When Noah Berkowitz and HaptoGuard Inc. were approached about a possible merger with flailing Alteon Inc., they had their doubts.

"We were concerned about two things," Berkowitz told BioWorld Financial Watch. "Science, and the brand of the company in general. We understood it was a company that had been around for 18 years or so, that it had not produced a successful drug and that it had not proved its technology. That was compounded by our assumption, when we heard about it, that alagebrium was dead."

If alagebrium, an advanced glycostatin end product (A.G.E.) Crosslink Breaker, wasn't dead, it was at least lying on its back and gasping for breath, having sustained a brutal pounding in the clinic. But Berkowitz pulled the compound to its feet, peered in and found something he liked.

HaptoGuard's management felt alagebrium "could be in advanced Phase II studies in a short period of time and be not far from an NDA," he said. "When we looked at Alteon, we said, Wow. Look at how little this company is selling at today. It's so severely undervalued, we should consider it."

They did, and last month shareholders approved a stock merger valued at $8.8 million, which made former chairman, president and CEO of Alteon, Kenneth Moch, the combined company's chairman, and established Berkowitz as president and CEO. Now all Berkowitz has to do is convince investors he's not shopping another biotech tomato can, hyping a compound that will go back into late-stage work to again get knocked out.

Alteon's Uneven Path

Alteon first was known for pimagedine, its initial A.G.E. Crosslink Breaker. A.G.E.'s, when formed and cross-linked, can cause a loss of flexibility and function in body tissues, organs and vessels. By the close of 1996, pimagedine was in two pivotal trials for diabetic kidney disease - ACTION I in Type I diabetics with overt nephropathy and ACTION II in Type II diabetics. Alteon expanded into a pivotal study in 1997 a Phase II trial of pimagedine in diabetic patients with end-stage renal disease, and later that year it signed heavy hitter Genentech Inc. as partner in a deal that had a potential of $200 million.

But as often is the case in biotech, things went sour. In the spring of 1998, Alteon lost about 50 percent of its stock value, falling to $4.94, after an External Safety Monitoring Committee recommended ACTION II be stopped due to side effects. Days later, the FDA agreed with the panel, and the trial was officially ended.

ACTION I missed its primary endpoint in a preliminary analysis, reported in November 1998, causing Genentech to back out of their deal months later. The trial was officially closed in 1999, and the company's stock had slid to less than $1.

But Alteon reloaded. The company began focusing on alagebrium, also called ALT-711, and advanced it in the clinic. However, misses in two Phase IIb hypertension trials in summer 2003 reduced the stock back to less than $2. While the firm blamed a high placebo rate, a confirmatory Phase IIb study didn't pan out, either. Alteon briefly looked at erectile dysfunction in diabetics, noting the successes of Viagra and Cialis, but a Phase IIa trial there fizzled, too, after the FDA placed it on hold in 2005 because of certain rat toxicity data. (Earlier this year, the firm said it will discontinue development of alagebrium in ED, and withdrew its investigational new drug application in that indication.)

All of that left Alteon with no analyst coverage and a stock price trading at below 30 cents for most of 2006; its shares (AMEX:ALT) closed at 16 cents Friday. In mid-July it had about $3 million in cash. This is what Berkowitz must revive.

Fighting Back

His first step is explaining how Alteon is different from, say, Intrabiotics Pharmaceuticals Inc., which developed its product iseganan for mucositis associated with chemotherapy, only to see it fail in Phase III. The compound was repositioned against ventilator-associated pneumonia, but safety concerns derailed it in another pivotal trial, the study was stopped, and the company discontinued operations in 2005. That was an investor's nightmare.

To understand why alagebrium still has life, one must look at Alteon's whole history, Berkowitz said. While he noted he now is "playing Monday-morning quarterback, and doing so cautiously," since he was not with Alteon at the time, Berkowitz said early work with alagebrium always showed "stronger data for heart failure than hypertension" and there was positive nephropathy data, too. But a business decision had to be made and what Alteon management knew at the time was that the hypertension market was massive, most thought an approval in heart failure was best reached via a label for hypertension, and the FDA had not established well-defined, non-event-driven endpoints for heart failure.

Throw in that Alteon had been badly burned by nephropathy before, with pimagedine, and Alteon made a "reasoned, not capricious" call to chase hypertension, Berkowitz said.

That didn't work out as planned, but with Berkowitz as new CEO, the company is reconsidering its original data. They approached key opinion leaders in heart failure and nephropathy and discussed alagebrium in those indications. Those leaders "breathed a sigh of relief," Berkowitz said, and congratulated them on finally following the science.

While the clinical blow-ups have scared off investors, the failures also are "a blessing in disguise" for heart failure work, Berkowitz said, "because nothing would satisfy a cardiologist more than a drug that can improve ventricular filling and compliance in patients with heart failure, but not carry the side effects of hemodynamic instability." Alteon already has data showing the drug doesn't affect blood pressure - the failed trials produced useful data there.

Also, the heart failure market for pharmaceuticals now is growing, and the FDA has shown a willingness to consider heart failure drugs on exercise tolerance endpoints - both positive changes since Alteon first considered alagebrium.

So here sits Alteon: Although not everything it has done has delivered positive news, it does have an impressive amount of clinical work behind it, and two Phase II trials of alagebrium have shown relevant activity in diastolic heart failure. It recently said the Juvenile Diabetes Research Foundation would fund a Phase II study in nephropathy in Type I diabetics.

From the HaptoGuard merger, the company also has ALT-2074 - a glutathione peroxidase mimetic - in myocardial injury in diabetics undergoing angioplasty or similar interventions. Phase II data are expected around the end of the year.

Still, even with two clinical products, a new CEO and management better suited to drive pharmaceutical development, the company has its work cut out for it. The Motley Fool in June named Alteon one of its 10 worst stocks - it has provided a negative 98.6 percent return to investors since 1996 - and David Trainer, president of New Contructs LLC, an independent research firm in Nashville, Tenn., gives Alteon the worst rating his firm uses: "very dangerous."

"Investment is a game of buying and selling expectations," Trainer told BioWorld Financial Watch. "The bar for this stock is already set too high.

"There are roughly 3,000 stocks that Americans can choose from, and we cover all of them," he said. "There are many other better options out there than what Alteon provides. The valuation already considers that the management implies they will be much more successful than they have in the past."

The final sentiment Berkowitz would not argue with - he does expect better things ahead. How can others be convinced?

"You don't need insider information to review the dozens of articles that have been published on [alagebrium] in preclinical models," he said, and investors would be putting money into "a company that has a safety database in cardiovascular disease of more than 1,000 patients," and one that has a plan to file for heart failure in "several years."

"It's not easy" becoming CEO of a company with a stock price so low, he conceded, "but when you have something you believe in, you go for it."