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

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

Time to go back into AZM ??--- stale bulls Fidelity seem to have plenty to sell and have to push stock down so to get rid of some.

We await partnering of obesity drug into phaseIII but need to wait for FDA decision on another obesity drug to see how good a deal AZM will get --- if other drug - Sanofi's Accomplia gets a good label -- very good news for AZM

Anyway all this known in the market apparently but due to for FDA is getting ever closer.

Trading stock at the moment though

Some interesting price action today - having watched closely. Each move on offer down to 101.75 appears to be taken out immediately so far - so some good 2 way business perhaps not to be seen on vols until end of day -- although no clue as to sizes involved

bid up to 101.5 ---- offer down to 101.75. Gives me something to look at I suppose

sellers winning out -- Fidelity ??

Buy at a quid, or just over, and sell just before it gets to 1.20. Seems to work OK recently.

Intersting price action

Seller probably came in early to hit price --- on back of delay in approval in US for similar drug which when/if (and more importantly how) approved will lay the basis for the value AZM will get for licensing toi drug major its drug that has come through PhaseII trials.

The delay looks to be max of 4 months so really little changed for AZM except perhaps deal will be made slightly later and closer to when AZM's money runs out.

The share price fall early will have unnerved the small investor, incl me, but looks like someone stood in at the 97p level and now higher. This suggests some either institution, or perhaps preditor, knowledge of what really is going on re licensing.

A close at ytd level or above on decent volume would be nice 1-day reversal. But don't get me wrong remains a 1 drug bet -- although the PhaseII results make that bet a lot better than a spin of the coin IMHO

Very interesting
something brewing on the horizon perhaps ?
sellers could yet be kicking themselves
time as always will tell

Presently out of the market due to funding needs so just dropping in; should have funds by Xmas and AZM joint top-dog. Interested in your comments, Confidant, on Accomplia: can you enlarge, e.g. position in market re AZM. AZM has had a lon run down from the 180p level earlier this year; I think this is primarily the market malaise towards growth shares but alos a general imaptience for action. AZM management are playing this long; 2010 is their timescale. But there will be a sharp run up at some stage, presumably the licensing of Cetilistat.

Eric

it's all or nothing on Cetilistat by the look of things. Side affect profile, phII data, was good compared to current obesity drug . Any licensing agreement will boost the shares sharply IMHO BUT there could be upside if Accomplia --another new obesity drug gets some credit for cutting diabetes. If Accomplia gets this then sales upside much higher, so big drug co will pay more to AZM for its drug. THat's the theory -- so presumably AZM hanging on, or big drug co's holding off until the US ruling is done

AZM mkt cap of 175m pretty much assumes there will be a deal but sales of its' drug will only really justify massive upside in sh price if Accomplia gets diabetes indication. Even then the travelling and arriving bit will certainly be true.

There is no doubt from what co has said the big guys -- incl AZN my guess --- are really all over this. And given AZN's fall on results-- no pipeline-- they could easily snaffle this co if they like the drug. So if the drug is good why let AZM take all the royalties -- buy them out now when the share price is low.

All said and done very unlikey this sh price will be near 98p this time next year --- one way or the other

Thanks Confidant. I suggest that current sp is justified by other products in pipeline so positive news not priced in. This certainly seems to be view from, e.g. Merrill Lynch. Suspect also that operational team not keen on selling before they complete the task to which they have given best 10 years of their careers.

Eric

Looking very cheap at this price
I cant see it staying at this level for very long one way or another
It must be looking attractive to the predators also