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

Eric,I listened to the Webcast and apart from the disappointment with Renzapride (which they needlessly went into in more detail), very little more was gleened. With respect to Cetilstat, TM said that they continue to be in discussion with 6 large pharmas and that he would expect there to be developments in 2008. He said when asked, that he was not under any additional pressure but, he would say that wouldn't he, what else could he say. I think there was a question with probably innuendo attached when the questioner asked how long it takes the Board to make a decision as to weather to further develop a drug once trial results are known.TM said to the effect that he had received the full data this week in respect of Renzapride and a decision was made quickly. I just wonder if this question was raised given the recent fund raising. I hope TM has some better news to report by AGM as the situation may well get taken out of his hands imho.

going down further..........glad i didnt buy recently. think i'll avoid until some good news appears....if it ever does that is

always said it was all or nothing!!! The fact nobody has can come rushing in to partner them probably says it all.

Many thanks, Gus. Good to see 6 pharmas involved in discussions. Bad news is that implies we are still some way from an agreement. Agree AGM is probably the earliest for hearing something positive.

oh dear!

10%trades already.....ALL sells just about

For reference, sustantial holders as per 2007 Report & Accounts:-
Prudential Gp 44,197,627 shs-------20%
Legal & Gen. 10,840,536 shs-------4.9%
Bluehone 9,303,088shs-------4.2%
ABN-Amro 7,650,000shs-------3.5%
Univ.Sup.Scheme 6,855,595 shs------3.1%


Bluehone was established in 2005 and its partners were former fund managers at F&C Asset Management and F&C is also a partner in the business.
Bluehone specialises in small company focused funds and tends to invest for capital growth over the medium to long term.

If this drops to 20p, I may buy some.

Are AGM's well-attended?
Should be exciting!

If it is any consolation, I certainly think Pru and L&G will keep the Board on their metal.

Gus based on your analysis the sale of 18.074mill shares must be Prudential or rather M&G as only 5% of total Pru. holding is not M&G. Clearly, that was significant cause of seondary fall over last 24 hours in spite of some reasonable buying. I had to close my own CFD account as I didn't have funds to hold the position once it went negative. Sad, but one of those things. Its a high risk way of proceeding: big risks but big rewards if you get it right. Went on the internet at 7.55 Wednesday morning as I thought there might be an announcement on Cetilistat following some significant buys on Tuesday. Only to see the Renzapride announcement and the shares falling through the floor. A stop loss wouldn't have been any good because first trades were down at 27p. :0)

I initially bought AZM 5 years ago at 27p and have made some decent profits. They have actually come a long way in 5 years. If we accept the analysts figure that Renzapride accounts for 16% of the sp then the fall is overdone. That seems sensible as spend on the drug has evidently been 20mill. out of some 100mill (guesstimate). Company must be worth more than current 60mill. Against that, we still seem to be a distance from a cetilistat announcement. There may not be any cause for a recovery in the short-term. I'll have to watch from the sidelines anyway for a while - so it will probably go through the roof! I'll edit the header to bring it up to date.

Good luck, one and all.

Eric

Sorry how its turned out Eric. As you say, big rewards if you can get it right. As regards the 18m+ share sale, those shares must have gone somewhere as I would have expected the sp to fall further if they were overhanging. Management have upset some big investors. I await a RNS re shareholding changes. sp 28.75p

Thanks Gus. Pretty sanguine about it. The negative for AZM management is that they will have lost it, in general, with the bigger investors so they are now on their own. Like the property market, they are now in a buyers market with no way of raising more funds except by licensing deals. May be a good thing. If more than one pharma wants cetilistat they should still be able to do a good deal and need it before they start Phase III. If only one pharma really wants it they are in a difficult situation. The downside is always a takover - good for short-term profits but stops it becoming a lovely future cash cow. I will watch for a while and no doubt will be back in - better the devil you know (or think you know!)

Eric

Decided to call it a day on this company and have sold. Only consolation being that a least the loss can be used against gains. Have become uneasy about the management.They all seem very well rewarded and ceo comes over well but, not a lot to show to date. Cetilstat may well come good but some big institutions are not happy with recent events.

Gus Understandable. However, I dropped out because holding was in CFDs and was effectively forced out. I would have held at this level although waited to buy. Once cetilistat license money is flowing then pbt has to be a minimum of 50m implying a cap. of 500m+ and an sp of 200p+. But I accept that that is clear to the institutions and one, at least, has lost patience.

So the purchaser in the large sales last wek was UBS acquiring 10.02% of the equity. Any thoughts about logic. No indication (yet) of reduced institutional holdings - the major transfer was at 25p so it looks as if UBS mopped up demoralised holdings.

EW, who was providing you the CFDs. May be interested if price drops to about 15p.

Which I doubt.

UBS have already disposed, presumably, of 2.4mill on 25th, day after share acquisition. Mostly acquired at 25p and sold at around 29p. Looks as if acquisition to be traded only so bound to overhand market for a while. It will be worth looking out for the notice that takes holding below 3%.

sorry guys ive bailed out at a massive loss, i said all or nothing but lost my bottle. I think kenmare resources is a better prospect over the shorter to medium term. i will keep an eye on azm though and will be back in like a shot when/if we have some positive news. Good luck to you holders.

may see some perkiness today as Express says some big deal(s) may be announced shortly ..... note the subjunctive!

Still interested in AZM despite the let down, somewhat costly for me and, no doubt, others. The finger is pointing at Tim McCarthy, the Chief Exec, who must have lost all face with the institutions having raised 10m only two months ago at 50p. OK, problems do arise at Phase III but it suggests that the Phase II studies have not been sufficiently thorough. The strange thing to my mind was that the efficacy appeared to be good with the problem being that the placebo performed almost as well; the effect in the latter case was clearly psychological but you start to wonder about the design of the test.

And why was the Interim Management Statement issued at all? It was for the period 1st Jan to 19th May, odd in itself, and it didn't appear to say anything new. Mc Carthy comments: We continue with a number of ongoing discussions with potential partners for our late stage products. We anticipate that these activities,together with results fromour Phase III study for COLAL-PRED, will provide for significant news flow through 2008.

The sp continues to fade which is not surprising. But I will come back in when I have some funds available - if they can't negotiate decent deals then someone will take them over; the institutions would be happy to get the 50p price back no doubt

Eric

21p seems to be lowest its ever gone from looking at the chart..... is there anyone out there looking to buy at these levels ???