Header updated on 24th April 2008

Market has been looking for an announcement re a licensing deal for Cetilistat, the obesity drug; instead it has been hit with the withdrawal of Renzapride, colonitis drug, following an unauspicious performance at Phase III. Folloiwng has been edited to reflect the situation

Alizyme is a speciality biopharmaceutical company that has been developing product categories for inflammatory gastrointestinal disorders, obesity and supportive cancer care . It is currently trading at a five year low of around 27p with a market cap. of around 60m. Prudential owned a near 20% stake (reduced in sale today?) There was good institutional taku-up of a placing in March rasing 10m at 50p; no wonder there has been "angry" selling. The directors hold 3.34million shares or about 1.7% of the equity (of which Tim McCarthy, CEO has 1.1million); thus, after some 10 years of development effort, they must be comletely focused on the success of the company and multiplying the value of their holdings (but with real doubts about their marketing competence). Alizyme had previously raised capital sums in the past three years at around 70p and 100p so it was somewhat surprising to see the share fall through its 70p support level. Clearly one reason is the current disaffection with the biopharm. market. Another has to be disappointment for the failure of the CEO, Tim McCarthy, to deliver on his expectation that 2007 would be a transformative year. The key question is whether 2008 will be that year and when is it likely to happen? The following points are relevant:

1. Alizyme did sign one deal in late-2007: with Prometheus Labs (U.S.) for the Colal-Pred, at a potential market of $250m, the smallest potential of their four products. Prometheus pay $2.5m up-front with a total of $15m payable upon future development milestones. They are responsible for all US development costs and will pay Alizyme undisclosed royalty rates which will increase with net sales. The deal was followed by a Japanese licensing agreement (which also gave Alizymen access to additional potential drug candidates).

2. This perhaps sets a precedent for subsequent deals for their other products. Cetistat (obesity) has an estimated potential of $1 billion p.a. sales and ATL-104 (mucositis) has a potential of $500m sales. The U.S. FDA has encouraged AZM to also launch a Phase III exercise for Cetistat for all diabetes sufferer because of positive II results for diabetes sufferers who also suffer from obesity.

3. Whilst the development programmes for the other drugs are on-going and appear to be satisfactorily funded from present resources, this is not the case for Cetilistat. The "Product and Company Update statement" (7th Jan 2008) says that 'the Phase III development programme is now ready to commence following the conclusion of a commercial deal'. So, perhaps for the first time, the development programme would be delayed if there was not a funding deal in either the U.S. or Europe. The reason for the sp shooting to nearly 200p in 2004 was the signing of a deal with Takada of Japan for some $50M development funding.

In response to a question at the Conference to report the Renzapride fiasco, McCarthy seemed pleased that there were six potential bidders for Cetilistat; however, that implies any announcement is some time away. When it comes, however, taking a line from the Takada and Prometheus deals it would seem likely that there would be of the order of $100m funding to support development. Of course, the major cash flow will be from licensing of actual sales. The analysts do their own discounted cash flow exercises; those seen tend to dwarf current valuations of the company.

There is not a strong argument for jumping in unless and until the sp establishes a baseline. Given the peaks in the sp, the time will probably come when there will be a very significant jump. An alternative scenario, is that management continue to rpove their level of incompetence and a buy-our results. Clearly the strength of the company is in their biochemists.

Eric

Thanks Fred, I'll leave it there! Never been caught short in my life, although I admit to divesting (or depanting) in unseemly places!

Suspect the weakness is year-end profit-taking since there will be many who came in at the placing price or less. New positions in the new tax year; has to be a very strong year with a cetilistat licencing deal a near certainty, and sooner rather than later at that.

Eric

What the hell is happening to the SP.

I wouldn't panic brapose. I think the price may drift a little becasue I don't think there will be any crucial updates on their various trials in the next few months. The stock price thrives on regular positive news regarding phase trials I have some nice profit on this one(bought at 90p last year) and will hold at the moment. Very strong potential on this company, but perhaps not being fully realised until 2008 onwards.

well said the poacher, couldnt have put better myself.

