By Frances Bishopp

Osiris Therapeutics Inc. said Thursday it has filed for an initial public offering (IPO) of up to 3.5 million shares of common stock at an estimated offering price of $8.50 to $10.50 per share.

The IPO will be underwritten by a group led by Smith Barney Inc. and SBC Warburg Inc., both of New York, to which the company has granted a 30-day option to purchase additionally up to 525,000 shares of common stock to cover overallotments.

Osiris, of Baltimore, is engaged in the research and development of therapeutic products for the regeneration of human connective tissues (bone marrow stoma, bone, cartilage, muscle, tendon, ligament and fat) through the use of mesenchymal stem cells (MSC), which Osiris believes to be the cells responsible for the formation of such tissues.

MSCs are progenitor cells (pluripotent cells that progressively mature into specific adult cells) that can differentiate into multiple connective tissue. Researchers believe 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.

For use in cell therapy, MSCs would be collected from patients, isolated, purified and culture-expanded (multiplied) under controlled manufacturing conditions and then either reinfused into patients or combined with a biodegradable matrix to regenerate bone, cartilage or other connective tissue.

MSCs represent a major new target for gene therapy. According to Osiris, MSCs are able to: incorporate a new gene efficiently (add a missing gene or insert a gene to make a therapeutic protein), be culture-expanded further so that all MSCs have copies of the new gene and express the new gene either in undifferentiated MSCs or in differentiated cells of mature connective tissue.

The MSC technology originated at Case Western Reserve University, of Cleveland, and was purchased by Osiris when the company was founded in Cleveland in 1993. The company was lured to Baltimore in July 1995 when state officials provided a $3 million bond to help refurbish a downtown facility.

Osiris currently has five patents relating to MSCs and also owns or has licenses to more than 35 U.S. and foreign patents directed to MSC technology.

Osiris and its academic collaborators have isolated, purified and culture-expanded MSCs from both human and animals. Culture-expanded MSCs have been transplanted to the site of injured animal tissue to regenerate that tissue in a number of preclinical models, establishing the scientific proof-of-principle and preclinical safety and efficacy of the technique.

In addition, an initial human clinical safety study of cancer patients in remission using autologous (derived from patient's own cells) MSCs has been successfully completed. A second human clinical safety study in advanced breast cancer patients, under an approved investigational new drug application, is currently under way.

In June 1997, Osiris signed on with Novartis AG, of Basel, Switzerland, in a collaboration potentially worth up to $63 million to develop new MSC products for use in the areas of osteoporosis, osteoarthritis and cartilage repair and in specific areas of gene therapy.

In June 1996, the U.S. Defense Advanced Research Projects Agency awarded a sole-source, multiyear research contract to Osiris for research into the use of human MSCs as a strategic platform for detection and treatment of biological and chemical agents. The $6 million in funding consisted of $2 million per year for three years.

Osiris also has a collaboration with Houghten Pharmaceuticals Inc., of San Diego, to screen a selected number of Houghten's peptide libraries against Osiris' MSCs.

Upon completion of the IPO, Osiris will have a total of 18.4 million shares of common stock outstanding.

Osiris has made application to have its common stock quoted on the NASDAQ under the symbol OSRS.

Osiris incurred a net loss in 1996 of $8.2 million. The company's combined cash, cash equivalents and securities, adjusted for the sale of shares of common stock to Novartis, totaled approximately $17 million as of March 31, 1997. *