Tercica stock suffers despite patent win

NEW YORK (CNNMoney.com) -- Tercica Inc., the maker of a growth-deficiency drug for children, suffered a stock price plunge and an analyst's downgrade after reporting fourth-quarter earnings, despite winning a crucial patent battle.

Jim Reddoch, analyst for Friedman, Billings, Ramsey, downgraded Tercica (down $0.07 to $5.24, Charts) to underperform on Friday after the company gave guidance for 2007 that was below expectations. Tercica expects sales to total $7 million to $8 million in 2007, compared to consensus estimates of $20 million. As a result, Reddoch dropped his 12-month price target to $4 per share from $6, which means that he expects the stock price to drop by one-fourth.

Tercica and its partner, Genentech (up $0.55 to $81.69, Charts), settled on Wednesday their patent fight with Insmed (up $0.04 to $0.80, Charts), which agreed no longer to produce its growth-deficiency drug Iplex. Tercica said that Insmed's Iplex violated the patent on its own growth drug, Increlex.

Insmed's stock plunged 43 percent on Wednesday as a result of the settlement and fell another 14 percent the following day. Meanwhile, Tercica's stock price surged 20 percent on Wednesday but then dropped 10 percent on Thursday, after it announced earnings.

As a result of the patent settlement, children injecting the once-a-day drug Iplex will have to switch to the twice-a-day product Increlex to continue treatment.

FBR may perform investment banking with Tercica.

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