As the population gets heavier, you may be able to make money from fat-busting treatments.
Two thirds of the UK population is either obese or overweight, according to research from Bristol University. That's a worrying statistic and it suggests that demand for fat-busting products can only increase.
One UK biotech, Alizyme
(LSE: AZM)
, has a promising anti-obesity drug called Cetilistat. It works by restricting the absorption of fat in the gut, which helps dieters to lose weight.
Cetilistat has now completed mid-stage Phase II trials and the US Federal Drugs Administration (FDA) has agreed a plan with Alizyme for a final-stage Phase III trial. That's pretty exciting news, as a typical drug at this stage has a 60% chance of winning regulatory approval.
What's more, the potential market is substantial. Datamonitor has estimated that the worldwide obesity market could be worth $2.5bn by 2012.
Yet, in spite of all the potential, the share price has almost halved since March. Why?
I think the main problem has been Alizyme's failure to find a licensing partner for Cetilistat. Alizyme needs a partner to pay for the Phase III trials and only a large pharma would have sufficient muscle to do a big marketing campaign if the drug is eventually launched.
As a shareholder, I've been disappointed by the slow progress on this front, but I don't think it's time to press the panic button just yet. Chief executive Richard Palmer gave a presentation to analysts yesterday and explained why he thought no deal had come through so far.
Palmer reckons that it's all connected to Sanofi-Aventis' new anti-obesity drug, Acomplia. This drug has been approved in Europe but the FDA has still not given it the final thumbs-up. And more importantly, we don't know what sort of warnings will be required by the FDA on the drug's label.
The EU regulator has insisted that Acomplia's label should say the drug isn't appropriate for patients with severe depression. Will the FDA insist on a tougher label?
The contents of the FDA's label will have an effect on Cetilistat's competitive environment, so it makes sense for a large pharma to wait and see what the FDA decides.
Some bulletin board posters have also blamed a US campaign by Public Citizen against another anti-obesity drug, Xenical. The campaigners argue that Xenical increases the risk of colon cancer.
This is relevant to Alizyme shareholders because both Xenical and Cetilistat inhibit the absorption of fat in the gut. So if there's a link between Xenical and colon cancer, there's a good chance that Cetilistat will be linked too. Palmer, however, was very dismissive of the campaign yesterday. He said the FDA didn't even ask about this issue in recent discussions with Alizyme.
In my view, the crucial point about Xenical is that it causes nasty side effects whereas Cetilistat's side effect profile is much better.
I can't guarantee that Alizyme will find a partner for Cetilistat, but I think there's a very strong chance a partner will eventually sign. And I think there's an approximate 60% chance that Cetilistat will reach the market in the end.
Yes, there's plenty of risk here. But think of this, Alizyme is a £180m company which owns a drug that could be generating annual revenue of £700m (Nomura forecast) a few years after a possible launch in 2009. And Alizyme could expect to receive a 15% royalty on those sales, perhaps more.
Alizyme also has three other promising products in its pipeline -- all at Phase II or later -- and it had a cash balance of £23m at the end of June.
So I'm happy to carry on holding my shares whilst accepting this is a high-risk bet.
More: Fat Profits To Bulk Up Your Portfolio
Ed owns shares in Alizyme
