Osiris (OSIR) Beats on Cost Control

Osiris Therapeutics (OSIR) reported second quarter earnings of 5 cents per share, well above the Zacks Consensus Estimate of a profit of one cent and the year-ago loss of 26 cents. Even though revenues missed expectations by $0.7 million, the bottom-line was driven by lower operating expenses.

Quarter in Detail

Revenues, generated from collaborative agreements, research licenses, and government contracts declined 1.6% to $10.3 million in the reported quarter. Second quarter 2010 revenues included the recognition of $10 million in revenue under the company’s agreement with Genzyme Corporation (GENZ) for the development and commercialization of Prochymal and Chondrogen.

Osiris earned $0.2 million from its collaborative agreement with the Juvenile Diabetes Research Foundation (JDRF) for the development of Prochymal for type I diabetes, and $0.03 million from its contract with the Department of Defense (DoD) to develop Prochymal for the treatment of acute radiation syndrome. The balance revenues were in the form of royalties from the sale of mesenchymal stem cells (MSCs) for research purposes.

Research and development expenses declined significantly during the quarter to $6.5 million. The completion of clinical work associated with Osiris’ phase III studies led to the decline in R&D spend.

General and administrative expenses declined to $1.6 million, down from the $2.3 million recorded in the prior year period. The decline is primarily attributable to reductions in non cash share-based compensation expense and lower legal expenses.

Pipeline Update

Osiris has made significant progress with stem cell therapies. The upside potential to lead candidate Prochymal could be enormous. Osiris is studying Prochymal for several indications including acute and steroid refractory graft versus host disease (GvHD), Crohn’s disease, acute myocardial infarction, chronic obstructive pulmonary disease (COPD), and type I diabetes, most of which are blockbuster indications. Osiris has orphan drug designation in the US for the diabetes indication.

On the second quarter call, Osiris said that it has submitted a statistical analysis plan (SAP) for Prochymal for the treatment-resistant graft versus host disease (GVHD) indication in pediatric patients to the US Food and Drug Administration. The analysis will be included in the company’s Biological License Application (BLA). Osiris intends to conduct a formal pre-BLA meeting with the FDA soon.

During the second quarter, Osiris filed a New Drug Submission (NDS) with Health Canada seeking approval for the use of Prochymal for GvHD. The candidate has been granted priority review by Heath Canada which means a response should be out by year-end.

As far as the Crohn’s disease indication is concerned, Osiris said it is currently enrolling patients for a phase III study. An interim analysis of the study showed that one of the Prochymal dosage arms achieved statistical significance for the primary endpoint.

Meanwhile, Osiris completed enrolling patients in its phase II study, which will evaluate Prochymal in patients with new onset type I diabetes. Finally, patient enrolment is ongoing in a phase II trial that will study Prochymal for the treatment of severe myocardial infarction.

Our Take

We currently have a Neutral recommendation on Osiris. Prochymal could be a billion-dollar blockbuster product if all development goes well. While we are impressed with the company’s progress in cell-based therapies, we note that any pipeline setbacks would weigh heavily on the stock. In fact, Osiris received a major setback in September

2009 related to the development of Prochymal for GvHD. We stay at a Neutral rating while we await more clinical data on the pipeline.

OSIRIS THERAPTC (OSIR): Free Stock Analysis Report

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