Osiris Therapeutics: Poised For Another Breakout

| About: Osiris Therapeutics, (OSIR)


Osiris recently became profitable with impressive sales growth yet the market failed to react to this news.

Osiris's mature stem cell products have shown overwhelming efficacy and they have plenty of funds to market them.

Osiris presents tremendous value to the investor as the market has failed to account for sales growth and reduced R&D costs.

Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Osiris Therapeutics (NASDAQ:OSIR) has seen its price double twice in the past two years and is now poised for yet another breakout. Although Osiris may have given back most of the recent gains since the last time it doubled, only good things have since happened to the company, and the share price should be higher.

Osiris differs from the other stem cell/regenerative medicine players (Advanced Cell Technology (ACTC), BioTime (NYSEMKT:BTX), Pluristem (NASDAQ:PSTI), NeoStem (NBS), and Neuralstem (NYSEMKT:CUR)) because it has created effective products which have entered the market with growing sales. Its wound healing product, Grafix, has shown overwhelming efficacy in wound closure for diabetic foot ulcers. Osiris is also running trials for Cartiform, a stem cell product for cartilage restoration. By selling its R&D cost intensive Prochymal unit to Mesoblast (OTC:MEOBF) for 100 million plus royalties, Osiris simultaneously offloaded most of its cost, and got the cash to grow marketing and sales.

In its Q4 2013 conference call, Osiris declared profitability and great sales growth, yet the market has failed to react to this news. Perhaps it is because these numbers have yet to be updated in the financial term sheets on sites like Google Finance, making Osiris a great buy before numbers and various filters get updated. Seeking Alpha's breaking earnings news page confirms an EPS of $0.11. If you are a stem cell tech hopeful it is hard to find a better company. Below is a quick overview of the good reasons to invest in Osiris, and the potential risks.

The good:

  • Osiris sales grew 3x in 2013 to $24.3M
  • Per the Q4 2013 earnings call, Osiris has assets of $92M and no debt
  • Grafix is expected to receive approval for Medicare reimbursement and is growing its sales force
  • Grafix showed overwhelming efficacy last year, which triggered the stock price to jump over 100%
  • Osiris is currently running clinical trials to assess the efficacy of Cartiform, another product with which to grow revenue
  • Over 50% of the company is held by insiders, proving their commitment to success. Veteran capitalist Peter Friedli and his New Venture Tech Investment firm own 14% of the company.
  • Osiris's stock price has remained in the $14-$18 range despite growing sales, suggesting the stock is undervalued.

The risks:

  • Grafix currently has pass through status only for 2014 and has not yet received FDA approval, should they lose pass through status in 2015, their ability to market Grafix will be limited.
  • Not receiving approval for Medicare reimbursement would seriously hurt the company's prospects.
  • Osiris is not without competitors, namely MiMedx (NASDAQ:MDXG), which markets similar wound healing products. MiMedx's Epifix showed a 77% heal rate to Grafix's 70%. However, Grafix is a reproducible stem cell product, while Epifix relies on donated human placenta.

Despite all these risks, the overwhelming efficacy of Grafix to save diabetic patients from amputations makes Medicare approval extremely likely. The strong sales growth only adds to that story.

MiMedx which markets similar products booked $35M more in revenue in 2013 than Osiris, and has almost $250M more in market cap. With additional sales force, and Medicare approval, it would be conservative to say that Osiris should be worth just as much. Projecting sales to grow another 3x in the year ahead, this would give Osiris $72 million in sales of the 2 billion dollar diabetic foot ulcer market. Without even considering Cartiform, this would make Osiris a very attractive buy for future years and a worthy part of any small cap regenerative medicine/stem cell portfolio.

Disclosure: I am long OSIR, ACTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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