By Randall Osborne

Gearing up to market its skin replacement product in the U.S., Organogenesis Inc. raised $20 million in a placement of preferred stock with two undisclosed institutional investors.

The Canton, Mass.-based company also received $3.75 million in milestone payments from Novartis AG, of Basel, Switzerland, which owns global marketing rights to the skin product Apligraf, launched in Canada last year.

Under terms of the Novartis deal, accomplishments leading to the milestone payments are not disclosed.

The preferred shares pay no dividends and are convertible into common stock at up to $36 per share on a scheduled basis over the next two years. Investors also received 160,000 three-year warrants to purchase common stock at $39 per share.

Organogenesis' stock (AMEX:ORG) closed Friday at $32.25, up $0.187.

In late January, an FDA devices panel recommended approval of Apligraf for venous leg ulcers. The product is a living skin equivalent engineered from the discarded foreskins of human infants. (See BioWorld Today, Feb. 2, 1998, p. 1.)

"Apligraf alone provides us with a pipeline," said Carol Hausner, director of investor and public relations for Organogenesis. "Our goal is to submit [an application for marketing clearance] for at least one more indication this year."

Skin Substitute May Have Broad Applications

Trials with Apligraf have been completed in burns and skin surgery. Another is under way in diabetic ulcers and should be completed in the next 12 months. A trial in pressure sores is expected to begin in the first half of this year.

Those indications combined affect about 4 million people, Hausner said.

"The biggest market tends to be in chronic wounds," she added, such as diabetic ulcers and pressure sores. Venous ulcers afflict about 1 million people, she said.

Last summer, the FDA approved Organogenesis' first product, Graftpatch, a porcine-source non-living connective tissue used to reinforce soft tissue in general surgical procedures. (See BioWorld Today, Aug. 11, 1997, p. 1.)

Graftpatch has yet to be launched.

"Our intention is to market that product through a partner," Hausner said.

In the Novartis deal, Organogenesis could get up to $40 million in research support, milestone payments and equity investments. Of that amount, $17.75 million has been received so far.

The company also is developing a vascular graft for coronary artery bypass procedures, a cell-based liver assist device, and a tissue filler product for female urinary incontinence and soft tissue bulking and repair.

At the end of last year, Organogenesis had $6.14 million in cash, with a net loss of $19.8 million for 1997.

Placement agent in the offering was Reedland Capital Partners, of Corte Madera, Calif. *