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Osiris Therapeutics slumps on regulator's decision

NEW YORK (AP) -- Shares of Osiris Therapeutics declined Monday after the company said the Food and Drug Administration will treat its wound care product Grafix as a drug.

THE SPARK: The company said Grafix will remain on the market, but it will file a Biologics License Application to expand the drug's approval. Osiris had maintained that it did not need to get FDA approval for its products because they are derived from human cells.

Companies have to file Biologics License Applications in order to get new biotech drugs approved. The Columbia, Md., company did not say what new approval it will seek. Grafix is used to treat chronic and acute wounds.

THE BIG PICTURE: Osiris Therapeutics Inc. develops treatments using adult human mesenchymal stem cells, which are derived from placental tissue. It says those cells have anti-inflammatory properties, can prevent fibrosis and scarring, and can distinguish between different types of tissue, like muscle, bone, and cartilage.

Osiris said it will continue transitioning Ovation, which is used in tissue repair, to new formulation called OvationOS. That is expected to be complete no later than the second half of 2014.

THE ANALYSIS: Jefferies & Co. analyst Eun Yang said the ruling creates some risk for Osiris and delays the possibility of wider use of Grafix. She expects the company to make a filing in early 2014 and approval in the first half of 2015. The analyst kept an "Underperform" rating on the stock.

SHARE ACTION: Osiris Therapeutics shares lost $1.23, or 7 percent, to $16.26 in afternoon. Its shares have climbed 59 percent in the year to date.