Shire books $650m loss on Dermagraft sale

Shire, the London-listed pharmaceuticals group, is to take a $650m charge on a pioneering skin repair treatment made from living human cells, less than three years after buying the business for $750m.

Dermagraft, used to treat diabetic foot ulcers, was supposed to strengthen a push by Shire into the promising field of regenerative medicine, which aims to restore healthy tissue to diseased parts of the body.

But the business turned out to be a big disappointment - it lost money last year - and Shire on Friday announced its sale to Organogenesis, a US biotech company, with a loss of $650m to be booked in fourth-quarter results next month.

The disposal is part of efforts by Flemming Ornskov, Shire chief executive, to focus on core therapy areas including neuroscience, where it has a leading position in the treatment of attention-deficit disorder.

He has also bolstered Shire's rare disease business with the $4.2bn acquisition of ViroPharma of the US last November.

"We have been prioritising investments that are of the greatest strategic, clinical and commercial value to our company," said Mr Ornskov on Friday. "Dermagraft no longer meets these criteria and this divestment will allow us to focus our resources on other projects."

Organogenesis will not pay any upfront fee for Dermagraft, but Shire could receive up to $300m in milestone payments subject to sales targets being met up to 2018.

Shire acquired Dermagraft through the $750m takeover of its previous owner, Advanced BioHealing of the US, in 2011.

Savvas Neophytou, analyst at Panmure Gordon, said the episode had "not been the company's finest hour". But shares in Shire rose slightly after the announcement as investors welcomed the removal of a drag on growth.

"Any price for the divestment is better than Shire retaining a non-core, lossmaking product," said Stephen McGarry, analyst at Societe Generale. "As such, we view the divestment as a positive move that should allow Shire to focus on its higher growth, profitable products elsewhere in the portfolio."

Dermagraft, originally developed in the 1990s by Smith & Nephew, the UK-based medical equipment group, has proved successful at healing diabetic foot ulcers.

But it has faced tough competition and regulatory setbacks after failing to win approval for treating leg ulcers. Meanwhile, changes in payments for wound-care under the US Medicare federal health programme further dimmed its prospects.

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