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 suspect that there are a lot of discussions of potential company sales, for instance, which never see the light of day. There would clearly be no obligation to make an announcement until a deal is agreed which probably means that due diligence has been done. However, things have a habit of leaking out; if there is a speculative movement in sp which could be linked to inseider knowledge or leaks then I believe the company has an obligation to make a statement.

With AZM, little likelihood of a company sale until the licensing deal game is played out. It may well be in their interest to provide an up-to-date position unless there is only one potential player and negotiations are sensitive. Experience of Alizyme suggests that management are quite conservative: they love to talk about their products but are quite cautious when it comes to anything commercial (big contrast with Stenalco!).

Harry, I see that my 'weighted average' is 90p - mind, they do say that there is no such thing as the average person although I do call my Mrs, 'Mrs Average' - for heavens sake, she reads the Mail, doesn't she! As for me, I'm always swimming against the tide and must be the archetypal Mr anti-average!

Anyway, we will know more (or hope we do) this time tomorrow - I'll be on the golf course so will be looking for the big blue % when I look at the screen

Eric

Results have been quite well received with volume of buying building later in the day. The most positive aspect is the expression of strong confidence. The CEO change is confirmed as being to put greater emphasis on achieving commercial arrangement. 2007 is looked on as the year of transformation. Timing remains uncertain but I am sticking with my 200p plus forecast by the end of the year.

Eric

Eric - good stuff, I too liked the wording of the statement, very positive I though. Anyway, how as the golf?

It is always good to believe the chief. Ie, Blair, Bush, Hitler in recent memory stand out.

Show me the contracts.

I don't hold but I think, if I did I would sell on any rise!

Thanks, Harry: golf was a 3&1 win which wasn't bad after hibernation. Not impressed with Fred's post - has he done any research into company?
Eric

Eric - I thought he was a friend of yours.

He is, that's why I can be rude to him! Good strength today. Up to my median price! Just look at the graph and you can see the ascent ahead!
Eric

well fred is new is says it himself!! i wish id bought now and not about 2 years ago, lol!

Bang on right Kivver, I'm in, well, the first time, at much too much but hey, I've now put this one down as one of my clever long term holdings.

Not that long term now, Harry. The deals will be priced in by the end of the year. They will do these clever Net Present Value calculations - perhaps somewhere around 250p but I think that is for Cetilistat alone. Could be good to tuck some away - I'm waiting for my CFD to give an open position to add a few more.

So Eric, you think my sipp is doing a good thing holding these? Plus I have them in an ISA, and I would add now, again, because I do absolutely agree with you about prospects for this company, but I've felt that every time I've averaged down so far, only to watch the share price drop again almost as soon as I press the buy button.

And can you tell me another thing, why is it the best rise in a share price usually waits until I've sold it? I know you always have to leave a bit for someone else, but honestly, sometimes it makes me so mad...

hrr6, I hope you have a trailing stop loss in place, you may need it yet. I have a feeling this share is being ramped.

Contracts signed and final trials are the real stepping stones not pie in the sky claims for SP.

Harry The really good point about AZM is that you can see why the sp is understating the value based on their Phase III products. As the comments in the Times this morning, analysts have been disappointed at the failure to broker any deals last year. But the products are further forward now, the doctor CEO has fallen on his sword and they have Novacrest acting for them to broker a deal. So you could actually go into hibernation for a year and wake up with confidence as a richer man. As for Fred, suggest he is treated with the ignorance he deserves!

Eric

I ignore Fred anyway, him and some biddy called snip on the Retirement thread in the Traders room send me round the bend with their hesitant wittering, anyway, a better day today with a 6% odd rise in this stock and Fortune oil looking like it's had a change of, well, fortune.

eur, I believe you showed the same enthusiasm for SEO before you bailed out!

Am I wrong.?

Harry Must say this squelching mechanism is a good thing! Presumably that is 'well fortune'!

Sadly, for me, it's 'fortune's always hiding' but then, we all have our crosses...

Really strong market today. Have topped up my holding utilising the margin generated on my CFD. Normally a bit of a risky strategy but I feel it is relatively safe to go with the momentum. It will be interesting what Shares have to say tomorrow.

Eric

Harry, it's good to see you again. These are looking good this week but disappointed that FTO (off thread, sorry) couldn't stay above 7p.

There she goes again - pandering to her grandson, Harry. Who does she think she is? - Helen Mirren?