INSMED INC (Form: 10-Q, Received: 05/10/2007 14:46:45)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-30739

INSMED INCORPORATED

(Exact name of registrant as specified in its charter)

Virginia

54-1972729

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


8720 Stony Point Parkway		(804) 565-3000
Richmond, Virginia 23235		(Registrant’s telephone number,
(Address of principal executive offices)		including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes: x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: ¨ No x

As of May 1, 2007, the latest practicable date, there were 101,327,502 shares of Insmed Incorporated common stock outstanding.

INSMED INCORPORATED

FORM 10-Q

For the Quarterly Period Ended March 31, 2007


PART I. FINANCIAL INFORMATION

ITEM 1	Financial Statements

	Consolidated Balance Sheets at March 31, 2007 (unaudited) and December 31, 2006	3

	Consolidated Statements of Operations for the Three Month Periods Ended March 31, 2007 and March 31, 2006 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2007 and March 31, 2006 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	19

ITEM 4	Controls and Procedures	19

PART II. OTHER INFORMATION

ITEM 1	Legal Proceedings	21

ITEM 1A	Risk Factors	21

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	37

ITEM 3	Defaults Upon Senior Securities	37

ITEM 4	Submission of Matters to a Vote of Security Holders	37

ITEM 5	Other Information	37

ITEM 6	Exhibits	37

SIGNATURE		38

CERTIFICATIONS		39

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PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INSMED INCORPORATED

Consolidated Balance Sheets

(in thousands, except share and per share data)


	(unaudited) March 31, 2007			December 31, 2006
Assets
Current assets:
Cash and cash equivalents	$	12,036		$	24,112
Restricted cash		493			407
Accounts receivable, net		111			241
Inventories		—			576
Other current assets		35			87

Total current assets		12,675			25,423

Long-term assets:
Restricted cash - long term		2,325			2,708
Investments		500			—
Deferred financing costs, net		201			209
Property and equipment, net		7			8

Total long-term assets		3,033			2,925

Total assets	$	15,708		$	28,348


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,251		$	7,187
Accrued project costs & other		568			1,115
Payroll liabilities		2,114			1,302
Interest payable		23			23
Deferred rent		54			54

Total current liabilities		7,010			9,681

Long-term liabilities:
Convertible debt		5,125			5,125
Debt discount		(1,891	)		(1,964	)

Net convertible debt		3,234			3,161

Asset retirement obligation		1,773			1,626

Total liabilities		12,017			14,468


Stockholders’ equity:
Common stock; $.01 par value; authorized shares 500,000,000; issued and outstanding shares, 101,327,502 in 2007 and 101,328,118 in 2006		1,013			1,013
Additional paid-in capital		323,728			323,664
Accumulated deficit		(321,050	)		(310,797	)

Net stockholders’ equity		3,691			13,880

Total liabilities and stockholders’ equity	$	15,708		$	28,348

The accompanying notes are an integral part of these consolidated financial statements.

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INSMED INCORPORATED

Consolidated Statements of Operations

(in thousands, except per share data - unaudited)


	Three Months Ended March 31
	2007			2006
Sales, net	$	423		$	—
Royalties		35			54
License income		500			—
Other expanded access program income		702			—

Total revenues		1,660			54

Operating expenses:
Cost of goods sold		576			—
Research and development		6,105			7,174
Selling, general and administrative		5,382			3,800

Total expenses		12,063			10,974

Operating loss		(10,403	)		(10,920	)

Interest income		301			312
Interest expense		(151	)		(2,819	)

Net loss	$	(10,253	)	$	(13,427	)

Basic and diluted net loss per share	$	(0.10	)	$	(0.17	)

Shares used in computing basic and diluted net loss per share		101,328			79,987

The accompanying notes are an integral part of these consolidated financial statements.

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INSMED INCORPORATED

Consolidated Statements of Cash Flows

(in thousands - unaudited)


	Three Months Ended March 31,
	2007			2006
Operating activities
Net loss	$	(10,253	)	$	(13,427	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		82			2,726
Stock based compensation expense		56			270
Stock options issued for services		8			20
Changes in operating assets and liabilities:
Accounts receivable		130			—
Inventory		576			—
Other assets		52			50
Accounts payable		(2,936	)		1,275
Accrued project costs		(547	)		(1,986	)
Payroll liabilities		812			(648	)
Deferred rent		—			(82	)
Asset retirement obligation		147			148
Interest payable		—			(24	)

Net cash used in operating activities		(11,873	)		(11,678	)


Investing activities
Purchases of investments		(500	)		—

Net cash used in investing activities		(500	)		—


Financing activities
Proceeds from issuance of common stock
Public offering - issuance of 23 million shares		—			43,240
Issuance costs		—			(316	)
Warrants converted into shares		—			8,810
Other		—			28

Total proceeds from issuance of common stock		—			51,762
Costs incurred in conjunction with issuance of debt		—			—
Cash restricted to restricted letters of credit		297			288

Net cash provided by financing activities		297			52,050


Increase (Decrease) in cash and cash equivalents		(12,076	)		40,372
Cash and cash equivalents at beginning of period		24,112			18,835


Cash and cash equivalents at end of period	$	12,036		$	59,207

Supplemental information
Cash paid for interest	$	71		$	83

The accompanying notes are an integral part of these consolidated financial statements.

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Insmed Incorporated

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable Securities and Exchange Commission regulations for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. It is presumed that users of this interim financial information have read or have access to the audited financial statements contained in the Annual Report on Form 10-K of Insmed Incorporated (“Insmed”, the “Company”, “us” “we” or “our”), for the fiscal year ended December 31, 2006. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, Insmed Therapeutic Proteins, Insmed Pharmaceuticals, Incorporated and Celtrix Pharmaceuticals, Incorporated (“Celtrix”). All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider investments with maturities of three months or less when purchased to be cash equivalents.

On April 14, 2004, we announced that we had acquired a lease to operate a recombinant protein manufacturing facility located in Boulder, Colorado. We intended to use the facility for the commercial manufacture of our FDA approved product, IPLEX™. We provided a Letter of Credit to the landlord of the manufacturing facility in the amount of $0.5 million for prepayment of the remaining

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outstanding lease term of approximately one year and a Letter of Credit to Baxter Healthcare Corporation for $2.2 million to cover facility restoration expenses upon termination of the lease. These amounts are classified as restricted cash on the balance sheet. The accrued restoration expenses as of March 31, 2007 were $1.8 million and are recorded as an asset retirement obligation on the balance sheet. Accretion expense for the quarters ended March 31, 2007 and 2006, totaled $0.2 million and $0.2 million respectively.

Fair Value of Financial Instruments

We consider the recorded cost of our financial assets and liabilities, which consist primarily of cash and cash equivalents to approximate the fair value of the respective assets and liabilities at March 31, 2007 and December 31, 2006 due to the short-term maturities of these instruments. We also hold an investment in an equity security classified as an “available-for-sale” security which is reported at fair value based on quoted market prices. Changes in the fair market value of the investment will be recognized in other comprehensive income. The carrying value of the convertible debt is $5.1 million which approximates fair value. This is calculated using the intrinsic value of the conversion feature.

Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement 123(R), Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation, which superseded APB Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123(R) addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. This statement requires that share-based transactions be accounted for using a fair-value-based method to recognize non-cash compensation expense; this expense is recognized ratably over the requisite service period, which generally equals the vesting period of options, and is adjusted for expected forfeitures. We adopted this standard at the beginning of 2006 using the modified prospective method.

Revenue Recognition

We record revenue from product sales when the goods are delivered and title passes to the customer. At the time of sale, estimates for sales deductions, including rebates to government agencies, are recorded. These provisions are provided for in the same period the related product sales are recorded. Following the settlement agreement with Tercica and Genentech on March 6, 2007, we ceased to supply IPLEX to patients and discontinued sales of IPLEX product as of March 7, 2007. Revenue from the expanded access program is recognized when the drugs have been provided to program patients and collectibility is assured. License income is recognized as revenue when the milestones are achieved and payments are due.

Research and Development

Research and development costs are expensed as incurred. Research and development expenses consist primarily of salaries and related expenses, cost to develop and manufacture drug candidates, patent protection costs, amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials. We do

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not have separate accounting policies for internal or external research and development and we do not conduct any research and development for others. Our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with third party organizations that conduct and manage clinical trials on our behalf. These contracts set forth the scope of work to be completed at a fixed fee or amount per patient enrolled. Payments under these contracts depend on performance criteria such as the successful enrollment of patients or the completion of clinical trial milestones. Expenses are accrued based on contracted amounts applied to the level of patient enrollment and to activity according to the clinical trial protocol.

Litigation costs, as they relate to our patents were recorded as research and development expenditures through the March 31, 2006. From April 1, 2006 through March 6, 2007 we shifted from research and development operations to commercial operations and litigation costs were recorded as selling, general and administrative expenses. We are currently focused on research and development operations and our litigation expenses are expensed as research and development expenses.

Income Taxes

Income taxes are accounted for in accordance with FASB Statement No. 109 Accounting for Income Taxes (“FASB 109”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect a change in tax rates has on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Net Loss Per Share

Basic net loss per share is computed based upon the weighted average number of common shares outstanding during the year. Our diluted net loss per share is the same as our basic net loss per share because all stock options, warrants, and other potentially dilutive securities are antidilutive and, therefore, excluded from the calculation of diluted net loss per share.

3. Recent Accounting Pronouncements

In June 2006, FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB 109. FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on disclosure requirements, measurement and

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classification provisions, and transition requirements. We implemented FIN 48 on January 1, 2007 and due to the accumulated loss position of the Company, such implementation did not have a material impact on our financial statements.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (“FASB 157”), which establishes a common definition for fair value under U.S. generally accepted accounting principles and creates a framework for measuring fair value. The FASB believes that the new standard will make the measurement of fair value more consistent and comparable and improve disclosures about those measures. FASB 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements and future impact of FASB 157 on its financial statements.

4. Equity Compensation Plan Information

As of March 31, 2007, we had two equity compensation plans under which we were granting stock options and shares of non-vested stock. We are currently granting stock-based awards from our Amended and Restated 2000 Stock Incentive Plan (the “2000 Plan”) and our Amended and Restated 2000 Employee Stock Purchase Plan (the “2000 ESPP”). Both the 2000 Plan and the 2000 ESPP are administered by the Compensation Committee of the Board of Directors and the Board of Directors (the “Board”).

The 2000 Plan was originally adopted by the Board and approved by our shareholders in 2000. Its original ten-year term was extended to March 15, 2015 when the plan was last amended. Under the terms of the 2000 Plan, we are authorized to grant a variety of incentive awards based on our common stock, including stock options (both incentive options and non-qualified options), performance shares and other stock awards. The 2000 Plan currently provides for the issuance of a maximum of 9,250,000 (adjusted for stock splits) shares of common stock. These shares are reserved for awards to all participants in the 2000 Plan, including non-employee directors.

The 2000 ESPP was adopted by the Board on April 5, 2000 and approved by our shareholders on the same date. It was amended by the Board to increase the number of shares available for issuance, and such amendment was approved by our shareholders on May 11, 2005. The 2000 ESPP was subsequently amended and restated by action of the Board on October 4, 2006 and the amendment and restatement was approved by our shareholders on December 14, 2006. Under the terms of the 2000 ESPP, eligible employees have the opportunity to purchase our common stock through stock options granted to them. An option gives its holder the right to purchase shares of our common stock, up to a maximum value of $25,000 per year. The 2000 ESPP provides for the issuance of a maximum of 1,500,000 shares of our common stock to participating employees.

The following table presents information as of March 31, 2007, with respect to the 2000 Plan and the 2000 ESPP.

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Plan Category (1)	Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (2)
Equity Compensation Plans Approved by Shareholders:
Amended and Restated 2000 Stock Incentive Plan (3)	5,372,394	$	2.41	3,069,949
Amended and Restated 2000 Employee Stock Purchase Plan	—		—	901,948

Total:	5,372,394	$	2.41	3,971,897

(1)	We do not have any equity compensation plans that have not been approved by our shareholders.

(2)	Amounts exclude any securities to be issued upon exercise of outstanding options, warrants and rights.

(3)

To the extent that stock options or stock appreciation rights granted under the 2000 Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised, or if any shares of restricted stock or performance units are forfeited, the shares of common stock underlying such grants will again become available for purposes of the 2000 Plan.

A summary of the status of our stock options as of March 31, 2007, and changes for the three months then ended is presented below:


Description	2007		Weighted average exercise price		Weighted average remaining contractual life in years
Options outstanding at January 1, 2007	6,563,932		$	3.04
Granted	50,000			1.01
Exercised	—			—
Cancelled	(1,241,538	)		2.69

Options outstanding at March 31, 2007	5,372,394			2.41	3.92

Exercisable at March 31, 2007	3,664,069		$	2.82	3.74

The fair value of the options granted during the three months ended March 31, 2007, and 2006, was estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the weighted average assumptions described below:


	2007		2006
Volatility Rate	91	%	113	%

Interest Rate	4.65	%	4.3	%

Dividends	0		0

Expected Term	3.47		2.59

Cancellations/Expirations	32	%	27	%

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5. Convertible Debt Financings

On March 15, 2005, we entered into several purchase agreements with a group of institutional investors, pursuant to which we issued and sold to such investors certain 5.5% convertible notes in the aggregate principal amount of $35,000,000, which convert into a certain number of shares of our common stock (the “2005 Notes”) as well as warrants to purchase, in the aggregate, approximately 14,864,883 shares of our common stock, at an exercise price of $1.36 per share (the “2005 Warrants”).

The principal of each 2005 Note will mature and be payable in nine quarterly installments of approximately $3,890,000 each commencing on March 1, 2008. As of June 1, 2005, the holders of the 2005 Notes began to receive interest payments at a rate of 5.5% per annum, and such interest payments are payable quarterly until March 1, 2008. Any outstanding 2005 Notes must be repaid in cash or converted into shares of our common stock by March 1, 2010. Subject to the terms of the purchase agreements, the holders of the 2005 Notes may convert such notes into shares of our common stock at a conversion price of $1.295 per share (as adjusted in accordance with certain adjustments for stock splits, dividends and the like) at any time prior to the close of business on March 1, 2010. The 2005 Notes were initially convertible into, in the aggregate, 27,027,027 shares of our common stock. The holders of the 2005 Notes have the right to require us to repurchase such notes with cash payments upon the occurrence of specified “events of default” and “repurchase events” described in the 2005 Notes. The 2005 Warrants were initially exercisable in the aggregate for 14,864,883 shares of common stock at an exercise price of $1.36 per share. The 2005 Warrants will expire on March 15, 2010.

In connection with the issuance of the 2005 Notes and 2005 Warrants, we entered into registration rights agreements with the purchasers thereof pursuant to which we agreed to file a registration statement under the Securities Act of 1933, registering for resale the shares of our common stock issuable upon the conversion of the 2005 Notes or exercise of the 2005 Warrants.

Between April 1, 2005 and March 31, 2007, we received notices from certain holders of the 2005 Notes electing to voluntarily convert approximately $29,875,000 principal amount of such notes into approximately 23,069,498 shares of common stock at the conversion rate of one share of common stock for each $1.295 in principal amount of the 2005 Notes. Following such conversions and as of March 31, 2007, $5,125,000 principal amount of the Convertible Notes remained outstanding.

At March 31, 2007 there were 19,215,362 shares reserved for issuance for all outstanding notes, warrants and options.

6. Restructuring Plan

On February 21, 2007, our Board committed to a business restructuring plan following our announcement of the Settlement

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Agreement with Tercica, Inc. and Genentech, Inc, which laid out the terms for settlement of all of the outstanding litigation between the parties and includes our agreement to withdraw IPLEX from the short stature market. The restructuring eliminated our commercial department and downsized our manufacturing facility located in Boulder, Colorado resulting in an immediate reduction of approximately 34% of our previous workforce of 150. Employees who were affected by the restructuring were provided with severance payments.

As a result of the restructuring plan, we incurred a one-time restructuring charge in March 2007 of approximately $1.7 million for severance payments. The $1.7 million represents the total amount of restructuring charge to be incurred including future cash expenditures. These charges were recorded as research and development expenses and selling, general and administrative expenses in the income statement and the remaining payouts are classified as payroll liabilities on the balance sheet.

7. Legal Proceedings

In December 2004, Tercica and Genentech filed patent infringement suits against us in the United States District Court for the Northern District of California and in the United Kingdom at the High Court of Justice, Chancery Division, Patents Court. In these cases, Tercica and Genentech alleged that production and use of IPLEX willfully infringed claims in certain United States and European Patents, owned by Genentech and Tercica, directed to methods of using rhIGF-I/rhIGFBP-3 and methods of producing rhIGF-1and IGFBP-3. In June 2006, Tercica also filed an unfair competition suit against us in the United States District Court for the Eastern District of Virginia, claiming that we disseminated misleading statements to the market in connection with our marketing of IPLEX.

On December 6, 2006, a jury in the United States District Court for the Northern District of California found that we infringed patents held by Tercica and Genentech and awarded damages of $7.5 million as an upfront payment and a royalty of 15% on sales of IPLEX below $100 million and 20% on sales above $100 million.

On March 6, 2007, we reached a settlement agreement ending all litigation with Tercica and Genentech. Pursuant to the settlement agreement, we agreed to cease sales and marketing of IPLEX in the United States and agreed to withdraw our European Marketing Authorization Application for IPLEX. We continue to provide IPLEX to named patients with Amyotrophic Lateral Sclerosis (“ALS”) in Italy under our Expanded Access Program. The settlement agreement also gives us the right, through a worldwide development partnership with Tercica and Genentech, to market IPLEX for conditions not related to short stature. These indications include severe insulin resistance, myotonic muscular dystrophy (“MMD”) and HIV-associated adipose redistribution syndrome (“HARS”), among others. The development partnership includes provisions that give us a 50% share of profits and reimbursement for 50% of development costs if either Tercica or Genentech exercises opt-in rights for marketing of IPLEX in any of these new indications that we develop. In addition, as part of the settlement agreement, Tercica and Genentech waived the damages awarded by the jury in the patent infringement suit from the District Court for the Northern District of California.

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7. Subsequent Events

On April 16, 2007 we received $1,000,000 from NAPO Pharmaceuticals for delivering certain clinical information to them in accordance with the terms of our license agreement.

On May 4, 2007, we sold 20,255,367 shares of the our common stock and warrants to purchase up to 2,025,536 shares of our common stock. The price to the investors was $0.90 per unit, which was comprised of one share of our common stock and a warrant to purchase 0.1 shares of our common stock. The units were not issued or certificated and the shares of common stock and warrants were immediately separable and issued separately. The warrants may be exercised between November 3, 2007 and May 3, 2012 and have an exercise price of $1.10 per share. The offering was made pursuant to our effective shelf registration statement on Form S-3 (Registration No. 333-131535) previously filed with the Securities and Exchange Commission. Net proceeds from the offering are expected to be approximately $16.9 million.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Statements contained herein, including without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” contains certain projections, estimates and other forward-looking statements. “Forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995, are not historical facts and involve a number of risks and uncertainties. Words herein such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.

Forward-looking statements include, but are not limited to: our plans to develop and market new products and the timing of these development programs; our clinical development of product candidates, clinical trials and our ability to obtain and maintain regulatory approval for our product candidates; our estimates regarding our capital requirements and our needs for additional financing; our estimates of expenses and future revenues and profitability; our estimates of the size of the potential markets for our product candidates; our selection and licensing of product candidates; our ability to attract collaborators with acceptable development, regulatory and commercialization expertise; the benefits to be derived from corporate collaborations, license agreements and other collaborative efforts, including those relating to the development and commercialization of our product candidates; sources of revenues and anticipated revenues, including contributions from corporate collaborations, license agreements and other collaborative efforts for the development and commercialization of products; our ability to create an effective direct sales

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and marketing infrastructure for products we elect to market and sell directly; the rate and degree of market acceptance of our product candidates; the timing and amount of reimbursement for our product candidates; the success of other competing therapies that may become available; and the manufacturing capacity for our product candidates.

Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated or indicated in any forward-looking statements. Any forward-looking statement should be considered in light of factors discussed in Part II. Item 1A “Risk Factors” and elsewhere in this report. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K, for the year ended December 31, 2006.

Overview

We are a biopharmaceutical company focused on the development of drugs to treat metabolic diseases and endocrine disorders within niche markets that have unmet medical needs. Our development activities involve drugs that modulate IGF-1 activity in the human body. In the past, we were focused on development and commercialization of IPLEX, our once-daily IGF-1 replacement therapy, for the treatment short stature disorders. IPLEX is a complex of recombinant human IGF-I and its binding protein IGFBP-3 (rhIGF-I/rhIGFBP-3). IPLEX was approved by the FDA for the treatment of short stature disorders, in December 2005 and was commercially launched in the second quarter of 2006. As a result of our recent settlement agreement with Tercica and Genentech, as discussed below, we have withdrawn IPLEX from the short-stature market.

On March 6, 2007, we reached a settlement agreement which ended all ongoing litigation with Tercica and Genentech. Pursuant to the settlement agreement, we agreed to cease sales and marketing of IPLEX in the United States and agreed to withdraw our European Marketing Authorization Application for IPLEX. We will continue to provide IPLEX to named patients with ALS in Italy under our Expanded Access Program. The settlement agreement also gives us the right, through a worldwide development partnership with Tercica and Genentech, to market IPLEX for conditions not related to short stature. These indications include MMD, HARS and retinopathy of prematurity (ROP) among others. The development partnership includes provisions that give us a 50% share of profits and reimbursement for 50% of development costs if either Tercica or Genentech exercises opt-in rights for marketing of IPLEX in any of these new indications that we develop. In addition, as part of the settlement agreement, Tercica and Genentech waived the damages awarded by the jury in the patent infringement suit from the District Court for the Northern District of California.

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As a result of our settlement agreement with Tercica and Genentech, we decided to restructure our business and refocus our efforts. As part of our restructuring plan, our commercial operations unit was eliminated and production at our manufacturing facility in Boulder, Colorado, was scaled back, to reflect the reduced product requirement. In connection with this restructuring, our workforce was reduced by approximately 34%. We are refocusing our business to capitalize on the therapeutic opportunities presented by our current product candidates by developing them for the treatment of metabolic diseases and endocrine disorders and oncology. As a result of taking IPLEX off the market, we incurred an impairment charge of $7.1 million in certain capital equipment and inventory which is reflected in our fiscal 2006 financial statements. The total cost of the severance awards granted pursuant to the restructuring plan was approximately $1.7 million and is reflected in our March 31, 2007 financial results.

We have not been profitable and have accumulated deficits of approximately $321 million through March 31, 2007. We expect to incur significant additional losses for at least the next several years until such time as sufficient revenues are generated to offset expenses. Moving forward our major source of income is expected to be the cost recovery charges for our Expanded Access Program and our major expenses will be for research and development of our product candidates. In general, our expenditures may increase as development of our product candidates progresses. However, there will be fluctuations from period to period caused by differences in project costs incurred at each stage of development.

Research and Development Activities

We are engaged in the research and development of potential drug products for the treatment of metabolic diseases and endocrine disorders. All of our research and development expenditures, whether conducted by our own staff or by external scientists on our behalf and at our expense, are recorded as expenses as incurred and have amounted to approximately $154 million for the time period since our inception, November 1999 through March 31, 2007. Research and development expenses consist primarily of salaries and related expenses, costs to develop and manufacture products and amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials.

Our research and development efforts for other products are in their early stages and include primarily research and development regarding rhIGFBP-3 for the treatment of various cancers and INSM-18 for the treatment of various tumors. These products are either in preclinical stages or, Phase I and II clinical trials. All of our research and development expenditures related to these early-stage products and our efforts associated with IPLEX are significantly interrelated as they are all associated with drugs that modulate IGF-I activity in the human body. A significant finding in any one drug for a particular indication may provide benefits to our efforts across all of these products. All of these products also share a substantial amount of our common fixed costs such as salaries, facility costs, utilities and maintenance. Given the small portion of research and development expenses that are related to products other than IPLEX we have determined that very limited benefits would be obtained from implementing cost tracking systems that would track cost information on a product-by-product basis.

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In the near term, we intend to focus substantially all of our research and development resources on the expansion of IPLEX into other indications. Our plans to expand IPLEX into additional indications are expected to represent our main research and development focus and expense in 2007. Our thrust to develop our other early-stage products will continue, but we expect those efforts to account for a much smaller portion of our research and development expenditures. These estimates are based on currently available information and we can provide no assurance that our research and development plans will not change in the future.

Our plans also include entering into arrangements, which can help us in developing our product candidates. Towards this end, on January 5, 2007, Insmed Incorporated entered into an agreement with NAPO Pharmaceuticals, whereby NAPO licensed from Insmed the technology surrounding INSM-18 also know as Masoprocal. The license gives NAPO the right to develop, manufacture and commercialize Masoprocal products for any indications relating specifically to diabetes, cardiac disease, vascular disease, metabolic disease and Syndrome X. The agreement calls for payments from NAPO to Insmed upon the delivery of certain milestones. On January 12, 2007, upon signing the contract, we received $500,000 which, as part of the agreement, we immediately used to purchase 270,611 shares of NAPO common stock at the closing trading price of £0.94 ($1.85 in US funds). Further, on April 16, 2007, we received $1,000,000 from NAPO for delivering certain clinical information to them in accordance with the terms of the license agreement.

Our clinical trials with our product candidates are subject to numerous risks and uncertainties that are outside of our control, including the possibility that necessary regulatory approvals may not be obtained. For example, the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

•

the number of patients that ultimately participate in the trial;

•

the duration of patient follow-up that is determined to be appropriate in view of results;

•

the number of clinical sites included in the trials;

•

the length of time required to enroll suitable patient subjects; and

•

the efficacy and safety profile of the product candidate.

Our clinical trials may also be subject to delays or rejections based on our inability to enroll patients at the rate that we expect or our inability to produce clinical trial material in sufficient quantities and of sufficient quality to meet the schedule for our planned clinical trials.

Moreover, all of our product candidates and particularly those that are in the preclinical or early clinical trial stage must overcome

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significant regulatory, technological, manufacturing and marketing challenges before they can be successfully commercialized. Some of these product candidates may never reach the clinical trial stage of research and development. As preclinical studies and clinical trials progress, we may determine that collaborative relationships will be necessary to help us further develop or to commercialize our product candidates, but such relationships may be difficult or impossible to arrange. Our projects or intended projects may also be subject to change from time to time as we evaluate our research and development priorities and available resources.

Any significant delays that occur or additional expenses that we incur may have a material adverse affect on our financial position and require us to raise additional capital sooner or in larger amounts than is presently expected. In addition, as a result of the risks and uncertainties related to the development and approval of our product candidates and the additional uncertainties related to our ability to market and sell these products once approved for commercial sale, we are unable to provide a meaningful prediction regarding the period in which material net cash inflows from any of these projects is expected to become available.

Results of Operations

Revenues for the three months ended March 31, 2007 were $1,660,000 as compared with $54,000 for the corresponding period of 2006. The revenue figures include commercial sales, sales to patients in our named patient and expanded access programs, license income and royalties.

The net loss for the three months ended March 31, 2007 was $10.3 million or $0.10 per share, as compared to the net loss of $13.4 million or $0.17 per share for the corresponding period of 2006. The $3.2 million reduction in the net loss was due to a $2.7 million decrease in interest expense and a $1.6 million increase in revenues, offset by a $1.1 million increase in operating expenses. The decrease in interest expense results from lower amortization of the debt discount associated with the March 2005 financing as an acceleration of the discount took place in the first quarter of 2006 due to a conversion of notes into shares. The increase in revenues relates to the addition of commercial sales, the recognition of the licensing revenue from NAPO and increased expanded access income which, during the first quarter of 2006, was classified as a reduction in expense. The rise in selling, general and administrative (SG&A) expenses for the first quarter of 2007 as compared to the corresponding period of 2006 is mainly due to the severance costs associated with our business restructuring which were partially offset by reduced litigation expenses. The litigation expenses were recorded in research and development during the first quarter of 2006 and are currently recorded in selling, general and administrative expenses as we had moved from research and development to commercial operations through the first quarter of 2007. The cost of goods sold (COGS) for the first quarter of 2007 reflected the cost of all the remaining commercial inventory as commercial sales ceased on March 7, 2007 in accordance with the Tercica and Genentech settlement agreement.

As of March 31, 2007, we had total cash and cash equivalents of $12.0 million which represents a decrease of $12.1 million from December 31, 2006. This decrease is due to the $11.9 million in net cash used in support of our business operations and $0.5 million used to purchase investments, which was partially offset by a $0.3 million reduction in a letter of credit. With the recent financing in place we expect to end 2007 with a cash balance of between $15 million and $18 million.

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Liquidity and Capital Resources

At March 31, 2007, our cash and cash equivalents of $12.0 million were invested in investment grade, interest-bearing securities. On May 4, 2007, we sold 20,255,367 shares of the Company’s common stock, $0.01 par value per share. The price to the investors was $0.90 per share. Net proceeds from the offering is expected to be approximately $16.9 million. Our business strategy contemplates selling additional equity and entering into agreements with corporate partners to fund research and development, and provide milestone payments, license fees and equity investments to fund operations. We will need to raise substantial additional funds to continue development and commercialization of our product candidates. There can be no assurance that adequate funds will be available when we need them, or on favorable terms. If at any time we are unable to obtain sufficient additional funds, we will be required to delay, restrict or eliminate some or all of our research or development programs, dispose of assets or technology or cease operations.

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Contractual Obligations

The following table provides a summary of certain of our significant contractual obligations as of March 31, 2007:

(in thousands)


	Payments Due by Years
	Total		2007		2008		2009		2010		2011		2012 & Beyond
Long term debt (1)	$	5,689	$	212	$	2,513	$	2,387	$	577	$	—	$	—
Operating lease obligations		7,638		734		2,999		647		631		419		2,208

	$	13,327	$	946	$	5,512	$	3,034	$	1,208	$	419	$	2,208

(1)	Long-term debt obligations reflect the future interest and principal payments of the 2005 Notes outstanding as of March 31, 2007. The 2005 Notes become due in quarterly installments beginning on March 1, 2008 if not converted to shares of our common stock at an earlier date.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest excess cash in investment grade, interest-bearing securities and, at March 31, 2007, had $12.0 million invested in money market instruments and investment grade corporate debt. Such investments are subject to interest rate and credit risk. Our policy of investing in highly rated securities whose maturities at March 31, 2007 are all less than one year minimizes such risks. In addition, while a hypothetical decrease in market interest rates of 10% from March 31, 2007 levels would reduce interest income, it would not result in a loss of the principal and the decline in interest income would not be material.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures . We carried out an evaluation, under the supervision and with the participation of certain members of our management team, including the Chairman of our Board and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the

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Securities Exchange Act of 1934. Based upon that evaluation, the Chairman of our Board and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting management to material information required to be included in our periodic filings with the Securities and Exchange Commission.

