Mail Stop 6010 June 28, 2006
C. Randall Mills, Ph.D.
President and Chief Executive Officer
Osiris Therapeutics, Inc.
2001 Aliceanna Street
Baltimore, Maryland 21231
Re: Osiris Therapeutics, Inc.
Registration statement on Form S-1
Amendment no. 1 filed June 20, 2006
File No. 333-134037
Dear Dr. Mills:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your documents in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Amendment 1 to Form S-1
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 37
Research and Development Costs, pages 38 - 39
1. Refer to your response to comment 17. We acknowledge your
disclosure that the company cannot quantify precisely the internal
research and development costs incurred on a project-by-project
basis. Please provide as much quantitative and qualitative
information as possible on another basis instead. Alternative
presentations could show a breakdown of internal vs. external
costs
incurred and could detail these costs further by some other
category.
For example, including the costs incurred for preclinical,
clinical
and non-clinical trials would be informative. Please note that
the
comment only presents a suggested format that is intended to allow
investors to better understand the composition of these expenses.
If
you do not feel this proposed format is applicable to your
business,
then please provide us similar disclosure in another format that
will
allow an investor the desired insights into your research and
development costs.
Stock Compensation, page 43
2. We acknowledge your response to comment 31. When you have
determined the IPO price, please disclose the intrinsic value of
outstanding vested and unvested options based on the estimated IPO
price and the options outstanding as of the most recent balance
sheet
date presented.
3. Clarify the date you hired the valuation specialist. If the
date was subsequent to December 31, 2005, a retrospective
valuation
may have been performed, which should be clarified in the filing.
In
addition, valuations done by the board of directors are not
considered performed by a third party. Also, it is not clear why
you
believe those valuations were done contemporaneously given that
the
board of directors only meets periodically. Please revise
accordingly.
4. With respect to your stock valuations, please provide the
following:
* Disclose the significant assumptions and methodologies used in
determining your valuation at each issuance date of an equity
instrument.
* Discuss each significant factor contributing to the difference
between the fair value as of the date of each grant and the
estimated
IPO price or if a contemporaneous valuation by an unrelated
valuation
specialist was obtained subsequent to the grants but prior to the
IPO, the fair value as determined by that valuation.
* The valuation alternative selected and the reason management
chose
not to obtain a contemporaneous valuation by an unrelated
valuation
specialist
* Tell us why your valuations do not consider the fact that sales
began in July 2005. Although the amounts were small, it would
appear
that the introduction of sales would be a significant event that
should be considered in determining the valuation of your stock.
* Tell us how the Series E convertible preferred stock issued for
$2.50 per share, the convertible promissory notes issued, and the
conversion of the convertible promissory notes to Series D
convertible preferred stock at $2.00 per share compare to the
valuation of your common stock and why the valuations differ.
* Clarify if the Series E convertible preferred stock and the
convertible promissory notes were issued to third parties and how
that factor was considered in determining your valuation for your
common stock.
* Please evaluate all significant events during the year and
provide
us an analysis with a timeline justifying your valuations for each
period considering each event.
Registration Rights, page 92
5. Refer to your response to comment 24. Please include the
registration rights agreement for the $20.6 convertible note as an
exhibit. Your response to comment 24 did not address the other
registration rights agreements that you discuss on pages 92 and
93.
Please reevaluate your accounting for the other agreements and
provide us your analysis as previously requested. Tell us and
disclose in the filing your obligations under all the registration
rights agreements. Discuss any liquidating penalties or other
significant terms.
6. Prior to going effective, please revise the filing to account
for the reverse stock split that will occur prior to the
consummation
of the offering. In addition, please clarify how a reverse stock
split will result in additional authorized and issued shares to
satisfy the company`s obligations under the registration rights
agreements and other commitments. Please revise or advise.
Financial Statements
Revenue Recognition, page F-10
7. Refer to comment 29 and your response. Please tell us if the
incidental assignment of technology rights is from a related
party.
If so, the amount recorded for the technology rights should be
based
on the GAAP basis of the related party and should be recorded as
contributed capital in the financial statements. In addition,
please
tell us the basis for capitalizing the amount and any
consideration
given to recording the amount as in-process research and
development.
Refer to paragraph 11c of SFAS 2.
Stock Compensation, page F-12
8. Refer to comment 30 and the additional disclosure provided.
Please address the following comments:
* Provide a consent from the valuation expert that you reference.
* Provide us with an analysis of all equity issuances from the
date
of the latest balance sheet through the date of your response.
For
each grant date, the number of options or shares granted, the
exercise price, the fair value of the common stock, and the
intrinsic
value, if any, per option.
3. Notes Payable and Capital Lease Obligations, pages F-16 - F-17
9. Refer to comment 33 and your response. It is unclear from
your
additional disclosure how the conversion rate of the loans from
related parties to Series D mandatorily redeemable convertible
preferred stock was determined. Please clarify.
10. Refer to comment 34. When the price range of the IPO has
been
established, please disclose in Management`s Discussion and
Analysis
the expected effect on your results of operations of recording the
beneficial conversion feature for the convertible promissory notes
of
$19.8 million, $20.6 million and $2 million and provide us a
calculation based on the estimated IPO price per share.
* * * * *
As appropriate, please amend your filings in response to
these
comments. You may wish to provide us with marked copies of the
amendment to expedite our review. Please furnish a cover letter
with
your amendment that keys your responses to our comments and
provides
any requested supplemental information. Detailed cover letters
greatly facilitate our review. Please file your cover letter on
EDGAR under the form type label CORRESP. Please understand that we
may have additional comments after reviewing your amendment and
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Ibolya Ignat at (202) 551-3656 or Mary Mast
at
(202) 551-3613 if you have questions regarding comments on the
financial statements and related matters. Please contact Zafar
Hasan
at (202) 551-3653 or me at (202) 551-3710 with any other
questions.
Sincerely,
Jeffrey P. Riedler
Assistant Director
cc: Justin P. Klein, Esquire
Donald J. Murray, Esquire
Dr. C. Randall Mills
Osiris Therapeutics, Inc.
June 28, 2006
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