HEALTH CARE

PharmaJet Finally Gets Unstuck

After years of struggle, Kathy Callender is starting to make her do-gooder dream look like a great business.
The Point Standard needle syringes. The World Health Organization estimates that reuse of needles spreads disease 24 million times a year. The Medicine is the Needle A PharmaJet injector loaded with a cartridge. The injector shoots vaccine or medicine directly into the skin.

Jamie Kripke

Tenacious Kathy Callender knows she is sometimes underestimated. It's a valuable motivator.


Jamie Kripke

Money Time Heather Potters is Kathy Callender's daughter and her guide in the world of equity financing.

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Kathy Callender was in a São Paulo hotel room in August 2008, nervously preparing for a demonstration of her needle-free injector, a device she planned to manufacture cheaply enough to replace the 6-cent needle syringes that are used the world over.

Getting costs at her company, PharmaJet, low enough to do that would require huge volume, and Callender was hoping Brazil, a nation of nearly 200 million, would be among the first to use her injector in mass vaccinations. Nine months of building relationships with Brazilian officials had preceded the meeting.

The PharmaJet device, a simple assembly of 25 parts, eight of them screws, was working fine. So Callender and two colleagues made the 20-minute walk from Hotel Oscar Freire to the University of São Paulo's teaching hospital. It was muggy out. Hospital officials had gathered test subjects ranging in age from 18 to 70; they were to be injected, and then ultrasound images of their arms would show how effectively Callender's injector delivered its payload.

In the hospital's ultrasound clinic, surrounded by half a dozen Brazilian physicians, Michael Royals, PharmaJet's chief science officer, held the injector in one hand and -- as he had done thousands of times before -- reached with the other for a plastic cartridge filled with saline solution to snap it into the injector. Then he hesitated.

"He said, 'Kathy, it's not fitting,' " Callender recalls. "I said, 'Here, give it to me.' "

She tried, then looked back toward Royals: "I can't do it, either," she said.

"We panicked," she says. "We're talking in English. And everybody's watching, talking in Portuguese.

"All this down the drain," she continues. "It's like you're onstage for your singing debut, and you open your mouth and nothing comes out."

The São Paulo flop is one of a series of setbacks Callender has endured, and overcome, on the way to becoming the most unlikely leader in a growing movement to replace needles worldwide. A 69-year-old former dental hygienist from Golden, Colorado, competing against better-funded, better-credentialed medical-device developers, Callender has implausibly positioned PharmaJet to have the best chance to replace the most needles.

That alone would be a tremendous public-health success, because needles are one of the main culprits in the global spread of HIV and hepatitis. And it is helping the poorest people avoid deadly infection that most motivates Callender. But her strategy could also prove to be the best business approach. By insisting her device be cost competitive with the cheapest needles so that poor countries can afford it, Callender may also end up with a huge advantage in rich countries, able to underbid rivals to supply pharmaceutical companies that sell billions of dollars a year of pricey injectable drugs. She has raised $14 million from investors and is attacking a vast market: Some 15 billion to 20 billion injections are made globally each year.

PharmaJet's needle-free injector is one of several on the market. Held against the skin, the device expels liquid medicine out a narrow passage with enough force to turn the medicine itself into a needle-like stream that penetrates the skin to the desired depth. When it's done, in one-third of a second, you toss out the little plastic cartridge that held the medicine and touched the skin. There's no needle to stick and potentially infect a nurse. No needle to be fished out of the trash by a drug addict. No needle to be reused by a health care worker short on supplies in the developing world.

The PharmaJet cartridges are filled from medicine vials using a disposable plastic adapter. Its sharp end, used to pierce the seal of the vial, never comes in contact with the patient. For mass production, the cartridges will be prefilled, as many syringes are today.

For years a hygienist and business manager in her husband's orthodontia practice, Callender has been stuck by needles herself. "If you're in health care, you've been stuck," she says. "You just hope and pray you don't get really sick."

