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

Fred1New

I think the main thing is not to be sitting crossing your legs; you need to have an occasional visit to the loo anyway. Better posture is to sit with your hands under your bottom so thay don't sneak out and hit the sell button! I'm sitting with five shares which have some form of reporting over the next month so there is plenty of excitment there. So AZM can just sit there gradually increasing in value with some buys and fewer sales. Then the announcement! Away for the stars! No particular reason why it should be with results although, if not before then, we should get an update. In a way, I hope its not in the next month because after that it will be easier to salt away a decent position in AZM. My aim is to build up to 'overweight' by the results.

Eric

114p ?

Hello, doctor! Not so mad, I think. I sold out on the RNS and had chalked in 115p as the level to buy back in. I was obviously part of a collective opinion that said that AZM are playing it long, again. OK! They've been at it for some 9 years so what's an extra year or two between friends. Frustrating though, particularly for those investors with trading instincts. Important to be in when the news breaks - that's the difficult thing!

Eric

Eric , hi , glad to hear you are out. Just posted hoping to get some sort of response because I am now looking for an entry but downside momentum too great at the mo , chart says 120 or 114 but we will have to see if we get there. Don't follow fundamentals much , rely on you for that! but somewhere in the back of my brain is the fact that Unilever have taken a slimming product from somebody else and I was wondering if that was affecting sentiment.

Doctor. The obesity problem is so huge (!) that I expect there is room for various solutions as we discussed before. Slim or reduce the appetite or remove the fat: some will try one, some will try them all, some will glorify and waddle in their fatness and provide excellent work for the medical profession! Billions of $ all round, particularly for the slim Jim professionals!

Eric

AZM seems very quiet at the moment.

Just re-read this thread haven't seen below reported. Good news but seems a long time away.

With this news I would have expected price up not down. Although looking at the chart by candle light I don't know.
Will it be this years winner?


Alizyme is fighting the good fight against ills brought on by the good life. The development-stage biotechnology company licenses drug candidates and develops them. It targets conditions prevalent primarily in industrialized countries, including obesity, irritable bowel syndrome, inflammatory bowel disease, and type 2 diabetes often associated with obesity. Alizyme is focused on developing a family of lipase inhibitors, which prevent the body from absorbing fat. In addition to its pipeline of treatments for lifestyle-related conditions, the company is developing a drug for mucositis, cancer therapy-induced damage to the gastrointestinal tract.

""""""""""""""""""""""""""""""""""""""""""""
Alizyme opens Investigational New Drug application with FDA for obesity drug

LONDON (AFX) - Alizyme PLC said it has opened an Investigational New Drug (IND) application with the US Food and Drug Administration (FDA) for a clinical trial in the USA of ATL-962 in obese patients.
ATL-962 acts in a similar way to Xenical, the anti-obesity drug marketed by Roche Holding AG, which has current sales of approximately 500 mln usd.
Opening an IND for ATL-962 allows Alizyme to discuss the development of the product with FDA in preparation for Phase III studies and ultimately for registration in the US.
Results of the trial are expected to be available around the end of 2005. Patient recruitment is also ongoing in Europe for a Phase IIb clinical trial of ATL-962 in obese diabetics, Alizyme said.
This study in up to 600 patients, is expected to report results at the end of 2005.
ATL-962, an inhibitor of gastro-intestinal lipases, is designed to cause weight loss by blocking the digestion and thus the absorption of fat from the diet.
newsdesk@afxnews.com
"""""""""""""""""""""""""""""""""""""""""""""""

Fred

The news is good - for the long-term investor. If you are happy to tuck your investment away for a couple of years than it will multiply. As I posted earlier, my interpretation of this report was that they are playing it long. They've been going at this is for some 9 years. I expect, that the drug majors look upon them as a realtively small company and think they can strike a hard deal or swallow them up. No thankyou, say AZM management, we will take it right down the line ourselves until the major hurdles have been surmounted and the value is there for all to see. Who can blame them? But, if you are looking for quick investment returns like me, and many others on these threads, that's not quick enough. I keep watching the situation closely looking for any sign of licensing action but nothing yet on the horizon. Anyone think differently?

Eric

Good buying today with some sizeable trades; pretty well one way. Could be some rumours around the city. Decided that I couldn't bear to be out and have started a new position. Any inklings?

