Osiris stem cell line sale OK'd

The Baltimore Sun

Osiris Therapeutics' shareholders approved yesterday the sale of the stem cell drugmaker's only product line, a bone-regeneration treatment called Osteocel, in a transaction worth up to $137 million, which will be used for the company's next generation of drugs.

In April, Columbia-based Osiris announced plans to find a buyer for the business. It secured a deal with San Diego's NuVasive Inc. in May.

The funds will be used to further Osiris' core business: developing biologic drug candidates in the inflammatory, orthopedic, and cardiovascular areas from mesenchymal stem cells. Such cells are found in the bone marrow of adults and capable of differentiating into various tissue, including bone and heart.

Osiris widely is considered the company most near to bringing a stem-cell product to market in the U.S., with three expensive, final-stage clinical trials under way for a treatment called Prochymal.

"Osteocel was a good first generation product for the company, and Prochymal is really the next generation," said Osiris Chief Executive C. Randal Mills.

Though Osteocel is expected to raise $15 million in revenue this year and $25 million next, it has a peak annual sales potential of about $75 million per year, Osiris has said. Still, that's not enough to pay for the company's estimated operating expenses, according to investment bank Jefferies & Co. In a research report filed in May, analysts predicted Osiris will spend nearly $80 million this year and $90 million in 2009.

"We view the sale of Osteocel as a positive for [Osiris]" in large part because it "mitigates a near-term financing risk," the analysts wrote. The firm expects Osiris to realize about $110 million, taking margins into account, from the sale by the end of 2009.

As part of yesterday's transaction, NuVasive paid $35 million in cash for Osiris' business assets, along with the contract rights for the development, manufacturing and sale of a second-generation treatment called Osteocel XC.

Milestone payments

During the next year and a half, Osiris could earn an additional $37.5 million in milestone payments. It also will manufacture and supply Osteocel to NuVasive during that time, earning as much as $52 million in revenue from NuVasive. Around the end of next year, Osiris will then transfer its manufacturing equipment and facilities to the California company, among other things, for a final payment of $12.5 million.

A Massachusetts company, Blackstone Medical Inc., filed paperwork late Wednesday in Springfield U.S. District Court, seeking a temporary restraining order and preliminary injunction to stop the sale. But their requests were denied by a federal judge, giving Osiris the green light to hold its shareholder meeting.

Blackstone, which specializes in spinal surgery products, has a three-year-old deal with Osiris to distribute its bone-regeneration treatment, Osteocel. The company claims the sale violates its distribution deal. A spokesman for Blackstone's parent, Orthofix International NV, declined to comment yesterday.

Founded in 1992

Osiris was founded in 1992 and went public in 2006. Its stem cell treatment Prochymal is being tested in late-stage clinical trials as a treatment for a type of Crohn's disease, which is characterized by chronic intestinal inflammation.

Prochymal also is in clinical tests as a therapy for two types of graft versus host disease, a deadly complication affecting about half of those who receive bone marrow transplants each year. Mills estimates that Prochymal could turn the company, which has yet to turn a profit, into a "multibillion business."

Osiris stock closed up 3 cents to $14.81 on the Nasdaq yesterday.


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