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

Also in the FT, and the Guardian,
We shall see!

Also a mention in Saturday's FT re Investec comment and specifically relating it to Cetilistat.

Thanks for that Neil. I bought back in this morning as it seems to be moving in the right direction in any case.

Let's hope so Toya, it would be nice to see the SP stretch it's legs a bit!
Good luck!

Yes, even as far as 50p would be welcome. But when they really do manage another deal it could go much further.

Good buying volume again today. It certainly seems that an announcement re Cetilistat will come with the results. What will that be? If it parallels that late last year for Colal-Pred then it would be about 100K of stage payments with a licensing deal to follow. But remember that was only North America so it could be significantly better than that. Here's hoping.

Eric

I'm certainly delighted to see that my shares are already in profit from this morning, from which I can only assume that good news is indeed in the wind.

for which i too thank you

Did you get in today then, Cynic?

i did .... at 42.0

Good, glad to hear it!

Clever boys (and/or girls)!

Definitely not a boy, thanks Eric!

Buying getting going again. Topped up at 43.75p. Has anyone seen a mention of which day the results are. I am assuming that the Cetistat announcement will be made at the same time. They normally do an institutional briefing. I suspect Investec are well informed so that their price target of 59.something is possibly the next staging post.

Eric

Just been looking again at the Investec comments and the quote that AZM are about to conclude a deal which ends a 5-year search for a major development partner. I'm not sure that they will want a single partner as they could become vulnerable to a takeover which is clearly the last thing the directors want. So the forthcoming announcement could be very significant. A bit surprised that Investec's price targey is only 59p which gives a cap of about 130M. That is round about the level of the other players in this sector, but AZM are much nearer the market with three drugs in Phase III, two seen as blockbusters. A very significant part to the Cetilstat statement a month ago was that they had encouraged them to open another 12 month phase III exercise aimed at Diabetes alone apart from obesity considerations. That effectively adds a third blockbuster.

I am really looking for the announcement to generate a bit more steam and for the share to at least get to 70p before pausing. So don't take your profits too soon, Toya and Cynic. Tomorrow could be the day!

Eric

to be decided .... as i have often said, no one ever went broke banking a profit

TRue, but (a) you can leave much on the table (b) I prefer the saying: cut your losses, run your profits.

I was taught to leave a bit for the next man but, not too much. lol

How about leaving something for the next woman Gusc?

I'll wait and see how much steam can be generated, and what the prospects are for more, before I decide whether to hold or sell. I do agree Eric: AZM is certainly a company with a lot of potential but it's all about timing.

Oh ok then Toya, if you insist. Certainly concur about timing, this is a tricky one for the trader. I am in for the major move, hopefully. I think the recent institutional funds raised at 50p per share is interesting and points to better times to come. These funds were raised during a difficult backdrop for the sector.