordshire SG4 0TJ ("Bioglan") and
Jagotec AG of Eptingerstrasse 51, CH-4132 Muttenz, Switzerland ("Jago").

Bioglan and Jago entered into a Licence and Manufacturing Agreement dated
March 13th 2000 ("the Licence Agreement") for the Product Solaraze, for
certain European countries including the United Kingdom, France, Germany,
Italy and Sweden.

Under such Licence Agreement, Jago granted Bioglan a right of first refusal to
make distribute and sell the Product in all other countries of the world.

Jago and its affiliate SkyePharma Inc have the right to grant licences and
marketing authorisations for the United States of America, Canada and Mexico.
Bioglan now wishes to exercise its right of first refusal with respect to
these countries.

This Addendum Agreement is intended to be read in conjunction with the Licence
Agreement and, save where expressly stated in this Addendum Agreement, the
terms of the Licence Agreement shall apply to the Additional Territory and
shall remain in full force and effect in relation to the Territory.

OPERATIVE PARTS

A1.     Definitions

In this Agreement all words and expressions shall have the meanings as set out
in the Licence Agreement unless otherwise set out below:

              "Additional Territory" shall mean The United States of America,
              Canada and Mexico.

              "Competent Authority" shall mean collectively the entities in all
              countries of the Additional Territory responsible for the
              regulation of the Product.

              "FDA" means the United States Food and Drug Administration or any
              successor agency thereto.

              "Marketing Authorisations" shall mean all necessary and
              appropriate regulatory approvals, excluding pricing and
              reimbursement approvals, to put the Product on the market in any
              country of the Additional Territory.

              "NDA" means a New Drug Application and all amendments and
              supplements thereto, filed with the United States FDA.

              "NDS" means a New Drug Submission and all amendments and
              supplements thereto, filed with the Canadian TPP.

              "Patent Rights" means all rights as set out in the Agreement and
              shall include all patent rights to the Product in the Additional
              Territory.

              "TPP" means the Canadian Therapeutic Products Program.


                                      E-70

<PAGE>
A2.     Marketing Authorisations

SkyePharma Inc (SkyePharma) hereby transfers NDA No. 21-005 and NDS No. 06773
and all Marketing Authorisations related to the Product to Bioglan.

A3.     Fees and Royalties

              A.3.1    In partial consideration for the license granted under
                       this Agreement and in consideration for the transfer of
                       the NDA and NDS and all other Marketing Authorisations
                       related to the Product, Bioglan has paid or shall pay to
                       Jago the following amounts

                       (a)     Fourteen Million Dollars ($14,000,000) paid on
                               28th December, 2000

                       (b)     o payable within 5 (five) business days of First
                               Commercial Sale of Product by Bioglan in any
                               country in the Additional Territory

                       (c)     o within 5 (five) business days of December 31,
                               2001

                       (d)     Milestone payments in respect of the calendar
                               year in which commercial sales of the Product in
                               the Additional Territory shall first reach:

<TABLE>
<CAPTION>
                               <S>                         <C>
                               o
                               o
                               o
                               o
                               o
</TABLE>


                       The parties agree that in no event shall the total
                       milestones payable under this clause A3.1(d) exceed o

                       The milestone payments set out in d) above are based on
                       revenue forecasts for commercial sales of the Product
                       of:

<TABLE>
<CAPTION>
                       <S>                       <C>
                       o                         Year 1
                       o                         Year 2
                       o                         Year 3
                       o                         Year 4
                       o                         Year 5
</TABLE>


                       Where Year 1 is the first consecutive twelve month
                       period immediately following the first commercial sales
                       of the Product in any country of the Additional
                       Territory and Years 2, 3, 4 and 5 follow consecutively
                       thereafter.

              A.3.2    In further consideration for the grant of this exclusive
                       licence in the Additional Territories Bioglan shall pay
                       Jago royalties based on the commercial sales of the
                       Product in the Additional Territories as follows:

                       (i)     In any twelve month period of commercial sales
                               of the Product, where sales of the Product meet
                               or exceed 50% of the forecast for that year a
                               royalty of o of Net Sales shall apply.

