Managing Editor

Only two months after Shire plc shelled out $750 million in cash for Advanced BioHealing Inc. – a move hailed as a rare win for investors in the regenerative medicine space – the big pharma reported disappointing data from a pivotal trial aimed at expanding the use of ABH's lead product Dermagraft.

A fibroblast-derived skin substitute, Dermagraft already is on the market for treating diabetic foot ulcers (DFU), and 2010 sales of the product reached $146 million. A label expansion in venous leg ulcers (VLU) "could have easily doubled the opportunity for Dermagraft in our view," Piper Jaffray analyst David Amsellem noted in a research report.

But Shire disclosed plans to scrap further work in VLU after top-line data from the Phase III trial failed to meet the primary endpoint, defined as complete healing – 100 percent re-epithelialization, with no presence of scab or drainage – of VLUs by 16 weeks.

Results from the 500-patient study also showed that Dermagraft failed to meet the minimum absolute level of superiority over compression therapy.

While there was a trend toward efficacy, with Dermagraft achieving a higher closure rate of VLUs compared to compression therapy alone, Shire concluded that data weren't compelling enough to warrant further investment. And any potential for off-label use is limited, Amsellem pointed out, with "Medicare generally covering the product only for the DFU setting."

Shire shares were dinged Aug. 24, but the UK pharma firm returned Aug. 25 with some good news: FDA approval of hereditary angioedema drug Firazyr (icatibant). (See related story, in this issue.)

With VLU out of the equation, Shire will have to focus on expanding Dermagraft's use within the DFU market.

Commercialization has been the bane of Dermagraft since its initial approval for treating full-thickness DFUs way back in 2001 by developer Advanced Tissue Sciences Inc. The product never had the chance to gain any kind of traction in the market before Advanced Tissue ran into money troubles a year later and sold Dermagraft, along with a second product, TransCyte, a human fibroblast-derived temporary skin substitute, to partner Smith & Nephew plc.

Despite Smith & Nephew's attempts to grow sales of Dermagraft in diabetic foot ulcers and expand its use into venous leg ulcers, the London-based medical device firm threw in the towel in 2005.

ABH entered the picture in 2007, picking up Dermagraft, TransCyte and related manufacturing technology. Those products fit well with the firm's early stage bioengineered tissue programs, including Celaderm, and won over investors Safeguard Scientifics Inc., Channel Medical Partners, Red Abbey Venture Partners LP, Canaan Partners and Wheatley Partners, who put in $25.5 million in Series C funding.

Since taking over Dermagraft, ABH has managed to grow sales. Still, the 2010 revenue represents only a fraction of the overall diabetic foot ulcer market, which is estimated at $3 billion, and new parent company Shire may have its work cut out for it to increase Dermagraft's market penetration.

Piper Jaffray's Amsellem sees ex-U.S. opportunities as the "logical way to expand the franchise," and wrote that "sustained annual double-digit growth for the product is a reasonable expectation."

ABH also reported promising news in June, with results of a health economic model developed by the Lewin Group showing that the addition of Dermagraft to conventional care in chronic diabetic foot ulcers significantly improved cost benefits compared to conventional care alone. Lewin's model included both Medicare populations and patients who had commercial health insurance plans.

Data from that research also showed better therapeutic outcomes. Patients receiving Dermagraft were predicted to have fewer ulcer-related amputations and bone resections at 52 weeks compared to those on conventional care alone.

Dermagraft is the only regenerative product for DFU, though there are only a few late-stage contenders such as Princeton, N.J.-based Derma Sciences Inc., which recently reported Phase II data showing that 73 percent of patients in the intent-to-treat group and 85 percent in the per-protocol population demonstrated complete healing of DFUs with DSC127, a topical angiotensin analogue.

For investors of Westport, Conn.-based ABH, in the wake of the Phase III VLU failure, the Shire acquisition never looked better. Already lauded as an impressive M&A transaction – ABH long-time investor Canaan Partners emerged with a 15x return on the buyout – it came only a day before the firm had planned to go public via an initial public offering (IPO) that could have raised about $732 million at midpoint pricing.

Had ABH gone the IPO route, the current market environment would have left investors with a slow exit at best. Then, the failed VLU trial would have tanked the newly public firm's stock.

For Shire, however, the VLU miss is unlikely to hamper its fledgling regenerative medicines business. At the time of the ABH acquisition, Shire said that deal should serve as a platform for adding other regenerative medicine assets.

The big pharma is keeping ABH running as a separate business unit, with ABH CEO Kevin Rakin remaining at the helm.