Osiris Wows The Market With Stellar Earnings Report

| About: Osiris Therapeutics, (OSIR)

The market was truly taken aback by the Q4 2012 earnings report released yesterday morning by the stem cell company Osiris Therapeutics (NASDAQ: OSIR). Osiris, which was expected to operate at losses of roughly $5 million for the quarter by analysts, only reported $2.6 million in quarterly operational losses (or an EPS of -.08). The company also reported $3.1 million in revenues during the quarter, which represents significant top-line growth versus Q4 2011 if you remove one-time payments from the revenues posted one year ago.

In reaction to these financial figures OSIR rallied into yesterday's close with extreme confidence, bringing the stock over 35% higher. YTD performance of OSIR also moved into the green, rewarding investors with an extra 4% in gains since the start of the year.

Recall that OSIR has been a very weak stock in the first quarter of this year, dropping steadily from over $9/share to the sub $7/share level prior to this rally. The fact that all of this damage was erased in one trading session is impressive to say the least.

Going forward, investors will probably be looking for the company's move into positive EPS territory, which seems much more possible now that the company has shown an incredible capacity to cut its costs. Even more vital to the company's success is the momentum of Prochymal (remestemcel-L) - Osiris' flagship product.

Prochymal is an allogenic stem cell therapy, meaning that the stem cells in Prochymal all originate from a central source. This is makes prochymal different from some other cell therapies like Dendreon's (NASDAQ: DNDN) Provenge, which is autologous (Provenge cells are taken from patients and reintroduced with some modifications). While there is some concern about the idea of introducing foreign stem cells into a patient, prochymal has proven to be quite safe and recently became the first stem cell therapy ever approved in Canada.

Prochymal is being developed for a number of indications, but the most important two at the moment are graft versus host disease (GvHD) and Crohn's disease. Note that in the United States, Crohn's is an orphan disease, making Prochymal an orphan drug.

An added benefit of having an allogenic cell therapy versus an autologous therapy is that costs are more controlled, leading to much better profit margins. This implies that Osiris may be able to avoid many of the cost related problems that other cell therapy companies like Dendreon had following the launch of Provenge in the United States.

Still, Prochymal has not progressed far enough to warrant detailed speculation on its financial performance. While the drug received approval in New Zealand and now Canada for graft versus host disease (GvHD), investors are primarily focused on Prochymal's potential FDA approval in a few years.

Exactly when Prochymal will have enough data for an NDA is still up to general speculation, although we do know that the company's phase III trial for the Crohn's disease indication is scheduled to be completed at the end of year 2015, implying that an NDA submission might have to wait until the first half of 2016.

Although the drug has been granted fast-track status, the FDA is not required to approve the drug based on uncompleted endpoints in its clinical trials and may wait for the full results. Since the trial is still in the enrollment phase, OSIR shareholders waiting on an FDA approval will have to be patient in either scenario.

Also, due to the importance of the US market for Osiris, I think investors who are serious about Osiris as a long-term holding should ignore the short-term fluctuations in share price in anticipation of a much bigger move in the future. Although the recent financial results imply that share dilution in OSIR may be coming to an end as the company hovers close to the "zone of profitability," the 35% that was just made on OSIR can be shaved off with one piece of bad news, or even a period of no news.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.