Good piece on AZM in today's Shares as part of article on 'Biotech Rockets' and one of five shares which 'could take off this year'. I think uou are missing this, poacher. "Analysts are tipping a deal to be signed (on Cetilistat) some time this year nd the point is made that, not only can Phase III trials start without a partner, their other Phase III drugs need funding from that deal so that AZM can continue to go it alone. I am happy that is a correct reading of the situation. I have read that setting up such a deal can take six months which indicates that the most likel;y timescale is third quarter. I hope not too quickly so that I can rebuild my holding. Merrill Lynch have a target price of 215 but surely this is far too low for a billion dollar blockbuster.

Eric

Big drop in this stock today and was able to buy some very cheap near the close.

Harry: think that will turn out to be a good buy - not goodbye to the lolly!

A couple of days of consistent selling but volume not that high - say 3m shares sold or about 4.5m which is quite low compared to volumes when share was being re-rated upwards. I suspect it is just a matter of market impatience with Friday also being a time for some investors reducing their exposure generally. I think the problem is that people don't understand the process for gaining a partner: competitive talks; due diligence; negotiation of terms; legal issues. One commentator gave 6 months for the process which takes it into Q3 so that comments such as 'this year' make sense. Problem is that the news of a deal would take the sp so far up that there would be no time to get on board. How much is the deal likely to be for? I'm a simple chap so my answer is to ask a question. What part of the world market is Japan? The answer could be 10% - if so that gives something like $500m for the Cetilstat worldwide (- Japan) deal and that is just the payments in advance of coming to the market.

Eric

Eric

I like this stock a lot for all the reasons stated. There seems to be massive potential for the sp to increase, and all we are suffering from is a lack of news for a while.

On days like Friday when prices fall, it's often a good time to pick up a few bargains, but time will tell. Tomorrow morning I'll either be smiling, or maybe considering buying some more.

I also bought a few London Clubs, have you seen the fall there? They seem to be fluctuating from around 110 to 120, and there is potential for a few quick trades if you have a mind. Long term I have no idea.

Markets move so quickly these days, prices shoot down and up again in moments, when years ago when I was in the SE, everything was so much more sedate.

Obviously faster dealing by way of the internet, and the speed of information transfer makes it all much more immediate. Great fun though, still enjoy it a lot.

Oops

Oops indeed. Out on the golf course and look what has happened when I get back in. AZM is amongst those which is now a terrific opportunity.

AZM is dying a death at the moment. Surely overdone?

Agree, Queen. Caught in the general market malaise and, I suggest, the general impatience of many oeprating in the markets. Safest tactic is to work for a significant licensing deal this year. Generally accepted that this would move sp way beyond 2.

Eric

Indeed which is why I've sat tight EWR but it's not been a pleasant experience of late.

I agree, not a load of fun - AZM was one of my core holdings, sadly along with Hardman Res. - and I've averaged down more than once too.

Still, had a lovely big rise from Designer Vision the last couple of days so it's not all bad.

Another poor day. Is there an end in sight???

Oh dear, yet another disastrous day, now fallen by half in a few weeks.

Little top up, anyone?

The need to give some sort of update soon or the SP will drop even further

brapose. I understand the reason for your comment but I suggest that Alizyme are just not worried about investors views, at least not at the moment. They are playing their hand long. The particular licensing negotiation over Cetilistat relates to their crown jewels: if it takes six months, 9 months, 12 months, what is that to them. They want the best outcome in terms of maximising potential not speed. After all this team has been at this for 10 years, the best years of their business lives and the source of the riches to enjoy what follows. I doubt whether we will hear anything until it happens!

Eric

Yet another stock in my Share Club portfolio. For once I agree with Eric. Development of new drugs takes years and AZM have a few winners. This is a very long term hold, stick 'em in a drawer and forget about them. It will (I hope) come good.

pth