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

I appreciate what you say Fred1new but, assuming all goes well and say 3 years down the line the Company is making good profits, you will not be buying in at this lower level. I think the sp is taking into account the risks but only time will tell. From memory I think directors bought some shares around the 93p level later last year. From the previous comments that have been made on this thread we can deduce that there is more than one drug under development in the AZM portfolio, two of which may, and I stress may, be potential blockbusters. I invested in the stock only recently, although I had been following them for some time, so perhaps I am a little more optimistic. This type of situation can take years to develop with many ups and downs in sp so it pays to be extremely selective and hopefully get the timing right. This is one of my higher risk investments with much to be gained if things work out. Thats how I view the situation with the sp at 100p. Lets hope for the best.

Text to some of the CEO's comments in the Interim Results presentation on 19th July 2007 (originally posted by mjneish on ADVFN- AZM thread Post 8022 - on 24/7/2007):

"Thank you very much both Roger and David. So, as you can see its pretty steady no great surprises for you today and I think thats exactly the message that we want to send to you. Everything is on track, both operational and R&D, finances are in good control, got cash through the end of next year on a very conservative basis, as David says.

So what else have we been doing? Well, as you know we had the management change about six months ago, and now this is the new management team, the executive team, in front of you. We are very much concentrating on unlocking some of this value. So how are we going to do that? Well were doing things slightly differently than we did before. We are very much exploiting the virtual model in the commercial sense, in the business development sense, that we have done for the last twelve years in the R&D sphere. And there was a realisation that we didnt have enough resources in house, we needed to get more muscle, if you want to use that expression.

So weve brought alongside us two outfits. One, NovaQuest, who I think weve introduced to you before. This is the strategic partnering arm of Quintiles, and another outfit Ferghana Partners. We probably havent spoken too much about those in the past, but Ferghana are a specialist partnering firm with offices both in New York and London. Their day-to-day business, they do nothing else except help companies like ourselves to partner with pharma companies.

Now, what benefits to NovaQuest and Ferghana Partners bring to the party? What they do is, they have made us take a step back, look at our products, look at the way we present them, theyve helped us do a little more market research, being able to position our products better. Theyve also, in my opinion, done something very important, and that is start to get us in at the right level of companies. If youre trying to do deals with major pharma companies, especially with products like cetilistat and renzapride, one has to get buy-in of these products and the concepts at the top, I mean from CEO downwards. And that was one thing we were missing in the past. We werent going in the right level. But also its just the total resource that these guys can chuck at these activities.

We are not I know cetilistat is high profile for everybody, and believe me we are very much concentrating on getting something done with that but we are not ignoring the other three products. There are deals to be done in all shapes and forms and sizes on all four of these products over the next period.

Now that takes a lot of resource. We do not have that resource in house with less than 25 people, when the majority of the team are concentrating on pushing the R&D forward, or looking after the cash, or everything else that we need to do as a company.

So I think its that realization which I think has made a big difference, and taken on board that fact that we need that help.

So, what has that translated into? Well, the first six months of the year have been extremely busy. Weve been flying all over the world, weve been having people coming to visit us, weve gone through the usual process of presentations, diligence, getting into detailed discussions with lots of different companies. Those are creating lots of opportunities, and we stand by what weve said all the way through the year, and that is, 2007 and for the sake of clarity, the calendar year 2007, i.e. ends the 31st of December this year (I say that because I got a question at the recent AGM on that) this year of 2007 we will start to deliver some commercialisation of these assets.

Im not going to be any more specific on that in terms of timing, or which order they come in, or what size, but we will deliver something in the second half of this year.

Now, that having been said, I also dont want you walking away thinking this is a one-product deal. Its not: we have four products, there are lots of different deals to do, probably more than one deal on each product, so we can expect this to continue I know youre expecting something in the second half of this year but we should expect this to continue over the next twelve to eighteen months as we start to build Alizyme into a substantial company. That is the objective here.

We talked about doing innovative deals, well lets see what the innovation comes to when we start announcing them, but I have said to you many times this year already: theyre not all going to be plain vanilla licensing deals. Im sure some of them will be theyll be very easy to explain to you others will be slightly different.

But the overall objective is to try and keep as much value in Alizyme as we can, and build a self-sustaining company.

So, just to summarise, if we go to the very last slide, investment proposition, thats what were all here for. Is this a good investment proposition? Well, in the classic business school sense of the J-curve, we are at that inflection point on the J-curve. Weve spent twelve years getting to where we are now, and over the next period, in the not-too-distant future [my paraphrasing] we hope to start unlocking some of that value. I know all chief executives sit in front of you and say their shares are undervalued, well well see what happens in the next six-to-twelve months, but there is an awful lot to go at, and there is a lot of newflow, as David said earlier, that is coming out in both commercial and clinical.

So we hope to be able to deliver that for you. I hope its going to be a little bit more exciting than the dearth of newsflow that weve had over the last twelve months. And the reason were getting the interims out today was just to show you that the ship is steady, no great surprises underlying, and we need to get our heads down now and get on with some deals".

