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Aiming...the settlement percentages in principle are fairly straight forward - the bigger questions in my mind is how will the cost be calculated and how much are they.
The second sentence form the settlement below which says they will split cost and profits 50:50, is tricky to understand.
Gross profit would be revenues minus Insmed cost of goods sold,or Iplex manufacturing cost. Net profit which is split equally would be largely made up of Gross profit minus marketing and sales, distribution, and G&A which I assume would be mostly DNA given they are the commercial partner. All the cost are expensive and either could inflate their contribution.
At this point Insmed is more top line/revenue fucused and simply needs to create revenue streams. DNA on the other hand as a commercial pharm is much more bottom line focused with market pressure to sustain profits, today and far into the future.
My point. First it is DNA's best interest to hold cost down and improve bottom line performance. They need profits as much Insmed; DNA has been under cost performance pressure from the market. IMO the great deal for DNA is they got access to a potentially very lucrative pipeline with very little risk or investment. We'll see over time if DNA really believes in Iplex and if needed will they provide financial assistance outside the terms of settlement.
++If the opt-in is exercised by Genentech, Insmed would be reimbursed 50% of its incurred development costs for the indication. Subsequent development costs and profits will be split 50:50, but no royalty will be owed to Tercica++
jabbonda,
The market wants proof and until then I expect the price to creep up as things slowly unfold; the market is waiting for the following hypothetical headline:
"DNA opts-in on Phase III trials for ALS with Insmed......"
Then watch out! The price will soar if it happens....IMO until then we are just buying time.
buy4long,
In all due respect I disagree. They made a settlement and want to move forward with no overhang. IMO any rehashing the past or ligitation for a very small indictaion only gets in the way of their singluar goal of a broader indication. Short stature was a means to FDA approval and IMO only a stepping stone to something bigger. The best scenario is doctors continue to prescribe Iplex and we recover some of our manufacturing cost and all parties are happy. Doctors, parents, children, Isnmed and Tercica.
Understand and agree! That makes the reward side of the equation even stronger.
In your opinion is there a annual cost where Iplex is not commercially viable? I assume that if the FDA approves that insurance companies must pay - how much latitude/authority do insurance companies have in these type of indications? (not trying to start an insurance company board debate) my sister's daughter has used close to $1million in health care cost for a rare condition and the insurance company has paid all of it.
On a side note, in their CC I wonder if Insmed is muzzled or being ultra conservative and staying away from any comments on the future use of Iplex for Short stature?
If I just made this deal I would play by the rules and if in doubt play very safe. No need to take unnecessary risk.
jabbonda...now that the litigation is out of the way the path is clear. As I see it...
To achieve it's potential Insmed needs to sell approximately 20,000 prescription of Iplex a year to be a $350 million company (20,000 * $ $35,000 / 2).
In addition, I believe in the science and fully expect that rhIGF-1/rhIGFBP-3 will far exceed 20,000 applications a year. It is just a matter of time.
The investment question is "can Insmed land a block buster indication in the next 1-2 years without significant dilution?" An indications that provides both cash flow and market evidence that Iplex works.
IMO the next major milestones are:
1) clarification on the terms of settlement. Currently the uncertainty of the details is causing a minor drag on share price.
2) Elimination of any possible class actions suits. This may not be an issue - in the likely case where doctors continue to prescribe Iplex it is good for Insmed for two reasons. It eliminates the overhang of more legal battles and provides cash to offset manufacturing cost. At this point any nickle they can get is good.
3) Short-term financing. Enough to eliminate the risk of running out of cash before there is an opt-in. If it comes from DNA I expect a significant price increase on its apparent merits. If it is dilution, which I suspect it is not, the price will go down, and with a loan I expect some price drop.
4) PII data for a broad indictation which compells DNA to Opt-in. This is the ultimate milestone for if/when it happens the price should soar.
5) Any study results along the way which supports the commercial viablilty of Iplex.
