Brean Digs Into Osiris Therapeutics 10Q, Downgrades To Sell

• Osiris Therapeutics, Inc. OSIR shares are down 19 percent in the last three months, even after hitting a high at $21.13 on September 17.
• Brean Capital’s Jason Wittes downgraded the rating on the company from Hold to Sell, while establishing a price target of $8.
• The company’s 10-Q has raised more concern, since it indicates aggressive accounting, particularly in regard to revenue recognition, Wittes mentioned.

Analyst Jason Wittes wrote, “While we have been cautious on the name as a result of elevated DSO’s and extended payment terms, indicating the potential for channel stuffing, the belated release of the recent 10-Q gives us more concern.”

In total, there are 3 restatements from distributor relationships, which amount to sales of merely ~$3.9 million being shifted between quarters, and $2.8 million in sales removed. Although this improves DSOs, the latest restatements indicate that the company has missed sales targets in 3 out of the last 4 quarters, Wittes said.

The analyst commented that there were “real concerns” related to a plateauing of Grafix revenues as well as heavy discounting of Bio4 by Stryker Corporation SYK, which “doesn’t bode well for the future of that partnership.”

The revenue estimate for 2016 has been reduced from $120 million to $110 million. This translates to only 13 percent revenue growth, making it difficult to justify the current sales multiple.

“We think this growth rate is closer to a more normalized 2-3x multiple or about $8, but have some concerns that major write downs could drop the valuation below 1x, or below $5,” Wittes added.

In the report Brean Capital noted, “We believe management including new CFO Greg Law is attempting to remedy all outstanding issues, but we cannot rule out more shoes to drop, especially at year end and when the 10K is released.”