NUCRYST and Smith & Nephew Revise Agreements



    WAKEFIELD, MA, Oct. 1 /CNW/ - NUCRYST Pharmaceuticals Corp. today
announced that on September 30, 2007 it signed amended agreements with Smith &
Nephew wound management for the manufacture and sale of Acticoat(TM) dressings
with SILCRYST(TM) nanocrystalline coatings. The two companies first entered
into the agreements in 2001, when Smith & Nephew bought the Acticoat(TM) brand
from NUCRYST and agreed to grant NUCRYST exclusive manufacturing rights, plus
pay manufacturing cost reimbursement, a royalty on sales and milestone
payments linked to agreed-upon sales and performance targets.
    "The advanced wound care market, including the silver dressing segment,
has become significantly more competitive since we signed the original
agreements in 2001," said David C. McDowell, Vice President Operations for
NUCRYST Pharmaceuticals. "As a result, both parties recognized the need to
restructure the agreements to enable Smith & Nephew and NUCRYST to jointly
support the continued growth of the Acticoat(TM) brand in the context of
increasing competitive pressures."
    Joe Woody, President of Smith & Nephew Advanced Wound Management
commented "We are very pleased to maintain our long relationship with NUCRYST,
in particular through Acticoat(TM) and nanocrystalline silver antimicrobial
dressings which offers patients worldwide proven clinical benefits and an
improved quality of life".

    
    Highlights of the material changes made to the agreements include:

    -   Smith & Nephew will advance $5 million of a milestone payment to
        NUCRYST in 2007.
    -   Under the previous agreements, the price paid by Smith & Nephew for
        Acticoat(TM) products was NUCRYST's fully allocated cost of goods
        sold including equipment depreciation. To provide Smith & Nephew with
        greater costing certainty of the Acticoat(TM) product line, the
        costing mechanism has been amended starting in 2007 to a fixed
        overhead charge plus direct costs, which will be established
        annually.
    -   The overhead charge payable by Smith & Nephew in 2007 through 2009
        has been fixed at a minimum floor amount equal to the 2007 overhead
        charge. This floor amount will be payable by Smith & Nephew
        regardless of the actual volume of Acticoat(TM) products ordered by
        Smith & Nephew. NUCRYST may use any actual overhead cost savings
        achieved by NUCRYST over the next two years to offset an annual early
        cost of goods relief payment in the amount of $4.5 million that
        NUCRYST has agreed to make to Smith & Nephew beginning in 2007
        through 2009. In 2010, the parties will establish new fixed prices
        after taking into account the cost savings achieved by NUCRYST in the
        previous two years.
    -   NUCRYST will be entitled to immediately include in the cost of goods
        sold to Smith & Nephew partial depreciation on a new production
        facility and equipment scheduled to be certified by NUCRYST in the
        fourth quarter of 2007. Once NUCRYST begins using the new equipment
        to produce Acticoat(TM) products, inclusion of the full depreciation
        will commence (subject to any proportionate use NUCRYST itself makes
        of the equipment). Prior to the revisions to the agreements, NUCRYST
        would not have been able to recover any portion of the capital costs
        for this capacity expansion until NUCRYST began using the equipment
        to produce Acticoat(TM) products.
    -   A non-compete clause has been deleted from the agreements to allow
        Smith & Nephew to broaden their wound care dressings product line to
        include other forms of silver. In exchange, Smith & Nephew's
        exclusive license has been limited to existing Acticoat(TM) products
        and such new wound care or burn products as the parties agree to
        develop together using NUCRYST's SILCRYST(TM) technology.
    -   New products developed alone by NUCRYST that contain SILCRYST(TM)
        technology or any new form of nanocrystalline silver developed by
        NUCRYST will be initially offered to Smith & Nephew. If Smith &
        Nephew declines to commercialize any of these products on terms
        acceptable to NUCRYST, NUCRYST will be free to pursue other
        commercialization options.
    -   NUCRYST will contribute services towards the joint development of new
        products with Smith & Nephew up to a maximum amount per year
        equivalent to 1.5% of Smith & Nephew's sales of Acticoat(TM) products
        in the year. This replaces a system whereby Smith & Nephew reimbursed
        NUCRYST for all of its product development costs.
    -   Royalty rates will be maintained, except for the elimination of a
        supplemental royalty that was payable to NUCRYST only if certain
        gross profit margins were achieved on sales of Acticoat(TM) products
        over a specified threshold.
    

    The overall combined impact of all of the above changes on NUCRYST's
financial results is not expected to be significant in 2007. However, the
changes could have a material adverse affect on NUCRYST's quarterly financial
results in subsequent periods depending on the timing of payments made to and
received from Smith & Nephew, Smith & Nephew's sales of Acticoat(TM) products,
the achievement of cost savings by NUCRYST, and the receipt by NUCRYST of
further milestones payments. In the longer term, NUCRYST expects the
amendments to the agreements to further facilitate its ongoing efforts to
expand NUCRYST's business opportunities while enabling it to continue to
support Smith & Nephew to realize the future growth potential of the
Acticoat(TM) products.

