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Advanced Tissue Sciences, Inc. (NASDAQ: ATIS)
Market Data:
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ATIS Corporate Information:
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Summary Investment Considerations
Advanced Tissue Sciences, Inc. ("ATIS") announced today the signing of an agreement with INAMED Corp (OTC BB: IMDC) for the development and marketing of tissue engineered products for use in cosmetic and reconstructive surgery and other uses. We feel this transaction is very positive for ATIS both economically and strategically, as it not only provides financial flexibility to ATIS, but also validates the use of ATIS' human-based tissue-engineering technology for indications outside ATIS' traditional focus on wound-healing products. Despite the recent appreciation in ATIS stock, we continue to believe the stock is undervalued and recommend purchase of ATIS shares for those investors tolerant of the risks associated with small-cap equity investments.
Deal Economics: In exchange for the right to further develop, manufacture and sell certain ATIS products, IMDC will make $6 million in payments to ATIS, half in cash and half in ATIS stock at a significant premium (the greater of $6 per share or $3 more than the trading price over the preceding 30 days). If IMDC exercises its right to license ATIS human collagen for use in wrinkles and urinary incontinence, ATIS could receive an additional $4 million, again, half in cash and half in purchased stock. This option expires October 1, 1999. In addition to the upfront payments, ATIS will receive a $2 million milestone payment per product that receives FDA approval, to a maximum of $10 million. ATIS will also receive royalty payments on sales of products emerging from the alliance. IMDC also acquired up to 500,000 warrants that will be priced at twice the price of the common stock purchased. IMDC has agreed to hold ATIS' common stock until at least October 2002.
Broadened Pipeline: The first marketed product we expect to see emerge from this alliance uses the TransCyte technology, (which is already marketed by ATIS and Smith & Nephew for second- and third-degree burns), and would be to treat facial chemical peels and laser surgery. Because of the similarities between partial-thickness burns and the burns resulting from chemical peels, we do not believe obtaining regulatory approval for this product will be arduous. We are hopeful that this product could be on the market for these indications by the end of 1999. Other potential products using ATIS' proprietary technology include the use of human collagen for breast reconstruction following lumpectomy, for the reduction in wrinkles and for the treatment of urinary incontinence and the use of tissue-engineered cartilage for facial reconstruction. We would expect a steady flow of news over the next 6-18 months surrounding these potential products as clinical trials progress.
Marketing Issues: With an experienced salesforce marketing directly to plastic and cosmetic surgeons and to dermatologists, we feel that IMDC is an excellent partner of choice to promote the potential products to come out of this alliance.
Strategic Implications: We are encouraged that ATIS was able to establish such a lucrative alliance surrounding its tissue engineering technology for these applications. We feel that the interest expressed by IMDC in ATIS' human-based technologies validates the Company's approach to human tissue engineering and are hopeful that ATIS will be able to sign additional non-wound-healing partnerships, perhaps for indications such as tissue sealants, vocal chord augmentation, angioplasty plugs, device coatings and drug delivery.
Company Overview
ATIS is a leading tissue engineering company focused on the development of human-based tissue products for therapeutic applications. ATIS, whose strategy is differentiated from the competition by being human-based, is currently focusing its efforts on skin, cartilage and cardiovascular products. The Company's first commercial product, TransCyte, a temporary covering for full-thickness (or third-degree) burns and partial-thickness (or second-degree) burns was approved by the US FDA in March and October 1997, for each respective indication. The Company's second commercially available product, Dermagraft, a living human dermal replacement, was approved for sale in Canada in August 1997 and was launched in the United Kingdom in late 1997. Dermagraft is not yet approved for commercial sale in the US, but is available through a clinical protocol under a Treatment IDE (Investigational Device Exemption) for the treatment of diabetic foot ulcers. The Treatment IDE allows ATIS to recover manufacturing and distribution costs, but does not allow for active promotion until final product approval. Both TransCyte and Dermagraft are being commercialized through a joint venture with Smith & Nephew plc, a leading global wound-healing company.
Risk Considerations
This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of ATIS. For a complete description of risks and uncertainties to ATIS's business, see the "Risk Factors" section in ATIS's SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:
- Market risk: Like many small-cap and micro-cap stocks, ATIS shares are trading near their 52-week low. Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
- Business risk: ATIS has limited experience in the manufacturing, marketing, and the distribution of engineered tissue. Many of its products are in the early stages of development. Additionally, ATIS intends to license rights to its products to other companies. There can be no assurance that these licensing agreements will be completed, or that the market will accept any products under development.
- Regulatory risk: There is no guarantee that future ATIS products will be approved by the US FDA or international regulatory bodies for marketing in the US or abroad.
- Competitive risk: The tissue engineering industry is extremely competitive, in particular because of its large market potential. Many companies are developing products for wound care and other therapeutic indications targeted by ATIS.
Sources for Additional Information
The following are website addresses offering related information, and links to other sources of information.
www.Advancedtissue.com ATIS's corporate website
www.SmithNephew.com Smith & Nephew's corporate website
www.SmallCapsOnline.com SmallCaps Online's site for company information and research
www.FDA.gov US Food and Drug Administration homepage
www.sec.gov US Securities and Exchange Commission, with links to EDGAR filings
The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC may have performed investment banking, consulting or other services for or may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.