Genzyme Corp has linked up with Osiris Therapeutics to develop and market two late-stage stem cell products in a deal that could be worth up to $1.38 billion to the latter firm.

The two products are Prochymal and Chondrogen, which the firms say “hold significant potential to treat a wide range of diseases” and are designed to provide “therapeutic benefit by controlling inflammation, promoting tissue regeneration, and preventing scar formation”.

Prochymal is currently being evaluated in two Phase III trials for graft versus host disease and a late-stage study for Crohn's disease. It is also being studied in Phase II trials for type 1 diabetes and chronic obstructive pulmonary disease and another Phase II trial looking at the compound for acute myocardial infarction is expected to begin soon. Last year the firms entered into a collaboration to develop Prochymal for acute radiation syndrome and in January were awarded a $224.7 million contract from the US Department of Defence for this indication.

Prochymal has been granted fast-track status by the US Food and Drug Administration for GvHD and Crohn's, and is the first stem cell product to receive FDA expanded access approval, making it available now to children with life-threatening GvHD. As for Chondrogen, a Phase II/III trial for osteoarthritis of the knee should start shortly.

Osiris noted that the mesenchymal stem cells used in the two products are isolated from the bone marrow of healthy young adult donors. They are grown in culture, permitting large-scale production, and because the cells can be expanded, thousands of doses can be produced from a single donation.

Cashwise, the deal is potentially a massive one. Genzyme will make an upfront $130 million payment ($75 million now and $55 million in July) to Osiris, which will pay for all ongoing trials and future studies for additional indications up to Phase II. Osiris could also receive up to $1.25 billion in milestones, based on the drugs' development and potential sales, plus escalating royalties. The companies will share the cost of future Phase III and IV clinical trials, with a 60% Osiris/40% Genzyme split.

Genzyme chief executive Henri Termeer said the partnership strengthens the firm’s late-stage pipeline “with the potential to support our growth beyond 2011". He added that "Osiris is the clear leader in stem cell technology, which holds the promise to transform standards of care in a number of therapeutic areas in which Genzyme already has a strong presence”.

Osiris also reported third-quarter net income of $5.3 million, compared to a $10.4 million loss for the same period last year, and revenues from government contracts, collaborative research pacts and royalties climbed to $994,000 from $294,000. The firm’s shares also climbed on the news of the Genzyme deal and were up 3.6% in after-hours trading at $16.50.