Skin replacement and substitutes manufacturer Osiris Therapeutics rocked the financial world this week, seeing its stock jump in value 137% in just one day of trading.

What caused this sudden rush to buy? Well, the release of preliminary findings demonstrating that 62% of patients with diabetic foot ulcers (DFUs) receiving the company's Grafix skin substitute had achieved complete closure compared to just 21% of patients who received conventional treatment might have had something to do with it.

Grafix was originally designed to treat second and third degree burns.  Now Osiris is expected to leverage these positive findings to receive Medicare and private insurance coverage for the use of Grafix in the far more lucrative DFU market.

Right now, so far as skin replacements and substitutes are concerned, the DFU market is dominated by the usual suspects, Organogenesis Apligraf and Shire's Dermagraft. Can Osiris, good fortunes change this landscape dramatically?

There are a few issues that need to be considered when assessing Osiris' prospects.

First, treatment cost is a huge issue in the US market. The per unit cost of a skin replacement or substitute isn't necessarily irrelevant, though it really is only a part of the story. The greater concern among physicians and payers is the cost of an entire course of treatment. Grafix will need to be able to prove that it isn't simply the more effective option, but also less costly.

Second, increased demand requires increased supply. Grafix is derived from human placenta, which not surprisingly, isn't always available in large supply. In fact, Osiris warned in their 2012 annual report that given their reliance on not-for-profit donor procurement agencies, they would need to balance demand with their growing distribution efforts. Osiris is going to need to work on procurement if it ever plans to supplant Organogenesis and Shire, not necessarily a herculean task given that Apligraf and Dermagraft are derived from neonatal foreskins.

Finally, brand-recognition is an important consideration. Dermagraft and Apligraf are Coke and Pepsi to wound care physicians they are often totally loyal to one or the other with little consideration of the other products available. Osiris is going to have to work hard to get its name on the mind of these physicians if it wants to make significant headway in the US market otherwise it risks being another RC Cola.

All that being said, the US skin replacement and substitutes market is fairly dynamic and a lot can happen in a year. While the obstacles mentioned above might prevent the competitive landscape from being reordered overnight, Osiris does appear to have a good product on its hands and belongs in the spotlight.

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