Changes in Internal Controls over Financial Reporting . During the period covered by this report, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The information presented in Section 7 of Item 1 (“Legal Proceedings”) of Part 1 of this Form 10-Q is incorporated herein by reference.

In addition to the foregoing, we are not currently a defendant in any matter of litigation, however, we could be involved in litigation in the future that could arise out of the normal course of business . Although it is difficult to predict if we will become involved in future litigation, management believes that any ultimate outcome would not materially affect our financial position, results of operations or cash flows.

ITEM 1A.

RISK FACTORS

Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. Except for the historical information in this report, the matters contained in this report include forward-looking statements that involve risks and uncertainties. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors, among others, may have a material adverse effect upon our business, results of operations and financial condition.

In Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which was filed with the Securities and Exchange Commission on March 16, 2007, we described risk factors related to our operations. Our updated risk factors are included below in this Item 1A.

You should consider carefully the following risk factors, together with all of the other information included in this quarterly report on Form 10–Q. Each of these risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock.

RISK RELATED TO OUR BUSINESS

We will need additional funds in the future to continue our operations, but we face uncertainties with respect to our access to capital that could materially adversely impact our business, financial condition and results of operations.

We will require substantial future capital to implement our revised business plan with a renewed focus on research and development activities. As of March 31, 2007, we had $12.0 million of cash on hand. On May 4, 2007, we raised additional net cash of approximately $16.9 million. . However, our future capital requirements will depend on many factors, including factors associated with:

•

research and development, including, among other items, preclinical testing and clinical studies,

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•

process development;

•

obtaining marketing, sales and distribution capabilities;

•

obtaining regulatory approvals;

•

retaining employees and consultants;

•

filing and prosecuting patent applications and enforcing patent claims;

•

establishing strategic alliances;

•

manufacturing; and

•

potential future litigation.

We may also need to spend more money than currently expected because we may further change our drug development plans, acquire additional drugs or product candidates or we may misjudge our costs. We have no committed sources of capital and do not know whether additional financing will be available when needed, or, if available, that the terms will be favorable. There can be no assurance that our cash reserves together with any subsequent funding will satisfy our capital requirements. The failure to satisfy our capital requirements will adversely affect our business, financial condition and results of operations. Our independent registered public accounting firm has expressed their view that there are material uncertainties which cast significant doubt upon our ability to continue as a going concern. The addition of this going concern disclosure may discourage investors from purchasing our stock.

We may seek additional funding through strategic alliances, private or public sales of our securities or licensing all or a portion of our technology. Such funding may significantly dilute existing shareholders or may limit our rights to our currently developing technology. There can be no assurance, however, that we can obtain additional funding on reasonable terms, or at all. If we cannot obtain adequate funds, we may need to significantly curtail our product development programs and relinquish rights to our technologies or product candidates. This may adversely affect our business, financial condition and results of operations.

We have not completed the research and development stage of any of our product candidates. If we are unable to successfully commercialize our products, it will materially adversely affect our business, financial condition and results of operations.

Our long-term viability and growth depend on the successful commercialization of products which lead to revenue and profits. Pharmaceutical product development is an expensive, high risk, lengthy, complicated, resource intensive process. To succeed, among other things, we must be able to:

•

identify potential drug product candidates;

•

design and conduct appropriate laboratory, preclinical and other research;

•

submit for and receive regulatory approval to perform clinical studies;

•

design and conduct appropriate preclinical and clinical studies according to good laboratory and good clinical practices;

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•

select and recruit clinical investigators;

•

select and recruit subjects for our studies;

•

collect, analyze and correctly interpret the data from our studies;

•

submit for and receive regulatory approvals for marketing; and

•

manufacture the drug product candidates according to current good manufacturing practices.

The development program with respect to any given potential product will take many years and thus delay our ability to generate profits. In addition, potential products that appear promising at early stages of development may fail for a number of reasons, including the possibility that the products may require significant additional testing or turn out to be unsafe, ineffective, too difficult or expensive to develop or manufacture, too difficult to administer, or unstable. In order to conduct the development programs for our products we must, among other things, be able to successfully:

•

raise sufficient money and pay for product development;

•

attract and retain appropriate personnel; and

•

develop relationships with other companies to perform various development activities that we are unable to perform.

Even if we are successful in developing and obtaining approval for our product candidates, there are numerous circumstances that could prevent the successful commercialization of the products such as:

•

the regulatory approvals of our products are delayed or we are required to conduct further research and development of our products prior to receiving regulatory approval;

•

we are unable to build a sales and marketing group to successfully launch and sell our products;

•

we are unable to raise the additional funds needed to successfully develop and commercialize our products or acquire additional products for growth;

•

we are required to allocate available funds to litigation matters;

•

we are unable to manufacture the quantity of product needed in accordance with current good manufacturing practices to meet market demand, or at all;

•

our product is determined to be ineffective or unsafe following approval and is removed from the market or we are required to perform additional research and development to further prove the safety and effectiveness of the product before re-entry into the market;

•

competition from other products or technologies prevents or reduces market acceptance of our products;

•

we do not have and cannot obtain the intellectual property rights needed to manufacture or market our products without infringing on another company’s patents;

•

we are unsuccessful in defending against patent infringement claims being brought against us our products or technologies; or

•

we are unable to obtain reimbursement for our product or such reimbursement may be less than is necessary to produce a reasonable profit.

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Our growth strategy includes the commercialization of more than one product. We may not be able to identify and acquire complementary products, businesses or technologies and if acquired or licensed, they might not improve our business, financial condition or results of operations. The failure to successfully acquire, develop and commercialize products will adversely affect our business, financial condition and results of operations.

We have a history of operating losses and an expectation that we will generate operating losses for the foreseeable future, we may not achieve profitability for some time, if at all.

We are focused on the development and commercialization of product candidates for the treatment of metabolic and endocrine disorders with unmet medical needs. We have incurred losses in each year we have been in operation and we expect to continue incurring operating losses for the foreseeable future. The process of developing and commercializing our products requires significant preclinical testing and clinical trials as well as regulatory approvals for commercialization and marketing before we were allowed to begin product sales. In addition, commercialization of our product candidates requires us to establish a sales and marketing organization and contractual relationships to enable product manufacturing and other related activities. We expect that these activities, together with our general and administrative expenses, will result in substantial operating losses for the foreseeable future. As of March 31, 2007, our accumulated deficit was $321 million and our consolidated net loss was $10.3 million.

We currently have three lead product candidates, IPLEX, rhIGFBP-3 and INSM-18. IPLEX is currently in a Phase II clinical study for the treatment of MMD, a Phase II clinical trial for the treatment of HARS and a Phase I clinical trial for the treatment of ROP. Our second compound, rhIGFBP-3, is currently in a Phase I clinical study of breast cancer. A Phase I/II clinical trial of our third compound, INSM-18, in patients with refractory prostate cancer has recently been completed. Other clinical studies with these compounds are contemplated.

If our products fail in preclinical or clinical trials or if we cannot enroll enough patients to complete our clinical trials, such failures may adversely affect our business, financial condition and results of operations.

In order to sell our products, we must receive regulatory approval. Before obtaining regulatory approvals for the commercial sale of any of our products under development, we must demonstrate through preclinical studies and clinical trials that the product is safe and effective for use in each target indication. In addition, the results from preclinical testing and early clinical trials may not be predictive of results obtained in later clinical trials. There can be no assurance that our clinical trials will demonstrate sufficient safety and effectiveness to obtain regulatory approvals for our products still in development. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in late stage clinical trials even after promising results in early stage development. If our developmental products fail in preclinical or clinical trials, it will have an adverse effect on our business, financial condition and results of operations.

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The completion rate of clinical studies of our products is dependent on, among other factors, the patient enrollment rate. Patient enrollment is a function of many factors, including:

•

investigator identification and recruitment;

•

regulatory approvals to initiate study sites;

•

patient population size;

•

the nature of the protocol to be used in the trial;

•

patient proximity to clinical sites;

•

eligibility criteria for the study; and

•

competition from other companies’ clinical studies for the same patient population.

We believe our planned procedures for enrolling patients are appropriate; however, delays in patient enrollment would increase costs and delay ultimate commercialization and sales, if any, of our products. Such delays could materially adversely affect our business, financial condition and results of operations.

We may be required to conduct broad, long-term clinical trials to address concerns that the long-term use of one of our product candidates, IPLEX, in broader chronic indications might increase the risk of diabetic retinopathy. This may materially adversely affect our business, financial condition and results of operations.

In previously published clinical trials of rhIGF-I, concerns were raised that long-term use of rhIGF-I might lead to an increased incidence and/or severity of retinopathy, a disease of new blood vessel growth in the eye which results in loss of vision. Because IPLEX contains rhIGF-I, the FDA may require us to conduct broad, long-term clinical trials to address these concerns prior to receiving FDA approval for broad chronic indications such as diabetes. These clinical trials would be expensive and could delay our commercialization of IPLEX for these broader chronic indications. Adverse results in these trials could prevent our commercialization of IPLEX for broad chronic indications or could jeopardize existing development in other indications.

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We cannot be certain that we will obtain regulatory approvals in the United States, European Union or other countries. The failure to obtain such approvals may materially adversely affect our business, financial condition and results of operations.

We are required to obtain various regulatory approvals prior to studying our products in humans and then again before we market and distribute our products. The regulatory review and approval process required to perform a clinical study in both the United States and European Union includes evaluation of preclinical studies and clinical studies, as well as the evaluation of our manufacturing process. This process is complex, lengthy, expensive, resource intensive and uncertain. Securing regulatory approval to market our products also requires the submission of extensive preclinical and clinical data, manufacturing information regarding the process and facility, scientific data characterizing our product and other supporting data to the regulatory authorities in order to establish its safety and effectiveness. This process is also complex, lengthy, expensive, resource intensive and uncertain. We have limited experience in filing and pursuing applications necessary to gain these regulatory approvals.

Data submitted to the regulators is subject to varying interpretations that could delay, limit or prevent regulatory agency approval. We may also encounter delays or rejections based on changes in regulatory agency policies during the period in which we develop a product and the period required for review of any application for regulatory agency approval of a particular product. Delays in obtaining regulatory agency approvals could adversely affect the development and marketing of any drugs that we or our collaborative partners develop. Such delays could impose costly procedures on our collaborative partners’ or our activities, diminish any competitive advantages that our collaborative partners or we may attain and adversely affect our ability to receive royalties, any of which could materially adversely affect our business, financial condition and results of operations.

To market our products outside of the United States and European Union territories, we and our corporate partners must comply with numerous and varying regulatory requirements of other countries. The approval procedures vary among countries and can involve additional product testing and administrative review periods. The time required to obtain approval in these other territories might differ from that required to obtain FDA or European Agency for the Evaluation of Medicinal Products, or EMEA, approval. The regulatory approval process in these other territories includes at least all of the risks associated with obtaining FDA and EMEA approval detailed above. Approval by the FDA or the EMEA does not ensure approval by the regulatory authorities of other countries. The failure to obtain such approvals may materially adversely affect our business, financial condition and results of operations.

We may not be able to manufacture sufficient quantities of our products to meet our supply and clinical studies obligations, which may adversely affect our business, financial condition and results of operations.

We intend to manufacture IPLEX and rhIGFBP-3 bulk drug substance and perform the majority of analytical testing at our manufacturing facility in Boulder, Colorado and utilize contract manufacturers for sterile filtering, filling, finishing, labeling and some analytical testing. We intend to manufacture INSM-18 with contract manufacturers.

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To meet our supply obligations and clinical demand for IPLEX and clinical demand for rhIGFBP-3, we plan to implement stepwise changes to our Boulder, Colorado manufacturing facility and manufacturing process this year. We must submit to the FDA information and data pertaining to these changes and the FDA must approve these changes before we will be allowed to use IPLEX or rhIGFBP-3 that is manufactured following implementation of these changes.

The available capacity for the manufacture and testing of recombinant proteins that comprise our product candidates is limited. A shutdown or disruption at our manufacturing facility whether due to technical, regulatory, force majeure, or other problems, resulting in an interruption in supply of these materials, could delay our development activities and adversely impact our business, financial condition and results of operations.

The number of contract manufacturers with the expertise and facilities to manufacture our products is extremely limited and it would take a significant amount of time and resources to arrange for alternative manufacturers. Even if we were to find alternative manufacturers, the prices they charge may not be commercially reasonable or they may only be able to provide our products in a quantity that is less than our needs. Furthermore, if we need to change to other contract manufacturers, we would also need to transfer to these new manufacturers and validate the processes and analytical methods necessary for the production and testing of our products. Any of these factors could lead to (1) the delay or suspension of our clinical studies, regulatory submissions and regulatory approvals, or (2) higher costs of production, or (3) our failure to effectively commercialize our products.

Our manufacturing facility and the facilities of contract manufacturers must undergo inspections by the FDA and the EMEA for compliance with current good manufacturing process (“cGMP”) regulations. In the event these facilities do not continue to receive satisfactory cGMP inspections for the manufacture and testing of our products, we may need to fund additional modifications to our manufacturing or testing processes, conduct additional validation studies, or find alternative manufacturing and testing facilities, any of which would result in significant cost to us as well as a significant delay of up to several years in the development of our products. In addition, our manufacturing facility and the facilities of any contract manufacturer we may utilize will be subject to ongoing periodic inspection by the FDA, the EMEA and other foreign agencies for compliance with cGMP regulations and similar foreign standards. We have limited control over contract manufacturers’ compliance with these regulations and standards, which could limit our production of our final drug product.

If our products fail to achieve market acceptance for any reason, such failure may materially adversely affect our business, financial condition and results of operations.

There can be no assurance that any of our product candidates if approved for marketing, will achieve market acceptance. If our product candidates, once approved, do not receive market acceptance for any reason, it will adversely affect our business, financial condition and results of operations. The degree of market acceptance of any drugs we develop will depend on a number of factors, including:

•

the establishment and demonstration in the medical community of the clinical efficacy and safety of our products;

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•

our products’ potential advantages over existing and future treatment methods;

•

the price of our products; and

•

reimbursement policies of government and third party payers, including hospitals and insurance companies.

For example, even after we obtain regulatory approval to sell our products, physicians and healthcare payers could conclude that our products are not safe and effective and physicians could choose not to use them to treat patients. Our competitors may also develop new technologies or products which are more effective or less costly, or that seem more cost-effective than our products.

In addition, legislation and regulations affecting the pricing of pharmaceuticals may change in ways adverse to us. While we cannot predict the likelihood of any legislative or regulatory proposals, if the government or an agency adopts such proposals, they could materially adversely affect our business, financial condition and results of operations.

We are dependent upon retaining and attracting key personnel and others, the loss of which could materially adversely affect our business, financial condition and results of operations.

We depend highly on the principal members of our scientific and management staff, the loss of whose services might significantly delay or prevent the achievement of research, development or business objectives and would materially adversely affect our business, financial condition and results of operations. Our success depends, in large part, on our ability to attract and retain qualified management, scientific and medical personnel, and on our ability to develop and maintain important relationships with commercial partners, leading research institutions and key distributors. We face intense competition for such personnel and relationships. We cannot assure that we will attract and retain such persons or maintain such relationships.

We expect that our potential expansion into areas and activities requiring additional expertise, such as further clinical trials, governmental approvals, manufacturing, sales, marketing and distribution will place additional requirements on our management, operational and financial resources. We expect these demands will require an increase in management and scientific personnel and the development of additional expertise by existing management personnel. The failure to attract and retain such personnel or to develop such expertise could materially adversely affect our business, financial condition and results of operations.

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We rely on collaborative relationships for our success. If we are unable to form these relationships it could materially adversely impact our business, financial condition and results of operations.

We currently rely and may in the future rely on a number of significant collaborative relationships for intellectual property rights, research funding, manufacturing, analytical services, preclinical development, clinical development and sales and marketing. For example, almost all of our clinical trial work is done in collaboration with academic institutions and we have licensed intellectual property to permit the development, manufacture and commercialization of our product candidates. Reliance on collaborative relationships poses a number of risks, including the following:

•

we may not be able to effectively control whether our corporate partners will devote sufficient resources to our programs or products;

•

disputes may arise in the future with respect to the ownership of rights to technology developed with, licensed to or licensed from corporate partners;

•

disagreements with corporate partners could result in loss of intellectual property rights, delay or terminate the research, development or commercialization of product candidates or result in litigation or arbitration;

•

contracts with our corporate partners may fail to provide sufficient protection for our intellectual property;

•

we may have difficulty enforcing the contracts if one of these partners fails to perform;

•

corporate partners have considerable discretion in electing whether to pursue the development of any additional products and may pursue technologies or products either on their own or in collaboration with our competitors; and

•

corporate partners with marketing rights may choose to devote fewer resources to the marketing of our products than they do to products of their own development.

Given these risks, a great deal of uncertainty exists regarding the success of our current and future collaborative efforts. Failure of these efforts could delay, impair or prevent the development and commercialization of our products and adversely affect our business, financial condition and results of operations.

Our growth strategy includes acquiring complementary businesses or technologies that may not be available or, if available and purchased or licensed, might not improve our business, financial condition or results of operations.

As part of our business strategy, we expect to pursue acquisitions and in-license new products and technologies. Nonetheless, we cannot assure you that we will identify suitable acquisitions or products or that we can make such acquisitions or enter into such license agreements on acceptable terms. If we acquire businesses, those businesses may require substantial capital, and we cannot provide assurance that such capital will be available in sufficient amounts or that financing will be available in amounts and on terms that we deem acceptable. Furthermore, the integration of acquired businesses may result in unforeseen difficulties that require a disproportionate amount of management’s attention and our other resources. Finally, we cannot provide assurance that we will achieve productive synergies and efficiencies from these acquisitions.

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We intend to conduct proprietary development programs with collaborators, and any conflicts with them could harm our business, financial condition and results of operations. We intend to enter into collaborative relationships which will involve our collaborator conducting proprietary development programs. Any conflict with our collaborators could reduce our ability to obtain future collaboration agreements and negatively influence our relationship with existing collaborators, which could reduce our revenues and have an adverse effect on our business, financial condition and results of operations. Moreover, disagreements with our collaborators could develop over rights to our intellectual property.

Certain of our collaborators could also be or become competitors. Our collaborators could harm our product development efforts by:

•

developing competing products;

•

precluding us from entering into collaborations with their competitors;

•

failing to obtain regulatory approvals;

•

terminating their agreements with us prematurely; or

•

failing to devote sufficient resources to the development and commercialization of products.

We may not accurately predict the protection afforded by our patents and proprietary technology and if our predictions are wrong, this may materially adversely affect our business, financial condition and results of operations.

Our success will depend in part on our ability to obtain patent protection for our products, prevent third parties from infringing on our patents, and refrain from infringing on the patents of others, both domestically and internationally. Our patent positions are highly uncertain, and any future patents we receive for our potential products will be subject to this uncertainty, which may adversely affect our business, financial condition and results of operations.

We intend to actively pursue patent protection for products resulting from our research and development activities that have significant potential commercial value. Nevertheless, it is possible that, in the patent application process, certain claims may be rejected or achieve such limited allowance that the value of the patents would be diminished. Further, there can be no assurance that any patents obtained will afford us adequate protection. In addition, any patents we procure may require cooperation with companies holding related patents. We may have difficulty forming a successful relationship with these other companies. Third parties may claim that we are infringing upon or have misappropriated their proprietary rights. Various third parties have obtained, and are attempting to obtain, patent protection relating to the production and use of our approved product and product candidates.

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We can provide no assurance as to whether any issued patents, or patents that may later issue to third parties, would affect our product candidates. We can provide no assurance that such patents can be avoided, invalidated or licensed. With respect to any infringement claim asserted by a third party, we can provide no assurance that we will be successful in the litigation or that such litigation would not have a material adverse effect on our business, financial condition and results of operation. In the event of a successful claim against us for infringement or misappropriation of a third party’s proprietary rights, we may be required to:

•

pay damages, including up to treble damages, and the other party’s attorneys’ fees, which may be substantial;

•

cease the development, manufacture, marketing and sale of products or use of processes that infringe the proprietary rights of others;

•

expend significant resources to redesign our products or our processes so that they do not infringe the proprietary rights of others, which may not be possible;

•

redesign our products or processes to avoid third party proprietary rights, which may cause us to suffer significant regulatory delays associated with conducting additional clinical trials or other steps to obtain regulatory approval; and

•

obtain one or more licenses arising out of a settlement of litigation or otherwise from third parties for the infringed proprietary rights, which may not be available to us on acceptable terms or at all.

Furthermore, litigation with any third party, even if the allegations are without merit, would likely be expensive and time-consuming and divert management’s attention.

Any conclusions we may have reached regarding non-infringement and invalidity are based in part on a review of publicly available databases and other information. There may be information not available to us or otherwise not reviewed by us that might change our conclusions. Moreover, as described above, the scope and validity of patent claims are determined based on many facts and circumstances, and in a litigation, a court may reach a different conclusion on any given patent claim than the conclusions that we have reached.

Moreover, we may have to undertake costly litigation to enforce any patents issued or licensed to us or to determine the scope and validity of another party’s proprietary rights. We can provide no assurance that a court of competent jurisdiction would validate our issued or licensed patents. An adverse outcome in litigation or an interference or other proceeding in a court or patent office could materially adversely affect our business, financial condition and results of operations.

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We operate in a highly competitive environment and if we are unable to adapt to our environment, we may be unable to compete successfully, which will materially adversely affect our business, financial condition and results of operations.

Biotechnology and related pharmaceutical technology have undergone and should continue to experience rapid and significant change. We expect that the technologies associated with biotechnology research and development will continue to develop rapidly. Our future success will depend in large part on our ability to maintain a competitive position with respect to these technologies. Any compounds, products or processes that we develop may become obsolete before we recover any expenses incurred in connection with their development. Rapid technological change could make our products obsolete, which could materially adversely affect our business, financial condition and results of operations.

We expect that successful competition will depend, among other things, on product efficacy, safety, reliability, availability, timing and scope of regulatory approval and price. Specifically, we expect crucial factors will include the relative speed with which we can develop products, complete the clinical testing and regulatory approval processes and supply commercial quantities of the product to the market. We expect competition to increase as technological advances are made and commercial applications broaden. In each of our potential product areas, we face substantial competition from large pharmaceutical, biotechnology and other companies, universities and research institutions. Relative to us, most of these entities have substantially greater capital resources, research and development staffs, facilities and experience in conducting clinical studies and obtaining regulatory approvals, as well as in manufacturing and marketing pharmaceutical products. Many of our competitors may achieve product commercialization or patent protection earlier than us. Furthermore, we believe that our competitors have used, and may continue to use, litigation to gain a competitive advantage. Finally, our competitors may use different technologies or approaches to the development of products similar to the products we are seeking to develop.

Competitors could develop and gain FDA approval of products containing rhIGF-1, which could adversely affect our competitive position in all indications where we are currently developing IPLEX.

rhIGF-1 manufactured by other parties may be approved for use in other indications in the United States in the future, including MMD, HARS and ROP. In the event there are other rhIGF-1 products approved by the FDA to treat indications other than those covered by IPLEX, physicians may elect to prescribe a competitor’s product containing rhIGF-1 to treat the indications for which IPLEX has received and may receive approval. This is commonly referred to as off-label use. While under FDA regulations a competitor is not allowed to promote off-label use of its product, the FDA does not regulate the practice of medicine and as a result cannot direct physicians as to what product containing rhIGF-1 to prescribe to their patients. As a result, we would have limited ability to prevent off-label use of a competitor’s product containing rhIGF-1 to treat any diseases for which we have received FDA approval, even if it violates our patents and we have orphan drug exclusivity for the use of rhIGF-1 to treat such diseases.

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If another party obtains orphan drug exclusivity for a product that is essentially the same as a product we are developing in a particular indication, we may be precluded or delayed from commercializing the product in that indication. This may materially adversely affect our business, financial condition and results of operations.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. The company that obtains the first marketing approval from the FDA for a designated orphan drug for a rare disease receives marketing exclusivity for use of that drug for the designated condition for a period of seven years. Similar laws exist in European Union. If a competitor obtains approval of the same drug for the same indication or disease before us, we would be blocked from obtaining approval for our product for seven or more years, unless our product can be shown to be clinically superior. In addition, more than one drug may be approved by the FDA for the same orphan indication or disease as long as the drugs are different drugs. As a result, even if our product is approved and receives orphan drug exclusivity, as in the case of our drug IPLEX, the FDA can still approve different drugs for use in treating the same indication or disease covered by our product, which could create a more competitive market for us.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Disclosure of this information may materially adversely affect our business, financial condition and results of operations.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information. Costly and time-consuming litigation may be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business, financial condition and results of operations.

Our research, development and manufacturing activities involve the use of hazardous materials, which could expose us to damages that could materially adversely affect our business, financial condition and results of operations.

Our research, development and manufacturing activities involve the controlled use of hazardous materials, including hazardous chemicals and radioactive materials. We believe that our procedures for handling hazardous materials comply with federal and state regulations; however, there can be no assurance that accidental injury or contamination from these materials will not occur. We currently maintain a general liability insurance policy that has a $1.0 million per claim limit and also caps aggregate claims at $2.0 million. In addition, we have an umbrella insurance policy that covers up to $2.0 million of liability in excess of the general liability policy’s $2.0 million limit. In the event of an accident, we could be held liable for damages, which would likely exceed our insurance coverage and other available financial resources. This liability would limit our ability to commercialize IPLEX and develop other products which would materially adversely affect our business, financial condition and results of operations.

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We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. These laws and regulations may require us to incur significant costs to comply with environmental laws and regulations in the future that could materially adversely affect our business, financial condition and results of operations.

We may be subject to product liability claims if our products harm people, and we have only limited product liability insurance.

The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims and associated adverse publicity. We currently have only limited product liability insurance for clinical studies and no commercial product liability insurance. We do not know if we will be able to maintain existing or obtain additional product liability insurance on acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be available on acceptable terms. If we are unable to obtain or maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our products. A successful product liability claim brought against us in excess of our insurance coverage, if any, may require us to pay substantial amounts. This could have a material adverse effect our business, financial condition and results of operations.

If our settlement agreement with Tercica and Genentech is terminated, the Consent order from the court would be reinstated, which would have a material adverse effect on our business, financial condition and results of operations.

As part of our March 2007 settlement agreement with Genentech and Tercica, we entered into a Consent Judgment and Permanent Injunction in the United States District Court for the Northern District of California. If our settlement agreement with Tercica and Genentech is terminated, the Consent Judgment and Permanent Injunction against us will survive termination, which would have a material adverse effect on our business, financial condition and results of operations, as we would no longer have a license to manufacture IPLEX using the present process without incurring significant penalties and royalties.

RISKS ASSOCIATED WITH OUR STOCK

Conversion of our outstanding notes and exercise of warrants and options issued by us will significantly dilute the ownership interest of existing shareholders.

As of March 31, 2007, the 2005 Notes, 2005 Warrants and the warrants we issued by us in November 2004 and July 2003 were convertible into and exercisable for up to approximately 13.8 million shares of our common stock, representing approximately 14% of our then outstanding common stock.

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As of March 31, 2007, our outstanding options to our employees, officers, directors and consultants were exercisable for up to 5.4 million shares of our common stock, representing approximately an additional five percent of our then outstanding common stock.

The conversion or exercise of some or all of our convertible notes, warrants and options will significantly dilute the ownership interests of existing shareholders. Any sales in the public market of the common stock issuable upon such conversion or exercise could adversely affect prevailing market prices of our common stock.

The market price of our stock has been and may continue to be highly volatile, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Our common stock is listed on the Nasdaq Global Market under the ticker symbol “INSM.” The market price of our stock has been and may continue to be highly volatile, and announcements by us or by third parties may have a significant impact on our stock price. These announcements may include:

•

our listing status on the Nasdaq Global Market;

•

results of our clinical studies and preclinical studies, or those of our corporate partners or our competitors;

•

our operating results;

•

developments in our relationships with corporate partners;

•

developments affecting our corporate partners;

•

negative regulatory action or regulatory approval with respect to our announcement or our competitors’ announcements of new products;

•

government regulation, reimbursement changes and governmental investigation or audits related to us or to our products;

•

developments related to our patents or other proprietary rights or those of our competitors;

•

changes in the position of securities analysts with respect to our stock; and

•

operating results below the expectations of public market analysts and investors.

In addition, the stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging biotechnology and biopharmaceutical companies, and which have often been unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our common stock.

In the past, when the market price of a stock has been volatile, holders of that stock have often instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time and attention of our management.

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Future sales by existing shareholders may lower the price of our common stock, which could result in losses to our shareholders. Future sales of substantial amounts of common stock in the public market, or the possibility of such sales occurring, could adversely affect prevailing market prices for our common stock or our future ability to raise capital through an offering of equity securities. Substantially all of our common stock is freely tradable in the public market without restriction under the Securities Act of 1933, unless these shares are held by “affiliates” of our company, as that term is defined in Rule 144 under the Securities Act of 1933.

We have never paid dividends on our common stock. We currently intend to retain our future earnings, if any, to fund the development and growth of our businesses and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.

Certain provisions of Virginia law, our articles of incorporation and our amended and restated bylaws, and our Rights Plan make a hostile takeover by a third party difficult.

