Altus Pharmaceuticals: Interesting Pipeline, Attractive Valuation

| About: Altus Pharmaceuticals (ALTU)

On Monday March 12, 2007 Altus Pharmaceuticals (ALTU), a biopharmaceutical company focused on oral and injectable protein therapeutics for gastrointestinal and metabolic disorders, reported Q4 and YE 2006 financial results and provided milestones for 2007. One of the big recent events was the signing of the deal with Genentech (Private:DNA) to develop, manufacture and commercialize ALTU’s product candidate ALTU-238.

ALTU-238 is a subcutaneously administered, once-per-week formulation of human growth hormone, using ALTU’s protein crystallization and formulation technology, for patients with growth hormone deficiencies. An adult Phase III trial is expected in 2007 as well as a Phase II pediatric trial for this product, also in 2007. ALTU has receives a $15 Million equity Investment from Genentech with an additional $15 Million payment expected soon. This deal is added support for the technology basis of the Company and will provide strong support for future ALTU-236 development. During 2006 a manufacturing problem with its lead product, ALTU-135, an orally administered enzyme-replacement therapy for pancreatic insufficiency, caused the stock to fall as it delayed the commencement of the Phase III clinical trial. In addition ALTU announced a problem with delivery of equipment used for the production of the ALTU-236. The company announced on Monday that it will initiate the delayed ALTU-135 Phase III efficacy and safety trial in the second quarter of 2007. The manufacturing issues are now behind them and they have contracted with a new supplier, Lonza.

The stock has since recovered the lost value due to the manufacturing problem. Other milestones in 2007 include a Phase I trial for ALTU-237, an oral form of an oxalate-degrading enzyme for the treatment of primary hyperoxaluria and enteric hyperoxaluria, as well as to prevent the recurrence of kidney stones; complete the ALTU-236, proof of concept in pre-clinical models in the fourth quarter of 2007; and complete ALTU-242 proof of concept in pre-clinical models in the fourth quarter of 2007 the latter two preclinical programs are for two rare disorders.

ALTU was founded in 1999 by Vertex (NASDAQ:VRTX) and in January 2006 the company raised more than $110 million in a successful IPO. It has an interesting business model based on a solid technology platform. It addresses smaller niche markets, probably with sizes less than $1 billion, using an enzyme replacement therapy. Its valuation is attractive for a company with as rich a pipeline of products. There will be a number of supportive events for the stock in 2007 and we expect solid stock growth for 2007 from current depressed levels of $15 to $16, even though it is a few years from product revenue.

Disclosure: Author has no position in ALTU.

ALTU 1-yr chart