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

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?

queen, lovely to see you too. What a day for Alizyme, in fact what a week so far, slipped a little late on today, but all of a sudden there's signs of life, a bit like spring coming, oh joy.

Er, I notice you don't have a little envelope next to your name like some of us do...

Something brewing between Queen and Harry! Unfortunately Harry is off to Iraq whilst the Queen will stay in her palace. Plenty of sellers to match the buyers but I suspect that the sellers will die out before the buyers. Can't see any resistance level for a long time. Its really a one way ticket given the optimism of the report. Lookign for a mark-up again in the morning.

Eric

I have added the following comment on the preliminary results to the header - Eric

No hard news re licensing deal(s) but market has responded positively to statements made. New CEO comments: "Based on my discussions and interactions since becoming CEO, I am confident that 2007 will see the successful conclusion of a number of transforming deals for Alizyme, generating a superior return for our longstanding and loyal shareholders". Alizyme are not prone to exagerration, so this must be viewed as an extremely bullish statement. Not only are they further along the road than last year, but McCarthy supports the view by the statement that they are working closely with Novacrest 'to assist with the commercialisation of our products by utilising their expertise and leveraging their extensive network within the global biotechnology and pharmaceutical sectors.'

At an sp of 100p, the capitilisation is about 200m. According to a Dec. 2005 Evolution analysts report an income growing to 150m and margin of 33% by 2012 would support an sp of 136p. If they rely on licensing income then the gross margin % could presumably be double that; if either that is the case or the income is doubled, then a target price of 272p would be in order. Merrill Lynch have given a target in excess of 200p in the past and trial findings have been very positive since then. Certainly, it is reasonable to expect that the climb this year will exceed those of 2004 and 2006.

Harry, One doesn't need a profile, One is known to all. Take care overseas.

Aww

I agree Eric , AZM hit 190p in may'06 on anticipation alone.
I got in @75p and is by far my biggest holding , thats my confidence in the company.
I'm sure this year AZM will rocket.

Well done, Neil. A really good acquisition and prepared to run the profits. Not sure how high the ceiling (I suspect higher than most analysts predict) is but agree the rocket. Good solid end to the week with a million or so shares traded and a majority of buys. Expect some good weekend comment and hopefully a further rise on Monday. This is really third time lucky and the climbs on the previous occasions were consistent and prolonged.

Eric