Toni Clarke BOSTON Globe and Mail Update Published Friday, May. 18, 2012 12:38PM EDT Last updated Friday, May. 18, 2012 12:56PM EDT

Osiris Therapeutics Inc. OSIR-Q said on Thursday that Canadian health regulators have approved its treatment for acute graft-versus host disease in children, making it the first stem cell drug to be approved for a systemic disease anywhere in the world.

Osiris shares rose 14 per cent to $6.00 in extended trading after the news was announced.

Graft versus host disease (GvHD) is a potentially deadly complication from a bone marrow transplant, when newly implanted cells attack the patient's body. Symptoms range from abdominal pain and skin rash to hair loss, hepatitis, lung and digestive tract disorders, jaundice and vomiting.

The disease kills up to 80 per cent of children affected, Osiris said. To date there have been no approved treatments for the disease. Canadian authorities approved the therapy, Prochymal, for use in children who have failed to respond to steroids.

Prochymal was approved with the condition that Osiris carry out further testing after it reaches the market. C. Randal Mills, the company's chief executive, said in an interview that could take three to four years.

Some investment analysts have been skeptical about Prochymal's future. In 2009, two late-stage clinical trials failed to show the drug was more effective overall than a placebo in treating the disease, though it showed promise in certain subgroups of patients.

Since then, the company has mined data from all its clinical trials to show that in patients with severe refractory acute GvHD those who have more or less failed all other therapies Prochymal demonstrated a clinically meaningful response at 28 days after therapy began in 61-64 per cent of patients.

In addition, treatment with Prochymal resulted in a statistically significant improvement in survival when compared with a historical control population of pediatric patients with refractory GvHD.

The Canadian authorities approved the drug on the basis of that data, the company said.

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Prochymal approval makes Canada first country to OK stem cell therapy