By Lisa Seachrist

Washington Editor

Advanced Tissue Sciences Inc. (ATS) is expanding its reach from wound healing and burn care to plastic and reconstructive surgeries in a deal with Inamed Corp. that could be worth up to $20 million to ATS.

Santa Barbara, Calif.-based Inamed has licensed the right to develop ATS¿ burn-healing product, TransCyte, as a healing aid following laser and chemical facial-peeling procedures. Inamed will develop TransCyte under a yet-to-be-determined trade name.

In addition, Inamed licensed the right to use ATS¿ collagen and extracellular matrix for use in breast reconstruction and cartilage for reconstructive surgeries. Inamed will be undertaking all of the clinical trials and all of the regulatory filings resulting from the collaboration.

¿This really gives us an excellent opportunity to leverage our existing competencies and move into different indications,¿ said Cheryl Monblatt, director of communications for La Jolla, Calif.-based ATS. ¿And it brings cash to us now as well as in the future with milestones and potential royalties.¿

Under the terms of the agreement, Inamed will pay ATS $6 million over the next six months ¿ $3 million in a cash licensing payment and a $3 million purchase of ATS common stock at either $6 per share or the current trading price of the stock plus $3 per share, whichever is higher. Inamed also will receive five-year warrants to purchase up to 300,000 shares of ATS stock at double the prevailing trading price.

ATS could receive as much as $6 million in milestone payments should the products be approved in the U.S., plus royalties on any sales.

ATS¿ stock (NASDAQ:ATIS) closed Wednesday at $5.031 per share, up 37.5 cents.

In addition to the three indications covered under the agreement, Inamed, over the next six months, has the option to license rights to use extracellular matrix, including human collagen, from ATS¿ soft-tissue culture system for soft-tissue augmentation (wrinkle and cosmetic correction) and as a bulking agent for the treatment of urinary incontinence.

Should Inamed exercise the licensing option, ATS will receive $2 million in licensing fees and Inamed will purchase an additional $2 million in ATS common stock. Products resulting for those indications could net ATS $4 million in milestones.

¿What¿s nice about this arrangement is that we are responsible for the manufacturing of these products, while Inamed is responsible for the development in the clinical and regulatory arena,¿ Monblatt said. ¿We¿ve already got the manufacturing facilities running for TransCyte.¿

TransCyte is approved as a temporary covering for second- and third-degree burns. It is a product of tissue engineering that combines a bioengineered human dermal layer and a synthetic epidermal layer. The dermal layer is produced through culturing fibroblasts onto a commercially available biosynthetic material bonded to nylon mesh, which acts as a 3-dimensional scaffold. The fibroblasts proliferate on the scaffold and secrete extracellular matrix proteins and growth factors.

In addition to TransCyte, ATS is developing Dermagraft ¿ a living, metabolically active skin implant derived from fibroblasts from discarded human foreskin tissue. Dermagraft is being developed to treat diabetic foot ulcers. ATS received a non-approvable letter for Dermagraft from the FDA in June 1998. The company is conducting another pivotal trial, which started in August 1998.

¿We are going to have our first look at interim data from that study in October,¿ Monblatt said.

That study is designed to enroll 330 patients for 12 weeks. But, under the interim analysis program, the company can submit data on 180 patients (90 getting Dermagraft and 90 in the control group). The company may file for premarket approval if the data are persuasive enough at that point.

London-based Smith & Nephew is ATS¿ development partner for TransCyte and Dermagraft. n