By Randall Osborne
West Coast Editor
Not unlike scar tissue thickening over a wound, Organogenesis Inc. added a potential $20 million-plus layer to its 1996 deal with Novartis AG - an agreement that's been anything but injurious to the tissue replacement company since it was sealed.
Among other things, the amended agreement calls for Organogenesis to sell Novartis up to $20 million in equity over the next three years.
"We'll be doing a financing this year," said Philip Laughlin, president and CEO of Canton, Mass.-based Organogenesis. Whether that happens in the form of debt or equity, though, is undecided.
"We're looking at all options," Laughlin said. "We like having the stock put available to us whenever we want it. It's almost better that we don't use it," he added, noting that Basel, Switzerland-based Novartis' vote of confidence only makes other ways of raising money more feasible.
The amended deal gives Organogenesis higher payments from Novartis for its skin-replacement product, Apligraf, a living substitute made from discarded foreskins of human infants. Laughlin said the amount of the royalty hike will not be disclosed.
Making Apligraf involves culturing the cells from discarded human infant foreskins in a 3-dimensional culture system to create two layers of skin that lack blood vessels, hair follicles or sweat glands.
In 1998, the FDA approved Apligraf for venous leg ulcers caused by circulatory problems, and last year gave the nod for diabetic foot ulcers. (See BioWorld Today, Feb. 2, 1998, and June 21, 2000.)
"Our sales now are truly accelerating," Laughlin said. "We've been growing for quite a few quarters, but it has clearly and noticeably turned up [lately]."
Novartis has added sales reps, and Medicare reimbursement has improved, he said. In the most recent quarterly report, from the third quarter of 2000, Novartis sold 4,084 units. In the previous quarter, the number was 3,232 units.
"Novartis sells the units at $975 each," Laughlin said. "We get a percentage of that, and now we'll get more." Cash on hand for the last reporting quarter was $18 million, with a burn rate of $24 million per year, he added.
Also included for Novartis in the revised deal is first right to sell Vitrix, a skin product with one fibroblast-populated dermal layer, allowing it to be folded and used in treating deep, or Stage IV, wounds. A pivotal trial with Vitrix will begin soon, Laughlin said.
"Our target is to add our first patients by the first of March," he told BioWorld Today. "Because it's being done with diabetic foot ulcers, we've got a nice network out there."
Whether a wound is deep "can be a subjective doctor assessment," Laughlin said, but estimates place deep wounds as making up at least 25 percent of those treated, he said. "We could get approval for Stage III and Stage IV, and that would be an overlap with Apligraf."
Novartis also will pay for upgrading manufacturing plants, for more clinical work, and for efforts to get Apligraf approved and sold in the European Union.
"The U.S. market, for several indications, is several billion dollars," Laughlin said, and estimates vary on the potential for Europe. "Even if I took 60 percent as Europe, you could say the European market is over $1 billion," he said.
Apligraf already is sold in some countries not part of the EU, primarily Switzerland, Laughlin said.
"Our sales in Europe are sufficiently small that they're not all that significant," he said.
Organogenesis' stock (AMEX:ORG) closed Monday at $12.44, up $1.48, or 13.5 percent. n