Drug tie-up boosts biotech group

THE EXTREME volatility of the drug and biotechnology sectors was thrown into sharp focus yesterday.

Shares in Chiroscience, the biotechnology group, soared 60p to 323.5p - a 23 per cent surge - as it unveiled one of Europe's biggest ever drug tie-ups. In marked contrast Smith & Nephew, the UK's largest healthcare group, admitted the development of Dermagraft, its skin grafting treatment which uses human tissue from the foreskin of circumcised babies, had met with problems in the US which sent its shares tumbling 12p to 166p.

Chiroscience expects to receive at least pounds 200m in payments and royalties from Zeneca, the pharmaceutical giant, for developing Chirocaine, a local anaesthetic. Zeneca is also buying pounds 15m worth of new Chiroscience shares, giving it a holding of just over 3 per cent in the biotech group.

Chirocaine lasts much longer than other local anaesthetics currently on the market, and can be used to numb areas of the body for up to 48 hours at a time. Patients will soon be able to undergo operations such as hip replacements using the new treatment rather than having to be rendered unconscious by a general anaesthetic. Chiroscience believes this will save the medical industry many millions of pounds by reducing the time patients will have to stay in hospital.

Dr John Padfield, chief executive of Chiroscience, said that the market for such local anaesthetics was growing rapidly and predicted that Chirocaine was likely to have peak sales of pounds 250m a year. "We will get a minimum of pounds 200m from Zeneca but that looks like a conservative figure," he added.

Chiroscience also plans to explore ways of using Chirocaine to help reduce pain for patients after they have undergone serious operations. Chirocaine is due to be launched in Europe during 1998 and in the US next year.

Meanwhile Smith & Nephew has been forced to recall some of its Dermagraft products after a routine visit by the Federal Drugs Administration to manufacturing facilities in the US unearthed production problems. The American launch of Dermagraft is now likely to be delayed for several months.

S&N admitted that Advanced Tissue Sciences, its US partner, had of not followed the right production procedures, including not documenting research or monitoring results properly.

Chris O'Donnell, the group's chief executive, admitted the findings added to the uncertainty surrounding Dermagraft but said it should not seriously damage chances of the treatment being launched in the US market later this year. "This is an annoying setback rather than a major heartache," he said. S&N has now sent three of its own employees over to sort out the problems.

S&N is the first company in the world to develop the bio-engineered skin which helps cure foot ulcers in diabetics and could eventually be used for cartilage and ligament injuries.