    NUCRYST Pharmaceuticals develops, manufactures and commercializes medical
products that fight infection and inflammation using its patented atomically
disordered nanocrystalline silver technology. Smith & Nephew plc sell a range
of advanced wound care products under their Acticoat(TM) trade mark:
Acticoat(TM) products incorporate NUCRYST's SILCRYST(TM) coatings and are sold
in over 30 countries. NUCRYST is also developing new medical products to
address conditions that are characterized by infection and inflammation.

    Acticoat(TM) is a trademark of Smith & Nephew plc
    SILCRYST(TM) is a trademark of NUCRYST Pharmaceuticals Corp.

    This news release contains forward-looking statements within the meaning
of applicable securities legislation in the United States and Canada
(collectively "forward-looking statements"). The words "would", "will",
"determine", "should", "could", "achieve", "expects", "enable", "may",
"facilitate" and "plans" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements
contain these identifying words. Forward-looking statements in this news
release include, but are not limited to, statements about: our strategy,
future operations, prospects, plans of management and our ability to
successfully achieve significant and sustainable reductions in our costs
incurred to produce Acticoat(TM) products by the end of 2009; our expectations
regarding our future revenues and expenses; our expectations regarding Smith &
Nephew's ability to achieve continued sales growth of the Acticoat(TM)
products; our expectations concerning our existing collaboration with Smith &
Nephew for the development of new products; our ability to develop future
products containing our nanocrystalline silver technology together with Smith
& Nephew or alone.
    With respect to the forward-looking statements contained in this news
release, we have made numerous assumptions regarding among other things: our
ability to accurately forecast future revenues; our ability to successfully
achieve significant and sustainable reductions in our costs incurred to
produce Acticoat(TM) products; Smith & Nephew's ability to sustain and/or
improve sales growth of the Acticoat(TM) products; our ability to comply with
applicable governmental regulations and standards; and our ability to succeed
at developing and commercializing potential new products containing
SILCRYST(TM) technology or other forms of silver. Readers are cautioned that
plans, intentions or expectations disclosed in any forward-looking statements
and underlying assumptions may not be achieved and that they should not place
undue reliance on any forward-looking statements. Actual results or events
could differ materially from the plans, intentions, expectations, and
assumptions expressed or implied in any forward-looking statements as a result
of numerous risks, uncertainties and other factors, including, but not limited
to, those relating to: difficulties or delays in the development, initiation,
timing, progress and results of production process and technology improvements
necessary to achieve actual reductions in our costs incurred to produce
Acticoat(TM) products; difficulties or delays in obtaining any regulatory
approvals required to implement changes to our Acticoat(TM) production
processes and/or technology; our reliance on Smith & Nephew's collaboration
and cooperation to implement changes to our production processes related to
Acticoat(TM) products; our ability to maintain our collaboration with Smith &
Nephew; our reliance on sales of Acticoat(TM) products with our SILCRYST(TM)
coatings by Smith & Nephew; difficulties or delays in the initiation, timing,
progress and results of our preclinical trials and research and development
programs relating to the development of products containing our
nanocrystalline silver; future sales of Acticoat(TM) products may not be
sufficient to adequately fund our research and development plans; our future
operation results are uncertain and likely to fluctuate; we may not be able to
retain existing and obtain new regulatory approvals for any future products we
may develop; we may not be able to establish successful commercialization
programs, through new corporate collaborations or otherwise, for our future
products; competition from other silver-based pharmaceutical or medical device
companies; our ability to raise additional financing required to fund further
research and development, clinical studies and obtain regulatory approvals, on
commercially acceptable terms or at all; changes in currency exchange rates;
our ability to protect our intellectual property rights and to not infringe on
the intellectual property rights of others; our ability to comply with
governmental regulations and standards; our ability to successfully attract
and retain skilled and experienced personnel; changes in general economic and
capital market conditions; other risks and uncertainties unidentified at this
time; and management's response to these factors.
    Although we have attempted to identify the important risks, uncertainties
and other factors that could cause actual results or events to differ
materially from those expressed or implied in forward-looking statements,
there may be other factors that cause actual results or events to differ from
those expressed or implied in forward looking statements. For a more thorough
discussion of the risks associated with our business, see the "Risk Factors"
section in our Annual Report on Form 10-K for the year ended December 31,
2006, filed with the U.S. Securities and Exchange Commission on EDGAR at
www.sec.gov and with securities authorities in Canada on SEDAR at
www.sedar.com. All forward-looking statements are expressly qualified in their
entirety by this cautionary statement and NUCRYST disclaims any intention or
obligation to revise or update any forward-looking statements whether as a
result of new information, future developments or otherwise after the date
hereof.

    %SEDAR: 00023031E




For further information:

For further information: Eliot M. Lurier, Chief Financial Officer, (781)
224-1444, info@nucryst.com

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NUCRYST PHARMACEUTICALS CORP.

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