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

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).

I'm an investor and have remained one despite seeing my holding almost halve in value as I believe in the long term prospects for the company. But at the moment I'm not convinced that this is such a great opportunity for top-ups etc. It looks to me like 2007 will be very similar to 2006 which will be a frustration.

Im with you Queen, and in a with a fairly big loss at the mo. The pattern (up and down) seems too have been the same for a few years now. If there was something in the pipieline to change pattern then the market hasnt spotted it yet or doesnt trust we are any closer to making and sealing deals. I am going to stick with it and feel we will make a nice profit one year. Just hope im still around when it does.

Me too Kivver!

Well, I'm with Neil and therefore differ from Kivver and Queen. The key difference compared to last year is that th c0mpany has engaged Novaquest to identify and negotiate the deal(s) for them instead of Dr palmer trying to do it himself. AZM are brilliant at drug development - 4 hits out of four - but clearly not good at commercial negotiation. These deals are not negotiated in a day. The company has not committed to a timetable except to say that 2007 is the year. So my advice is (can't follow it myself for lack of funds)is to set the end of the year and put as much as you possibly can into the company. I am looking for 3 by the end of the year!

Eric

Free fall? No, but expensive. I can see a head and shoulders in the map and this coupled with basic fundamentals will probably provoke further drops.

It is in third stage trials, but one of the problems of this type of drug is being effective without the unpleasant side effects. In the case of this typr of drug ine if the side effects are the "shits" ,which unless share holders are lucky may be contagious.

If it turns out to be a confirmed head and shoulders bottom, then we are looking at a reversal from the current downtrend, add also into the mix the RSI, is looking fairly over sold, then we are probably looking at a sp rise from here on.

we need some good news to raise the price, i dont understand all this TA stuff or want to understand it (im not saying it doesnt work). I just beleive in good old fashioned products will sell and therefore the price will go up. We need some great news to say they have a great products and it is coming to the market, *hits or not!

My eyes are dim I can't see, I have not brought my specs with me!

I have tried to see the inverted head and shoulders, but can't.


If or when stage 3 Celtilistat trials are complete and analysis of side effects are listed, it may become a buy. Although the COLAL-PRED may be useful, but again there are other alternatives on the market. This also applies to Renzapride


I did hold these, but was lucky enough to sell out 8/3/06 at a good profit and a sigh of relief.

If you are holding them, good luck, but I wouldn't bet on it!

PS. I am known to be wrong 8-)

Not a bad attitude, Kivver. The word is 'fundamentals' and they are definitely bullish. Shouldn't the 'head and shoulders' drop back to the starting point unless is there a definite up-trend, neil? I believe we do have an up-trend from the funding level and based on expectations of a deal this year. This last fall-back has been due to what I would call 'share price manipulation'. Just needs positive press comment to bring the buyers back in, never mind a deal.

Eric

Usually Eric, although the neck line can be sloped i think.
Fred i thought you were suggesting that a head and shoulders were forming, my mistake.

A comment by Alizyme's CEO in the Annual Report & Accounts 2006, page 13 (published last week) as follows:

"I am confident that 2007 will see the successful conclusion of a number of transforming deals for Alizyme, generating a superior return for our long-standing and loyal shareholders".

Ludlow That comment was in the Preliminary Results published on 19th February. The market reacted positively to the change of CEO, the appointment of Novaquest and the general positive progress. I commented above that the falling price was driven by a large number of relatively small AT trades and that the overall balance of buying and selling was not that skewed. Today had some quite heavy selling late in the day which certainly justified the additional fall. I have suspected for some time that AZM is susceptible to trading action in either direction - a possible reason is that you do not have the normal benchmarks of pe ratio, ROE etc. If there was any cange in company prospects causing the price fall then a statement would be called for. So it is either investors becoming impatient or, more likely, traders seeing an opportunity for a quick buck. Any views?

Eric

The mountain peaks seem to be getting lower!

Kivver. I really only have a passing interest in charts but it does look as though we are heading for a double bottom. Prefer double boobs myself. One interesting feature of the AZM chart is that it sets a trend and then stays that way for some time. In other words, it tends not to operate within channels with defined highs and lows. The reason is I believe, as my comments above, that there are no real yardsticks to measure what the value is. You can say the order of what the potential is if they achieve the deal(s)for which they are looking. I suspect that the market has not taken on board the time to negotiate an acceptable deal. Thus the optimism in Ludlow's post refers to 2007 - this is saying that we should do the deal in a year but it may not be much less than that. My conclusion would be that there will be a sustained upward run from the third quarter - unless some problem emerges.

Eric

A treble bottom at about 70p is more likely. Might take a punt at that level.

I concur 70p is the next level

Cant see it falling to much further, total gift, imo.