Beyond the Cure for the Common Cold R. Steven Davidson’s Zengen has leveraged a profitable over-the-counter cold remedy into even more ambitious research projects By SHELLY GARCIA Senior Reporter You’d think a cold remedy supported by a block of clinical evidence showing it actually works might be something to hold onto. But for Zengen Inc., a cure for the common cold is a means to a different end. Last year, Woodland Hills-based Zengen sold off its interest in Zicam, an over-the-counter cold remedy its founders developed, foregoing the promise of future revenues and profits to buy a luxury few biotech companies have time and the ability to diversify. The sale, for the tidy sum of $17 million, buys Zengen time to develop other, potentially more profitable pharmaceuticals and biotech products. Just as important, in an industry where years of research can lead to a dead end if a product does not successfully meet regulatory approval, keeping many products in the pipeline can be key to a company’s survival. Zengen is using the proceeds of its sale to finance research and development of a proprietary peptide molecule for use in different anti-bacterial and anti-microbial applications and a new nasal drug delivery system with potential for use in different therapies, for the biopharmaceutical and biotech markets. The company, which employs 14 workers in the U.S. and abroad, also used the proceeds of the sale to finance the $750,000 construction of a just completed new laboratory. Compared to the revenue the company generated from the sale of Zicam, the drugs targeted for its proprietary delivery system already comprise an $11.7 billion market and the target markets for its peptide work netted $3.5 billion in 2000. Through its over-the-counter subsidiary Zensano, Zengen hopes to launch other OTC products that can finance still more R & D; work in the biotech area. Question: As part of Zengen’s business strategy, you’ve set up three units, one for OTC products, one to develop your peptide molecule and one to develop new drug delivery systems. What is the advantage of working in these three areas simultaneously? Answer: It diversifies our opportunities as well as our risk. Zengen got involved in Zicam, and what that allowed us to do was to sell Zicam a year later for quite a bit of profit, which helped generate revenue for additional research in the peptide area without having to dilute the company and dilute the shareholders by an additional fundraising round. Q: Would you consider hooking up with a large pharmaceutical company to further your R & D; efforts? A: We plan on driving the (peptide) molecule further down the path, and then probably licensing it for the different indications that we’re working on. Our goal is not to ever market the product ourselves. Our goal is to form strategic relationships at a more rewarding point for us, obviously further down the channel, with large pharmaceutical companies. Q: Why is it better to wait before approaching the big pharmaceuticals? A: Your value increases the longer you wait. And you also do want to maintain some control over your own development. That’s important. We feel it much more beneficial to our molecule to hold onto it until a later phase because we have the expert in the field in our company. Dr. (James M.) Lipton (chief scientific officer) is the expert. Why would we give it to a company that doesn’t have the expert? Q: What will you use your new laboratory for? A: The laboratory helps us in doing research that is more sensitive as far as not allowing other companies to know about the new research, novel products that have not been protected by patents yet because they’re new. It’s much more beneficial to keep it in house if you’re going to develop new ideas and new molecules and advance in new areas until you have that protection. Q: You’ve established a partnership with Lee’s Pharmaceuticals Ltd. in Hong Kong, which is conducting research on your peptide technology. Why go to Asia? A: First of all, we’re very excited about that company. The CEO of that company is affiliated with the Hong Kong Biotech Institute, which we want to be affiliated with. (Also,) we feel they can do clinical studies that can be utilized here in the U.S. for less cost. Labor is cheaper, I guess. A lot of the studies will be done in mainland China, through hospitals in mainland China. The other reason is we want to be a global company. Science is global. Coming up with medication that helps people is a global field, and we want to establish those ties in these global regions. We will have the ability to exchange technologies, exchange research with scientists all over the world, and we believe this gives us the upper hand. The more resources you have for your company the better. We can do research in Hong Kong and find out if a novel product that we designed works, and we can do that rather quickly without diluting our time and energy. Q: Do you have other relationships like the one in Hong Kong? A: We have a collaboration with a pharmaceutical company in Italy. We give them license rights to two indications for our peptide and in exchange they will be running studies on the indications. We still have the rights to those indications in the U.S., so we receive an enormous amount of information and research that we can utilize here in the U.S. for our filings. We also get a royalty from sales, so that helps us. We gain many different things on this one deal. We get automatic distribution in certain parts of Europe. We gain research that we needed to do ourselves anyway that we would have ended up doing ourselves out of pocket. What a great deal. Those are the kinds of deals we’re looking at doing. Q: Your background includes both science and business management. How did you develop that combination? A: In my younger years, I was studying pre-med and decided I like business better. And then in business, I wanted to still be in the health field, so I went into project management in the biomedical industry. I’m not really a scientist. Q: How important is it to have someone with your background on the management team of a biotech company? A: A lot of companies that have scientists running the company make a lot more mistakes and tend to fail more often. I think you need great scientists in the company, you also need great project management and management people, including fundraising. Working with angel investors, working with venture capitalists, scientists just do not know how to do that. I think it’s also more difficult for a scientist to run a company around their own technology because it’s very natural for the person who developed that product or that molecule or that technology to really run a path with blinders on. Sometimes they won’t see the other opportunities out there. Q: Why are biotech companies, especially young ones, increasingly employing both scientists and management experts? A: If you have a company that has, let’s say, two scientists running the company and they come to, let’s say, a venture capitalist group with great technology and they somehow are able to sell it to this venture capitalist, a lot of time this venture capitalist group will say, “We’ll give you $10 million, but you’re moving the company to San Diego and you’re hiring this guy as CEO because he’s got a management background,” and that’s what generally happens. Venture capitalists will force the hand of these people to make that happen. SNAPSHOT: R. Steven Davidson Title: President and CEO, Zengen Inc. Age: 35 Education: MBA in international finance and Ph.D. in biopharmaceutical project management from American University of Astorias in Spain Career turning point: “The development of Zicam. When you can manage that process and bring a technology so great it helps millions of people, who wouldn’t want to do that?” Most admired person: My wife Joann Personal: Married, 10-year-old son
