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

There is always a reason!

Results out 19/2/08 Pobably poorer than projected. Also interesting to see cash burn.

The chart says further to drop. Like today.

not impossible that fall of the last few days is partly in sympathy with that suffered by Shire

however, rather in passing, back on 10th October, someone whose name i have forgotten, suggested the following for the next 12 months .....

AZM then 80.0p now 40.5p
OXB then 35.75p now 18.25p
VIY then 9.25p now 6.25p
BLZ then 67.25p now 48.0p
BVC then 31.0p now 33.0p

truly not trying to make (or even lose!) capital over the performance, but just thought i would post for general interest

Not me guv. But I have a strong suspicion!

I tihnk it wiser to see results and await product proof, which I have doubts about!

I cant help thinking if this was such a fantastic product the vultures would be in this to buy it out at this price. Ive always said I was in this for all or nothing, I am fearing the worst. I know you need time a patience but this is wearing a bit thin.

Can anyone give examples a pharma or bio company whose SP has dropped dramatically to come storming back when the product comes to the market?

i suspect Shire but you'll have to trawl back over several years to see the volatility

Kivver Have a look at GW Pharma. Price fell quite heavily last year but has recovered sharply with licensing agreements in last month or so.

My own view, and I have put my money where my mouth is, is that the price fall has next to nothing to do with the company's development programme and is very largely a matter of trading down. The major investors are staying on board: in the last four months or so, Prudential, Morgan Stanley, L&G and ABN/AMRO have all passed a reporting point (going upwards) and collectively account for 25% of the equity. OK, management have been trying to set up licensing deals but it is only now, for the first time, that product development will be delayed if they don't finalise a Cetilistat deal by April. So I expect an announcement either with the Prelims in February or, at any rate, by March.
Have just dug out an old Evolution report which gives a growth profile in revenues through 2014 to justify a price of 136p based on Cetilistat (effectively ignoring the other 3 products). I will be disappointed if it only get that far this year.

Eric

by the sounds of it, you are relying on old data - i.e. broker reports etc that came before recent meltdown ...... you are also banking heavily that GWP will tie up the mentioned deal before April .... if they do not, then expect serious bloodshed anyway ..... other than that, at the mo, pharmas in general are bad news and really not the sector to be in

Their possible products often have problems when used in "treatments". There are also numerous drugs on the market for the said "conditions". The drugs proposed have yet to be cleared for use in humans.

To me it is pie in the sky.
A bit like SEO

Well either way someone once told me you should only invest what you are willing to loose

cynic I accept that pharmas are generally considered bad news at present. But, as often happens, a sector gets oversold: there are clearly opportunities in land and builders at present, even banks. My point about GW Pharma is that it shows that stock pickers will take a jump up when a re-evaluation should be made, in that case on the announcement of the sort of deal that should be forthcoming on Cetilistat. What you call old broker news was in fact an analysis of the fundamentals re potential forward cash flow for Cetistat. The fundamentals tend to remain pretty stable, given a consistent reading on the market in relation to competetive products. The research news from AZM has been pretty consistent. The strength of AZM is clearly their research team - they have had consistent results with the development of all four products over the last 10 years. The risk in terms of the deal for Cetistat, in particular, clearly relate to the financial terms of deal(s) and timing. Even a deal at the lower end of the spectrum must be very good for the sp as the current cap. is under 80m and we are talking about a billion dollar blockbuster: front-end funds should at least pay for later stage development then you have a royalty flow, perhaps of the order of 150K per annum. Timing? My point is that, for the first time, management have an incentive to close a deal, otherwise they will be marking time from April.

Eric

or even looking for new employment! ...... be very very careful in the current markets ..... i am 95%+ certain that we have yet to see the bottom, though i would not like to hazard a guess as to where that might be or even when

We are BLUE - anyone here got Level 2

cynic We clearly disagree on fundamentals. Your emphasis is on the markets and I suspect your conclusion is drawn on trading principles. That's fair enough up to a point. But my basic premise is that there is an underlying value to a stock: in many cases you are buying earnings, or yied, or growth; here you are buying the intrinsic value of the drugs in later stage development. The share is now valued at levels not seen for the last four years, yet they have had four years of positive development since then! The trading pattern has turned the other way today, not necessarily permanently: it could even be the same trader(s) who have traded it down who are trading it back up and why not? At least it is an indication that we are at about the bottom of the share pattern.

Nel: don't currently have Level 2 but there has been a good volume of buying, better than recent days when the price has been falling. Still a prevalemnce of Automatic Trades: i.e. they are essentially 'trades' rather than investment buying.

Eric

pharmas are notorious for their products failing either in final trial or ultimately in the market ..... take a good look at Shire for the classic example

i shall continue to watch casually though purely out of interest rather than intent

Ive took an even bigger gamble and bought some more. Time will tell!!

I suppose they could sell the research team. Might slow down their cash burn.

Well done, Kivver. That's the spirit. Good to see Shares comment today:

Results from Phase III studies for its IBS drug Renzapride and ulcerative-colitis products are due in the first half of the year. Looks cheap, and positive news and potential licensing deals could elad to a recovery in shares.

Will attempt to update the header of this thread in the next few days. A pity that there is no news of a Shares competition to earn a bit of extra lolly.

Eric

I didn't think Shares went into ramping. The chart tells it all.

this stock needs more than ramping ..... it needs a wheelchair and 24 hour nursing!

or perhaps just patients ! not one for widows and orphans though.