Biotech firm ailing despite state's millions

Top management leaves Osiris Therapeutics

New CFO hired, CEO in wings

Hope lingers amid lawsuits and uncertainty

September 08, 2002|By Julie Bell | Julie Bell,SUN STAFF

Osiris Therapeutics Inc., a company the state has backed with millions of dollars after luring it from Cleveland to be "part of the foundation" of Maryland's biotechnology industry, has lost virtually its entire top management team and all but a single company director.

The departures - which include Osiris Chief Executive Officer Annemarie B. Moseley and her interim replacement - have added even more uncertainty to an already difficult future for the Baltimore company, which develops therapeutic treatments for people, a business in which the risk of failure is inherently high.

The company's co-founder and biggest investor are at odds, with one suing another and asserting that Osiris is "financially crippled."

The mess is a far cry from what the state had in mind eight years ago when officials announced during a triumphant news conference that Osiris would move to Baltimore.

The company then seemed a prime example of the kind of investment Maryland wanted to make with its new venture-capital program: a potentially high-growth company with a sexy new technology that promised to revolutionize the treatment of certain injuries.

Osiris planned products derived from stem cells that could grow cartilage, help cancer patients recover more quickly after bone marrow transplants and regenerate heart muscle damaged by heart attacks.

Then-CEO James S. Burns predicted that the company's 20 jobs would expand to "several hundred within a three-year period." Mark L. Wasserman, then the state's secretary of economic and employment development, heralded Osiris as "another building block, another part of the foundation" of a life sciences industry in Maryland, The Sun reported at the time.

But after more than $5.1 million in state backing in the form of investment, grants, loans and guarantees, Osiris has about 70 employees and no products on the market. It has scuttled plans for a public stock offering at least twice. Some employees are unclear who's in charge.

Still, the state isn't giving up on Osiris. "I'm not ready to put up a white flag by any stretch of the imagination," said Tom Bodnar, director of the state's Investment Financing Group, a venture-capital arm that invests taxpayer money in high-tech and biotech companies. Developing a biotechnology product, he noted, often takes "years and years and years."

Robert C. Brennan, the state's assistant secretary for financing programs, acknowledged that "Osiris is one of the cogs in this whole strategy" of attracting and keeping private biotechnology companies in Maryland. But he said the state doesn't take active roles in the management and direction of companies in which it invests.

"In terms of public policy, it's not our role," he said.

The state invested $500,000 in Osiris in 1994 in exchange for stock. It has made or backed loans to the company totaling about $3.6 million, made more than $525,000 in grants for work force training and improvements such as the creation of labs with sinks; and has pledged $500,000 as a rent guarantee to Osiris' landlord.

This year's rash of resignations and dismissals occurred as Swiss venture capitalist Peter Friedli tightened his control of the company.

Moseley was fired in January. Her replacement, interim CEO Alfred Seidel, left in July after his contract expired.

Osiris' chief operating officer and top research executive, Alan K. Smith, Chief Financial Officer Alan A. Musso, Chairman Max E. Link and Directors Jack L. Bowman and Richard G. Power are among the others who have left this year. Power said he attended one official board meeting before resigning.

The company has hired a new CFO, Donald W. Fallon, a former finance executive at Guilford Pharmaceuticals Inc. It is expected to announce this month that its next CEO will be William H. Pursley, who resigned Friday as senior vice president of commercial operations for Transkaryotic Therapies Inc., a Cambridge, Mass., developer of gene therapies. Osiris has just two executives considered senior enough to be listed on the company's Web site: Fallon and Dr. Kerry Atkinson, its medical affairs vice president.

Burns, an Osiris co-founder and its CEO until pushed out in 1999 by Friedli and the board, sued Friedli this year. The suit, now in U.S. District Court in Baltimore, claims that Friedli obtained a "stranglehold" on Osiris by extracting extraordinary terms from the company in exchange for providing money to it in 1995. The terms gave Friedli first claim on handling any Osiris loans or equity issues, the suit says.

Since then, Burns alleges, "Friedli insisted that he alone could finance Osiris," and at terms unfavorable to the company and many shareholders.

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