Certain provisions of Virginia law and our articles of incorporation and amended and restated bylaws could hamper a third party’s acquisition of, or discourage a third party from attempting to acquire control of us. The conditions could also limit the price that certain investors might be willing to pay in the future for shares of our common stock. These provisions include:

•

a provision allowing us to issue preferred stock with rights senior to those of the common stock without any further vote or action by the holders of the common stock. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of the common stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the common stock;

•

the existence of a staggered board of directors in which there are three classes of directors serving staggered three-year terms, thus expanding the time required to change the composition of a majority of directors and perhaps discouraging someone from making an acquisition proposal for us;

•

the amended and restated bylaws’ requirement that shareholders provide advance notice when nominating our directors;

•

the inability of shareholders to convene a shareholders’ meeting without the chairman of the board, the president or a majority of the board of directors first calling the meeting; and

•

the application of Virginia law prohibiting us from entering into a business combination with the beneficial owner of 10% or more of our outstanding voting stock for a period of three years after the 10% or greater owner first reached that level of stock ownership, unless we meet certain criteria.

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In addition, in May 2001, our board of directors approved the adoption of a Rights Plan under which shareholders received rights to purchase new shares of preferred stock if a person or group acquires 15% or more of our common stock. These provisions are intended to discourage acquisitions of 15% or more of our common stock without negotiations with the board. The rights trade with our common stock, unless and until they are separated upon the occurrence of certain future events. Our board of directors may redeem the rights at a price of $0.01 per right prior to the time a person acquires 15% or more of our common stock.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.

OTHER INFORMATION

We have not made any material changes to the procedures by which our stockholders may recommend director nominees to our Nominating Committee or our Board.

ITEM 6.

EXHIBITS


**10.1		Settlement, License and Devlopment Agreement, dated March 6, 2007, between Insmed Incorporated, Insmed Therapeutic Proteins, Inc., Celtrix Pharmaceuticals, Tercica, Inc. and Genentech, Inc.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Geoffrey Allan, Ph.D., Chairman of the Board and Chief Executive Officer of Insmed Incorporated.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Kevin P. Tully, C.G.A., Executive Vice President and Chief Financial Officer of Insmed Incorporated.

32.1		Certification of Geoffrey Allan, Ph.D., Chairman of the Board and Chief Executive Officer of Insmed Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Kevin P. Tully, C.G.A., Executive Vice President and Chief Financial Officer of Insmed Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*	This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of the Securities Exchange Act of 1934.

**	Confidential treatment has been requested for certain portions of this exhibit. The confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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Exhibit 10.1

PORTIONS OF THIS EXHIBIT WERE OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE SECRETARY OF THE COMMISSION PURSUANT TO AN APPLICATION FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE EXCHANGE ACT; [***] DENOTES OMISSIONS.

SETTLEMENT, LICENSE AND DEVELOPMENT AGREEMENT

T HIS S ETTLEMENT , L ICENSE AND D EVELOPMENT A GREEMENT (the “ Agreement ”), is entered into as of March 5, 2007 (the “Execution Date” ) by and between Tercica, Inc., a company incorporated under the laws of Delaware with offices at 2000 Sierra Point Parkway, Suite 400, Brisbane, CA 94005, United States of America (“ Tercica ”), Insmed Incorporated, a company incorporated under the laws of Virginia with offices at 8720 Stony Point Parkway, Suite 200, Richmond, VA 23235, Insmed Therapeutic Proteins, Inc., a company incorporated under the laws of Colorado with offices at 2590 Central Avenue, Boulder, CO 80301, and Celtrix Pharmaceuticals, Inc., a company incorporated under the laws of Delaware with offices at 8720 Stony Point Parkway, Suite 200, Richmond, VA 23235 (collectively, “ Insmed ”) and Genentech, Inc., a company incorporated under the laws of Delaware with offices at 1 DNA Way, South San Francisco, California 94080 (“ GNE ”). Tercica, GNE and Insmed are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS

Whereas , Tercica and GNE have entered into that certain License and Collaboration Agreement dated April 15, 2002, as amended on July 25, 2003 and November 25, 2003 (the “ GNE US License ”); and Tercica and GNE have also entered into that certain International License and Collaboration Agreement dated July 25, 2003 (the “ GNE Ex-US License ”); whereby, inter alia, GNE has granted to Tercica a license under the GNE Patents (as defined below), including U.S. Patent No. 5,258,287; U.S. Patent No. 5,187,151; and U.S. Patent No. 6,331,414;

Whereas , certain disputes and controversies have arisen between the Parties relating to the claims, counter-claims, cross-claims, and demands set forth in the following civil action filed on December 23, 2004: Genentech Inc., et al. v. Insmed Incorporated, et al ., United States District Court for the Northern District of California (the “ Court ”), Case No. 04-CV-05429-CW (EMC) (the “ Lawsuit ”). Tercica and GNE alleged that Insmed’s making, using, selling, offering to sell, importing or exporting of the product known as IPLEX™, infringed or will infringe under 35 U.S.C. § 271(a) – (c) and (g), certain asserted claims of United States Patent Nos. 5,187,151 (the “ ‘151 Patent ”), 5,258,287 (the “ ‘287 Patent ”) and 6,331,414 (the “ ‘414 Patent ”) (collectively, the “ Asserted Patents ”);

Whereas , Insmed denied such allegations and further alleged, among other defenses, that the asserted claims of the Asserted Patents were invalid under various theories, including those arising under 35 U.S.C. § 102, 103, 112 and 135. Insmed further asserted that the ‘151 Patent was unenforceable for alleged inequitable conduct;

Whereas , the Parties had a full and fair opportunity to litigate the case fully, including asserting motions for summary judgment and jury trial;

Whereas , the Court adjudicated as a matter of law on June 30, 2006 that Insmed’s method of making the rhIGF-I component of IPLEX™ literally infringed Claims 1 and 9 of the ‘414 Patent (Docket No. 510), and Insmed subsequently stipulated that its methodology literally infringed Claims 2, 3, 4 and 10 of the ‘414 Patent;

Whereas , a jury trial that commenced on November 6, 2006, resulted in the Verdict Form (Docket # 1006) filed December 6, 2006. The Jury further awarded damages to Tercica and GNE of $7.5 million and a royalty of 15% of IPLEX™ sales through December 6, 2006 (the “ Damages ”);

Whereas , legal proceedings among the Parties (and also Avecia Limited, a company incorporated under the laws of England and Wales, whose registered office is at PO Box 42, Hexagon Tower, Blackley, Manchester M9 8ZS, United Kingdom (“ Avecia ”)) and relating to European Patent (UK) No. 0 571 417 have been commenced in the United Kingdom in the High Court of Justice under action numbers HC 04 C 03940 and HC 05 C 00415 (the “ UK Proceedings ”);

Whereas , the Parties have determined that it is in their mutual interest to avoid the expense, distraction, and uncertainty of further litigation and have therefore agreed to conclude and resolve all of their disputes under the Lawsuit and UK Proceedings and settle and consent to judgment of such Lawsuit and UK Proceedings pursuant to the terms and conditions of this Agreement, the Consent Judgment and Permanent Injunction, and the UK Proceedings Settlement Agreement; and

Whereas , the Parties and Avecia have agreed, as of the date hereof, to enter into that certain Settlement Agreement (the “ UK Proceedings Settlement Agreement ”) which sets forth the terms and conditions by which the Parties and Avecia have agreed to settle the UK Proceedings.

Now, therefore , in consideration of the releases and mutual promises, covenants and conditions contained herein, and other good and valuable consideration, including this Agreement, the Consent Judgment and Permanent Injunction, and the UK Proceedings Settlement Agreement, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

1.1 “ Adult Primary IGF-1 Deficiency ” means abnormally low concentrations of IGF-1 in adults that are: (a) not secondary to growth hormone deficiency; and (b) not secondary to specific pathophysiological states outside the GH/IGF-1 system.

1.2 “ Affiliate ” means any corporation, company, partnership, joint venture and/or firm which controls, is controlled by, or is under common control with a Party; provided that F. Hoffman-la Roche AG (including its subsidiaries) shall be considered a Third Party for purposes of this Agreement, rather than as an Affiliate of GNE. For purposes of the foregoing sentence, “control” and, with correlative meanings, the terms “controlled by” and “under common control with”, mean (a) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares having the right to vote for the election of directors and (b) in the case of non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entities.

1.3 “ Agreement ” has the meaning assigned to it in the preamble above.

1.4 “ Aggregated Named Patient and Off-Label Sales ” has the meaning assigned to it in Section 7.1(a)(iv)(3).

1.5 “ ALS ” means Lou Gehrig’s disease.

1.6 “ ALS Portion ” has the meaning assigned to it in Section 7.1(a)(iii).

1.7 “ ALS Royalty ” has the meaning assigned to it in Section 7.1(a)(iii).

1.8 “ Avecia ” has the meaning assigned to it in the Recitals of this Agreement.

1.9 “ Booking Party ” means the Party responsible for booking sales of a Product for an Opt-In Indication after Tercica or GNE has exercised its Opt-In right.

1.10 “ Claims ” has the meaning assigned to it in Section 11.1.

1.11 “ Commercialization Plan ” means, in the event Tercica or GNE exercises its Co-Promotion Option for a particular Permitted Indication, the plan prepared by the JCC that would govern the Parties’ co-promotion and related commercialization activities for a Product with respect to such Permitted Indication in accordance with Section 5.3(c).

1.12 “ Committee ” means the Joint Development Committee or Joint Commercialization Committee, as applicable.

1.13 “Completion” means, with respect to a given clinical trial, the completion of all data analysis to be conducted in connection with such clinical trial.

1.14 “ Confidential Information ” has the meaning assigned to it in Section 9.1.

1.15 “ Control ” with the correlative meaning “Controlled by” means, with respect to intellectual property, possession of the right to grant a license or sublicense as provided for herein without violating (a) any law or governmental regulation applicable to such license or sublicense; or (b) the terms of any agreement or other arrangement with any Third Party that exists as of the Effective Date, or, if the applicable intellectual property is acquired or the right to such intellectual property is to be granted after the Effective Date, the date of such acquisition or proposed grant, whichever is later.

1.16 “ Co-Promotion Agreement ” has the meaning assigned to it in Section 5.3(b).

1.17 “ Co-Promotion Option ” has the meaning assigned to it in Section 5.2.

1.18 “ Co-Promotion Term ” has the meaning assigned to it in Section 5.3(b).

1.19 “ Court ” has the meaning assigned to it in the Recitals of this Agreement.

1.20 “ Damages ” has the meaning assigned to it in the Recitals of this Agreement.

1.21 “ Data Services ” has the meaning assigned to it in Section 5.5(a)(i).

1.22 “ Development Costs ” has the meaning assigned to it in Exhibit A .

1.23 “ Diabetes ” means a progressive disease of carbohydrate metabolism involving inadequate production or utilization of insulin that is characterized by hyperglycemia and glycosuria. The term shall apply to any form of diabetes, including without limitation, Type 1 and Type 2 diabetes, as well as other hyperglycemic disorders, such as hyperinsulinemia, hyperlipidemia, insulin-resistant diabetes such as Mendenhall’s Syndrome, Werner Syndrome, leprechaunism, lipoatrophic diabetes.

1.24 “ Diabetes Orphan Indication ” means any Diabetes indication that is also an Orphan Indication.

1.25 “ Disclosing Party ” has the meaning assigned to it in Section 9.1.

1.26 “ Dispute ” has the meaning assigned to it in Section 13.1.

1.27 “ Effective Date ” has the meaning assigned to it in Section 2.1.

1.28 “ EMEA ” means the European Medicines Agency, a decentralized body of the European Union.

1.29 “ European Union ” or “ EU ” means all of the European Union member states as of the applicable time during the Term.

1.30 “ Excluded Indications ” means (a) Excluded Indications as such term is defined in Section 1.21 of the GNE US License, and (b) Excluded Indications as such term is defined in Section 1.19 of the GNE Ex-US License.

1.31 “Execution Date” has the meaning assigned to it in the preamble of this Agreement.

1.32 “ Existing Insmed Indications ” means myotonic muscular dystrophy, HIV related Adipose Redistribution Syndrome (HARS), retinopathy of prematurity, recovery from burns and trauma, and recovery from hip fracture.

1.33 “ Existing Patient ” has the meaning assigned to it in Section 3.1(a).

1.34 “ FDA ” means the United States Food and Drug Administration or its successor.

1.35 “ Fully Burdened Manufacturing Costs ” has the meaning assigned to it in Exhibit A .

1.36 “ GNE Licenses ” means both the GNE US License and the GNE Ex-US License, as each is defined in the Recitals of this Agreement.

1.37 “ GNE Patents ” means (a) GNE Patents as such term is defined in Section 1.35 of the GNE US License, and (b) GNE Patents as such term is defined in Section 1.33 of the GNE Ex-US License.

1.38 “ IGF-1 ” means native-sequence insulin-like growth factor-1 from any species with or without an N-terminal methionine, allelic variants thereof, and sequence variants thereof wherein substitutions and/deletions are made in the region from 1 to 5 amino acids from the N-terminus of the mature native-sequence IGF-1 of any species, including des-IGF-1 and variants wherein at least the glutamic acid residue is absent at position 3 from the N-terminus of native-sequence human IGF-1.

1.39 “ IGFBP-3 ” means native-sequence, insulin-like growth factor binding protein-3 as described in WO 89/09268 published October 5, 1989, that binds IGF-1, including allelic variants of, and animal equivalents to, human BP3 as well as human BP3, for example, the bovine, ovine, porcine and equine species, and may be from any source, whether natural, synthetic, or recombinant, provided that it will bind to the appropriate binding domain of IGF-1.

1.40 “ IND ” means an investigational new drug application as defined under United States law and foreign equivalents.

1.41 “ Indemnified Party ” has the meaning assigned to it in Section 11.4.

1.42 “ Indemnifying Party ” has the meaning assigned to it in Section 11.4.

1.43 “ Infringing Activity ” means any manufacture, use, sale, offer for sale, or importation of a Product, either by Insmed or through an Affiliate or Sublicensee or subcontractor, that would infringe any unexpired GNE Patents in the Other Territory.

1.44 “ Insmed Patents ” means all patents and patent applications Controlled by Insmed as of the Effective Date (if any) or during the Term, in any country of the Territory, that claim the manufacture, use, sale, offer for sale, or importation of Product or IGF-1.

1.45 “ Ipsen ” means Tercica’s sublicensee of certain of the Licensed Patents, Beaufour Ipsen Pharma or its Affiliates, in the Other Territory, pursuant to that certain Increlex™ License and Collaboration Agreement between Tercica and Ipsen dated October 13, 2006.

1.46 “ Joint Commercialization Committee ” or “ JCC ” means the committee formed by the Parties as described in Section 6.3(a).

1.47 “ Joint Development Committee ” or “ JDC ” means the committee formed by the Parties as described in Section 6.2(a).

1.48 “ Launch Date ” has the meaning assigned to it in Section 5.3(b).

1.49 “ Lawsuit ” has the meaning assigned to it in the Recitals of this Agreement.

1.50 “ Licensed Patents ” means (a) the GNE Patents and (b) all patents and patent applications Controlled by Tercica as of the Effective Date or during the Term that claim the manufacture, use, sale or importation of Product and/or that claim the manufacture,

use, sale, or importation of any product or process used in Insmed’s production of Product, including, but not limited to recombinant production of IGF-1 or any IGF-1 binding protein, and purification of IGF-1 or any IGF-1 binding protein.

1.51 “ Marketing Authorization ” means an approval necessary for the manufacture, marketing, importation and sale of a Product for one or more indications in a country or regulatory jurisdiction, which may include, without limitation, the approval of an NDA or MAA, satisfaction of all applicable regulatory and notification requirements, and Pricing Approval (if required). For purposes of this definition, “Pricing Approval” means such approval, agreement, determination or governmental decision establishing prices for a Product that can be charged to consumers and will be reimbursed by governmental authorities in countries, territories or possessions where governmental authorities or Regulatory Authorities of such country, territory or possession approve or determine pricing of pharmaceutical products for reimbursement or otherwise.

1.52 “ Material Breach ” has the meaning assigned to it in Section 12.2.

1.53 “ Named Patient Basis ” means the supply of a Product for a particular individual for the treatment of an indication for which such Product does not yet have Marketing Authorization in the country in which it is prescribed, in response to a specific request of a prescribing physician for such individual patient, where permitted by and in accordance with the laws of the EU member state(s) concerned and in accordance with Directive 2001/83/EC (and in particular Article 5 thereof), as amended by Directive 2004/27/EC, and Regulation (EC) No. 726/2004.

1.54 “ Named Patient Indications ” means myotonic muscular dystrophy, HIV related Adipose Redistribution Syndrome (HARS), retinopathy of prematurity, recovery from burns and trauma, and recovery from hip fracture.

1.55 “ Net Sales ” has the meaning assigned to it in Exhibit A .

1.56 “ New Sales Tracking Data ” has the meaning assigned to it in Section 5.5(a)(ii).

1.57 “ Non-ALS Portion ” has the meaning assigned to it in Section 7.1(a)(iv)(3)

1.58 “ Non - Booking Party ” means the Party that is not responsible for booking sales of a Product for an Opt-In Indication after Tercica or GNE has exercised its Opt-In right.

1.59 “ Non-Orphan Indication ” means any Permitted Indication which is not an Orphan Indication.

1.60 “ Non-Permitted Indications ” means (a) primary IGFD, (b) severe primary IGFD, (c) Noonan’s syndrome, (d) growth hormone deficiency, (e) adult growth hormone deficiency (as approved by the FDA and consisting of two subgroups: adult and child onset), (f) Adult Primary IGF-1 Deficiency, (g) idiopathic short stature, (h) any other short stature indications, (i) Laron’s Syndrome, (j) growth hormone insensitivity (GHIS), (k) any diseases or conditions which are approved for sale by Tercica or GNE, as of the Effective Date, for the treatment by growth hormone, and (l) all Excluded Indications, which, for the purpose of this Agreement and

with respect to Insmed, includes ALS, but which inclusion for purposes of this definition of Non-Permitted Indications shall in no event be interpreted as a concession on the part of either Tercica or GNE as to whether ALS is or is not included within the Excluded Indications with respect to Tercica’s license from GNE under the GNE Licenses.

1.61 “ Non-Permitted Product ” means (a) any product containing IGF-1 without any other bioactive agent, in any dosage or formulation, including without limitation the product known as INCRELEX (mecasermin) that is sold by Tercica as of the Effective Date, or (b) any product containing a combination of IGF-1 and any other active ingredient(s) (excluding IGFBP-3 unless and only as permitted in Section 3.2(b) below).

1.62 “North American Territory” means the United States and Canada.

1.63 “ Off-Label Sales ” has the meaning assigned to it in Section 7.1(a)(iv)(2).

1.64 “ Operating Profit (Loss) ” has the meaning assigned to it in Exhibit A .

1.65 “ Opt-In ” has the meaning assigned to it in Section 4.2(a).

1.66 “ Opt-In Diabetes Orphan Indication ” has the meaning assigned to it in Section 4.3(d).

1.67 “Opt-In Effective Date” has the meaning assigned to it in Section 4.2(b).

1.68 “ Opt-In Exercise Notice ” has the meaning assigned to it in Section 4.2(b).

1.69 “ Opt-In Indication ” has the meaning assigned to it in Section 4.2(b).

1.70 “ Opt-In Information ” means any and all information that is reasonably available to Insmed and which would be reasonably material for Tercica and/or GNE to make a decision regarding the exercise of its Opt-In right at such stage of development and may include, without limitation, any of the following information to the extent generated: a copy of formulation, stability, toxicology, pharmacokinetic, preclinical and clinical development plans and data; complete analysis, results, reports, and interpretations of the foregoing; an accounting of all Development Costs; any pertinent manufacturing information; and any related FDA documentation (including the IND, clinical protocol, investigator’s brochure, FDA minutes and correspondence).

1.71 “ Opt-In Party ” has the meaning assigned to it in Section 4.2(b).

1.72 “ Opt-In Payment ” has the meaning assigned to it in Section 4.2(e).

1.73 “ Opt-In Period ” has the meaning assigned to it in Section 4.2(b).

1.74 “ Opt-Out ” has the meaning assigned to it in Section 4.4.

1.75 “ Orphan Indication ” means an indication for which the FDA has granted orphan status as defined in 21 C.F.R. Pt. 316, as may be amended from time to time. As of the Execution Date, such term is defined in 21 C.F.R. Pt. 316 as a rare disease or condition within the Permitted Indications which: (a) affects less than 200,000 persons in the U.S. or (b) affects more than 200,000 persons in the U.S. but for which there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for such disease or condition will be recovered from sales in the United States of such drug, as further defined in and for which Orphan Drug designation may be sought under the Orphan Drug Act of 1983.

1.76 “Other Territory” means all countries of the Territory other than the United States.

1.77 “ Percentage Interest ” has the meaning assigned to it in Section 4.2(a).

1.78 “Permanent Injunction” has the meaning assigned to in Section 2.1.

1.79 “ Permitted Indications ” means all indications except the Non-Permitted Indications. For the avoidance of doubt, Permitted Indications includes (a) the treatment by growth hormone of HIV patients with wasting or cachexia; and (b) all Existing Insmed Indications.

1.80 “ Phase III Enabling Trial ” means, with respect to any given Permitted Indication, a human clinical trial on a sufficient number of subjects (who are patients with the condition being addressed), with clinically meaningful, regulatorily recognized efficacy endpoints which generates statistically significant efficacy and establishes a safe and effective dose and is designed such that, if successful, Insmed would be allowed by the FDA and/or EMEA to proceed with a pivotal clinical trial that would support the filing of an application for marketing approval for such Permitted Indication. As further discussed in Section 6.2, the Joint Development Committee is responsible for determining whether a given proposed trial by Insmed meets the foregoing definition for a Phase III Enabling Trial prior to the conduct of such trial.

1.81 “ Product ” means any product containing IGF-1 and IGFBP-3, in any dosage, formulation or method of administration, or any co-administration of IGF-1 and IGFBP-3, including without limitation the product known as IPLEX (mecasermin rinfabate) that is sold by Insmed as of the Execution Date. Product does not include any combination product containing IGF-1 and IGFBP-3 and any other active ingredient(s). For purposes of this definition, the term “active ingredient(s)” does not include drug delivery vehicles, adjuvants, and excipients except for those that are recognized by the FDA as active ingredients.

1.82 “ Product Labeling ” means (a) the full prescribing information for a Product approved by the applicable Regulatory Authority, and (b) all labels and other written, printed or graphic information (including without limitation any Product trademarks) included in or placed upon any container, wrapper or package insert used with or for a Product.

1.83 “ Promotional Materials ” means all sales representative training materials and all written, printed, graphic, electronic, audio or video matter, including, without limitation, journal advertisements, sales visual aids, leave items, formulary binders, reprints, direct mail, direct-to-consumer advertising, internet postings, broadcast advertisements and sales reminder aides (for example, note

pads, pens and other such items) intended for use or used by a Party or its Affiliates, sublicensees or licensees in connection with any promotion of a Product for such Permitted Indication, but excluding Product Labeling.

1.84 “ Receiving Party ” has the meaning assigned to it in Section 9.1.

1.85 “ Regulatory Authority ” means any government agency having the responsibility for granting Marketing Authorizations and any other government entities with authority over the manufacturing and the marketing of a Product.

1.86 “ ROW Territory ” means all countries and territories in the Territory other than the countries in the North American Territory.

1.87 “ Sale Country ” means a country in which a Product is used, sold, offered for sale, or imported.

1.88 “ Sales Tracking Dispute ” has the meaning assigned to it in Section 7.1(f).

1.89 “ Sales Tracking Methodology ” has the meaning assigned to it in Section 5.5(a)(i).

1.90 “ Sales Tracking Panel ” has the meaning assigned to it in Section 5.5(d).

1.91 “ Sole Promotion Option ” has the meaning assigned to it in Section 5.2.

1.92 “ Sublicensee ” means a Third Party to whom Insmed or its Affiliates sublicenses its rights and obligations under Section 3.1 of this Agreement. Sublicensee shall also include any Third Party who purchases its supply of Product, in finished form from Insmed, its Affiliates or Sublicensee for resale into the market, where, as a partial or full consideration for such purchase, such Third Party has a payment obligation to Insmed, its Affiliates or Sublicensee that is a percentage of its net sales, including without limitation a royalty obligation.

1.93 “ Supply Agreement ” has the meaning assigned to it in Section 5.4(b).

1.94 “ Term ” has the meaning assigned to it in Section 12.1(a).

1.95 “ Territory ” means all countries of the world.

1.96 “ Third Party ” means a person or entity other than Tercica, GNE, Insmed, or any of their Affiliates.

1.97 “ Trademark ” means IPLEX™ and all other trademarks used or intended for use by Insmed or its Affiliates on the Effective Date or during the Term in connection with the marketing or sale of a Product, other than the corporate names of Insmed and its Affiliates, their trade names, service marks, domain names, and associated logos and designs.

1.98 “ Triggering Delivery ” has the meaning assigned to it in Section 4.2(c).

1.99 “ UK Proceedings ” has the meaning assigned to it in the Recitals of this Agreement.

1.100 “ UK Proceedings Settlement Agreement ” has the meaning assigned to it in the Recitals of this Agreement.

ARTICLE 2

CONSENT JUDGMENT AND PERMANENT INJUNCTION;

RELEASES AND WAIVER

2.1 Entry of Consent Judgment and Permanent Injunction. A Consent Judgment and Permanent Injunction in the form of Exhibit B will be executed herewith (the “Permanent Injunction” ), and the Parties agree to take all steps necessary to have the Permanent Injunction executed by the Court and filed with the Court and hereby authorize and instruct their respective counsel to take those steps. This Agreement shall only become effective upon the execution of the Permanent Injunction by or on behalf of the Parties to the action and the Court, the entry and filing of the Permanent Injunction, and the execution of the UK Proceedings Settlement Agreement in the form of Exhibit C (the date by which the last of such events has occurred, the “Effective Date” ).

2.2 Waiver of Damages . Tercica waives all rights to any Damages awarded in the Lawsuit upon execution and entry by the Court of the Permanent Injunction and the execution of the UK Proceedings Settlement Agreement.

2.3 Release by Tercica. Tercica, by and for itself and on behalf of its employees, agents, other representatives, sublicensees, officers, directors, stockholders, partners, members, subsidiaries, predecessors, successors, and assigns, irrevocably, perpetually and fully releases and discharges Insmed as well as Insmed’s employees, agents, fill-finishers, customers, downstream sellers and users of a Product, and Insmed’s other representatives, officers, directors, stockholders, partners, members, subsidiaries, predecessors, successors, licensees, distributors, and assigns, from any and all claims, rights, demands, liabilities, obligations, damages, actions, and causes of action, of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of any act, omission, event, transaction or occurrence on or before the Effective Date solely to the extent relating to both (a) a Product and (b) the Licensed Patents; provided that this release shall not extend to and affect the rights and obligations under the Permanent Injunction.

2.4 Release by GNE. GNE, by and for itself and on behalf of its employees, agents, other representatives, sublicensees, officers, directors, stockholders, partners, members, subsidiaries, predecessors, successors, and assigns, irrevocably, perpetually and fully releases and discharges Insmed as well as Insmed’s employees, agents, fill-finishers, customers, downstream sellers and users of a Product, and Insmed’s other representatives, officers, directors, stockholders, partners, members, subsidiaries, predecessors, successors, licensees, distributors, and assigns, from any and all claims, rights, demands, liabilities, obligations, damages, actions, and causes of action, of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of any act, omission, event, transaction or occurrence on or before the Effective Date solely to the extent relating to both (a) a Product and (b) the GNE Patents; provided that this release shall not extend to and affect the rights and obligations under the Permanent Injunction.

2.5 Release by Insmed. Insmed, by and for itself and on behalf of its employees, agents, other representatives, sublicensees, officers, directors, stockholders, partners, members, subsidiaries, predecessors, successors, and assigns, irrevocably, perpetually and fully releases and discharges Tercica and GNE as well as each of Tercica’s and GNE’s respective employees, agents, fill-finishers, customers, downstream sellers and users of Increlex, and Tercica’s and GNE’s other representatives, officers, directors, stockholders, partners, members, subsidiaries, predecessors, successors, licensees, distributors, and assigns, from any and all claims, rights, demands, liabilities, obligations, damages, actions, and causes of action, of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of any act, omission, event, transaction or occurrence on or before the Effective Date solely to the extent relating to both (a) the Insmed Patents and (b) any Non-Permitted Products; provided that this release shall not affect the rights and obligations under the Permanent Injunction.

2.6 Waiver of Section 1542 of California Civil Code. Each of Tercica, GNE and Insmed hereby declares and acknowledges the contents of Section 1542 of the California Civil Code, and that section and the benefits thereof are hereby expressly waived. Section 1542 provides as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

2.7 Other Waivers and Stipulations. The Parties hereby incorporate by reference the conclusions of law, the findings of fact, waivers and stipulations set forth in the Permanent Injunction.

2.8 Discontinuance of UK Proceedings. The Parties shall promptly and permanently discontinue the claims and counterclaims in the UK Proceedings, on the basis that each Party shall be responsible for the costs incurred by it in connection with those proceedings (other than costs which have already been paid by one Party to another pursuant to an order of the United Kingdom Court made prior to the Effective Date). The Parties shall accordingly enter into and perform the UK Proceedings Settlement Agreement relating to the UK Proceedings in the form of Exhibit C forthwith following the execution of this Agreement. Insmed shall ensure that Avecia shall, and shall cause Avecia to, execute such settlement agreement and do all such acts and execute all such documents as may be necessary or desirable to give effect to the provisions of such settlement agreement, including the discontinuance of the claims brought by Avecia against Tercica and GNE in the course of the UK Proceedings. Notwithstanding anything to the contrary in this Section 2.8, as between Tercica and GNE, Tercica shall absorb and bear sole responsibility for payment of any fees, costs, and expenses incurred by GNE relating to the prosecution and/or defense of the Lawsuit and/or the UK Proceedings (with the exception of the time and expenses of any GNE employee(s) allocated or attributed to such prosecution and/or defense, which costs shall be borne by GNE).

2.9 Survival of this Article 2. The Parties hereby agree and acknowledge that the releases, waivers, and covenants made in this Article 2 shall survive the expiration or any termination of this Agreement, including any termination based on a claim by a Party that another Party has breached this Agreement, the Permanent Injunction or the UK Proceedings Settlement Agreement and any such breach shall not be construed as evidence of a failure of consideration for the granting of the releases, waivers and covenants set forth in this Article 2.

