bulk up on this fat-fighting firm

From the Australian today, excellent article of CZD (and POH)

Bulk up on this fat-fighting firm (Calzada ,CZD 3.5c)

CRITERION: Tim Boreham From: The Australian March 02, 2010 12:00AM

WHILE there's been no heavyweight buying, don't be surprised if a few bodybuilders have been bulking up on this one in the hope the biotech re-starts development of its stalled fat-fighting compound AOD9604.

Then known as Metabolic, Calzada pulled its main trial in February 2007, after the orally delivered drug failed to demonstrate efficacy across a wide (in many cases, literally) sample of candidates. Given the company had spent $65 million on getting the trials that far, the shares went on a crash diet and never recovered.

The problem with orally delivering such a peptide-based treatment is that too much of the protein is absorbed by the gut. Since then, someone has devised an injectable version and a counterfeit version is being sold by Chinese manufacturers on the black market to bodybuilders for up to $2500 a gram.

When you're already on a rigid exercise and diet regime, there's not too many other ways to shed weight quickly (which bodybuilders need to do to meet competition fat-ratio limits). Oddly though, the original trial produced the most favourable results in a subset of obese and exercise-averse women.

Calzada is now pondering its options in terms of salvaging value from the compound. "I have always been a great believer in the drug," says David Kenley, who left Metabolic in mid-2005 and re-joined a year ago. He now runs the AOD9604 development arm, Metabolic Pharmaceuticals.

Kenley's mission to revive the program was bolstered through a research tie-up with the listed Phosphagenics, to develop a transdermally delivered version for cosmetic use.

Two weeks ago, the board formally allocated a small amount to salvage value from AOD9064.

One option is to pursue the patent breaches, but when it comes to China the terms "snowflake" and "hell" come to mind.

Another tack is to resume limited trials, but a licensing strategy is more likely. Kenley believes the old Metabolic "squandered" millions of dollars to pursuing the oral delivery method, which offers the biggest potential market. Calzada shares have crept up from a low of 2.6c last month, but are still trading only just above $10m cash backing. Calzada's also owns Polynovo, which is developing biodegradable polymers for applications such as dressing burns victims.

Kenley says both businesses could make a fortune, but we have little doubt what investors see as the fatter prize. Speculative buy.