I first encountered PharmaJet at a conference put on by Springboard Enterprises, which brings female entrepreneurs together with venture investors, last October in Madison, Wisconsin. Heather Potters, PharmaJet's chairman -- commanding onstage, notably fashionable, a private equity investor based in Warsaw, Poland -- made the company's pitch to VCs, and it was the day's most polished. Disruptive technology in a huge market. Big potential returns. A clear exit strategy.

Afterward, I was introduced to Callender, PharmaJet's founder -- bangs curled over her forehead, a formless Eileen Fisher jacket around her thin shoulders, a soft voice and softer manner -- and I was surprised. What an unusual pair. I've seen pretty much every start-up team archetype -- the crazy inventor and the uptight financier, the supersalesman and the keep-the-trains-running operator -- but Callender and Potters didn't make sense to me as a team.

Later, over dinner in Chicago, Potters explained to me, almost apologetically, "Kathy's my mother." She doesn't initially advertise that for fear of scaring off investors wary of family companies.

Callender's unassuming demeanor encourages her skeptics. At PharmaJet's office in Golden, she sits nearest the front door and could easily be mistaken for the receptionist, perhaps a Social Security recipient making ends meet by working. "It's one of the biggest hurdles I've seen at PharmaJet," says John Bingham, the company's chief designer. "How can this older lady from Golden, Colorado, do what she says she's doing?"

As I talked with her, however, it slowly became clear to me that Callender's brains and willpower are what have propelled PharmaJet. She draws strength -- a motivating chip on her shoulder, even -- from those who doubt her. For years, she says, "I didn't talk about what I was doing, because people thought I was nuts. Frankly, even my sister. They thought it was just a little thing to fill up the time. Orthodontist friends would give me this little smile -- uh-huh. Patronizing."

In São Paulo, with her carefully planned demonstration falling apart, Callender turned on the charm and persuaded her hosts to keep the test subjects around. Royals headed for the hospital's maintenance department to borrow a drill, then carefully widened the opening in the injector. And soon they were injecting Brazilians as planned. The humidity, it turned out, had caused the nylon used to make the injector to swell. Before Callender was back in Colorado, Bingham was already working with a new plastic highly resistant to water and heat.

It was one heck of a recovery. Since that episode, Royals has been invited back to São Paulo to train nurses in using the PharmaJet system for H1N1 vaccinations. And PharmaJet, in a program funded by the global health care nonprofit PATH, is performing measles-mumps-rubella vaccinations in Brazil.

Indeed, 30 years after the AIDS crisis first hit, thanks to PharmaJet and a handful of other small companies, needle-free technology "is taking off, finally," says Bruce G. Weniger, a physician and vaccine expert who recently retired from the Centers for Disease Control and Prevention in Atlanta. Weniger got his own flu shot last fall via a PharmaJet injector and says, "It didn't feel like much of anything."

PharmaJet's focus on selling to developing countries has its roots in Kathy Callender's childhood. She was raised in Gary, Indiana, where her father, Joseph Finerty, was mayor during World War II and after the war a homebuilder. When construction stopped for the winter, Finerty would take his wife and two daughters south, living November to April on a 40-foot cabin cruiser, a block of ice for a refrigerator. Kathy's mom, a former science teacher, homeschooled the girls.

The family often docked for long stretches in the Bahamas. It was decades before the casino-resort boom there, and a family of white Americans was unusual. Kathy and her older sister, Jean, fished and played with local kids. "The children didn't have shoes," Callender says. "Simple little houses with tin roofs, no glass in the windows. I was comfortable there."

Later, married in Colorado and expecting her first child (Heather), Callender was delighted when her husband, Sam, joined Rotary International and signed the young couple up to host foreign students. They boarded youngsters from 29 countries. The Callender kids would end their day in the exchange student's room, hearing stories of life abroad. All three of Kathy and Sam's kids married non-U.S. natives and live outside the country. "I raised my kids to be global citizens," Kathy says.