Eric

The answer to my own question is that there was an excellent article in the IC (sorry Shares but they do do one occasionally!) recommending AZM as a BUY. Accepts "AZM as out of favourt as investors lose patience waiting for the company to sign licensing deals with Pharma giants". Note the following quotes:

- "at current levels they are looking attractive again - especially as AZM have two drugs entering late-stage clinical trials this year. So the company could soon be a credible takeover target again".

- "Analysts anticipate that AZM should hopefully license both Renzapride and COLAL-PRED this year with a licensing deal for ATL-962 in 2006"

- "On the downside, AZM could have to raise further capital soon, unless it signs a lucrative licensing deal. Its cash is due to run out ine arly 2006."

- "At current levels, the shares look worth a gamble. Buy"

I see the fact that cash is due to run out as positive encouragement that they press ahead with licensing deal(s). The article predicts the market for irritable bowel-syndrome, Renzapride, as 3bn a year; for ulcerative colitis, COLAL-PRED, as 300 million; for anti-obesity drigs (ATL-962) as 1.4bn by 2012.

sp is starting to move ahead from its support level with demand growing and no sellers. Have taken out a CFD this morning for 15K shares, a one-sided bet but one that may require patience (of which I do not have a plentiful supply).

Eric

Off-topic, but re:

seagullsslimjim - 31 Dec'04 - 13:12 - 53 of 66


The golden cross consists of the 200 stock market average crossing above the 50day SMA.

That, most certainly, is not a golden cross - you've got it backwards - it's when a shorter-term MA crosses above a longer-term MA. For a real, true GX, both MAs should also be going upwards.

Eric, I'm with you on this. Have kept in touch with these and believe they now lag the sector seriously and there is a prospect of good news on the near horizon. At these basement prices I believe there is some pretty significant upside. Time to get involved.

joe

Welcome! The IC article predicts two licence agreements in the second half of 2005 (Renzapride and colal-pred) with ATL-962 following next year. They need additional funds early next year and this should motivate them to get one or more agreements in place. Would expect some movement in Q2 as expectation rises. Could be earlier with more reports such as that in IC: the analysts seem to like doing reports on AZM, bless them!

Eric

Eric - I also read elsewhere that they are looking into going it alone on the 3 prospects you mentioned. The licencing deals look potentially dilutive and expensive so an alternative would be to raise a rights issue of equity raising deal and take on more debt - they have a pretty strong balance sheet so this could be viable and attractive option.

Joe

Thanks for that. I have heard that in relation to the three drugs other than ATL-962 for obesity. The thought was that that was out of their league to go alone. I would be interested to know your source(s). My personal feeling is that it is unlikely. Why not raise money from one licensing deal and then use that to go it alone on the others. Even if you need to raise more capital, the sp is way up and the capital is cheap. The sluggishness in the market has been the lack of evident progress towards a licensing deal. How much money would they need. If 40m at say 100p that would be 400M shares or some 30% of the share capital. Another comment, in an analysts note, was that AZMs mainn strength is taking drugs through the developemnt process rather than taking them to the commercial size trials and marketing which is expensive and much more people intensive. I think they have only 12 people in their own lab. The suggestion that they might buy in additional early-stage drugs or takeover an appropraite company seemed to make more sense. Mind, I agree that it is an important debate for the investors standpoint. Perhaps we will know more with the prelims.

Eric

Eric

"Another comment, in an analysts note, was that AZMs mainn strength is taking drugs through the developemnt process rather than taking them to the commercial size trials and marketing which is expensive and much more people intensive. I think they have only 12 people in their own lab."

I have not done an in depth research of this company (apologies :)) - that's my double chin not the closing parathesis!), but from the posts above this seems to me the crucial part of their business that needs attention - seems like they may need to reverse into an outfit that knows how to take their research phase through to commercialisation. A team of 12 does not seem sufficient to market the drugs and to get over the myriad regulatory hurdles. At least they need a few more bods with CEO level expertise, don't they?

Can they really do it by themselves and, even if they can, how much patience can small investors have to stay in for the ride?

Always interested in your views here and, of course, elsewhere.

Love to Honey!

SD

SD

My viwpoint exactly and why I don't think they will take tat route. If they do, then the reverse bid would be the way to do it. Its one thing I like about AZM is that the team of guys really are the tops with huge experience and have chosen this way rather than continue with the pharmaceutical majors. They have chosen drugs which I have a real ethical lifestyle aspect in addition to big earnings potential. Why would they want to go the whole hog when they can do it with partners who are already geared up for the commercialisation part? I am keeping involved because there would be, IMO, a very big jump once deal(s) are negotiated but keeping my ears strained for any news. May get a better reading with the prelims althgough these have been somewhat anodyne before.