Investor's Chronicle
19th July 2007
Writer: Shunil Roy-Chaudhuri

ALIZYME CONFIDENT OF CUTTING DEALS

"It's long been a case of jam tomorrow with Alizyme, but chief executive Tim McCarthy's comments suggest that it may now be time to start buttering the toast. Mr McCarthy says he's expecting to enter deals in 2007, although he wouldn't say on what drugs, or how many deals are in the pipeline.

Even so, he said Alizyme is holding discussions on all four of its products and that there's the possibility of deals on any one of them, or even of multiple deals for each product, while the group could also secure separate contracts for different regions (such as the US or Europe).

No new deals were cut in this first half, though, so there was no turnover to record. But progress is being made on drug development, with cetilistat (for the treatment of obesity and diabetes) given the go-ahead for Phase III clinical trials from the US Food and Drug Administration. Meanwhile, Alizyme is also progressing with the Phase III US trial for renzapride (which treats irritable bowel syndrome).

The group has plenty of cash to fund further programmes, but Mr McCarthy says that in 2008 the group won't face the high costs incurred on its 2007 Phase III trials".

TIP UPDATE:

"Buy"

"Any further deals could be value-transforming for Alizyme. So, for those with the stomach for risk, the shares remain worth buying".


ALIZYME (AZM)
ORD PRICE: 97p MARKET VALUE: 194m
TOUCH: 97-98p 12-MONTH HIGH: 128p LOW: 71p
DIVIDEND YIELD: nil PE RATIO: NA
NET ASSET VALUE: 9p NET CASH: 19m

Thanks for that LC good news on a red day always welcome.

MACD to cross over - I hope to see 95 - 1 short term this is too cheap at the moment

Yes Nar1 there are a good few of us waiting patiently with this one. The potential has been well covered on this thread with valid views both for and against. We now hopefully await a bullish company announcement. sp 82p

Nice little write-up in Shares Mag today in a similar vein.

Yeah I think anybody whose been following this stock knows its a good price to buy. We all know the potential but we will just have to sit and wait.. Queen could you post what shares mag wrote if possible..

Alizyme has been looking for a partner to develop its anti-obesity product Cetilistat since it completed Phase II trials in August 2008. Hopes have been raised that it could soon be on the cards by Chairman Brian Richards comments at its interim results in July that it expects to conclude a number of transforming deals, this year. The course of Phase III trials has already been agreed with US regulators the FDA and future sales of the product are forecast to tip $1 billion a year, so when a deal comes it could be huge. There is always an element of risk with drug discovery companies but Alizyme has a good chance of securing a lucrative deal which would send its shares soaring. Numis analyst Brett Pollard has a 150p target price for the shares some 78% above their current level. (ST) I say its a --- BUY ---

Sorry Nar1, you beat me to it!

there was lots of hope at the beginning of the year, that this was going TO BE THE YEAR. Anyone still hold any hope this will be the year????

Yes, imo i'm sure deals are just around the corner.........but you never know.
I have to say holding this share has been great fun! not for the faint of heart.

Kivver, as far as I know there has been nothing to indicate that the situation has changed from what we already understand. At 84p the sp, although 7p overall under my cost price per share is more a reflection how the market has been of late. Many institutions and private investors have been seeking safer havens in bonds or larger good cash flow company shares, which is understandable. However, if as is hoped patient investors hear good news on developments, the sp should rebase at a higher level. I still live in hope.

looks like Prudential has been buying further stock and now holds over 14%

Hi Guscavalier - I noticed the Prudential buy, too. The shares are almost at their lowest point for a year, and I keep thinking they will turn. I sold sometime ago, at a good profit (luckily!) but am looking for the right time to come back in.

The Chairman's statement on 19 July, and various webcasts, have included: "We are in discussions relating to all four of our products and will explore innovative deals designed to retain the maximum value for shareholders . . . We remain confident that in 2007, we will conclude a number of transforming deals for Alizyme."

I guess even just one 'transforming deal' would do the trick and I do believe they can do it.

Toya- I agree with you. We still wait for an announcement. At least it is good training for if ever you want to watch paint dry! I would be disappointed if we do not hear positive news before year end and the sp has reflected the lack of news. I think if you feel positive, it does not really matter if you cannot time purchases to perfection, as this rarely happens. Good Luck.

well its looks like another year is going to pass without an announcementor have we got a bit carried away somewhere???? Lots of excitement at the bigining of the year that this 'would be THE year', oh well next year? (probably somewhere in the next 10 years!)

Have you noticed AZM moving upwards this morning? Climbed 6.77% to 76.5-77.25. Could be an announcement coming soon?? No news as yet, as far as I can see.

hi toya, unfortunately we've heard it a hundred times before. good luck if your in.

Thanks Kivver - I've made money on AZM earlier in the year (when it topped 100p) but am currently waiting for the right moment to come back in. It should make that price again before the year is out I reckon.