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

Mon, 25 Feb, 13:02 GMT

FOCUS Prognosis poor for cash-strapped biotech cos if market problems persist
LONDON (Thomson IM) - Troubled biotech companies Ardana and Vernalis are early casualties of a funding crisis that could leave peers such as Allergy Therapeutics, SkyePharma, Amarin, Medical Marketing International and Proteome needing to make major cuts to survive, according to analysts.

'It's become very apparent that the next six months are going to be very hard for companies that need to raise money,' said Robin Davison, a senior analyst at Edison Investment Research.

He said that any company that is at risk of coming to the market is getting its shares depressed because investors don't want to have to stump up more money.

Ardana announced last week that it was putting itself up for sale, and the following day Vernalis cut its workforce by almost 60 pct and sold most of its profit-making operations in a bid to pay off debt.

Davison said the few companies that aren't in this danger area include Antisoma, BTG, Renovo, Oxford Biomedica, GW Pharmaceuticals and Protherics.

For most other companies in the secto, the funding situation is either quite bad or acute, he said, adding that the only way they can solve their problems is by licensing a product.

'You've got like 20 or 30 companies that are desperate to license,' he said.

He mentioned Allergy Therapeutics as being in a difficult situation, explaining that it has got a borrowing facility but is unlikely to want to use it because 'that just gears up disaster'.

He added that Alizyme also is in a difficult situation unless it can do a licensing deal because it doesn't have a lot of money to fund ongoing development.

Meanwhile SkyePharma has a put option for 69 mln stg convertible bonds due at the earliest in May 2009, and another put option for 20 mln stg due in June 2010 at the earliest, and Davison said that in the current climate refinancing the debt would be very difficult.

He said that in a lot of cases the problem faced by companies is that their overheads limit what they can spend on R&D

'Maybe if you can rationalise that -- you have fewer CEOs paying themselves a lot of money, all the other costs and hangers on, PR advisors and that sort of thing -- it will thin the whole thing out,' he said.

Paul Cuddon at KBC Peel Hunt agreed, adding: 'It all depends on whether people can make some money with what they've got at the moment. I mean that's the key. If they've got some IP (intellectual property) that's worth something then they should be OK; if not then they shouldn't really have the IP in the first place.'

Cuddon identified Proteome, Allergy Therapeutics, Amarin, Alizyme and Acambis as being companies that don't have a lot of cash, but said that in the case of Alizyme and Acambis they have good products to license.

Cuddon agreed with Davison that a key factor that could determine the survival of biotech companies is the extent of their overheads.

'Phytopharm don't spend very much money on R&D at all because they in-source all their compounds from universities, from people who have spent a lot of money already developing them. So it's the companies that have got a huge number of employees and are spending a lot of money on R&D that are most at risk, certainly Alizyme, Amarin, Allergy Therapeutics,' he said.

ben.deighton@thomson.com


Number of employees 19, not exactly a legion.
Large buy @1651 39.01p V 248,503 O, trade

Here we go again!

Wait for it!

There we go!

IS IT TIME TO BUY.

Down again against the market. What is it that the market knows?

PTI, BGC, and OXB, also fell, to name but a few, but you never know Fred

AZM sp 42.5p up 6.25p on volume over 7,250,000 shares. Perhaps we have an announcement coming next week. If not, then who is doing the buying?

Might be that something has leaked out?

If that is the case I suspect they may want to cool it a bit. Otherwise someone might find themselves in the soft and smelly.

Highest volume for 4 years, as far as i can see.

Thats interesting. Lets see if the weekend press makes anything of it.

Just got up-to-date on movements this week after being incommunicado for a week. The positivr thing about Friday's move was a total purchase of 4.75m shares at 38p or 2.4% of the equity. Second tranche marked as a sale but obviously a buy because it caused a jump in share price. Perhaps an educated guess, an institution topping up (in which case they will have to declare) or one of those putting towo and two together. I actually believe the good news is just round the corner!

Eric

Thought there may have been a mention of the movement in the press, even if brief but, not seen anything. Be interesting to see who purchaser is, particularly if we are close to favourable news.

Think something could be brewing, looking at the 9.49% rise this morning, hard on the heels of the huge volume on Friday. Might be time to get back into this.

this is easier to read ....

Do you hold cynic?

no .... but may consider .... apart from today's rise, why the eagerness to jump on board, or are you just following the lemmings?

Been a in for quite some time now.

Ha ha, cynic. lemmings are normally ruishing overboard; not jumping on board! The interesting question is whether those coming on board are investors or speculators - not saying I necessarily know the difference but I see the former as looking at the fundamentals of the company situation and putting their money in, possibly even observing something about the resolution of the attempt to set up a deal for Cetilistat or, perhaps, considering that there is considerable upside potential if a decent deal is struck against a fairly limited downside (the company is probably fairly valued on COLAL-Pred deal alone). Well, that could be speculation, but I am looking at the speculator as the chap who is taking a trading position on the chart, perhaps seeing the share breaking out of a narrow, slightly declining, trading pattern upwards. Your graph is very helpful in that respect. It tried to break-out downwards last week. It could be the same trader testing whether it will break out upwards this time.

So, Toya, you pays your money and takes your choice. My money, not inconsiderable for me, is saying that the break north is genuine. That is backed up by the very considerable buy (2% of the equity) on Friday and evidence of considerable buys this morning. I suspect these are too large for a trading position although I recognise that what is gargantuan for me is a mere bauble for someone else! Good luck if you jump in!

Eric

Another point may be that this sp movement has occurred without a load of speculative chatter. If anything, most of what has been said recently has been negative.