| Description of Business and Significant Accounting Policies | 3 Months Ended |
| Mar. 31, 2014 |
| Description of Business and Significant Accounting Policies | ' |
| Description of Business and Significant Accounting Policies | ' |
| 1. Description of Business and Significant Accounting Policies |
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| Description of Business |
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| Osiris Therapeutics, Inc. (“we,” “us,” “our,” or the “Company”) is a Maryland corporation headquartered in Columbia, Maryland. We began operations on December 23, 1992 and were a Delaware corporation until, with approval of our stockholders, we reincorporated as a Maryland corporation on May 31, 2010. We are a leading stem cell company focused on developing and marketing products in the wound, orthopedic, and sports medicine markets. |
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| From 2010 to 2013, we operated our business in two segments, Biosurgery and Therapeutics. We now operate only our Biosurgery business, as a result of the sale of our Therapeutics segment assets in the fourth quarter of 2013, as discussed further below. Our Biosurgery business focuses on products for wound care, cartilage repair, and orthopedics, to harness the ability of cells and novel constructs to promote the body’s natural healing. Until it was sold, our Therapeutics business focused on developing biologic stem cell drug candidates from a readily available and non-controversial source—adult bone marrow. |
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| Our Biosurgery business has continued to grow since its inception, and we have increased our organizational focus on the development and commercialization of products in this segment. Consistent with this organizational focus, as discussed further in Note 2— Discontinued Operations below, on October 10, 2013, we entered into a Purchase Agreement to sell our Therapeutics segment, including all of our culture expanded mesenchymal stem cell business, including Prochymal and other related assets. We eliminated the Therapeutics segment from our continuing operations as a result of the disposal transaction, and have presented the assets, liabilities, and results of the segment’s operations as a discontinued operation for all periods presented. Our continuing operations now represent the portion of our business previously referred to as our Biosurgery segment. |
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| Unaudited Interim Financial Statements |
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| Except for the Balance Sheet as of December 31, 2013, which was derived from audited financial statements, the accompanying condensed financial statements are unaudited. The accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of our results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. This Quarterly Report on Form 10-Q should be read in conjunction with our financial statements and footnotes included in our Annual Report on Form 10-K (“2013 10-K”) for the fiscal year ended December 31, 2013. |
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| Use of Estimates |
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| The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Due to the inherent uncertainty involved in making those assumptions, actual results could differ from those estimates. We believe that the most significant estimates that affect our financial statements are those that relate to deferred tax assets, inventory valuation, share-based compensation and the value of the derivative obtained in connection with the sale of our former Therapeutics business. |
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| Reclassifications |
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| We have reclassified certain prior-year amounts for comparative purposes. These reclassifications did not affect our results of operations or financial positions for the periods presented. |
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| Cash and Cash Equivalents |
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| Amounts listed as cash on our balance sheets are maintained in depository accounts at a commercial bank. Cash and cash equivalents, which include highly liquid investments with maturities of three months or less when purchased, held in our brokerage investment accounts are classified as investments available for sale, as the amounts represent investments that have matured and are anticipated to be reinvested in debt securities in the near future, and are disclosed at fair value, which approximates cost. |
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| Investments Available for Sale |
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| Investments available for sale consist primarily of marketable securities with maturities less than one year. Investments available for sale are valued at their fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income. All realized gains and losses on our investments available for sale are recognized in results of operations as other income. |
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| Investments available for sale are evaluated periodically to determine whether a decline in their value is “other than temporary.” The term “other than temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security. We review criteria such as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. If a decline in value is determined to be other than temporary, the carrying value of the security is reduced and a corresponding charge to earnings is recognized. |
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| Trading Securities - Derivative and Securities Received in Business Disposition |
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| As discussed in Note 2 — Discontinued Operations, we disposed of our Therapeutics segment in October 2013. A portion of the consideration for the sale of that business was stock of Mesoblast Limited (“Mesoblast”), the parent of the purchaser. We are required to hold that stock for one year from the date of receipt. We currently intend to dispose of the Mesoblast stock as soon as we are able to do so in December 2014. As such, we have reflected the investment as a current asset in Trading Securities. Mesoblast is a public company and its stock is traded on the Australian stock exchange. |