ARTICLE 3

LICENSE GRANTS

3.1 Licenses to Insmed.

(a) Limited License for Non-Permitted Indications in the United States. Subject to the terms and conditions of this Agreement, including without limitation Insmed’s fulfillment of its royalty obligations under Section 7.1 below and Insmed’s continued compliance with its covenants in Section 3.5 and the Permanent Injunction and the UK Proceedings Settlement Agreement, Tercica hereby grants Insmed a non-exclusive, non-sublicenseable license or sublicense, as applicable, under Tercica’s entire right, title and interest in and to the Licensed Patents to make, have made, use, sell, offer for sale, and import Product for sale in the United States for any Non-Permitted Indication solely for the continuing treatment of any Existing Patient, for a period of twelve (12) months from the Effective Date. “ Existing Patient ” means no more than one hundred ten (110) patients for whom a Product is prescribed for a Non-Permitted Indication as of the Effective Date. The Parties agree to send to prescribing physicians a joint letter in the form attached hereto as Exhibit D . The license granted under this Section 3.1(a) shall be royalty-free with respect to Net Sales arising from sales to the Existing Patients during the first three (3) months after the Effective Date. If any such sales to Existing Patients occur after such three (3)-month period, such sales shall be royalty-bearing pursuant to Section 7.1(a)(i), but only until the date which is twelve (12) months after the Effective Date. Any sales of a Product by Insmed to such Existing Patients after such twelve (12)-month period, or any sales of a Product by Insmed to any patient who is not an Existing Patient for the treatment of any Non-Permitted Indication at any time after the Effective Date, shall be evidence of Material Breach by Insmed of this Section 3.1(a) and/or a violation of the Permanent Injunction, and Tercica may take any action and/or seek any remedy in law or equity for such breach or violation.

(b) License for Named Patient Indications in the European Union on Named Patient Basis. Subject to the terms and conditions of this Agreement, including without limitation Insmed’s fulfillment of its royalty obligations under Section 7.1 below, and Insmed’s continued compliance with its covenants in Section 3.5 and the Permanent Injunction and UK Proceedings Settlement Agreement, Tercica hereby grants Insmed a limited, non-exclusive, non-sublicenseable, royalty-bearing license, or sublicense, as applicable, under Tercica’s entire right, title and interest in and to the Licensed Patents to make, have made, use, sell, offer for sale, and import Product for sale in any country in the European Union solely for the treatment of one or more of the Named Patient Indications, on a Named Patient Basis only; provided that Tercica and GNE each shall have the right to perform audits, either by itself or through its designee, on Insmed’s compliance with any laws, regulations and guidelines applicable to conducting such activities on a Named Patient Basis in addition to, and pursuant to the procedures described in, Section 7.8.

(c) License for Permitted Indications in the Territory. Subject to the terms and conditions of this Agreement, including without limitation the exclusion of rights and restrictive covenants set forth in Section 3.1(e), Tercica’s and GNE’s Opt-In rights described in Section 4.2, Insmed’s royalty obligations under Section 7.1 below, and Insmed’s continued compliance with its covenants in Section 3.5 and the Permanent Injunction and UK Proceedings Settlement Agreement, Tercica hereby grants Insmed a non-exclusive, royalty-bearing license, or sublicense, as applicable, with the right to sublicense solely as permitted under this Section 3.1(c), under Tercica’s entire right, title and interest in and to the Licensed Patents to make, have made, use, sell, offer for sale, and import Product for sale in all countries in the Territory, solely for use in the treatment of any of the Permitted Indications. Subject to Tercica’s and GNE’s Opt-In rights under Section 4.2, the license granted in this Section 3.1(c) may be sublicensed by Insmed to Third Parties with the prior written consent of Tercica and GNE, such consent not to be unreasonably withheld or delayed.

(d) Limited Covenant-Not-To-Sue for ALS Indication on Named Patient Basis in Italy. Subject to the terms and conditions of this Agreement, including without limitation Insmed’s fulfillment of its royalty obligations to GNE under Section 7.1 below, and Insmed’s continued compliance with its covenants in Section 3.5 and the Permanent Injunction and UK Proceedings Settlement Agreement, each of GNE and Tercica hereby covenants that it shall not, to the extent it has the right to do so, enforce, or permit or encourage the enforcement of, against Insmed or its Affiliates any Licensed Patents in connection with the making, having made and using of a Product for the limited purpose of: (i) using, selling, offering for sale, and importing Product for sale in Italy solely for the treatment of ALS on a Named Patient Basis only; provided that each of Tercica and GNE shall have the right to perform audits, either by itself or through its designee, on Insmed’s compliance with any laws, regulations and guidelines applicable to conducting such activities on a Named Patient Basis in addition to, and pursuant to the procedures described in, Section 7.8, and (ii) conducting a single non-pivotal clinical trial (i.e., such clinical trial cannot and shall not be used to support regulatory filing or application for Marketing Authorizations anywhere in the Territory), for the ALS indication in Italy, in connection with Insmed’s treating patients in Italy for the ALS indication on a Named Patient Basis. For the avoidance of doubt, and notwithstanding the payment of royalties solely to GNE pursuant to Section 7.1(a)(iii) based upon Insmed’s sales under this Section 3.1(d) and Tercica’s audit rights set forth in this Section 7.1(d), each of Tercica and GNE reserves the right to its respective interpretation of the GNE Licenses as to whether the scope of the GNE Licenses includes a grant of rights to the ALS indication by GNE to Tercica.

(e) Diabetes Restriction in the Other Territory. Insmed hereby covenants that, notwithstanding the license grant in Section 3.1(c), it will not market, sell, offer for sale or have sold a Product for Diabetes in the Other Territory to the extent the manufacture, use or sale of such Product would infringe, in the Other Territory and if not for the licenses granted under this Agreement, the patent rights licensed to Tercica and sublicensed to Insmed under the GNE Licenses.

(f) Included Subsidiary Rights. For avoidance of doubt, the above licenses and limited covenant-not-to-sue granted in Sections 3.1(a) through (d) relating to a Product include the right to make (and have made) IGF-1 and IGFBP-3, solely for use in the manufacture of Product, but such licenses do not include the right to use, sell, offer for sale or import either IGF-1 or IGFBP-3 separately.

3.2 Rights Granted to Tercica and GNE.

(a) Covenant not to Sue. Insmed hereby covenants that it shall not enforce, or permit or encourage the enforcement of, against Tercica, GNE or Ipsen, or any of their respective Affiliates, sublicensees, successors or assigns any Insmed Patents in connection with the development or commercialization of any Non-Permitted Product in the Territory, and in the event Insmed transfers any right under such Insmed Patents to a Third Party, Insmed shall ensure that such covenant not to sue is binding upon such Third Party in writing.

(b) License in the Event of an Opt-In. In the event Tercica and/or GNE exercises its Opt-In right with respect to a given Permitted Indication pursuant to Section 4.2 below, Insmed hereby grants such Opt-In Party a non-exclusive, worldwide license, with the right to grant sublicenses as provided in this Section 3.2(b), under the Insmed Patents to make, have made, use, sell, offer for sale and import Product for the Opt-In Indication as and to the extent permitted under this Agreement. Any sublicense by Tercica or GNE (or their assignees as permitted under Section 4.2(a)) under the rights granted in this Section 3.2(b) to a sublicensee other than a distributor, subcontractor or consultant in the normal course of business shall be made by Tercica or GNE only with the consent of Insmed, such consent not to be unreasonably withheld, provided however that sublicenses to Ipsen shall not require the consent of Insmed. In addition, Insmed agrees to execute all documents as may be reasonably required by Tercica or GNE or Ipsen or their authorized sublicensees for the purpose of recording any such sublicense(s) with any relevant regulatory or administrative authorities and in the event Insmed transfers any right in the affected Insmed Patents to a Third Party, Insmed shall ensure that such Third Party is bound, in writing, by the obligation set forth in this sentence.

3.3 GNE Licenses. The Parties acknowledge that the license granted to Insmed under Section 3.1 above constitutes a sublicense with respect to the GNE Patents under the licenses granted to Tercica by GNE under the GNE Licenses. As a result, the licenses granted under Section 3.1 above, and the terms and conditions of this Agreement, shall be subject to the terms and conditions of the GNE Licenses. GNE hereby agrees to the granting of such sublicense to Insmed by Tercica as set forth in Section 3.1. Nothing in this Agreement shall be construed as: (a) the expansion or reduction of the scope of licenses Tercica received from GNE under the GNE Licenses; or (b) implying whether or not the license granted to Tercica under the GNE Agreements includes the ALS indication.

3.4 No Implied Licenses. Except as explicitly set forth in this Agreement, no Party grants any license, express or implied, under its intellectual property rights to any other Party. Each Party covenants that it will not use or practice any other Party’s intellectual property rights licensed to it under this Agreement except for the purposes expressly permitted in the applicable license grant.

3.5 Insmed Covenants. In light of the Lawsuit and the Damages awarded therein, and in consideration of the licenses granted by Tercica and GNE to Insmed in Section 3.1, Insmed hereby covenants the following (which covenants shall be in addition to those set forth in the Permanent Injunction):

(a) Insmed shall not, and shall cause its Affiliates and Sublicensees to not, directly or indirectly: (i) conduct clinical trials for or otherwise seek any Marketing Authorization for, promote, market, or knowingly sell or offer for sale a Product for the treatment of any Non-Permitted Indication in any country in the Other Territory except as expressly permitted under Section 3.1(b) above with respect to the Named Patient Indications on a Named Patient Basis and Section 3.1(d) above with respect to the ALS indication on a Named Patient Basis, for so long as (A) any such clinical trial or Marketing Authorization uses or depends on the supply of such Product manufactured in a country in which such manufacture is covered by any unexpired Licensed Patents in such country, (B) any such promotion, marketing, sale or offer for sale of such Product depends on the supply of such Product manufactured in a country in which such manufacture is covered by any unexpired Licensed Patents in such country, or (C) any such promotion, marketing, sale or offer for sale of such Product arises from or depends on the use, sale, offer for sale, or importation of such Product in a country in which such use, sale, offer for sale, or importation is covered by any unexpired Licensed Patents in such country. For purposes of determining the duration of such covenant in countries in the Other Territory where a Product is sold which is manufactured in the United States, the last to expire Licensed Patents with respect to such countries shall include U.S. Patent No. 6,331,414 to the extent such patent covers the manufacture of the Product sold (or any components thereof).

(b) Within fifteen (15) business days after the Effective Date, Insmed shall withdraw, or cause to be withdrawn, all currently pending applications for Marketing Authorization in the Other Territory, including specifically its currently pending application for Marketing Authorization with the EMEA for a Product for the treatment of primary IGF-1 deficiency and patients with growth hormone gene deletion.

(c) Insmed shall not apply for or submit an application with the EMEA or any other governmental authority within the European Union or anywhere else in the Other Territory for Marketing Authorization of a Product for any of the Non-Permitted Indications; provided, however, that for any such Marketing Authorization the foregoing covenant shall terminate upon the expiration of the last to expire Licensed Patents (i) that exists in a country in the European Union or the Other Territory and that covers the manufacture, use, sale, offer for sale, or importation of such Product to be performed under the license of the Marketing Authorization, or (ii) that exists in a country in the Territory and that covers the process by which such Product is manufactured in such country for subsequent use, sale, offer for sale, or importation in the European Union or other country in the Other Territory under the license of the Marketing Authorization.

(d) If Insmed or its Affiliates or Sublicensees challenge(s) the validity or enforceability of the Licensed Patents anywhere in the Territory, then either Tercica or GNE shall have the right to terminate the licenses granted to Insmed under Section 3.1 of this Agreement pursuant to Section 12.3(a)(i) below.

3.6 Non-Disparagement. Insmed, Tercica and GNE each shall not defame, libel, slander or otherwise disparage in any manner, or tortiously interfere with the business, contracts, relationships or prospective economic advantage appurtenant to: (a) the market opportunity for any product (e.g., the size of the market for severe Primary IGFD); or (b) any product of the other Parties.

ARTICLE 4

DEVELOPMENT AND OPT-IN RIGHTS

4.1 Development of Product Prior to Opt-In. Unless and until Tercica or GNE exercises its Opt-In right under Section 4.2 below, Insmed shall have the sole responsibility for the development of a Product for use in a given Permitted Indication. As between the Parties to this Agreement, Insmed shall bear all Development Costs incurred with respect to a Product for all Permitted Indications prior to the Opt-in Effective Date, subject to the Opt-In Party’s reimbursement of a portion of such Development Costs pursuant to Section 4.2(e) below.

4.2 GNE and Tercica’s Opt-In Right for Permitted Indications.

(a) General. Tercica and GNE shall each have the option to co-develop a Product for any particular Permitted Indication at any time during the period when such Product is being developed clinically for such Permitted Indication, until the end of the Opt-In Period for such Permitted Indication. Such co-development right, once exercised, allows Tercica or GNE as the Opt-In Party to fund 50% (such percentage, the “ Percentage Interest ”) of the Development Costs for a Product for such Permitted Indication and participate in a corresponding 50% portion of the Operating Profit (Loss) resulting from the commercialization of such Product for such Permitted Indication, participate in development decision-making, and participate in commercialization, all as and to the extent set forth below and in Article 5 (the “ Opt-In ”). It is understood and agreed that Insmed shall not enter into any agreement with a Third Party to develop or commercialize a Product for any Permitted Indication prior to the expiration of the Opt-In Period for such Permitted Indication. It is further understood and agreed that Tercica shall have the right to assign to Ipsen its Opt-In rights and obligations with respect to the ROW Territory or certain country(ies) within such ROW Territory, as well as its Co-Promotion Option and Sole Promotion Option, on a Permitted Indication-by-Permitted Indication basis, in which case reference to “Tercica” as used in this Section 4.2 and in Sections 4.3 and 4.4, and in Article 5, shall also include Ipsen. It is also further understood and agreed that GNE shall have the right to assign to a Third Party designee its Opt-In rights and obligations with respect to the ROW Territory or certain country(ies) within such ROW Territory, as well as its Co-Promotion Option and Sole Promotion Option, on a Permitted Indication-by-Permitted Indication basis, subject to Insmed’s consent, not to be unreasonably withheld, in which case reference to “GNE” as used in this Section 4.2 and in Sections 4.3 and 4.4, and in Article 5, shall also include such Third Party designee.

(b) Opt-In Period; Effectiveness. Tercica’s and GNE’s Opt-In rights shall commence, on a Permitted Indication by Permitted Indication basis, at the commencement of the first human clinical trials of a Product for such Permitted Indication, and shall terminate on the earlier of: (i) exercise by Tercica or GNE of such Opt-In, or (ii) 91 days after the Triggering Delivery for such

Permitted Indication without exercise by either GNE or Tercica of its Opt-In rights (the “ Opt-In Period ” for such Permitted Indication), as described in more detail in this Section 4.2. For the avoidance of doubt, Tercica and GNE may exercise their respective Opt-In rights at any time during the Opt-In Period in accordance with this Section 4.2 by providing written notice to Insmed of the same (such notice, the “ Opt-In Exercise Notice ”). Insmed shall promptly submit a written confirmation to the Party whose Opt-In Exercise Notice has been received (unless otherwise properly rejected as not being properly submitted by the potential Opt-In Party pursuant to this Section 4.2), along with an invoice detailing the amount of the Opt-In Payment due Insmed. Such Opt-In shall become effective upon receipt by Insmed of such Opt-In Payment (the “Opt-In Effective Date” ). At the Opt-In Effective Date, the Party having submitted such Opt-In Exercise Notice shall thereupon become an “ Opt-In Party ” and such Permitted Indication shall become an “ Opt-In Indication .”

(c) Opt-In Information; Triggering Delivery. On a regular basis but no less frequently than once per calendar quarter, Insmed shall provide to Tercica and GNE a written progress report setting forth, for each Permitted Indication then undergoing development and as to which the Opt-In rights have not been exercised or lapsed: (i) a summary of all clinical trials planned and actually conducted, as well as all results thereof, for a Product for treatment of each such Permitted Indication; (ii) all Opt-In Information that has not been previously disclosed to either Tercica or GNE as of such time; and (iii) a summary of all Development Costs incurred as of such time with respect to such Permitted Indication. In particular, and notwithstanding such quarterly reporting obligation, Insmed shall, within sixty (60) days after the Completion of the first Phase III Enabling Trial for a Product for such Permitted Indication, deliver to Tercica and GNE all Opt-In Information relating to such trial and any other Opt-In Information that has not been previously disclosed to either Tercica or GNE, as well as a summary of all Development Costs incurred as of such time with respect to such Permitted Indication (this delivery of such Opt-in Information and Development Cost information is the “Triggering Delivery”). Tercica and GNE shall use the Opt-In Information solely for the purpose of evaluating the Opt-In opportunity and such Opt-In Information and shall not disclose any non-public portion of such Opt-In Information to any Third Party without the prior written consent of Insmed. Following delivery of any such Opt-in Information and Development Cost information, Insmed shall promptly supply any additional information or respond to any questions as requested by GNE or Tercica based upon its review of such information. Upon the expiration of the Opt-In Period, each of GNE and Tercica shall return such Opt-In Information to Insmed if such Party has not exercised its Opt-In right under this Section 4.2.

(d) Opt-In Rights and Procedures.

(i) During the Opt-In Period, Tercica shall have the first right to exercise the Opt-In right throughout the Territory with respect to any Orphan Indication that is not a Diabetes Orphan Indication. In the event Tercica does not so exercise such right within sixty (60) days of the Triggering Delivery, it shall notify Insmed and GNE in writing. Upon receipt of such written notice, GNE shall have an additional period of thirty (30) days following the date of such notice by Tercica to elect to exercise the Opt-In right with respect to such Orphan Indication. For avoidance of doubt, this Opt-In right shall expire upon the first to occur of the exercise of the Opt-In Right, or ninety one (91) days after the Triggering Delivery.

(ii) During the Opt-In Period, GNE shall have the first right to exercise the Opt-In right with respect to (1) any Non-Orphan Indications throughout the Territory and (2) any Diabetes Orphan Indication in the United States. In the event GNE does not so exercise such right within sixty (60) days of the Triggering Delivery, it shall notify Insmed and Tercica in writing. Whereupon Tercica shall have an additional period of thirty (30) days following the date of such notice by GNE to elect to exercise the Opt-In right with respect to such Non-Orphan Indication or such Diabetes Orphan Indication. For avoidance of doubt, this Opt-In right shall expire upon the first to occur of the exercise of the Opt-In Right, or ninety one (91) days after the Triggering Delivery.

(iii) If either Tercica or GNE provides Insmed with the Opt-In Exercise Notice within the Opt-In Period, then Insmed shall enter into a co-development and, where such Opt-in Party so elects under Section 5.2, co-commercialization relationship with the Party providing Insmed with such notice, on the terms set forth in this Article 4 and in Article 5.

(e) Opt-In Payment; Accounting of Development Costs. The “ Opt-In Payment ” for a Product for a particular Permitted Indication shall be an amount equal to fifty percent (50%) of the total Development Costs allocable to the development of such Product for such Permitted Indication, and incurred as of the date of receipt of the Opt-In Exercise Notice for such Permitted Indication. Such Opt-In Payment shall be paid to Insmed in accordance with Section 4.2(b). All Development Costs incurred and allocable to any Permitted Indication as of the Effective Date will be provided, in writing, on a Permitted Indication-by-Permitted Indication basis, by Insmed to Tercica and GNE within thirty (30) days following the Effective Date. During the Term and prior to the expiration of the Opt-In Period, Insmed shall be responsible for maintaining a detailed account of all Development Costs expended for each Permitted Indication.

4.3 Consequences of Tercica or GNE’s Exercise of Opt-In. If Tercica or GNE exercises the Opt-In in accordance with Section 4.2, the following shall apply:

(a) Collaborative Development. Insmed and the Opt-In Party shall discuss, via the JDC, what if any operational matters in the development of a Product for such Opt-In Indication shall be the responsibility of the Opt-In Party.

(b) Ongoing Co-Funding of Development Costs. The Opt-In Party shall bear fifty percent (50%) of the total Development Costs incurred from the day after the date of receipt of the Opt-In Exercise Notice for such Permitted Indication and allocable to the development of a Product for such Opt-In Indication. The process for reconciling payment of such Development Costs in order to give effect to each Opt-In Party’s Percentage Interest shall be in accordance with Article 7 and Exhibit A .

(c) Decision-Making Control. The Opt-In Party may have the deciding vote with respect to decisions in the JDC regarding such Opt-In Indication, as provided in Section 6.2(d)(ii).

(d) Right for GNE to Develop and Commercialize Diabetes. In the event that GNE is the Opt-In Party and the Opt-In Indication is a Diabetes Orphan Indication (an “ Opt-In Diabetes Orphan Indication ”), at such time, if any, as GNE and Insmed using their respective scientific and business judgment disagree over whether the continued development of a Product for the Opt-In

Diabetes Orphan Indication is desirable (such that Insmed does not wish to continue development of such Product for the Opt-In Diabetes Orphan Indication), GNE may elect to take over the development of such Product for the Opt-In Diabetes Orphan Indication at the sole expense of GNE and, upon notice to Insmed of such election, the Permitted Indications shall be amended to exclude such Opt-In Diabetes Orphan Indication solely for the purposes of the rights granted to Insmed under Section 3.1(c), provided that:

(i) for all other purposes of this Agreement, including without limitation the licenses granted by Insmed to GNE as the Opt-In Party under Section 3.2(b), the Permitted Indications shall be deemed to include such Opt-In Diabetes Orphan Indication;

(ii) GNE shall become, if not already, the Booking Party for such Opt-In Diabetes Orphan Indication and shall have final decision making authority in the commercialization of such Product for such Opt-In Diabetes Orphan Indication in the United States; and

(iii) the profit-sharing arrangement applicable to such Opt-In Diabetes Orphan Indication shall continue only until the payments so received by Insmed from GNE equals the Development Costs incurred by Insmed for such Product for such Opt-In Diabetes Orphan Indication, and thereafter the profit share arrangement for such Opt-In Diabetes Orphan Indication shall terminate and GNE shall pay to Insmed royalties on the Net Sales for such Opt-In Diabetes Orphan Indication in the United States at a rate of [***]; provided that, such royalty payment obligation shall apply only in the event that the use, sale, offer for sale, or importation of such Product for use in the Opt-In Diabetes Orphan Indication would infringe the Insmed Patents, and such royalty payment obligation shall thereafter expire upon the later of (y) the expiration of the last to expire Insmed Patents existing in the United States that would be infringed by the use, sale, offer for sale, or importation of such Product for use in such Opt-In Diabetes Orphan Indication in the United States but for the license grant in Section 3.2(b), and (z) the expiration of the last to expire Insmed Patents existing in a country and that covers the actual method of manufacture or use of such Product (or component thereof) as practiced by Insmed in the manufacture of such Product in such country that is subsequently sold for use in such Opt-In Diabetes Orphan Indication in the United States.

(e) Ongoing Sharing of Profits and Losses. As further described in Section 7.2, Insmed and the Opt-In Party shall share Operating Profit (Loss) with respect to a given Opt-In Indication, based on the applicable Percentage Interest for such Opt-In Indication.

(f) Opt-In Party’s Product Commercialization Rights for Opt-In Indication. If either Tercica or GNE exercises the Opt-In right under this Section 4.2, such Party shall have the right, at its discretion, to exercise the Sole Promotion Option or the Co-Promotion Option for the respective Opt-In Indication pursuant to Section 5.2. In addition, following such exercise of the Opt-In right, Insmed shall have no right to seek, negotiate or enter into an agreement with, a Third Party partner for the co-development and/or co-commercialization of a Product.

4.4 Opt-Out Rights. An Opt-In Party for a particular Opt-In Indication shall have the right to discontinue its ongoing funding obligations for such Opt-In Indication either in total or on a region-by-region or country-by-country basis in the Territory (the term “region” means and includes each of the following: the North American Territory, the EU, and Japan) for such Opt-In Indication, for any or no reason, for a period of ten (10) business days after the completion of an ongoing clinical trial and the reporting of results from such clinical trial for a Product for the treatment of such Opt-In Indication (the “ Opt-Out ”). An Opt-In Party may exercise such Opt-Out right by providing written notice to Insmed stating the same. Effective thirty (30) days following notice of such Opt-Out: (a) such Party shall cease to be an Opt-In Party and the license granted under Section 3.2(b) for such Permitted Indication shall terminate, (b) such Party shall have no further obligation to co-fund the ongoing Development Costs of such Product for such Permitted Indication other than for non-cancelable out-of-pocket costs incurred or committed to as of the effective date of the Opt-Out for activities previously approved in accordance herewith, (c) such Party shall have no right to share in a portion of the Operating Profits (Loss) for such Product for such Permitted Indication, (d) such Permitted Indication shall cease to be an Opt-In Indication, (e) such Party shall no longer have the Sole Promotion Option or Co-Promotion Option with respect to such Permitted Indication, and (f) such Party shall nor longer have any decision making control or input with respect to the development or commercialization of such Product for such Permitted Indication. If Insmed continues the development and/or commercialization of such Product for such Permitted Indication thereafter, then such Opt-In Party, after exercising its Opt-Out right, shall receive a royalty on the Net Sales of a Product for treatment of such Permitted Indication as further described in Section 7.1(a)(ii). For clarity, if an Opt-In Party exercises the Opt-Out right, it shall not have any right to a refund or reimbursement of any payments it had made to co-fund the Development Costs for a Product for such Permitted Indication.

ARTICLE 5

COMMERCIALIZATION

5.1 Commercialization by Insmed. Insmed shall have the primary right and responsibility for commercializing a Product for a given Permitted Indication; provided, however, that if the Opt-In Party for a particular Opt-In Indication elects to exercise its Co-Promotion Option or Sole Promotion Option for such Opt-In Indication, then the Parties shall proceed as set forth in this Article 5 and the terms of the Co-Promotion Agreement (as defined in Section 5.3) or the terms of the Supply Agreement (as defined in Section 5.4) shall apply to the commercialization of such Product for the treatment of such Opt-In Indication.

5.2 Commercialization by an Opt-In Party. Subject to the proper exercise of the Opt-In right described in Section 4.2, Insmed hereby grants the Opt-In Party, for the corresponding Opt-In Indication: (a) an option to co-promote, worldwide, a Product with Insmed for the treatment of such Opt-In Indication (the “ Co-Promotion Option ”); and (b) an option to assume sole responsibility for the commercialization of a Product for the treatment of such Opt-In Indication (the “ Sole Promotion Option ”). It is further understood and agreed that Tercica shall have the right to assign to Ipsen such Co-Promotion Option or Sole Promotion Option with respect to the ROW Territory or certain country(ies) within such ROW Territory, in which case the “Opt-In Party” as used in this Article 5 shall also include Ipsen. It is also further understood and agreed that GNE shall have the right to assign to a Third Party

designee such Co-Promotion Option or Sole Promotion Option with respect to the ROW Territory or certain country(ies) within such ROW Territory, in which case the “Opt-In Party” as used in this Article 5 shall also include such Third Party designee.

5.3 Opt-In Party’s Co-Promotion Option for Product for an Opt-In Indication.

(a) Exercise of Co-Promotion Option. The Opt-In Party may exercise the Co-Promotion Option as to an Opt-In Indication by providing written notice to Insmed within sixty (60) days following the JDC’s decision (as set forth in approved minutes of the JDC) to file the first application for Marketing Authorization for a Product for such Opt-In Indication in a given country. It is understood that such Co-Promotion Option shall be triggered with respect to the North American Territory and the ROW Territory independently, such that if, by way of example, the Opt-In Party does not exercise its Co-Promotion Option for the North American Territory (or part thereof), it may nonetheless exercise its Co-Promotion Option for the ROW Territory (or part thereof), provided such Opt-In Party has not exercised its right to Opt-Out of co-development for any such North American Territory or ROW Territory. If the Opt-In Party exercises the Co-Promotion Option, the Opt-In Party shall co-promote such Product for the treatment of such Opt-In Indication with Insmed, during the Co-Promotion Term pursuant to the terms of a Co-Promotion Agreement, as further described in Section 5.3(b) below. Co-promotion of Product for the treatment of such Opt-In Indication shall be overseen and coordinated by the JCC.

(b) Co-Promotion Agreement. Promptly following the Opt-In Party’s exercise of the Co-Promotion Option with respect to a particular Opt-In Indication in a region or country, the Opt-In Party and Insmed shall engage in good faith negotiations to prepare and execute a definitive co-promotion agreement describing the co-promotion activities of the Parties for promoting a Product for the treatment of such Opt-In Indication in such region or country (the “ Co-Promotion Agreement ”). The Co-Promotion Agreement will have the terms and conditions set forth in this Article 5 and in the term sheet attached to this Agreement as Exhibit E , as well as such other terms as the Opt-In Party and Insmed may agree. The Opt-In Party and Insmed will use reasonably diligent efforts to execute the Co-Promotion Agreement at least twelve (12) months prior to the anticipated receipt of Marketing Authorization for such Product for such Opt-In Indication as determined by the JCC (such date, the “ Launch Date ”) for the treatment of such Permitted Indication in the relevant jurisdiction. The “ Co-Promotion Term ” will commence upon execution of the Co-Promotion Agreement and will extend for so long as Insmed is selling a Product or the termination of this Agreement, whichever occurs first.

(c) Commercialization Plan. If the Opt-In Party exercises its Co-Promotion Option with respect to a particular Opt-In Indication, the strategy and tactics for the commercial launch of a Product for the Opt-In Indication shall be described in a comprehensive plan that describes the launch and subsequent co-promotion and related commercialization activities for such Product by the Opt-In Party and Insmed (including advertising, education, planning, marketing, sales force training and detail allocation) (the “ Commercialization Plan ”). The JCC shall prepare an initial draft of the Commercialization Plan within one (1) month after the filing of the first application for Marketing Authorization and shall approve a final Commercialization Plan at least six (6) months prior to the anticipated Launch Date for such Product for the treatment of such Opt-In Indication. The JCC shall update such Commercialization Plan as needed thereafter, but in any event annually.

