A manufacturing issue and late equipment delivery has forced Altus Pharmaceuticals Inc. to delay the start of Phase III trials for its two lead products, originally set to begin during the last half of this year.

That news, released late Monday afternoon, caused shares of the Cambridge, Mass.-based company to lose a quarter of their value Tuesday. The stock (NASDAQ:ALTU) closed at $12.79, down $4.58.

"Unfortunately, the timing is lousy," said Sheldon Berkle, president and CEO of Altus, which had planned to initiate late-stage trials for both ALTU-135, an oral enzyme replacement therapy, and ALTU-238, a crystalline form of human growth hormone, before the end of the year.

On the plus side, however, the delay for each product is due to a separate and unrelated circumstance, and Berkle said he does not believe the issues are related to the company's underlying protein crystallization and formulation technology.

The problem with ALTU-135 arose within the last two or three weeks, as the company began manufacturing scaled up lots for toxicology tests and the Phase III study. Altus discovered that one of three lots produced was found to have reduced activity in one of its enzyme components, specifically the lipase enzyme. ALTU-135 production consists of blending three enzymes: lipase, protease and amylase.

"We've put together an action plan to try to identify why that occurred," Berkle told BioWorld Today, "and we're hoping we can find an assignable cause for that reduction. Then we'll produce further lots to make sure we have robust consistency and reproducibility for clinical trials and commercialization."

At this time, the company declined to offer a timeline estimate for the ALTU-135 Phase III program, but analysts Eric Schmidt and Leland Gershell, of New York-based SG Cowen & Co., forecast in a research note a delay of no more than six to 12 months.

The analysts wrote that "we view this as a technical issue that we expect Altus to be able to fix with reasonable effort."

ALTU-135 is in development to treat malabsorption as a result of pancreatic insufficiency, a condition that often affects cystic fibrosis patients. Unlike existing therapies, most of which are derived from pig pancreas and require patients to take several pills per meal, Altus' formulation was created with a higher concentration using its protein crystallization technology.

That same technology also created the company's second product, ALTU-238, a human growth hormone therapy intended for once-weekly administration. That product's development also has been delayed, though it's primarily due to a late delivery from a third-party supplier responsible for providing equipment needed for scale-up production. The start of Phase III for ALTU-238 likely will be pushed back to at least the first quarter of 2007.

"But we're going to take advantage of that time to add additional assays to make sure we don't have the same inconsistency problem we did with [ALTU-135]," Berkle said. "Better to bite the bullet now, than to get into Phase III and discover we have problems."

Altus, which went public in January with a $105 million initial public offering, had $127.9 million in cash at the end of the first quarter.