* Stops enrollment in late-stage trial of lead drug candidate
* Cites flaw in trial design
* Says one dose arm was unlikely to meet main trial goal
* Shares drop 31 percent (Adds analysts' comments, updates stock movement)
By Esha Dey
BANGALORE, March 27 (Reuters) - Stem cell research firm Osiris Therapeutics Inc OSIR.O said it stopped enrolling patients in a late-stage trial to test its lead drug candidate, Prochymal, in Crohn's disease due to design flaws in the study.
The company would continue the trial with patients already enrolled and use data from the trial to redesign future studies. However, it does not expect to get Prochymal approved for Crohn's disease through this trial.
Leerink Swann analyst William Tanner, who had expected the trial to end without difficulties, said he expects the Crohn's disease trial to get pushed by a couple of years.
Tanner does not expect the enrollment halt and design flaws to impact other indications in which the drug is being tested.
Osiris, which developed Prochymal from adult stem cells, is studying the drug in several other indications like graft versus host disease, chronic obstructive pulmonary disorder (COPD), myocardial infarction and diabetes.
However, Lazard Capital Markets analyst Joel Sendek is very sceptical of the drug in any indication.
"I don't think the drug works very well, and I have not seen any evidence that the drug works in Crohn's disease," said Sendek, who has a "sell" rating on the company.
"The company has moved too fast in the late-stage studies. They had very few early- and mid-stage data," Sendek said.
Osiris halted enrollment after the final interim analysis showed that one of the two Prochymal dose arms was unlikely to achieve the main goal of the study due to high response rate seen in the arm that was on dummy drug.
"After careful discussion with the FDA, we elected to discontinue enrollment rather than attempt to re-power the trial," Chief Executive Randal Mills said in a statement. Osiris has a commercial collaboration with Genzyme Corp GENZ.O on Prochymal. However, according to the terms, Osiris would have to bear the full costs of a new late-stage Crohn's disease study.
Shares of Osiris were down about 23 percent at $14.05 in morning trade Friday on Nasdaq. They had touched a low of $12.62 earlier. (Editing by Anil D'Silva, Ratul Ray Chaudhuri)