OSIR

Osiris Therapeutics, Inc. (OSIR)

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Industry: Health Care
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Osiris Therapeutics (OSIR)

Q4 2012 Earnings Call

March 06, 2013 9:00 am ET

Executives

Charles Randal Mills - Chief Executive Officer, President and Director

Philip R. Jacoby - Chief Financial Officer, Treasurer and Corporate Secretary

Analysts

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

Presentation

Operator

Good morning, everyone. Welcome to the Osiris Therapeutics Fourth Quarter 2012 Earnings Conference Call. Before we begin, I would like to remind everyone that this conference may include forward-looking statements that involve uncertainties and risks. Actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including factors described in the sections entitled Risk Factors in our filings with the Securities and Exchange Commission.

As a reminder, today's call is being recorded. I would now like to turn the conference over to Dr. C. Randal Mills, President and CEO of Osiris Therapeutics. Please go ahead, sir.

Charles Randal Mills

Thank you, and good morning, everyone. Welcome to our 2012 Year-end conference call. We are going to try something a little bit different today. We're going to try to do a presentation format for this. Hopefully, it will be a little bit more entertaining for you and provide you some more visibility and insight into what we think is a very exciting time at Osiris in our history.

Before we get started, as mentioned by the operator, I would like to draw your attention to our forward-looking statement disclaimer that we have and keep in mind that if we do make forward-looking statements, these statements certainly do come with risks, and those should be taken into consideration. For further information on risk statements, you can look at our filings with the Securities and Exchange Commission.

So let's get into the actual presentation. So for those new to the call, Osiris has really established itself as a clear leader in stem cell medicine. And we've not done this quickly, we've done this over a rather extended period of time. So 20 years ago, we entered the field of medicine and specifically and importantly, we did so in the field of stem cells. We have been working for 20 years on the same technology and developing that technology, and over that period of time have developed a tremendous competency in it that is unmatched from anyone else in the space.

We have 4 commercial products. We have 50 issued U.S. patents. We have over 1,500 patients treated in clinical trials with over 2,000 years of patient follow-up, which is an incredibly valuable database for us as we develop new technologies out of the mesenchymal stem cell.

Importantly, we've treated over 100,000 patients now commercially with our products. And one of the things that I would like to point out is our gross margin out of all of this is 70%. This isn't theoretical gross margin. This isn't hypothetical. This isn't one day when we hope to get the stem cell of the market, we think we'll be able to have good gross margins. Our actual gross margin today is 70% on these products, and that represents for us the makings of a real serious business opportunity in cellular therapy, which has the potential to be significantly profitable.

So turning now to just a rundown of 2012 and some recent highlights. 2012 was an exceptionally -- exceptional year for Osiris. At the top line, we had Ovation and Grafix revenue growth of over 500%, very important for our company. We received approval of the world's first stem cell drug, Prochymal, first in New Zealand -- or first in Canada and then in New Zealand. We've obviously had other positive regulatory feedback from other agencies and continue to move forward there. We launched Cartiform for acute articular cartilage injury, I'll talk more about that, but that is an incredibly exciting product coming up.

From a reimbursement standpoint, we were very fortunate to receive both CMS and Q-codes for Grafix. Out of that and because of the positive data that we continue to see a pile in on our Grafix product line, we've made the decision to establish a proprietary sales force, specifically for wound care and specifically selling Grafix. And so we're very excited about that.

And then lastly, and perhaps somewhat mechanically or operationally but it's very, very important, from an execution standpoint, we continue to fire on all cylinders. So we've increased our manufacturing capacity, 650% throughout the year. And we're able to improve our gross margins to 70%, up 12 points.

Really quickly on our intellectual property. We have now 50 issued patents in the United States that cover all aspects of the mesenchymal stem cell, regardless of its source. And without the requirement to enrich for any other cell population such as CD45, which is known to be immunogenic, this covers everything from how we manufacture the product, to how we use it, to how we release it. And we believe right now we are the only company with freedom to operate with alginate MSCs in every major indication.

From a development standpoint, as we think about new products that we developed, we've implemented some pretty strict criteria around those products. And there are a number of different aspects, and I'll go over them briefly. The first is whatever we're doing has to be -- has to represent a real value proposition to the patient. So we're not going to develop a cell therapy for the sake of it being a cell therapy. It's got to have a real significant benefit over other options. The second thing is there has to be a practical development pathway. We obviously can't develop a technology which is going to take 20 years to get to market. One of the key things that we've done though, and I think this is really important to understand and appreciate, is we have implemented, as part of our development criteria, the mandate that the new products, any new products we develop must reduce the overall health care cost to the payer. That is something, I think, that is relatively new in the field of cell therapy, that concept. But we have -- and the things we continue to experience have come to the realization that having these aspects to our development, it's going to give us the significant advantage going forward. And there are a number of ways that we can do that. There's a number of ways that we can meet the standard, but it is now a requirement that all products we have have, as part of its development criteria, the ability to reduce the overall health care cost. We think that's something that's here to stay.

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