Shire is cutting its losses on Dermagraft and is selling the skin substitute to the USA's Organogenesis.

The company got hold of Dermagraft, a regenerative bio-engineered skin substitute approved in North America for the treatment of diabetic foot ulcers, when its acquired Advanced BioHealing in 2011 for $750 million. However, the product has failed to make any genuine impact and Shire chief executive Flemming Ornskov does not see things improving anytime soon.

He says that a recent Medicare ruling in the USA regarding reimbursement for Dermagraft means "the business environment has changed, and the prospects for the product have reduced significantly". Mr Ornskov added that Shire has been going through a review  prioritising investments that are of the greatest strategic, clinical and commercial value to our company. Dermagraft no longer meets these criteria and this divestment will allow us to focus our resources on other projects".

Shire will receive no upfront fee from Organogenesis but is entitled to get up to $300 million in cash if it meets sales targets between now and 2018. The Ireland-headquartered group will record a loss on the disposal of about $650 million.

The fact that Shire is basically giving Dermagraft away has not concerned the market and the company's are riding high this morning. Analysts at Societe Generale issued a research note saying that "any price for the divestment is better than Shire retaining a non-core, loss-making product". They added that "we view the divestment as a positive move that should allow Shire to focus on its higher growth, profitable products elsewhere in the portfolio".