Biotech Osiris to try IPO again

$80 million is its goal


In a long-delayed move, a Baltimore biotech that makes the only stem cell product on the market submitted plans yesterday to go public.

Osiris Therapeutics Inc., which uses stem cells from the bone marrow of adult volunteers to create tissue-regeneration treatments, will soon sell up to $80 million in shares in an initial public offering, according to its filing with the Securities and Exchange Commission.

The company, whose Fells Point offices sit on the edge of the harbor, plans to use the money to pay off a loan as well as for research and development, including costly clinical trials of three drugs. How well the shares perform is likely to be watched by many within the industry, analysts said.

Stem cells have been under intense scrutiny as the public and politicians debate the pitfalls and promises of the science.

Stem cells taken from human embryos in particular have drawn controversy, dividing groups on issues of morality and science. Those concerns have led the federal government to significantly restrict its funding of embryonic stem cell research and pitted religious organizations against scientific ones.

And while adult stem cells - such as the ones Osiris uses - and those taken from umbilical cord blood are no more controversial than an organ transplant, many people don't understand the difference with embryonic stem cells and have lumped them into the same debate.

"Just the fact that [Osiris is] involved in stem cells - I could imagine it affecting investors, who just don't want to get involved," said C. Robert Eaton, president of MdBio Inc., a private nonprofit seeking to further biotechnology in Maryland.

The few public stem cell companies have had a difficult time on the stock market this year. Shares of Aastrom Biosciences, a Michigan company working with adult stem cells, are down about 36 percent. Cryo-Cell International of Florida and ViaCell Inc. of Massachusetts, both of which work with umbilical cord stem cells, are down as well: Cryo-Cell by 22 percent this year and ViaCell by about 9 percent.

Part of the problem is that most stem-cell companies, whether they work with adult or embryonic cells, are years away from bringing a product to market. That leaves little for investors to measure when analyzing a business, said John T. McCamant, editor of the Medical Technology Stock Letter in Berkeley, Calif.

"It's really tough to put an estimate on a stem-cell company," McCamant said. "We don't have any real clinical trials to get our teeth into, and politically, there's been a major fire out there."

That was the case with Osiris back in 1997, when it first filed plans to go public. The company had no commercialized treatments and was years away from producing them.

It abandoned the stock sale several months after announcing it, blaming a skittish Wall Street worried about the high risk and underwhelmed by mixed clinical trial results from various companies that year.

Osiris has had its share of in-house troubles as well. The 14-year-old company has never turned a profit, and has had significant management turnover. Since 1999, Osiris has had six chief executive officers, two of whom sued the business.

The current CEO, C. Randal Mills, a 34-year-old Ph.D., joined the company in July 2004. He declined to comment yesterday, noting SEC rules that prevent company officials from saying anything to promote a pending stock sale.

"Dr. Mills is, I think, the most capable CEO, the most capable manager Osiris has had," said Alistair MacKay, who was an Osiris scientist for nine years. He left the company last year to become an equities analyst at GARP Research Corp. in Towson.

"He's got a business orientation, which I think is very helpful and appropriate," MacKay said.

Since Mills' arrival, Osiris has raised more than $70 million in venture capital financing, led by investments from a Swiss firm owned by Osiris' board chairman. It also became the first company to receive "fast track" development designation from the Food and Drug Administration for a stem-cell product, and won market approval last July for a bone regeneration treatment.

Called Osteocel, the treatment is something of a hybrid, part stem cell, part not. It brought in about $1 million in revenue during its first six months on the market.

The company also is hoping to bring its first pure stem-cell drug to market by next year.

"Investors are very much focused these days on products and how close they are to market," said Philip Nadeau, a biotechnology analyst with S.G. Cowen & Co. LLC. "If this company does have something that is a few years away, it will probably catch the eyes of investors."

With five clinical trials under way for three drugs, Osiris will need a significant influx of funds. Such trials cost about $20 million a year.

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