ALIZYME PLC

INTERIM RESULTS 

For the six months ended 30 June 2008

Cambridge UK, 29 August 2008: Alizyme plc (LSE: AZM) today announces its interim results for the six months ended 30 June 2008

In the year to date, we have further progressed the development of our product portfolio and remain focused on the commercialisation of these products.

Highlights

Operational

Cetilistat (obesity and diabetes)

• Protocols of all three studies in the Phase III programme agreed with FDA under SPA procedure 

• FDA indicated a potential labelling for type 2 diabetes, as well as for obesity

COLAL-PRED® (ulcerative colitis)

• Headline results reported for EU Phase III clinical trial in approximately 800 patients with active moderate to severe ulcerative colitis 

• Licence agreement with Norgine BV for Europe and other territories; €2.0 million received up front

• Phase II clinical development commenced in the US by Prometheus Laboratories Inc

ATL-104 (mucositis)

• Transfer of manufacturing technology to commercial facility ongoing

• Preparations for Phase II study in patients with solid cancer tumours ongoing

Renzapride (irritable bowel syndrome)

• Development by Alizyme discontinued in April following results of Phase III clinical trial

Financial

• Revenues of £0.05 million recognised in the period (six months ended 30 June 2007: nil) 

• Net loss after tax of £8.9 million (six months ended 30 June 2007: £12.3 million)

• Cash, cash equivalents and money market investments of £7.7 million at 30 June 2008 (£19.1 million at 30 June 2007, £5.8 million at 31 December 2007)

• £10.0 million gross raised from shareholders in the placing in March 2008

• Cost saving measures introduced following revised cash flow projections

Board changes

• David Campbell to step down as Finance Director and Company Secretary

• Richard Forrest to step down as Non-Executive Director

On outlook, Tim McCarthy, CEO, said: "Alizyme looks to build on the commercial and clinical progress achieved during the first half of the year as discussions with potential partners in relation to all products in our portfolio continue. Further license opportunities are being pursued with the objective of building multiple revenue streams and leveraging off the virtual business model."

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Further information on Alizyme can be found on the Company's website: www.alizyme.com

Interim management report

to the members of Alizyme plc

Cautionary Statement

This Interim Management Report ("IMR") has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

The IMR contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Overview

During the first half of the year, our main focus has been on the commercialisation of our diverse portfolio, which comprises three late stage products, including one in Phase III development. All of these products have competitive profiles and significant commercial potential.

Operational

Cetilistat

Alizyme's metabolic product, cetilistat, is being developed for the treatment of obesity and associated co-morbidities (including type 2 diabetes). It is a gastrointestinal lipase inhibitor that blocks fat digestion and absorption, leading to reduced energy intake, and thus weight loss. It is distinct from most other anti-obesity agents as it does not act on the brain to reduce appetite, but acts peripherally. The compound remains in the gastrointestinal tract with no significant absorption into the body. It can, therefore, be expected to have a superior risk-benefit profile to centrally acting drugs. Accordingly, cetilistat is not subject to the safety concerns generally associated with centrally acting drugs.

Roche's Xenical^® is an approved obesity product and is also a peripherally acting lipase inhibitor. In clinical trials cetilistat has been demonstrated to be significantly better tolerated than Xenical^®, which has side effects that can detrimentally affect patient compliance.

In March 2008, Alizyme announced that FDA had agreed all three protocols for its Phase III development programme for cetilistat in the treatment of obesity under the Special Protocol Assessment ("SPA") procedure and recommended that Alizyme open a separate IND for the investigation of cetilistat in diabetes.

Takeda Pharmaceutical Company Limited ("Takeda"), our partner in Japan, has been conducting a Phase II study in obese diabetics. The results from this study are due to be reported later this year.

Alizyme continues discussions in relation to licensing this product for territories outside of Japan.

COLAL-PRED®

COLAL-PRED® is a proprietary gastrointestinal product developed by Alizyme for the treatment of ulcerative colitis, an inflammatory disease of the colon that causes symptoms such as abdominal pain, bleeding, cramping, fatigue and diarrhoea. These conditions are characterised by episodes of acute flare of the inflammation, followed by periods of remission. In severe cases, surgery may be required to remove the diseased tissue. This market is dominated by anti-inflammatory steroids and 5-ASA products, which have safety and/or efficacy issues.

COLAL-PRED® is the combination of Alizyme's proprietary colonic drug delivery system, COLAL®, and prednisolone metasulfobenzoate sodium ("PMSBS"), an approved steroid in Europe. COLAL-PRED® has a coating that is broken down only in the colon, by locally occurring bacteria. This leads to topical delivery of PMSBS to the colon, rather than systemic delivery. It has been shown in a Phase III clinical trial to provide a significantly improved risk-benefit profile to that of conventional oral prednisolone.

