Box 1.2 Dermagraft and Apligraf – a roller coaster of investment, manufacturing costs and reimbursement
In the 1990s, Advanced Tissue Sciences invested around $300m to develop Dermagraft and Transcyte for the treatment of diabetic foot ulcers. In 2000, ATS formed a marketing partnership with Smith and Nephew, a global leader in wound care products. Dermagraft was approved by the FDA in 2001. In 2002, ATS filed for bankruptcy. In 2003, Smith and Nephew purchased ATS from bankruptcy and continued with manufacturing and sales. Smith and Nephew ceased production in 2005. In 2006, Advanced Biohealing purchased the Smith and Nephew manufacturing assets for an undisclosed amount (Jones, 2011), presumably at a value destroying discount, and in 2007 resumed manufacture, with a sales/reimbursement model that led to $147m sales in 2010. In 2011, Shire bought ABH for $750m (Smith, 2014). In 2013, Dermagraft assets were declared at $683m on Shire's balance sheet and 9 month losses for Dermagraft were $324m (Reporter, 2014).
Organogenesis was the first to receive FDA approval for a living, allogeneic, cell-based product (Apligraf). They were successful in securing a marketing agreement with Novartis in 1996 (Connolly, 2002a). However, the cost of producing Apligraf was too high and in 2002 Organogenesis filed for bankruptcy and terminated its marketing agreement with Novartis. A short-term deal with Novartis and company restructure (Connolly, 2002b) today means that Organogenesis develops, manufactures and markets its own products.
In early 2014, Organogenesis acquired Dermagraft from Shire, with a promise of a $300m payment based on future sales, but without accepting liability for the ongoing Department of Justice investigation into ABH sales and marketing practices (GenEngNews, 2014). Later that year, Medicare altered reimbursement rules (Carroll, 2013), suggesting that the $1,500 cost of Dermagraft would be reimbursed at a maximum of $840. Dermagraft is a very effective treatment for diabetic ulcers, but costs and reimbursement routes may prevent it reaching patients.