New drug coming for 'growth failure' kids

NEW YORK (CNNMoney.com) -- Tercica, a California-based biotechnology company, announced a deal with Genentech Tuesday to develop a combo drug for kids with so-called growth failure.

Genentech (Charts), one of the world's biggest biotechs in the world, agreed to pay up to $53 million to Tercica Inc. (Charts) to develop, manufacture and commercialize a combination of growth-failure treatments from both companies.

Tercica, based in Brisbane, Calif., is working to combine its Increlex with Genentech's Nutropin, a growth hormone, to form a once-daily injectable treatment for children who don't grow normally, a syndrome known as growth failure that isn't just being short and usually has an abnormal cause or causes.

Tercica's drug Increlex is marketed in the U.S. as a twice-daily injection. Drugs that are taken once a day are considered more convenient to use, and therefore easier to sell, than drugs that have to be taken more often.

Tercica won't begin phase 2 testing until 2008, meaning that this combination is still years away from potential market approval.

The biotech Insmed Incorp. (down $0.01 to $0.79, Charts), based in Richmond, Va., had a once-daily treatment for children with growth failure, but had to take the drug Iplex off the market in March after losing a patent battle with Tercica and Genentech.

Children who were taking the once-a-day drug Iplex had to switch to Increlex, and start taking the shots twice a day.

Tercica chief executive John "Chip" Scarlett said that his combo would treat a broader patient population than Iplex. Scarlett said the combo would be for children with a projected adult growth of less than 5-foot-3 for men, and 5-foot-1 for women.

Scarlett said total sales for the relatively new drug Increlex are projected for $7 million or $8 million this year, compared to $375 million in annual sales for Nutropin.

Despite a recent slump, Tercica's stock is up more than 12 percent year-to-date, outperforming the S&P's 8 percent gain. Meanwhile, Genentech's stock is down more than 6 percent and Insmed is down 9 percent.

As part of the deal, Genentech, based in South San Francisco, Calif., is buying 708,591 shares of Tercica stock for $4 million. This is not the first time Genentech has bought shares in the smaller company. Tercica CEO Scarlett said that Genentech owns less than 5 percent of his company's shares.

Genentech, the No. 2 biotech in annual sales behind Amgen, is scheduled to report second-quarter results Wednesday.