June 15, 2008 (Vol. 28, No. 12)

Prochymal Is Being Developed in Many Indications, GvHD Being the Most Advanced

Many still debate the ethics of using embryonic stem cells in medical research, which has essentially prevented an understanding of their true potential. Some companies like Osiris Therapeutics (www.osiristx.com), however, are trying to take advantage of other sources for stem cells.

Osiris’ stem cell product, Prochymal, is a formulation of mesenchymal stem cells derived from adult bone marrow. Because of the nature of stem cells, this represents a therapeutic platform that can be leveraged in a range of indications.

Prochymal has potential blockbuster status, though the downside is the extremely novel nature of these treatments. With anything new comes uncertainty and challenges with development, regulatory approval, and market acceptance.

These hurdles are some of the reasons that Jason Napodano, senior biotech analyst at Zacks, has a Hold on Osiris. He also is concerned about the company’s high burn rate. Napodano doesn’t believe that the firm will achieve profitability until 2012, and that is if everything goes as Osiris plans.

The company is conducting Phase III trials in end-stage graft vs. host disease (GvHD), early-stage GvHD, and late-stage Crohn’s disease. Osiris is also performing Phase II trials in type 1 diabetes and acute myocardial infarction and a Phase I study in chronic obstructive pulmonary disease.

Data from the end-stage GvHD study is expected by Q208 with FDA registration in H109. Here’s where Napodano believes Prochymal could see its first setback. “FDA has never had to approve a drug like this.” Particularly, it will be looking to gain confidence about the therapy’s long-term safety.

C. Randal Mills, Ph.D., president and CEO, Osiris, is optimistic about Prochymal’s chances. The fact that the therapy has fast track status, orphan drug status, and is part of the FDA’s expanded access program, adds to his sanguinity.

If Prochymal does break through the regulatory barriers, GvHD represents an open market. “We expect a steep sales curve because of the futility of existing agents, which have bad side effects and are expensive,” comments Dr. Mills. He expects commercial pricing to be roughly $10,000.

While Napodano predicts peak sales of $200M to $300M, he warns that it may take several years to reach such revenues.

With a successful launch of Prochymal in GvHD, an FDA okay in Crohn’s could be easier, with registration planned for 2010. This segment is worth $1B, according to Dr. Mills. He believes that, “there may even be early uptake, as physicians can use it off label.” Napodano puts peak sales at about $400M to $500M, stating that Prochymal is still early in development and he needs to see more data.

“Before I upgrade the company to a Buy, I would like to see a more solid balance sheet,” Napodano says. Osiris has already burned roughly $11M this year, and he expects that number to go up to $20M to $30M by year end. This is not a surprise for a development-stage company but it is certainly something to keep track of.

Another issue is the firm’s cash balance, $42M as of March 31. “I don’t think that they have enough cash to fund to profitability, and the company will probably need to raise money later this year or early next year.”

Dr. Mills, however, believes that along with the money the firm will receive through the sale of Osteocell, Osiris will be able to fund a substantial portion of development. Osteocell is a bone matrix product for use in orthopedic indications. Osiris will obtain $35M at closing, $50M in milestones, and $52M over the next 18 months to supply Nuvasive, the buyer, with the product.

While money may be tight and challenges are bound to arise, Osiris is focusing on rigid trials. “About 85 to 86 percent of every dollar is directly related to clinical research,” Dr. Mills notes. “I like to describe Osiris as a giant engine with four wheels.”

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