Firm's collapse blow to business of regenerative medicine

The business of regenerative medicine was dealt another blow this week with the collapse of Advanced Tissue Sciences Inc. of San Diego, a pioneering company that sold a replacement skin for burn victims and diabetics.

The company's bankruptcy filing Thursday came two weeks after rival Organogenesis Inc. of Boston sought bankruptcy protection from its creditors. Analysts said the back-to-back business failures serve as a reality check in an industry that promises to use living cells to build replacement bladders, livers and other organs.

The bioengineered skin products, though a scientific achievement, were a hard sell in the current cost-conscious environment.

An eight-week regimen of Advanced Tissue's Dermagraft replacement skin costs $4,000.

Sold for the stubborn leg and foot sores of advanced diabetes, it competed against the standard treatment of antiseptics and bandages.

Company spokesman Abe Wischnia said Friday that no major health insurance company has yet agreed to pay for the product, which received Food and Drug Administration approval last October.

As a result, sales of the product will fall short of its modest sales goal of $3 million to $4 million for 2002, he said.

"The products show that it is technically feasible to make organs," said Fariba Ghodsian, a biotechnology analyst with Roth Capital Partners in Los Angeles. "How the market responds depends on cost and other factors."

A sour investment environment for biotechnology companies in general also contributed to Advanced Tissue's woes.

It planned to sell 10 million shares to raise additional capital, but the terms it received from underwriters were not acceptable, Wischnia said.

After the company's rival, Organogenesis, closed its doors last month, the financial markets dried up for Advanced Tissue, he said.