Company owes $7.5 million upfront and royalties on sales of therapy for short stature in children.

Insmed was found to have infringed patents held by Genentech and Tercica related to its drug to treat children with severe short stature. The Oakland, CA jury awarded $7.5 million in damages, a 15% royalty on Iplex™ sales less than $100 million, and 20% on sales above $100 million.

After an 11-day jury trial and 7 days of deliberations, the jury found that though Insmed  infringed two patents, only one was willful. The court also upheld the validity of Genentech’s third patent under litigation.

Tercica exclusively licensed these patents from Genentech in April 2002 for use in its manufacture and sale of, among other things, Increlex™. Tercica reports that as lead plaintiff in the litigation, it will recover a substantial portion of the damages.

“We are pleased with the jury’s findings in this first phase of determining validity, infringement, and damages,” states Stephen N. Rosenfield, Tercica’s executive vp of legal affairs and general counsel. “The next step will be for the Court to rule on our requests for both an injunction against future sales of Iplex by Insmed and for additional damages remedies to Tercica and Genentech.”

Tercica and Genentech filed the patent infringement complaint and a declaratory judgment of patent infringement against Insmed and two of its subsidiaries, Insmed Therapeutic Proteins and Celtrix Pharmaceuticals, in the U.S. District Court for Northern California in December, 2004.

The three patents in question are: the ‘414 patent, “Preparation of Human IGF via Recombinant DNA Technology”, which the court upheld as valid; the ‘151 patent, “Use of Binding Protein with IGF-I as an Anabolic Growth Promoting Agent”; which was willfully infringed; and the ‘287 patent, “DNA Encoding and Methods of Production of Insulin-like Growth Factor Binding Protein BP53”, which Insmed infringed but not willfully.

On August 27, 2005, Tercica’s Increlex, which comprises free IGF-I, was approved. On December 12, 2005, The FDA approved Iplex as a once-daily treatment for children with short stature associated with severe primary IGF-I deficiency. Iplex is a complex of recombinant human IGF-I and its binding protein, IGFBP-3, and the only therapy that also replaces deficient IGFBP-3 in these patients, says the company.

Geoffrey Allan, Ph.D., President and CEO of Insmed says, “the company is reviewing the decision and assessing our options, including post-trial motions and an appeal.”

Insmed opened trading at $1.14, a 12.97% drop from its close the day before, December 6, 2006. Tercica’s stock price rose 7.79% to open trading at $6.36.

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