                       (ii)    In any twelve month period of commercial sales
                               of the Product, where sales of the Product are
                               between 25% and 50% of the forecast for that
                               year, a royalty of o of Net Sales shall apply.

                       (iii)   In any twelve month period of commercial sales
                               of the Product, where sales of the Product are
                               less than 25% of the forecast for that year, a
                               royalty of o of Net Sales shall apply.


                                      E-71

<PAGE>
                       In the event that commercial sales of the Product reach
                       a threshold resulting in a higher royalty payment for
                       the first time during any such twelve month period that
                       higher rate will apply to all commercial sales of the
                       Product in that 12 month period. A calculation will
                       thereafter be made at the end of each twelve month
                       period to determine the royalty rate for that preceding
                       twelve month period.

                       In all cases Year 1 is the first consecutive twelve
                       month period immediately following the first commercial
                       sale of the product in any county of the Additional
                       Territory and Years 2,3,4 and 5 follow consecutively
                       thereafter.

A4.     Regulatory Matters

              A4.1     Unless otherwise required by applicable laws, Bioglan
                       shall be the owner and holder of all Marketing
                       Authorisations during the term of the License granted
                       herein. Bioglan agrees at its sole cost and expense to
                       maintain the Marketing Authorizations including
                       obtaining any variations or renewals thereof necessary
                       to manufacture, market and sell the Product in each
                       country in the Additional Territory.

              A4.2     Each party or its relevant Associated Companies shall
                       provide reasonable assistance to the other at the
                       other's request in connection with the transfer of the
                       Marketing Authorizations. Bioglan and Jago or their
                       relevant Associated Companies shall comply with all
                       Applicable laws within the Additional Territory
                       including the provision of information by Bioglan and
                       Jago or their relevant Associated Companies to each
                       other necessary for Jago and Bioglan or their relevant
                       Associated Companies to comply with any applicable
                       reporting requirements. Bioglan shall promptly notify
                       Jago of any comments, responses or notices received
                       from, or inspections by, the FDA or other applicable
                       Competent Authorities in the Additional Territory which
                       relate to or may impact the Product or the manufacture
                       of the Product and shall promptly inform Jago of any
                       responses to such comments responses notices or
                       inspections and the resolution of any issue raised by
                       the FDA or other Competent Authority in the Additional
                       Territory.

              A4.3     Each Party shall advise the other Party by telephone or
                       facsimile within such time as is required to comply with
                       applicable laws after it becomes aware of any
                       potentially serious or unexpected adverse event
                       (including adverse drug experiences as defined in 21
                       C.F.R. S.314.80 or other applicable regulations) (an
                       "ADE") involving the Product. Such advising Party shall
                       provide the other party with a written report delivered
                       by confirmed facsimile of any adverse reaction stating
                       the full facts known to such Party including but not
                       limited to customer name, address, telephone number,
                       batch lot and serial numbers and other information as
                       required by Applicable Laws. Bioglan shall have full
                       responsibility for (i) monitoring such adverse reactions
                       (ii) data collection activities that occur between
                       Bioglan and the patient or medical professional as
                       appropriate including any follow-up inquiries which
                       Bioglan deems necessary or appropriate and (iii) making
                       any reports to the competent Authorities in the
                       Additional Territory.

              A4.4     In the event that Jago requires access to the NDA and/or
                       NDS for commercial reasons outside the Additional
                       Territory and/or the Territory, Bioglan shall permit
                       such access as the parties may agree at Jago's expense
                       and grant a right of reference for use outside the
                       Additional Territory by Jago, its Associated Companies
                       and their respective sub-licensees.


                                      E-72

<PAGE>
              A4.5     In the event that Jago desires access to the NDA and/or
                       NDS for commercial reasons for use only by Jago, its
                       Associated Companies or their respective sub-licensees
                       Bioglan shall permit such access as the parties may
                       agree at Jago's expense and grant a right of reference
                       for use inside the Additional Territory in respect of
                       any product (for use outside the Field) other than the
                       Product.

