Thursday, May 31, 2007

Altus Pharmaceuticals (ALTU) is showing clinical and financial progress

Altus Pharmaceuticals (ALTU) is a small cap (~$400M) market cap biopharmaceutical company with a unique crystallization technology that amongst other things allows for better purity and longer half life for other wise rapidly broken down proteins and enzymes. This technology is very difficult to master and creates a natural barrier to entry even beyond patent expiration. I have previously written about ALTU when the stock was trading around $18 back in November 2006 (link).

Since then Altus has signed a development and commercialization agreement with Genentech (DNA) (link) for ALTU-238 a longer acting version of human growth hormone currently in phase II clinical trials with a $2 billion market.

On May 10th, Altus announced initiation of a phase III clinical trial for ALTU-135, an enzyme replacement therapy for Cystic Fibrosis. To fund this large and expensive trial, Altus had a stock offering earlier this year which raised about $89 Million dollars.

Altus' pipeline contains other promising pre-clinical products including ALTU -237 (oral)for kidney stones and ALTU-236 (oral) for phenyloketonurea.

Altus has a high probability of success mostly because of their first two products are improved versions of existing products, which lowers the degree of difficulty because they do not have the burden of a proof-of-principal that a novel medicine must overcome.

For some strange reason, Altus' financials do not reflect the new money raised through public offering. The correct balance sheet cash should be closer to $200 million. The company is undervalued with a market cap of only $413 million at $13/share with about $6/share in cash, a partnership with Genentech and two products in or near phase III. I expect the stock to rise to $20-25 by year end as more clinical trial data becomes available or a new phase III is started
for ALTU-238.

Disclaimer: The author has an investment position in ALTU.

Wednesday, May 16, 2007

Vertex Pharmaceutical's (VRTX) Telaprivir is effective, but path to market needs clarification

On April 14th, Vertex Pharmaceuticals release highly anticipated Phase II clinical trial (PROVE1) results of its Hepatitis-C treatment Telaprivir. The results of the interim analysis are shown in the table below. The full press release with additional information can be found here.

The results look impressive as they show a rapid response in Telaprivir treated patients vs. plaebo in the first 4 weeks. However, the interpretation of results at 12 weeks becomes questinable due to lack of statistical significance. Analysts were focusing on a small subset of 20 patients who were to receive the Vertex drug for just 12 weeks and then be checked 20 weeks later for signs of relapse. Here is the quoted text from the press release regarding those 20 patients:

"Analysis of PROVE 1 Patients who Finished All Treatment at 12 Weeks. Seventeen of 175 patients received at least one dose of telaprevir in “Arm D” of the PROVE 1 study (telaprevir + peg-IFN + RBV). According to the study protocol, patients in Arm D were eligible to stop all treatment at week 12 if they met on-treatment criteria, including the achievement of RVR (<10>The one obvious conclusion that can be made from looking at this data is that the number of patients are too low to make any extrapolation on percent responders. The other conclusion is that 12 week therapy may not be sufficient to reach undetectable levels in a significant portion of the patients. However, the fact that more patients respond to longer periods of treatment with standard of care ( SOC is Interferon + Rivbavirin) suggests that patients on SOC + TVR may also benefit from this increase. The company has already started Phase II ( Prove 2 and 3) trials with larger number of patients with regimens of at least 24 weeks. This means longer clinical trials, higher costs of trials and lower chance of a quick approval and launch in 2009. This would explain lack of a upward stock movement after the release of the results.
The other issue of higher incidence of drop outs should not be a significant issue. Since, this was a trial most patients and physicians are careful with side effects. In practice and after approval, it is safe to assume more patients will be encouraged to withstand the side effects (severe rash which exists in SOC and can be treated).

VRTX has also released their quarterly financial report and as expected they spent a significant amount of money on materials for phase III clinical trials which are expected to begin in Q4. Even after paying down some long term debt, VRTX still has a hefty $655 million in cash and short term securities which should be enough to fund the launch of Telaprivir.

Since the release of earnings and clinical trial results the stock has been trading between $30 and $32. I waited a few weeks before writing this post to see the reaction of the market to the data. The reaction of investors since then has been of cautious optimism. The stock seems to have found a support at $30, but if there is a large sell-off in the market, VRTX will see more volatility than stocks with earnings. The data has clearly shown that Telaprivir is safe and is an improvement to existing therapy, giving it a high probability of becoming a blockbuster. The rest of Phase II data, which are scheduled to be released in November will determine the inevitable path to market. The stock should end the year higher than these levels and has a minor probability of a significant downside given the size and unmet need of HepC market.