Honey feeling sorry for herself: seems to have damaged the leg again which had ruptured ligaments. Master much happier after Newcastle's victory over Chelsea. Howway the lads!

Eric

If you look at almost any successful business there is a joint venture between production, money and marketing expertise at some level. Of the two ways to climb a mountain - straight up, or round and round - the true solution is the third way - look, I've got a machine I can rent you that will go up diagonally.

My natural wariness of the extrinsic risk of the pharma industry (e.g. regulation, side-effects discovered late on) and their Frank Sinatra ("MY Way") approach to getting themselves to market makes this a watch and see for me for now. Besides, I can't make head or tail of the chart, so not a clue when to buy.

Take a look at Dynamite's new share - HYR if you haven't ssen it. Quite tempted.

SD

Alizyme raising 30.5m, approximately, by a rights issue and a further 2.3m from a US associate. Out of AZM at the moment: it had been my longest standing holding but sold, correctly as it turned out, when it became apparent that they were playing their products long before striking deals. How should this announcemnent be read?

(1) First, they will get their money as the issue is underwritten by Nomura (except for the smaller tranche).
(2) It is reported that some institutional holders are not that happy and may boycott the issue. The deal for the obesity drug, granting Japanese rights to Takeda showed the potential of their drugs and led to market expectation that other deals would be struck. The sp hit around 220p when that deal was confirmed and is now back to 100p.
(3) It seems clear, from the commentary, that there is no real urgency to strike any deal, even for COLAL-PRED, for which approval of Phase III development has been acheived. The reports talk of adding value in the medium term. Why raise 32m if they foresee any deals this year, which had been expected by analysts?
(4) Stockdog may have hit the nail on the head, which he is prone to do, by suggesting a reversal into an outfit with later stage development resources. That may be fine for the bid company but won't necessarily do much for the AZM sp in the short-term.

So it is difficult to see why holders should take up the rights. It seems Nomura will be left with a large line of shares which will be an overhang in the market. OK, so they make their acquisition, but why should that stimulate the sp? Do the directors of AZM care? Not really, they are playing their development programme long, are rewarding themselves well along the way; eventually the drugs will come to market, the shares will soar and they will retire rich and successful, having acheived what they set out to achieve: bully for them! But, where is the argument for buying in the next year or two or at least until the overhang has gone and the sp starts to move. If shorter-term holders decide to sell, Nomura may even have to drop the price, making a loss themselves and giving a better buying opportunity.

Any other views?

Eric

Have just re-read my post of Monday and feel it is justified by subsequent events. sp down to 85.5 against a placing price of 100p. Somewhat sick, Nomura?

Susanna Twidale in Shares today seems somewhat off-beam. "Existing shareholders are expected to exercise their pre-emption rights and take up the offer." Small chance of that, paying 100p against the market 85.5p? She then says that Evolution have a target price of 140p (actually 147p) and Seymour Pierce 191p. But these are clearly obsolete. The conclusion? "Shares says: the 100p price for the shares is cheap so exisitng shareholders should take the chance to get more. The current level also looks an attractive buy for new shareholders."

The interesting point made is that "Dr Palmer told Shares that regulatory delays had meant theat deals could not be done in time and that money had to be raised to keep the projects going." "...a licensing deal in the future is not a problem." But why raise so much money if they are still going for licensing deals? 32m can probably keep them going for at least two years. Meanwhile the price is quite likely to keep sliding. Do AZM care? Maybe not. Could there be real pressure from the investing community to get them to get cracking with licensing deals? Perhaps so. Worth watching because a licensing deal when it comes could take the sp to the SP figure of 191p and beyond. Views? Or is this share now off everyone's radar so that investors couldn't care less?

Eric

Eric, very good analysis and insight. At today's close I do think AZM once again represents exceptional value if one looks to the long term and beyond the botched rights issue. Nomura must be sick but have agreed to underwrite so the extent of the drop is somewhat quizical. Surely Nomura will not sell their stake out in a hurry while the sp languishes below 100p?

This has proved a cyclical stock and imho is well undervalued when one looks at the fundamentals and pipeline prospects. It might need to stabilise first but I'm pretty tempted to get back heavily at these levels and sit it out for a while. I personally do not think it will take too long to get back above 100p again. A bid is not improbable and at current levels think this will only impact the sp in one direction - north. Certainly not for the faint hearted but I believe there is some very good upside to be had here.