As an investor, halving the revenues with DNA is not so much an issue as achieving revenues. If revenues are acheived on abroad indiction, they will be significant and open the door to much more. IMO DNA has to opt-in before the end of 2008 for my investment to pay off.
Agree...I was thinking along those lines as well...and that would generate immediate cash for Insmed. Should be interesting for this to play out!!! The wheels have been put in motion!
I think it is very simple....
Insmed needed cash, elimination of the litigation, and a strong partner. They got all three in one deal.
What I read into the agreement is Insmed will do what it does best which is research and development and Tercica/Genentech and DNA will do what they do best which is commercialization. It think is a great strategy...establish a business framework/partnership to leverage the differentiating strengths of both, and share the cost and profit. This also helps enable one of Insmed's core values which to bring the science to people who really need it. I think they struck a great deal in terms of who and what Insmeds wants to be and their mission! I think the market will respond favorably...I expect a small increase tomorrow....they are now a viable and solvent business!!!!!!!! Great buy under $2 IMO
In my experience in M&A both hostile and collaborative...Insmed and Tercica have the complicating dynamic of moving from a hostile relationship some level of trust before serious negotiations can begin. The other complicating factor is the lawyers....
Once there is a forum for healthy dialogue the negotiations begin first by agreeing to the scope of negotiations..what is on the table and what is not and the basic framework of the deal...for example Insmed may want to protect some indications. Once the framework is in place, there is due diligence which must be performed and agreemend on the facts. For example, if ALS is in scope what is the potential revenue... Once that is agreed on, then they can negotiate royalty percentages if that is the means they negotiate for payment. It is a long process and every step is a negotiation... Throw in a partner and it gets even more complicated, however with a partner the goodwill and trust has presumably been established.
I think that when PPS was around $1.00 the price was held down mainly on the possibility of an injunction which gave the appearance of eliminating any forward progress. Whether it was held down purposely or the market would not support higher prices, I have no clue.
It appears to me that the injunction is not a brick wall, but a cloud from which when looking past it, or through it, the potential is again visible and real.
In other words, the current price IMO better reflects risk/reward. I do not believe in efficient pricing and this is simply the markets doing "their thing"....but over time the market always rewards based on performance.
Key dates....
I would be great if someone who has the information top of mind could post the upcoming key dates, court and marketing applications, etc. I know they are embeded in the messages but a simple summary of the milestone dates would help us stay focused.
TIA. -
IMO Tobin is pretty good at forecasting macro economics and big trends, and picking sectors but is lousey at picking stocks.
The Italian request for Iplex is a significant milemarker in the transition of Insmed from a research company to a drug company.
Prior to the announcement the focus has been on the patent infringement and Short Stature. The patent issues still looms but IMO it might slow down Insmed but will not stop them.
The ALS news gives us a glimpse of Insmed as a commercial viable business. A peek into the future of the true market potential of Iplex and we can now begin to more formulate more concrete ideas of where Insmed will be in 1,2,3,4,5 years down the road taking in consideration additional indications. Up until now Insmed has mostly been a company with great science with enormous potential. This is a big breahthrough and I expect more breakthroughs to come as Insmed management takes Iplex to market. It won't be necessairly fast, but it will be sustainable with enormous growth potential once it takes hold and results from other studies come in.
Windy
Agree.
I've always enjoyed this board and come here for clarity and sanity; the board's mission and purpose is simple. It exists to share valuable information, personal and professional insights, and critical thinking so that we are smarter investors. Historically the post were few, except during key events like the trial, and always valuable and all responses were always above board and direct. This is an investors board and many here are long Insmed and savvy investors. This is not a traders board, although many here may trade Insmed. Fundamentals rule over trends, momentum and outright bashing or pumping.
The key difference with other boards is that we have a moderator who will not let this go the way of the other boards and slip into anarchy.
Since the trial a few new posters have disrupted the board. I suggest they either get in line with the spirit of the board, leave, or be removed.
The rules are simple. Post valuable information especially the hard to find, do your homework and base your opinions and critical thinking on facts, and be respectful of other posters opinions even if they do not jibe with yours. Post your statement once, we are smart and do not need repetition, do not post half-truths, and do not provoke other posters.
