A difference of opinion about Osiris' FDA agreement

When Osiris Therapeutics disclosed an agreement last week resolving concerns from federal regulators, the Columbia biotech firm pitched it as a win.

The deal doesn't require changes to its marketing of Grafix bandages, Osiris said, and also gives it the opportunity to get a biologics license that could improve international prospects for the product.


But some news stories — and at least one Wall Street analyst team — described the U.S. Food and Drug Administration agreement in entirely different terms.

Analysts with New York investment bank Jefferies, calling the license application a "requirement" rather than an opportunity, wrote in a research note that the development "poses regulatory risks and pushes back the timeline for potential wider adoption." Their characterization was reported by the Associated Press.

One financial news site was more pointed: "FDA Slaps Osiris For Misleading Medical Claims About Stem-Cell Bandage."

With its stock price suddenly reeling, Osiris fired back. In two news releases, it called "wholly false" the reports suggesting that Grafix would have to pull back from a key wound-care market — diabetic foot ulcers — until it has the new license in hand. The company went so far as to call out that particular news site for "reckless" reporting and said it is reviewing its legal options.

"Grafix remains on the market for the treatment of both acute and chronic wounds, which includes diabetic foot ulcers," said C. Randal Mills, CEO of Osiris. "It's by far the largest market we have right now for Grafix, and that was affirmed by FDA."

The FDA said federal rules prohibited it from talking about its agreement with Osiris, not even to say whether the company's characterization is accurate. But the agency did confirm that its initial concerns did not rise to the level of a dreaded "warning letter," which the news site originally reported and later corrected.

Investors are taking the negative view. Osiris' stock price fell $2.98 a share on Monday, the day of the announcement, to close at $14.51. It gained little during the week, ending Friday at $14.85 a share.

Steve Brozak, president of WBB Securities, a boutique investment bank with a specialty in biotech, isn't weighing in on what the FDA agreement actually entails. But the way he sees it, any downside the deal might contain for Osiris isn't as bad as what happened afterward.


"It's disquieting to basically have to issue out a press release to say that … people didn't understand the information that you released in the first instance," he said. "The telling of a story should not become the story. That's the problem you've got here."

Mike Paul, a New York crisis-management consultant, gave a thumbs-down to the way Osiris handled the situation.

"This is not in court," said Paul, with MGP & Associates PR. "This is in the court of public opinion, and by the way, the court of public opinion, as demonstrated through the drop of stock price of the company, matters."

It all began when the FDA sent Osiris a letter a month ago, saying it found violations involving Grafix and another wound-care product, Ovation, because the company needed a license it did not have.

"Please be advised that in order to lawfully market a drug that is also a biological product, a valid biologics license must be in effect," the FDA wrote.

Both products use adult stem cells to speed wound recovery. Osiris' Mills said Friday that the company resolved the Ovation problem by agreeing to do what he said the company already had announced it would do — transition that product line to a new formulation that did not raise concerns for the FDA.


Mills said Grafix has been regulated as a tissue product rather than a biologic product, and he said the FDA concluded after its initial letter that the bandage is in the appropriate category. But he said the agency decided to allow Osiris to apply for biologics approval "if we wanted to make additional claims about the product," something Mills said the company is eager to do.

"It's very difficult for us right now to market Grafix meaningfully outside the U.S. because other countries don't have the same regulatory paradigm for what's called tissue products," Mills said.

He said company officials rarely "contest" reports they believe are inaccurate but decided they had no choice in this case.

"It was causing a significant decline to our stock price, and we owe it to our shareholders when something like that happens … to set the record straight," Mills said. "And so we did."