A5.     Manufacturing

              A5.1     Bioglan shall use its commercially reasonable efforts to
                       enter in to a manufacturing and supply agreement with
                       Patheon Y.M. Inc. (formally Global Pharm Inc) on terms
                       reasonably acceptable to it as soon after execution of
                       this Agreement as is possible.

A6.     Amendments

              The following changes to the Licence Agreement shall apply in
              respect of both the Territory and the Additional Territory

              A6.1     The definition of "Good Manufacturing Practice" in
                       relation to the Additional Territory shall be amended to
                       read, "Good Manufacturing Practice" or "GMP" shall mean
                       all applicable laws of any governmental or regulatory
                       authority having jurisdiction over the manufacturer of
                       the Products, which laws and regulations relate to
                       current good manufacturing practices."

              A6.2     The condition precedent set out in the Agreement shall
                       be deleted.

              A6.3     Clause 5.7 of the Agreement shall be amended to read as
                       follows:-

              "Bioglan shall market the Product under any trademarks chosen by
              Bioglan. Bioglan shall meet all responsibilities of monitoring
              such trademarks in the Territory. It is hereby agreed that all
              rights in such trade will vest absolutely in Bioglan".


                                      E-73

<PAGE>
EXECUTION VERSION

A6.4          The parties agree that the provisions of Clauses 6.1 and 8.7
              shall be expanded to include the company, o in addition to o.

A6.5          Clause 10.6 shall apply in respect of the Additional Territory as
              if reference to Clause 3.1 were to Clause A3.1 of this Addendum
              Agreement.

This Addendum Agreement has been entered into on the date first written above


BIOGLAN PHARMA PLC




 ...................................


BY    .............................


TITLE  ............................





JAGOTEC AG





/s/SUZANNE V. MCLEAN

BY   Suzanne V. McLean


TITLE General Counsel & Company Secretary





/s/FRANCESCO PATALANO

BY   Francesco Patalano

TITLE Director


                                      E-74

<PAGE>
                                 EXHIBIT 4.2.1

                         CONTRACT OF EMPLOYMENT BETWEEN

                        THE COMPANY AND DONALD NICHOLSON




28 February 1996


Mr Donald Nicholson
16 Northampton Park
LONDON N1 2JP



Dear Donald

I am writing to confirm the terms on which SkyePharma PLC ("the Company") has
agreed to employ you, commencing on 14 February 1996.

1.      Position

              You are appointed Chief Financial officer of the Company and in
              that capacity you will have such duties and authority as are
              customary for, and commensurate with, that position and such
              other duties as may be delegated to you by myself or the Board
              from time to time. During your employment, it is expected that
              you will devote your full energies, interest, abilities and
              productive time into the performance of your duties and will not,
              without the prior written consent of the Company, engage in any
              other business activity. I confirm it is the intention that you
              be appointed as a Director of the Company, on the same terms, as
              soon as may be sensible.

2.      Compensation

(a)           Salary

              Whilst you are employed by the Company you will receive a salary
              at the rate of (L)100,000 per annum which will be payable in
              accordance with the current pay frequency of the Company. Annual
              salary reviews will be conducted in accordance with Company
              policy.

(b)           Bonus Incentive

              In addition to your salary, you will be eligible to participate
              in the bonus incentive plan which the Company intends to develop.
              Subject to the rules of any such plan, it is anticipated that you
              would be eligible to receive a bonus of 25% on objectives
              established. Examples of objectives identified would be: sales,
              profits, individual objectives and/or department objectives.

3.      Pension

              The Company will contribute a sum equivalent to 12 1/2% of your
              salary to an "approved" pension arrangement, for the provision of
              retirement benefits.


                                      E-75

<PAGE>
4.      Medical Insurance

              You will be entitled to participate in and receive benefits under
              the Company's medical expenses insurance plan.

