Osiris Therapeutics, Inc.

On November 23, 2015, the action entitled Nallagonda v. Osiris Therapeutics, Inc. et al., Case No. 1:15-cv-03562-PX, was filed in the United States District Court for the District of Maryland, Baltimore Division.  The action alleged violations of the federal securities laws and sought remedy under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder.  Named as defendants were Osiris, Lode Debrabandere, Gregory I. Law and Philip R. Jacoby, Jr.  Motions asking the Court to appoint Lead Plaintiff and to approve Lead Plaintiff’s selection of lead counsel were filed on January 22, 2016, and a hearing on those motions was held on March 21, 2016 before the Honorable J. Frederick Motz.  The Court entered an order granting investor Raffy Mirzayan’s motion and denying the competing motion.  Accordingly, on March 21, 2016, Raffy Mirzayan was appointed as the Lead Plaintiff and the Court approved Lead Plaintiff’s selection of Hagens Berman Sobol Shapiro LLP (“Hagens Berman”) as Lead Counsel.

Lead Plaintiff conducted an extensive investigation prior to filing the Amended Complaint on April 6, 2018. This investigation included a thorough and detailed review of Osiris’s public filings before, during and after the Class Period (including SEC filings, publicly available annual reports, press releases, news articles, and other media reports), review of interim financial reporting produced confidentially as part of the mediation process, research into the opinions of analysts that followed the stock and ratings agencies, and the retention of a consulting economist. 

After extensive arms-length settlement discussions and mediation discussed below, Lead Plaintiff, through his legal counsel submitted a memorandum in support of the Stipulation and Settlement Agreement dated June 5, 2018, (“Stipulation” or “Settlement Agreement”). On September 4, 2018  the Court entered an order:  1) preliminarily approving the Settlement; 2) preliminarily certifying the class pursuant to the Federal Rules of Civil Procedure for purposes of the Settlement; 3) preliminarily approving the Plan of Allocation; 4) approving the form and method for providing notice of the Settlement to the Class; 5) approving the retention of the proposed Settlement Administrator; and 6) scheduling a Settlement Hearing at which the Court will consider:  i) final approval of the Settlement; ii) final approval of the Plan of Allocation; iii) Class Counsel’s request for fees and expenses; and iv) entry of the Final Judgment and Order. A link to the Court Order is above.

FACTUAL BACKGROUND

A. Allegations of the Litigation

Defendant Osiris Therapeutics, Inc. (“Osiris” or the “Company”) is a Maryland corporation.  During the Class Period, Osiris’s common stock traded on the NASDAQ under the ticker symbol “OSIR”.  After delisting for failure to file timely financial reports, Osiris began trading on the OTC Market.  Osiris has a single core operation – its Biosurgery business – which the Company states works to harness the ability of cells and novel constructs to promote the body’s natural healing with the goals of improving surgical outcomes and offering better treatment options for patients and physicians.  Osiris’s main products include Grafix®, Cartiform®, and Ovation®.

In his Amended Complaint, Lead Plaintiff alleges that during the Class Period, Defendants repeatedly engaged in wide-ranging fraudulent acts that artificially inflated the Company’s reported revenues and misled Osiris’s shareholders and the public as to Osiris’s revenue and revenue growth. For example, Osiris unlawfully:  (i) prematurely recognized revenue in periods before sales had been made and before critical agreement terms were finalized; (ii) recognized revenue using higher, inaccurate prices, while deliberately disregarding data that explicitly attested to lower, actual revenue numbers; and (iii) recognized revenue on consignment inventory, directly contradicting Osiris’s disclosed accounting policies.  These actions led to, or themselves constituted, misstatements about Osiris’s revenue, a key financial metric for the company, which was published in Osiris’s SEC filings, reports, and earnings calls.

Defendants allegedly wrongful conduct included improperly and fraudulently creating extra-contractual terms at the onset of Osiris’s arrangements with product distributors, fraudulently initiating and agreeing to unusually long payment terms after negotiating and documenting the agreement with product distributors, and in at least one instance fraudulently creating deal documents after the close of Osiris’s 2014 fiscal year and after filing the 2014 annual with the SEC.  The false deal documents fabricated an arrangement with a distributor that did not exist at the time the revenues were recognized and resulted in materially inflated revenues during the fourth quarter ended December 31, 2014.

