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Osiris Therapeutics Takes a Bumpy Ride

Osiris Therapeutics (OSIR - Get Report) hit a snag Tuesday in its quest to develop new stem-cell therapies when a study for a knee-repairing drug came up lame.

In a proof-of-concept study, Osiris injected a mixture of adult stem cells called Chondrogen into the knees of patients who had a torn or damaged meniscus, which is the spongy, shock-absorbing cartilage between the tibia and femur.

It was hoped that stem cells in Chondrogen would implant in the knee and regenerate into new meniscus tissue. But after six months, patients given Chondrogen showed no increase in meniscus volume compared to patients given a sham injection, the company reported.

On Tuesday, Osiris shares fell more than 10%, but had regained some of that loss on Wednesday; the stock was recently up 1.95% to $18.81.

The Chondrogen setback isn't the end of the road for Osiris. The Baltimore-based company has another, more advanced, stem-cell therapy in phase III studies, the last step before potentially seeking FDA approval. As such, the company is much further along than its stem-cell competitors. And Osiris derives its stem cells from adult bone marrow, so it sidesteps the ethical controversy around the use of embryonic stem cells.

But the disappointing data also should remind investors that stem-cell research, while groundbreaking and cool, is still very risky business. And Osiris is no exception.

The Osiris story centers around mesenchymal stem cells (MSCs), which are capable of differentiating into tissues that provide rigidity or stability in the body -- bone, cartilage, fat, tendon or muscle. MSCs may also possess anti-inflammatory properties and appear not to activate an immune response when transplanted into an unrelated or unmatched host.

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