LONDON (The Deal) -- Irish pharmaceuticals company Shire (SHPG) - Get Report said on Friday it had arranged to hand its Dermagraft skin substitute to Organogenesis and take a $650 million loss on the disposal, which unwinds a major part of an acquisition it made less than three years ago.

Dermagraft is used to treat the foot ulcers that often accompany diabetes. Shire acquired the treatment when it paid $750 million up front for VC-backed Advanced BioHealing, of Westport, Conn., in May 2011, preempting the target's initial public offering. But Dermagraft didn't live up to Shire's expectations, particularly after the treatment failed to get Food and Drug Administration approval for its use on leg ulcers just weeks after the Advanced BioHealing deal. Later, the U.S. government restricted reimbursements for woundcare under its Medicaid program, further denting Dermagraft's potential.

"Following the new strategy we outlined during the first half of last year, Shire has had a renewed focus on operational discipline," said Shire CEO Flemming Ornskov, referring to a reorganization which pooled the R&D functions of three units into a central entity. "As such, we have been prioritizing 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," he added in the statement.

Shire said it is parting with assets which were valued at $683 million on its books as of Sept. 30 and will retain legacy liabilities, including those relating to a Department of Justice investigation about Advanced BioHealing's sales and marketing practices.

Organogenesis, of Canton, Mass., will pay Shire nothing up front but agreed to hand over up to $300 million in milestone payments related to sales targets between now and 2018.

Shire will record the $650 million loss in its 2013 fourth quarter.

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The Dublin company is currently waiting to close its $4.2 billion purchase of Exton, Pa.-based ViroPharma (VPHM) . As of Jan. 9, it had 78% of the company in the bag. On Jan. 15 it removed a condition stipulating that closing was dependent on approval from Britain's Office of Fair Trading.

It expects the ViroPharma purchase to close on Jan. 24.

Shire's remit is to focus on specialist medical conditions - in other words those that wouldn't be treated by a general practitioner -- in areas of "significant unmet medical need."

Its shares were little changed at mid-day in London at 2,992 pence, valuing the company at about £17.6 billion ($28.9 billion).

Organogenesis specializes in bioactive wound healing and the treatment of gum tissue and is best known for its Apligraf leg ulcer treatment. The Mass. company said it would keep Dermagraft's manufacturing facility in La Jolla, Calif. going.

"Organogenesis is a pioneering company in the regenerative medicine and wound healing fields, and we are now the proud owners of two products containing living cells that are FDA-approved for wound healing," said Organogenesis President and CEO Geoff MacKay in a statement.

Lazard and Davis Polk & Wardwell LLP advised Shire on the Dermagraft sale. The same duo advised on Shire's November deal for ViroPharma, and Davis Polk had also assisted Shire on the 2011 purchase of Advance BioHealing, on which Barclays plc was Shire's financial adviser.