Tercica Inc. (TRCA)

[coinstarz]

Tercica: Growing Small
(Start-Up: Windhover's Review of Emerging Medical Ventures, December 2004 page 13)


Armed with a powerful, in-licensed late-stage molecule from Genentech, two-and-a half-year-old Tercica is about a year away from entering the eminently reachable market for treating short-stature children, a potentially significant segment of a $750 million annual US market. But unlike many start-up in-licensers that seek niche indications for their lead programs, Tercica won’t be able to fly under the radar of the competition.
Tercica is a pure asset play. It fits easily into a VC’s portfolio of companies which are creating value rapidly by seeking a quicker route to commercialization with products that already have a history in the clinic, but which for various reasons larger companies want to unload.

But Tercica is unusual in that its licenser looms as a significant competitor, with its version of growth hormone. Indeed, the success of IGF-1 depends on changing the mindset of pediatric endocrinologists who’ve had 40 years of comfortable experience with growth hormone—the only currently approved drug for short stature—in hundreds of thousands of patients. And Tercica will have to do this armed only with data from a single Phase III trial conducted several years ago by Genentech. That requisite medical marketing effort partly explains why Genentech parted with the molecule: the work could impede Genentech’s own selling efforts in an already established franchise that is virtually a cash cow that the big biotech projects will continue to grow at double-digit rates in the US.

Even if Genentech had good reason to turn away from IGF-1, others have responded favorably to it. The late-stage nature of the opportunity, the benefits of having an established E. coli-based manufacturing process from Genentech for making the peptide at scale, and confidence in the management team are factors in Tercica’s favor. Earlier this year, investors in Tercica’s IPO paid almost 2.5 times private investors’ average share price to buy the stock—a significant step-up given today’s parsimonious IPO pricing window.

Until the anticipated product launch, Tercica must work to define the portion of the short stature market it believes will benefit from IGF-1. Its best chance in the face of competition from growth hormone may be to link diagnosis to both drugs, so that rather than trying to fly below the radar screen of the growth hormone makers, they make it a tandem flight.