I would like this board to be what is was in the past, sane, high integrity, objective and free from the bs.
Is there any concern that doctors will wait to prescribe Iplex waiting on the injuction ruling? I am long and hightly doubt an injunction, but do not know what and how doctors think. Any opinions?
TIA
Portx..
I tend to agree...but in the short-term the $7.5 million taken out of cash and low stock price will hurt dilution.
If you read the tea leaves I suspect a european partner is in the cards for early 2007.
zake,
I agree...I listened in and was impressed with the responses. They will vigoroulsy appeal the 414 patent on invalidity. The 151 and the other patent because the expire in 2010 will have lessor impact on the bottom line.
The 414 is manufacturing of IGF regardless of indication.
I like their commitment to staying focused on their business plan which is to 1) staying with Iplex for short-stature in the US 2) pursue manufacturing of Iplex in Europe along with indication approval including Short Stature, 3) new indictation for Iplex, and 4) development of new drugs.
Clearly they were dispointed in the judgement, but they were not shaken and will adapt and fight!
Royalty confusion - question to the board??
I was convinced after reading the jury decision that the royalties were for both past and future net sales, but Lazard states the the jury award is for past sales.
Is it just me who is confused. If Lazard is right, does that mean that the judge can/will set further penalties based on future sales? In essence apply the juries %15/%20 royalties to futures. Or is the $7.5 million plus %15 on past sales the penalty igoring possible injunciton/penalties regarding the willfull infringement.
My basic question is what is the probabality/or fact the Insmed will have to pay the 15%-20% royalties on future net sales??
TIA
aim,
I can vouch for Portx...he has been around posting long before the IHub and IV boards existed. I have always found his post unfront, rational and informational.
Regards windy
Read the last page...it does not say no cap....it says 20% for net sales over $100million.
(From rtn in the IV board)
http://www.xs4all.nl/~surg3on/2006-nov-INSMvsTRCA_trial_motions-Read_this_n0w/1006%20JURY%20VERDICT....
The verdict reads
Upfront payment: $7,500,000
Net sales $0 - $100 million : 15%
Net sales over $100 million: 20%
There is no royalty cap.
Sympathetic jurors...
After reading all the trial documents and reading the post here and on Investor IV, I have “backed into” what I believe might be the defense strategy. I believe the legal team had a three prong strategy included. I also believe that success would be any royalty of 5% or less. Winning the trial out right would be a huge morale triumph, but at the end of the day their goal is to minimize the financial impact to a very small royalty.
The first prong of the strategy is to convince the jury that the 414 patent is invalid – but this might prove difficult in that jury would have find it highly probable that the patent office was wrong. But during the invalid arguments the legal team was laying the ground work that Tercica and DNA are not to be trusted and a bully at times. The second prong of the strategy is to create a lot of doubt around the infringement so if the jury “must find” that Insmed infringed based on the jury instructions, not their own opinions, they would not be happy with the decision and feel sympatric towards Insmed.
I believe that in both the invalid and infringe defense arguments the legal team was setting the jury up for the royalty phase – obviously they wanted to win on either the invalid or infringement – but at the end of the day, they wanted to walk away with a very small royalty at worst. The royalty phase is very different, than the invalid or infringement phases, for the jurors is that there is no hard and fast and specific rules for the jurors. It is totally open to judgment and debate among the jurors, and I doubt and few if any of the jurors have real life experience in negotiating royalties. All it takes is one or two jurors who are sympathetic toward Insmed and who have the passion and desire to fight and they will push the deliberations to a small royalty. They will by fighting for a small royalty try to compensate Insmed for where they feel, regardless of jury instructions, that 414 is invalid and they had lots of doubts on infringement.
I work with organization dynamics and often facilitate difficult group decisions and know that the passionate and desire of a few can sway the masses. In our case I am betting on just one of two juror who believe that Insmed is innocent, or at least have been treated unfairly by both big business and the legal system.
We'll see this week!
