Advanced Tissue Sciences Inc. announced Monday that it hassigned a letter of intent to acquire privately held NeomorphicsInc. in a deal valued at $21 million.

Under the proposed agreement, all outstanding shares ofNeomorphics would be exchanged for ATS stock(NASDAQ:ATISA) valued at $21 million over a certain periodprior to the closing. ATS shares rose 50 cents to $13.13 onMonday.

Lexington, Mass.-based Neomorphics, founded in 1988, is aventure capital-backed R&D company focused on theengineering of human tissue and organ replacements. Its workon growing tissue on biocompatible scaffolding in vivo willcomplement ATS's in vitro technology, said Arthur Benvenuto,chairman, president and chief executive of the La Jolla, Calif.,company.

ATS in 1990 introduced its first product, Skin2 ("skinsquared"), a toxicity testing kit containing squares of livinghuman skin. In January 1991, ATS began clinical trials of itsfirst therapeutic product, Dermagraft, as a replacement forhuman dermis in severely burned patients.

Neomorphics' most advanced products, for liver and cartilagereplacement, are in preclinical testing. In animal models, theliver replacement has remained viable for a year. Acquiringthose programs will accelerate ATS's programs, which haven'tyet advanced to preclinical trials in those areas.

Ultimately, Benvenuto said, ATS will be able to pick the bestmethod to commercialize -- in vitro or in vivo -- based onclinical outcomes.

Neomorphics has funded R&D programs at MassachusettsInstitute of Technology and Children's Hospital in Boston. Theprograms are led by Dr. Joseph P. Vacanti, a transplant surgeonand researcher at Harvard Medical School and Children'sHospital, and Robert S. Langer, a biomaterials scientist at MIT.

The company has license rights to several patents held byChildren's and MIT.

After the acquisition, the Lexington-based group will focus onfuture products and preclinical development. La Jolla willdirect commercial development. Other products in earlydevelopment at Neomorphics are gastrointestinal andgenitourinary tract products, such as bladder, colon, stomach,ureter and urethra replacement. Tendon, bone and ligamentreplacements are longer-term projects.

Venture backing for Neomorphics has come from CW GroupInc., Aegis Venture Funds, Brentwood Associates, WhiteheadAssociates, Euclid Partners Corp. and Aspen Ventures. Theamount of funding wasn't disclosed.

-- Karen Bernstein BioWorld Staff

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