In the 1980s, Lisa Conte was a biopharmaceutical venture capitalist. But she also was an aspiring entrepreneur, having a little business on the side called Wild Woods, which imported wood and furniture to the U.S. from Africa. On one of those trips, she was on a climb of Mount Kilimanjaro when the person she was with became altitude sick. “About halfway up, there was this makeshift pharmacy with green stuff coming out of bottles,” Conte remembers. “They gave the person I was climbing with some of the ‘medicine’ in one of those bottles, and it got him up the rest of the mountain. That was truly a light bulb moment for me.” Her idea was to do more efficient drug discovery and development by leveraging the knowledge of “traditional healers” with the ultimate goal of creating FDA-approved therapeutics. However, like most entrepreneurial climbs, it would prove arduous, with plenty of slips, trips, and spills along the way.
HOW MANY CREDIT CARDS DOES IT TAKE TO START A BIOTECH?
Ethnobotany is the study of how people of a particular culture or region make use of indigenous plants. “Medicinal ethnobotany is how they use plants for medical purposes,” Conte explains. “I quit my VC job the day after I got home from Africa to investigate this idea I had for starting a biopharma.”
Back then, Conte was getting credit card applications at least once a week. Usually these had about a $3,000 limit, and she just kept saying yes to all of them. In the end, she got approved for 15, and that $45,000 would be the initial seed money for her first company, Shaman (pronounced SHAY-men) Pharmaceuticals. When she told her former boss her plans, he told her she could keep her office, phone, and computer to serve as a base of operations. Should things work out, these would be considered an inkind investment in her company. And if this new venture didn’t work out, he promised she’d have a job to come back to, along with a good dose of humiliation. “Having an office enabled me to move very efficiently, so it turned out to be a great head start,” she admits.
Conte soon learned that a lot of people in pharma go on trips to places like South America or Africa, see a particular plant, and bring it home with the intent of turning it into a medicine. Sometimes these ideas wouldn’t amount to anything, or the person would go back to get the plant and find that it was a different color due to its growth cycle. There was no integrity in the botany (i.e., the reliability and reproducibility of the plant collection), a revelation that evolved into two core principles at Shaman Pharmaceuticals. “The first was that we had to have botanical integrity. We built a whole department around ethnobotany, so that when you got a plant and wanted to go back to get more, you could get the exact same thing.” The second principle was related to prioritization. “We didn’t go looking for a plant that would be a magic bullet as a medicine,” she explains. Instead, the approach was to facilitate a professional exchange between western-trained physicians and shamans (traditional healers) to uncover what plants were used and why to treat ailments and diseases with observable symptoms. Conte says that from such discussions they’d bring back about a hundred plants a year for a therapeutic area where there were symptoms, and they would screen in whole animal models to not be constrained by known mechanisms of action (MOA) or known sites of activity. From there, they’d prioritize based on the activity and safety observed and would fractionate (a separation process) to give a pure compound. Then, they’d investigate whether it was novel enough to get a patent position and whether there was adequate supply.
Doing all this would require significant ethnobotanical expertise, so one of the first things Conte did was to put together an interdisciplinary scientific strategy team. She started with “the grandfather of ethnobotany,” Dr. Richard Evans Schulte, then professor emeritus at Harvard. Later she added Baruch Samuel Blumberg, co-recipient of the 1976 Nobel Prize, some experts in pharmacognosy (the study of medicinal drugs obtained from plants or other natural sources), some biologists, and finally, her father, a pharmacist. “All these disciplines were used to identify the plants we had. From there we went through a prioritization process to identify what plant materials to use as our discovery engine that could be used again and again,” she explains.
The initial meeting was held at the Charles Hotel, and Conte invited some VCs to check out what they were doing, which is what brought in the seed funding. “Thank God for all those credit cards, because that’s how I was able to get them all there,” she laughs.
THE 5-FS OF A BIOPHARMA STARTUP
Conte’s philosophy for getting Shaman Pharmaceuticals up and running involves five Fs (which she wears on a necklace), which stand for focus, function, fight, fun, and finance. As mentioned, the first step was the creation of the interdisciplinary scientific team. “We sent out homework to these scientists beforehand, and since there was no email back then, this meant putting together packages of information about the plants collected.” From there, the team began its prioritization process, looking for what was known about the chemistry of a particular plant, along with investigating those that were botanically similar and used for the same medicinal purpose across different continents. “If they were already being used to treat a malady, there seemed a greater likelihood that these plants would have the activity we were looking for,” she relates. The goal was to find a lead candidate on which Conte could develop a business plan (i.e., the indication, the market opportunity, the distinct MOA, and plans for how to develop).
