Staff Writer

Altus Pharmaceuticals Inc. grossed $88.5 million in a public offering of 6 million shares, funds that will be used to advance its pipeline of protein therapeutics.

Shares were priced at $14.75 each, with net proceeds expected to total $82.9 million. Altus, of Cambridge, Mass., would gross about $13.3 million more if underwriters exercise their overallotment option on 900,000 additional shares.

Altus' stock (NASDAQ:ALTU) fell 48 cents Thursday to close at $14.53.

Altus is developing protein therapeutics for gastrointestinal and metabolic disorders with its protein crystallization technology, an approach designed to produce drugs with advantages over existing products. It has two products in late-stage development: ALTU-135, an orally administered enzyme replacement therapy for treating malabsorption due to exocrine pancreatic insufficiency; and ALTU-238, a crystallized formulation of human growth hormone designed to be injected once per week for treating growth hormone deficiency and hGH-related disorders.

Altus said in its prospectus it expected to use about $50 million to fund ALTU-135 clinical development activities, including a Phase III efficacy trial, a long-term safety study and related manufacturing activities.

The company this quarter plans to initiate a pivotal Phase III trial of the capsule form of ALTU-135 in patients with cystic fibrosis, as well as a long-term safety study in CF and chronic pancreatitis patients with pancreatic insufficiency.

The product, consisting of the digestive enzymes lipase, protease and amylase, demonstrated in a Phase II trial a statistically significant improvement in fat absorption, the trial's primary endpoint. It also showed statistically significant improvements in protein absorption and a decrease in stool weight, secondary endpoints in the study.

Dr. Falk Pharma GmbH, of Freiburg, Germany, has commercialization rights to ALTU-135 in Europe, the countries of the former Soviet Union, Israel and Egypt. Altus also has an agreement with Cystic Fibrosis Foundation Therapeutics Inc., which is funding a portion of the development of ALTU-135.

Altus said it believes the upcoming pivotal and safety studies would be sufficient to support a new drug application filing. It intends to establish a commercial infrastructure and targeted specialty sales force to market ALTU-135 in North America.

The second product, ALTU-238, was the subject late last year of a potential $288 million collaboration with South San Francisco-based Genentech Inc., which already has a human growth hormone franchise. Genentech paid Altus $15 million up front and another $15 million through an equity investment, in exchange for North American rights. Altus also could earn up to $148 million in milestone payments, and has a co-promotion option in North America.

Genentech also has an option to expand the license to cover the worldwide market, an option that, if exercised, could bring Altus an additional $110 million-plus in the deal. (See BioWorld Today, Dec. 21, 2007.)

ALTU-238 is being developed for both adult and pediatric populations as an alternative to current therapies, which require daily dosing. Phase II trials demonstrated the achievement of insulin-like growth factor 1 levels within the normal range over the course of the study. Once-per-week dosing of ALTU-238, Altus said, also appeared to result in a consistent, linear dose response of hGH and IGF-1 levels in the blood.

Genentech now has control over the development and commercialization of ALTU-238.

Altus also has a number of products in preclinical research and development. The most advanced is ALTU-237, which is being developed for hyperoxalurias, a series of conditions in which too much oxalate is present in the body. An investigational new drug application to begin human trials of ALTU-237 is expected to be filed this quarter.

Altus also is developing ALTU-236 for treating phenylketonuria, or PKU, an inherited metabolic disorder, and ALTU-242 for the treatment of gout.

Altus reported $85.9 million in cash and equivalents at the end of 2006, a figure that did not take into account the $30 million due from Genentech. Its net loss for 2006 was $57 million, and it has estimated the loss for this year will be $55 million to $65 million. It said it has cash to get through 2009, assuming no significant changes in its business plan.

Following the offering, Altus had about 30 million shares outstanding. It also has about 7.7 million warrants and options outstanding that are exercisable at average prices of $7.33 and $10.39, respectively. Altus went public in January 2006, raising $105 million through the sale of 7 million shares at $15 each.

Merrill Lynch & Co. and Morgan Stanley & Co. are joint book-running managers for the follow-on offering. Cowen and Co. and Leerink Swann & Co. are co-managers.