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

We need AZM to do a CEN. CEN (there has been a share consoladation a shaort while ago)) have been in the doldrums for a long while but shot up 64% today, not sure why.

Due to the consolidation.
































8-) Don't know the share!

No, CEN yesterday confirmed a bid approach.

Why cant they bid for AZM instead??

Shame on you, Kivver! Only 64% - that only takes us to 70p which is only the first leg of the journey up. I predict we are in for a major three step exercise which could be exponential. But the first step was to stop the blood-letting and it appears that this has been achieved with positive readings from the charts.

Eric

Kivver may get his wish although any potential bid would need to get the nod from Institutional investors which include Legal and General with 4% and larger holder Prudential that has an interest in 29,850,419 shares or about 14%. Other notifyable holders are Royal Bank of Scotland and Morgan Stanley (Inst.Secs Group and Global Wealth Management). I know large institutions do get things wrong but, Pru and L&G do give the situation some creditability. With this type of situation and the general malaise in small pharmas, the term 'you pays your money and takes your chance comes to mind' but we all know the risks involved. Irrespective of the price 'Mr Market' places on the shares (41p at present) I have heard no news to the Company's detriment notwithstanding the longer time we have had to wait on commercial deal on Cetilistat in particular. Impatience does creep in to investors' minds but, I will continue to hold to await further develpements.

All good stuff guys. I have posted many times I am in ''all or nothing'', not money I really afford to lose but i may just have to grin and bear it.

Like the look of the chart which suggests a break-out north if the 44p level is broken. The 9-day exponential graph is also looking good.

I agree the observations about the institutional holders who, if anything, have slightly increased their holdings over the last 4 months. I suspect a major problem has been that AZM management are happy to take things a step at a time: drugs take so long to bring to the market that they know they are on to winners, perhaps 4 of them; so the priority is to get it absolutely right. But the UK market is very short-term as we know. The flipside is that a significant announcement will initiate a bull-rush (not the fauna!).

Eric

Eric,
Interesting, could you give the levels of institutional buys against sells over the recent months. I can't find them. The last I have recorded is FMR CORP selling in 9/1/07.

If I am reading the deals correctly there has been more selling than buying by the institutions and no directors buying since 19/2/07.

Eric,
Interesting, could you give the levels of institutional buys against sells over the recent months. I can't find them. The last I have recorded is FMR CORP selling in 9/1/07.

If I am reading the deals correctly there has been more selling than buying by the institutions and no directors buying since 19/2/07.

Have just updated the header. Let me know if you think anything should be added. I will add a comment when the Prelims are announced, presumably around 18th February. Where I have two of anything, consider them crossed!

Eric

I hope you put information about recent institutional buys.

Eric, you may wish to insert in the 1st paragraph a brief mention of Directors holdings.
(i.e they total 3,337,354 shares of which Tim McCarthy holds 1,105,000 shares worth (at sp 42p) 464,100. Thanks for the update.

Have updated the header with the following:

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 completely focused on the success of the company and multiplying the value of their holdings.

Clearly, this is not a big enough holding to block a takeover but I wouldn't expect a takeover bid unless the executive team clearly can't cope on their own. One of these days we will be talking about how far the share price can go and when we should take our mega-profits!

Eric

The Product & Company Update on 7th January promised the following:
We continue with a number of on-going discussions with potential partners for the commercialisation of our products and this activity together with results from our two Phase-III clinical stidies and further clinical development progress will provide for significant news flow through 2008.

With the Prelims presumably on Monday, 18th February (if corresponding Monday to last year) there could be something of a move forward in sp this week. For consolidation after the Prelims the staements need to take matters forward, particularly with regard to commercial negotiations for Cetilstat. Otherwise there could be a negative reaction. There is no particularly reason why an announcement should coincide with the Prelims but the minimum I am looking for is that the Phase III for Cetistat will start in Q2 - that would imply confidence in a deal being imminent. A good move up would leave a magin on my CFD investment some of which I would use to top-up - but hedging bets by leaving a decent supportong cash position. Anyone else using CFDs with AZM?

Eric

Me also Eric, and agree with your comment on the forthcoming Prelims.

A decent volume of buying this morning: promising in the light of forthcoming Prelims. Eric

Shouldn't have commented as sp ended by going into reverse. Volume was 60% buys to 40% sells. I have commented before that there was a trading game going on on the way down - the price was encouraged down by a significant number of AT trades, bought back in one bite at a lower level. Today, until midday, there was a decent volume of buys with the range rising to 43.5-44; 280K buys to 50K odd sales. Only about 50K were O trades so there was probably some trading action as well. Up to 3p.m. there were quite a lot of AT sales, totaling about 80K but price hardly moved. Then there was a concerted selling effort: 9 trades in a minute of a total of some 60K shares - the sp falls 1.5p. Then 50K shares were bought on an O trade after the close.

I don't know whether anyone can shed light on this. My own view is that the sp has only fallen through the 70p support level because it has been traded down. The other side of the coin is that we should quickly recover that level on hard news; i.e. the fundamentals take over the trading position. Perhaps a reason why trading can have such a marked effect on AZM is that it is not easy, by fundamentals, to say what the cap. should be. You do not have pe, yield, PEG to guide the market. The problem is the level of uncertainty: not that you shouldn't buy but that you need to cover your position (e.g. stop loss) or use funds that you are prepared to lose. The plus side is, in my view, that there is a tremendous investment opportunity that hasn't arisen for 4 years - and AZM is 4 years further forward in terms of development achievement.

Eric

Looks like solid resistance at 44p, In this market it will have to do a hell of a lot better than its projected results, when it announces its interims on Friday 19/2/08.

It is not the results so much but favourable news of commercial deals particularly relating to Cetilstat that will push the shares to higher levels.