By Debbie Strickland

Within weeks of securing a $156 million deal with Novartis, Osiris Therapeutics Inc. took its story to Wall Street, seeking to raise $38 million in an initial public offering (IPO).

But five months later, the Baltimore-based tissue-regeneration company has withdrawn the IPO, citing "unfavorable market conditions for new issues and market volatility."

Industry watchers had expected the IPO to price in late November or early December.

The original prospectus, filed in July, called for the sale of up to 3.5 million shares at an estimated price of $8.50 to $10.50 per share. On Dec. 2, the company amended the prospectus to sell 2.5 million shares at between $11 and $13 per share, for potential gross proceeds of $30 million.

In a prepared statement, the company downplayed the news and said new corporate partners were expected in 1998.

"We are in a strong cash position, and we have a low net burn rate, both of which allow us to wait for market conditions to improve," said James Burns, president and CEO, in the statement.

As of Sept. 30, Osiris had $18.2 million in cash, cash equivalents and securities available for sale. During the first three quarters of 1997, the company posted a net loss of $2.9 million.

Founded in 1993, Osiris uses mesenchymal stem cells (MSCs) to regenerate connective tissues — such as bone marrow stroma, cartilage, muscle, tendon, ligament and fat.

MSCs are progenitor cells that can differentiate into various types of connective tissue. Osiris' research is based on the idea that the process of tissue regeneration in adults follows a sequence of events similar to that of embryonic tissue formation and that throughout life individuals maintain a reserve of MSCs capable of differentiating into new connective tissue.

Osiris' initial product development efforts center on regeneration of bone marrow stroma following high-dose cancer chemotherapy, and on the regeneration of bone in long bone and spinal defects.

The collaboration with Basel, Switzerland-based Novartis Pharma AG provided an up-front cash infusion of $13 million, plus up to $50 million in research funding, and — the IPO prospectus disclosed — up to $93 million in milestone payments.

The companies are seeking to develop MSC products to treat osteoporosis and osteoarthritis, and for use in cartilage repair and gene therapy. *