Lead Plaintiff also alleges that Defendants repeatedly, falsely and misleadingly assured investors of the integrity of Osiris’s financial reports filed with the SEC.  Those reports include the reports filed on Form 10-Q for the periods ended March 31, 2014, June 30, 2014, and September 30, 2014, the Form 10-K for the quarter and year ended December 31, 2014, and on Form 10-Q for the periods ended March 31, 2015, June 30, 2015, and September 30, 2015 (collectively, “Non-Reliance Period reports”).  Each report was false and misleading and/or they omitted information necessary to make their statements not false and misleading.

B. The Five-Month Mediation and Negotiation Process

On December 19, 2017, Lead Counsel and counsel for Osiris participated in a full-day mediation with Jed Melnick (“Mr. Melnick”) of J.A.M.S. in New York, New York.  The parties were nowhere near resolution at the end of that daylong mediation.  To further the mediation’s progress, Osiris shared confidential interim financial results.  Mr. Melnick continued to mediate between the parties, speaking to both sides on numerous occasions over the coming months.  Although these discussions were helpful in considerably narrowing the gap between the Settling Parties, they were unable to agree on settlement amounts.  Ultimately, the Settling Parties continued their arm’s-length negotiations and after several additional efforts, were able to reach a resolution in early March, which is now documented in the Stipulation.

This Settlement provides between 36 and 86% recovery of estimated damages to the Class, which consists of Osiris investors who purchased Osiris common stock within the Class Period.  This substantial recovery reduced the need to continue litigating the case and engage in formal discovery beyond the extensive informal discovery already undertaken.  Instead, the Class will receive immediate and substantial compensation for the claims.  In other words, the size of the settlement, in combination with risks of continuing to litigate reduces the need for Lead Plaintiff to continue litigating the case and engaging in formal discovery, which would only delay any benefits achieved through litigation.  The Settlement was nevertheless entered into only after thorough investigation and analysis by Lead Plaintiff’s Counsel.  Accordingly, this factor favors finding the Settlement is fair and granting preliminary approval.

THE TERMS OF THE SETTLEMENT

The basic terms of the Settlement are a cash payment of $18.5 million to be made by Osiris to the Settlement Fund within thirty (30) working days of the Court’s entry of the Preliminary Approval Order in exchange for a release of all claims against the Defendants.  The Settlement Fund will be held in escrow pending the Court’s final approval of the Settlement and authorization to disburse.

REASONS FOR THE SETTLEMENT

The Settlement represents a significant recovery for the Class and avoids the costs and risks associated with continued litigation, including the danger of no recovery.  Osiris will assert defenses to liability, damages, and class certification, each of which represented a significant risk at summary judgment, trial or appeal.  In light of these issues, Lead Plaintiff concluded that the “prompt, guaranteed payment of the settlement money” is preferable to the “speculative payment of a hypothetically larger amount years down the road.”

SCHEDULE OF EVENTS

The Court Order approving the settlement sets forth the following schedule:

June 12, 2018
Unopposed Motion for Preliminary Approval

(Preliminary Approval Order + 28)
Deadline to post the Stipulation, the Preliminary Approval Oder, and a copy of the Notice on
web site (Prelim. App. Order ¶7(a)).

(Preliminary Approval Order +28 days)
Begin mailing and emailing Long Form Notice, with Proof of Claim and Release Form ("Notice
Date") (Prelim. App. Order ¶7(b), (c)).

(Preliminary Approval Order + 35 days)
Publish Summary Notice (Prelim. App. Order ¶7(d)).

Notice Date + 60 days
Objections & Opt-out due (Prelim. App. Order ¶9).

Notice Date + 120 days
Claim Filing Deadline (Prelim. App. Order ¶7(e)).

Thirty-five days prior to Settlement Hearing
Filing of briefs in Support of Final Approval of Settlement, Plan of Allocation, and Counsels'
request for attorney's fees and costs (Prelim. App. Order ¶2).

Thirty-five days prior to Settlement Hearing
Proof of Mailing Notice to Court & Counsel (Prelim. App. Order ¶2).

(Opposition to final approval + 14 days) Local Rule 105(2)(a)
Filing of reply memoranda in support of Final Approval of Settlement, Plan of Allocation, and
Counsels' request for attorney's fees and costs (Prelim. App. Order ¶2).

February 4, 2019
SETTLEMENT HEARING at 10:00 a.m., at the United States Courthouse, 6500
Cherrywood Lane, Suite 400, Greenbelt, MD 20770