Insmed Inc (INSM)

[coinstarz]

04/11/2006 – Today CEUT Initiates coverage of

Insmed, Inc. (INSM 5,6,7,8,9) – Buy – Andrew Fein

Growing Potential – Initiating with Buy Rating

Insmed’s lead product, IPLEX, was approved in December 2005, for the treatment of severe primary IGF deficiency. Though it has not launched yet, we expect launch to begin in 2Q:06. We believe it will soon lead the IGF-1 market over its competitor Tercica’s Increlex (which was launched in January 2006) given its favorable safety profile as well as added convenience. We believe the initial worldwide sales for IPLEX and Increlex growth hormone revenue may represent a combined opportunity of roughly $10-15MM in 2006 growing to $200MM in 2010.
We highlight Insmed’s pursuit of an indication for HIV lipodystrophy. We estimate the number of patients with HIV lipodystrophy could be as high as 800,000. Insmed holds a key advantage over its competitors in that IPLEX can safely be used in the nearly 50% of HIV lipodystrophy patients who are insulin resistant. IPLEX would step easily into this role to fulfill the unmet need for these patients. Though this program is in the early stages and we would not expect to see an FDA filing until 2009, we would point to this as the key driver for the name as a long-term buy and hold story.
We believe INSM’s shares are best suited for investors seeking private equity type returns with the stomach necessary to deal with nearer-term volatility as litigation matters are worked through. Furthermore, a longer-term time perspective permits investors to look past the somewhat limited initial market opportunity for IPLEX, and ahead to significantly larger potential market opportunities, including those beyond short stature.
We arrive at our 12-month price target for INSM of $3.00 by averaging valuation ranges arrived at both under a multiple of revenue and multiple of earnings perspective. Our target represents potential upside of more than 75% to INSM’s current levels.
Upcoming events for INSM include an Unfair Business Practices Judgement Hearing on April 15 and a Markman hearing on May 19. Historically, Markman hearings have been used to assess a judge’s bias in a particular patent case and to review procedural issues. In this case, the judge, Judge Claudia Wilkens, has not tried many patent cases. We note that this is more a formality for Insmed and would not assign it much weight as a catalyst.
The major risk for Insmed stems from the patient litigation with Tercica and Genentech. In December 2004, Tercica and Genentech began to file a series of complaints against Insmed. A negative decision could have a major impact on Insmed as it could potentially eliminate its only commercialized product. However, we add that the risk of this outcome is not as likely as a monetary settlement. Additional risks for Insmed include the successful launch of IPLEX as well as the company’s inability to differentiate IPLEX from TRCA’s Increlex. There is also risk in the inability to successfully develop and commercialize other pipeline products.


This is a summary of our initiation report. To receive a copy of the full report please contact your CEUT sales person.

C.E. Unterberg, Towbin Ratings
C.E. Unterberg, Towbin assigns research equity ratings of Buy, Market Perform or Under Perform for Buys, we will publish a 12-month price target for any stock with an estimated appreciation potential of 20% or more. For Under Performs, we also publish a 12-month price target for any stock with an estimated underperformance potential of 20% or more.

§ Buy: 12 months, estimated 20% or more appreciation

§ Market Perform: Performance in line with the market averages anticipated.

§ Under Perform: 12 months, estimated underperformance of 20% or more



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