Source: Osiris Therapeutics
What: After receiving a downgrade from from Wall Street, shares in Osiris Therapeutics (NASDAQ: OSIR) tumbled by 20% today.
So what: According to researchers at Brean Capital, Osiris Therapeutics isn't worth holding anymore.
The brokerage cut its rating to a "sell" today and slapped a price target on Osiris Therapeutics of $8 -- well below current levels.
The downgrade comes in the wake of Osiris Therapeutics reporting third quarter financial results on November 6 that include a 41% year-over-year jump in revenue to $24.3 million in the quarter.
Growth was driven by increasing use of its Grafix skin graft and demand for BIO4, a bone allograft that is being sold by Stryker Corporation (SYK -0.48%) sales representatives.
Twice as many patients were treated with Grafix than three quarters ago last quarter, but price bundling offset some of that volume upside.
Also, as part of BIO4's launch, Osiris Therapeutics and Stryker agreed to allow Stryker reps to offer price discounts on BIO4. Because of those price discounts, the company's sales were $1.7 million lower than they would have been otherwise.
Osiris Therapeutics also announced that R&D expenses increased to $2.3 million from $1.2 million and that SG&A expenses grew to $16.7 million from $11 million in Q3 from last year.
Because of its pricing strategy and spending increases, Osiris posted a loss of $842,000 in the quarter.
Now what: Osiris Therapeutics and Stryker have agreed to limit price discounts going forward, but investors will still need to keep an eye on pricing in the coming quarters.
Investors will also want to keep tabs on market penetration for Osiris Therapeutics' next-generation wound care solutions. According to the company, just 60,000 to 70,000 patients out of an addressable market of 1 million people are currently being treated with its and its competitors' advanced skin substitutes.
Although that may suggest there's still running room ahead for Osiris Therapeutics to grow, the company's cloudy pricing strategy and increased spending make it hard to guess when Osiris Therapeutics will be able to consistently reward investors with quarterly profit. For that reason, I won't be buying shares in this company on this decline.
