Altus Pharmaceuticals (ALTU) has a novel drug-enhancement technology, two products entering phase III clinical trials, and most recently, a collaboration with one of biotech's biggest players.

But one year after going public, this young biotech firm still keeps a fairly low profile.

If you haven't gotten to know Altus yet, now is a good time, before the phase III trials begin in the second quarter and the news flow gears back up. Altus' lead product, known as ALTU-135, is a pancreatic enzyme-replacement therapy for cystic fibrosis and other diseases.

Highly pure, with more stability and improved convenience and dosing compared with existing products, ALTU-135 should be able to grab a significant chunk of a $600 million to $700 million worldwide commercial opportunity.

The second late-stage product in Altus' bag is ALTU-238, an extended-release human growth hormone that appears to be potent enough to allow for once-weekly injections. Existing human growth hormones -- a large, $2 billion market -- require daily injections. In December, Genentech ( DNA) signed on as Altus' development and marketing partner for ALTU-238.

It's Altus' core technology platform that ties together these two drug programs -- and the rest of the company's early-stage pipeline. Altus has figured out a way to produce crystallized formulations of protein drugs at commercial scale.

Crystals are pure and highly stable (think table salt), which is one reason why Big Pharma has focused historically on developing small-molecule drugs in crystalline form. Proteins, on the other hand, are larger molecules, more complex and therefore harder to crystallize.

Confused? A couple of examples borne of Altus' technology platform will help clarify. ALTU-135, its pancreatic enzyme-replacement therapy, is a single capsule taken by patients before every meal. Existing pancreatic enzymes, by comparison, are less potent, which forces patients to swallow three to five larger capsules per meal.

Likewise, the slow release of human growth hormone from the protein crystals that make up ALTU-238 are what should allow the therapy to be dosed weekly.

Biotech companies -- and stocks -- are typically associated with a very high level of risk due to the uncertain nature of drug development, not to mention the guessing game that can be the Food and Drug Administration. But in Altus' case, clinical and regulatory risk is reduced because the therapies and diseases the company is attacking are very well understood, with plenty of scientific and commercial precedent.

Altus was spun out of Vertex Pharmaceuticals ( VRTX) in 1999 and went public in January 2006, selling 7 million shares at $15 that raised $95 million. On Thursday, Altus' stock closed at $18.53, which gives the company a $425 million market cap and $344 million enterprise value.

Altus Pharmaceuticals (ALTU:Nasdaq)

A look at Altus' chart shows the stock on a nice run -- it's up almost 60% since August, when a manufacturing glitch in the ALTU-135 program rocked investor confidence. That problem has been fixed, and ALTU-135 is back on track with only a small delay in timelines.

I value Altus in the low-$20 range, based on a discounted and risk-adjusted model of peak sales for ALTU-135 and ALTU-238, then adding in the company's cash.

So the stock still has a bit of upside from its current level. Interested investors looking for more oomph from their investments might do well to watch and wait for the inevitable pullbacks that will occur as Altus' two lead programs proceed through their phase III programs.

ALTU-135 is being developed to address pancreatic insufficiency, which occurs when the pancreas can't produce enough enzymes to break down food and allow the body to digest nutrients. Instead, food passes through the body undigested, leading to malnutrition, diarrhea and cramping. Pancreatic insufficiency is a very common co-morbidity of cystic fibrosis and is correlated with shorter life span and poor quality of life.

Current enzyme replacement therapies actually predate the FDA's drug approval process and have some inherent problems. They're made from a mixture of enzymes extracted from purified pig pancreases, a manufacturing process that has raised concerns at the FDA because the active enzymes are difficult to purify, can't be characterized accurately, are unstable and tend to lose potency over time while sitting on the shelf.

As a result, the FDA mandated that all currently marketed pancreatic enzyme replacements must be approved through an official new drug application by April 2008. As a result, it's expected that some current products will drop out of the market.

In contrast, the pancreatic enzymes that make up Altus' ALTU-135 are derived from bacteria cultures (like other biotech drugs), so they can be made reliably, carefully controlled and formulated. As I said above, ALTU-135 is also more potent, allowing dosing in a single capsule.

Phase II data on ALTU-135 is solid, with the drug showing a clinically meaningful and statistically significant increase in fat absorption in cystic fibrosis patients. This is one of the clinical endpoints mandated by the FDA for approving pancreatic enzyme replacements, and Altus will essentially seek to verify this data in its phase III trial, which will start next quarter.

In November, Altus secured Lonza Group as its commercial manufacturer for ALTU-135. Altus is likely to market ALTU-135 on its own in the U.S. In Europe, the drug will be sold by a partner, German drugmaker Dr. Falk Pharm, and Altus will receive royalties.

Altus' ALTU-238 human growth hormone (HGH) therapy product aims to get around the market's previous problems with long-acting products. In 1999, Genentech tried to market a long-acting, monthly HGH called Nutropin Depot, but lower efficacy and painful delivery (because a large-gauge needle was required) never allowed Nutropin Depot to get beyond single-digit market share.

Genentech eventually stopped marketing the product. Genentech continues to sell a daily injectable HGH product, Nutropin, which pulls in around $400 million in annual sales.

ALTU-238, however, will allow patients to inject HGH weekly using a fine-gauge needle that will deliver equivalent efficacy to daily injections and won't cause pain or cause significant injection-site reactions.

The biggest validation of ALTU-238 came in December when Genentech signed on as a development partner, grabbing North American rights to market the product. Under terms of the deal, Genentech paid Altus $15 million in cash and purchased another $15 million in Altus stock at $18.88 per share. Altus is eligible for another $140 million in future milestones and will receive double-digit royalties on sales.

Furthermore, Genentech is responsible for all ALTU-238 development costs, including picking up the tab for future clinical trials, and has an option to expand the deal to include ex-U.S. rights.

With this deal set, look for the start midyear of a phase III trial of ALTU-238 in adults. The more significant market opportunity (about 90%) is in kids. Altus and Genentech need to conduct a dose-finding phase II pediatric study this year before they can move to phase III trials next year.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Altus to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

As originally published, this column contained an error. Please see Corrections and Clarifications.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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