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

EWRobson, in answer to your questions:

(a) Why does Renzapride need a second c-IBS trial in the same territory?

The current Renzapride PIII c-IBS trial in the US (results expected around end of 2007) has to be followed by a second PIII c-IBS trial. I do not know why but it was mentioned on a number of occasions by the former CEO and in various documents.

"This PIII study protocol was developed following discussions with the FDA...in July 2004, and subsequent correspondance. The agency confirmed that a second PIII study would normally be required for approval....Alizyme intends to gain FDA agreement on this first PIII study protocol and the study will be undertaken in the USA. The second PIII c-IBS study protocol will then be developed..."

Source: Placing and Open Offer document, Page 38, Spring 2005


b) If this is the case and trial is mounted in 2008, why are we talking about five years to market?

1 year to current PIII c-IBS results + 1 year to assess data and prepare for second PIII c-IBS trial + 2 years for second trial + 1 to 1.5 years for final regulatory approval and launch, etc = 5 years away from market for Renzapride c-IBS USA


(c) Why can't Renzapride c-IBS procede to market in parallel with Phase III trials on Renzapride m-IBS?

It could be but Renzapride has not yet even commenced PIII m-IBS, in any territory.


(d) What are the outstanding patent issues to be reolved?

Renzapride's patent has expired and so only has 5 years US protection and 10 years EU protection (under special arrangements). AZM have applied for further patents covering the manufacturing route/different salts, to extend the protection, but the response from the patent offices is still awaited and therefore a risk.


(e) Why can't Colal-Pred be marketed in Europe whilst undertaking Phase III in US.

COLAL-PRED could be marketed in the EU whilst undertaking US trials, but the point is the total market for the two COLAL-PRED indications in the US and EU is only small at approx 200m pa; so the market for just the lead one indication in the EU will be even smaller, at approximately 50m pa, giving very low initial royalties to AZM from what is their lead drug and certainly not justifying the current market capitalisation of the Company.


(f) What is the challenge to ATL-104 in Europe?

The European patent to ATL-104 was opposed after grant and was revoked after a hearing at the European Patent Office in February 2005. I believe AZM were considering an appeal.

Source: Placing and Open Offer document, Page 19, Spring 2005


(g) Acomplia is surely in a completely different market sector to Cetilistat - if there is some market impact, what is the potentil impact on Xenical's market of Acomplia?

Cetilistat will be in competition with Acomplia and Xenical (and other drugs) which are all obesity pills. The competitive position impacts on the deal terms for Cetilistat, so partners first need clarification of the situation before concluding a deal, e.g. they are awaiting a decision from the FDA on the approval of Acomplia in the US, which is not expected until mid June.


(h) What is the additional data required by the drug companies in relation to Xenical; is there any reason to anticipate any difficulty in providing such information from the Phase II trials data?

TimMc C has said potential partners for Cetilistat have asked for additional info on why the side effects profile of Cetilistat are apparently different to Xenical. AZM are undertaking further modelling and in vetro studies to try to provide this information. This obviously adds to the time, further delaying a deal. Ultimately, it remains to be seen whether AZM can provide a sufficient explanation.


(i) Which states are refusing to provide state funding for obesity drugs; how is this impacting Xenical sales and how does it rest with the increasing medical concerns over the impact of obesity on other conditions?

Several countries across Europe are refusing to provide state funding for obesity pills such as Acomplia and thus potentially by implication for Alizyme's Cetilistat. These include Germany and France (funding restricted to obese diabetics in the France). Obviously, if state health care providers are unwilling to provide state funding for obesity drugs, it will have a major negative impact on sales of those drugs, including potential products like AZM's Cetilistat and thus the value of Cetilistat in terms of reduced deal terms and sales royalties, e.g. for Germany, the considered opinion is:

"As a non-reimbursable drug, sales of Acomplia in Germany are likely to be far lower than if it was covered by the state health insurance program."

Alizyme has an SPA for Renzapride so only one PIII trial is needed for this particular indication. The sales for Zelnorm were more than $500m in the US alone, so even one indication in one trial group (the PIII are in women, which constitute the largest market) will be a substantial market. Presumably further trials will be needed for other indications.




Once FDA and the sponsor concur, under the special protocol assessment the
Agency documents agreement that the design and planned analysis of a study
adequately address objectives in support of a regulatory submission.

Dr Biotech, you don't appear to understand the situation regarding the SPA. AZM still need to undertake two Renzapride C-IBS Phase 3 trials in the US; the one currently underway, followed by another one (regardless of a SPA for the first trial) !

Logic points to Dr Biotech's interpretation. If two were required, Alizyme would need their heads examined for not doing the two studies concurrently. OK, their initial market is restricted to women. but as Dr Bio points, out this is the larger market. Good to have the debate but Ludlow Castle needs to justify his sources if he is peessing his/her point.

EWR, I think it was only last year, after a presentation, that someone asked something like "will you still need to do a second Phase 3 c-IBS trial in the US" and the answer was "yes".

.

Has been a good week for Alizyme with good jump in share price and good charts. There is no significant resistance level ahead and we appear to be ascending the mountain for the third time, hopefully this time for the rise to be justified by events.

In post 311 I asked Ludlow Castle a series of questions posed by a set of claims in a prior post. If you read through his responses they really do not amount to much; I have concluded that he is a half empty sort of chap who has his own reasons for negative positioning: I hope that he has not tried a short, canute-like. The market is reflecting a growing optimism that the new CEO will deliver on his promise of a transforming year. The reason is that he has three products proven in trials in the last stage before coming to market. I wish I was making as much profit in the real world as I am doing with the Investor Challenge. Anyone lend me 100K?

Eric

EWRobson, you conclude what you want, but my comments in Post 312 and earlier were correct.

Coming back to life!

Positive comments in Shares today. Supports the view that acquisition could come into view if progress is not made in joint-licensing. Suspect it may be third quarter beofe the latter comes to fruition. But I suspect that the exposure received during the search process will lead to a generally advancing price in the meantime. 15p per month should be a reasonable estimate.
Eric

Yes AZM is very popular with shares mag' more articles than i can remember.
15p per month and then toped off with a juicy deal would be the cherry on the cake.

Switched my Shares Challenge portfolio into AZM to go for the April prize! So come on, lets have a partnership announcement or at least a progress report!

Eric

Good luck Eric!

A welcome update today, reinforcing what some of us have been anticipating.

Good news indeed!

Still a long way to go to get back into the blue, but it looks so much better now.

Oh, and hiya Queen, nice to see you again. Been away?

Been around Harry, you've just not noticed :-)

Liked the report. Reporting for Renzapride and COLAL-PRED back to early 2008 but the main thing is that plans have been firmed up. Looks as if the problems with Zelnorm are positive for Renzapride in that there is a gap in the market to be filled. Interested in the comment that, whilst the Phase III programme is ready to commence, that this will be subject to a commercial deal. We were aware that the costs of this programme are very significant and this confirms that a partner is necessary to proceed. But I also take it that AZM are not anticipating much of a hold up. I would therefore expect speculative interest to increase and the current up-trend to continue. Times report today that AstroZeneca, plus several US competitors, have real pipeline problems although the numbers suggest that they would be keener on acquisition than the partnership route.

Eric

There should be a deal for Cetilistat this Summer, followed by deals for COLAL-PRED and Renzapride.

I agree, this year should be transition time for AZM,!