Having never worked in an operational role in the pharmaceutical industry, Conte’s next step was learning how to develop a drug. She brought on retired pharmaceutical executives who seemed excited about what the company was trying to do. “It was a fine balancing act, as we knew we were in a regulated industry, which means there are rules to be followed, but we also didn’t want to be constrained by ‘This is ‘how it always has been done’ type thinking.”
Before long the company landed on its lead compound, crofelemer, a botanical drug to be developed for the treatment of diarrhea. The next step was readying a Phase 1 clinical trial. “Sometimes the pharmaceutical industry is compared to the oil industry, in that you have to spend a lot of money to get to a goal,” Conte contends. “But with oil, once you have a strike, you are off to the races financially, while in pharma, once a goal is achieved, you have to raise more money.” For example, if you have success with your IND, then you must figure out how to pay for your Phase 1. “Once through safety trials, then you have to pay for Phase 2.” For Conte, the process became an education in plotting what was going to be the financial strategy and how to dovetail that with the business strategy.
After the seed funding, the company did a Series A, a Series B, a mezzanine financing, followed by a public offering, with crofelemer being the lead compound that was pulling the company along. But during this, Conte and her team came to realize that their skillset resided in innovation, discovery, and development, not commercialization. At the time, it was common for a startup to develop a technology and then partner with a bigger company that would focus on the commercial piece. “The product was initially in development for infectious/acute diarrhea, but the FDA asked if we would develop it for diarrhea in people living with HIV/AIDS, as diarrhea was a common side effect in these immunocompromised patients.” Shaman did a POC trial at Stanford and UCSF, and it worked in a Phase 2, and suddenly the company was granted a Fast Track Designation by the FDA. “All we needed was one successful single pivotal trial and the product would be out there.” But FDA-compliant manufacturing doesn’t happen overnight, and it requires making large at-risk investments. “We had to quickly come up with a lot of money to prepare for manufacturing for this fast-track situation, but we couldn’t raise straight equity, as the company was already public,” and the late 1990s (i.e., around the time when the dot.com bubble was bursting) proved a terrible time to raise money. However, the team came up with what they thought was a clever way to finance, though it has since come to be called “the death spiral preferred.” “It was debt that would convert into equity at a discount in the future, so the company could maintain cash balance. This allowed us to bring in the money needed to establish manufacturing.” What it also allowed investors to do, which Conte and the team had not realized at the time, was to short convert and sell, which can spiral your stock out of control. “But we thought we had a mechanism to address that,” she contends. For example, if investors held onto their investment, each six months the company would add a return of a partial royalty on the ultimate sales of crofelemer, thereby preventing “the death spiral preferred” from ever kicking in. “We got away with it for 12 to 18 months,” Conte says. But when they finished the Phase 3, the FDA noted that while the trial looked good, the company had not hit the statistical significance on the endpoint, though the trend was “very close.” And while the company was encouraged to file the NDA for crofelemer despite the statistical penalty, the FDA wanted Shaman Pharmaceuticals to do a real-world outpatient study, versus what previously had been done in the hospital setting for the Phase 3. Though Conte and colleagues viewed this as good information, the market perceived it as a delay. And the investors who had been hanging in there for the royalty began opting out, resulting in “the death spiral preferred” suddenly kicking in. “Hundreds of millions of shares were traded, and our stock dropped from something like $6 a share to 20 cents in a day, unlimited dilution, and that was the end of the pharmaceutical business at Shaman,” she laments.
