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.
Friedli, whose previous investments have included Myriad Genetics Inc. of Salt Lake City, which is now publicly traded, declined in a telephone interview from his home office in Zurich, Switzerland, to discuss Osiris or Burns' allegations in depth. But he said the allegations are untrue. "It's absolute nonsense," he said of the lawsuit. "They have to prove it."
Friedli estimated that he and others who invested through his group, Zurich-based Friedli Corporate Finance, have put nearly $50 million into the company since its inception in 1993.
"My primary goal is to make the company successful," said Friedli, who estimates that he and his investors own about two-thirds of the company.
"I'm not just there and do stupid things."
Moseley, the former CEO, said she was forced out during a January board meeting at the company's Fells Point headquarters. She said she had just presented a range of financing options while directors listened in a first-floor conference room with a view of a harbor marina. When the board took a break, Link, then the company's chairman, called her aside and said, "It's time to cut the umbilical cord." She was out of a job.
Moseley said she headed for the parking lot, only to find out later that Link had then dismissed her husband, patents and business development Vice President Ken Moseley, with the same words. She said neither Friedli nor Link ever gave a reason for the dismissals.
Friedli said from Zurich, "I have fired the people who tried to do harm to the company and were not very smart."
He declined to say whether the dismissals were related to the board's knowledge of Burns' impending lawsuit, which also names Link, Osiris and its holding company, MSC Regenos, as defendants.
Annemarie Moseley had signaled her displeasure with some of Friedli's actions when she resigned in December from the boards of Osiris and MSC Regenos.
The Swiss-based holding company was created before a possible overseas public offering. The offering was scuttled when the markets there soured. Moseley said in an interview that she resigned her board seats because "I didn't agree with the nature of things going on at that point, particularly the financing."
The company often seemed to be operating on the brink of running out of funds, though Friedli always managed to come through with more money. Moseley said the financial uncertainty weighed on her. "It's difficult to start new clinical development when you don't know if you're going to make payroll," she said.
Power, a former Osiris director who was once a Johnson & Johnson executive, said Link sent him a note asking him to resign after he had attended his only official board meeting in March.
"A new financing was coming up, and he [Friedli] decided to bring in his own complete new board with his own financing," Power said of Friedli. "It's kind of a strange situation. I've sat on many boards and was just starting to get acquainted with Osiris."
Bowman, another former Johnson & Johnson executive, who had been a director since 1997, didn't return calls. Neither did Link, who was once CEO of Sandoz Pharmaceuticals Ltd. and had been Osiris' chairman since 1994.
Friedli said he and Link are still good friends and declined to talk about the board resignations. He said the company will announce a new management team, directors and financing when it is ready, saying: "It will come together when it comes together."
Employees were told several weeks ago that the company was negotiating with a prospective new CEO, said an Osiris scientist who asked not be identified for fear of retribution. Asked who is running the company in the meantime, the scientist said, "It would be the executive staff and the board."
Asked to identify anyone who fit that description, the employee said, "There's an executive committee." But the employee was unable to identify anyone on it.
"My day-to-day stuff hasn't changed dramatically," the employee said. "My boss is still my boss. His boss has just changed a couple of times."
Another scientist said much the same thing. But, commenting on management, the employee said, "The upstairs people, I have no idea what's wrong with those people. I have no clue."