Doctors Impressed With ATS Product Dermagraft.

Biotech: FDA Approval Spurs Further Investment

La Jolla-based Advanced Tissue Sciences, Inc. said it will bring its treatment for diabetic foot ulcers to hospitals and doctor's offices starting next week.

The Food and Drug Administration informed ATS and its London-based marketing partner Smith & Nephew plc. on Oct. 1 that it approved Dermagraft, a bioengineered tissue designed to prevent leg amputations in diabetics.

Two days later, ATS said Minneapolis-based medical device, company Medtronic, Inc., invested $20 million to help research uses for ATS' tissue-engineering technology in the heart, spine, brain, and endocrine system.

ATS chairman and CEO Arthur J. Benvenuto hopes the partnership will expedite the development of new therapies.

Dermagraft's approval triggered a $5 million payment from Smith & Nephew.

ATS President Dr. Gail Naughton said she was pleased about the notification.

While the approval took longer than expected, she said, doctors and patients will realize Dermagraft offers significant benefits over other products for hard-to-heal diabetic foot ulcers.

David Berish, an analyst with SCO Financial Group Inc. in New York, agreed.

"The product has several application advantages (over rival products)," Berish said.

Dermagraft is a bioengineered tissue that can remain frozen for six months.

Apligraf, which is made by Swiss-based Novartis AG, is a human skin derived from a bovine-matrix. It is stored fresh and must be applied to foot ulcers within hours.

Dr. Robert Sowell, a podiatrist at the Deaconess Wound Care Clinic in Oklahoma City, said time will tell which product doctors will prefer.

Reducing Need For Amputations

Sowell, who has used Dermagraft with his patients, applauded the FDA's decision.

"I am very excited. It (Dermagraft) will help a lot of patients," Sowell said. "Hopefully, it will allow foot ulcers to heal much faster and prevent some of the devastating amputations."

According to Sowell, there are about 16 million diabetics in the United States.

Out of those patients, 86,000 people need lower leg amputations each year as a result of complications related to the disease; 85 percent of amputations are preceded by foot ulcers.

The key is to treat foot ulcers early.

Sowell said he has treated between 10 and 15 patients with Dermagraft within the last eight months. The product was applied weekly for seven to eight weeks with great results.

"Every single patient who used the product was healed," Sowell said.

As a result, Dermagraft helped prevent amputations. People who have one leg amputated have the other leg amputated within three to five years, Sowell said.

Sowell said Apligraf is also a good treatment for foot ulcers, but added storage is a problem.

"Because Dermagraft is cryopreserved, it comes frozen and is in stock in our clinic," he said. "Apligraf has to be ordered for each patient (individually) ... if the patient doesn't show or has a bad infection, we only have a day to use it."

Optimistic Sales Projections

Berish said the FDA approval clearly validates the Dermagraft technology.

He projected $7.5 million in sales of Dermagraft next year and more than $12 million for 2003.

By 2006, Berish expects Dermagraft to generate $128 million in revenues.

He foresees ATS' operating loss will drop just below $25 million this year, and in 2003, decline to $8.7 million.

ATS fell behind because the FDA asked he company to conduct another randomized trial in 1998.

This sent the company stock down $3.125 to close at $3.938 on June 15, 1998.

On Oct.1, ATS stock gained 58 cents, or 16 percent closing at $4.13.

Dermagraft is already sold in countries where such products are not regulated--including the United Kingdom, Canada, New Zealand and Australia, said Julie Reynolds, ATS spokeswoman. ATS filed for Pan-European approval, she added.

A single Dermagraft treatment runs between $450 and $500. That comes out to about $4,000 over an eight-week period, she said.

Reynolds anticipates the price will be about the same in the United States.

ATS is seeking reimbursement from the two government health care programs, Medicare and Medicaid. She expects private health insurers to follow suit.

Because Dermagraft is a platform technology, it is likely to have wide applications, Berish said.

Dermagraft is already in human trials for periodontal disease and in late-stage trials for venous ulcers -- in the leg -- and could be used to repair damaged heart muscles, Reynolds said.

ATS and Smith & Nephew are also marketing a product for second-and third-degree burn victims called TransCyte, which was used to treat burn victims of the recent terrorist attacks at the Pentagon.

In addition, ATS is building up its line of beauty, products. In the next months ATS will launch an injectable anti-aging treatment. Together with its Carlsbad-based partner SkinMedica, ATS is marketing another antiaging gel to dermatologists.