Smith & Nephew 'spray-on-skin' for leg ulcers flops in trial

A novel spray-on skin treatment consisting of living cells made by Smith & Nephew, which is designed to work with the body’s own cells to help heal leg ulcers, has failed in a late-stage clinical trial.

The product, known as HP802-247, was viewed by some analysts as a key pipeline asset in the company's advanced wound management division and the Phase III failure is a setback for the healthcare group, which is a regular subject of takeover talk.

The unsuccessful North American trial, announced on Monday, is also something of a surprise, given the promise of earlier studies.

Analysts at Investec downgraded their recommendation on the stock to "hold" from "add" on the news. They now see only a 25 percent chance of success for the product, against 50 percent previously.

The future of HP802-247, which had not been expected to reach the market until 2017, may be uncertain, but the company is not giving up on the idea of using innovative approaches to wound healing in the emerging field of regenerative medicine.

“A thorough assessment is underway to determine why the preliminary results of the first Phase III study are inconsistent with the strongly positive Phase IIa/IIb results," said Chief Executive Olivier Bohuon.

"While this is an unexpected and disappointing development with this one product, we remain excited by the prospects for advanced wound bioactives as unique treatments for unmet patient needs.”

A second Phase III study on HP802-247 conducted in the European Union is expected to report in 2016.

Smith & Nephew's spray is targeted at people with venous leg ulcers whose skin will not heal with conventional treatments, such as compression dressings, and for whom the only alternative option could be skin graft.

The British acquired HP802-247 when it bought Healthpoint Biotherapeutics in 2012 for $782 million in cash, as part of its strategy to expand in the area of bioactive wound care. That deal also gave the group Santyl, an ointment that removes dead tissue in wounds.

Shares in Smith & Nephew fell 1.2 percent by 0830 GMT (4.30 a.m. EDT).

Analysts at Berenberg said the key factor driving the stock price remained speculation of a potential takeover. U.S. medical technology group Stryker in May ruled itself out from making a bid for the company for a period of six months, but some investors think it could make a move from late November.