An investigation on behalf of investors in Osiris Therapeutics, Inc. (NASDAQ: OSIR) shares over potential violations of the federal securities laws by Osiris Therapeutics, Inc was announced.

According to the investigation by a law firm in January 2007, Osiris Therapeutics, Inc received Fast Track designation from the U.S. Food and Drug Administration, expediting the development of a stem cell treatment for Crohns Disease that does not respond to standard therapies. The Phase III study commenced in May 2007. On March 27, 2009 before the market opened, Osiris Therapeutics, Inc announced that it had elected to end enrollment in its Phase III trial evaluating Prochymal for Crohns disease, which by that point had enrolled 210 of the targeted 270 patients, due to a design flaw in the trial resulting in significantly higher than expected placebo response rates. Osiris described the design flaw as follows:

The potential trial design flaw may be related to the fact that patients responding to the initial therapy were eligible to participate in a second, longer-term trial evaluating Prochymal as a maintenance therapy. Because the current standard for determining response of Crohns patients to therapy is largely subjective, there may have been a bias to meet the eligibility requirements for continuation of therapy in the longer-term maintenance trial.

According to the investigation also on March 27, Osiris Therapeutics, Inc held a conference call with investors and in response to a question requesting help in understanding the design flaw, CEO Randy Mills stated that the actual design flaw came in that these patients even if they werent . . . feeling better, basically we gave them incentive to say they were feeling better because they would then have an opportunity to get drug in the maintenance trial. On March 27, 2009, the day of the announcement, Osiris Therapeutics, Incs common stock (Nasdaq:OSIR) declined by more than 21% on heavier than usual volume.