Saturday, November 25, 2006

Amylin gets approval for Byetta in Europe

Amylin Pharmaceutical's(AMLN) stock continued the recent weakness despite announcing European approval of it's diabetes treatment Byetta. I have previously written about Amylin and had recommended to wait for a better entry point ( click here to see that article).

Some of this recent weakness could be due to some expected competition form the strong launch reported by Merck of it's diabetes drug, Januvia and the anticipated launch of Glavus by Novartis in 2007. Both Glavus and Januvia are from the same class of small molecules known as DPP-IV inhibitors. Byetta affects the GLP-1 pathway and thus provides a different means of controlling blood sugar in patients with diabetes.

It is too early to tell whether the DPP-IV drugs will dominate the market. It is most likely that the addition of all these new treatment options will provide different solutions to different patients. I believe that all these new products will increase the awareness of different treatment options. I also think that Byetta will continue to enjoy good market uptake because of an early launch and a different and unique mechanism of action.

I recommend addition of AMLN at current level of $41 or below.


Altus Pharmaceuticals (ALTU) - Long Term, Buy

Company History:

Altus Pharmaceuticals (ALTU) is a biopharmaceutical company engaging in the development and commercialization of oral and injectable protein therapeutics for chronic gastrointestinal and metabolic disorders. It's platform technology includes a proprietary protein crystallization technique, which allows for better understanding of the structure of function of the molecule. The company's lead product candidates include ALTU-135, a phase II completed orally-administered enzyme replacement therapy for the treatment of malabsorption; and ALTU-238 used for the treatment of growth hormone deficiency in adults which is in phase II clinical trials. It's pipeline of pre-clinical candidates includes ALTU-237 for treatment of hyperoxalurias, and ALTU-236 for phenylketonuria.

Market potential:

The list of Altus' the potential drug candidates include novel biologic therapies geared at niche diseases. For example- ALTU-135 is an enzyme replacement therapy geared to treat certain aspects of Cystic Fibrosis in addition to other pancreatic diseases. If proven to be better than existing treatment, this product would have a dominant market position in a relatively small market size as far as the patients but a one that could be financially rewarding. This model closely resembles what made Genzyme a success story in the 90's.

Recent Problems Causing Delays:

There has been some manufacturing delays due to some problems in the assays used to test the quality of manufacturing materials. The management took the correct course of action by delaying the start of the trials until a correct process is in place. Even tough this results in a few more months of delay, the consequences of going into a phase III trial with poorly characterized material would have been disastrous. Furthermore, this delay allows the company more time to partner with a big pharmaceutical company to assist in execution of the trials both with funding and with expertise.

The Stock:

The stock, which started trading earlier this year, has had a wide range ( IPO at $15, high of $25 and low of around $11). This volatility is expected of a small cap biotech company with a market cap of about $430 M given the bad news that came out earlier and the biotech sector slump this summer.

The stock has made a strong move above its 200 moving average and it looks like the 50 and the 100 day MVA are soon to follow.

I think with a partnership agreement this year and with two late stage products with visible risks and rewards, ALTU is undervalued at $430 M or $18.7 /share. I expect this company to trade significantly higher in the next 12 months given a favorable partnership and no more additional clinical trial risks besides the normal uncertainties associated with any well designed trial. Of course, the stock price movement also depends on how the biotech index does in the same time frame.

Bottom Line:

I like ALTU for the long haul. Any pull backs unrelated to a fundamental issue should be considered a buying opportunity. ALTU is a good biotech long term investment with profatibility being at least 5 years away. However, patience could be rewarding and this stock could result in a 5-10X return.