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

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.

Suspect it needs another strong day to establish that we have broken the trend line. However have taken the opportunity of the positive margin on my position to strengthen my CFD position. Have put a stop loss on this time though to reduce the risk. For those who are not into CFDs, AZM is a good opportunity them out. Its a leverage product which is higher risk than the underlying share. You need to be satisfied that the upside potential is significantly better than the downside risk. My view is that the risk is relatively low because of the late stage development position and the cash backing from the agreement with COLAL-PRED. There is clearly downside risk: mainly, as I see it, from the negative view in the market regarding biotechs (see the article quoted on previous page). However, Alizyme's progress has been very consistent for several years and, with four drugs all progressing well, risks are well contained.

Eric

I did buy back in this morning, Eric. Reckon that the 40p level has been broken convincingly for now, and next stop could be 50p - in the absence of any real news regarding licensing deals. If it breaks through 50p, then we should hopefully see a steady recovery.

Incidentally, there was an interesting article in The Times recently, re biotech companies and their cash positions - didn't know where best to post it so will put it here:
Times article on smaller biotech companies - 23Feb2008

The website doesn't include the Table, which gives Alizyme as having cash of 19.1m being 24% of its market cap of 78m. This puts it in joint 8th position out of 15 companies listed - the top percentage being 49% and the lowest 13%. So it's basically in a reasonable position to continue funding ongoing research - which is critical for any of the smaller biotech companies while they fish around for a larger partner.

Toya Many thanks for the post. Read the article and intended to keep it but the Mrs had pitched it too soon, which is her wont - lucky not to have been pitched myself! $17.5m is committed from Prometheus for COLAL-PRED milestones and I don't think any is in the cash position - possibly in the yield calculations as yield is given in press at 4. The other thing in the favour of Alizyme is that there developments, in three out of four cases, has now reached Phase III. Less likelihood of failure and closer to licensing pay-off. Sensible to come back in.

Eric

Toya No reason to stop at 50p. If you look at the chart there is a trading level above 70p and this is a level at which funds have been raised. Another widely accepted theory is that the rise in a share that is subject to revaluation takes place in three steps. In this case that suggests 80p, 120p, where there are trading peaks, and 160p. If its exponential then we are talking about 80, 160p (another peak area) and 320p, which would be new ground.

Is this cloud cuckoo land? The negatives are the bad odour surrounding pharma shares and the slowness of AZM in landing commercial deals. The positives are the fact that they have made consistent, indeed relentless, progress with each of their portfolio of drugs and that we now have the time of coming to market in sight. The previous peaks have been attained on distant promise but AZM is well ahead of most of the others in the sector in the development programme. I am actually very confident about the first of the growth patterns (the arithmetical one) but feel that we could well hit the second this year. What is needed is a really positve deal on Cetilistat ($100m up-front would only correspond to the COLAL-PRED deal) followed by positive Phase III results on COLAL-PRED and Renzapride. I am intrigued by Renzapride: it is talked about as having blockbuster ($1million) sales potential yet they are proceding through Phase III without an external deal. So the longer they wait the bigger the deal.

The best is yet to come!

Eric

as a trader, i am more than happy to have banked a nice profit .... thank you Toya!

you may all be right that ALZ is heading higher, but indications are for a very rocky ride today, and Dow (and thus London) could finish anywhere

I agree with your numbers Eric but am just trying not to get over-excited!

Toya Reckon I have just learnt the hard way not to get over-excited. The emotioal decision is probably not a good one. I am not averse, like Cynic, to do a bit of trading: I would have taken a CFD position in SEO the other day but Barclaysstockbrokers_CFDs wouldn't trade as the cap. had fallen too low. How rediculous - the cap. has to rise before they will take a buy but by that time you have lost the cream of the profit. So I am staying with AZM. There is still a risk element but the upside is very substantial. I propose to continue raising the stake but it has to be a head, and not a heart, decision!

Keep your eye on it Cynic, as there is trading money to be made. In fact, I would keep a stake against the Cetilistat announcement and then take your profits.

Eric

Remember the spread ?7% and preresults of 10/3/08 rhe supporting volumes are small.