West Coast Editor

Insmed Inc.'s news that European regulators validated its application for Iplex for children with short stature associated with severe primary insulin-like growth factor 1 deficiency (IGFD) was overshadowed by word of a court ruling in a patent case brought by Tercica Inc.

Shares of Insmed (NASDAQ:INSM) closed Wednesday at $1.41, down 13 cents.

Tercica's stock (NASDAQ:TRCA) ended the day at $5.21, down 6 cents.

Analyst Andrew Fein with C.E. Unterberg, Towbin called the ruling a "net neutral" for both companies.

"Even if Insmed were to lose the current case, we suspect the judge is likely to stay any royalties until the appeals process is complete or alternatively pay the royalty into escrow," Fein wrote in a research report, reiterating his "buy" rating on Insmed with a price target of $3.

Win, lose or draw, "we are confident there will be an appeals process," he added. "The next step would be to go to the Federal Circuit, in which decisions are made by a panel of judges" - a process that could take 12 months to 18 months.

Brisbane, Calif.-based Tercica's rhIGF-1 Increlex (mecasermin) was approved in September by the FDA for long-term treatment of severe primary IGFD. Insmed's Iplex, a complex of recombinant human IGF-I and its binding protein IGFBP-3, was launched in May as a once daily treatment for children with the same condition.

The decision from the U.S. District Court for the Northern District of California involves Markman rulings on summary judgment and claim construction, which lay the ground rules and guidelines for the trial now slated for November (though court dates often change).

Tercica's lawsuit, filed with licensor Genentech Inc., of South San Francisco, targets Insmed, as well as Insmed Therapeutic Proteins Inc., and Insmed-owned Celtrix Pharmaceuticals Inc., of Santa Clara, Calif., alleging that the defendants infringed three patents: U.S. Patent No. 6,331,414 ("the 414," which is IGF-1 production process patent); No. 5,187,151 ("the 151," the method-of-use patent); and No. 5,258,287 ("the 287" the BP-3 production process patent).

In a 31-page decision, the court noted that "plaintiffs and defendants each ask the court to adopt their proposed construction of the disputed terms and phrases" - the typical war over terminology in patent cases.

The court granted both of Tercica's motions for partial summary judgment and ruled that Insmed's process for making Iplex literally infringes three claims of the 414, finding further that the 151 patent is valid over the "prior art" (that is, any publicly disclosed information on the process), Tercica said. Four of Insmed's five motions for summary judgment were denied.

Tercica spokeswoman Kathleen Rinehart said the company is happy with the decision.

"Basically the judge has ruled that the [414] patent is valid, so Insmed will need to prove the patent office was wrong" in granting it, she told BioWorld Today. "This puts the onus on Insmed"

Almost a year ago, Insmed filed a citizen petition with the FDA, citing safety concerns about Tercica's drug related to hypoglycemia, and the petition said Tercica sought approval of Increlex for IGFD with data that were generated in a different patient population, i.e., growth-hormone insensitivity syndrome. Increlex was approved anyway. (See BioWorld Today, Aug. 19, 2005.)

In other news from Insmed on Wednesday, the firm said the European Medicines Agency validated its application to market Iplex overseas as an orphan product. The application will be assessed on a timetable that could lead to clearance next year, and the orphan status would mean 10 years of exclusivity.