Replies to post #1362 on Insmed Inc (INSM)

[vrtl1999]

Coin,

Remember that INSM does not own the fecility where ITP is located. They only lease and if I remember correctly it's a fairly short one with a few option years. My point though is that I don't know that it may be worth very much to someone else. Well, maybe TRCA. Just joking.

Regards,

[rfoable1]

coinstarz,
Is long term mfg at ITP worth it? Might Dow be a better home for Iplex mfg?
It depends on key factors that only insm management can truly analyze, but some basics always apply-

1. DowPharma may be willing to just develop the alternate Pseudmonas expression system for Insmed to the point of proof that it is reliable + scaleable in return for milestone fees + royalties off Insmed sales using their expression system. This may be a good deal for Insmed IF Dow can truly achieve the 5X+ yield improvements.

2. Dow may want a deeper deal, including a minimum INSM manufacturing commitment for a few years in return for granting license to their technology + getting mfg revenues - maybe also some low level royalties off Insmed sales. Insmed and Dow would have to be willing to share mfg volumes between Dow & ITP. Insmed may or may not want to make this type of deal. If I were INSM management I would be cautious, telling Dow at this early stage "prove to us you can increase that yield by a factor of at least 2X-3X before we promise anything more than some developmental milestone fees and a limited initial license to your technology for bioassay & preliminary clinical evaluations - then we'll talk about commercial mfg possibilities". Again, if Dow can truly show 3X or more yield gains then Insmed may be open to any reasonable Dow proposal.

3. It depends also on a capacity utilization analysis at ITP. If Insmed projects that the capacity of ITP will be well utilized (over 75%) in the next 3-5 years, then Insmed's internal cost of goods to make Iplex may be attractively low, and all they may want of a development partner like Dow is help getting a more efficient system installed and FDA approved. With a 3X yield improvement, it would be like tripling the size of the ITP mfg setup without having to hire more people or enlarge the physical space. That too would be very attractive for INSM.

4. If ITP capacity is poorly (under) utilized based on market + R&D requirements over the next 3-5 years forecasts, then Insmed will be inefficient (employing relatively a lot of resources per kilo of IGF-1 or IGFBP3 produced). This could negate the productivity/yield gains Dow wants to develop, and Insmed may indeed prefer to resume the outsourcing strategy with Dow that failed with Avecia. That would potentially allow Insmed to divest the ITP asset for some cash - but more importantly to reduce the large payroll they must be burning each month supporting ITP. I note that Insmed does NOT own the real estate at ITP - only leases the rights to use the facility and of course there is the value of any capital equipment Insmed acquired on its own nickel.

5. It always depends on the contractor's price. With healthy margins built in, Dow may actually cost more than INSM wants to pay. The other issue with any contract manufacturing arrangement, from the customer's view, is that you can never really have it all your way. You do not own the operation, and you have to fit into whatever schedule the contractor has available. After all - the mfr wants to pack his schedule with as many other clients as it takes to get HIS facility fully utilized.

6. In biotech, there is a premium on proprietary know-how, and it's not cheap either. If you use a contractor you can never be sure that (a) your contractor will try to claim your own discoveries as their own; and (b) that high-value confidential mfg tricks will not leak out to the competition. I would not be surprised that Dow could charge Insmed several millions of $$ over 2-3 years just to find out if the Pseudomonas system is practical. So that's also a huge variable for Insmed, who probably can only spare a few millions for the improved protein process.

It's important to recognize that IGF-1 and/or IGFBP3 expression may not in fact turn out very well in Pseudomonas. Sounds like all Insmed & Dow have at present is an agreement to do some experimentation in lab-scale flasks or small fermenters to see if they can generate accurately assembled, reasonably pure proteins with a promising yield.

This is a potentially very valuable activity, but the payoff has to be at least 2-3 years away. At least displays evidence that INSM is trying to "work smart".

Just my 2 cents
Be well - and as always thanks for the excellent message board