BioWorld International Correspondent

BERLIN - A former star of Germany's Neuer Markt is sputtering to earth amid turmoil at the highest levels of management and concerns of potential bankruptcy.

Codon AG, of Teltow, is a research-oriented company specializing in cell-based products for the regeneration of cartilage, bone and intervertebral discs.

In mid-July Edgar Most, a member of the company's supervisory board, resigned, leaving it short of the number of members required by law to make business decisions. Most, who spent much of his career as a senior manager for Deutsche Bank, had been a member of Codon's board since 1993, the year the company was founded.

At the time the company announced Most's resignation, it also said that an extraordinary shareholders meeting had been called for Aug. 11, to consider a motion of no confidence against the company's chairman and co-founder, Karl-Gerd Fritsch. On July 24, the company suspended Fritsch, pending confirmation of the action at the August meeting.

Fritsch sought legal recourse, and on Aug. 7, a state court in Potsdam declared his suspension invalid.

Four days later, the shareholders meeting definitively removed Fritsch from his position within the firm. As a co-founder, however, he remains a major shareholder, with approximately 21 percent of the company's stock. The same meeting appointed three new members to the supervisory board, restoring its legal authority to make decisions for the business.

Management turmoil has shaken investor confidence. Michael Kunert, a representative of the small investors' protection society (Schutzgemeinschaft der Kleinaktionaere, or SdK), reported that the company has a cash position of approximately €4 million, with a monthly burn rate of approximately €270,000. "Codon is threatened by bankruptcy," Kunert said.

The management dispute was "completely foggy" for outsiders, Kunert said, adding that the senior managers appeared to be waging personal battles at the cost of the shareholders. Kunert's association was considering taking legal action because Codon still had not filed an annual report for 2002. The company has also not filed quarterly reports for 2003; its most recent business report is for the third quarter of 2002, published on Nov. 15, 2002.

Codon's new chairwoman, Olivera Josimovic-Alasevic, disputed Kunert's characterization. "At the end of June, we had €4.45 million in cash, and were also debt-free," she told German news agencies. "Without any changes in our business, our liquidity will last through September 2004," she said. Josimovic-Alasevic said she hoped the company would publish both the 2002 annual report and the report for the first half of 2003 by the end of August.

In 2001, Codon had revenues of €1.36 million and a loss of €6.15 million. Unofficially, the company's revenues in 2002 were €735,000, with a loss of €4.5 million. Sales figures for 2003 were not available.

Before his dismissal, former Chairman Fritsch had been reportedly seeking a new financial investor in the company, a claim disputed by Josimovic-Alasevic.

In recent months, the company's staff has shrunk from approximately 50 to just over 30, as cost-saving measures have been implemented. The recruiting of three new members for the supervisory board could be a sign that Codon has put its management turmoil behind it. The company's stock has rebounded from its mid-June low below €2 per share, and it closed Aug. 18 at €3.20 per share. For a company that traded above €20 in 2001, however, it still has a very long way to go to placate investors.