Medical Device Daily
and Staff Reports

A product that began development more than 15 years ago but never gained traction is back on the market, and the company that now owns it raised $25.5 million to support the recent relaunch.

Advanced BioHealing (La Jolla, California) completed a Series C financing round to support sales of Dermagraft, a bioengineered tissue product that was approved in 2001 for treating full-thickness diabetic foot ulcers. The company — and investors — believes it can do what previous product owners couldn’t, and that is to successfully commercialize Dermagraft.

Advanced BioHealing acquired Dermagraft, TransCyte and related manufacturing technology from Smith & Nephew (S&N; London) last May (Medical Device Daily, June 1, 2006). It began product sales two weeks ago.

S&N acquired the Dermagraft and Transcyte assets from Advanced Tissue Sciences (ATS; San Diego), a company that went under in 2004 (MDD, June 21, 2004).

“The launch is going great,” said Kevin Rakin, CEO of Advanced BioHealing. “We spent a lot of time talking to doctors about the product, thinking about positioning. We brought a very focused approach to the clinical benefit of these products [and having them] become the standard of care for wounds, diabetic foot ulcers in particular.

“It’s taken awhile for the market to appreciate the benefit of these next-generation living cell products,” he told Medical Device Daily’s sister publication, BioWorld Today. “It’s still early in the marketing acceptance of these products as a standard of care.”

The company has marketing, sales and reimbursement teams, including representatives in the field, as well as internal people in sales and customer service. Advanced BioHealing has more than 60 employees in all. Rakin said the privately held firm was not disclosing initial Dermagraft sales numbers.

He did say, however, that due diligence done by the company and its investors showed it “was very clear there is a loyal following for this product from physicians fighting diabetic foot ulcers.” The condition results in amputation in 20% of cases, Rakin said.

Dermagraft clinical development goes back at least to the early 1990s, when Marrow-Tech — which soon after changed its named to Advanced Tissue Sciences — was conducting early testing of the dermal skin replacement product in indications including burns, chronic venous skin ulcers and diabetic ulcers. Advanced Tissue gained FDA approval of its premarket approval application in 2001 for diabetic foot ulcers.

When S&N decided to exit that business at the end of 2005 because Dermagraft had not achieved the desired market penetration, Advanced BioHealing entered the picture. It had a newer-generation bioengineered tissue product, Celaderm, in early development and acquired the Smith & Nephew wound-care assets in May.

“The opportunity to get current-generation approved products just made so much strategic sense,” Rakin said. “Overnight we went into from an early-stage development company to one of the few biotech companies with revenues and our own distribution channel.”

Dermagraft is a cryopreserved human fibroblast-derived dermal substitute, consisting of fibroblasts, an extracellular matrix and a bioabsorbable scaffold. It is manufactured from human fibroblast cells derived from newborn foreskin tissue.

TransCyte, a human fibroblast-derived temporary skin substitute, was approved in 1997 for use as a wound covering burns. Rakin said Advanced BioHealing will evaluate later whether to relaunch that product.

In the meantime, the first patient was enrolled in the initial Celaderm pilot study, which is evaluating safety as well as its potential in accelerating the healing of venous leg ulcers. An advantage of that product, Rakin said, is that it can be stored at warmer temperatures that don’t require specialized freezers.

Since Celaderm — like Dermagraft — is designated by the FDA as a device, Advanced BioHealing could move directly to a pivotal study if the pilot trial is successful.

Rakin said most of the $25.5 million in funding will be used to support sales and marketing of Dermagraft. Funds also will be used in Celaderm development, and for other purposes.

Rakin said there “was more demand” for the financing than the company anticipated, and it is considering a second close. Funds are expected to support the company through the break-even point, Rakin said.

Advanced BioHealing received $2.4 million from a Series A investment in October 2004 and $8 million in Series B in November 2005, both before the Dermagraft acquisition.

Safeguard Scientifics led the Series C financing. Other investors included Channel Medical Partners and Red Abbey Venture Partners, as well as Series B participants Canaan Partners and Wheatley Partners.

In other financing news:

• Helicos BioSciences (Cambridge, Massachusetts) reported that it has filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of its common stock.

All of the shares to be offered will be sold by the company. The number of shares to be sold in the proposed offering and the offering price have not yet been determined.

UBS Investment Bank will be acting as the sole book-running manager for the offering. J.P. Morgan Securities is acting as a joint lead manager, with Leerink Swann & Co. and Pacific Growth Equities acting as co-managers.

Helicos is developing genetic analysis technologies for the research, drug discovery and clinical diagnostics markets.

• Thermo Fisher Scientific (Waltham, Massachusetts) reported that its board of directors has authorized the repurchase of $300 million of shares of its own common stock in the open market or in negotiated transactions through Feb. 28, 2008. The company’s previous stock repurchase authorization of $300 million was completed by year-end 2006.

Thermo Fisher Scientific provides analytical instruments in the U.S. and internationally. It operates in two segments, Life and Laboratory Sciences, and Measurement and Control.

• Iridex (Mountain View, California) reported that its board of directors approved the grant of non-qualified stock options to purchase an aggregate of 235,000 shares of common stock to a total of 54 new employees, domestic and international, hired in connection with the company’s recently completed acquisition of the assets of the aesthetics business of Laserscope (San Jose, California).

The exercise price of each of the new hire options will be equal to $10.06, the closing price of Iridex’s common stock on the NASDAQ Global Market on the grant date, which was Wednesday.