Seeking Alpha
Growth, value, special situations, momentum
Profile| Send Message| ()  

We have all heard of stem cells and stem cell research. Stem cells have been a political hot potato for years, and while the debate in Washington still lingers, there are companies making strides in research and developing technologies to make stem cell treatment a reality. Osiris Pharmaceuticals (OSIR) is one such company.

Set Aside the Politics

Political and ethical issues aside, Osiris actually obtains its stem cells from adults and not the more controversial embryo source. The positive side of this is that there is no real political or ethical dilemma in the source. The bad news is that, due to uninformed opinion, anything related to stem cells seems to carry the controversial tag with it. This has been changing as the months pass because people are taking the time to learn more about the subject. Over time the negatives will be replaced with positives and that can only benefit Osiris.

As per the company's website:

Osiris' stem cells are derived from the bone marrow of healthy adult donors between the ages of 18 and 30 years. Prior to donation, donors are screened for transmissible diseases, including HIV and hepatitis, and the medical and social history of each donor is obtained to ascertain whether signs, symptoms or behaviors consistent with high risk for carrying a disease are present. The health of the donor is then monitored for up to five years after donation to further ensure his/her health status. Further testing by Osiris ensures that the stem cell population in the donated marrow is viable and of the appropriate type for use in the Company's products.

Because of the nature of Osiris' stem cell source, and the great care taken to ensure safety and quality of the material, the ethical, health and practical concerns that hamper the development of other stem cell products are avoided. This is primarily the reason Osiris has progressed into the human clinical trial phase faster than any other stem cell company.

Two Business Segments: Therapeutics and Biosurgery

One thing that is attractive about Osiris is that there are two arms to the business. The company has a therapeutic segment and a biosurgery segment.

Biosurgery

The biosurgery arm is already bringing products and treatments to the market. One now famous example is the right foot of a patient named Bobby Rice. His foot was essentially a lost cause when the doctor contacted Osiris and a stem cell treatment was used to heal the foot. Rice went from the prospects of spending his remaining years without a foot to the potential beauty of having a fully functioning one. This is all still uncharted water, but the developments are promising. More standard (and less controversial) treatments include skin grafts for burn patients.

The biosurgery segment has two products, Grafix, and Ovation. Grafix and Ovation are active products that focus on wound healing. While still early, the biosurgery unit would appear to be a building profit center. In the most recent quarter this segment generated revenues of over $4 million while the cost of that revenue was just $1.1 million. If this segment can grow faster, there is potential that the free cash flow from this side of the business can help fuel additional research, development, and growth.

Therapeutics

The therapeutics side of Osiris involves several potential products that are in varying stages of FDA testing. The most exciting is Prochymal, which is targeting six treatments, some of which enjoy orphan drug and FDA Fast Track status. This could mean accelerated approvals. Prochymal has studies in Phase III trials now.

Click to enlarge image.Osiris Pipeline

A second product in the therapeutic line is Chondrogen. This product is targeted toward a stem cell solution for arthritis. Chondrogen is in Phase II trials. Lastly, the company has Osteocell XC in early trials, which targets focal bone regeneration.

Strategy

Osiris saw an impressive climb from about $6.50 a share in early March of this year to About $11.50. The 52-week high is at about $14.50. The company has held the $10 level for over a month and currently trades at $10.16. Analyst firm Piper Jaffray carries a $14 price target that was published at the beginning of May.

The recent trend has been some downward pressure on lower than average volume. If volume continues to ease up it could be a signal of a bottom, or at least a consolidation zone. Osiris could become an attractive play at current levels, as the upside target would represent a 40% gain. There is some caution in that the company is reliant on the biosurgery arm while it makes efforts to get therapeutics products through the FDA process. I like the potential here at current levels.

Source: Osiris - Can Stem Cells Lead To Profits?