5.4 The Opt-In Party’s Sole Promotion Option for Product for an Opt-In Indication.

(a) Exercise of Sole Promotion Option. The Opt-In Party may exercise the Sole Promotion Option for each of its Opt-In Indications by providing written notice to Insmed within sixty (60) days following the JDC’s decision (as set forth in approved minutes of the JDC) to file an application for Marketing Authorization for a Product for such Opt-In Indication in a given country. It is understood that such Sole Promotion Option shall be triggered with respect to the North American Territory and the ROW Territory independently, such that if, by way of example, the Opt-In Party does not exercise its Sole Promotion Option for the North American Territory (or part thereof), it may nonetheless exercise its Sole Promotion Option for the ROW Territory (or part thereof), provided such Opt-In Party has not exercised its right to Opt-Out of co-development for any such North American Territory or ROW Territory or part thereof. If the Opt-In Party exercises the Sole Promotion Option, the Opt-In Party shall thereafter have the sole right to market, promote, sell, and offer for sale such Product for the treatment of such Opt-In Indication, in the region or country(ies) as to which such option is exercised, including without limitation, the sole right to book all sales of such Product for such Opt-In Indication.

(b) Supply of Product by Insmed. Promptly following the Opt-In Party’s exercise of the Sole Promotion Option, the Opt-In Party and Insmed shall engage in good faith negotiations to prepare and execute a definitive supply agreement describing terms and conditions by which Insmed shall supply or cause to be supplied (by manufacturing itself or by procuring from a Third Party) commercial quantities of finished, filled, and packaged Product to the Opt-In Party for such Opt-In Indication, at a price equal to Insmed’s Fully Burdened Manufacturing Cost not to exceed $2,500/gram (such agreement, the “ Supply Agreement ”). The Supply Agreement will set forth the terms and conditions as the Opt-In Party and Insmed may agree and as are customary in an agreement of that type, including without limitation, any supply capacity constraints for a Product, forecasting and ordering, inspection and rejection provisions, and remedies in the event of supply default, including the ability of the Opt-In Party to make or have made a Product itself in such event. The Opt-In Party and Insmed will negotiate and execute the Supply Agreement at least twelve (12) months prior to the anticipated Launch Date of a Product for the treatment of such Opt-In Indication

(c) Trademark License . In the event Tercica and/or GNE exercises its Sole Promotion Option with respect to a given Opt-In Indication, Insmed hereby grants such Opt-In Party a non-exclusive, worldwide license, with the right to grant sublicenses as provided in this Section 5.4(c), to use the Trademark in connection with the marketing, promotion and sale of a Product for use in the Opt-In Indication. Any sublicense by Tercica or GNE under the rights granted in this Section 5.4(c) to a sublicensee other than Ipsen, or other than a distributor, subcontractor or consultant in the normal course of business, shall be made by Tercica or GNE only with the consent of Insmed, such consent not to be unreasonably withheld. It is expressly understood that the Opt-In Party exercising such Sole Promotion Option shall not be required to use the Trademark in connection with the marketing or sale of a Product for such Opt-In Indication, but shall have the right to re-brand such Product for such Opt-In Indication under a new trademark, in which event the Opt-In Party shall own all rights in and to such new trademark and all associated goodwill.

5.5 Sales Tracking. The Parties recognize that, subject to the licenses granted in Section 3.1, and in light of the Parties’ Opt-In rights with respect to given Permitted Indications, and Sole Promotion Option, a Product may be sold by Insmed for use in the treatment of one or more Permitted Indications as to which the Opt-In Party has exercised its rights, as well as Permitted Indications as to which no Opt-In rights have been exercised, as well as to patients on a Named Patient Basis as provided in Section 3.1(b), and to Existing Patients under Section 3.1(a), and may also be sold by either GNE or Tercica in the event of exercise of its Sole Promotion Option, for a given Opt-In Indication. In addition, Products marketed by Insmed (or its Sublicensee) or by GNE or Tercica (or their designee) in the future for an approved Permitted Indication may nonetheless be prescribed for use in the treatment of one or more indications which are other than such approved Permitted Indication (i.e., “Off Label Sales”). Given that different financial consideration is due and owing depending upon which of the foregoing situations is applicable (i.e., royalties vs. profit sharing), and in order to detect and account for such sales of Product in a manner most reflective of the Parties’ intent, the Parties agree as follows:

(a) Sales Tracking Methodology.

(i) Initial Methodology. Within one hundred eighty (180) days after the Effective Date, Tercica and Insmed shall meet and agree upon a method of tracking sales of Product for use in the treatment of each indication, in the country sold (a “ Sales Tracking Methodology ”) including (1) the use of data from Statements of Medical Necessity, or the acquisition of one or more forms of prescription data (including by way of example, IMS Xponent, NDCHealth Information Network, or Drug Distribution Data) or other relevant pharmaceutical sales tracking research services (including by way of example, audits of the corresponding statements of medical necessity, use of random sampling, use of data regarding distribution channels as a proxy for indication-specific sales or development of mathematical models for approximating indication-specific sales) generally recognized in the pharmaceutical industry as having a reasonable degree of accuracy and reliability in the tracking of sales of pharmaceutical products that have a similar nature as, and are prescribed by similar physicians as, a Product for the Named Patient Indications and Permitted Indications (the “ Data Services ”), and (2) the methodology for applying any such resulting data and information provided by such Data Services to determine the extent of sales in each country which are attributable to each such indication. It is expressly understood that sales of a Product for any Non-Permitted Indications are not anticipated except to the Existing Patients, and only for a period not to exceed twelve (12) months from the Effective Date, and any sales that are knowingly made to patients for use within a Non-Permitted Indication by Insmed or its Affiliates or Sublicensees and that are tracked to any Non-Permitted Indications after such twelve (12) month period (or to any patients who are other than Existing Patients within such twelve (12) month period) will be evidence of Insmed’s breach of its covenant in Section 3.5 and its license under Section 3.1(a).

(ii) Modifications to Methodology. The JCC may elect at any point to adopt a different or modified Sales Tracking Methodology, upon request of either Party. If the JCC fails to agree on a different Sales Tracking Methodology proposed by either Tercica or Insmed, the Sales Tracking Methodology then in effect shall continue to be used. Notwithstanding the foregoing, it is

understood and agreed by Tercica and Insmed that each shall have the right, at its own expense, to undertake such market research and analysis, including “probes” or sampling of patient data, physician prescribing habits and the like (the “ New Sales Tracking Data ”) or otherwise propose modifications to the Sales Tracking Methodology at any time during the Term, and to present such data or otherwise propose modifications to the Sales Tracking Methodology to the JCC to enhance the validity or reliability of the Sales Tracking Methodology. It shall be the JCC’s continuing obligation to review any such New Sales Tracking Data in good faith, with the overriding obligation to ensure fair and accurate compensation to the Parties (as applicable) under this Agreement by tracking as accurately as reasonably possible, purchases of a Product for use in specific indications. In the event that the JCC adopts a new Sales Tracking Methodology that incorporates New Sales Tracking Data proposed by a Party, the costs of such new Sales Tracking Methodology shall be allocated between Tercica and Insmed as provided in Section 5.5(c).

(b) Implementation by Insmed. Promptly following the selection and adoption by the JCC of the Sales Tracking Methodology (and any new Sales Tracking Methodology as applicable), Insmed hereby agrees to implement such Sales Tracking Methodology with respect to Insmed’s annual worldwide sales of Product.

(c) Costs. Insmed and Tercica shall share equally all costs incurred in implementing the Sales Tracking Methodology until such time as GNE exercises its first Opt-In right, in which event all such costs shall be shared equally between Insmed, Tercica and GNE.

(d) Dispute Resolution with Respect to Sales Tracking. Notwithstanding the dispute resolution mechanism set forth in Article 13 below, the Parties agree that all disputes relating to matters pertaining to sales tracking, including without limitation the methodology(ies) to be used or implementation thereof, shall be resolved as soon as practicable as follows: Any Party shall bring such dispute to the attention of the other Parties by providing the other Parties with a written notice stating such dispute, and the Parties shall use good faith efforts to resolve such dispute through the JCC within thirty (30) days after the receipt of such notice. If the JCC cannot reach resolution on such matter during such thirty (30)-day period, then the matter shall be referred to the Chief Commercial Officer or equivalent (or his/her designee who has decision-making authority) of the Parties for resolution. If such executives cannot reach resolution on such matter within ten (10) business days, then the Parties shall refer the matter to the Sales Tracking Panel (as defined below) for resolution, and the Sales Tracking Panel’s decision (which shall require the consent and agreement of 2 of the 3 panelists) on such matter shall be final and binding upon all Parties. Notwithstanding the foregoing, GNE may, at its option, recuse itself from such disputes with respect to sales tracking at any time by providing the other Parties with written notice stating such election. “Sales Tracking Panel” shall mean a panel of three experts, each of whom have experience in market research and intelligence gathering with respect to pharmaceutical products (e.g., former employees of IMS), and at least one of whom has experience in market research and drug distribution and prescribing information collection involving specialty pharmaceuticals. The Parties shall appoint such experts serving on the Sales Tracking Panel within thirty (30) days after the Effective Date through mutual agreement, and shall maintain the number of experts on such Sales Tracking Panel during the Term.

ARTICLE 6

GOVERNANCE

6.1 Overview. The Parties desire to establish certain committees to facilitate the sharing of information between the Parties and to coordinate the development and commercialization of a Product for the treatment of Permitted Indications (as applicable) and the implementation of the Sales Tracking Methodology. It is understood and acknowledged by each Party that, subject to Tercica’s and GNE’s opt-in rights in Section 4.2, Insmed will be primarily responsible for the development and commercialization of a Product strictly in accordance with the licenses granted by Tercica under Section 3.1.

6.2 Joint Development Committee.

(a) Formation; Composition. Within thirty (30) days after the Effective Date, the Parties shall establish a committee to oversee development of a Product and to serve as a forum for sharing information regarding such development between the Parties (the “ JDC ”). Tercica and Insmed each shall initially appoint three (3) representatives to the JDC, and GNE may initially appoint up to three (3) representatives to the JDC. Following any exercise of its Opt-In rights, GNE shall appoint or retain at least one (1) representative, but no more than three (3) representatives, to the JDC. The JDC may change its size from time to time by mutual consent of its members, provided that the JDC shall include at all times an equal number of representatives of each of Tercica, Insmed, and where GNE so elects, of GNE. Each Party may replace its JDC representatives at any time upon written notice to the other Party(ies). The JDC may invite non-members to participate in the discussions and meetings of the JDC, provided that such participants shall have no voting authority at the JDC. The JDC will be chaired by Insmed. The chairperson shall be responsible for administering JDC meetings, but shall have no additional powers or rights beyond those held by the other representatives of the JDC.

(b) Specific Responsibilities of the JDC. In addition to its general responsibilities, the JDC shall in particular:

(i) prior to an Opt-In Party’s exercise of the Opt-In in accordance with Section 4.2 and throughout the Opt-In Period, facilitate the flow of information from Insmed to Tercica and GNE with respect to the development of, and obtaining Marketing Authorization for, a Product for the treatment of any Permitted Indications;

(ii) prior to an Opt-In Party’s exercise of the Opt-In in accordance with Section 4.2 and throughout the Opt-In Period, determine, prior to the conduct of such trial, whether a proposed clinical trial for a Product satisfies the criteria of a Phase III Enabling Trial for the applicable Opt-In Indication; and

(iii) following an Opt-In Party’s exercise of the Opt-In in accordance with Section 4.2 for a particular Permitted Indication, coordinate and oversee the Parties’ development of a Product for the treatment of the applicable Opt-In Indication.

(c) Meetings. The JDC shall meet at least once per calendar quarter after the Effective Date unless the Parties mutually agree in writing to a different frequency. The JDC may meet in person, by videoconference, or by teleconference. The location of

in-person JDC meetings will be held at locations alternately selected by Tercica, Insmed, and GNE. Each Party shall report to the JDC on all material issues relating to the development of a Product promptly after such issues arise. Each Party will bear the expense of its respective JDC members’ participation in JDC meetings. Meetings of the JDC shall be effective only if at least one representative of each Party having incumbent member(s) of the JDC is present or participating in such meeting. The chairperson of the JDC shall be responsible for keeping reasonably detailed written minutes of all JDC meetings that reflect, without limitation, material decisions made at such meetings. Meeting minutes will be sent to each member of the JDC for review and approval within ten (10) business days after a meeting.

(d) Decision-Making. The JDC shall act by consensus. The representatives from each Party will have, collectively, one (1) vote on behalf of that Party. If the JDC cannot reach consensus on any issue that comes before the JDC, then:

(i) prior to Tercica’s or GNE’s exercise of the Opt-In in accordance with Section 4.2, Insmed shall have the deciding vote for all issues to be determined by the JDC; and

(ii) following the date when an Opt-In Party exercises its Opt-In rights, such Opt-In Party would have the deciding vote on all matters related to the Opt-In Indication before the JDC.

It is expressly understood and agreed that the control of decision-making authority by a Party so as to resolve a disagreement or deadlock at the JDC for any matter will not relieve such Party from any of its representations, warranties, or covenants in this Agreement, nor will it enable such Party to unilaterally modify or amend the terms of this Agreement.

6.3 Joint Commercialization Committee.

(a) Formation; Composition. Promptly following the Effective Date but in no event later than thirty (30) days after the Effective Date, the Parties shall form a committee to, in the first instance agree upon and approve the Sales Tracking Methodology, and, following exercise by an Opt-In Party of its Co-Promotion Option or Sole Promotion Option, coordinate and oversee the Parties’ respective commercialization activities with respect to a Product for the treatment of any Permitted Indications (the “ JCC ”). Tercica and Insmed each shall initially appoint two (2) representatives to the JCC, and GNE may initially appoint up to two (2) representatives to the JCC. Following any exercise of its Opt-In rights, GNE shall appoint at least one (1), but no more than two (2), representatives to JCC. The JCC may change its size from time to time by mutual consent of its members, provided that the JCC shall include at all times of an equal number of representatives of each of Tercica, Insmed, and where GNE so elects, of GNE. Each Party may replace its JCC representatives at any time upon written notice to the other Party(ies). The JCC may invite non-members to participate in the discussions and meetings of the JCC, provided that such participants shall have no voting authority at the JCC. The JCC will be chaired initially by Insmed. The chairperson shall be responsible for administering JCC meetings, but shall have no additional powers or rights beyond those held by the other representatives on the JCC.

(b) Meetings. The JCC shall meet at least twice per year after its formation pursuant to Section 6.3(a) unless the Parties mutually agree in writing to a different frequency. The JCC may meet in person, by videoconference, or by teleconference. The location of in-person JCC meetings will be held at locations alternately selected by Tercica, Insmed and GNE. Meetings of the JCC shall be effective only if at least one representative of each Party is present or participating in such meeting. Each Party shall report to the JCC on all material issues relating to the commercialization of Products promptly after such issues arise. Each Party will bear the expense of its respective JCC members’ participation in JCC meetings. The chairperson will be responsible for preparing reasonably detailed written minutes of JCC meetings that reflect, without limitation, material decisions made at such meetings. Such meeting minutes will be sent to each member of the JCC for review and approval within ten (10) business days after a meeting.

(c) Decision-Making. The JCC shall act by consensus. The representatives from each Party will have, collectively, one (1) vote on behalf of that Party. If the JCC cannot reach consensus on any issue that comes before the JCC, then:

(i) prior to the date when, and if, an Opt-In Party exercises its Sole Promotion Rights with respect to a particular Opt-In Indication pursuant to Section 5.4, and other than with respect to Sales Tracking Methodology matters, Insmed shall have the deciding vote for all issues to be determined by the JCC; and

(ii) following the date when an Opt-In Party exercises its Sole Promotion Rights with respect to a particular Opt-In Indication pursuant to Section 5.4, such Opt-In Party shall have the deciding vote for all issues to be determined by the JCC with respect to the commercialization of a Product for such Opt-In Indication.

It is expressly understood and agreed that the control of decision-making authority by a Party so as to resolve a disagreement or deadlock at the JCC for any matter will not relieve such Party from any of its representations, warranties, or covenants in this Agreement, nor will it enable such Party to unilaterally modify or amend the terms of this Agreement.

6.4 General Committee Authority. Each Committee shall have solely the powers assigned to it in this Article 6 and elsewhere in this Agreement. No Committee shall have any power to amend, modify, or waive compliance with this Agreement.

6.5 Discontinuation of Participation on a Committee. Each Committee shall continue to exist until the first to occur of (a) the Parties mutually agreeing to disband the Committee, or (b) Tercica providing to Insmed written notice of its intention to disband and no longer participate in such Committee. In any event, at any time Tercica and/or GNE may terminate its participation on any Committee, on thirty (30) days’ written notice. Unless the Parties agree otherwise in writing at the time, upon dissolution of a Committee, such Committee’s powers and duties shall automatically be assumed by Insmed; provided, however, the Opt-In Party’s approval shall be required for any decisions made by Insmed after the dissolution of a Committee, such approval not to be unreasonably withheld or delayed.

ARTICLE 7

FINANCIALS

7.1 Royalty Payments for Non-Profit Share Indications.

(a) Insmed’s Royalty Obligations to Tercica and GNE.

(i) Royalties for Insmed’s Sales to Existing Patients Under Section 3.1(a). Insmed shall pay to Tercica a royalty equal to [***] of its Net Sales made pursuant to its license under Section 3.1(a) to Existing Patients and which are booked after the end of the three (3) month period after the Effective Date, as set forth in Section 3.1(a).

(ii) Royalties for Insmed’s Sales Pursuant to its License under Section 3.1(c). Insmed shall pay to Tercica a royalty equal to [***] of its Net Sales arising from use of a Product for all Permitted Indications for which (A) neither GNE nor Tercica has exercised its Opt-In right pursuant to Section 4.2 above; or (B) subsequent to Tercica’s or GNE’s exercise of its Opt-In right, such Party exercised its Opt-Out right with respect to such Permitted Indication (but where such Opt-Out was exercised only as to a specific region or country, only Net Sales from such region or country shall be subject to such royalty).

(iii) Royalties for ALS Named Patient Sales in Italy. Insmed shall pay directly to GNE a royalty on all sales made on a Named Patient Basis for the treatment of ALS in accordance with Section 3.1(d) as follows (such Net Sales referred to herein as the “ ALS Portion ,” and such royalty paid thereon referred to as the “ ALS Royalty ”):


ALS Portion		Royalty Rates Applicable to ALS Portion
[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

(iv) Royalties for Other Named Patient Sales Pursuant to Section 3.1(b) and All Off-Label Sales.

(1) For Named Patient Indications. Insmed shall pay to Tercica a royalty on all sales made on a Named Patient Basis for the treatment of indications other than ALS in accordance with Section 3.1(b) pursuant to subsection (3) below.

(2) For All Off Label Sales. Insmed shall pay to Tercica a royalty on its Net Sales attributable to use of a Product in the treatment of one or more Permitted Indications, which, at the time of such sale: (A) Insmed does not have Marketing Authorization for such Product for such Permitted Indication in the country of sale, and (B) either (i) Insmed has not yet commenced any development of such Product for such Permitted Indication so that there was not an opportunity for Tercica or GNE to exercise

the Opt-In right pursuant to Section 4.2, or (ii) Insmed has commenced such development of such Product but the Opt-In right described in Section 4.2 has not yet been exercised (“ Off-Label Sales ”). In such event, the royalty owed to Tercica on such Off-Label Sales will be paid pursuant to subsection (3) below. If, following commencement of payment of royalties for such Permitted Indication to Tercica pursuant to subsection (3) below, neither Tercica nor GNE exercises the Opt-In right described in Section 4.2 for such Permitted Indication, then upon grant of Marketing Authorization for such Product in the treatment of such Permitted Indication in a given country, the royalty for sales of Product for such Permitted Indication in such country shall be [***].

(3) Calculation of Royalties Due under Subsections (1) and (2) Above. For the purpose of this subsection (3), “ Aggregated Named Patient and Off-Label Sales ” shall mean collectively, (A) the ALS Portion; (B) the annual Net Sales of all Products aggregated across all countries which result from Named Patient Basis sales other than ALS pursuant to Section 3.1(b); and (C) the annual Net Sales of all Products aggregated across all countries which are Off-Label Sales. The Aggregated Named Patient and Off-Label Sales described in (B) and (C) shall be referred to as the “ Non-ALS Portion ”. In calculating royalties due under this subsection (3), the following rules shall apply:

(a) Determining Royalties Due for the Non-ALS Portion : The royalties due for the Non-ALS Portion shall equal the “ Aggregated Royalty Amount ” less the “ ALS Credit ”.

(i) The Parties shall determine the Aggregated Royalty Amount by applying the applicable royalty rates set forth in Table A below to the Annual Aggregated Named Patient and Off-Label Sales;

Table A for Calculating Aggregated Royalty Amount:


Annual Aggregated Named Patient and Off-Label Sales		Royalty Rates Applicable to Annual Aggregated Named Patient and Off-Label Sales
[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

(ii) The Parties shall then determine the ALS Credit by applying the applicable royalty rates set forth in Table B below to the ALS Portion:

Table B for Calculating the ALS Credit :


ALS Portion		Royalty Rates Applicable to ALS Portion
[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

(b) Example. By way of illustration, if, for a given year, the ALS Portion is [***], the Non-ALS Portion is [***], then the Aggregated Named Patient and Off-Label Sales shall be [***]. The royalties payable shall be calculated as follows:

(i) For the ALS Portion : As set forth in Section 7.1(a)(iii), the first [***] of the ALS Portion shall bear royalties at a rate of [***], resulting in a royalty obligation of [***]; and the next [***] of the ALS Portion shall bear royalties at a rate of [***], resulting in a royalty obligation of [***]. The total royalty obligation for the ALS Portion shall be [***] and shall be paid directly to GNE

(ii) For the Non-ALS Portion: As set forth in Section 7.1(a)(iv), such royalty is equal to the Aggregated Royalty Amount minus the ALS Credit, calculated as follows:

Aggregated Royalty Amount:


Aggregated Named Patient and Off-Label Sales ([***])		Royalties Per Table A
[***]

[***]

[***]

[***]

[***]

[***]
Aggregated Royalty Amount		[***]

ALS Credit:

Royalties Due for Non-ALS Portion: The royalty payments for Non-ALS Portion shall be: [***] and shall be paid directly to Tercica.

(b) Royalty Obligations to GNE with Respect to Tercica’s Opt-In Indication(s). In the event GNE does not elect to exercise its Opt-In rights for a given Permitted Indication, but Tercica does so exercise its Opt-In rights for such Permitted Indication, for so long as Tercica has not exercised its Opt-Out right, Insmed or Tercica, as the case may be and whichever is the Booking Party, shall pay to GNE the incremental rates set forth below, on annual Net Sales of all Products used in the treatment of such Permitted Indication, aggregated across all such Permitted Indications as to which this Section 7.1(b) applies:


Aggregate Annual Net Sales for all Products for all such Indications		Royalty Rate Applicable
[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

[***]		[***]

Such royalties owed GNE shall be deducted from Actual Sales in calculating Operating Profit (Loss).

(c) Royalties for Mass Sales. Notwithstanding any other provision in this Section 7.1, Insmed shall pay to Tercica a royalty at the rate equal to [***] of its Net Sales of any mass sales of a Product to a buyer who is governmental agency, quasi governmental agency, institution, foundation or other organization or entity and pursuant to a bulk sales contract or other arrangement, but excluding any sales of a Product pursuant to contract or purchase order to distributors in the normal course of business for any intended use.

(d) Royalty Report and Payment. All royalty amounts payable to Tercica (or GNE as applicable) pursuant to this Section 7.1 shall be paid in Dollars within thirty (30) days after the end of each calendar quarter with respect to Net Sales in such

calendar quarter. Each payment of royalties due to Tercica (or GNE as applicable) shall be accompanied by a statement, on a country-by-country basis, of the amount of gross sales of Product for the applicable indication during the applicable calendar quarter, an itemized calculation of Net Sales in the Territory showing deductions provided for in the definition of Net Sales during such calendar quarter, and a calculation of the amount of royalty payment due on such sales for such calendar quarter in accordance with Sections 7.1(a)(i), 7.1(a)(ii), 7.1(a)(iii), 7.1(a)(iv) and 7.1(b).

(e) Royalty Payment Term . All royalty obligations that apply to sales of Product for use in an indication in a Sale Country pursuant to this Section 7.1 shall extend, on a Product-by-Product, Permitted Indication-by-Permitted Indication, and Sale Country-by-Sale Country basis, until the later of (a) the expiration of the last to expire Licensed Patents existing in such Sale Country that would, but for the license grant in Section 3.1, be infringed by the use, sale, offer for sale, or importation of such Product for use in such Permitted Indication in such Sale Country and (b) the expiration of the last to expire Licensed Patents existing in such Sale Country or other country, that would, but for the license grant in Section 3.1, be infringed by the actual method of manufacture or use of such Product (or a component thereof) as practiced by Insmed in the manufacture of such Product in such Sale Country or such other country that is subsequently sold for use in such Permitted Indication in such Sale Country.

(f) Minimum Royalty. The Parties acknowledge that there may be dispute between the Parties with respect to which Net Sales are attributable to which Permitted Indication, or the calculation of any royalties due thereunder, which may be ongoing as of the end of a given calendar quarter (the “ Sales Tracking Dispute ”). The Parties agree that Insmed’s royalty payment obligations under Section 7.1(a)(i) for sales of a Product to Existing Patients and under Section 7.1(c) for mass sales shall not be affected by any Sales Tracking Dispute, and shall be due and owing at the end of the relevant quarter in accordance with Section 7.1(d) above regardless of any then existing Sales Tracking Dispute. With respect to Insmed’s royalty payment obligations under Sections 7.1(a)(ii) through 7.1(a)(iv), or 7.1(b) or the payment of Operating Profit (Loss), any such Sales Tracking Dispute shall only affect the payment of the portion of the royalties in dispute, and the remainder of the royalties (which shall at all times be at least [***] of all Net Sales for each Permitted Indication) shall nevertheless be due and owing at the end of the relevant quarter in accordance with Section 7.1(d) above.

7.2 Sharing of Operating Profit of Product for an Opt-In Indication.

(a) Profit Share. The Parties shall share the Operating Profit (Loss) for each Opt-In Indication based on the applicable Percentage Interest for such Opt-In Indication.

(b) Quarterly Calculations. Each Party’s share of Operating Profit (Loss) will be determined on a calendar quarterly basis, using a weighted average based on forecasted Actual Sales (as defined in Exhibit A ) for a Product for the Opt-In Indication for the then current calendar year and actual Operating Profit (Loss) for the completed calendar quarter.

(c) Quarterly Reconciliation. On a calendar quarterly basis after the end of each calendar quarter, each Party’s actual share of Operating Profit (Loss) will be calculated and reconciled as follows: the forecasted Actual Sales for a Product for such Opt-In Indication for the then current calendar year will be adjusted based on the actual sales booked for the recently-completed calendar

quarter and the forecasted Actual Sales for all remaining calendar quarters. Then, each Party’s share of cumulative Operating Profit (Loss) for all of the completed calendar quarter(s) for such calendar year will be determined using a weighted average based on such newly-calculated Actual Sales and the actual Operating Profit (Loss) for all such completed calendar quarter(s) for such calendar year. The payment to be made by one Party to the other Party for such recently-completed calendar quarter shall reflect such reconciliation, so that each Party will receive its share of then-current cumulative Operating Profit (Loss).

(d) Reconciliation Payments. If the Opt-In Party does not exercise its Sole Promotion Option, then, as between the Parties, Insmed shall be the Booking Party for such Product for the Opt-In Indication. If the Opt-In Party exercises its Sole Promotion Option, then such Opt-In Party shall be the Booking Party for such Product for the Opt-In Indication. In accordance with the timeline set forth in Exhibit A , for as long as any Product is being commercialized for an Opt-In Indication, the Non-Booking Party shall submit to the Booking Party a statement setting forth any expenditures incurred in any of the elements of calculation of the Operating Profit (Loss) by such Non-Booking Party for the sale of Product for the Opt-In Indication during such calendar quarter, together with the information detailing the basis for the calculation of such expenditures, in detail and by category of expenditure. The Booking Party shall consolidate any such Operating Profit (Loss) expenditures reported by such Non-Booking Party with those obtained directly by the Booking Party. The Booking Party shall, in accordance with the time periods set forth in Exhibit A , notify such Non-Booking Party whether a reconciliation payment is due from one Party to the other based on its calculation pursuant to Section 7.2(c) above, and if so, the amount of such reconciliation payment, so that the Parties will share the Operating Profit (Loss) for such calendar quarter in the ratio set forth in Section 7.2(a). The Party required to pay such reconciliation payment shall submit such payment to the other Party within the time period set forth in Exhibit A .

7.3 GNE License Fee. Upon receipt of invoice from Tercica, Insmed shall reimburse Tercica for license payments made to GNE pursuant to Section G.1(a)(x) of Exhibit G to the GNE US License. For clarity, Insmed shall have no further obligation under this Section 7.3 upon Insmed’s reimbursement of Tercica for the final license payment made by Tercica to GNE pursuant to Section G.1(a)(x) of Exhibit G to the GNE US License, which final license payment is the last payment made to GNE by Tercica under such section of the GNE US License before the expiration of the last to expire patent in the BP3 Patents (as that term is defined in Section 1.7 of the GNE US License) existing in the United States. For additional clarity, nothing in this Section 7.3 shall be construed to limit or amend Tercica’s obligation to pay GNE any license payments due pursuant to Section G.1(a)(x) of Exhibit G to the GNE US License.

7.4 Taxes. A Party receiving a payment pursuant to this Article 7 shall pay any and all taxes levied on such payment. If applicable law requires that taxes be deducted and withheld from a payment made pursuant to this Article 7, the remitting Party shall (i) deduct those taxes from the payment; (ii) pay the taxes to the proper taxing authority; and (iii) send evidence of the obligation together with proof of payment to the other Party within sixty (60) days following that payment.

7.5 Blocked Currency. In each country where the local currency is blocked and cannot be removed from the country, royalties accrued in that country shall be paid to the other Party in the country in local currency by deposit to a local bank designated by such Party, unless the Parties otherwise agree.

7.6 Foreign Exchange. The rate of exchange to be used in computing the amount of currency equivalent in Dollars owed to a Party under this Agreement shall be made at the period-end rate of exchange quoted on the last business day of the applicable calendar quarter by Citibank in New York City.

