Children's growth-failure drug lawsuit settled

NEW YORK (CNNMoney.com) -- The biotech Insmed Incorp. said it settled litigation with Genentech and Tercica regarding the growth-deficiency treatment Iplex, and will have to slash its work force as a result.

Insmed's (down $0.60 to $0.95, Charts) stock price plunged 46 percent following the news.

Insmed has agreed to no longer provide its lead product, Iplex, as a treatment for severe short-stature complications, which affect about 6,000 people in the U.S., primarily children, according to company spokeswoman Jody LoMenzo. Insmed has been providing Iplex to 100 patients with this growth deficiency.

This agreement settles the patent infringement case brought against Insmed by Genentech (down $0.54 to $81.74, Charts) and its partner Tercica (up $1.01 to $5.89, Charts). These biotechs produce a similar drug called Increlex. The agreement also settles Insmed's lawsuit against Tercica, for allegedly marketing Increlex as superior than Iplex in treating growth deficiency.

Insmed chief executive Geoffrey Allan said, in a teleconference with analysts, that his company would cut 34 percent of its 150-strong workforce as a result of dropping Iplex as a short-stature treatment. These jobs are related to sales and marketing of the drug, and production at a plant in Boulder, Colo.

Allan said that children who are currently taking Iplex will be considered as patients for the Tercica drug, Increlex.

"Were working very closely with Tercica to transition these children off [Iplex,]" said Allan.

This means that children who were taking the once-a-day drug Iplex will have to start taking Increlex twice a day.

"It is unfortunate for those patients who are currently on Iplex to essentially double the number of injections and switch to a more invasive product that needs to be injected more," said Matthew Osborne, analyst for Lazard Capital Markets.

Osborne said the drugs appear to have the same safety profile.

"There is the theoretical risk of increased rate of hypoglycemia with [the Tercica drug] Increlex, but so far that has not manifested into adverse effects clinically," said Osborne.

Insmed executives said the company will continue to test Iplex as a potential treatment for a common form of muscular dystrophy and a complication affecting body fat that is caused by HIV treatments.

Insmed is a biotech with a market capitalization of about $150 million based in Richmond, Va. Genentech, based in South San Francisco, is the second-largest biotech in the world behind Amgen (down $0.01 to $62.29, Charts).

Osborne does not own shares of stock in any of the companies mentioned here, but Lazard makes a market in Tercica.

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