FAILURE DOESN’T MEAN GIVING UP
Conte expressed accountability for the financial mess made with Shaman Pharmaceuticals, as well as the pains to clean it up. “When I take investment money from people, that’s a very serious thing and I feel quite a responsibility,” she explains. So, in an effort to take care of investors and not let the promising plant-based compounds die on the shelf, Conte created a new company in 2001, Napo Pharmaceuticals, which bought all the assets from Shaman over a couple of years. But unlike efforts at Shaman that were primarily focused on its lead compound in one indication, with Napo, Conte embraced a three-pronged approach. For starters, the fastest way to market with crofelemer remained HIV/AIDS, as it wasn’t the product that failed, it was the company. In addition, Conte and her team became aware of a new opportunity, which did not exist during the Shaman days. Irritable bowel syndrome (IBS) is a billion-dollar market impacting 20% of the population. “While Shaman was in meltdown, a different company launched the first product for IBS , an antisecretory and antimotility compound, but it failed miserably,” she recalls. It seems the product’s antimotility component caused the complicating side effect of constipation, resulting in the death of five patients and the need for bowel resections in dozens of others. A compound like crofelemer, which was just antisecretory and demonstrated long-term safety, could be a treatment for IBS. So instead of just one indication, Napo was targeting two. The third leg of the strategy for rebirth as Napo Pharmaceuticals was to be global. “We wanted our technology to be sustainably available to every country, every channel, every population, regardless of social and economic status.” Some try to deliver on such ambition through subsidies or donations, but Napo’s aim was to do so by collaborating with businesses in various parts of the world while employing a tiered-pricing strategy.
In December 2008, Napo brought on a commercial partner, Salix Pharmaceuticals, a GI-focused pharmaceutical company founded in 1989. Not long after the agreement was signed, Salix received some positive-looking data on its own product in development for IBS, rifaximin. It seems Salix thought crofelemer would be a competitor, and so apparently began a process of “slow boating” development of crofelemer. “We didn’t have large scale commercial manufacturing, which is why we partnered with Salix.” According to Conte, Salix was supposed to be investing millions in building manufacturing capabilities for crofelemer, but instead did the minimum so it could keep the product off the market. This ultimately resulted in Napo’s filing a legal complaint.
In the beginning, Conte didn’t know how long the legal dispute with Salix could last, or whether it would ever end. What she did know was that Napo would not be able to pursue its human health pharmaceutical business until the dispute was resolved. However, there was no dispute as to who owned the animal rights for the product. “We had been approached by some emerging animal health companies expressing interest in crofelemer, so we decided to investigate the animal health business,” she elaborates. The opportunity looked intriguing, and investors appeared interested, so the decision was made to pivot Napo operations to animal health, resulting in the creation of yet another company, Jaguar Animal Health. “It was spun out of Napo and went public, yet a third public offering for crofelemer,” she notes. “We wanted to keep Napo as a separate company going through its lawsuit, which ended up lasting six years.”
In 2015, Salix was acquired by Valeant Pharmaceuticals, and soon Valeant’s CEO, Michael Pearson, came calling on Conte. “He came to us and said, ‘I’ve inherited this lawsuit by buying Salix. I’m not into lawsuits. What do you want?’” Conte wanted the product back, plus damages. Pearson agreed to give the product back but said no to the damages. In evaluating the situation, the Napo team concluded that continuing to fight and lose money against what was now a behemoth would prove a losing proposition. “We got the product back just as Valeant began going through its own meltdown, and Pearson, to his credit, even with all the crap he was dealing with, made it happen,” she states.
Conte now had the product, but she also now had a ridiculous amount of debt. “We had financed the whole thing with litigation financing, which is like venture capital for litigation,” she explains. “When you prevail, and a settlement is considered a win, you have to pay a multiple of that money back.” But without any damages, the company had to figure out a different means for addressing its debt issue. The decision was made to merge Jaguar Animal Health and Napo Pharmaceuticals and convert as much debt as possible into equity. “Which we did [resulting in Jaguar Health, Inc.], but we still had $20 million in debt hanging out there, and we soon sank into microcap land,” Conte states. Having already been through one death spiral, Conte was keen to circumvent a second. “I wanted to avoid any structured financing booby traps that would kill us, so working our way out took a while, like until the fourth quarter of just last year.” And once the company had all its debt and structured financings cleaned up, the company stock (NASDAQ: JAGX) began to rise.
As of this writing, Jaguar Health has one prescription product approved for humans, Mytesi (crofelemer); multiple pipeline indications for crofelemer in development, including cancer therapy related diarrhea and short bowel syndrome with intestinal failure; and another formulation of crofelemer for dogs (Canalevia) filed for approval with the FDA. It is also embarking on an initiative to support the discovery and development of medicines for mood disorders, neuro-degenerative diseases, addiction, and other human mental health disorders from its proprietary library of 2,300 plants. Here’s hoping that Jaguar Health and Conte continue to ascend, for it will be patients who will benefit most in the end.
