Alizyme, the Cambridge drug development outfit, yesterday held out the prospect of a commercial breakthrough in the treatment of obesity - a condition said to affect more than 120 million people worldwide.

The company was the toast of the stock market after reporting that phase two clinical trials showed its drug ATL-962 to be as effective as other drugs of the same class but with a significant reduction in unpleasant gastrointestinal side effects.

Directors believe that the drug has the potential to become a blockbuster product generating sales of more than $1bn a year. They are looking for a licensing deal with a leading global pharmaceutical group next year. Alizyme, which is also work ing on drugs to treat inflamed bowel disease and irritable bowel syndrome, agreed last month to license the rights to ATL-962 in Japan to Takeda Chemical Industries in a $42m deal.

Alizyme is talking to several pharmaceutical corporations about a licensing agreement for the rest of the world and believes the drug, which still has to undergo larger-scale phase three tests, could be introduced commercially by 2007.

"This is a very attractive product opportunity and we have a number of companies interested," said Alizyme's finance director, Tim McCarthy, a co-founder of the business.

Obesity has been identified by world health experts as the largest global, chronic health problem in adults. As well as the 120 million people estimated to be clinically obese, a further 210 million are overweight, making treatment a huge market for drug companies. In the US - pictured - health care costs attributable to obesity are put at $100bn a year.

Income from any licensing deal for ATL-962 would help produce a quick turnaround in the fortunes of the eight-year-old company, which reported a £7m loss in the first half of this year. Second half losses are expected to be significantly lower with losses for the year projected to be £10m.

Trials of ATL-962 were carried out using 372 clinically obese patients in five European countries.

Alizyme shares shot up from 34.5p to 114.5p.