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

capa

Funny thing was that their was negligible business until 11.30am, then a rush of purchases, some quite bulky. Most interesting are two transactions marked as sells at 122p: for 200,000 at 12:03 and 186,048 at 12:04. They are not included in cumulative volumes until 13:08; i.e. posts have been delayed an hour and wrongly shown as sells rather than buys. Bad weakness in the reporting system.

You can almost see investors tumbling out of a meeting at Alizyme, rushing to get their buys in. No smoke without ... Mind, the timing is not good: I just cannot cope with excitment from AZM just when PET are probably closing their Iraqi deal and I'm looking to do a CFD on ASC. I can't stand this synchronicity thing - not only can I not be in two places in one time, I can't have my money in two places; worse still, it is sitting in my account or moving between accounts. Oh well, I do at least have a decent stake waiting for the licencing news.

Eric

LOL Eric, yes I know how you feel, too many buying opportunities presenting themselves at once. In the last few days I have wanted to top up on ASC, NLR and MPH in addition to grabbing a few ACE.

I have a core holding of AZM which I bought at 55p which I topped up by 50% with the rights issue. I have added a few more today just in case there is something going down, you know these 40% in a day on an announcement.

Good luck with PET, I'm out of oil at the moment.

capa

Agreed Eric those trades of 200,00 and 186,048 are buys.

Something is going on here, I can just feel it.

capa

Trouble is my hunches are not normally that reliable.

capa

capa

Well done! There have been several false dawns since the Takeda deal. But its only a matter of time. CEO, Palmer, said probably not before nearly next year at the briefing following the interims. They tend to do what they say, so I would be surprised if the announcement did come before January. They were in discussion with several parties and they would need time to dot the i's and cross the t's before contract and an announcement. I suspect that the buying rush was more likely the result of a newsletter recommendation. Interesting that the buying run today on ASC started at about the same time. A warning! do not look at the PET BB as you are likely to be seduced!

Eric

A bid approach could be a possibility though Eric. I know this has been muted for a time and personally I would prefer AZM to go it alone but with the price at this depressed level it wouldn't be a total shock

capa

These seem to have support around the 120p - they have done for a few months.

capa

Obviously an option but it is worth considering at what price. AZM raised funds from the institutions a year ago at 168p and have made positive progress since then. Merrill Lynch forecast a price of 190p at the interims and also discussed a potential bid which they saw as attractive to a company wanting to control the drugs rather than licence them - they came to a price of 261p (see above). So there is an option for an agreed bid at about that price which would imply that the directors were happy with it. A hostile bid must be out of the question because much of the knowledge must be in the director's heads. The reason why I think that would be unlikely at the moment is the question of why the directors who have put 10 years into the drugs development programme should want to follow that course of action. Admittedly they don't control the company financially. But I would have thought that the last thing that the major stakeholders would want is to go against the directors.

As RobRocket says, the shares have a resistance level around 120p. They are trading well below the levels of a year ago although progress reports are good. Its one of those OOSOOM situations. But six months is probably the pessimistic estimate of when the good news will land via an RSN and the price will go to appropriate elvels; my estimate would be 250p. No doubt, there are analysts who think the same way and who will be advising their clients. I have had three approaches from companies with AZM analyses, trying to sell their services but find that I know as much as they do; the exception probably being Merrill Lynch who clearly have been allowed closer access to the company.

My judgement is not much movement until the New Year. I do hope so because AZM is still not my priority for building up a stake beyond 10% of my portfolio at the moment. I might well do a CFD, though, if the ASC one works!

Eric

They have bounced off 1.20 a number of times recently its true, personally think bid approach unlikely at moment but do consider Alizyme to be attractive at these levels. Just a bit perplexed at the sudden volume today and trying to rationalise it.

capa

Its continuing Eric, feeling in my water about this one.

capa

capa

Just been testing my own waters! Beginning to wonder! Some quite persistent buying, offset by a couple of 6-figure trade sales (presumably were sells as price came back a bit). Tomorrow could be significant to see whether buying persists, even if balanced by profit-taking. Volumes better than for a long time but still less than 1% of cap. jury is out!

Eric

I agree Eric, see what happens today. Another day of good volume hopefully, if not back to bed.

capa

Volume lower today. Just a bounce then it would seem.

Bugger !

capa

capa

Probably, but not dfinitely. 3 late buys (I assume) of 25,000 each; that's 33K each so probably one buy of 100K. Not a high volume for a Trust but it is interesting to see them stacking them away; obviously not expecting the price to drop back.

Mind, the last thing I want at the moment is AZM to take off prematurely. ASC is roaring ahead. PET just has to be backed. And now YOO is suspended and, in my view as I have argued on that bb, to return at significantly higher levels. There ought to be a law: everything should not happen at once; I can't be everywhere at the same time! Still, better than the opposite problem. Back to buggers: bugger all happening!

Eric

capa

Very annoying to see AZM moving ahead again on Friday on decent volume. Its not dramatic so doesn't suggest an imminent announcement. I suspect its being talked up by over-enthusiastic analysts. Am lighter than I've been from some time due to demands for PET and ASC. So hope the trend doesn't continue apace -it may do.