5.      Stock Option Plan

              You will be eligible to participate in the Executive Share Option
              Plan of the Company. As soon as may be practicable, in accordance
              with the Rules of the Plan, you will be granted options in an
              amount of four times your salary ((L)100,000).

6.      Holidays

              You will receive 25 days' holiday per annum in addition to public
              holidays.

7.      Notice of Termination

              The period of notice to be given in writing by the Company to
              terminate your employment is one year subject to the Company's
              right to terminate your employment immediately in the usual
              circumstances including misconduct. The notice you are required
              to give to the Company to terminate your employment is six
              months.

8.      Confidential Information

              In your position a Chief Financial Officer, you understand that
              you will have access to and may help develop certain information
              and knowledge relating to the confidential affairs of the Company
              in various phases of its business, including but not limited to,
              trade secrets, processes, formulae, data and know-how,
              improvements, inventions, techniques, marketing plans,
              strategies, forecasts, pricing information, and customer lists
              and customer information (hereinafter collectively referred to as
              "Confidential Information"). By confirming this letter you
              acknowledge that the Confidential Information belongs to the
              Company and you agree not to, before, during or after the term of
              your employment with the Company, directly or indirectly to
              disclose the Confidential Information to any person, corporation,
              association or other entity, for any reason whatsoever, or to use
              such information except as required in the course of your
              employment with the Company.

Please sign and date the enclosed copy of this letter and return it to me, as
a confirmation of the terms we have agreed.

Yours sincerely,


[graphic]



IAN GOWRIE SMITH
Chairman

Yes, subject to confirmation by the Remuneration Committee.



[graphic]


                                      E-76

<PAGE>
                                 EXHIBIT 4.2.2

                         CONTRACT OF EMPLOYMENT BETWEEN

                         THE COMPANY AND SUZANNE MCLEAN


                                                                    24 May 1999

This Contract of Employment is made between Suzanne McLean (the Employee) and
SkyePharma PLC, 105 Piccadilly, London W1V 9FN.

1.            The Employee's employment with SkyePharma will begin on 6
              September 1999.

2.            The Employee is employed as Company Secretary and International
              Counsel.

3.      Remuneration

              (i)      SkyePharma will pay the Employee an amount of (L)100,000
                       per annum, payable in equal monthly instalments in
                       arrears. The salary will be paid directly into the
                       Employee's bank account by Bank Giro Credit unless
                       specifically agreed otherwise.

              (ii)     The Employee's salary will be reviewed for the first
                       time on 1st March 2000 (when it is intended the salary
                       be increased to (L)107,000 per annum) and on 1 January
                       in each year thereafter.

              (iii)    The Employee will be paid a car allowance of (L)9,000
                       per annum.

              (iv)     The Employee will be eligible to participate in the
                       discretionary annual bonus arrangements operated by
                       SkyePharma; the reward will be in an amount up to 25% of
                       the Employee's annual salary.

              (v)      SkyePharma will make a contribution equivalent to 12.5%
                       of the Employee's annual salary into an approved pension
                       or retirement benefits scheme of the Employee's choice.

              (iv)     A recommendation will be made to the SkyePharma
                       Remuneration Committee of the Board that the Employee be
                       granted options over an amount equivalent to at least
                       the Employee's annual salary under the Executive Share
                       Option Scheme. Such recommendation being made with the
                       intention that the award be granted no later than the
                       publication of the SkyePharma's annual results in the
                       Spring of 2000.

4.      Normal Hours of Work

              The normal hours of work are from 9.00am to 5.30pm Monday to
              Friday inclusive in each week including one hour each day for
              lunch. These hours may be varied from time to time as dictated by
              the reasonable needs of SkyePharma's business.

5.      Place of Work

              At and from 105 Piccadilly, London W1 and/or such other office of
              SkyePharma in London, as may be required by SkyePharma.

6.      Holidays and Holiday Pay

              (i)      In addition to statutory and other public holidays the
                       Employee will be entitled to 25 days paid holiday in
                       each calendar year.