7.7 Late Payments. If a Party does not receive payment of any sum due to it on or before the due date, simple interest shall thereafter accrue on the sum due to such Party until the date of payment at the per annum rate of two percent (2%) over the then-current prime rate quoted by Citibank in New York City or the maximum rate allowable by applicable law, whichever is greater. All payments made hereunder shall be made net of any withholding taxes.

7.8 Financial Records; Audits. Each Party will maintain complete and accurate records in sufficient detail to permit the other Parties to confirm the accuracy of the Development Costs incurred by such Party and the calculation of royalty payments, Operating Profit (Loss), and other compensation payable under this Agreement. In addition, Insmed will maintain complete and accurate records of its Named Patient Basis sales under Sections 3.1(b) and (d) in sufficient detail to permit GNE or Tercica to confirm the accuracy of such sales. Upon reasonable prior notice, such records shall be open during regular business hours for a period of three (3) years from the creation of individual records for examination at the auditing Party’s expense, and not more often than once each calendar year, by an independent certified public accountant selected by the auditing Party and reasonably acceptable to the audited Party for the sole purpose of verifying for the auditing Party the accuracy of the financial reports furnished by the audited Party pursuant to this Agreement or of any payments made by the audited Party to the non-audited Party pursuant to this Agreement. Any such auditor shall not disclose the audited Party’s Confidential Information to the auditing Party, except to the extent such disclosure is necessary to verify the accuracy of the financial reports furnished by the audited Party or the amount of payments due by the audited Party under this Agreement. Any amounts shown to be owed but unpaid shall be paid within thirty (30) days from the accountant’s report, plus interest (as set forth in Section 7.6) from the original due date. The auditing Party shall bear the full cost of such audit unless such audit discloses an underpayment of the amount actually owed during the applicable calendar year of more than five percent (5%), in which case the audited Party shall bear the full cost of such audit.

ARTICLE 8

INTELLECTUAL PROPERTY

8.1 Prosecution of Patents.

(a) Licensed Patents. Tercica or GNE (as such rights and obligations are allocated between Tercica and GNE under the GNE Licenses) shall have the sole right and authority to prepare, file, prosecute (including any interferences, reissue proceedings and

reexaminations) and maintain the Licensed Patents on a worldwide basis. Tercica or GNE (as such rights and obligations are allocated between Tercica and GNE under the GNE Licenses) shall be responsible for all costs and expenses related to such preparation, filing, prosecution and maintenance of such Licensed Patents.

(b) Insmed Patents. Except as otherwise provided in this Section 8.1(b), Insmed shall have the sole right and authority to prepare, file, prosecute (including any interferences, reissue proceedings and reexaminations) and maintain the patents within the Insmed Patents on a worldwide basis. Except as set forth in this Section 8.1(b), Insmed shall be responsible for all costs and expenses related to such preparation, filing, prosecution and maintenance of such patents within the Insmed Patents. In the event that Tercica or GNE is the Opt-In Party for any Product for an Opt-In Indication, after the proper exercise of the Opt-In, and unless and until such Party exercises the Opt-Out with respect to such Permitted Indication: (i) Insmed shall provide such Opt-In Party reasonable opportunity to review and comment on such prosecution efforts regarding such patents relating to a Product for the Opt-In Indication within the Insmed Patents, (ii) Insmed shall provide such Opt-In Party with a copy of material communications from any patent authority in the Territory regarding such patents within the Insmed Patents, and shall provide drafts of any material filings or responses to be made to such patent authorities a reasonable amount of time in advance of submitting such filings or responses, and (iii) if Insmed determines in its sole discretion to abandon or not maintain any patent within such patents within the Insmed Patents anywhere in the Territory, then Insmed shall provide such Opt-In Party with thirty (30) days prior written notice of such determination (or such other period of time reasonably necessary to allow such Opt-In Party to assume such responsibilities) and shall provide such Opt-In Party with the opportunity to prepare, file, prosecute and maintain such patent in the Territory on behalf of Insmed at such Opt-In Party’s sole expense.

(c) Cooperation in Prosecution. Each Party shall provide the other Parties all reasonable assistance and cooperation in the patent prosecution efforts to the extent necessary or useful for the exercise of the other Parties’ right to control patents as provided above in this Section 8.1, including providing any necessary powers of attorney and executing any other required documents or instruments for such prosecution.

8.2 Infringement of Patents by Third Parties.

(a) Notification. Each Party shall promptly notify the other Parties in writing of any existing or threatened infringement of the Licensed Patents or any patents within the Insmed Patents of which it becomes aware, and shall provide evidence in such Party’s possession demonstrating such infringement.

(b) Infringement of Licensed Patents. Tercica or GNE (as such rights and obligations are allocated between Tercica and GNE under the GNE Licenses) shall have the exclusive right, but not the obligation, to bring, at Tercica’s or GNE’s (as applicable) expense and in its sole control, an appropriate suit or other action against any person or entity engaged in such infringement of a Licensed Patent.

(c) Infringement of Insmed Patents. Insmed shall have the exclusive right, but not the obligation, to bring, at Insmed’s expense and in its sole control, an appropriate suit or other action against any person or entity engaged in such infringement of a patent within the Insmed Patents.

8.3 Infringement of Third Party Rights.

(a) Notice. If any Product manufactured, used or sold by either Party, its Affiliates, licensees or sublicensees becomes the subject of a Third Party’s claim or assertion of infringement of a patent granted by a jurisdiction within the Territory relating to the manufacture, use, sale, offer for sale or importation of a Product, and if Tercica or GNE is the Opt-In Party for a Product for any Opt-In Indication implicated in such claim or assertion, then: (i) if the Opt-In Party first has notice of the claim or assertion, it shall promptly notify Insmed; and (ii) if Insmed first has notice of the claim or assertion, it shall promptly notify such Opt-In Party. The Parties shall then promptly meet to consider the claim or assertion and the appropriate course of action.

(b) Defense. Insmed shall have the first right, but not the obligation, to defend any such claim, the costs to conduct such defense being at Insmed’s sole expense. If Insmed does not commence actions to defend such claim within five (5) business days after it had notice thereof, then such Opt-In Party shall have the right, but not the obligation, to control the defense of such claim by counsel of its choice, at such Opt-In Party’s sole expense. Each of Insmed and the Opt-In Party shall reasonably cooperate with the other Party and shall give reasonable consideration to the other Party’s input, including if required to conduct such defense, furnishing a power of attorney.

(c) Settlement. Neither Party shall enter into any settlement of any claim described in this Section 8.3 that affects the other Parties’ rights or interests without such other Parties’ written consent, which consent shall not be unreasonably withheld or delayed.

ARTICLE 9

CONFIDENTIALITY

9.1 Confidential Information. All information, whether in oral, written, graphic or electronic form, disclosed by either Party (“ Disclosing Party ”) to the other and/or any of its subsidiaries, subdivisions, parent companies, affiliates agents or consultants (“ Receiving Party ”), and all notes, documents and materials prepared by or for either Party which reflect, interpret, evaluate, include or are derived therefrom, shall be deemed to be “ Confidential Information .” In particular, Confidential Information shall include, without limitation, any trade secret, proprietary information, invention, research and development work, work-in-process, technology, technique, know-how, design, specification, program, unpublished data, procedure (including operating procedures), computer software, data base or programming, idea, sample, strategy, budget, projection, development, process, formulation, method, guideline, policy, proposal, contract, test data or data file, or any engineering, manufacturing, marketing, servicing, financing, pricing, cost, profit, personnel or salary structure/compensation information relating to the past, present or future operations, products, services, technology, sales, suppliers, clients, customers, employees, investigators, investors or business of Disclosing Party. In addition,

“ Confidential Information ” includes any trade secrets, data (technical or non-technical) or confidential information relating to the past, present or future operations, organization, business, projects or finances of any Third Party to which Disclosing Party owes a duty of confidentiality including, without limitation, the mere fact that Disclosing Party is or may be working with or for any client.

9.2 Non-use; Nondisclosure of Confidential Information. Receiving Party shall not use or disclose such Confidential Information to others (except its employees, Affiliates and sublicensees who reasonably require same for the purposes hereof and who are bound to it by a like obligation as to confidentiality except as required by law) without the express written permission of Disclosing Party, except for Confidential Information that (a) can be demonstrated by written records to be known to Receiving Party from a source other than Disclosing Party at the time of receipt; or (b) was subsequently otherwise legally acquired by Receiving Party from a Third Party having an independent right to disclose the information; or (c) is now or later becomes publicly known without breach of this Agreement by Receiving Party or any Party that received such Confidential Information from Receiving Party.

9.3 Permitted Disclosure of Confidential Information. Any Party may disclose the other Party’s Confidential Information to the extent such disclosure is required by law, regulations (including without limitation the rules and regulations promulgated by the United States Securities Exchange Commission) and valid court order, provided that such Party gives the other Party reasonable notice of such disclosure and uses reasonable efforts to obtain confidential treatment or a protective order for such information. Tercica shall have the right to disclose Insmed’s Confidential Information to the extent such disclosure is required to satisfy its obligations under the GNE Licenses or any agreements with Ipsen, provided that such persons undertake to keep confidential such Confidential Information.

9.4 Other Permitted Disclosure. Except as otherwise expressly provided herein or as otherwise set forth in Section 9.3, to the extent reasonably necessary to carry on the activities contemplated in this Agreement, a Party shall be permitted to (a) disclose or grant use of Confidential Information received under this Agreement to any of its permitted sublicensees, agents, consultants, clinical investigators, collaborators or contractors, under confidentiality and non-use obligations at least as stringent as those set forth in this Article 9; (b) disclose Confidential Information received under this Agreement to actual or potential professional investors, acquirers, merger or other business partners or retained professional advisors (e.g. attorneys, accountants and investment bankers), under confidentiality and non-use obligations at least as stringent as those set forth in this Article 9; and (c) to a Regulatory Authority to the extent necessary for obtaining Marketing Authorization for a Product.

9.5 Press Release. The Parties agree that the material terms of this Agreement are included within the Confidential Information of all Parties, subject to the special authorized disclosure set forth in this Section 9.5. Tercica and Insmed have agreed to make a joint public announcement of the execution of this Agreement substantially in the form of the press release attached as Exhibit F on or after the Effective Date.

9.6 Publication.

(a) If Opt-In Rights Have Not Been Exercised. In the event that (i) neither Tercica nor GNE has exercised its Opt-In rights under Section 4.2 when they became due, or (ii) the Opt-In Party has subsequently exercised its Opt-Out right under Section 4.4, then Insmed shall have the right to publish or orally deliver a scientific article or speech relating to the development of Product for the Permitted Indication subject to the confidentiality restrictions described in Sections 9.1 through 9.4.

(b) If Opt-In Rights Have Been Exercised. In the event that either Tercica or GNE has exercised its Opt-In rights under Section 4.2, or during such time period as such rights are ongoing, and provided such Opt-In Party has not yet exercised its Opt-Out right under Section 4.4, then if Insmed or the Opt-In Party (or potential Opt-In Party) wishes to publish or orally deliver a scientific article or speech relating to the development of Product for the Opt-In Indication, then the following shall apply: The Party wishing to make such proposed oral disclosure or written publication shall submit to the other Party a draft of each such proposed oral disclosure or written publication at least thirty (30) days prior to the anticipated oral disclosure or the submission of the written publication. As soon as reasonably possible, but in no event more than thirty (30) days after receipt of an advance copy of a publishing Party’s proposed oral disclosure or written publication, the reviewing Party shall inform the publishing Party if the proposed oral disclosure or written publication contains any of the reviewing Party’s Confidential Information or could be expected to have a material adverse effect on any patent rights of the reviewing Party. If so requested by the reviewing Party, the publishing Party shall amend any proposed oral disclosure or written publication to the extent necessary to protect the Confidential Information of the reviewing Party of which the publishing Party is made aware by the reviewing Party and, if so requested by the reviewing Party, shall delay such proposed oral disclosure or written publication for a reasonable period of time to permit the timely preparation of a patent application by the reviewing Party.

ARTICLE 10

REPRESENTATIONS AND WARRANTIES

10.1 Representations and Warranties of Tercica. Tercica makes the following covenants, representations and warranties to each of the other Parties, as of the Effective Date, and does so in full understanding and acknowledgement that each of the other Parties is relying on the said representations and warranties in entering into the present Agreement:

(a) Status. Tercica is a corporation organized and existing under the laws of the State of Delaware. No action has been taken by the directors, officers or shareholders of Tercica to dissolve Tercica. Tercica has the corporate power and authority to enter into the present Agreement and to perform all its obligations hereunder.

(b) All Necessary Proceedings. Tercica has taken all necessary corporate actions and proceedings to enable it to enter into the present Agreement.

without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any material instrument or agreement to which it is a party or by which it or its properties may be bound or affected.

(d) GNE Licenses. As of the Effective Date, (i) the GNE Licenses are in full force and in effect in accordance with their terms, (ii) Tercica is not in default or breach in any material respect of the GNE Licenses, (iii) to Tercica’s knowledge, there is no cause for early termination of the GNE Licenses, (iv) Tercica has provided to Insmed a copy of the GNE Licenses; and (v) the terms under this Agreement are not in conflict with the terms in the GNE Licenses. Tercica shall (A) comply with and observe in all material respects its obligations under the GNE Licenses and (B) not terminate or otherwise modify any terms or conditions of the GNE Licenses in any manner that would materially adversely affect Insmed’s rights under this Agreement without the prior written consent of Insmed.

10.2 Representations and Warranties of Insmed. Insmed makes the following covenants, representations and warranties to each of the other Parties, as of the Effective Date, and does so in full understanding and acknowledgement that each of the other Parties is relying on the said representations and warranties in entering into the present Agreement:

(a) Status. Insmed is a corporation organized and existing under the laws of Virginia. No action has been taken by the directors, officers or shareholders of Insmed to dissolve Insmed. Insmed has the corporate power and authority to enter into the present Agreement and to perform all its obligations hereunder.

(b) All Necessary Proceedings. Insmed has taken all necessary corporate actions and proceedings to enable it to enter into the present Agreement.

(c) No Violation. The execution, delivery and performance of this Agreement by it (i) does not and will not violate or conflict with any provision of law or any provision of its articles of incorporation or by-laws; and (ii) does not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any material instrument or agreement to which it is a party or by which it or its properties may be bound or affected.

(d) Existing Patients. Insmed has provided to Tercica and GNE the accurate maximum number of all Existing Patients as of the Execution Date as such number is set forth in Section 3.1(a) above.

(e) No Other Agreements. As of the Effective Date, Insmed has neither entered into nor is a party to any agreement with either Tercica or GNE that relates to the subject matter of the Lawsuit, with the sole exception of this Agreement, the UK Proceedings Settlement Agreement, and the Permanent Injunction.

10.3 Representations and Warranties of GNE. GNE makes the following covenants, representations and warranties to each of the other Parties, as of the Effective Date, and does so in full understanding and acknowledgement that each of the other Parties is relying on the said representations and warranties in entering into the present Agreement:

(a) Status. GNE is a corporation organized and existing under the laws of the State of Delaware. No action has been taken by the directors, officers or shareholders of GNE to dissolve GNE. GNE has the corporate power and authority to enter into the present Agreement and to perform all its obligations hereunder.

(b) All Necessary Proceedings. GNE has taken all necessary corporate actions and proceedings to enable it to enter into the present Agreement.

10.4 THE WARRANTIES SET OUT ABOVE ARE THE ONLY WARRANTIES GIVEN BY ANY PARTY AND ARE MADE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED. THERE IS NO OTHER CONDITION OR WARRANTY RELATING TO PRODUCT MERCHANTABILITY OR FIT FOR ANY PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXCLUDED AND DISCLAIMED.

ARTICLE 11

INDEMNIFICATION

11.1 Indemnification by Tercica. Tercica shall defend, indemnify, and hold Insmed and GNE and each of Insmed’s and GNE’s respective officers, directors, employees, and agents harmless from and against any and all Third Party claims, suits, proceedings, damages, expenses (including court costs and reasonable attorneys’ fees and expenses), and recoveries (collectively, “ Claims ”) to the extent that such Claims arise out of, are based on, or result from (a) the development, manufacture, storage, handling, use, promotion, sale, offer for sale, and importation of Products by Tercica or its sublicensees or Affiliates; (b) a breach of any of Tercica’s representations, warranties, and obligations under the Agreement; or (c) the willful misconduct or negligent acts of Tercica, its Affiliates, or the officers, directors, employees, or agents of Tercica or its Affiliates. The foregoing indemnity obligation shall not apply if the indemnifiable Party fails to comply with the indemnification procedures set forth in Section 11.4, or to the extent that any Claim arises from, is based on, or results from (i) the development, manufacture, storage, handling, use, promotion, sale, offer for sale, and importation of Products by Insmed or GNE or their respective Affiliates, sublicensees, or distributors; (ii) a breach of any of Insmed’s or GNE’s respective representations, warranties, and obligations under the Agreement; or (iii) the willful misconduct or negligent acts of Insmed or GNE or their respective Affiliates, or the officers, directors, employees, or agents thereof.

11.2 Indemnification by Insmed. Insmed shall defend, indemnify, and hold Tercica and GNE and each of Tercica’s and GNE’s respective officers, directors, employees, and agents harmless from and against any and all Claims to the extent that such Claims arise out of, are based on, or result from (a) the development, manufacture, storage, handling, use, promotion, sale, offer for sale, and importation of Products by Insmed or its Affiliates, sublicensees, or distributors; (b) a breach of any of Insmed’s representations, warranties, and obligations under the Agreement; or (c) the willful misconduct or negligent acts of Insmed or its Affiliates, or the officers, directors, employees, or agents of Insmed or its Affiliates. The foregoing indemnity obligation shall not apply if the indemnifiable Party fails to comply with the indemnification procedures set forth in Section 11.4, or to the extent that any Claim arises from, is based on, or results from (i) the development, manufacture, storage, handling, use, promotion, sale, offer for sale, and importation of Products by Tercica or GNE or their respective Affiliates or sublicensees for the treatment of Permitted Indications; (ii) a breach of any of Tercica’s or GNE’s respective representations, warranties, and obligations under the Agreement; or (iii) the willful misconduct or negligent acts of Tercica or GNE or their respective Affiliates, or the officers, directors, employees, or agents thereof.

11.3 Indemnification by GNE. GNE shall defend, indemnify, and hold Tercica and Insmed and each of Tercica’s and Insmed’s respective officers, directors, employees, and agents harmless from and against any and all Claims to the extent that such Claims arise out of, are based on, or result from (a) the development, manufacture, storage, handling, use, promotion, sale, offer for sale, and importation of Products by GNE or its Affiliates, sublicensees, or distributors; (b) a breach of any of GNE’s representations, warranties, and obligations under the Agreement; or (c) the willful misconduct or negligent acts of GNE or its Affiliates, or the officers, directors, employees, or agents of GNE or its Affiliates. The foregoing indemnity obligation shall not apply if the indemnifiable Party fails to comply with the indemnification procedures set forth in Section 11.4, or to the extent that any Claim arises from, is based on, or results from (i) the development, manufacture, storage, handling, use, promotion, sale, offer for sale, and importation of Products by Tercica or Insmed or their respective Affiliates or sublicensees; (ii) a breach of any of Tercica’s or Insmed’s respective representations, warranties, and obligations under the Agreement; or (iii) the willful misconduct or negligent acts of Tercica or Insmed or their respective Affiliates, or the officers, directors, employees, or agents thereof.

11.4 Indemnification Procedures. The Party claiming indemnity under this Article 10 (the “ Indemnified Party ”) shall give written notice to the Party from whom indemnity is being sought (the “ Indemnifying Party ”) promptly after learning of such Claim. The Indemnified Party shall provide the Indemnifying Party with reasonable assistance, at the Indemnifying Party’s expense, in connection with the defense of the Claim for which indemnity is being sought. The Indemnified Party may participate in and monitor such defense with counsel of its own choosing at its sole expense; provided, however, the Indemnifying Party shall have the right to assume and conduct the defense of the Claim with counsel of its choice. The Indemnifying Party shall not settle any Claim without the prior written consent of the Indemnified Party, not to be unreasonably withheld, unless the settlement involves only the payment of money by the Indemnifying Party. So long as the Indemnifying Party is actively defending the Claim in good faith, the Indemnified

Party shall not settle any such Claim without the prior written consent of the Indemnifying Party. If the Indemnifying Party does not assume and conduct the defense of the Claim as provided above, (a) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to the Claim in any manner the Indemnified Party may deem reasonably appropriate (and the Indemnified Party shall be given written notice to the Indemnifying Party of any settlement thereof and shall not settle without the consent of the Indemnifying Party), and (b) the Indemnifying Party will remain responsible to indemnify the Indemnified Party as provided in this Article 11.

11.5 Limitation of Liability. NONE OF THE PARTIES SHALL BE LIABLE TO ANY OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR INDIRECT DAMAGES ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION 11.5 IS INTENDED TO OR SHALL LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF ANY PARTY UNDER SECTIONS 11.1, 11.2 OR 11.3, OR DAMAGES AVAILABLE FOR A PARTY’S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS IN ARTICLE 9.

11.6 Insurance. Each Party shall procure and maintain insurance, including product liability insurance, adequate to cover its obligations hereunder and which are consistent with normal business practices of prudent companies similarly situated at all times during which any Product is being clinically tested in human subjects or commercially distributed or sold. It is understood that such insurance shall not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this Article 11. Each Party shall provide the other with written evidence of such insurance upon request. Each Party shall provide the other with written notice at least thirty (30) days prior to the cancellation, non renewal or material change in such insurance or self-insurance which materially adversely affects the rights of the other Party hereunder.

ARTICLE 12

TERM AND TERMINATION

12.1 Term and Overview of Termination Rights.

(a) Term. The term of the Agreement shall commence on the Effective Date and, unless sooner terminated as provided herein, shall continue in full force and effect on a country-by-country basis until the later of (a) the expiration of all payment obligations described in Article 7 in such country; and (b) the expiration of Tercica and GNE’s Opt-In rights under Section 4.2 (the “ Term ”). Articles 1, 2, 9, 11 (to the extent the Claims arise from actions or omissions under this Agreement), 13 and 14 and Sections 3.2, 3.4, 3.5, 3.6, 7.8 and 12.6 shall survive the expiration of this Agreement. In addition and pursuant to their terms, the Permanent Injunction and UK Proceedings Settlement Agreement shall remain in full force and effect following expiration of this Agreement.

(b) Overview of Termination. As further described in Sections 12.3 and 12.4, each Party has certain rights to terminate the Agreement in its entirety or on an indication-by-indication basis depending on whether another Party has breached this Agreement generally or with respect to a specific Permitted Indication or Non-Permitted Indication. Section 12.2 sets forth the general procedures applicable in the event that a Party commits a Material Breach of the Agreement. Sections 12.3 and 12.4 describe the specific rights of GNE, Tercica and Insmed to terminate the Agreement in its entirety or on an indication-by-indication basis due to the breach by another Party.

12.2 Material Breach; Procedures Applicable in Event of a Material Breach by a Party. If a Party is in material breach or default with respect to any term or provision hereof and as specified below (such breach, a “ Material Breach ”), then the non-breaching Party(ies) shall have the right to terminate this Agreement, either in its entirety or on an indication-by-indication basis (as further set forth in Sections 12.3 and 12.4 below), by providing such breaching Party written notice of termination detailing such Material Breach, provided that such notice of termination shall only become effective at the end of a ninety (90) day period (however, termination shall become effective at the end of ten (10) days if Insmed or its Affiliates or Sublicensees challenge(s) the validity or enforceability of any patent or patent application that is included in the Licensed Patents anywhere in the Territory and at the end of thirty (30) days in the case of failure to pay) after such notice is received by the breaching Party, and only if such breaching Party fails to cure such Material Breach during the same period. Notwithstanding anything to the contrary in this Section 12.2, each of Tercica, Insmed, and GNE may elect not to exercise its right to terminate this Agreement in its entirety or an indication-by-indication basis pursuant to this Article 12 for another Party’s uncured Material Breach, but instead elect to allow this Agreement to continue in effect, in which case, the breaching Party shall continue to be liable to the non-breaching Party(ies) for such Material Breach. The non-breaching Party(ies) shall be entitled to pursue legal and equitable remedies arising from such Material Breach that are available to it or them (as applicable), regardless of whether such non-breaching Party(ies) terminates this Agreement for such Material Breach.

12.3 Termination by GNE and/or Tercica for Insmed’s Material Breach.

(a) General Right to Terminate for Material Breach by Insmed.

(i) Tercica’s and GNE’s Right to Terminate.

(1) Right to Terminate with Consent. Subject to Section 12.3(a)(i)(2) below, each of Tercica and GNE shall have the right to terminate this Agreement in its entirety pursuant to Section 12.2 above, with the other non-breaching Party’s consent if: (A) Insmed commits a Material Breach with respect to a Non-Permitted Indication or ALS Indication (including without limitation, Insmed’s sales of a Product beyond the scope of its license under Section 3.1(a) or Section 3.1(d) for the Non-Permitted Indication or the ALS Indication, respectively); (B) Insmed breaches any of its representations, warranties, obligations, or covenants under this Agreement which are not specific to a particular Permitted Indication; (C) Insmed breaches the terms of the Permanent Injunction; (D) Insmed breaches the terms of the UK Proceedings Settlement Agreement; or (E) Insmed commits a Material Breach with respect to more than one Permitted Indication.

(2) Unilateral Right to Terminate. Notwithstanding Section 12.3(a)(i)(1) above, GNE shall have the right to terminate this Agreement in its entirety pursuant to Section 12.2 above, without Tercica’s consent if: (A) Insmed or its Affiliates or Sublicensees challenge(s) the validity or enforceability of any patent or patent application that is included in the GNE Patents anywhere in the Territory (whether or not with respect to a particular Permitted Indication); or (B) Insmed breaches its payment obligations to GNE under Article 7. Notwithstanding Section 12.3(a)(i)(1) above, Tercica shall have the right to terminate this Agreement in its entirety pursuant to Section 12.2 above, without GNE’s consent if: (Y) Insmed or its Affiliates or Sublicensees challenge(s) the validity or enforceability of any patent or patent application that is included in the Licensed Patents and that is not a GNE Patent anywhere in the Territory (whether or not with respect to a particular Permitted Indication); or (Z) Insmed breaches its payment obligations to Tercica under Article 7.

(ii) Consequences of Termination by Tercica or GNE. If Tercica or GNE terminates this Agreement in its entirety pursuant to Section 12.3(a)(i) above, then:

(1) the licenses granted to Insmed in Section 3.1 shall immediately terminate;

(2) the Permanent Injunction and the UK Proceedings Settlement Agreement shall each remain in full force and effect;

(3) Insmed shall immediately cease to make, have made, use, sell, offer for sale or import any Product, either by itself or through an Affiliate, Sublicensee or subcontractor, in all countries of the Other Territory where an unexpired claim included in the Licensed Patents covers the composition of matter of, or the method of making or using, any component contained in such Product;

(4) within five (5) business days after the effective date of such termination, in the event and to the extent of any Infringing Activity, Insmed shall be automatically enjoined from engaging in and from inducing any Third Party to engage in any such Infringing Activity, such injunction to remain and continue in full force and effect until the expiration of the last to expire of such GNE Patents covering such Infringing Activity, on a country-by-country basis; and

(5) all rights and obligations under this Agreement shall terminate except for the Parties’ rights and obligations under Sections 3.2, 3.4, 3.5, 3.6, 7.8 and 12.6, and Articles 1, 2, 9, 11 (to the extent the Claims arise from actions or omissions under this Agreement), 13 and 14.

(b) Additional Rights to Terminate for Insmed’s Material Breach Where Such Material Breach is with Respect to a Specific Permitted Indication that is an Opt-In Indication.

(i) Opt-In Party’s Right to Terminate. If Insmed commits a Material Breach with respect to a Permitted Indication that is an Opt-In Indication, then the Opt-In Party shall have the right, without the other, non-Opt-In Party’s consent, to terminate this Agreement only with respect to such Opt-In Indication, pursuant to Section 12.2 above.

Notwithstanding the foregoing sentence, and as further described in Section 12.3(b)(iii), under certain circumstances, GNE shall also have the right to terminate this Agreement with respect to an Opt-In Indication even if GNE is not the Opt-In Party for such Opt-In Indication.

(ii) Consequences of Termination by an Opt-In Party. If an Opt-In Party terminates this Agreement with respect to a particular Opt-In Indication pursuant to Section 12.3(b)(i) above, then:

(1) the licenses granted to Insmed in Section 3.1 shall immediately terminate with respect to such Opt-In Indication;

(2) the Permanent Injunction and the UK Proceedings Settlement Agreement shall each remain in full force and effect;

(3) the Opt-In Party shall have the right to take over development of such Opt-In Indication in its entirety, at its own expense, in accordance with the financial consequences as described in the remainder of this Section 12.3(b)(ii)(3). If the Opt-In Party elects to take over development of such Opt-In Indication in its entirety, then the Percentage Interest of Insmed in such Opt-In Indication shall be reduced to a portion equal to the result of the following formula:

50% x

[

Total Development Costs actually funded by Insmed prior to the date of the Material Breach

50% x (Total Development Costs incurred by Insmed and the Opt-In Party to obtain regulatory

approval of such Product in the given country at issue)

]

The profit-sharing arrangement (as adjusted pursuant to the formula in this Section 12.3(b)(ii)(3)) shall continue only until the payments so received by Insmed equal the Development Costs actually incurred by Insmed for the Product for such Opt-In Indication, after which the profit share arrangement for such Opt-In Indication shall terminate. For illustration, if Insmed has actually funded $4 million of the total Development Costs prior to the date of the Material Breach, and the total Development Costs incurred by Insmed and such Opt-In Party to obtain regulatory approval of the Product in a given country at issue is $20 million, then Insmed’s newly calculated Percentage Interest after such termination shall be 50% x ($4 million/(50% x $20 million)) = 20%. The Opt-In Party shall share Operating Profit (Loss) with Insmed for such Product for such Permitted Indication in such country on a 80:20 basis until Insmed receives a total of $4 million in proceeds from such Operating Profit (Loss) sharing, after which the profit share arrangement shall terminate. The principle of this illustration shall also apply to Sections 12.3(b)(iii)(3), 12.4(b)(ii)(2)(b), and 12.5(b).

