‘Biological Legos’ Could Become a Blockbuster For Osiris Therapeutics June 20th, 2012 by Investing Daily By: John
Persinos Applying stem cells to regenerate healthy human tissue has been the
dream of scientists for more than a century. Osiris Therapeutics (OSIR), based
in Columbia, Maryland, is not only succeeding in this
goal but it’s the first company to commercialize the process. Osiris develops
and brings to market compound drugs that incorporate stem cells. The company
focuses on “living skin equivalents” and therapies for diseases that have
historically resisted all other types of treatment. Osiris takes its name
from the ancient Egyptian god of the Afterlife, which is appropriate for a
company that gives once hopeless patients new leases on life. A stem cell is
one of the body’s unspecialized master cells, with the ability to grow into
other specific cell types. Stem cell therapy applications are wide, from
treating chronic wounds and burns to bone tissue repair and providing living
skin grafts. Chronic wounds that fail to heal, such as diabetic foot ulcers,
are resistant to conventional drugs and typically result in severe infection,
amputation or even death. According to the National Institutes of Health
(NIH), chronic wounds in the US
alone affect 6.5 million patients. NIH estimates that more than $25 billion is
spent annually on the treatment of chronic wounds and the problem is growing
because of an aging population and a sharp rise in the incidence of diabetes
and obesity.
Biological Legos Osiris uses adult “mesenchymal” stem cells, which are especially
resourceful for chronic wound treatment and creating living skin. This
category of stem cell is akin to biological Legos, with the flexibility to
differentiate into a particularly broad range of functioning cells. Since it
was founded in 1992, Osiris has treated more patients with mesenchymal stem
cells than the entire stem cell industry combined. Most stem cell companies are
enmeshed in laboratory-based research and clinical trials, with the
development of a product still years away, if at all. However, Osiris already
is bringing mesenchymal stem cell products to market. In May, Osiris announced
that it had received authorization from Health Canada, that country’s equivalent
of the US Food and Drug Administration, to sell its new stem cell therapy
Prochymal for the treatment of acute graft-vs-host disease (GvHD) in children.
Prochymal is an intravenous formulation of mesenchymal stem cells. The
watershed decision marks the world’s first regulatory approval of a stem cell
treatment for GvHD, a complication of bone marrow transplantation that kills
up to 80 percent of children affected, often within weeks of diagnosis.
Prochymal has the potential to be a blockbuster; Osiris could then use that
revenue to develop its other products in the pipeline. Osiris’ other clinical
development efforts for mesenchymal stem cells include treatments for Crohn’s
disease, Type I diabetes and cardiac complications. Science Fact Osiris
produces another potential blockbuster called Grafix, a living skin equivalent
that’s the stuff of science fiction. Doctors can peel it off a roll, as if it
were Scotch tape, and put it to immediate use on the human body. Grafix is a
membrane, comprised of mesenchymal stem cells, growth factors and living skin
cells, all of which work in concert for tissue repair in chronic wounds, limb
salvage procedures, and the repair of tendons and burns. As with Prochymal,
there’s no competitor to Grafix. At least 20 percent of all chronic wounds
don’t respond to existing therapies, providing a huge untapped market for the
treatment. Grafix also is effective in salvaging patients with severe burns.
The product represents an entirely new paradigm in skin repair and could find
a wide range of military uses. In a major win for the company, the US Center
for Medicare & Medicaid Services (CMS) announced in May that Grafix had
been granted codes to facilitate reimbursement under Medicare’s outpatient
payment system. Also in May, Osiris announced results for the first quarter
of 2012, ending March 31. Revenue from biosurgery products, the company’s
main division that makes stem cell treatments, rose 49 percent from the
previous quarter to $1.1 million. Total revenues were $4.6 million, including
license fees from the company’s various partnerships with other biotech firms,
down from $10.4 million from the same period a year ago. Net loss for the
first quarter of 2012 was $1.3 million, compared to net income of $4 million
in the first quarter of 2011.
Future Lifeblood License fee revenue tends to fluctuate, but biosurgery product revenue
is the company’s future lifeblood and it’s growing quickly. Also in the first
quarter, the company won four new patents issued in the US and Canada covering the use of
mesenchymal stem cells for the treatment of GvHD and cardiac disorders. The
company finished the quarter with strong cash, receivables and short-term
investments of $44.2 million. Osiris has enough cash to cover operating
expenses over a long period of time, to ensure survival during the
often-protracted clinical trials process. Osiris boasts a market cap of $206.3
million, an operating profit margin of nearly 27 percent and a return on assets
of 15.8 percent—more than enough to weather any storm. As a flood of patent
expirations continue to shake up the drug industry, the future growth stocks
will be those with the strongest drug development pipelines and the most
innovative treatments. Osiris is suitable for aggressive investors looking for
a pure play in stem cell therapies.
Prochymal® (remestemcel-L) is also the first drug to be approved for the treatment of acute graft-vs-host disease (GvHD) in children, a devastating complication of bone marrow transplantation that kills almost 80% of all affected children, many of which just weeks after they have been diagnosed.