With Dermagraft Sale, Shire Jettisons Business Acquired 3 Years Ago

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as CEO last April. In a trenchant analysis, Genetic Engineering and Biotech News reported that changes in Medicare’s reimbursement for wound-healing products like Dermagraft also had diminished the value of the business.

In the company’s statement last week, Ornkov said, “The business environment has changed, and the prospects for the [Dermagraft] product have reduced significantly. We believe the best path forward for the patients who benefit from Dermagraft is to transfer it to new ownership in order to provide continued care and availability of their treatment.”

Another factor in Shire’s decision, however, may be a continuing investigation by the U.S. Department of Justice into Dermagraft’s sales and marketing practices. The Justice Department typically does not disclose anything about its ongoing investigations, but some details emerged in a wrongful termination and age discrimination lawsuit that was filed against Shire last May in a San Diego federal court by Jeffrey Jonas, a senior Shire executive.

Jonas moved to San Diego at the beginning of 2013 to take over Shire’s new Regenerative Medicine division, and sued his employer less than six months later.

In the lawsuit, Jonas alleged that former Shire CEO Angus Russell and other Shire executives withheld information about a wide-ranging federal investigation into allegations of illegal conduct by Advanced BioHealing’s sales and marketing group before and after the Shire acquisition. Among the allegations, according to Jonas’ suit, was that sales projections for the regenerative medicine business were overinflated “because they were based on prior illegal conduct by ABH sales personnel.”

According to the suit, Jonas only learned after he had moved to San Diego that “the Justice Department was seeking penalties of approximately $1.5 billion in connection with that investigation.”

Shire did not file a response to the Jonas suit. The company later said it had settled the matter, although terms of the settlement were not disclosed. In mid-August, Cambridge, MA-based Sage Therapeutics named Jonas as CEO.

In its statement concerning the Dermagraft sale, Shire said it would retain Dermagraft’s legacy liabilities, including the DOJ inquiry.

Evan Snyder, director of the Center for Stem Cell & Regenerative Biology at San Diego’s Sanford-Burnham Medical Research Institute (and a San Diego Xconomist) said Shire’s move to jettison the business was a little surprising.

“Just last year, we had meetings with Shire to figure out how we might collaborate,” Snyder wrote in an e-mail. Nevertheless, he added, “Shire’s decision will [have] no impact whatsoever on regenerative medicine in San Diego—or anywhere else, for that matter. Where one company changes direction and vacates an approach, many others are there to take its place. The one thing I have learned is that there are so many facets to the regenerative medicine field—including that niche abandoned by Shire—that it really says very little about regenerative medicine as an opportunity either clinically or commercially.”

Joe Panetta, who heads the nonprofit Biocom industry group in San Diego, offered a similar assessment.

With big companies like GSK, Thermo Fisher, Hologic, Ajinomoto, Cubist, and AstraZeneca establishing themselves recently in the San Diego region, “I don’t worry too much about Shire, BMS or Salyx choosing not to be here,” Panetta wrote in an e-mail. Decisions by companies like Shire, Bristol-Myers Squibb, and Salyx to close or sell their San Diego acquisitions provides needed expansion space for others, Panetta added.

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