                                      E-77

<PAGE>
              (ii)     All holiday should be taken before the end of each
                       calendar year and at times agreed in advance with the
                       The Chairman and/or Chief Executive Officer.

              (iii)    The Employee may carry over five (5) days holiday from
                       the previous year. However, unless otherwise agreed,
                       such carried over holiday must be used by March 31st the
                       following year.

              (iv)     If the Employee's employment is determined during a
                       holiday year, the holiday entitlement will be deemed to
                       have accrued pro rata for each complete month of
                       employment in that year.

                       If the Employee has taken vacation before it was deemed
                       to have accrued and the Employee terminates the
                       employment, SkyePharma may require that the Employee
                       give credit for such paid holiday and SkyePharma shall
                       be entitled to deduct the amount of such credit from any
                       sum due by it to the Employee.

7.      Termination of Employment

              i)       The Employee must give SkyePharma a minimum of six (6)
                       months written notice.

              ii)      The Employee will be entitled to a minimum of twelve
                       (12) months written notice from SkyePharma, save in
                       circumstances where an employer is entitled to terminate
                       without notice as a matter of law.

                       These notice periods may be varied by agreement between
                       SkyePharma and the Employee. The Employee may accept
                       payment in lieu of notice.

8.      Sickness & Injury

              If the Employee is unable to attend work through sickness or
              injury SkyePharma must be notified as soon as possible, on the
              first day of such absence. SkyePharma should also be told when
              the Employee hopes to return to work.

9.      Medical Examinations

              The Employee may be required during the period of his employment
              to attend a Doctor nominated by SkyePharma for the purpose of
              medical examination to determine her fitness for continued
              employment

10.     Restrictions

              (i)      During the period of employment the Employee shall not,
                       without the prior written consent of SkyePharma
                       undertake any work or other activity, which may, in the
                       opinion of SkyePharma, affect the Employee's ability to
                       discharge the duties and responsibilities referred to in
                       paragraph 2 of this Agreement.

              (ii)     The Employee shall treat as confidential all and any
                       information concerning SkyePharma, its subsidiaries and/
                       or affiliates which comes to her attentioin during her
                       employment. The Employee shall not divulge any such
                       information whatsoever.

11.     Expenses

              SkyePharma will reimburse the Employees for all reasonable
              expenses incurred during the performance of the Employee's duties
              provided that receipts or other documents are produced to support
              such expense claims.


                                      E-78

<PAGE>
12.     Welfare Benefit Scheme

              SkyePharma provides certain non-contributory welfare benefits for
              all employees, being Life Assurance, Permanent Health Insurance
              and Critical Illness Cover. The Employee will be covered by these
              benefits as soon as practicable following the commencement of
              his/her employment. SkyePharma does not provide any retirement
              benefits scheme. SkyePharma will also provide private medical
              insurance through an arrangement which may be agreed.

Any changes in these terms of employment will be notified in writing as they
occur.


Dated: 24 May 1999


Employee's Signature:          [graphic]



SkyePharma PLC:                [graphic]


                                      E-79

<PAGE>
                                 EXHIBIT 4.2.3

                        PRO FORMA LETTER OF APPOINTMENT

           IN RESPECT OF THE APPOINTMENT OF NON-EXECUTIVE DIRECTORS.



PRIVATE & CONFIDENTIAL

Dear

     This letter sets out the terms of your appointment as a Non-Executive
Director of SkyePharma PLC ("the Company").

1       Term

              Your appointment as a Non-Executive Director is made in
              accordance with the Articles of the Company, under which your
              appointment continues for three year periods subject to re-
              election by the shareholders at the relevant Annual General
              Meeting ("AGM"). In this respect you will submit yourself for re-
              election at the AGM to be held in o.

              In the event that you remain a Non-Executive Director of the
              Company upon reaching 70 years of age, under the Company's
              Articles you will submit yourself for annual re-election at the
              Company's AGM.