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| The Mesoblast stock is subject to limited price protection for the one year required holding period. To the extent the value of those shares decreases during the holding period, Mesoblast is required to pay us for the decrease in value. This payment is to be made at least one half in cash and at the option of Mesoblast, up to one half in additional shares of Mesoblast stock. Any additional Mesoblast stock will also have to be held for one year during which period there is no further price protection. The price protection is accounted for as a derivative under ASC 815, Derivatives and Hedging, and, as such is recorded on the balance sheet at fair value, with changes in value recognized in Other income (expense), net. We have elected to measure the Mesoblast stock at fair value with changes in fair value reflected in Other income (expense), net, as permitted under ASC 825-10, Financial Instruments — Fair Value Option. |
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| Our only derivative instrument is the price guarantee regarding the payment received in restricted shares of Mesoblast stock. We do not hold derivative financial instruments for trading purposes. |
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| Restricted Cash |
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| We periodically are required under the terms of various agreements to provide letters of credit which are collateralized by cash deposits. The majority of the restricted cash balance relates to a letter of credit that we caused to be issued in lieu of a security deposit under the operating lease for our Columbia, Maryland facility. |
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| Trade Accounts Receivable |
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| Trade accounts receivable are reported at their net realizable value. We charge off uncollectible receivables when the likelihood of collection is remote. We set credit terms with individual customers, and consider receivables outstanding longer than the time specified in the respective customer’s contract, typically 45-days, to be past due. As of March 31, 2014 and December 31, 2013, accounts receivable in the accompanying balance sheets are both reported net of a $78,000 allowance for doubtful accounts, respectively. We believe the reported amounts are fully collectible. Trade accounts receivable balances are not collateralized. We incurred $0 and $21,000 of bad debt expense in the first quarter 2014 and 2013 respectively. |
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| Other Receivables |
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| Other receivables consist of amounts due us from Mesoblast related to the sale of our Prochymal business, primarily the scheduled installment payment of $15.0 million which we received subsequent to the end of the first fiscal quarter of 2014, in April 2014. Other receivables also include reimbursements due us from Mesoblast for goods and services provided to them in connection with the Transition Services Agreement entered into as part of the sale transaction. The Transition Services Agreement has been extended so that we will provide some services to Mesoblast through October 10, 2014, and will continue to be reimbursed for the costs and time incurred. |
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| Inventory |
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| We began carrying inventory of our Biosurgery products on our balance sheet following commercial launch of such products. Inventory consists of raw materials, biologic products in process, and products available for distribution. We determine our inventory values using the first-in, first-out method. Inventory is valued at the lower of cost or market, and excludes units that we anticipate distributing for clinical evaluation. Materials and supplies purchased for product development and product improvement activities are expensed as incurred. |
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| Property and Equipment |
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| Property and equipment, including improvements that extend useful lives, are valued at cost, while maintenance and repairs are charged to operations as incurred. Depreciation is calculated using the straight-line method based on estimated useful lives ranging from three to seven years for furniture, equipment and internal use software. Leasehold improvements and assets under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease. |
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| Valuation of Long-lived Assets |
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| We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized for the difference between the fair value and carrying value of assets. Fair value is generally determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk. There were no impairment losses recognized during the first quarter of fiscal 2014 or during fiscal year 2013. |
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| Biosurgery Revenue Recognition |
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| We recognize revenue from product distribution when title passes to the customer. Title usually passes when the product is shipped to the customer and leaves our loading dock. In some situations, we store consigned inventory on site in freezers at hospital or clinic facilities and title passes to the customer when the product is used in a surgical procedure. In these instances we recognize the revenue upon notification of the completed surgical procedure. We verify the condition and status of all consigned inventory on at least a quarterly basis. Due to the nature of our products and the need to ensure they are maintained at the proper frozen temperature, we generally do not allow product returns. |
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| Therapeutics Revenue Recognition |
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| In our former Therapeutics business, we evaluated revenues from agreements that have multiple elements to determine whether the components of the arrangement represent separate units of accounting. To recognize a delivered item in a multiple element arrangement, the delivered items must have value on a standalone basis and the delivery or performance must be probable and within our control for any delivered items that have a right of return. The determination of whether multiple elements of a collaboration agreement meet the criteria for separate units of accounting requires us to exercise judgment. We account for the activities of our former Therapeutics business as discontinued operations. |
