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

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

Hoy, peter. I thought we agreed about a lot of things, including how good we are at golf, the worthiness of DGT, the attractions of Choccie! Even SEO, our views are not that far apart from recent posts. Mind, with AZM, I do think we will get a licensing deal this year but the sp will probably oscillate about in the meantime.

Eric

Interesting that, after an initial positive movement in sp, the price has continued to recede. The approval of Phase III plans for cetilistat by the US FDA is good news in itself and represents continued progress. The disappointment is clearly the lack of progress in establishing a licensing partner. The key phrase is in the last para, referring to the fact that this approval 'will aid our discussions with potential partners for cetilistat'. The implication appears to be that not much orogress has been made and this is clearly the view of the market. My own perspective continues to be that Alizyme are playing this situation long; they are not in a hurry to effect any deal but are playing their hand to optimise the eventual outcome. So having the plans and approvals in place is a plus with these tactics. Short term holders are moving on. It is presenting an accumulating opportunity for long term investors.

Eric

All the press so far: http://www.ukbiotechs.com/phpbb/viewtopic.php?p=1222#1222

Including the comment from Seymour Pierce: "Today's announcement should, in our view, also act as a catalyst for the completion of licensing discussions with potential partners because Alizyme does not intend to, nor is it able to, run the phase III program alone,"

Director purchase . Stock looks like it has been sold down by an institution wanting to get rid -- This news plus big broker support suggest 10 -20% bounce short term

No idea why an institution would be selling as AZM has so much going for it!

Because they think there are better places in the market to place their money.

Well yes, obviously. My point was that I still believe AZM to be a good place to have your money, especially for new investors at this price.

queen1

Because there's institutional and hedge fund sellers out there for virtually all the small cap stocks

The small cap funds are seeing redemptions andHedge funds also closing positions in small caps where they thought they could make a quick buck -- i.e. they went to small caps end of last year -- now they are realising they can't get out of them. All of a sudden their risk manager comes along and says you have to get out of this one or that one and the share price just gets hammered -- have a look a CEN too. But this is happening across the board -- THERE ARE SELLERS FOR EVERYTHING SMALL

Just find the stocks that look best fundamentally to you and wait for a decent down day on largeish vol -- that will also force out all the headless guys with stop losses. This means the stock moves well away from previous levels for no appparent levels. Pick it up then wait for the bounce back and sell most close previous level as there will be plenty of sellers looking for a bounce or a bit of good news to get rid of the stock for the reasons above

I think I followed that! I'm in for the long-haul rather than dipping in and out but I suspect AZM will provide profits along the way for those adopting that strategy Confidant.

That's enough for me at the moment although everything looks good for this one. Just hit my short term targets

As you say queen1 your in for the long -term so will all most certainly get more of a return. Me looking for the next 20%er in 2 weeks

So what's on the radar that'll get you your 20% Confidant?

Looks like I should have stayed in AZM

I try and play a game which is spot the shares to be tipped in Shares magazine. Succeess rate starting to pick up --- AZM for example. But noticing there seems to be some follow through buying after the weekend -- again see AZM

So looking good short term OXN -- see thread on OXN --- but some more news today might make it difficult to play in as unbelievable illiquid. But this is my best guess for a tip in one of the Fridays -- probably Shares

Interesting approach! Shares & IC do seem to have short-term effects on some of their tips although like the rest of us do get it wrong on occasion(s). Perhaps you should start your own pre-emptive tips thread?

The approach appears to work by guessing the stock in the following week not in the actual week of purchase -- i.e. oxn chosen last week for this weeks mag.

agree Shares and IC get many wrong I'm just trying to find the one's with some decent fundamentals that will get that little push in the right direction. CEN is the other one for this week but with less likelihhod of being right

Let's see