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

Positive comments in Shares today. Supports the view that acquisition could come into view if progress is not made in joint-licensing. Suspect it may be third quarter beofe the latter comes to fruition. But I suspect that the exposure received during the search process will lead to a generally advancing price in the meantime. 15p per month should be a reasonable estimate.
Eric

Yes AZM is very popular with shares mag' more articles than i can remember.
15p per month and then toped off with a juicy deal would be the cherry on the cake.

Switched my Shares Challenge portfolio into AZM to go for the April prize! So come on, lets have a partnership announcement or at least a progress report!

Eric

Good luck Eric!

A welcome update today, reinforcing what some of us have been anticipating.

Good news indeed!

Still a long way to go to get back into the blue, but it looks so much better now.

Oh, and hiya Queen, nice to see you again. Been away?

Been around Harry, you've just not noticed :-)

Liked the report. Reporting for Renzapride and COLAL-PRED back to early 2008 but the main thing is that plans have been firmed up. Looks as if the problems with Zelnorm are positive for Renzapride in that there is a gap in the market to be filled. Interested in the comment that, whilst the Phase III programme is ready to commence, that this will be subject to a commercial deal. We were aware that the costs of this programme are very significant and this confirms that a partner is necessary to proceed. But I also take it that AZM are not anticipating much of a hold up. I would therefore expect speculative interest to increase and the current up-trend to continue. Times report today that AstroZeneca, plus several US competitors, have real pipeline problems although the numbers suggest that they would be keener on acquisition than the partnership route.

Eric

There should be a deal for Cetilistat this Summer, followed by deals for COLAL-PRED and Renzapride.

I agree, this year should be transition time for AZM,!

Ludlow Castle Good to see you are more positive re deals this year. An industry comment made the point that a deal of this nature takes of the order of six months to negotiate. So we are approaching the window; perhaps by September for Cetilistat. I suspect the focus is there as they could just about manage the other products on their own. But is there really much point in making the transformation to a rounded pharma company. Better stick to their development knitting. Interesting that some are getting impatient but in my view that is a buying opportunity. 2 is the minimum I am looking for (as are Merrill Lynch!)

Eric

A definite buying opportunity at this level.

What's going on with this lot this week? Does the phrase, "falling off a cliff" mean anything to anyone? The markets have been very positive this week yet AZM seems to be in freefall.....

A quite normal pullback, imo, after such a good run, have a look at the RSI.
Neil.

Have a look at this.

I suspect that we are back in the no news syndrome. Some lose patience. Some tke profits. Having said that, the most likely is major investor(s) who are quite happy to take profits after the last placing and move on, without offsetting buyers. If one is happy with the judgement that there will be a major deal this year, which I am, then best to sit tight or even take this as a top up opportunity. What the graphs do show, over a longer period (see header), is that there tends to be swings of sentiment. The normal yardsticks of performance against forecast and pe don't apply so it seems that either buyers or sellers get the upper hand for a period and there are no clearcut resistance levels or support levels to stop the trend.

Eric

FREEFALL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! HARDLY!!!!!!! this was always going to take time and has fallen on very little trading.

kivver - (I won't use capital letters or 36 exclamation marks to emphasise my point) Overall the markets have been a sea of blue the last couple of weeks (give or take) but AZM had a number of days of consecutive falls. The drops themselves weren't huge but as the majority of the market seemed to be heading the other way they appeared to be worse than perhaps they really were. That was my point. Thanks ever so for your over reaction.

if i could write smaller i would, yours was the over reaction not mine, i was simply saying that a very small percentage drop on very little trading was not freefall. You didnt really count all them exclamtions marks did you! ;0)