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Advanced Tissue Sciences Soars on Positive Report on Skin Grafts

March 11, 2000|From Bloomberg News

La Jolla-based Advanced Tissue Sciences Inc.'s shares rocketed 69% on Friday after the company said lab tests for its artificial skin graft were promising, but one industry analyst suggested the investor enthusiasm could ultimately turn out to be skin deep.

The company said laboratory studies suggest its Dermagraft artificial skin graft may prompt growth of tiny blood vessels to feed oxygen-starved heart muscle. Shares in the company (ticker symbol: ATIS), which is losing money as it works to bring its second product to the market, soared $4.94 to close at $12.13 on Nasdaq, bringing its year-to-date gain to 385%.

The company said experiments indicated a Dermagraft patch could trigger a process called angiogenesis, the growth of tiny blood vessels, that could help feed oxygen-starved heart muscle.

While the research could lead to new heart treatments, the lab studies are too early to show the product would be effective in the new use, said Michael Becker, editor of the biotechnology stock newsletter Beck On Biotech.

"Investors are blindly buying the company because they came out with news and it looks good," Becker said. "I'd be more impressed if they got the first [use for] the product on the market."

It's the first time the stock has risen above $10 since May 1998. In June 1998, shares lost nearly half their value after the company said government officials wouldn't approve Advanced Tissue's artificial skin product, Dermagraft, without data from an additional study.

Advanced Tissue's only approved product, a temporary burn covering called Dermagraft TC, can only be used on a few patients.

Dermagraft was developed as an artificial skin product grown from human cells and designed to work by secreting certain growth factors to encourage the body to heal. In theory, many of the growth factors released by Dermagraft would work to encourage blood vessel growth, and that could improve circulation within the heart.

"They are infamous for incorporating the buzzwords in biotech [such as angiogenesis] to achieve a higher stock price, but the most important word in this release is 'preclinical,' " Becker said.

In its lab studies, new vessels started growing within 14 days and continued to mature over time, Advanced Tissue said.

"We believe that our human approach to tissue engineering can deliver significant advantages over current alternative therapies," said Gail Naughton, the company's president and chief executive.

The jump in Advanced Tissue's share price leaves the company with a market capitalization of $686 million. That makes Advanced Tissue bigger than Organogenesis (ORG), which has a market capitalization of only $550 million, even though it won approval for its artificial skin product. Shares of Organogenesis eased 63 cents Friday to close at $18.06 on the American Stock Exchange.

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