This story, originally published on Oct.21, has been changed to clarify that Osiris Therapeutics received an "Untitled Letter" from the FDA warning the company that its Grafix and Ovation products were in violation of rules governing the marketing of HCT/P products.

COLUMBIA, Md. (TheStreet) -- The U.S. Food and Drug Administration has told Osiris Therapeutics ( (OSIR) - Get Osiris Therapeutics, Inc. Report) to stop making unproven medical claims about its Grafix "stem cell" band-aid healing diabetic foot ulcers, according to a letter sent to the company last month.

The FDA's "Untitled Letter" is dated Sept. 26 but Osiris withheld the information from investors until today. 

Grafix is not an FDA-approved drug or medical device. Grafix is a bandage embedded with unmodified and uncultured cellular tissue derived from human placentas and other growth factors. As such, Osiris believed Grafix fit under the FDA's definition of a human cells, tissue and cellular and tissue-based product, or HCT/P, which means it could be sold without regulatory review as a drug or medical device.

In its letter, however, FDA told Osiris that two of its products -- Ovation and Grafix -- violate rules governing HCT/P products.

Osiris must now submit Grafix for FDA approval, just like any other drug or biologic product. 

The FDA crackdown on HCT/P products, which has also hit MiMedx ( (MDXG) ) recently, puts a major crimp in Osiris' business plan because it can no longer tout Grafix to doctors treating diabetic foot ulcers.

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Osiris had been counting on pushing Grafix into the diabetic foot ulcer market as a way to ramp revenue growth. That plan is now on hold.

Osiris will try to use a recently completed study of Grafix in diabetic foot ulcers as the basis for the product's FDA approval. Don't be surprised if FDA has significant issues with the data collected since Osiris designed this study as a marketing tool, not for FDA review.

-- Reported by Adam Feuerstein in Boston.

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