UPDATE 1-Shire takes $650 mln hit on Dermagraft sale

Fri Jan 17, 2014 4:39am EST

* Sells loss-making skin treatment for no initial fee

* Could receive up to $300 million in milestone payments

* Shares touch record high

By Paul Sandle

LONDON, Jan 17 (Reuters) - Pharmaceuticals company Shire has agreed to sell its Dermagraft treatment to U.S. group Organogenesis, taking a $650 million hit on the loss-making bio-engineered skin substitute it bought less than three years ago.

Shire had hoped that Dermagraft would be the foundation of a regenerative medicine franchise when its acquired owner Advanced BioHealing for $750 million, but it received a setback when the treatment for diabetic foot ulcers failed to be approved for leg ulcers months after the deal in June 2011.

The company said on Friday that Dermagraft's prospects had also reduced significantly after changes in U.S. federal reimbursement payments for wound-care products.

Shire said it will receive no upfront payment from Organogenesis but it would be entitled to up to $300 million cash in milestone payments if it meet sales targets up to 2018.

It said the loss on the disposal - about $650 million - will be treated as an exceptional item in its 2013 fourth-quarter results.

The market welcomed the sale, with London-listed Shire's shares reaching a record high of 30.25 pounds in early trade on Friday. By 0930 GMT they were up 0.7 percent at 30.07 pounds.

Analysts at Societe Generale said that Dermagraft would have become even more of a drag on Shire's earnings after the the reimbursement changes.

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

Shire Chief Executive Flemming Ornskov is focusing the group on core therapy areas including rare diseases and neuroscience, where it is a leading provider of drugs to treat hyperactivity.

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