West Coast Editor

A few days after the court hearing on an injunction was mysteriously delayed, the settlement of their patent fight over drugs for insulin-like growth factor 1 deficiency is not only taking Insmed Inc.'s Iplex off the market for short stature - decisively clearing the path for Tercica Inc. (along with licensor Genentech Inc.) to market Increlex - but also provides opt-in possibilities that continue their relationship in other indications.

John Scarlett, president and CEO of Brisbane, Calif.-based Tercica, called the outcome "terrific" for his company, and Wall Street agreed.

The firm's shares (NASDAQ:TRCA) jumped 20.5 percent on the news, closing Wednesday at $5.88, up $1, while Insmed shares (NASDAQ:INSM) plunged 42.6 percent, ending the day at 89 cents, down 66 cents. Genentech (NYSE:DNA) closed at $81.79, down 49 cents.

Under the terms, all outstanding court action is settled, and Richmond, Va.- based Insmed also will withdraw its Iplex marketing application in Europe, while keeping the freedom to operate with the compound for such conditions as severe insulin resistance, myotonic muscular dystrophy and HIV-associated adipose redistribution syndrome.

Although the specifics of the deal let Insmed sell Iplex for short stature for up to year, Scarlett said the company will not provide the compound to any patients after their current supply is gone.

"In any case, any sales more than three months from now will be subject to a 40 percent royalty," he told investors during a conference call. "Our job is to make sure that the physicians who have been treating these children have been fully informed as to the background of all of this. If the physician decides they're going to transition to Increlex, we have offered to give them free drugs while we are working on reimbursement."

The opt-ins for Tercica (and Paris-based Ipsen SA outside the U.S.) and Genentech include any non-short stature indication, and remain in effect up to 90 days after Insmed provides "Phase III-enabling" clinical data. Tercica and Genentech can take part for orphan and non-orphan indications (other than short stature), respectively, and if either decides to stay out, the other can take over that option.

In the case of an opt-in, Insmed gets reimbursed half of its incurred development costs, with future development costs shared equally, and will split profits. If Tercica opts in, the profits will be split after accounting for Genentech's sales-based tiered royalties of 6 percent to 15 percent. The same goes if South San Francisco-based Genentech opts in, but Tercica would be paid no royalty.

If neither Tercica nor Genentech opts in, Insmed will pay a 4 percent royalty on all commercial sales of the approved drug to Genentech.

Outside the U.S., Insmed can provide Iplex through an expanded access program for short-stature indications, excluding severe insulin resistance, and for amyotrophic lateral sclerosis (Lou Gehrig's disease) in Italy, subject to a tiered royalty of 4 percent to 15 percent that would be shared between Tercica, Genentech and Ipsen.

The FDA approved Tercica's rhIGF-1 Increlex (mecasermin) in the summer of 2005 for long-term treatment of severe primary IGFD, and Tercica launched the product in January 2006. Insmed's Iplex, a complex of recombinant human IGF-I and its binding protein IGFBP-3, was cleared as a once-daily treatment for children with the same condition.

Tercica last summer granted exclusive overseas Increlex marketing rights to Ipsen, which, as part of the arrangement, got $62.6 million for cross-licensing its acromegaly therapy, Somatuline Autogel, to Tercica. (See BioWorld Today, July 20, 2006.)

Late last year, Tercica gained a $7.5 million court victory over Insmed, in a case that involved three patents for Increlex, though Insmed vowed to appeal. Along with the up-front payment, Insmed was ordered to provide 15 percent royalties on past sales of up to $100 million, with the royalties rising to 20 percent on past sales greater than $100 million, though Iplex sales by the date of the court decisions had reached only $382,000.

Tercica and Genentech have waived damages as part of the settlement. (See BioWorld Today, Dec. 8, 2006.)

"Although today [severe IGF-1 deficiency] is a small indication, this is actually the gateway to much larger indications," Scarlett told BioWorld Today, and Tercica has two pivotal trials in primary IGF-1 deficiency - with a market size "probably equal to [that of] growth hormone" - under way that are expected to finish enrollment by the middle of this year.

Having pushed Iplex aside for short stature indications, Tercica won't need to spend marketing money to get Increlex into a population that is somewhat small in other ways as well, although Scarlett said the company expects no "scaling back of either marketing or other activities." Tercica also could grab a piece of Iplex in other diseases, which means the firm won't have to use resources trying Increlex in those conditions, and can devote time to such projects as the partnership with Ipsen.

Insmed will make the final decision regarding which of the other indications Iplex might be tried against, but a joint steering committee will allow Tercica to "discuss and make sure we understand the direction" of research, and be able to determine that trials are designed to enable Phase III work, Scarlett said.

For Insmed, the agreement takes away investor concern about ongoing legal costs, and the combined market for myotonic muscular dystrophy and HIV lipodystrophy is about $600 million, although data with Iplex in both indications is still early stage.