Prometheus Laboratories Inc, Alizyme's partner for COLAL-PRED® in North America, commenced Phase II clinical development for the treatment of ulcerative colitis in the US in May 2008.

TSD Japan Inc, Alizyme's partner for COLAL-PRED® in Japan, has continued preparation for a Phase I study that is expected to commence in the second half of 2008.

In June 2008, Alizyme entered into a licence agreement with Norgine BV, a leading European specialty pharmaceutical company with a focus on gastroenterology. The agreement comprises an exclusive licence to Norgine to develop and market COLAL-PRED® in Europe, South Africa, Australia and New Zealand. Alizyme received an upfront payment of €2.0 million, with additional payments of up to €40.75 million receivable on the achievement of future development and sales milestones. The agreement provides that Norgine is responsible for commercialisation and for payment of double digit royalty rates to Alizyme that increase with higher annual net sales levels.

In January 2008, Alizyme announced the completion of patient recruitment into the pivotal registration Phase III trial of COLAL-PRED^® in patients with active moderate-to-severe ulcerative colitis. In July 2008, Alizyme reported headline trial results that support the product profile of COLAL-PRED^® as a safe treatment for acute ulcerative colitis. The study endpoints were comparisons of efficacy, safety and the combination of safety and efficacy, between COLAL-PRED^® and conventional prednisolone. COLAL-PRED^® demonstrated superior safety and superior combined safety and efficacy. A co-primary endpoint based on the Disease Activity Index of efficacy of COLAL-PRED^® to conventional prednisolone was not met. However, COLAL-PRED^® did show equivalent efficacy compared to conventional prednisolone after 8 weeks' dosing in the treatment of acute UC, based on patient reported symptoms. The results also suggest the potential for use in the maintenance of remission of ulcerative colitis.

The Marketing Authorisation Application ("MAA"), previously anticipated in Q4 2008, will be delayed due to one co-primary end point not being met. However, we continue review of the data with our partners and regulatory advisors. In conjunction with our existing partners, we look to progress the development of COLAL-PRED^® as a safe and effective treatment for ulcerative colitis.

Following the publication of the Phase III studies, Alizyme has received enquiries in relation to commercialisation of COLAL-PRED^® for the territories where it is not currently licensed to commercial partners.

ATL-104

ATL-104 is being developed by Alizyme as an orally administered mouthwash for the treatment of mucositis of the mouth and gastrointestinal tract arising during cancer treatment. This provides ease and convenience of administration and enables local delivery of treatment for oral and gastrointestinal mucositis with no significant absorption into the body.

Globally there are over 4 million new cases of cancer each year. Mucositis occurs in up to 80% of patients being treated for cancer. Mucositis is characterised by severe ulceration, bleeding and pain in the mouth and gastrointestinal tract, caused by damage to the cells that line these tissues by cancer chemotherapy and radiotherapy. These symptoms can be very painful (requiring the administration of opiates), can reduce the ability of the patient to receive nutrition orally, can be a source of infection and can be potentially life threatening. 

Having successfully completed a Phase IIa 'proof of concept' clinical trial in patients with lymphoma and myeloma, Alizyme is preparing ATL-104 for a second Phase II study, this time in patients with solid cancer tumours suffering from mucositis. In addition, transfer of manufacturing technology to a commercial facility in preparation for manufacturing scale-up for Phase III clinical trials and commercial supply is ongoing.

Alizyme is progressing discussions with a number of potential license partners for this product.

Renzapride

In April 2008, Alizyme announced that following clinical trial results from Study 038, its Phase III study of renzapride in constipation-predominant irritable bowel syndrome ("IBS-C"), no further development would be carried out by Alizyme. As a result, Study 052, the open label extension study to evaluate the long-term safety and tolerability of renzapride, was also discontinued. Renzapride therefore no longer forms part of Alizyme's development portfolio.

Financial review

The unaudited condensed financial statements for the six months ended 30 June 2008 are prepared in accordance with the Group's accounting policies based on International Financial Reporting Standards ("IFRS") as adopted by the European Union.

In the six months ended 30 June 2008, Alizyme made a net loss of £8.9 million (six months ended 30 June 2007: £12.3 million).

Revenues of £0.05 million were recognised in the six months ended 30 June 2008, relating to the elements of the US$2.5 million (£1.2 million) up front payment received from Prometheus Laboratories Inc in November 2007 and of the €2.0 million (£1.6 million) received from Norgine BV in June 2008 that were recognised during the period. There was no revenue for the six months ended 30 June 2007. 

Net cash outflow from operating activities for the period was £7.5 million (six months ended 30 June 2007: £9.3 million).

Cash, cash equivalents and money market investments were £7.7 million at 30 June 2008 (£19.1 million at 30 June 2007, £5.8 million at 31 December 2007).

