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Osiris Keeps Neutral Recommendation

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We recently reiterated our Neutral recommendation on Osiris Therapeutics, Inc. . Osiris, a stem cell therapeutic company, is focused on the development and marketing of products for the treatment of medical conditions in the inflammatory, orthopedic, wound healing and cardiovascular areas.

Osiris received a major boost recently with its lead stem cell therapy, Prochymal, gaining approval in Canada and New Zealand for the treatment of acute graft-vs-host disease (GvHD) in children.

Prochymal is being developed for multiple indications including acute myocardial infarction, type I diabetes, Crohn's disease and the repair of gastrointestinal injury resulting from radiation exposure. We think Prochymal could be a blockbuster drug with a full label.

While we are impressed with the company’s progress in developing stem cell based therapies, we note that any pipeline development has attendant risks. With Osiris depending on Prochymal for growth, disappointing clinical trial results or regulatory setbacks would be a major blow for the company.

Meanwhile, Osiris' collaboration agreement with Genzyme, a subsidiary of Sanofi (SNY - Free Report) , remains under a cloud. In February 2012, Osiris had provided an update on its development and commercialization agreement with Genzyme. The update was triggered by Sanofi’s R&D update in its fourth quarter press release.

Sanofi had said that it has discontinued the development of Prochymal for GvHD. Osiris said that the announcement was made without its knowledge or advice. Osiris’ President and CEO clarified that Prochymal’s development has not been discontinued. Although Osiris had not received any communication from Sanofi regarding the termination of their agreement, the company notified Sanofi that it is treating Sanofi’s statement as an intention to terminate the agreement.

According to Osiris, all rights to Prochymal will return to Osiris without the company being required to compensate Sanofi. Osiris believes it can pursue commercialization agreements for Prochymal with other parties.

However, following this announcement, Sanofi informed Osiris that it is not in agreement with Osiris’ interpretation of its fourth quarter R&D update. Osiris has asked Sanofi for a clarification regarding the matter.

We maintain our Neutral recommendation on Osiris as we await more visibility on pipeline and regulatory progress in the US. Moreover, the lack of visibility regarding the status of the Sanofi deal concerns us. We expect investor focus to remain on the outcome of the Sanofi collaboration.

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