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

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.

That is what projected results are or should be based on!!!!!!

Agree, Gus. My point was essentially that: the prelim figures are pretty well known; it is what is said about progress towards a deal and confidence in Phase III of Cetistat starting on time that could (should?) take the sp forward. The sp has been trading sideways for about 3 weeks with something of a cone. So break-out is likely, probably in next week. It could be down if there is nothing positive in Prelims. I have staked my position on the break-out being upwards - the development programme has been progressing steadily ever since I have followed the share (over 5 years) so I feel it is unlikely that they would allow it to stall now. More important to have a reasonable deal rather than waiting overlong for the optimum deal.

Eric

Testing the support level again. I am hoping that it is a double bottom forming and that will turn sentiment around. There is little doubt in my mind that the share is being professionally traded down. Perhaps surprising that it hasn't triggered more investment support. I also believe that the Prelims are the key event (last year on 16th Feb. - no indication on website of date this year). If there is positive news then the share should pull away rapidly. Even if it is still a 'wait for it', then the prelims out of the way will mean that the company is out of the closed period (I assume) and the directors can poile in to increase their stake. Lets face it they have sold institutional investors on buying at 70p and 100p so they can double or treble their stakes in next to no time.

My comment about a support level is based on the sideways trading of the last 3 weeks or so. You need to go back to the Iraq crisis in 2002/3 to go further down to around 30p to get a historical support level. Seems nonsense really. But the investor is basically in the hands of traders who know how to make money by playing the system. The only real answer is hard news - please!!!!! I'll be interested to se if there is comment in Shares or Investors Chronicle.

Eric

Well lets hope that we can stay at the 40 p level!!

(pressed wrong key!)

Good article in Shares entitled Biotech Blockbusters. It takes you throught the development life-cycle and a good introduction for anyone not familiar with the sector.

They highlight three companies and it is worth comparing with Alizyme. The companies are:

Antisoma Cap. 103.8m cash 61.4m
Novartis deal for cancer drug worth up to $890m. Entering Phase III this year: take 18 mths then follow up trials 2 and a half years. Handling three other drugs themselves, with first reporting Phase II this year.

Protherics Cap. 171.6m cash 46.9m
Revenues from existing drugs of 14.8m. AstraZeneca deal roth up to 195m plus royalties. Expanded Phase II trial starting this year. With Phase II report on another drug due this year.

Oxford Biomedica Cap. 99.4m cash 42.5m
Sanofi-Aventis deal could be worth E518m. Due to report Phase III trials in 2009. Other early Phase drugs.

They stress the essentials as being: (a) More than one promising drug; (b) Strong management team with deal making potential; (c) Solid cash balance - visibility of funding for next 12-18 months at least.

Each of these companies has landed deals at earlier stages than Alizyme, drawing attention to question-marks under (b). Stronger in cash than Alizyme but not really a problem. Alizyme score as being two or three years ahead with two drugs reporting Phase III this year, including a potential blockbuster in Renzapride, and Cetilistat, another blockbuster, entering Phase III when a deal has been completed.

Its striking how much all of these companies has come back in the market. AZM's 80m cap. doesn't look out of line. The key, of course, is a deal. A deal along the lines negotiated by the above would put AZM well ahead because of the nearness to marketing and licensing fees and thus lower risk of failure.

Eric

This thread is reading like an old SEO thread. Same pattern same ?