Osiris stem cell platform success hinges on 2 trials

BANGALORE (Reuters) - Osiris Therapeutics Inc, which is developing a drug to treat a rare condition that affects bone marrow transplant patients, is poised to unveil results from a late-stage trial that could pave the way for the first approved drug in that indication and instill investor confidence in the company.

GvHD is a potentially fatal disease in which immune cells from a transplanted bone marrow recognize the recipient's body as foreign and attack it.

Osiris' drug, Prochymal, is designed to work by interacting with the immune cells in the body, reducing inflammation and assisting in tissue repair.

In theory, it could also help patients with diseases such as diabetes and Crohn's disease.

One of the company's studies is testing the drug in patients with acute GvHD, which usually manifests itself within a few days of a transplant. Organs mainly affected by the immunological attack are the gastrointestinal tract, skin and liver.

The second trial is testing the drug in patients with GvHD who have failed to respond to steroids, which are the standard treatment. The studies, if successful, would form the basis for a marketing application with U.S. regulators.

So far the drug has had a checkered history and Jefferies and Co analyst Eun Yang sees the GvHD trials having low chances of success given the drug's lack of efficacy in other indications.

In June, Prochymal had failed in a mid-stage study to improve lung function in patients with chronic obstructive pulmonary disorder (COPD), a respiratory disorder that often affects smokers.

In March, a trial of the drug in Crohn's disease was halted by the U.S. Food and Drug Administration due to design flaws.

The company's shares have risen 22 percent over the past fortnight in anticipation of the results that are expected within days, but lost most of it on Thursday.

"It is just jitters...everyone was expecting the data this week and are assuming that no news is bad news," Wedbush Morgan Securities analyst Duane Nash said, adding that the company had not yet received the data in hand.

Osiris was not immediately available for comment.

MYRIAD EXPECTATIONS

Some analysts are cautiously optimistic that the drug will succeed in GvHD, based on positive data from its mid-stage trial that showed 74 percent of the patients achieved complete remission of the disease.

"We are more confident in the steroid refractory study because we really believe that these patients do not respond to steroids," Piper Jaffray analyst Edward Tenthoff said.

Tenthoff sees a 70 percent chance of success for the steroid refractory study and a 50 percent chance for the acute GvHD study. He also expects the company to resume its Crohn's disease study.

In steroid refractory GvHD, the company has shown that very sick children treated with the drug have about a 60 percent survival rate, when the normal survival rate in this population is about 20 percent, Nash said.

Osiris' fortunes are riding on the drug, which has had disappointing results in two indications so far. If the drug fails in GvHD, then the analysts see lower chances of success in other indications.

"Prochymal really is the company's main platform and if Prochymal doesn't work here then people will worry that it will not work elsewhere," Wedbush's Nash said.

Apart from the two GvHD trials that are testing Prochymal in acute and steroid refractory, or steroid-resistant, GvHD patients, Osiris is also evaluating the drug in five other indications, including Type 1 diabetes and acute myocardial infarction, or heart attack.

GvHD affects about 4,000 people in the United States each year and the market potential is estimated to be between $150 million and $250 million.

The unmet medical need might also persuade the U.S. Food and Drug Administration to abandon its normal protocol and approve the drug based on an analysis of a subset of patients even if it fails the main goal of its trial to show the required level of complete response and survival.

"It is possible that if you have efficacy in a subset of patients that is meaningful, then the trial may be deemed a success," JMP Securities analyst Charles Duncan said, adding that this was more likely in the steroid refractory GvHD patient population.

"You may actually see the U.S. Food and Drug Administration approve it on the basis of a subset analysis," Duncan said.

If approved in other indications, the drug could become a blockbuster, generating sales of more than a billion dollars.

"The thought is that the other indications that Prochymal could work in could potentially bring in over a billion dollars a year," Wedbush's Nash said.

Still, that figure is a long way away. In the meantime, the company had $52.0 million in cash and investments as of June 30, enough to fund its operations through the initial commercialization of Prochymal.

(Editing by Aradhana Aravindan)