Research and development expenditure was £8.8 million (six months ended 30 June 2007: £12.8 million), reflecting expenditure on the Phase III clinical trials for renzapride and COLAL-PRED^® and the long term safety study for renzapride. All costs associated with completing the renzapride studies have been recognised in the period.

Alizyme's outsourcing model means that the limited clinical activity planned for the second half of the year will result in substantially lower research and development expenditure for that period.

Management and administration expenses were £0.7 million (six months ended 30 June 2007: £0.7 million). In addition, share-based payment costs of £0.3 million (six months ended 30 June 2007: £0.3 million) have been charged for the period.

The Directors have revised their forecasts of the cash flow requirements of the Company following significantly increased costs incurred in connection with clinical trial activity. The Directors have made reasonable assumptions about reductions of these clinical trial costs and other cost reduction measures, as well as income on achievement of milestones by third parties under existing licence agreements. Such reductions and income would enable the Company to continue operations through to the end of 2009 without reliance on revenue streams from new partnerships or further raising of capital. However, as described in note 1 to the condensed financial statements with respect to the Company's ability to continue as a going concern, those assumptions are subject to material uncertainties.

Following completion of Phase III studies for renzapride and COLAL-PRED® earlier this year, the ongoing clinical trial activity has significantly reduced and, as a result, the Directors are in the process of rationalising headcount as well as implementing other cost reduction strategies as appropriate.

Board changes

We announce today that David Campbell has informed the Board that he wishes to step down from his role as Finance Director and Company Secretary and pursue other opportunities and interests. He will formally leave the Company later this year.

We also announce today that Richard Forrest is stepping down as a Non-Executive Director with effect from 31 August 2008.

We wish to thank both David and Richard for the commitment and support that they have provided to the Company and wish them every success in the future.

Risks and uncertainties

Alizyme faces a number of general risks and uncertainties that are common to biopharmaceutical development companies that are described in the Annual Report for the year ended 31 December 2007, which do not form part of this report. In the forthcoming period to 31 December 2008, the key risks facing the Company are as follows:

It had been anticipated that a MAA for COLAL-PRED® would be submitted in the EU in Q4 2008. There is now uncertainty over the timing of a submission. Submission of an MAA may result in restriction of indication, denial of approval or demands for additional data.

The results from the Phase II study of cetilistat by Takeda are due to be reported this year. There can be no certainty as to the outcome of this study. If successful, we anticipate that Takeda will apply to commence a Phase III study. However, this decision will be made by Takeda, and the ability to commence a study would be subject to regulatory approval, which may result in demands for additional data, amendments to the protocol or delay, and which is not certain.

The condensed financial statements have been prepared on a going concern basis, relying on assumptions about income from future milestones and reductions in the costs incurred by the Group as explained in note 1 to the condensed financial statements. These events and conditions represent material uncertainties over the profile of Alizyme's future cash flows and hence its ability to continue as a going concern.

Outlook

Alizyme looks to build on the commercial and clinical progress achieved during the first half of the year as discussions with potential partners in relation to all products in our portfolio continue. Further license opportunities are being pursued with the objective of building multiple revenue streams and leveraging off the virtual business model. We take this opportunity to thank the team at Alizyme and our collaborators for their significant contribution, commitment and effort throughout the period.

Responsibility statement

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 - 'Interim Financial Reporting';

• the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

• the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Sir Brian Richards                        Tim McCarthy

Chairman                                       Chief Executive Officer

29 August 2008                            29 August 2008

Independent review report to Alizyme plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim statement for the six months ended 30 June 2008, which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 16. We have read the other information contained in the interim statement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report or for the conclusions we have formed.

Directors' responsibilities

The interim statement is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim statement in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in the interim statement has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim statement based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim statement for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Emphasis of matter - going concern

Without qualifying our conclusion, we draw attention to the disclosures made in note 1 of the condensed financial statements concerning the Group's ability to continue as a going concern. These include the following uncertainties:

• Receipt of milestone income from third parties under existing licence agreements

• Timing and cost to completion of known clinical trial activity undertaken by third parties on behalf of the Group

These events and conditions, along with other matters as set forth in note 1, indicate the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern. The interim report does not include the adjustments that would result if the Group was unable to continue as a going concern as it is not practicable to determine or quantify them. 

Deloitte & Touche LLP

Chartered Accountants

Cambridge, United Kingdom

29 August 2008

Notes:

A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the Directors but no control procedures can provide absolute assurance in this area.

Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

Condensed consolidated income statement

for the six months ended 30 June 2008

Unaudited

All amounts relate to continuing activities.

Condensed consolidated balance sheet

As at 30 June 2008

Unaudited

Condensed consolidated statement of changes in equity

Unaudited