Osiris Therapeutics (OSIR) reported a net loss of 21 cents per share in the third quarter of 2009, well above the Zacks Consensus Estimate of a net income of 6 cents. However, net loss in the year ago period was higher at 63 cents, mainly due to lower revenues. 

Revenues in the reported quarter increased to $10.6 million compared to $0.995 million for the same period of the prior year. Osiris generates revenues from collaborative agreements, research licenses, and government contracts. 

Revenues in the reported quarter included the recognition of $10 million in revenue under the company’s agreement with Genzyme Corporation (GENZ) for the development and commercialization of Prochymal and Chondrogen. 

Osiris earned $0.4 million from its collaborative agreement with the Juvenile Diabetes Research Foundation (JDRF) for the development of Prochymal for type I diabetes, $0.1 million from its contract with the Department of Defense (DoD) to develop Prochymal for the treatment of acute radiation syndrome, and $0.1 million in royalties from the sale of mesenchymal stem cells (MSCs) sold for research purposes. 

Research and development expenses were $16.2 million, down 12.6% from the year-ago period. The completion of enrollment in three phase III clinical trials and the associated reduction in site and patient costs led to the decline in R&D spend. General and administrative expenses declined to $1.5 million for the third quarter of 2009, down from the $1.9 million recorded in the prior year period. 

The decline is primarily attributable to reductions in non cash share-based compensation expense which was partially offset by increases in the company’s professional staff in the areas of intellectual property and business development and increases in legal costs related to Osiris’ intellectual property portfolio. 

Osiris exited the quarter with $102.9 million in cash, short-term investments and accounts receivable. In addition to receiving $12.5 million from NuVasive related to the sale of Osteocel, Osiris announced that it achieved a $15 million milestone payment from NuVasive in Nov. related to Osteocel sales. The company has made significant progress with stem cell therapies. T

he upside potential to Prochymal could be enormous. Osiris is studying the candidate for several indications including acute and steroid refractory graft versus host disease (GvHD), Crohn’s disease, acute myocardial infarction, chronic obstructive pulmonary disease (COPD), and type I diabetes, most of which are blockbuster indications. 

While we are impressed with the company’s progress in cell based therapies, we note that any pipeline setbacks would weigh heavily on the stock. We currently have a Neutral rating on Osiris.
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