Advanced Tissue Sciences (ATS) announced completionThursday of its acquisition of Neomorphics Inc., aMassachusetts-based research and development group focusedon human organ and tissue engineering in an exchange of stockworth $21 million.

Under the terms of the agreement, all of Neomorphics' stockwill be exchanged in two installments for ATS common stock.The first exchange, completed Wednesday, consisted of682,300 shares of ATS common stock valued at $6 million. Thesecond exchange, of $15 million of ATS's common stock, willbe distributed six months from the Sept. 30 closing date. Theacquisition was originally announced in March.

ATS shares closed Thursday at $8.50 per share, down 38 cents.

The number of shares distributed was based on the averageclosing price of ATS's common stock during a period of 20consecutive trading sessions that ended three days beforeWednesday's closing. ATS retains the right to pay for anyportion of the purchase price in cash.

The agreement allows ATS to take over all Neomorphicspatents covering tissue engineering, and gives ATS the right offirst refusal to all Neomorphic tissue engineering technologiesthat result from the Neomorphic facility, which will now beknown as ATS.

The buy-out allows ATS to expand its technology base in tissueengineering and adds to the company the expertise of the 35Harvard and Massachusetts Institute of Technology scientistswho form the Neomorphic research team.

Company spokesman Jim Linton said ATS has patentedtechnology for developing organs and tissues outside the bodyfor transplantation into the body, and Neomorphics haspatented technology for growing organs and tissue inside thebody.

Linton said that Neomorphics' specialization in livertransplants and cartilage replacement will accelerate theplacement of ATS products, particularly liver and cartilageproducts, into the market by several years.

Reijer Lenstra, an analyst with Montgomery Securities in SanFrancisco told BioWorld that there is a potentially huge marketfor liver and cartilage technologies. There are 180,000 hipreplacements, 170,000 knee replacements, and between200,000 and 500,000 disc rupture operations performedannually in the U.S.

"The acquisition will broaden ATS's product line away from itsskin replacement therapies," Lenstra said.

ATS of San Diego uses its proprietary three-dimensionalculture system to replicate a variety of human tissues. Itslead product, Dermagraft, is in clinical trials under an FDAinvestigational device exemption (IDE) in 12 burn centers fortreating severe burns, and the company recently receivedapproval to treat decubitis (bedsores) and diabetic skin ulcers.Analyst Denise Gilbert of Smith Barney in San Franciscopredicted that Dermagraft will reach the market in 1995.

-- Michelle Slade Associate Editor

(c) 1997 American Health Consultants. All rights reserved.

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