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| Revenues from research licenses associated with our former Therapeutics business were recognized as earned upon either the incurring of reimbursable expenses directly related to the particular research plan or the completion of certain development milestones as defined within the terms of the agreement. Payments received in advance of research performance were designated as deferred revenue. Non-refundable upfront license fees and certain other related fees associated with our former Therapeutics business were recognized on a straight-line basis over the development periods of the contract deliverables. Fees associated with substantive at risk performance based milestones are recognized as revenue upon their completion, as defined in the respective agreements. Incidental assignment of technology rights were recognized as revenue when and if it was earned and received |
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| Research and Development Costs |
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| We expense internal and external research and development (“R&D”) costs, including costs of funded R&D arrangements and the manufacture of clinical batches of Biosurgery products used in clinical trials, in the period incurred. |
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| Income Taxes |
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| Deferred tax liabilities and assets are recognized for the estimated future tax consequences of temporary differences, income tax credits and net operating loss carry-forwards. Temporary differences are primarily the result of the differences between the tax bases of assets and liabilities and their financial reporting values. Deferred tax liabilities and assets are measured by applying the enacted statutory tax rates applicable to the future years in which deferred tax liabilities or assets are expected to be settled or realized. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense, if any, consists of the taxes payable for the current period and the change during the period in deferred tax assets and liabilities. |
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| We recognize in our financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties related to income tax matters are recorded as income tax expense. At March 31, 2014 and December 31, 2013 we had no accruals for interest or penalties related to income tax matters. |
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| Income per Common Share |
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| Basic income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted income per common share adjusts basic income per share for the potentially dilutive effects of common share equivalents, using the treasury stock method, and includes the incremental effect of shares that would be issued upon the assumed exercise of stock options and warrants. |
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| Diluted loss per common share for the three months ended March 31, 2014 excluded all 1,481,708 of our outstanding options as of March 31, 2014, as their impact on our net loss is anti-dilutive. As a result, basic and diluted weighted average common shares outstanding are identical for this period. |
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| Diluted loss per common share for the three months ended March 31, 2013 excluded all 2,132,664 shares issuable upon the exercise of options, and all 1,000,000 shares issuable upon the exercise of an outstanding warrant, as their impact on our net loss is anti-dilutive. As a result, basic and diluted weighted average common shares outstanding are identical for the period. |
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| Share-Based Compensation |
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| We account for share-based payments using the fair value method. |
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| We recognize all share-based payments to employees and non-employee directors in our financial statements based on their grant date fair values, calculated using the Black-Scholes option pricing model. Compensation expense related to share-based awards is recognized on a straight-line basis for each vesting tranche based on the value of share awards that are expected to vest on the grant date, which is revised if actual forfeitures differ materially from original expectations. |
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| Comprehensive Income |
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| Comprehensive income consists of net income and all changes in equity from non-stockholder sources, which consist of changes in unrealized gains and losses on investments. |
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| Concentration of Risk |
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| We maintain cash and short-term investment balances in accounts that exceed federally insured limits, although we have not experienced any losses on such accounts. We also invest excess cash in investment grade securities, generally with maturities of one year or less. |
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| We have historically provided credit in the normal course of business to contract counterparties and to the distributors of our product. Trade accounts receivable in the accompanying balance sheets consist primarily of amounts due from distributors of our Biosurgery products within the United States. During the first fiscal quarters of fiscal 2014 and 2013, revenues from one of the distributors of our Biosurgery products, Stability Biologics, comprised approximately 58% and 64%, respectively, of our total Biosurgery product revenues. As of March 31, 2014 and December 31, 2013, receivables from this distributor comprised 20% and 57%, respectively, of our trade receivables. We expect all of our reported receivables to be fully collected. As discussed under “Trade Accounts Receivable,” we have not incurred any bad debt expense for the three months ended March 31, 2014. |
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| Recently Adopted Accounting Guidance at March 31, 2014 |
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| In July 2013, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) related to the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The ASU requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending on the existence, availability and/or use of an operating loss carryforward, a similar tax loss, or a tax credit carryforward. This ASU was adopted at January 1, 2014. This ASU did not have an impact on our consolidated financial statements as we currently do not have any unrecognized tax benefits in the same jurisdictions in which we have tax loss or credit carryovers. |