After the termination of the profit share arrangement for such Opt-In Indication pursuant to subsection (3) above, the Opt-In Party shall pay to Insmed royalties on the Net Sales for such Opt-In Indication at a rate of [***], and such royalty payment obligation shall expire in a given Sale Country on a Sale Country-by-Sale Country basis, upon the later of (A) the expiration of the last to expire Insmed Patents existing in such Sale Country that would be infringed by the use, sale, offer for sale, or importation of such Product for use in such Opt-In Indication in such Sale Country but for the license grant in Section 3.2(b), and (B) the expiration of the last to expire Insmed Patents existing in such Sale Country or other country that covers the actual method of manufacture or use of the Product (or a component thereof) as practiced by Insmed in the manufacture of the Product in such Sale Country or such other country that is subsequently sold for use in such Opt-In Indication in such Sale Country;

(4) the Opt-In Party (a) shall become, if not already, the Booking Party for such Opt-In Indication; and (b) shall have the final decision making authority in the commercialization of such Product for such Opt-In Indication.

(iii) Right and Consequences of Termination by GNE When It is Not the Opt-In Party for the Permitted Indication. Notwithstanding anything to the contrary in this Section 12.3(b), if Insmed commits a Material Breach with respect to an Opt-In Indication when Tercica is the Opt-In Party for such Opt-In Indication, then GNE shall have the right to terminate this Agreement with respect to such Opt-In Indication only in the event that Insmed’s Material Breach is an underpayment to GNE of the royalties under Section 7.1(b). In the event of such termination:

(1) the licenses granted to Insmed in Section 3.1 shall immediately terminate with respect to such Permitted Indication;

(2) the Permanent Injunction and the UK Proceedings Settlement Agreement shall each remain in full force and effect;

(3) Tercica shall have the right to take over development of such Permitted Indication in its entirety, at its own expense, in accordance with the financial consequences as described in remainder of this Section 12.3(b)(iii)(3). If Tercica elects to take over development of such Permitted Indication in entirety, then the Percentage Interest of Insmed in such Permitted Indication shall be reduced to a portion equal to the result of the following formula:

50% x

[

Total Development Costs actually funded by Insmed prior to the date of the Material Breach

50% x (Total Development Costs incurred by Insmed and the Opt-In Party to obtain regulatory

approval of such Product in the given country at issue)

]

The profit-sharing arrangement (as adjusted pursuant to the formula in this Section 12.3(b)(iii)(3)) shall continue only until the payments so received by Insmed equal the Development Costs actually incurred by Insmed for a Product for such indication. The formula provided in this Section 12.3(b)(iii)(3) shall be interpreted based on the same principle set forth in the illustration in Section 12.3(b)(ii)(3). Thereafter the profit share arrangement for such indication shall terminate and Tercica shall pay to Insmed royalties on the Net Sales for such Opt-In Indication at a rate of [***], and such royalty payment obligation shall expire in a given Sale Country on a Sale Country-by-Sale Country basis, upon the later of (A) the expiration of the last to expire Insmed Patents existing in such Sale Country that would be infringed by the use, sale, offer for sale, or importation of such Product for use in such Opt-In Indication in such Sale Country but for the license grant in Section 3.2(b), and (B) the expiration of the last to expire Insmed Patents existing in such Sale Country or other country that covers the actual method of manufacture or use of such Product (or a component thereof) as practiced by Insmed in the manufacture of such Product in such Sale Country or such other country that is subsequently sold for use in such Opt-In Indication in such Sale Country;

(4) Tercica (a) shall become, if not already, the Booking Party for such Opt-In Indication; (b) shall have the final decision making authority in the commercialization of such Product for such Opt-In Indication; (c) shall make payments to GNE from the proceeds received from such future sales of a Product for such Opt-In Indication to cover both the royalties otherwise due for such future sales and the unpaid royalties from sales booked prior to such termination; and (d) shall reserve all rights to seek recovery from Insmed for such royalty payments made to GNE by Tercica that account for the unpaid royalties from sales booked prior to such termination and Insmed shall have the obligation to reimburse Tercica for all such payments, together with all costs and expenses incurred by Tercica in seeking such recovery from Insmed.

(c) Additional Rights to Terminate for Insmed’s Material Breach Where Such Material Breach is with Respect to a Permitted Indication other than an Opt-In Indication.

(i) Tercica’s and GNE’s Right to Terminate. If Insmed commits a Material Breach with respect to a Permitted Indication other than an Opt-In Indication, then each of Tercica and GNE shall have the right to terminate this Agreement with respect to such Permitted Indication pursuant to Section 12.2 above, provided that, if at the time of such proposed termination, the Opt-In rights of Tercica and GNE with respect to such Permitted Indication under Section 4.2 have not expired or lapsed, then the Party seeking to terminate this Agreement with respect to such Permitted Indication shall obtain the written consent of the other non-breaching Party prior to such termination.

(ii) Consequences of Termination by Tercica or GNE. If Tercica or GNE terminates this Agreement with respect to a particular Permitted Indication pursuant to Section 12.3(c)(i) above, then:

(1) such Permitted Indication shall thereafter be deemed, for all purposes under this Agreement to be a Non-Permitted Indication; and

(2) the remaining provisions set forth in this Agreement shall otherwise remain in full force and effect.

12.4 Termination by Insmed for GNE’s and/or Tercica’s Material Breach.

(a) Termination of the Agreement in its Entirety by Insmed for Tercica’s and/or GNE’s Material Breach of More Than One Permitted Indication.

(i) Insmed’s Right to Terminate. Insmed shall have the right to terminate this Agreement in its entirety pursuant to Section 12.2 above only in the event of an uncured Material Breach by Tercica and/or GNE with respect to more than one (1) Permitted Indications.

(ii) Consequences of Termination by Insmed. If Insmed terminates this Agreement in its entirety pursuant to Section 12.4(a)(i), then:

(1) the licenses granted to Insmed in Section 3.1 shall immediately terminate;

(2) the Permanent Injunction and the UK Proceedings Settlement Agreement shall each remain in full force and effect;

(3) Insmed shall immediately cease to make, have made, use, sell, offer for sale or import any Product, either by itself or through an Affiliate, Sublicensee or subcontractor, in any country in the Other Territory to the extent any unexpired Licensed Patents existing in such country would be infringed by such manufacture, having manufactured, use, sale, offer for sale or importation of such Product in such country;

(5) all rights and obligations under this Agreement shall terminate except for the Parties’ rights and obligations under Sections 3.2(a), 3.4, 3.5, 3.6, 7.8 and 12.6, and Articles 1, 2, 9, 11 (to the extent the Claims arise from actions or omissions under this Agreement), 13 and 14.

(b) Termination of the Agreement for a Permitted Indication by Insmed.

(i) Insmed’s Right to Terminate. Insmed shall have the right to terminate this Agreement pursuant to Section 12.2 only with respect to a given Permitted Indication upon an uncured Material Breach by Tercica and/or GNE with respect to such Permitted Indication.

(ii) Consequences of Termination by Insmed. If Insmed terminates this Agreement with respect to a particular Permitted Indication pursuant to Section 12.4(b)(i), then:

(1) the Permanent Injunction and the UK Proceedings Settlement Agreement shall each remain in full force and effect; and

(2) this Agreement shall continue in full force and effect except as follows (as applicable):

(a) if the Opt-In right for such Permitted Indication has not been exercised by the breaching Party, then it shall be cancelled and shall be of no force or effect with respect to such Party; or

(b) where an Opt-In Party has exercised the Opt-In right with respect to such Permitted Indication, Insmed

shall have the right to take over development of such Opt-In Indication in its entirety, in accordance with the financial consequences as described in remainder of this Section 12.4(b)(ii)(2)(b). If Insmed elects to take over development of such Opt-In Indication in entirety, then the Percentage Interest of such Opt-In Party in such Opt-In Indication shall be reduced to a portion equal to the result of the following formula:

50% x

[

Total Development Costs actually funded by Opt-In Party prior to the date of the Material Breach

50% x (Total Development Costs incurred by the Opt-In Party and Insmed to obtain regulatory approval

of such Product in the given country at issue)

]

The profit-sharing arrangement (as adjusted pursuant to the formula in this Section 12.3(b)(ii)(2)(b)) shall continue only until the payments so received by the Opt-In Party equal the Development Costs actually incurred by the Opt-In Party for a Product for such Opt-In Indication. The formula provided in this Section 12.4(b)(ii)(2)(b) shall be interpreted based on the same principle set forth in the illustration in Section 12.3(b)(ii)(3). Thereafter the profit share arrangement for such Opt-In Indication shall terminate and Insmed shall pay to the Opt-In Party royalties on the Net Sales for such Opt-In Indication at a rate of [***], and such royalty payment obligation shall expire in a given Sale Country on a Sale Country-by-Sale Country basis, upon the later of (A) the expiration of the last to expire Licensed Patents existing in such Sale Country that would be infringed by the use, sale, offer for sale, or importation of such Product for use in such Opt-In Indication in such Sale Country but for the license grant in Section 3.1(c), and (B) the expiration of the last to expire Licensed Patents existing in such Sale Country or other country that would, but for the license grant in Section 3.1(c), be infringed by the actual method of manufacture or use of such Product (or a component thereof) as practiced by Insmed in the manufacture of such Product in such Sale Country or such other country that is subsequently sold for use in such Opt-In Indication in such Sale Country.

(c) all Committees relating to such Permitted Indication shall be disbanded and Insmed shall have the full authority over all subsequent development and commercialization activities relating to such Product for such Permitted Indication; and

(d) the breaching Party shall transfer to Insmed all materials obtained or developed in connection with the commercialization of a Product in such Permitted Indication, including without limitation, all Product (including samples), Product Labeling and Promotional Materials.

12.5 Election to Keep Agreement or Indication in Effect Despite Right to Terminate and Consequences Thereof. If a non-breaching Party has the right to terminate this Agreement in its entirety pursuant to this Article 12 due to an uncured Material Breach with respect to more than one (1) Permitted Indications by a breaching Party, such non-breaching Party may nonetheless elect not to terminate the Agreement in its entirety, in which event:

(a) the Permanent Injunction shall remain in full force and effect; and

(b) the Agreement shall continue in full force and effect except that to the extent the breaching Party is an Opt-In Party who has materially breached the Agreement by failing to co-fund the Development Costs of a Product for a particular Opt-In Indication,

such Opt-In Party shall no longer have such right to continue to co-fund such Development Costs, and the Percentage Interest of such Opt-In Party in such Opt-In Indication shall be reduced to a portion equal to the result of the following formula:

50% x

[

Development Costs actually funded by Opt-In Party prior to the date of the Material Breach

50% x (Total Development Costs incurred by the Opt-In Party and Insmed to obtain regulatory

approval of such Product in the given country at issue)

]

The profit-sharing arrangement (as adjusted pursuant to the formula in this Section 12.5(b) shall continue only until the payments so received by the Opt-In Party equal the Development Costs actually incurred by such breaching Opt-In Party for a Product for such Opt-In Indication (the formula provided in this Section 12.5(b) shall be interpreted based on the same principle set forth in the illustration in Section 12.3(b)(ii)(3)), and thereafter the profit share arrangement for such Opt-In Indication shall terminate and the sales for such Opt-In Indication shall be subject to the royalty payments set forth in Section 7.1(a)(ii) as if such Opt-In Indication was not an Opt-In Indication.

In addition, such election not to so terminate the Agreement shall not constitute a waiver or release of, or otherwise be deemed to prejudice or adversely affect, any rights, remedies or claims, whether for damages or otherwise, that the non-breaching Party may have hereunder or that may arise out of or in connection with such Material Breach by the breaching Party.

12.6 Other Remedies. Termination or expiration of this Agreement for any reason shall not release any Party from any liability or obligation that already has accrued prior to such expiration or termination, nor affect the survival of any provision hereof to the extent it is expressly stated to survive such termination. Termination or expiration of this Agreement for any reason shall not constitute a waiver or release of, or otherwise be deemed to prejudice or adversely affect, any rights, remedies or claims, whether for damages or otherwise, that a Party may have hereunder or that may arise out of or in connection with such termination or expiration.

ARTICLE 13

DISPUTE RESOLUTION

Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach or termination thereof, shall be settled as follows:

13.1 Reference to Executives. Except as set forth in Section 5.5(d) with respect to disputes involving sales tracking, in the event of a significant controversy, claim, or dispute arising out of or relating to this Agreement or any significant breach thereof (hereinafter collectively referred to as a “ Dispute ”), the Parties agree that the Dispute shall be described in writing by one or all of the Parties and copies of the description(s) shall be sent to the General Counsel of Insmed, the General Counsel of Tercica, and the General Counsel of GNE. These General Counsels (or their designees or equivalents who have decision-making authority) will then have thirty (30)

days from receipt of such Dispute description to attempt in good faith to resolve the Dispute. In the event that the Dispute is not resolved within this thirty (30) day time period, then any Party can proceed to arbitration of the Dispute, as described in Section 13.2, or to litigation, as described in Section 13.3.

13.2 Arbitration. Subject to Section 13.3, the Parties agree that any Dispute shall be resolved through negotiation. If a Dispute arises between the Parties, and if said Dispute cannot be resolved pursuant to Section 13.1 (and such Dispute does not relate to a patent) then any such Dispute, including, without limitation, the interpretation, enforceability, performance, breach, termination or validity hereof, including, without limitation, this arbitration clause, shall be solely and finally settled by arbitration in the manner specified in this Section 13.2. All arbitration proceedings shall be conducted in the San Francisco Bay Area or such other location as is mutually agreed to by the Parties. The arbitration proceedings shall be conducted under the procedural rules of the American Arbitration Association or such other forum as is mutually agreed to by the Parties. The Party requesting arbitration shall serve upon the other Party a written demand for arbitration stating the substance of the Dispute, and the contention of the Party requesting arbitration. Within sixty (60) days after the demand, the Parties shall select three (3) arbitrators as follows: each Party shall designate one arbitrator, and those two arbitrators shall designate a third. The decision of the arbitrators shall be in writing setting forth the basis therefor. The arbitrators shall have the authority to award such remedies as they believe are appropriate in the circumstances, including, but not limited to, compensatory damages, interest, tort damages (but not consequential and incidental damages or punitive or similar damages) and specific performance and other equitable relief. The Parties shall abide by the award rendered in such arbitration proceeding, and such award may be entered, enforced and executed upon in the United States District Court for the Northern District of California. The Parties shall divide equally the administrative charges, arbitrators’ fees and related expenses of arbitration, but each Party shall pay its own attorney’s fees incurred in connection with such arbitration; provided however, if the arbitrators specifically determine that one Party prevailed clearly and substantially over the other Party, then the arbitrators may require that the non-prevailing Party shall also pay the prevailing Party’s reasonable attorney’s fees and expert witness costs and arbitration costs.

13.3 Patent Dispute Resolution . Any dispute, controversy or claim relating to the scope, validity, enforceability or infringement of any Licensed Patents or Insmed Patents covering the manufacture, use or sale of any Product shall be submitted to a court of competent jurisdiction.

13.4 Governing Law. In the event that a Dispute is not resolved though discussion of the executives pursuant to Section 13.1, as provided above, the laws of California shall apply to any arbitration or litigation under this Agreement (regardless of its or any other jurisdiction’s choice of law principles) , provided that matters of intellectual property law shall be determined in accordance with the national intellectual property laws relevant to the intellectual property in question. For any disputes, arbitrations or litigation under this Agreement, each Party hereby consents to personal jurisdiction and venue in the United States District Court for the Northern District of California, and agrees to service of process issued or authorized by such Court.

13.5 Restraining Order. The dispute resolution procedures set forth herein shall not limit a court from granting a temporary restraining order or a preliminary injunction in order to preserve the status quo of the Parties’ pending arbitration or to protect a Party’s trademark or confidential or proprietary information. Further, the arbitrator shall have power to enter such orders by way of interim award, and such orders shall be enforceable in court.

ARTICLE 14

MISCELLANEOUS

14.1 Entire Agreement; Amendment. This Agreement, including the Exhibits hereto, sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior agreements and understandings between the Parties with respect to the subject matter hereof. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth herein and therein. Notwithstanding the foregoing, and for the avoidance of doubt, the Permanent Injunction and the UK Proceedings Settlement shall remain in full force and effect and shall not be superseded by this Agreement. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.

14.2 Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be addressed to the appropriate Party at the address specified below or such other address as may be specified by such Party in writing in accordance with this Section 14.2, and shall be deemed to have been given for all purposes (a) when received, if hand-delivered or sent by a reputable overnight delivery service, or (b) five (5) business days after mailing, if mailed by first class certified or registered mail, postage prepaid, return receipt requested.


If to Tercica:		Tercica, Inc.
		2000 Sierra Point Parkway
		Suite 400
		Brisbane, CA 94005
		Attention: General Counsel

With a copy to:		Cooley Godward Kronish LLP
		Five Palo Alto Square
		3000 El Camino Real
		Palo Alto, CA 94306
		Attention: Barbara A. Kosacz, Esq.

With a copy to:		McDermott Will & Emery LLP
		3150 Porter Drive
		Palo Alto, CA 94304-1212
		Attention: William G. Gaede III, Esq.



If to Insmed:		Insmed Incorporated
		8720 Stony Point Parkway
		Suite 200
		Richmond, VA 23235
		Attention: Chief Executive Officer

With a copy to:		Goodwin Procter LLP
		Exchange Place
		53 State Street
		Boston, MA 02109
		Attention: Mitchell Bloom, Esq.

If to GNE:		Genentech, Inc.
		1 DNA Way
		South San Francisco, CA 94080
		Attention: General Counsel

With a copy to:		Heller Ehrman LLP
		333 Bush Street
		San Francisco, CA 94104
		Attention: M. Patricia Thayer, Esq.

14.3 No Strict Construction; Headings. This Agreement has been prepared jointly and shall not be strictly construed against any Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. Wherever used herein, the terms “includes” and “including” mean includes without limitation and including without limitation, respectively. The headings of each Article and Section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular Article or Section.

14.4 Assignment. None of the Parties may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other Parties, except that a Party may make such an assignment without the other Parties’ consent to Affiliates or to a successor to substantially all of the business of such Party in the field to which this Agreement relates, whether in a merger, sale of stock, sale of assets or other transaction. Any permitted successor or assignee of rights and/or obligations hereunder shall, in a writing to each of the other Parties, expressly assume performance of such rights and/or obligations. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by any Party in violation of the terms of this Section 14.4 shall be null, void and of no legal effect. Notwithstanding the aforesaid, to the extent such assignment of rights is permitted in any section of this Agreement other than this Section 14.4, Ipsen shall be considered a permitted assignee of Tercica.

14.5 Performance by Affiliates. Each Party may discharge any obligations and exercise any right hereunder through any of its Affiliates. Each Party hereby guarantees the performance by its Affiliates of such Party’s obligations under this Agreement, and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. Any breach by a Party’s Affiliate of any of such Party’s obligations under this Agreement shall be deemed a breach by such Party, and the other Party may proceed directly against such Party without any obligation to first proceed against such Party’s Affiliate.

14.6 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

14.7 Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

14.8 No Waiver. Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement, except with respect to an express written and signed waiver relating to a particular matter for a particular period of time.

14.9 Independent Contractors. Each Party shall act solely as an independent contractor, and nothing in this Agreement shall be construed to give any Party the power or authority to act for, bind, or commit any other Party in any way. Nothing herein shall be construed to create the relationship of partners, principal and agent, or joint-venture partners between the Parties.

14.10 Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Signature Page To Follow

I N W ITNESS W HEREOF , the Parties have executed this Settlement, License and Development Agreement in duplicate originals by their duly authorized officers as of the Effective Date.


T ERCICA , I NC .		I NSMED I NCORPORATED

By:	/s/ Stephen N. Rosenfeld	By:	/s/ Geoffrey Allan
Name:	Stephen N. Rosenfeld	Name:	Geoffrey Allan
Title:	Executive Vice President, Legal Affairs	Title:	President and CEO
	General Counsel and Secretary

G ENENTECH , I NC .		I NSMED T HERAPEUTIC P ROTEINS , I NC .

By:	/s/ Joseph S. McCracken	By:	/s/ Geoffrey Allan
Name:	Joseph S. McCracken	Name:	Geoffrey Allan
Title:	VP Business Development	Title:	President and CEO

C ELTRIX P HARMACEUTICALS , I NC .

By:	/s/ Geoffrey Allan
Name:	Geoffrey Allan
Title:	President and CEO

Signature Page to Settlement, License and Development Agreement

EXHIBITS

Exhibit A – Financial Appendix

Exhibit B – Form of Consent Judgment and Permanent Injunction

Exhibit C – Form of UK Proceedings Settlement Agreement

Exhibit D – Joint Letter to Physicians

Exhibit E – Co-Promotion Agreement Terms and Conditions

Exhibit F – Joint Press Release

E XHIBIT A

F INANCIAL A PPENDIX

This Exhibit A to the Agreement sets forth financial planning, accounting policies and procedures to be followed in determining Operating Profit (Loss) and related sharing of revenue and expenses for a Product for an Opt-In Indication and for calculating Net Sales for purposes of Section 7.1. Except as required for calculating Net Sales for purposes of Section 7.1, the terms and conditions set forth in this Exhibit A shall apply following the exercise of a Party’s Opt-In rights until the exercise by the Opt-In Party of the Opt-In Party’s Opt-Out rights, if any, to the sales of a Product for the Opt-In Indication in the Territory.

The contents of this Exhibit A are hereby incorporated into the Agreement and are governed by the terms and conditions of the Agreement, including the confidentiality provisions set forth therein.

A.1 Principles of Reporting.

The presentation of budgets and results of operations of Insmed and the Opt-In Party in the Territory will be based on each Party’s respective financial information presented separately and on a consolidated basis using the following schema (financial terms are defined further below):

Gross Sales

less Sales Returns & Allowances

= Actual Sales

less Cost of Sales (which includes FBMC)

less Distribution Costs (which includes Allocable Overhead)

less G&A Costs

less Other Operating Income/Expense

less Development Costs (which includes Allocable Overhead)

less Selling and Marketing Costs (which includes Allocable Overhead)

= Operating Profit (Loss)

The types of costs in this schema are to be grouped together as follows:


D IRECT C OSTS	N ON -D IRECT C OSTS	T ERMS FOR C ALCULATING
Cost of Sales	Allocable Overhead	Operating Profit (Loss)
Development Costs	G&A Costs	Gross Sales
Distribution Costs		Sales Returns & Allowances
FBMC
Other Operating Income/Expense
Selling and Marketing Costs

If necessary, a Party will make the appropriate adjustments to the financial information it supplies under the Agreement to conform to the above format of reporting results of operations.

Accounting and Cost Categories . Definitions of the various categories of revenues, costs and expenses included in Operating Profit (Loss) shall be interpreted in accordance with GAAP. Any costs included in the calculation under one cost category may not be included in the calculation of another cost category. Where the terms of this Financial Appendix would permit inclusion of a cost within more than one cost category, that cost will be allocated to a single cost category consistent with GAAP and the other provisions of this Agreement. Any cost included in this calculation shall only include costs directly or indirectly (to the extent allowed and consistent with the definitions for this Financial Appendix) allocable to a Product for the Opt-In Indication in accordance with GAAP.

References to “Collaboration.” References in this Financial Appendix to the “ Collaboration ” are references to those activities related to a Product that would form the basis for Operating Profit (Loss) under this Agreement. The Parties may consolidate accounting of operations related to Product for the specific Opt-In Indication, and the activities subject to that consolidated accounting also will be referred to as the “Collaboration.” Where the same Parties are Collaborating on more than one Opt-In Indication, the accounting of operations related to a Product for all such Opt-In Indications may be consolidated. However, the Collaboration is not a legal entity for financial accounting, income tax reporting or any other purposes

A.2 Frequency of Reporting.

The fiscal year for the Collaboration will be a calendar year.

Each of Insmed and the Opt-In Party is responsible for providing the other Party reports as set forth in the table below, for activities for which it is responsible and costs it incurred and revenue obtained that forms a component of Operating Profit (Loss) for Product for the Opt-In Indication(s).

Reporting will be at the times set forth in the following Report Table, with submissions due on the date indicated or the next business day if such date is a weekend or U.S. holiday:


Report	Frequency	Responsible Party	Timing of Submission
Non-Booking Party monthly Actual Sales (actual numbers)	Monthly	Non- Booking Party	+ 5 days after the end of such month
Non-Booking Party quarterly Operating Profit (Loss) • For the first three quarters in the calendar year: report to include actual numbers for the first two months of the then current calendar quarter, and forecasted numbers for the last month of the then current calendar quarter for planning. • For the last quarter of the calendar year, the report should include the actual numbers for the first 11 months of such calendar year and the forecasted numbers for the last month of such calendar year for planning	Quarterly	Non- Booking Party	Q1-Q4: + 75 days after the beginning of such calendar quarter
Consolidated quarterly Operating Profit (Loss) • For the first three quarters in the calendar year: report to include actual numbers for the first two months of the then current calendar quarter, and forecasted numbers for the last month of the then current calendar quarter for planning. • For the last quarter of the calendar year, the report should include the actual numbers for the first 11 months of such calendar year and the forecasted numbers for the last month of such calendar year for planning	Quarterly	Booking Party	Q1-Q4: + 85 days after the beginning of such calendar quarter (for the last quarter, the report should reflect the actual numbers for the first 11 months of such calendar year and the forecasted numbers for the last month of such calendar year)
Non-Booking Party quarterly Operating Profit (Loss) (actual numbers)	Quarterly	Non- Booking Party	Q1-Q4: + 15 days after the end of such calendar quarter
Draft of consolidated Operating Profit (Loss) (based on actual numbers)	Quarterly	Booking Party	Quarter end +30 days
Final of consolidated Operating Profit (Loss) (based on actual numbers)	Quarterly	Booking Party	Quarter end +60 days

The Parties may agree to modify the foregoing reporting cycles and deadlines. In the event that a Party substantially or materially changes its internal reporting cycles and deadlines generally, then the Parties shall discuss, in good faith, appropriate revisions to the foregoing reporting cycles and deadlines to reasonably accommodate such change.

The Party responsible for booking sales (the “Booking Party”) for the Opt-In Indications(s) at issue in accordance with Section 7.2(d) shall be responsible for the consolidated accounting of Operating Profit (Loss) for the Collaboration. Without limiting the Parties’ reporting obligations as set forth in the Report Table above, on a calendar quarterly basis, the Party that is not responsible for booking sales (the “Non-Booking Party”) in accordance with Section 7.2(d) will supply the Booking Party with a statement setting forth that quarter’s Operating Profit (Loss) obtained by the Non-Booking Party for the applicable Product for the Opt-In Indication, including the basis for calculation of such amounts. The Booking Party shall consolidate any Operating Profit (Loss) reported by the Non-Booking Party with those obtained directly by the Booking Party. Each such report shall be provided as early as possible, on the schedule in the chart above.

Each Party will make available a financial representative to coordinate regarding financial aspects of planning, reporting and information sharing, at the request of the other Party. Upon the reasonable request of either Party, the other Party shall answer any question and address any comment from the other Party pertaining to such financial planning and reporting.

A.3 Budgets.

The Booking Party, through the JDC, will prepare a consolidated budget for Operating Profit (Loss) for the Collaboration on an annual basis; the Non-Booking Party, through the JDC, shall provide input for that budget regarding its sales force activities.

Budgets are provided for information and planning purposes, including establishing the initial profit share ratio for the forthcoming calendar year; final sharing of Operating Profit (Loss) on a calendar year basis are based on actual amounts. The Party that is the Non-Booking Party shall not be required to fund an amount which is more than half of 110% of the budgeted amount for such expenditure without its prior written consent to such variance from budget.

A.4 Financial Appendix Definitions.

[***]

E XHIBIT B

F ORM OF C ONSENT J UDGMENT AND P ERMANENT I NJUNCTION


MCDERMOTT WILL & EMERY LLP
WILLIAM G. GAEDE, III (136184)
wgaede@mwe.com
TERRENCE P. McMAHON (71910)
tmcmahon@mwe.com
ANDREW A. KUMAMOTO (178541)
akumamoto@mwe.com
DAVID L. LARSON (112342)
dlarson@mwe.com
3150 Porter Drive
Palo Alto, CA 94304-1212
Telephone:		(650) 813-5000
Facsimile:		(650) 813-5100

Attorneys for Tercica, Inc.


HELLER EHRMAN LLP
M. PATRICIA THAYER (90818)
patricia.thayer@hellerehrman.com
ETHAN C. GLASS (216159)
ethan.glass@hellerehrman.com
333 Bush Street
San Francisco, CA 94104-2878
Telephone:		(415) 772-6794
Facsimile:		(415) 772-6268

Attorneys for Genentech, Inc.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

OAKLAND DIVISION


GENENTECH, INC., a Delaware corporation,		No. C-04-5429 CW (EMC)
and TERCICA, INC., a Delaware corporation,

Plaintiffs,		CONSENT JUDGMENT AND PERMANENT INJUNCTION
v.

INSMED INCORPORATED, a Virginia corporation, CELTRIX PHARMACEUTICALS, INC., a Delaware corporation, and INSMED THERAPEUTIC PROTEINS, a Colorado corporation,

Defendants.

AND RELATED COUNTERCLAIMS.

