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Q & A

Stemming its losses

Baltimore lured Osiris Therapeutics to the city six years ago to help seed a biotech center here; Is it working and how will the stem cell firm be affected by Bush's funding decision?

By Jon Goldstein, SunSpot Staff

August 20, 2001

Annemarie B. Moseley is leading Baltimore's only prominent stem cell firm, Osiris Therapeutics. She recently discussed the company's research, its plans for an IPO and Baltimore's prospects as a biotech hub.

Explain what Osiris is doing. How do you use stem cells?

The technology is based on an adult mesenchymal stem cell. This is a connective tissue stem cell. The stem cells that we use are primarily located in the bone marrow. The company takes samples of bone marrow and we take this very rare cell and expand it under special culture conditions in our manufacturing facility. These cells then reproductively have the capability of producing bone, cartilage, tendon, muscle -- in particular, cardiac muscle -- and the stroma, or the bone environment, which is important, for instance, in transplantation.

Over the last year and a half or so we've had some very, very nice data, which has supported a concept about the cells that makes them very unique as stem cells and which, we think, radically changes the commercialization potential of the stem cells. That is, that these cells are not seen or recognized by the immune system. These cells are camouflaged from the immune system, which means that you can use any adult stem cell from any source, that is, from any individual, [and implant it] into another individual -- it doesn't need to be matched. We've then been able to create an off-the-shelf or universal product concept, which will basically allow the immediate use of a donor bank of these stem cells. Now the only question is, 'does it work as well as or better than anything else out there,' as opposed to, 'will this whole cell therapy concept work?'

How long until one of your products is on the market?

I think today, conservatively, we are looking and targeting the 2005 timeline, so they are about 3 1/2 years away. We are in late-stage discussions regarding the transplantation product and also the bone repair product. Our earliest products will be in the niche markets. Niche meaning $300 million to $400 million markets. Obviously, as we enter the arena with the cardiac [stem cell product,] which we hope to be in the clinic by the end of the year, these markets are whatever number you want to put on them. They're very big. So, we're targeting 2005 for our first products and either 2006 or 2007 for the subsequent products.

This is a very exciting time from our standpoint. We are, of course, very pleased with the president's decision in the sense that it will allow the basic research to go forward on all sources of stem cells, which we think will be very valuable from a basic research standpoint. We were also very pleased by the support that the president expressed for the use of adult stem cells.

Since you use stem cells from adults, President Bush's decision on embryonic stem cells didn't have much of an effect on you?

It did not have an effect directly on us at all, nor did the entire debate directly have an effect on us. I think the biggest effect has been in public awareness and public education. I think the level of discussions, the level of reporting, on this was scientific and realistic enough that most people at least came away with a very good sense of what the issues were in trying to bring these products to market and also what the potentials were. I think had we been public, we might have seen a different profile. But, for us in general, since we weren't affected by the ban and we also weren't affected by the outcome of the debate, it's really sort of an indirect feeling for the whole sector and how things are going. Any time you can get people interested and educate them, it's a good thing.

Will it make it easier to raise money?

People, i.e. investors, who are skeptical are going to remain skeptical. But I think those who had some questions and are now more educated, they are coming in saying, 'I like this field, this is where I want to make some investments. I want to take some risk.' It has helped the investment community in deciding that this is a real field just by, if nothing else, pulling together the collective information. I think that has brought a number of interested parties just calling in. We are in the latter stages; we are in clinical trials, so we do not fit in the classic stage of development that many [venture capitalists] want to invest in. So we truly are a pre-IPO kind of company.

Why do you use only adult stem cells?

Well, first of all, that's what the technology was based on. The technology was developed [10 years ago] at Case Western [Reserve University in Cleveland] within the orthopedics department by both basic science researchers and the orthopedic surgeons. And, of course, they had bone marrow and bone cells available to them and, therefore, could look at the availability of these cells. I think that over the years we've had the opportunity to look at other sources. We've had opportunity to look at our mesenchymal cells from fetuses and from other sources and, basically, we've just not had the need to go to that source for clinical use. We've just found that from a standpoint of consenting and source and, more recently, the ethical issues, it's just been cleaner for us to stick with the one source. And, frankly, bone marrow can be purchased for research purposes. I think, in general, there's been a natural tendency to stick with that source and also there's been some decision at the management level that we would not move into other sources or more controversial sources at this time. We just don't need to do that right now.

Now that some of those ethical questions are at least partially cleared up, do you think you will use some of those embryonic cell lines?

