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

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.

MACD and MA all negative all pointing down IMO

macd and ma is miles above my head, if they strike a deal tomorrow that will mean nothing until they do perhaps it matters.

The RSI is looking very oversold, again it may fall a little more but this share has too much potential Re, deals this year , it must be looking very attractive to investers at current price.
Also remember, the CEO has stuck his neck out suggesting deals should come this year, if so 2+ must be on the radar.

Please find attached graph of MACD and MA

Any thoughts anyone?

coming down this should help why I am saying this.

5,000,000 buy @17:05pm.
I did say it was very attractive at this level, hopefully now onwards and upwards!

Still wouldn't touch it.

If the trend changes which it might if that volume is true then I would still watch for a day of buying with price rising and volume rising.

Good luck if you. Haven't got a spare cash at the moment.

ps. The 10,20 and 50 day moving average are still downwardly pointing.

The chart looks oversold on a technical basis, and in the context of recent and anticipated value-enhancing news.

The FDA's advisory committee meet to consider an application for Sanofi's Zimulti (Acomplia) on 13th June, the recommendation from which will be made public; and the FDA will make a final decision on that recommendation in July, which will also be made public. This will clarify the competitive position in the US relative to what is known about Alizyme's Cetilistat, and enable a partner to conclude a deal for Cetilistat.

AZM could get $650m in upfront and milestone payments for Cetilistat, starting in 2007, plus double digit royalties on sales.

Takeda are expected to complete Phase 2 Cetilistat in Japan during 2007 and (if it is successful) will give Alizyme another milestone payment before commencing Phase 3.

Renzapride is near the end of Phase 3 and has just secured further patent protection, so is ripe for a deal in 2007/08. It could be worth more than Cetilistat as the market for IBS is poorly served and Novartis's Zelnorm has been pulled leaving Aizyme's Renzapride the only drug left standing in c-IBS.

COLAL-PRED is approaching the end of Phase 3 and will be partnered either before the results or after (if successful).

Note, Alizyme will get even better terms for Renzapride and COLAL-PRED based on the Phase 3 data; so potentially expect some terms even better than for Cetilistat.

Alizyme should soon be basking in substantial upfront and milestone payments, from their three lead drugs.

Obviously, Alizyme is also ripe for a take-over.

Very good and informative post Ludlow Castle. Press comment, inclduing Shares, has always put focus on Cetilistat. It is easy to size the obesity market and the Takada deal gives a good idea of the value. But its right to say that thet there are three drugs in the window for deals.

Regarding the charts, not an expert but it is clear that momentum is changing. This could be an excellent time to buy in.

Eric

Good call Ludlow & EW

Eric, back in again today after selling at 1.20p, I was hoping for 80p again, but didn't think it would get there!!!

Yes, if it is ramped enough.

Good decision, Canary, I think, as was the profit taking at 120p. As I commented above the fall occurred on no great nett volume of shares traded; it seemed to me that the price was engineered down by repetitive AT's (automated trades). A share like AZM would appear to be susceptible to such action because there is no real benchmark to indicate value. Two factors though are clear: (a) given a deal on Cetilistat, perhaps plus the other two Phase III products, would give a very appreciable gain; (b) the odds on such a deal happening must be very good. There may be good trading opportunities but the key thing is to maintain a position.

Eric

Agree, it would be a shame to miss out on deal.
got to admit, i thought about selling @ 1.20 and hoping to to get back in, but did'nt have the balls on this occation.
Well done canary.

Here we go again.

AZM's current share price at 92p is seriously undervalued.

AZM's IBS drug Renzapride looks to currently be worth around 100p alone; even before considering the value of Cetilistat, COLAL-PRED, ATL-104, and the cash in the bank (approx 25m).

Optimist,

Last years profit = -18.97M forecast 2007 =-19.55 M.

Ah well, perhaps I am wrong.