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

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,!

Ludlow Castle Good to see you are more positive re deals this year. An industry comment made the point that a deal of this nature takes of the order of six months to negotiate. So we are approaching the window; perhaps by September for Cetilistat. I suspect the focus is there as they could just about manage the other products on their own. But is there really much point in making the transformation to a rounded pharma company. Better stick to their development knitting. Interesting that some are getting impatient but in my view that is a buying opportunity. 2 is the minimum I am looking for (as are Merrill Lynch!)

Eric

A definite buying opportunity at this level.

What's going on with this lot this week? Does the phrase, "falling off a cliff" mean anything to anyone? The markets have been very positive this week yet AZM seems to be in freefall.....

A quite normal pullback, imo, after such a good run, have a look at the RSI.
Neil.

Have a look at this.

I suspect that we are back in the no news syndrome. Some lose patience. Some tke profits. Having said that, the most likely is major investor(s) who are quite happy to take profits after the last placing and move on, without offsetting buyers. If one is happy with the judgement that there will be a major deal this year, which I am, then best to sit tight or even take this as a top up opportunity. What the graphs do show, over a longer period (see header), is that there tends to be swings of sentiment. The normal yardsticks of performance against forecast and pe don't apply so it seems that either buyers or sellers get the upper hand for a period and there are no clearcut resistance levels or support levels to stop the trend.

Eric

FREEFALL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! HARDLY!!!!!!! this was always going to take time and has fallen on very little trading.

kivver - (I won't use capital letters or 36 exclamation marks to emphasise my point) Overall the markets have been a sea of blue the last couple of weeks (give or take) but AZM had a number of days of consecutive falls. The drops themselves weren't huge but as the majority of the market seemed to be heading the other way they appeared to be worse than perhaps they really were. That was my point. Thanks ever so for your over reaction.

if i could write smaller i would, yours was the over reaction not mine, i was simply saying that a very small percentage drop on very little trading was not freefall. You didnt really count all them exclamtions marks did you! ;0)

No but I bet you did just to check!! :-)

yes i did and you was out by one lol. azm will make us some money one year, might be 1 might be 5 or 20 but it will one day :0)

That's why I bought and that's why I continue to hold. Best of luck.

For the last week or so we have had an awful lot of AT trades (automatically generated transactions via SETS system). More sells than buys so the price has fallen. It seems that there may be some price manipulation going on. The amounts are not rounded (I think you would expect this if there was a shorting operation going on). The persistency of the transactions suggests a single trader. Any thoughts?

My own conclusion is that the fall in price reflects someone who has a trading technique which generates a profit. Relatively little buying or selling around otherwise.

Eric

Following up on yesterday's post. If we disregard a 1 million trade on 2nd May (shown as Sell but probable a Buy), then there has been a total of 1.85mill shares bought and 2.50mill shares sold. Certainly that would not justify a fall of 10p+ in the market. My theory is that the inciduous repeated automated transactions have a larger effect on the price than the normal balance of buys and sells. Suppose we have a runof AT transactions totalling 200K (say 50 transactions) that would appear to move the sp typically by 2 to 3p. So our friend moves the price down and then buys back, perhaps by a combination of a well-timed larger transaction or repeating the process on the way up. He could have traded soemthing like 3 million shares in the week. Even if he just averages a profit of 2p per share he has made 60K. Having siad 'he', it sounds devious enough to be a female! Sorry, girls!

My argument is that the share has been traded down. There are not buyers around because things have gone quiet. The conclusion is that it is probably a good time to buy or top up.

Eric

A cliff it may not be kivver but falling it still is :-(

Queen

The 'AT' (Automated Trades) have persisted and driven the market down on relatively small volume once again. Interesting that little in the way of new buying has come in in response although there were 200K of trades after hours. No one has responded to my view that this is a trading exercise and nothing to do with the inherent value of the share. I suspect that most people who want to be in AZM for the licensing deals are fully invested. Last year we waited all year and then the process has started all over again. This is a buying opportunity rather than a warning, I believe.

Eric

At this level it's not just a top up opportunity, it's also a gift for those who did'nt get in the fist time (imo).