Osiris Therapeutics: Bone Regeneration = Big Bucks

The company I’ve selected for this week is a Maryland-based biotechnology firm working on treatments for conditions as varied as Crohn’s disease, knee arthritis, tissue damage, life-threatening Graft-versus-host disease and acute radiation syndrome.

Osiris Therapeutics, Inc. (OSIR) creates therapeutic drugs from human mesenchymal stem cells (MSCs) retrieved from bone marrow donated by healthy adult volunteers.

Bone regeneration = big bucks

Earlier this month, Osiris announced the sale of its Osteocel unit to NuVasive for $85 million.

Osteocel promotes bone regeneration and is used in spinal fusion and other orthopedic procedures.

This deal provides Osiris with the money and ability to focus on the next generation of revolutionary products… products like Chondrogen, which works on the regeneration of knee cartilage, and the multi-purpose Prochymal.

The incredible potential of Prochymal

The most exciting biologic drug in Osiris’ repertoire is Prochymal. Designed to reverse cellular damage, its applications seem limitless.

The most vaunted use is as a treatment for Graft-versus-host disease. Early testing was credited with saving the lives of seven of twelve children in the advanced critical stages of the disease. As a result, the drug is currently in a Phase III trial and has been granted Fast Track status by the FDA.

If all goes as well as anticipated,Prochrymal would be the first approved stem cell therapy in the world.

But it does’t end there…

The positive effects of Prochymal on the gastrointenstinal symptoms of graft-versus-host disease revealed additional prospects.

Osiris has begun a Phase III program using the drug in the treatment of Crohn’s Disease.

Prochymal has also shown results in the repair of heart tissue following a heart attack. In March, Phase I trial results showed patients receiving the drug had markedly less cardiac arrythmias as well as significant improvements in heart and lung function.

The Department of Defense has bought into this technology

In January, Osiris, partnered with Genzyme, was awarded a $224.7 million contract by the Department of Defense to develop and stockpile Prochymal for the treatment of gastrointestinal injury resulting from acute radiation syndrome.

This opens the company up to a whole new client sector.

Like many research-focused biotechs, Osiris operates at a net loss. For the first quarter of 2008, the loss amounted to $15.6 million – that’s up from $11.5 million the year prior.

The main reason for this increase is the additional research and testing involving Prochymal.

The first-quarter report listed an available cash flow of $42 million and a credit line of $30 million through its primary backer, Friedli Corporate Finance.

A sound investment

Some estimate that the market for stem cell therapy to be around $20 billion by 2010.

Besides the opportunities presented by Prochymal, Osiris has 47 patents for their cutting-edge technology in the U.S. and over 200 foreign patents owned or licensed.

I recommend you buy Osiris Therapeutics, Inc. at or under $15.50. My conservative10-month target for the stock price is $18.

Disclosure: None

Comments

[alexd1:]

I completely agree. Osiris has 3 phase 3 clincal trial that are on fast track for FDA approval. As an orthopedic surgeon, I have an opinion that Chondrogen, another stem cell in their pipeline, will gain approval for injections in joints for osteoarthritis. They have started phase 2 trials on this. I think it will supplant all the currently available viscosupplements currently on the market. It is a one shot injections with profound longlasting results based on the data to date. I would anticipate approval in 2012 with a market on Chondrogen of several billion dollars with a few years of launch.

2008 May 24 12:18 PM

[jimmyp42:]

The biggest problem I see with small companies like these is, will they have enough cash to see them through the next phase of trials. It seems that many wind up selling off their most promising assets to fund new projects and trials. This is OK as long as the pipeline is filled with winners. All it takes is one set-back in trials and all or most is lost.

2008 May 24 01:38 PM

[Roly:]

Osiris is the only stemcell company, that sells a product, and the mesenchymol stem cells have a broad range of applications. Just go to the osiris website and check press release 10.14.05. It is amazing how these stem cells do work. (Why we don't know yet). It just takes time to go through the FDA approval process, but in 2012 we shall see the stock at >50$, of course if Osiris passes all tests. But the good thing, if Osiris gets the approvels for all products in the pipline, there are prices possible of up to 100$. This is a 6 times bagger.

2008 Jun 04 04:05 PM

[dustbusterz:]

i don't know that much about stem cell research and certainly only today heard about this company. but if what i read is true, this company could become a 10 bagger. even if they don''t have the cash to see this trough the final stages, it seems picking up some shares would still be a great idea. someone with the needed cash would definately be willing to buy this company and continue this to market since it has such great potential. you'd be getting shares into whatever company eventually bought the company out and you'd still be able to ride the winner to a huge gain in the next few years.

2008 Jul 02 10:55 PM