We are disappointed with the failure of Osiris Therapeutics’ (OSIR) Prochymal, a drug derived from human stem cell for the treatment of graft-versus-host disease (GvHD), the most common complication of bone marrow transplants. Currently, there is no approved treatment available for this life-threatening disease.

Based on the preliminary results of two phase III trials conducted by the company, Prochymal was found to be ineffective compared to placebo. Following the setback, Osiris shares fell by 34% to $8.03, their greatest single day decline since August 2006.

In the first trial, where the drug was used along with steroids, 45% of patients responded to the combination compared to 46% who responded to steroid along with a placebo. In the second trial, when Prochymal was used on patients not benefiting from steroids, it did not show statistically significant improvement. However, the drug did have a positive impact on patients with GvHD-affected livers or gastrointestinal tracts. Management said the company may seek approval for this particular indication.

Apart from GvHD, Prochymal is also being studied for several other indications including Crohn’s disease, acute myocardial infarction (heart attack), type I diabetes, Chronic Obstructive Pulmonary Disease (COPD) and Acute Radiation Syndrome (ARS). Osiris is collaborating with large-cap biotech peer Genzyme (GENZ) for the potential application of Prochymal in Acute Radiation Syndrome (ARS).

In January 2008, Osiris and Genzyme received a $224.7 million contract from the US Department of Defense for the development and eventual stockpiling of Prochymal for ARS. Genzyme will lead the product development and eventual commercialization with Osiris receiving 15% of all sales made under the contract. The FDA has granted ‘Fast Track’ status for Prochymal in ARS.

With the other candidates of Osiris in the initial or middle stages of clinical development, the company will continue to incur operating losses for the next few years.

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