All drugged up

Sometimes I like to investigate random companies in the FTSE All-Share index in the hope of uncovering a hidden gem.

Here is one I looked at:

Alizyme

Alizyme is a biotech with a couple of products in phase III trials. That is where the good news ends as AZM has no revenue (except the odd milestone payment from its partners) and a scary cash burn rate. It burnt about £8 million in the last 6 months leaving £22 million in the bank. What is even more scary is that the burn rate is set to increase as the phase III trials start in earnest.

What does this mean? More share dilution I guess. If the data on iii.co.uk is to be believed the share count has increased from 42 million in 1999 to 165 million today. Ouch.

Another alarm bell is that R&D spending is being decreased as AZM focus on their late stage products. So if the current batch of drugs fail there won't be any more coming through.

How exactly do you value something like AZM? I guess you estimate the probability of the drugs being successful and multiply it by the potential market for drugs of that kind. Or something.

Maybe if you bought a basket of ten biotechs like AZM you might have a decent chance of one of them making the big time. But it is a specialist game and not for me.

I have said before that investing is not gambling but AZM is a gamble so I will leave it to the experts and the dice rollers.