Staff Writer

Shares of Altus Pharmaceuticals Inc. fell 44 percent Thursday after partner Genentech Inc. handed back North American rights to the once-weekly, subcutaneous human growth hormone ALTU-238.

"We want to state emphatically that there was nothing wrong with the product," Altus President and CEO Sheldon Berkle said during a conference call. "This was a business decision, not a scientific development decision."

Even so, shares of Altus (NASDAQ:ALTU) dropped to new 52-week lows before closing at $5.50, a loss of $4.38 for the day.

Cambridge, Mass.-based Altus had licensed North American rights for ALTU-238 to South San Francisco-based Genentech late last year in exchange for $30 million up front and up to $140 million in milestones. The deal also gave Genentech the exclusive option to buy rest-of-world rights for another $110 million - an option Genentech decided not to take. (See BioWorld Today, Dec. 21, 2006.)

In a research report, Leerink Swann & Co. analyst Joseph Schwartz wrote that he suspects "a lack of agreement between Genentech and Altus over the development plan, and between Genentech and their European marketing partner over economics, were sources of frustration."

Berkle said Altus had been "disappointed with the lack of progress with the development program" at Genentech. Although Phase II trials were completed before the deal was signed, the drug had yet to advance into Phase III a year later. Disagreements on how to move forward "basically forced us to sit down with Genentech and say 'listen . . . we want control of this program,'" Berkle said.

Although Altus eventually plans to seek another global partner for ALTU-238, in the interim it will resume its own clinical trials. Schwartz predicted those trials, which are slated to begin in mid-2008, will include parallel Phase II pediatric and Phase III adult studies.

Altus said it would provide more details regarding its development plan in the first quarter.

As part of the termination agreement, Genentech agreed to provide Altus with supplies of human growth hormone for a limited time. Genentech also will provide certain funding to help transition the program, in exchange for nominal royalties. But moving forward with ALTU-238 will increase Altus's burn rate, since Genentech previously had covered all the costs of the program.

Altus is also conducting two pivotal Phase III trials with ALTU-135, a recombinant pancreatic enzyme replacement. (See BioWorld Today, May 11, 2007.)

At the end of the third quarter, Altus reported cash, equivalents and marketable securities totaling $152.2 million. The company's net loss for the quarter was $22.6 million.