EVER ENCOUNTER GENDER BIAS?
When asked about a gender bias when she founded her first biopharma back in 1989, Lisa Conte says, “To tell you the truth, I just don’t see it, though my daughters might argue otherwise,” she laughs. “I was just focused on what I was doing, and the differences I saw as being a woman were just the differences in life of being a woman versus a man.” For example, Conte says she might have gotten more attention because she wore designer stockings — or from pitching her company when she was eight months pregnant! She does recall one interesting story when seeking mezzanine financing for an IPO. “We came into a room for a meeting with an investor, and there were lunch materials from a previous meeting that had been left on the table.” Conte had one of her board members with her, who happened to be a man. “The investment guy comes in, shakes the hand of my board member, and looks at me and asks, ‘Are you going to clean this up?’” Conte did clean up, and then sat down and gave the presentation — as the CEO. “He was horrified and humiliated, but maybe that helped, because he invested,” she laughs.
TWO LEGENDARY MENTORS
Aside from her father — a pharmacist — Lisa Conte lists two other men as key mentors during her 30+ year career. The first is Kirk Raab, a former CEO of Genentech, who died during the pandemic last year. “Our company’s second location was in South San Francisco, which put us nearby Genentech.” At the time, Raab was the chair of BIO, a very prominent industry figure and a commercial guy. Conte wanted him on her board of directors. But how?
As he was often giving speeches, Conte made it a point to go wherever he was and say hello. “He would shake my hand and was courteous, and eventually he would see my face all the time at events,” she states. “One night, there’s this big dinner, and Raab was out on the dance floor. I said to the person I was with, ‘Let’s go dance over there and cut in.’” Which they did. By then Raab recognized her and introduced Conte to his wife. While dancing, Conte told Raab that she wanted to talk to him about her company. He gave her a number to call and assured her he’d take her call. From that social event, Conte got a meeting the next morning, and got him on her board. “He made a huge difference in my understanding of the mechanics of the industry, the importance of having a presence in Washington, and governance.” Up until the day Raab died, once a month, the two would meet, often over lunch, to talk about sales and marketing.
The other important mentor for Conte was the late George Rathmann, who was then the CEO of Amgen. “After we went public in 1993, there was a big push led by Hillary Clinton for price controls, and BIO was doing a lot of lobbying and education in Washington.” Thanks to Raab, Conte was now a member of BIO’s board. “They recognized the value of having a young female CEO of a company with a technology you could understand in one sentence, so they always dragged me along.” Roughly every two weeks, Conte would take a red eye to Washington to help with the educational efforts. She’d bring her son Bobby, and Rathman’s wife, Joy, would take Bobby to places like the zoo while Raab, Rathman, and Conte were out lobbying. “After, George and I would walk around the zoo with Joy and Bobby, and I’d get nuggets of wisdom for how to run a pharmaceutical company, everything from soup to nuts,” she exclaims. “He was the one who drilled into my head, after all the drug discovery, safety, and efficacy fanfare, it’s manufacturing. It’s CMC [chemistry, manufacturing, and controls]. And I got those couple hours of wisdom every two weeks for about a year.”
WANT UNFILTERED FEEDBACK? TRY A TOMATO MEETING.
Public speaking, raising a dissenting view, or sharing a wild and crazy idea in a business meeting requires you to be the type of person who is willing to “put yourself out there.” But in doing so, you’re vulnerable and open to being criticized and publicly humiliated. So, how do you get someone to share — in a meeting — what could turn out to be a revolutionary idea for your business? For Lisa Conte, founder and CEO of Jaguar Health, the answer is tomato meetings. For example, say she is doing a SWOT analysis on some key function of the company, such as marketing, research, or manufacturing. Every attendee of the meeting receives a small bowl of tomatoes. “We go around the room, and everyone has to say something as to what’s good and what we should be worried about regarding the topic,” she explains. During that exercise, if there is any critique, feedback, or judgment by someone in the room, that person gets a tomato thrown at them. “These are important discussions, and we don’t want to quash anyone’s input, so we’ve created this fun non-threatening setting. And let me say, you’d think there would be some restraint among adults — but those tomatoes fly,” she laughs. Conte likes this approach, as it puts everyone on equal footing, and that’s when what really matters comes out, is voted on, and prioritized.