RECITALS

Whereas , Plaintiff Tercica, Inc. is the exclusive licensee of U.S. Patent No. 6,331,414 entitled “Preparation of Human IGF via Recombinant DNA Technology,” which issued to Plaintiff Genentech, Inc. as assignee of the inventors on December 18, 2001;

Whereas , Plaintiff Tercica, Inc. is the exclusive licensee of U.S. Patent No. 5,187,151 entitled “Use of Binding Protein with IGF-1 as an Anabolic Growth Promoting Agent,” which issued to Plaintiff Genentech, Inc. as assignee of the inventors on February 16, 1993;

Whereas , Plaintiff Tercica, Inc. is the exclusive licensee of U.S. Patent No. 5,258,287 entitled “DNA Encoding and Methods of Production of Insulin Like Growth Factor Binding Protein BP53,” which issued to, inter alia , Plaintiff Genentech, Inc., as assignee of the inventors on November 2, 1993;

Whereas , on December 23, 2004, Plaintiffs Genentech, Inc. (GNE) and Tercica, Inc. (Tercica) filed this action against Insmed Incorporated Genentech Inc., et al. v. Insmed Incorporated, et al ., United States District Court for the Northern District of California, Case No. 04-CV-05429-CW (EMC) (the “Lawsuit”). By operation of the Second Amended Complaint, Defendant Celtrix Pharmaceuticals, Inc. was added as a named defendant in the lawsuit. By operation of the Third Amended Complaint, Defendant Insmed Therapeutic Proteins was added as a named defendant to the Lawsuit. Plaintiffs alleged that Defendants’ making, using, selling, offering to sell, import or export of the product known as IPLEX™, infringed or will infringe under 35 U.S.C. § 271(a) – (c) and (g) certain asserted claims of United States Patent Nos. 5,187,151 (the “‘151 Patent”), 5,258,287 (the “‘287 Patent”) and 6,331,414 (the “‘414 Patent”) (collectively, the “Asserted Patents”).

Whereas , Defendants denied such allegations and further alleged, among other defenses, that the asserted claims of the Asserted Patents were invalid under various theories, including those arising under 35 U.S.C. §§ 102, 103, 112 and 135. Defendants further asserted that the ‘151 Patent was unenforceable for alleged inequitable conduct.

Whereas , the parties had a full and fair opportunity to litigate the case, including full fact and expert discovery, and motion process, including claim construction, motions for summary judgment and other pretrial motions as reflected in the docket sheet.

Whereas , the Court adjudicated as a matter of law on June 30, 2006 that Defendants’ method of making the rhIGF-I component of IPLEX™ literally infringed Claims 1 and 9 of the ‘414 Patent (Docket No. 510), and Defendants subsequently stipulated, subject to an appeal of the Court’s claim construction, that their method also literally infringed Claims 2, 3, 4 and 10 of the ‘414 Patent.

Whereas , a jury trial commenced on November 6, 2006, that resulted in the Verdict Form (Docket No. 1006), filed December 6, 2006. The Jury found that Defendants Insmed and Insmed Therapeutic Proteins (“Insmed”) induced infringement of Claims 1, 4 and 5 of the ‘151 Patent, contributorily infringed Claims 1, 4 and 5 of the ‘151 Patent, and literally infringed Claims 1, 6-8 and 17 of the ‘287 Patent through the manufacture, distribution, sale, and/or offering to sell IPLEX™ in the United States as approved by the Food and Drug Administration. The Jury further found that Insmed had not proven that Claims 1-4, 9-10 of the ‘414 Patent were invalid under the enablement or written description requirement. The Jury further found that Insmed’s infringement of the ‘151 Patent was willful, and awarded damages to Tercica and GNE of $7.5 million plus the royalty rates assessed in the Verdict Form on sales of IPLEX™ through December 6, 2006 (the “Awarded Damages”).

Whereas , following the verdict, Plaintiffs and Defendants made various post-trial motions, including Plaintiffs’ motion for a permanent injunction.

Whereas , Plaintiffs and Defendants (the “Parties”) have entered into a Settlement, License and Development Agreement (“Settlement Agreement”), which is incorporated herein by reference, have withdrawn all pending motions, and have agreed to entry of this Consent Judgment and Permanent Injunction, subject to the Court’s approval.

IT IS HEREBY FOUND, ADJUDICATED AND ORDERED:

I. STIPULATED FINDINGS OF FACT/CONCLUSIONS OF LAW

1. The Parties stipulate this is an action for patent infringement arising under the patent laws of the United States.

2. The Parties stipulate jurisdiction of this Court is proper pursuant to 28 U.S.C. §§ 1331, 1332, and 1338(a).

3. The Parties stipulate this Court has personal jurisdiction over Defendants, and each of them, and that venue is proper in this district.

4. The Parties stipulate that all claims of the ‘414 Patent, the ‘151 Patent, and the ‘287 Patent are valid and enforceable.

5. The Parties stipulate Defendants have infringed the above-recited asserted claims of the Asserted Patents.

6. Defendants forever waive the right to assert and agree that they shall not ever assert in any court or administrative tribunal that any claim of the Asserted Patents is invalid and/or not enforceable. Defendants further agree that they will not voluntarily directly or indirectly aid, assert or participate in any action contesting the validity or enforceability of any of the Asserted Patents.

7. The Parties stipulate that the ‘414 Patent is enforceable until December 18, 2018; that the ‘151 Patent is enforceable until February 12, 2011; and that the ‘287 Patent is enforceable until November 2, 2010.

8. The Parties stipulate that Plaintiffs are irreparably harmed by, and have no adequate remedy at law for, Defendants’ infringement, and are entitled to a permanent injunction.

9. The Parties stipulate that the balance of hardships regarding an injunction weighs in Plaintiffs’ favor.

10. The Parties stipulate that the public interest does not preclude entry of a permanent injunction in this case.

11. The Parties stipulate to waive any right to appeal from this Consent Judgment and Permanent Injunction and agree to the exclusive and continuing jurisdiction of this Court to enforce this Consent Judgment and Permanent Injunction.

12. The Parties stipulate that the Stipulated Protective Order (Docket No. 169) shall remain in force and effect with the exception of Paragraph 18(f), which is no longer effective.

13. The Parties have voluntarily entered into the Settlement Agreement dated March 5, 2007 (which is incorporated herein by reference), subject to this Court’s approval.

II. STIPULATED ORDER FOR PERMANENT INJUNCTION

1. Except as expressly permitted below, and as set forth in the Settlement Agreement, Defendants INSMED INCORPORATED, CELTRIX PHARMACEUTICALS, INC., and INSMED THERAPEUTIC PROTEINS (collectively, “Defendants”), as well as each of their employees, agents, other representatives, officers, directors, stockholders, partners, members, subsidiaries, predecessors, successors, licensees, distributors, resellers, and assigns, and any persons acting in concert with any of them, are permanently enjoined, as of the date of this Order, from:

(a)

making, using, selling, offering to sell, importing into, or exporting from, the United States, during the patent term of the ‘414 Patent, any product containing rhIGF-1 that is made using any of the methods claimed in the ‘414 Patent, including without limitation, the current manufacturing method for the rhIGF-I component of the product known as IPLEX™ (mecasermin rinfabate) that employs the plasmid identified as pPoP/tr41UQ-3c-rhIGF-I;

(b)

making, using, selling, offering to sell, importing into, or exporting from, the United States, during the patent term of the ‘287 Patent, any product containing rhIGFBP-3 that is made using any of the compositions and methods claimed in the ‘287 Patent, including without limitation, the DNA sequence Defendants currently use to manufacture the rhIGFBP-3 component of the product known as IPLEX™ (mecasermin rinfabate) found in the plasmid identified as pPop/met-rhIGFBP3; and

(c)

using, or otherwise selling, offering to sell, distributing, inducing or otherwise contributing to the use of, in the United States during the term of the ‘151 Patent, any product or formulation that is administered in accordance with any of the claims of the ‘151 Patent, including, without limitation, IPLEX™ (mecasermin rinfabate), as currently approved by the Food and Drug Administration for commercial sale in the United States to treat severe primary IGFD.

2. Notwithstanding the foregoing, Defendants may:

(a)

conduct research and development or other activity involving mecasermin rinfabate, or any other product, that is protected from claims of patent infringement under 35 U.S.C. § 271(e)(1), unless otherwise prohibited in the Settlement Agreement;

(b)

make, use, sell, offer to sell, import into, or export from, the United States, mecasermin rinfabate to the extent expressly permitted pursuant to (and in accordance with the requirements of) the grants in Article 3 of the Settlement Agreement.

3. Any violation of this Order for Permanent Injunction may be punishable by civil contempt or other appropriate proceedings, and the Court retains jurisdiction over this matter and over the Parties with the power to adjudicate any such alleged violation.

III. STIPULATED FINAL JUDGMENT

1. Based on the Parties’ stipulated findings above, the Court finds as fact and/or conclusions of law the statements in Paragraphs 1 through 13 of Section I above.

2. Judgment is hereby entered for Plaintiffs and against Defendants.

3. Defendants are permanently enjoined in accordance with Section II above.

4. In accordance with the terms of the Settlement Agreement, none of the Parties shall recover any damages, including the Awarded Damages, costs, or attorney’s fees, and each side shall bear its own costs and attorney’s fees. Any further costs associated with obtaining this Judgment shall be assumed by the side incurring them.

5. This Judgment constitutes a final judgment that fully concludes and disposes of the claims and defenses in this litigation, and Plaintiffs and Defendants shall be subject to the full legal effects of issue preclusion, claim preclusion, res judicata , and collateral estoppel. The Parties and this Court explicitly intend such issue preclusion, claim preclusion, res judicata , and collateral estoppel to extend and apply to any issues of infringement, validity, inventorship, and enforceability regarding any of the claims of the ‘414 Patent, the ‘151 Patent and the ‘287 Patent raised in any subsequent court or administrative proceeding and regardless of the product or process at issue.

6. This Court retains exclusive jurisdiction over the parties and over this action for purposes of ensuring compliance with this Consent Judgment and Permanent Injunction, and to enforce the Settlement Agreement. The Settlement Agreement, incorporated herein by reference, shall be filed with the Court under seal.

7. No appeal shall be taken by any party from this Consent Judgment and Permanent Injunction, the right to appeal having been expressly waived by all parties.

8. This Consent Judgment and Permanent Injunction may be modified by written agreement of the parties, subject to Court approval.

The Clerk is directed to enter this Consent Judgment and Permanent Injunction forthwith.

IT IS SO ORDERED.


DATED: , 2007.
				HONORABLE CLAUDIA WILKEN
				United States District Court Judge


Consented to on behalf of Plaintiffs:

DATED:	March 5, 2007	MCDERMOTT WILL & EMERY LLP

		By:
			William G. Gaede, III
			Attorneys for Tercica, Inc.

		HELLER EHRMAN LLP

		By:
			M. Patricia Thayer
			Attorneys for Genentech, Inc

Consented to on behalf of Defendants:

DATED:	March 5, 2007	FOLEY & LARDNER LLP

		By:
			Larry L. Shatzer

		HOWREY LLP

		By:
			Henry Bunsow
			Attorneys for Insmed Incorporated, Celtrix Pharmaceuticals, Inc., and Insmed Therapeutic Proteins, Inc

E XHIBIT C

F ORM OF UK P ROCEEDINGS S ETTLEMENT A GREEMENT

SETTLEMENT AGREEMENT

THIS AGREEMENT is made on the day of March 2007

BETWEEN :

(1)	Tercica, Inc., a company incorporated under the laws of Delaware with offices at 2000 Sierra Point Parkway, Suite 400, Brisbane, CA 94005, United States of America (“ Tercica ”);

(2)	Genentech, Inc., a company incorporated under the laws of Delaware with offices at 1 DNA Way, South San Francisco, California 94080 (“ Genentech ”);

(3)	Insmed Incorporated, a company incorporated under the laws of Virginia with offices at 8720 Stony Point Parkway, Suite 200, Richmond, VA 23235 (“ Insmed ”);

(4)	Avecia Limited, a company incorporated under the laws of England and Wales, whose registered office is at PO Box 42, Hexagon Tower, Blackley, Manchester M9 8ZS, United Kingdom (“ Avecia ”); and

(5)	Avecia Biologics Limited, a company incorporated under the laws of England and Wales, whose registered office is at PO Box 42, Hexagon Tower, Blackley, Manchester M9 8ZS, United Kingdom (“ Avecia Biologics ”).

RECITALS

(A) Legal proceedings have been commenced in England between the parties relating to European Patent (UK) No. 0 571 417 in the High Court of Justice under action numbers HC 04 C 03940 and HC 05 C 00415 (the “ UK Proceedings ”).

(B) Related legal proceedings in the United States between Tercica, Genentech and Insmed have been settled by an agreement of even date, pursuant to which Tercica, Genentech and Insmed have agreed to discontinue the UK Proceedings and Insmed has agreed to procure on the part of Avecia such acts as may be necessary or desirable to achieve this.

(C) The parties have determined that it is in their mutual interest to avoid the expense, distraction, and uncertainty of further litigation and have therefore agreed to conclude and resolve all of their disputes under the UK Proceedings pursuant to the terms and conditions of this Agreement.

(D) Avecia undertook a re-organisation of its group corporate structure in the UK, effective on 1 ^st January 2007, which resulted in the transfer of the group’s biologics business (to which the UK Proceedings relate) from Avecia to Avecia Biologics.

In consideration of the mutual covenants and promises set forth in this Agreement the parties AGREE as follows:

1.	Discontinuance of the UK Proceedings

1.1

The parties agree to discontinue the UK Proceedings with no order as to costs. The parties shall forthwith instruct their respective solicitors to approve, sign and then apply to the Court for a consent order in the form of the draft order attached as the Schedule to this Agreement (the “ Consent Order ”).

1.2	For the avoidance of doubt the Consent Order is without prejudice to costs which have already been paid by one party to another pursuant to any Order of the Court made prior to the date of this Agreement.

1.3	The parties shall do all such acts as may be necessary or desirable to obtain and give effect to the Consent Order.

2.	Settlement

2.1	This Agreement is in full and final settlement of the claims and counterclaims in the UK Proceedings.

2.2

Each party to this Agreement warrants to the others that it has not before the date of this Agreement assigned or transferred or purported to assign or transfer any claim or counterclaim (or any part thereof) relating to the UK Proceedings save in respect of the transfer from Avecia to Avecia Biologics referred to in Recital D.

2.3

Without prejudice to the provisions of clause 2.1, Tercica and Genentech undertake to Avecia and Avecia Biologics that, in the event that Tercica and/or Genentech issues proceedings in respect of facts or matters not pleaded in the Particulars of Infringement in the UK Proceedings against Avecia and/or Avecia Biologics alleging infringement of European Patent (UK) No. 0 571 417, neither Tercica nor Genentech shall object, by reason of Avecia and Avecia Biologics having entered into this Agreement, to Avecia or Avecia Biologics alleging that European Patent (UK) No. 0 571 417 is invalid as a defence to or counterclaim for revocation in such infringement proceedings, or to Avecia or Avecia Biologics relying in any such defence or counterclaim on any of the objections raised in the Grounds of Invalidity served in the UK Proceedings.

2.4

Without prejudice to the provisions of clause 2.1, Avecia and Avecia Biologics undertake to Tercica and Genentech that they shall not object, by reason of Tercica and Genentech having entered into this Agreement, to Tercica and/or Genentech bringing proceedings in respect of facts or matters not pleaded in the Particulars of Infringement in the UK Proceedings against Avecia and/or Avecia Biologics alleging infringement of European Patent (UK) No. 0 571 417.

2.5	For the avoidance of doubt, neither Avecia nor Avecia Biologics shall commence revocation proceedings in respect of European Patent (UK) No. 0 571 417 other than as a defence to or counterclaim for revocation in the infringement proceedings described in clause 2.3.

3.	Confidentiality

The terms of this Agreement and the discussions, correspondence and negotiations leading to the making of this Agreement shall remain confidential to the parties who, save as expressly permitted by the terms of this Agreement, shall not disclose the terms of settlement to any other person except:

(a)

to the auditors and to the legal and other professional advisers of that party;

(b)

to the Court in connection with any future legal proceedings between the parties (or any of them);

(c)

where that party is under a legal or regulatory obligation to make such disclosure, but limited to the extent of that obligation;

(d)

with the prior written consent of the other parties to this Agreement;

(e)

by a party to its employees or agents provided that the party making such disclosure ensures that the employees/agents (as the case may be) are made aware of and required to observe the provisions of this clause.

4.	General Provisions

4.1	The headings in this Agreement are solely for reference and shall not affect its interpretation.

4.2	This Agreement sets out the entire agreement and understanding between the parties in relation to its subject matter. Each of the parties acknowledges that no representation has been relied upon by that party in connection with or in relation to the settlement to which this Agreement gives effect.

4.3	This Agreement shall be binding on the parties, their successors and assigns and the name of a party appearing herein shall be deemed to include the names of any such successor or assign.

4.4	This Agreement may be executed in any number of counterparts, all of which, taken together, shall constitute one and the same agreement and any party may enter into this Agreement by executing a counterpart.

4.5	This Agreement shall be governed by and shall be construed in accordance with English law and the courts of England shall have exclusive jurisdiction to determine any dispute between the parties regarding the construction and application of this Agreement.

IN WITNESS of which this Agreement has been signed by and on behalf of the parties effective as of the date first written above.

SCHEDULE

DRAFT CONSENT ORDER


(i)		IN
THE HIGH COURT OF JUSTICE		HC 04 C 03940
CHANCERY DIVISION
PATENTS COURT

[The Honourable Mr Justice]
[Date]

B E T W E E N:-

	TERCICA, INC

		Claimant

	-and-

	(1) AVECIA LIMITED

	(2) INSMED, INC

	(3) GENENTECH, INC

		Defendants

(ii)		A
ND		HC 05 C 00415

B E T W E E N:-

	(1) AVECIA LIMITED

	(2) INSMED, INC

		Claimants

	-and-

	GENENTECH, INC

		1.2 Defendant



	draft/ CONSENT ORDER

UPON THE APPLICATION of the parties

AND UPON reading the documents recorded in the court file as having been read

IT IS BY CONSENT ORDERED THAT the claims and counterclaims in these proceedings be hereby discontinued and that upon the discontinuance of such claims and counterclaims there shall be no order as to costs.


Marks & Clerk Solicitors		Howrey LLP Solicitors for Insmed Incorporated and Avecia Limited 22 Tudor Street London EC4Y 0AY
Solicitors for Tercica, Inc
90 Long Acre London WC2E 9RA
90 Long Acre London WC2E 9RA

Ref: MG/GBH/L2297		Ref: RW/CPS/04378.0002

Date: March 2007		Date: March 2007

Wragge & Co LLP Solicitors for Genentech, Inc

3 Waterhouse Square 142 Holborn London EC1N 2SW

Ref: ANC/YMA

Date: March 2007


SIGNED for and on behalf of	)

TERCICA, INC	)

By Stephen N. Rosenfield, its	)

General Counsel and Executive Vice-President of Legal Affairs	) )

			Director

SIGNED for and on behalf of	)

GENENTECH, INC	)

by		)	Director

SIGNED for and on behalf of	)

INSMED INCORPORATED	)

by		)	Director

SIGNED for and on behalf of	)

AVECIA LIMITED	)

by		)	Director

SIGNED for and on behalf of	)

AVECIA BIOLOGICS LIMITED	)

by		)	Director

E XHIBIT D

J OINT L ETTER TO P HYSICIANS

LOGO

February 20, 2007

Dear ____________,

Today, Insmed, Tercica and Genentech concluded a Settlement, Development and Licensing Agreement which lays out the future development and commercialization of IPLEX. As part of the agreement, the companies settled the outstanding patent infringement suit filed with the Federal Court of the Northern District of California pertaining to IPLEX. As a consequence of the court’s finding of Tercica’s patents having been infringed, Insmed will no longer be able to provide IPLEX commercially to patients with severe primary IGF-1 deficiency and other short stature indications. It has been agreed that all patients will be transitioned off IPLEX as soon as the patient’s current supply of IPLEX is exhausted.

Insmed and Tercica are fully committed to assisting you during this transition period. For children currently treated with IPLEX whom you consider suitable for INCRELEX therapy, Tercica will supply INCRELEX free of charge while working with your office to secure reimbursement.

Tercica’s pediatric endocrinologists, Dr. George Bright and Dr. Sandra Blethen, would be pleased to discuss this transition and any medical questions you may have. You can reach them at (650) 624-4900 or 1-866-TERCICA.

Best regards,




Ronald D. Gunn, M.S., M.B.A. Executive Vice President and Chief Operating Officer Insmed Incorporated		Thorsten von Stein, MD, PhD Senior Vice President and Chief Medical Officer Tercica, Inc.

E XHIBIT E

C O -P ROMOTION A GREEMENT T ERMS A ND C ONDITIONS

If Tercica or GNE (as the case may be) exercises its Co-Promotion Option pursuant to Section 5.3 of the Agreement, the following terms and conditions shall be incorporated into a definitive Co-Promotion Agreement for the co-promotion of Product for the treatment of the Permitted Indication by Insmed and the Opt-In Party.


Provision		Details
General:		The Opt-In Party shall the right to provide up to fifty percent (50%) of the selling effort of a Product for the treatment of such Permitted Indication.

Oversight of Co-Promotion:		The JCC shall oversee the co-promotion effort and shall allocate all co-promotion responsibilities between the Parties in accordance with a Commercialization Plan that shall be prepared by the JCC.

Sales Contribution by Tercica and Insmed:		TBD

Compensation to Tercica:		TBD

Product Sales:		The Opt-In Party shall be responsible for receiving and filling orders, controlling invoicing, collection of payments, returns, charge-backs and rebates on sales of a Product for such Permitted Indication for a Product that it markets. Insmed shall be responsible for receiving and filling orders, controlling invoicing, collection of payments, returns, charge-backs and rebates on sales of a Product for such Permitted Indication for a Product that it markets. Insmed shall have sole control over pricing strategies and distribution of a Product for such Permitted Indication.

Use and Distribution of Promotional Materials:		Insmed shall have responsibility for preparing and producing all Promotional Materials for a Product for such Permitted Indication, provided, however, that the JCC shall approve all such Promotional Materials to ensure consistency across the entire field of effort of both Parties.

		Insmed shall provide such JCC-approved Promotional Materials to Tercica in accordance with the Commercialization Plan. Each Party’s sales force shall use, and if applicable, distribute Promotional Materials to physicians to whom it details a Product. Promotional Materials shall not be used unless approved by the JCC.


Provision		Details
		The Parties shall share equally the cost of developing and producing such Promotional Materials.

Samples:		The Parties shall use and distribute any samples of a Product in accordance with the Commercialization Plan and all applicable laws.

Sales Force Training:		Insmed shall develop and provide training programs and materials for a Product for such Permitted Indication to ensure a consistent, focused promotional strategy. Insmed shall treat the Opt-In Party and Insmed sales representatives as a combined sales force and shall provide the Opt-In Party representatives with the same support and assistance it provides its own representatives. The Opt-In Party shall reimburse Insmed for all training, support and assistance it shall provide for such Opt-In Party’s representatives.

Termination:		The Opt-In Party may terminate its co-promotion of a Product for the treatment of the Permitted Indication upon not less than one hundred eighty (180) days prior written notice to Insmed. Insmed and the Opt-In Party shall reasonably cooperate to transition to Insmed the Opt-In Party’s co-promotion activities with respect to a Product so as to minimize disruption to sales activity and the Opt-In Party shall withdraw its sales representatives from such co-promotion activities in a professional manner.

Compliance and Performance:		Each Party shall be responsible for its own compliance with all applicable laws and Regulatory Authority policies and guidelines relating to the co-promotion of a Product for the treatment of the Permitted Indication. Each Party’s sales representatives shall be held to the same standards of performance. The Co-Promotion Agreement shall include an audit provision for purposes of measuring each Party’s sales force effectiveness and performance.

Regulatory:		Insmed shall be solely responsible for communicating with the applicable regulatory authorities, including any adverse event reporting, recall notifications and safety updates. The Opt-In Party shall reasonably cooperate with Insmed regarding co-promotion activities so that Insmed can meet its regulatory obligations.

E XHIBIT F

Joint Press Release


Tercica Logo				INSM Logo

Investor & Media Contacts for Tercica and Insmed:

Litigation Settlement Reached between Tercica, Genentech and Insmed

Companies Partner through License and Development Agreement

Brisbane, California and Richmond, Virginia. – March 6, 2007 – Tercica, Inc., (Nasdaq: TRCA) and Insmed Incorporated (Nasdaq: INSM) today announced that Tercica, Insmed and Genentech, Inc. (NYSE: DNA) have entered a Settlement, License and Development Agreement that resolves all outstanding litigation between the companies, including the patent infringement suits brought by Tercica and Genentech against Insmed in the United States (N.D. Cal.) and United Kingdom, and the unfair business practices suit (E.D. Virginia). The key elements of this settlement are:

•

Insmed will no longer provide IPLEX to patients with severe Primary IGF-1 Deficiency and other short stature indications and will withdraw its IPLEX marketing authorization application for severe Primary IGF-1 Deficiency in the European Union

•

Through licensing and development rights granted by Tercica and Genentech, Insmed will have freedom to operate regarding the manufacture, development and commercialization of IPLEX for certain non short stature indications including severe insulin resistance, myotonic muscular dystrophy and HIV associated adipose redistribution syndrome (HARS), subject to opt-in rights and royalty provisions for Tercica and Genentech

•

Tercica and Genentech have waived the damages award by the jury in the U.S. patent infringement litigation.

In a joint statement, Dr. John A. Scarlett, Tercica’s President and Chief Executive Officer, and Dr. Geoffrey Allan, Insmed’s President, Chief Executive Officer and Chairman of the Board of Directors stated, “We are very pleased with our new licensing and development relationship. It allows Tercica to focus its efforts in the short stature market and allows Insmed, in cooperation with Tercica and Genentech, to focus its IPLEX development efforts in valuable non-short stature indications.”

U.S./Canada IPLEX Sales for Tercica/Genentech Indications

As a consequence of the court’s finding that Tercica’s patents were infringed, Insmed will no longer be able to provide IPLEX in the U.S. for severe Primary IGF-1 Deficiency and the following indications: Primary IGF-1 Deficiency, Noonan’s Syndrome, Laron Syndrome, Growth Hormone Deficiency, and all other short stature indications; and Adult Growth Hormone Deficiency. These indications are collectively referred to as “the TRCA/Genentech Indications.” Insmed and Tercica will work closely together with pediatric endocrinologists to identify therapeutic alternatives for children currently receiving IPLEX, and where appropriate, to transition patients to Increlex.

IPLEX Worldwide License and Development Agreement

The parties will form a joint development (and subsequently, a joint commercialization) committee to guide the development and commercialization of IPLEX in non-Tercica/Genentech Indications. Tercica (along with Ipsen, for Ipsen’s Increlex territory) and Genentech will have the right to opt into Insmed’s development and commercialization of each non-Tercica/Genentech Indication up to 90 days after Insmed provides “Phase III-enabling” clinical data. Tercica will have the first right to opt into orphan indications, and Genentech will have the first right to opt into non-orphan indications. If Tercica does not opt into an orphan indication, Genentech will have the right to opt-in. Similarly, if Genentech does not opt into a non-orphan indication, Tercica will have the right to opt-in. In the case of an opt-in, Insmed will retain development control prior to approval, and Tercica or Genentech would gain commercial control after approval.

If the opt-in is exercised by Tercica, Insmed would be reimbursed 50% of its incurred development costs for the indication and further development costs would be shared 50:50. Upon subsequent commercialization, Insmed and Tercica will split profits 50:50 after accounting for relevant expenses including sales-based tiered royalties of 6%-15% to Genentech.

If the opt-in is exercised by Genentech, Insmed would be reimbursed 50% of its incurred development costs for the indication. Subsequent development costs and profits will be split 50:50, but no royalty will be owed to Tercica.

If neither Tercica nor Genentech opts in, Insmed will pay a 4% royalty on all commercial sales of the approved drug to Genentech.

Worldwide pre-Approval IPLEX Sales

Outside the U.S. and Canada, Insmed will be permitted to continue to provide IPLEX to physicians through its Expanded Access Program for non Tercica/Genentech indications (excluding severe insulin resistance) and ALS in Italy. Any cost reimbursement obtained from this program would be subject to a tiered royalty of 4% to 15% shared between Tercica, Genentech and Ipsen.

The Settlement, License and Development Agreement is in effect until the later of 2018 or the expiration of any subsequent Tercica/Genentech issued patents that cover IPLEX or its indications.

About Tercica

Tercica is a biopharmaceutical company committed to improving endocrine health by partnering with the endocrine community to develop and commercialize new therapeutics for short stature and other metabolic disorders. For further information on Tercica, please visit www.tercica.com .

Tercica Safe Harbor Statement

Except for the historical statements contained herein, this press release contains forward-looking statements concerning prospects and results, including statements concerning a worldwide partnership with opt-in rights for Tercica on non-Tercica/Genentech Indications and settlement of all outstanding litigation between Tercica, Genentech and Insmed. Because Tercica’s forward-looking statements are subject to risks and uncertainties, there are important factors that could cause actual results to differ materially from those in the

forward-looking statements. These factors include, without limitation, the risk that none of the non-Tercica/Genentech Indications demonstrate clinically meaningful efficacy and safety, and the risks and uncertainties disclosed from time to time in reports filed by Tercica with the SEC, including most recently Tercica’s Form 10-Q for the quarter ended September 30, 2006 filed with the SEC on November 3, 2006

EXHIBIT 31.1

Rule 13a-14(a)/15d-14(a) Certification

I, Geoffrey Allan, Chairman of the Board and Chief Executive Officer of Insmed Incorporated, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Insmed Incorporated;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2007

/s/ Geoffrey Allan,

Geoffrey Allan, Ph.D.

Chairman of the Board and Chief

Executive Officer (Principal Executive Officer)

- 39 -

EXHIBIT 31.2

Rule 13a-14(a)/15d-14(a) Certification

I, Kevin P. Tully, Executive Vice President and Chief Financial Officer of Insmed Incorporated, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Insmed Incorporated;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2007

/s/ Kevin P. Tully

Kevin P. Tully, C.G.A.,

EVP & Chief Financial Officer

(Principal Financial and Accounting Officer)

- 43 -

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with the Quarterly Report on Form 10-Q of Insmed Incorporated (the “Company”) for the period ending March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Geoffrey Allan, Ph.D., Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2003, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


/s/ Geoffrey Allan
Geoffrey Allan, Ph.D.
Chairman of the Board and
Chief Executive Officer
May 10, 2007

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Insmed Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with the Quarterly Report on Form 10-Q of Insmed Incorporated (the “Company”) for the period ending March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin P. Tully, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2003, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.


/s/ Kevin P. Tully
Kevin P. Tully, C.G.A.
EVP & Chief Financial Officer

May 10, 2007

INSMED INCORPORATED

(Registrant)

Date: May 10, 2007

/s/ Kevin P. Tully

Kevin P. Tully, C.G.A.,

EVP & Chief Financial Officer