Insmed, Tercica Settle Patent Suit Over Growth-Drug (Update3)
By Joel Rosenblatt
March 6 (Bloomberg) -- Insmed Inc. will stop selling its lone product, a medication that spurs growth in abnormally short children, as part of a settlement of a patent-infringement suit it lost at trial to rival Tercica Inc.
Insmed will be able to sell Iplex for other purposes not related to short stature if it pays royalties to Tercica and patent owner Genentech Inc. Tercica said the former adversaries will work with doctors to find other treatments for children using Iplex, including a possible switch to Tercica's Increlex.
The agreement comes three months after a federal jury in Oakland, California, said Insmed infringed patents controlled by Tercica and owned by Genentech Inc. The settlement relieves both companies of the cost of fighting an appeal that Insmed had promised to file, said Matthew Osborne, an analyst at Lazard Capital Markets in New York.
``It's a positive event for both companies because they can spend their resources developing these compounds for more indications for other diseases,'' Osborne said in an interview before the settlement was announced.
Insmed shares declined 28 percent over two days in December after the Oakland jury found the Richmond, Virginia-based company infringed Tercica's patents. The jury ruled Insmed should pay Tercica $7.5 million for past sales of Iplex, plus royalties of 15 percent to 20 percent. Under terms of the settlement, Insmed won't pay the damages.
Protect Patients
Analysts had predicted that U.S. Judge Claudia Wilkin wouldn't have granted a court ruling that Tercica and Genentech sought blocking sales of Iplex. In its arguments against the injunction, Insmed submitted letters from doctors urging Wilkin to refuse the request to protect patients taking Iplex, which requires half as many injections as Tercica's Increlex.
Insmed spokeswoman Jody LoMenzo declined to comment on potential reactions from patients taking Iplex and doctors who prefer it to Increlex.
The settlement permits Tercica and Genentech to invest in Insmed's development of Iplex for other diseases, with Insmed earning 50 percent of profit after development costs, the statement said.
Both Iplex and Increlex are given to children whose growth is stunted by the lack of a protein called insulin-like growth factor, which is created in the liver. In countries outside the U.S., Insmed can sell Iplex if it pays royalties between 4 and 15 percent to Tercica, Genentech and Ipsen SA, a French family- controlled drugmaker, according to the statement.
Validity Upheld
The jury in December found that Insmed infringed two patents and it also upheld the validity of the manufacturing patent that Wilkin had already found to be infringed. Tercica licenses the patents from Genentech, the world's second-biggest biotechnology company behind Amgen Inc. The jury found Insmed's infringement willful, allowing Wilkin to as much as triple any damage award.
Tercica Chief Executive Officer John Scarlett and Insmed CEO Geoffrey Allan said in a joint statement that the settlement ``allows Tercica to focus its efforts in the short-stature market and allows Insmed, in cooperation with Tercica and Genentech, to focus its Iplex development.''
Insmed shares rose 10 cents, or 6.9 percent, to $1.55 in Nasdaq Stock Market composite trading. Tercica, based in Brisbane, California, rose 4 cents to $4.88.
Genentech, based in South San Francisco, California, rose 62 cents to $82.28 in New York Stock Exchange composite trading.
The case is Genentech Inc. v. Insmed Inc., 04cv5429, U.S. District Court, Northern District of California (Oakland).
To contact the reporter on this story: Joel Rosenblatt in Oakland federal court at jrosenblatt@blooomberg.net
Last Updated: March 6, 2007 21:02 EST