2       Remuneration

              With effect from o, you will be paid the sum of (L)25,000 (twenty
              five thousand pounds) per annum in consideration of the services
              you provide to the Company. The method of payment will be agreed
              with the Company Secretary. In addition to this payment, Non-
              Executive Directors who are members of the Board Committees are
              entitled to further payments of (L)1,500 (one thousand five
              hundred pounds) per Committee. The Company shall reimburse all
              necessary and reasonable costs and expenses incurred in the
              performance of your duties.

3       Duties

              In your capacity as a Non-Executive Director you will attend
              regular Board Meetings of the Company as well as its AGM. You may
              also be required to attend any Special or Extraordinary General
              Meetings convened by the Board, and as set out above, you may
              also be requested to sit on one or more of the Board Committees.

4       Share Dealing and Codes of Best Practice

              Would you please acknowledge that you have been provided with,
              and will abide by the Memorandum entitled: "Directors' Dealings
              and The Model Code", prepared and provided by Messrs Stringer
              Saul, solicitors to the Company. You also acknowledge that the
              Board is resolved to follow best practices as described in the
              "Combined Code" and that you have been provided with copies of
              the following:-

              a)       The ICAEW guidance report, supported and endorsed by the
                       London Stock Exchange, "Internal Control: Guidance for
                       Directors on the Combined Code".

              b)       Chapter 16 UK Listing Rules detailing the obligations
                       relating to directors including The Model Code detailing
                       the UK Listing Authority requirements in respect of
                       securities transactions.


                                      E-80

<PAGE>
5       Confidentiality and Related Matters

              You undertake to maintain in confidence all commercial and
              financial information that you may become aware of in relation to
              the company and the group which it controls, by virtue of your
              office as a Director, and you further undertake not to become
              involved in any activity competitive with the Company and the
              group which it controls, without the prior written consent of the
              Company.

6       Vacation of Office

              Your position as a Director shall be vacated if any of the
              following events occur, namely:

              a)       You resign your office by notice in writing to the
                       Company;

              b)       You become bankrupt or have a receiving order made
                       against you or if you settle debts with your creditors
                       for less than is owed;

              c)       You become of unsound mind or a patient for any purpose
                       of any statute relating to mental health and the
                       Directors resolve that your office should be vacated;

              d)       You are absent from Board Meetings for more than 6
                       months and the Directors resolve that your office should
                       be vacated;

              e)       You are removed or become prohibited from being a
                       Director under any provisions of relevant statutes; and

              f)       You are requested in writing by all the other Directors
                       to resign your office.

     Please indicate your acceptance of these terms by signing and returning
the enclosed copy of this letter.

Yours sincerely

Suzanne V. McLean
General Counsel & Company Secretary


                                      E-81

<PAGE>
                                  EXHIBIT 8.1

                        LIST OF SUBSIDIARY UNDERTAKINGS


<TABLE>
<CAPTION>
                                                        Country of
Company                                              incorporation       % Held
 -------------------                                 -------------        ------
<S>                                                 <C>                     <C>
Krypton Limited                                          Gibraltar          100%
SkyePharma Holding Inc*                                       U.S.          100%
Brightstone Pharma Inc                                        U.S.          100%
SkyePharma Inc                                                U.S.          100%
SkyePharma Holding AG*                                 Switzerland          100%
Jago Holding AG                                        Switzerland          100%
SkyePharma AG                                          Switzerland          100%
Jago Research AG                                       Switzerland          100%
Jagotec AG                                             Switzerland          100%
SkyePharma Production SAS*                                  France          100%
</TABLE>


*   Denotes investment directly held by the Company


                                      E-82

<PAGE>
                                  EXHIBIT 10.1

                        SKYEPHARMA PLC AND SUBSIDIARIES

                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-10006) of SkyePharma PLC of our report dated
April 2, 2001 (except for the information in Notes 20, 21 and 29 for which the
date is June 11, 2001), relating to the financial statements of SkyePharma
PLC, which appear on page F-2 of the Company's Form 20-F dated June 11, 2001.

PricewaterhouseCoopers

Chartered Accountants and Registered Auditors

London, United Kingdom

June 11, 2001


                                      E-83