Osiris (NASDAQ: OSIR): Lazard analyst lowers the rating to sell this morning and declared that rejection of Prochymal in Canada is likely.
The summary of the analysts note follows:
- We (analayst at Lazard) expect a negative decision by Health Canada to significantly impact shares; Chondrogen development stalls. We expect to see a near-term decision rejecting the approval of Prochymal by Health Canada, based on its failure to reach the primary endpoint in two Phase III trials and its first-in-class status as an experimental stem cell therapy. As such, we believe this will increase the regulatory hurdle for approval. In addition we anticipate negative results from the ongoing confirmatory GvHD trial, and believe that, at the very least, interpretation of efficacy data will be muddled by the enrollment pause, elimination of one dosing arm, clinical site restriction, and statistical repowering. Recall, OSIR is in discussions with Sanofi/Genzyme on the abrupt termination of the Prochymal collaboration. Regarding Chondrogen, management indicated that clinical development has been put on hold pending an internal decision on the program.
- Recently OSIR reported 4Q EPS of $0.15, above our $0.07 estimate - delta due to lower operating expenses vs. our forecast. Revenue of $11.0 M was slightly above our $10.9 M estimate, while operating expenses of $5.7 M were lower than our projection of $8.3 M. We introduce our 2012 quarterly estimates and slightly increase our revenue outlook based on OSIR’s biosurgery business, while decreasing our operating expense estimates based on prudent cost management. We continue to anticipate a ramp-up in expenses to fund ongoing clinical trials and expansion of the company’s commercial infrastructure. With regards to revenue, we note that the $130M upfront payment received from the Genzyme collaboration will be fully amortized in 2012, and we do not model additional partnership funding or milestone payments for Prochymal. Given the company’s current cash position of $47M, we delay our expectation for an equity raise until 2013 (from our previous 2012 expectation). However, we still expect OSIR will need additional funds to complete the ongoing GvHD trial and fund development in other indications.
- Maintain SELL rating and $2 price target. Our 12-month price target of $2 is based on cash per share as of 4Q13, inclusive of an equity raise. We value OSIR based on cash, as we do not believe its main value driver (Prochymal) will ever receive approval or generate sales. Risks include positive data on Prochymal or Grafix, which could drive the shares higher.
Daily Dose Conclusion: Osiris appears to be backing away from systemic use of allogenenic cells and focusing more on local adminastration (burns, bone healing), "pharmaco-surgery" platform. We would be on the sidelines for now.
