Staff Writer

Two days after Missouri voters passed an amendment to encourage research using embryonic stem cells, Osiris Therapeutics Inc. reported positive results from a Phase II study involving its less-controversial adult stem cell therapy, Prochymal, in graft-vs.-host disease.

Shortly before releasing that data, the Baltimore-based firm also completed a $20 million convertible debt financing to restructure its debt obligations, and extended a lockup period with its lead shareholder through the beginning of 2008.

News of the Phase II data boosted Osiris' stock by more than $1 Thursday. After peaking at $18.47 in the morning, shares (NASDAQ:OSIR) closed at $17.89, up $1.05.

The company could not be reached for comment, though it said in a press release that those results confirm the safety and efficacy seen in earlier studies of Prochymal, a preparation of mesenchymal stem cells obtained from the bone marrow of healthy adult donors and formulated by Osiris.

Data from the 32-patient study showed that 94 percent of evaluable patients (29 of 31) responded after two intravenous infusions of Prochymal, and 23 patients, or 74 percent, had a complete response, defined as total clinical resolution of GVHD within 28 days.

Subset population data from the trial showed that of the 18 patients with gastrointestinal GVHD, the overall response rate was 89 percent, and 12 of those 18 patients (67 percent) achieved a complete response. Of the 13 patients with the skin form of GVHD, the overall response rate was 100 percent, with 85 percent experiencing a complete response.

Prochymal now is being evaluated in a 240-patient pivotal Phase III study in acute GVHD, and represents the only stem cell product currently in a pivotal program.

It also has received fast-track and orphan status in GVHD, a form of transplant rejection that can occur in patients who undergo bone marrow transplants. There are no approved therapies for GVHD, and existing treatments - usually consisting of the off-label administration of steroids - often are ineffective.

If approved, Prochymal would offer doctors and hospitals an immediately accessible treatment option, since the product doesn't require matching or typing and can be stored for up to two years.

Beyond GVHD, Prochymal recently yielded positive Phase II results in drug-resistant Crohn's disease patients.

Osiris, which already markets Osteocel for regenerating bone in orthopedic indications, also is investigating two additional adult stem cell products: Chondrogen is in a Phase I/II study for regenerating the meniscus of the knee and preventing osteoarthritis, and Provacel is in Phase I studies to treat damaged heart muscle in heart attack patients.

The company, which went public in August through a $38.5 million initial offering, also completed a private placement of $20 million in convertible debt, led by Swiss firm Friedli Corporate Finance Inc., which is headed up by Peter Friedli, Osiris' largest shareholder. In addition to that financing, Peter Friedli and certain of his associated entities, which own about 12.4 million shares of Osiris (with a warrant for another 1 million shares), or about 49 percent, entered a lock-up agreement with the company under which none of their securities would be transferred without company approval until Jan. 30, 2008.

The company reported a net loss of $15.6 million for the third quarter. As of Sept. 30, its cash totaled $53.6 million.