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Osiris Therapeutics (Columbia, Maryland) on Friday said it plans to sell its Osteocel business to medical device maker NuVasive (San Diego) for $35 million in an upfront payment at deal close, and up to $50 million in future milestones. In a separate agreement worth up to another $52 million to Osiris, the company will manufacture and supply NuVasive with Osteocel for up to 18 months.

Expected to close in the third quarter, the deal would provide Osiris with net cash of about $100 million, on top of the roughly $40 million in cash and access to cash that the company had at the ended of the first quarter, Randy Mills, chief executive officer of Osiris, said.

Osteocel, which preserves the native stem cell population in marrow rich bone, is used in spinal applications for bone regeneration. As a tissue-based product, Osteocel was not as scalable as Osiris' other two products in development, Prochymal and Chondrogen, which can be made in large quantities to meet market demands, he said.

The decision to sell Osteocel comes as Osiris is "transitioning to a pure-drug company," Mills told Medical Device Daily's sister publication, BioWorld Today.

The money will help fund clinical trials of Prochymal, the company's most advanced product, being evaluated in three separate Phase III pivotal trials for three different indications: prochymal for graft versus host disease (GvHD in Phase III); prochymal for Crohn's disease (Phase III); and Prochymal for acute myocardial infarction (Phase I).

In addition, the company is developing follow-on versions of Prochymal under a Department of Defense contract worth $224.7 million, for acute radiation syndrome.

FDA recently cleared Prochymal use for an expanded access treatment program, making it the first investigational stem cell product available to children with life-threatening GvHD. Prochymal is a formulation of adult mesenchymal stem cells administered through a standard intravenous line.

Mills said FDA's approval of Prochymal for use in the expanded access program "gives insight into FDA's thinking" about the product, that the agency is "comfortable using it in children."

The company's other product, Chondrogen for arthritis of the knee, is entering Phase II/III testing, marking the first of two trials required for registration. It is intended for the most treatment-resistant patients whose only option is surgery, Mills said.

Osiris retains the rights to culture expanded versions of the product, previously referred to as Osteocel-XC. However, included in the agreement is an option for NuVasive to acquire the rights to the expanded version of the product at predefined terms as well as a right of first negotiation if Osiris elects to partner the product with a third-party.

NuVasive expects that the transaction will add revenues of $15 million in 2008, based on the terms of existing distribution agreements, and $25 million of revenue in 2009.

The company expects to honor the current 2008 distribution agreements held by Osiris and said it plans to provide additional guidance subsequent to the acquisition closing.

According to both companies, Osteocel is the only viable bone matrix product on the market providing the three beneficial properties similar to autograft: osteoconduction (provides a scaffold for bone growth), osteoinduction (bone formation stimulation) and osteogenesis (production bone). Osteocel allows surgeons to offer the benefits of these properties to patients without the discomfort and potential complications of autograft harvesting, in addition to eliminating the time spent on a secondary surgical procedure.

Analysts were mixed in their assessment of the deal, which is subject to shareholder approval.

Osteocel provides the full range of benefits of donated bone grafts but without the additional surgery and pain, and at lower cost, Ben Andrew, analyst with William Blair & Co., wrote in a research note. He said the product sells for roughly $2,000-$3,000 to the hospital, at a modest discount to Medtronic's InFuse.

"We like this deal and believe it is a relatively low-risk way for NuVasive to bolster its biologics franchise with a differentiated product," Andrews wrote.

But Joel Sendek, managing director and biotech senior analyst, wrote, "We view the divestiture as a desperate move by Osiris to raise cash." He estimates that Osiris' burn rate will reach $25 million/quarter and that the company is down to six months cash. He recommended that investors sell Osiris shares.

NuVasive has a product portfolio focused on the U.S. spine fusion market.

Its product offerings include NeuroVision, a proprietary software-driven nerve avoidance system; MaXcess, a unique split-blade design retraction system; and specialized implants like SpheRx and CoRoent, that collectively minimize soft tissue disruption during spine surgery while allowing maximum visualization and surgical reproducibility. NuVasive also has a focus on cervical internal fixation products.

In other deal news:

• Applera (Norwalk, Connecticut) reported board approval of its proposed separation of the Celera Group (Nashville, Tennessee) from Applera's remaining businesses.

The separation will be accomplished by a redemption of outstanding shares of Applera-Celera Group tracking stock, with Celera becoming an independent public company.

The separation is expected to be completed at 12:01 a.m. EST, July 1, subject to the receipt of an opinion from counsel to Applera regarding the tax consequences of the separation and the redemption, and the Securities and Exchange Commission declaring effective, Celera's registration statement relating to the separation.

Kathy Ordoñez, president of the Celera Group, will serve as Celera's CEO, with the company's headquarters in Alameda, California.

Applera-Applied Biosystems common stock would continue to be traded on the New York Stock Exchange.

Celera is a provider of personalized disease management through products and services incorporating proprietary discoveries. Berkeley HeartLab (Burlingame, California), a subsidiary of Celera, offers services to predict cardiovascular disease risk and optimize patient management.

• Enzo Biochem (New York) reported the acquisition on May 8 of the U.S. based assets of Biomol International (Plymouth Meeting, Pennsylvania), and all of the stock of its two UK subsidiaries for $18 million, comprised of $15 million in cash and $3 million in unregistered stock, in addition to earn-outs over the next two years.

BIOMOL produces specialty life science products for the areas of signal transduction, lipid research, apoptosis, neuroscience and drug discovery, with a research focus in the field of functional proteomics. Its founders and senior management will remain actively involved with Enzo, Enzo said.

"This acquisition is in line with our strategy to grow Enzo Life Sciences, backed by our extensive IP estate, both organically and through acquisition," said Barry Weiner, president of Enzo. "Coupling BIOMOL with our acquisition of Axxora Life Sciences less than a year ago, we have succeeded in transforming Enzo Life Sciences into a global manufacturer and marketer of reagents and systems spanning a wide spectrum of scientific applications."

Weiner said that BIOMOL has annual revenues of nearly $11.5 million, and is expected to become accretive to Enzo earnings.

Enzo now has U.S. operations in New York, Pennsylvania and California, and overseas facilities in Switzerland, the UK and Belgium, as well as more than 50 distributors worldwide. The company is engaged in the R&D, manufacturing and licensing of healthcare products and technologies based on molecular biology and genetic engineering techniques, and in providing diagnostic services.