Vaino’s Biotech Corner
Week Ending July 14, 2006
Vaino’s Biotech Corner: INSM and TRCA – Fighting Like Two-Year Olds
Even with the VIX finally moving again, biotech stocks have been pretty quiet. The biggest biotech story of the week, for me at least, was announcement on Wednesday that a patent dispute between Insmed (INSM) and Tercica (TRCA) would go to trial. I have written about these stocks before, and sold off TRCA in June’s market plunge. I still liked INSM so I kept it.
Both these companies have received FDA approval to sell insulin-like growth factor-1 (IGF) for the treatment of growth deficiencies in children. Tercica’s drug, Increlex, is given twice a day by injection and Iplex, Insmed’s drug, is given once a day. And note that Iplex is cleverly delivered with a complementary binding protein to improve distribution in the body.
Tercica claims that Insmed is using their patented technology to produce their drug. To read the headlines from the Tercica press release, it sounded like the court had already ruled that Insmed is infringing on their patent. However, all the court actually did was to deny Insmed’s request for summary judgement. That is, Insmed wanted the court to rule there was no evidence to support Tercica’s assertion. Courts typically only grant summary judgment if there is no evidence to support claims. Since Tercica had evidence to support its claim, the court had no choice but to proceed to trial. Only at trial can the validity of the evidence be determined. The trial is set to begin November 6.
In essence, Insmed will be seeking to establish that the patent issued to Tercica is invalid based on prior art. It’s now up to the court to decide if this is true or not.
A different court case in which Tercica sued Insmed for false advertising was thrown out last month. These guys just don’t seem to play well together.
While I don’t believe this is a killing blow for Insmed, it did knock the stock price down 33% from where it was last week, to under $1.30. Tercica saw a modest jump on the day of the announcement, but it’s actually down for the week.
I think Iplex is the better drug. A study published in May 2006 in Expert Opinion on Biological Therapy found protein-bound IGF had a superior safety profile as compared to the unbound. Also, Iplex is administered once a day compared to twice a day for Increlex. Ask yourself, would you rather get one needle a day or two needles a day? Now go ask a five year old. I’m pretty certain I know the answer.
This is a good drug, but it’s a niche product, and there likely isn’t room for two competitors anyway. TRCA is a one shot wonder (they licensed the drug from Genentech) while INSM has other ongoing clinical trials. Even if Tercica prevails in the trial, which is not certain, they’re still left with an inferior product: Insmed has patented delivery with the binding protein.
Neither INSM nor TRCA have strong balance sheets (TRCA’s is marginally better) and court cases are expensive and risky. My take, and this is definitely not for the faint of heart, is that if the trial goes well for Tercica it would still be worth their while to enter into an agreement with Insmed. The trial could well drag on for years, and Insmed will continue selling Iplex. If Tercica were to prevail and compel them to stop, the publicity of forcing little kids to have to take two needles a day instead of one likely isn’t going to be good. I might get my head handed to me, but I’m seriously thinking of buying more INSM.
