One biotech gasps for breath

Around noon on a sunny Wednesday in mid-May, 25 or so employees of the Waltham, Mass-based biotech linkurl:Altus Pharmaceuticals;http://www.altus.com/ are unwrapping their offerings for a company-wide potluck; orzo salad, meatballs, curried cauliflower, chicken wings, fancy fruits, and an assortment of sweets soon cover a long table by the kitchen's window. "What is this, the last supper?" quips Nazer Khalaf, a small, round-faced man with a salt and pepper moustache, and at 15 years, Altus's most veteran employee. Yellow stickers in the company's lab mark equipment to be sold Georges Gemayel, Altus's CEO, laughs, but Khalaf's humor carries a cutting element of truth: Early this year, the company laid off approximately 75% of its employees, bringing it down from about 135 people to 35. In May, the group moved from two spacious buildings to half of one of them; many of the offices stand empty, and much of the equipment in the labs is marked for sale with yellow post-it notes. The company announced on August 4 that it had just $8.1 million left -- enough to keep running until September. Unless it secures $10 million or so in additional funding by then to finish a pivotal clinical trial, the 17-year venture will close shop. Altus is hardly the only company in dire financial straits these days. Despite signs of improvement in the market, June figures from the Biotechnology Industry Organization (BIO) show that 27% of all publicly traded US biotechs have less than 6 months' worth of operating cash left. With investors cutting back, Altus's predicament is increasingly common: viable therapeutic programs, but no cash in sight to see them through. "Many companies are forced to make very difficult decisions right now, [including] shelving projects and laying off researchers," says Alan Eisenberg, BIO's executive vice president for emerging companies and business development. "And that's of course concerning both from the standpoint of the companies but also of patients as well." Altus's business is protein crystallization. Most of the small molecule drugs on the market are crystals, but not so for proteins. "People have thought it's like an art, and is difficult to scale up," explains Bhami Shenoy, who leads Altus's research team. But the company figured the upside was huge: Crystallization stabilizes the protein as well as concentrates it -- each crystal can contain as many as a million molecules -- which means a stronger therapeutic punch per dose. Altus scientists developed novel cross-linking strategies that gave the protein slow-release properties, reducing the number of doses a patient would need. The cross-linking is essentially a delivery system for existing proteins, but the cross-linked version constitutes a novel therapeutic compound, which then belongs to Altus. The company developed several preclinical candidates in the early days, including a synthetic human growth hormone and treatments for kidney stones and gout. In the late 1990s, Altus made a $25 million deal with the Cystic Fibrosis (CF) Foundation to develop a pancreatic enzyme replacement therapy, which most CF patients need. The only drug currently on the market is made from pig pancreas, but Altus's product, Trizytek, used microbial enzymes, eliminating the risk of animal-to-human viral transmission. When crystallized, a single pill could replace the five or so that patients typically have to take with each meal. "Trizytek was the company's poster child, and was going to make it to market the soonest," says Ben Simeone, another Altus long-timer, who co-invented the crystalized version of human growth hormone with Khalaf more than a decade ago. Crystallized human growth hormone, ALTU-238 Image: Altus After promising Phase 2 results from Trizytek, the company went public in January, 2006, at $17 a share, raising $120 million in its initial public offering; the stock price quickly glided past $20. Next came a deal with Genentech to develop its growth hormone, ALTU-238, on the back of which the company raised another $90 million in April, 2007. But later that year, the deal crumbled; Altus missed a manufacturing milestone and key Genentech people interested in the project had left the company. Genentech back-burnered the project, so Altus dissolved the agreement. The stock plummeted to just over $5, and the board replaced the CEO with Gemayel last May. Then, in August, 2008, against the backdrop of the troubled economy, came the final blow: Trizytek's Phase 3 trial results. Although the trial met its statistical endpoint -- a significant improvement in fat absorption (a measure of CF patients' often-compromised ability to take in nutrients) over three weeks on the drug -- the average improvement of 15% was less than the 20-30% the US Food and Drug Administration (FDA) had requested. (Data from US sites was consistently positive, reporting 30% improvement, notes Gemayel, while some European sites showed no improvement at all.) Altus suspects the discrepancy in data between institutions was due to a finicky fat absorption assay, noting that the porcine drug did not face such rigorous testing. It was developed before the FDA's modern drug testing standards took effect in the 1950s, and was grandfathered in based on data from about 30 patients, while Altus tested their compound in more than 200 patients. Also, notes Gemayel, long-term factors such as weight gain and stool frequency suggested the drug was as effective as the pig product. "It's a drug that brings major innovation to the CF therapy market," he says. Still, with so much competition for investment dollars, investors lost interest and Altus couldn't afford to file a New Drug Approval for Trizytek with the FDA and wait a year for the result. "The irony was, we spent $150 to $250 million developing the product, but we didn't have the $30 million to finish it," says Ken Attie, Altus's vice president of clinical development and medical affairs. The company shelved the Trizytek program in January, 2009 to focus on 238, the growth hormone, which was just about to start a Phase 2 trial in kids (an earlier Phase 2 trial in adults reported positive results). The 238 project, says Attie, is much more promising: First, it's a $3 billion market, and as a once-a-week injectable it would provide clear clinical benefits over the eight or so daily HGH products out there. And, because those products are already FDA-approved, the regulatory path would be straightforward. But the company doesn't have the $10 million needed to complete the Phase 2 pediatric trial, which enrolled its first patient in May. And without those results, there's no chance of snagging investors or partners to take 238 to Phase 3. Of course, Altus's precarious position is not simply due to the current financial woes. Trizytek's market -- about $220 million in the US -- may not have warranted sinking up to $250 million into its development, leaving so little cash left over. Then there's the specter of the failed Genentech deal for 238. When Genentech shelved the product, "it introduced a level of uncertainty [in the minds of investors] I wish we didn't have to deal with," says John Jordan, the company's director of investor relations. Simeone puts it more bluntly. The troubles lie in "management and delivery," he insists. When Altus didn't meet its timelines with Genentech, "the likelihood of success [was] questioned. The market responds to that." The company would likely be struggling regardless of the market downturn, he adds. "What's happening now is that the current economic situation is maybe magnifying the mistakes of the past." But Gemayel notes that the downturn sent Altus into a downward spiral. "In a market like this one, if you get to the place where you know you don't have enough cash to take you to the endpoint you believe would bring a lot of value to the company, then automatically your stock price is discounted." Then, the money you burn just by existing cuts your value further still. "Two years ago we wouldn't have had any difficulty finding funding in this situation," he says. To date, the company has met with dozens of potential investors, but there's no deal yet. Until this spring, Altus was covered by seven analysts from institutional brokerages, but that number has dwindled to zero. Morgan Stanley, for example, discontinued coverage in March, noting that even in the most optimistic scenario, the company wouldn't become profitable until 2012. "We are discontinuing coverage of Altus with no rating or price target due to resource constraints and small market cap," Morgan Stanley analysts wrote in a report announcing the decision. "We see few opportunities for Altus to create shareholder value over the next 12 months." According to Attie, though, that's far from the case. "Whatever [investors] saw in us a few years ago when we were worth $24 a share, we're as good or better now," he says. "But the economy has changed the playing field." **__Related stories:__***linkurl:Dire stats for biotech;http://www.the-scientist.com/blog/display/55480/ [ 26th February 2009]*linkurl:How to save biotech;http://www.the-scientist.com/news/display/55425/ [17th February 2009]*linkurl:Sluggish economy hits biotech;http://www.the-scientist.com/blog/display/54816/ [2nd July 2008]

One biotech gasps for breath

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