Does anyone think that the Inequitable conduct hearing is an attempt by Insmed to help position for an appeal in the event they loose the infringement trial?
TIA
Wow, a lot of instructions and technical complexities for jurors to take into account.
I assume that most of them have already determined innocence or guilt from the trial proceedings; I would assume/hope that Insmed' defense had a compelling case to clearly convince the jurors that the patents are invalid during the trial...if so, it will be a short deliberation. I think a quick verdict is good for Insmed and a long deliberation is not good!
The market does not like risk and slowly as the trial has unfolded and the risk apparently going down everyday, the market is willing to invest in Insmeds future. $1.80 is still very cheap and the big boys are looking for more than a dime. Conversely, with so much unknowns going into the trial, Insmed could have been severely crippled which is why the price was highly discounted. Soon, Insmed will be able to put the patent infringement behind, even without a 100% victory, and move forward.
Assuming Insmed "wins" at the trial, all the big start up risk are out of the way and management can focus on the business of science and medicine. Raising cash will be much more efficient with this Tericia off our backs!
Worth considering...
Insmed management is waiting for the trial to be over and not releasing any PR because the trial "overhang" would dilute the effect. Once the trial is over and assuming Insmed wins, management will roll out a planned PR campaign to coincide with key events in an attempt to increase share price, let's say around $3. Then when they have to raise cash in 2007 Q2 the number of shares offered is much more palatable and less dilutive to share holders.
IMO Insmed will do everything to go it alone unless a partner approaches them with a "sweet heart" deal that they can't refuse and lets them pursue their scientific and medical mission.
WD
Segment from the Whole Ruling (posted on IV http://www1.investorvillage.com/smbd.asp?mb=235&mn=817&pt=msg&mid=825243)
the last sentence is a killer....
"""Mr. Kelley's deposition. Plaintiffs should not now be
permitted to perform a lobotomy and slice out portions of Mr. Kelley's state of mind simply
because Plaintiffs, in hindsight, failed to thoroughly explore this issue with Mr. Kelley.
Further, Plaintiffs cannot use the European Patent as a sword, to support their argument
that the disclosure of the European Patent during the prosecution of certain Celtrix patents was
an admission that the '414 patent is enabled,2 but then shield the fact that the European Patent
was revoked. This is especially true when Insmed was aware of the European Patent, that it had
been revoked, and this fact may have impacted Insmed's state of mind with respect to willful
infringement. Plaintiffs simply cannot have it both ways."""
I get it...I was confused for a moment. Tercica does not want the EPO action to be used as evidence and if their request withhold the evidence is denied it weakens their case.
"""Tercica's motion in limine.. what they fear:""
...sorry for asking the simple question, but who is they in "what they fear" Trecica or Insmed.
TIA WD
Is the patent suit really about royalites and infringement or truly another tactic by Tercica to drain Insmed resources, hurt share price, shunt financing opportunities....ultimately as a goal to eliminate Insmed as a competitor.
I am sure Insmed understands that they are right in the case, convincing the jury is the key to business success.
Henry Bunsow appears to be the guy they are counting on..
http://www.howrey.com/people/index.cfm?fuseaction=printProfile&employeeID=55235417&layout=pr...
jojo,
I would but you'll have to tell me how to do it.
You got mail
Thomas,
The report is a 6 page pdf...impossible to post here. Give me an e-mail address and I will send it to you.
Windy
I would assume that if Python is a contingency/hedge for the infringement suit, then the cost/value of Python is partially based on what INsmed would have to pay Trecica if they lose the case... It would be interesting to know the strategic value of Python over current methods, regardless of the lawsuit. Future capacity? Contingent capacity for risk? Cheaper cost of production? Other pipeline product uses?
jellybean,
thanks! That was exactly what I was looking for. Do you agree with the Motorola/Panasonic analogy?
TIA
I just talked with a Patent Attorney who also is a PHD specializing in recombinant DNA. Here are some of the highlights of the conversation.....in no special order of importance
If Insmed loses the trail in November, the next step would be an appeal to the Federal circuit courts. He has often seen cases over turned here, but Insmed cannot appeal until the trial is over.