Probably not. We are very focused at the moment on our existing source of cells. It is not likely that we are going to move into the discovery or the use of new cell types at this time. In the future we may look at collaborations or look at combinations of cells.

If you look at the ... limitation to these few cell lines that are existing, I think there's going to become sort of a bidder's war. For us, I think we're just going to sit back and see what evolves and what technologies come up in the future from that.

If these adult cells are so much easier to use and to come by, why has there been such a push for embryonic sources?

In part I think it's because, in virtue really of what they are, adult stem cells are really only present in the body when the tissues themselves can regenerate. So there are a number of tissues where there have been no adult stem cells found. For instance, it's very unclear that there is an adult stem cell for lung, for kidney, for pancreas, and so, when you think about the number of diseases surrounding lung and kidney failure and diabetes, these are very, very big markets and needs. That has been a big driver. I think it was one of the very interesting features in the debate, that people began making it very black and white. Either embryonic is the only way to go or adult stem cells can do everything. I think neither of those two is correct.

Can you give us an idea of Osiris' economic size?

We have approximately 80 employees right now. We just did a private bridge financing that was up to $10 million, and we are now looking at assessing what the public market is going to bear, if anything. It's not looking super-attractive at the moment. We're in that decision-making mode of whether we'll do a larger private [funding round] or when an [initial public offering of stock] will take place. We were set to go with an IPO earlier in the year, March, which was not a great time. So right now, this is just the usual do you do public or private and which way is the best way to go with it.

You lost a big, $10 million-a-year, contract when pharmaceutical giant Novartis terminated its relationship with Osiris in 1999. How much of a blow was that to the company?

Of course it was a blow in the sense that we were running on a much higher burn based on the funding and the projects that we had in collaboration with them. So, in some respects, yes, financially that funding did come into the company. It did fund 40 employees, that was the specific agreement. But I would have to say that in terms of the progress of the company in the development sense, it has probably helped to not be distracted by projects that were not immediately going to development. Certainly, the collaboration resulted in putting many systems and many things in place, which are very necessary for a growing company. Before the Novartis relationship, the company had a little less than 60 people. So, in that period of time, the company saw a lot of growth. After Novartis decided not to renew the contract, that's really when the company saw its greatest deal of focus and really transitioned from being a research organization into a development organization. At the time, certainly, it was a blow, but I think the company has recovered very well from it. I think it has been a positive growth experience.

How long can you survive with your current funding?

The current investors are committed to looking for funding or to committing to funding through next year into whatever period we're looking into going public. I think it's fair to say that there is committed funding through the period of an IPO.

So, you're looking at an IPO next year?

Yeah, I think realistically, if one takes the collective of everyone at hand. I think it's probably going to be after the beginning of the year, probably somewhere between the first and second quarter next year. I think that the market is really going to be open again for a lot of IPO activity.

The city and state brought Osiris here from Cleveland in 1995 hoping that the company would act as a seed for Baltimore's biotech industry. So far that hasn't happened. Do you still see opportunity there? What role will the recently announced stem cell research institute at Johns Hopkins play in this?

I think a lot of that is going to depend on Hopkins, what their interest is in terms of spinning off companies and entrepreneurial activities that might derive from that institute. To attract new companies to the area, it's going to be difficult in terms of sort of recruiting companies that exist already because they already exist somewhere and often they are going to go to very large hubs such as Boston or even Rockville.

Hopkins is a very, very powerful force. Either their entrepreneurial or lack of entrepreneurial activities are going to drive, in some respects, how well Baltimore is going to be able to continue to grow in this area. If you look at cities that have derived a lot from academic spinouts, there's NIH [in Rockville], there's MIT and Harvard [in the Boston area], there's Stanford [in Silicon Valley], I think that Hopkins clearly has the caliber and now has the commitment.

I think the issue is that Hopkins has been so successful at raising private funding and getting government grants that there's not as much of a drive to spin out companies that will then take these therapies forward. What's going to be very exciting is to see over the next few years, as the institute comes into its own, is will there be technologies derived from that institute that are then going to be commercialized.

I can't speak for Hopkins, but I think that as one looks at the potential of Baltimore in general, it's far more closely linked to Hopkins than it is to us. All we can say is it's a great city to raise a "biotech family" and a company in, but in terms of additional companies, people are going to look toward other sorts of things. Ultimately, that's going to rest with the really, really big influence that Hopkins has. The potential is there. Certainly, Hopkins has the ability to influence the future commercial growth of both the industry as well as the local area here in Baltimore.