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This article by Barbara Fox was prepared for the October 15, 2003 edition of U.S. 1 Newspaper. All rights reserved.

Liposome’s Story — Behind the Scenes

Venture capitalists play a key role in the success

of an enterprise, but with millions of dollars and valuable technologies

at stake, sometimes they play hard ball. As Mort Collins writes in

his chapter of "Done Deals" (Harvard Business School Press,

2002), the money VCs contribute is just one factor. The VC works in

partnership with the entrepreneur to put the right people in charge

and keep the company on the right track, and it’s not always a pretty


Collins reveals one of those hard ball incidents that took place at

the Liposome Company, which he started in 1981 with DSV Partners as

the lead investor. Marc Ostro was the founding scientist, and Liposome

is now part of Elan Corporation on Research Way. Collins writes how

he hired and fired the first CEO, Ed Mertz, and took over as interim

CEO until Charles Baker came on board a year later.

Mertz was a 1952 graduate of Lehigh with an MBA from New York University

and a law degree from LaSalle, and he had worked in blue chip corporations

and run a dairy cooperative. Collins credits him with being a good

manager, hiring a lot of good people, and building the company substantially.

"The problem with Ed Mertz was that he couldn’t make a deal. Every

time he got into the final negotiation of a big pharmaceutical deal,

the deal somehow died. He didn’t have a realistic idea of what a company

such as Squibb would be willing to do. So, in the final phases of

the negotiation, he would end up wanting too much or trying to get

too much and lose the deal. We just lost one deal after another. I

ultimately concluded the reason was that he wasn’t one of the good

old boys. He didn’t know the pharmaceutical business and they didn’t

know him."

Collins’ account tells how he fired Mertz in 1989, but

in an interview that year (U.S. 1, June 28, 1989) the 61-year-old

Mertz positioned his departure much differently, saying that his leaving

had been planned for a year, and that in preparation for leaving he

had already founded a consulting company. Speaking of a failed merger

of the Liposome Company with California-based Liposome Technology,

Mertz said the position of president had been open for a year and

that his relinquishing the CEO title would make this search easier.

"Titles are psychic income. We saw the wisdom in my resigning

to make all the titles available to a qualified candidate," Mertz

said then, adding, "half a job seemed less and less interesting

to me."

That contemporaneous account contrasts with Collins’s side of the

story, who describes it as a huge battle. "Mertz began heading

for the cliff at about 1,000 miles an hour. Here we are, approaching

Mach 1, and we’re approaching the precipice at the same time, and

I’m saying, "What are we going to do here? We’ve got to cut back

some of this research?" We had 36 research projects. He would finally

decide he wasn’t going to do anything. We were always going to make

this big deal the week after next, with some company. The big deal

never came, but the truth was coming. So, finally we fired him. He

decided he wanted to have a proxy fight. I said, `I have the votes,

Ed. We don’t have to go to the public. Let’s just add the votes right

here in the room.’"

"He added them up and decided he was going to lose, so he left

relatively quietly. I became the CEO and worked very hard to cut the

flow of blood and focus the company."

— Barbara Fox

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