He asked if Insmed has patents for Iplex; I know of the European patents and the Celtrix patent covering Diabetes which Insmed purchased, but was not sure of others. His point that there can be patents within patents and even though Insmed may have infringed on Gentechs patents, that does not invalidate Ismends patents which are more specific. He stated the case where Motorola has the broad patent for VCR technology, however Sony with Betamax and Panasonic with VHS has specific implementation patents. Motorola sued Panasonic for patent infringement, and won, but that did not invalidate Panasonics patent and in the end Panasonic was the financial winner in that Motorola had to pay Panasonic for rights to their patent. In other words, winning a patent infringement suit does not grant the winner rights to the losing parties patents.
Given the state of big bios, Gentech being the second largest, it would appear that Gentech wants Insmeds patents and technology. If Insmeds wins the trial case in November look for significant buyout offer. If Insmend loses, look for a cheap buyout assuming Insmed has patents.
As far as invalidity of the Gentech patents purely on scientific merits, he was not able to comment without thorough research and analysis, which is expensive and I am not sure if I want to pay. He said the defenses goal (Insmed's in this cases) is to demystify the science so that layman can understand the concepts, assuming the the science is in their favor.
As far as the trial goes, his experience as a litigation attorney was the difference between winning and losing, especially in unclear cases, was with the expert witnesses. Both parties will bring credible experts into the court room, however who wins often is which experts are more credible and believable to the jurors. He also mentioned that contrary to belief, most jurors are diligent and make good decisions, but much is based on expert witness testimony; body language, do they relate or resonate with the knowledge and experiences of the jurors. If Gentech cannot win on strength of the science, then they will look for a single failure point and work that issue with the jury.
He also said that the trial judge presiding over the case can declare a verdict without a trial...I cannot remember the exact legal term, but trial judges can after reviewing all the evidence make a judgement and not have the jury trial.
All said, the big outstanding unknowns for me are:
1) What patents does Insmed have and what are the the scope of the patents.
2) What is the strength of Insmeds defense purely on patent and scientific merits. It appears that many here believe that Gentech's patents are invalid due to prior art.
Regards. Windy
supra and rod,
Honestly, thanks for your input and guidance.
Frankly I do not expect even a highly specialized patent Attorney to hanicap the jury trial. My questions to an attorney would be thus:
1) If Insmed wins the jury trial what is next and does Trecica have any recourse which puts continual pressure on Insmed.
2) Conversely if Trecica wins the Jury trial, what is the scope (business scope) of the verdict and what is immediate impact to Insmed doing business. And what recourse does Insmed have and can they continue doing business. I wanting to understand the business impacts of the two scenarios, especially the second...share price will take care of itself. It is the second question for which I need guidance; it may not be the death nail that many expects, but I cannot ascertain with my limited legal knowledge.
TIA Windy.
zake,
I am currently interviewing three bio patent attorney's to ultimately get a qualified opinion on the ruling. Follows is what I wrote one attorney....so you can see what my intentions are.
Jim,
Thanks. Before we start I want to understand the cost....I am sure the more I pay the more I get. So my question will be around, what do I need to spend to get an opinion on the risk; the most likely legal outcome/scenarios and their probabilities, both in terms of rulings/decisions and times. Basically I will use this information manage my share position in the company.
End of message
My next step is a consulting visit/call to understand how he would handle my request, and to validate his credentials. I assume that have a standard protocol for this type of DD.
I have too much invested to not understand the associate risk with the patent ligation. Doing DD on the patent attorney is also important - if anyone knows of one they would recommend, I would appreciate a name.
I will keep you posted. Regards
Do DD,
I fully understand Biotech and the specific science that Insmed offers....it is Biotech Patent Law which I am a novice. I have read all the opinions and PRs from both Insmed and this board and still in the spirit of comprehensive DD I am looking for a qualified opinion...for which I probably will retain a Patent Attorney to perform.
TIA. Windy