OSIR

Osiris Therapeutics, Inc. (OSIR)

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Osiris Therapeutics, Inc. (OSIR)

Q4 2007 Earnings Call

February 28, 2008 9:00 am ET

Executives

C. Randal Mills, Ph.D. - President and Chief Executive Officer

Phillip R Jacoby, Jr. - Interim Chief Financial Officer and Corporate Secretary

Analysts

Ed Tenthoff - Piper Jaffray

Caroline Corner - Pacific Growth Equities

Ruthanne Roussel - The Robins Group

Bill Tanner - Leerink Swann

Presentation

Operator

Before we begin I’d 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 the factors described in the section “Included Risk Factors” and our filings with the Securities and Exchange Commission.

(Operator Instructions) I would now like to turn the conference over to Dr. C. Randal Mills, President and CEO of Osiris Therapeutics.

C. Randal Mills

Welcome to our fourth Quarter 2007 conference call. Today I will be providing an update of our business. Phil Jacoby will then provide an overview of our financial performance. I’ll briefly outline our priorities for the coming months. We will then take your questions.

I would like to start, though, by making a few comments about our vision for cell therapy. We believe cellular therapeutics have certain advantages over traditional approaches. For example, cell therapies can be targeted, avoiding many of the safety complications arising from systemic treatments.

Cell therapies can be responsive to their environment, turning on and off certain effects as conditions in the surrounding tissue change. And cell therapies can be multi-faceted, for example, the cells in Prochymal have demonstrated the ability not only to down regulate inflammation, but to also actively repair tissue damage caused by the inflammation.

We believe that the combination of these unique properties will allow us to solve many of the most challenging questions facing medicine today and while we think our groundbreaking efforts in GVHD, Crohn’s disease, and arthritis are good examples of the power of this new paradigm, they are also just the beginning for cell therapy and Osiris.

We’ve established ourselves as the leader in this emerging field. We have the only stem cell product on the market growing at greater than 80% and have treated now more than 15,000 patients. We have six additional indications in the clinic behind Osteocel. Three of those are in Phase III, each has been granted fast track status by FDA, and we have demonstrated the competitiveness of our platform as evidenced by our recent $225 million Department of Defense contract.

But it is important to understand where we are going. We intend to further our leadership position in cell therapy by leveraging our significant resources, infrastructure, intellectual property, and experience. Given the overlap that exists between many of the most promising cellular technologies, we believe that we have created a powerful engine that can greatly accelerate the development and commercialization of a wide range of follow-on products.

We intend to use this engine to be a dominant force in this new and exciting field. With that background in mind, I’ll recount a few key events that occurred in the fourth quarter.

As expected, the expansion of our Osteocel manufacturing facility returned excellent results in the fourth quarter, with sales doubling over the same period last year to $6 million. We estimate now that more than 15,000 patients have used the product.

Last quarter, we announced the initiation of the second phase of our Osteocel capacity expansion. The intent is to proactively provide for an increased capacity that will be needed in the latter part of 2008 and beyond. This work continues in earnest and is on schedule.

We are honored to have been selected by the Department of Defense to develop and stockpile Prochymal as a countermeasure for Acute Radiation Syndrome. The award provides for up to $24.7 million in funds to develop Prochymal to licensure for ARS, and $200 million in purchase options.

What is important to understand about this award though, is the significant third party validation it provides to the company and the technology. The selection process was competitive and open and included proposals from the more traditional small molecule and protein based treatments. We submitted significant amounts of data, much of which has not been made public, and following an objector review and analysis, DoD selected Prochymal.

We are now actively working with our partners at Genzyme and the United States Army at Fort Dietrich to complete this important development effort in a timely and cost effective manner. At Osiris we take great responsibility in developing this promising therapy, which one day may be called upon to treat the brave men and women of our armed services.

In the fourth quarter we were very pleased to report positive results from our Chondrogen Phase I/II trial. Although MRI technology did not permit meaningful evaluation of changes in the volume of meniscus, we did observe durable, clinically meaningful, and statistically significant improvements in pain over placebo at six weeks, six months, and one-year time points. Additionally these effects were dose dependant. We are now working with our clinical investigators on the design of appropriate registration trials.

Another significant development was our ability to regain worldwide rights to Prochymal for cardiovascular indications. Splitting indications for the same drug between multiple distribution parties had the potential to create significant confusion in the market place. As a result, the agreement also had the effect of restricting the potential value of Prochymal in future transactions. By regaining worldwide rights to cardiovascular indications, we believe that we have enhanced the overall value of Prochymal.

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