Neutral on Osiris


We are maintaining our Neutral recommendation on Osiris Therapeutics, Inc. (OSIR), which carries a Zacks #3 Rank (short-term Hold rating). Osiris, a stem cell therapeutic company, is focused on the development and marketing of products for the treatment of medical conditions in the inflammatory, orthopedic, wound healing and cardiovascular areas.

The company achieved a major milestone earlier this year when its lead stem cell therapy, Prochymal, gained approval in Canada and New Zealand for the treatment of acute graft-vs-host disease (GvHD) in children.

Prochymal is being developed for several other indications including acute myocardial infarction, type I diabetes, Crohn's disease and the repair of gastrointestinal injury resulting from radiation exposure. We think Prochymal could be a blockbuster drug with a full label. The company expects to launch Prochymal with reimbursement in Canada later this year.

While we are impressed with Osiris’ progress in developing stem cell based therapies, we note that any pipeline development has attendant risks. With the company depending on Prochymal for growth, disappointing clinical trial results or regulatory setbacks would be a major blow.

Meanwhile, we continue to have low visibility on the status of Osiris’ development and commercialization agreement with Genzyme, a Sanofi (SNY) company, for Prochymal. Earlier this year, Sanofi, in its fourth quarter press release, had said that it has discontinued the development of Prochymal for GvHD. Osiris said that the announcement was made without its knowledge or advice.

Osiris clarified that Prochymal’s development for the said indication has not been discontinued. Although the company had not received any communication from Sanofi regarding the termination of their agreement, Osiris notified Sanofi that it is treating Sanofi’s statement as an intention to terminate the agreement.

According to Osiris, all rights to Prochymal will return to Osiris without the company being required to compensate Sanofi. Osiris believes it can pursue commercialization agreements for Prochymal with other parties.

However, following this announcement, Sanofi informed Osiris that it is not in agreement with Osiris’ interpretation of its fourth quarter R&D update.On the second quarter call, Osiris said that the issue is now in the hands of lawyers.

The collaboration agreement with Genzyme was signed in October 2008 for the development and commercialization of Prochymal and another pipeline candidate, Chondrogen. While Osiris retained the rights to commercialize the candidates in the US and Canada, Genzyme gained exclusive rights to commercialize Prochymal and Chondrogen in all other countries, except Japan, where Osiris has an agreement with JCR Pharmaceuticals. JCR Pharmaceuticals holds rights to Prochymal for the treatment of patients with hematological malignancies.

We maintain our Neutral recommendation on Osiris as we await more visibility on pipeline and regulatory progress in the US. Moreover, the lack of visibility regarding the status of the Sanofi deal concerns us.

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