Eric

AZM, even with profit-taking today, is up 15% over the last two weeks. It had established a base line at 120p. As a shareholder, I have had several approaches from analyst firms with write-ups on Alizyme, trying to sell their services, so it may be that such marketing effort has drawn attention to the potential for the stock. This is likely to be around conjecture that a licencing deal for the obesity drug is round the corner. Management play their cards close to their chest but they have said that they are dicussing licensing deals with several companies. They may be to the stage of choosing a preferred option. So it is just possible that there is, what shall we say, informed buying going on. There will be a very heavy bull-run around the time such a deal is announced which should take us into new ground beyond the 215p achieved in January. The question, as I see it, is one of timing. I would put Q1, 2005 as first likelihood, Q2 as second, with current quarter third. What do others think?

Eric

Eric

I would expect to hear about COLAL-PRED and Renzaprine partnerships within the next 4-6 months, not sure whether we will hear any more deals on ATL-962 until after the results of the Phase IIb obese diabetic trial.

capa

capa

Here is a repeat from an earlier post, quoting from the Times, the day after the interims when they had an analysts presentation:

"Richard Palmer, CE, said that talks aimed to finding a partner to help to bring AZM's fat-busting treatment to the market were continuing with several parties, but insisted that the company was unlikely to announce a deal before next year. He said that the main priorities for AZM was to find a partner committed to seeing its obesity treatment ... reach the pharmacy shelves."

My point is that Alizyme management never say anthing that doesn't happen - in sharp contrast with quite a few others (ASOS don't need to say anything as it just happens!). If Palmer (given that he was properly reported) says "unlikely to announce a deal before next year" then he means that they will announce a deal next year and probably early. You could, however, be right that they will wait for the diabetic trial to complete in order to get the best deal. However, whilst I think it would give them an important discriminator and must be worth the extra wait, AZM must be very confident of the ouitcome to do it and there must be competition to get hold of this drug. You get the clear message that AZM are choosing the best aprtner who will be fully committed to give this appropriate priority and marketing muscle. Good to have other insights!

The price is back somewhat, suggesting that the price rise is on broker recommendations rather than an imminent announcement. Alternatively, it is in response to my CFD as a punishment meted out for over optimism (ASC easing back too!)

Eric

Eric

Yes I forgot that the article specifically referred to ATL-962, I thought incorrectly that it was all encompassing, always assuming as you say that the report was accurate.

I do feel that media is fixated with the obesity drug and AZM sometimes are reported as a one trick pony, when in fact Renzapride is also a potential blockbuster.

If and when regulatory approval for Phase III trials for COLAL-PRED and Renzapride are granted which could be by the end of the year bearing in mind Nomuras comments after the interims, I would expect to hear about partners for these two not long after.

capa

EW...Just thought I would update you on MBP trial results

Press Release
Successful trial results for world-first obesity drug
Monday 13 December 2004, Melbourne Australia: An Australian-owned obesity drug, developed by Melbourne-based
biotechnology company Metabolic Pharmaceuticals Limited, is set to enter final human trials next year after successfully
completing a Phase 2b human trial which proved that the drug induces weight loss and is very well tolerated with no evidence
of the side effects commonly experienced with existing obesity drugs.
The drug, which stimulates the metabolism of body fat, is the first of its kind in the world. All other obesity drugs artificially
reduce appetite or food absorption.
The drug codenamed AOD9604 was taken orally once daily by 300 obese patients at five trial sites over a 12-week
period. Six doses were used 0 mg (placebo), 1mg, 5 mg, 10 mg, 20 mg and 30 mg.
The group receiving the 1mg dose lost the most weight, averaging a weight loss over the 12 weeks of 2.8 kilograms, more
than triple the weight lost by those on placebo, who lost an average of 0.8 kilograms. The rate of weight loss was maintained
throughout the treatment period, an encouraging trend for expectations of longer-term dosing.
The weight lost by the 1mg group was slightly more than that achieved by the worlds largest selling prescription obesity
medication in similar trials over the same period, without its troublesome side effects. The trial results also demonstrated a
small but consistent improvement in cholesterol profiles, and a reduction in the number of patients with impaired glucose
tolerance.
Obesity is the Western Worlds most common health problem, and has reached epidemic proportions according to the World
Health Organisation. More than 20% of the adult population in developed countries are obese more than 300 million adults
worldwide. In addition, more than 50% of adults in developed countries are overweight. Obesity is associated with other
health-related problems such as heart disease, cancer and diabetes.
AOD9604 is based on a small part of the human growth hormone molecule. This hormone, which occurs naturally in the body
and which stimulates fat metabolism, is suppressed in obese people.
We are delighted with these results, stated Metabolic Pharmaceuticals CEO, Chris Belyea. The evidence from the trial is
that over 12 weeks AOD9604 induces competitive weight loss with accompanying health benefits at a low dose and has
superior tolerability. Our next major focus is a partnership with a major pharmaceutical company to assist in financing late
stage longer term human clinical trials for worldwide marketing approval as a prescription treatment.
Prof. Gary Wittert, Adelaide-based Principal Investigator on the study, said: As the worlds first drug with a metabolic
mechanism of action AOD9604 could occupy a unique position among the options available to doctors for the management
of obesity. It is pleasing that the invention and its development from the laboratory bench has been an allAustralian effort.
Prof. Louis J Aronne MD, President of the North American Association for the Study of Obesity and a member of Metabolics
Clinical Advisory Panel, said: "This is an exciting new approach to a problem which has defied easy solutions. We will need
many different treatments if we are going to manage obesity successfully, in much the same way we have many treatments
available for diabetes and hypertension".
For more information:
Chris Belyea or David Kenley
Metabolic Pharmaceuticals Limited
Ph: 03 9860 5700
Richard Allen Simon Watkin
Oxygen Financial Public Relations Market Connect Investor & Media Relations
Ph: 0403 493 049 Ph: 0413 153 272