Biotech Firm Gets Rights to Drug

Biotech Firm Gets Rights to Drug
Genentech buying technology for new growth hormone
Marni Leff Kottle, Chronicle Staff Writer


Genentech Inc. reached back to its roots by agreeing to pay as much as $280 million for rights to a growth hormone product being developed by a Massachusetts biotechnology company.

The agreement, announced Wednesday, gives South San Francisco's Genentech access to technology that will allow the company to reformulate its 13-year-old Nutropin growth hormone for less-frequent injections. The product, developed by Altus Pharmaceuticals Inc., is still being tested, and analysts said it may take two years to reach the market.

The deal takes Genentech back 21 years to its first approved drug, a growth hormone that has been replaced by Nutropin. The drug is prescribed mainly for children who aren't producing enough of the hormone to grow at a normal rate, and the eight versions of the medicine available today are typically injected daily. The Altus technology would cut the number of shots to just one per week.

"Less-frequent injections in children is a big deal," said Eric Schmidt, an analyst at Cowen & Co., who rates Genentech shares "neutral" and has an "outperform" rating on Altus. "If it lives up to its potential, it will be a very different product from what's already out there."

Genentech agreed to pay Altus an initial $30 million in cash and stock. The value of the deal could rise to as much as $280 million if certain goals are met and the companies expand development outside of North America.

Nutropin, which Genentech sells only in the United States, had sales of about $370 million last year, Schmidt said. The $2.4 billion market for growth hormones is extremely fragmented. The new product would allow Genentech to capture a bigger piece of the market, boosting annual sales of growth hormone for the company to as much as $800 million, Schmidt said.

Altus has completed the first two phases of tests typically required for regulatory approval. The company plans to begin its final round of testing next year, said spokesman John Jordan.

Trials next year would allow the product to reach the market by 2009, Schmidt said.

The Altus technology involves reformulating growth hormone with microscopic crystals that dissolve in the bloodstream, allowing patients to wait longer between injections.

For Genentech, which had almost $2 billion in sales in the third quarter, growth hormone represents just a tiny fraction of the company's business. Genentech gets most of its revenue from the Rituxan, Avastin and Herceptin cancer drugs.

The deal sends a signal that Genentech is still focused on its smaller businesses, said Christopher Raymond, an analyst at Robert W. Baird & Co.

"The endocrinology business for Genentech has been largely underplayed," said Raymond, who rates the stock "outperform."

"This sends the signal that they intend to keep that business and continue to invest in it."

Genentech has made two other deals involving products that aren't related to cancer treatment. Genentech said in November that it would buy its partner Tanox Inc. to gain full U.S. rights to the Xolair asthma drug that the companies developed and sell together. This month, Genentech agreed to work with AC Immune Ltd., a 3-year-old Swiss company, to develop a drug to treat Alzheimer's disease.

Altus, which has a second product in clinical trials and is still unprofitable, turned to Genentech because of its experience in the growth hormone market, Jordan said. Nutropin was the best-selling growth hormone in the United States last year.

"Genentech pioneered the development of the first recombinant human growth hormone," said Robin Snyder, Genentech spokeswoman.

E-mail Marni Leff Kottle at mkottle@sfchronicle.com.