By Debbie Strickland

In its biggest deal to date, Advanced Tissue Sciences Inc. (ATS) got a $111 million boost from Smith & Nephew plc, of London, with whom the company operates a 50-50 joint venture for the worldwide commercialization of Dermagraft, a skin replacement product scheduled to go before an FDA advisory panel Jan. 29.

The joint venture has been marketing Dermagraft for diabetic foot ulcers under the original April 1996 agreement between the two parent firms, but the venture's scope will now expand to include worldwide development and marketing of the product for the treatment of venous ulcers and pressure sores, along with the marketing of Dermagraft-TC, a related product for burns, outside the U.S.

Under the new agreement, La Jolla, Calif.-based ATS will receive at least $35 million from Smith & Nephew within the next 12 months for the additional indications, including an immediate $20 million investment in the company's common stock. The deal also includes $16 million in regulatory and Medicare-related milestones, sales-related milestones of $50 million, and a one-time payment of $10 million that hinges on Dermagraft-TC's demonstrating applicability in treating pressure sores.

With milestones, total payments to ATS, including those owed under the original $70 million joint venture agreement, could reach up to $181 million.

The key to such a large valuation for these products, said Arthur Benvenuto, ATS's chairman and CEO, is that his CEO counterpart at Smith & Nephew, Chris O'Donnell, experienced "first-hand the excitement associated with the use of Dermagraft in a clinical setting." That exposure, plus O'Donnell's "belief in the potential commercial viability of the product, has done a great deal to solidify the valuation of the technology."

Dermagraft is a bioengineered living human dermal replacement currently marketed for the treatment of diabetic foot ulcers in the U.K., Canada and other European countries.

ATS will now move "very aggressively to put in place a clinical program for the venous ulcer indication and define the program for pressure sores," said Benvenuto.

Shares in ATS (NASDAQ:ATIS) closed Friday at $13.563, a gain of $0.063. *