Sam built his orthodontia practice up to three offices. By the mid-1970s, he needed help. "Kathy, I think someone's embezzling from us," he told his wife. As her first assignment for the practice, she dug into the finances and sniffed out the culprit. After confronting the person, Sam and Kathy decided to give the worker another chance. "Oh, she cried and cried," Kathy says. "Then she did it again. We were so stupid." The worker was fired, and Kathy had gained some toughness.

By the mid-1980s, Kathy and Sam were taking time to do relief work in Honduras. "We had horribly abscessed dental surgery from morning to night," Kathy says. "Sam and I both had needle sticks there. You're tired at the end of the day. That's when needle sticks happen."

They slept on hut floors. "You become part of the village," Kathy says. "For me, that was the defining moment. The developing world is my passion."

Sam sold his practice in 2001. In the years leading up to the sale, he and Kathy were wondering what was next. Their youngest, Todd, was in law school and was doing an internship in Orange County, California. He met a local inventor, Jerald Umbaugh, who had designed a spring-loaded needle-free injector. Umbaugh had a rough mockup of it in his shop.

Billions of vaccinations, and here's the better mousetrap, thought Todd, who knew about his parents' needle sticks. He brought them out to meet Umbaugh, who operated a small injection-molding shop in Santa Ana. Kathy and Sam knew a needle-free injector could help reduce the spread of HIV and hepatitis; they also thought they could make some money. They decided to finance Umbaugh, with Todd managing the investment. The Callenders ultimately spent about a quarter of a million dollars.

A year in, the parties weren't getting along. "He was missing deadlines," Todd says of Umbaugh. "Pig studies -- he wasn't doing them, it turned out, because the device didn't work." Todd asked Kathy to scour Umbaugh's books. She spent two days in Umbaugh's office, in the front of his molding shop, turning over every piece of paper. "I went through his books," says Kathy. "Show me. Show me the mold. Show me the plunger. I found out it wasn't right." She came to believe the Callenders' money had been mixed in with Umbaugh's other projects.

"That's what she was finding," Umbaugh, 66, tells me over the phone. "My bookkeeping was bad." For the project's lack of progress, though, he blames the Callenders' tightfistedness. "They nickel-and-dimed me," he says. "That meant every step I took was clumsy."

Todd, by then a lawyer, came around with an ultimatum that Umbaugh says he quickly accepted: "Fine, you won't sue me. Here's my stock. You take it." Some harsh words were exchanged, but Umbaugh says he parted company impressed by Kathy Callender. "Kathy is really the business brains in that family," he says. "She is the reason that family has money."

I asked Todd, who lives in the Bahamas, how it felt to be bailed out by his mom, and he answered with a question: "Did she sound mad at me? I'm not as acute a businessman as my mom is."

It had all seemed so easy to him in the beginning. "The business plan in my mind was, Let's get this thing working and sell it off to a big pharma company," Todd says. "Or the lawyer in me: Let's hope like hell someone infringes, and we'll sue." On that basis, the Callenders should have cut their losses. But Kathy's vision went beyond a quick score. Todd backed away. Kathy took over.

It would be a long slog. As owners of intellectual property for a needle-free-injector design, the Callenders were hardly alone. At least half a dozen competing designs were in development or on the market. Needle syringes entered wide use in the 1800s, revolutionizing health care, but from the beginning, people didn't like getting shots. Today, as much as 10 percent of the population may be severely averse to needle shots. Many physicians and others assume needlephobes are simply being wimps. But some people faint getting an injection. Others feel the pain of the needle intensely. And some are so frightened by needles that they forgo medical care altogether, endangering their health.

An annoyance for many, a real health threat for some. Just the sort of problem an inventor wants to solve. In 1932, an engineer named Arnold Sutermeister noticed what happened when diesel oil hoses developed pinhole leaks. High-pressure streams of oil shot out, and workers handling the hoses essentially had their hands injected with oil.

Liquid could be its own needle.

Sutermeister and a medical student collaborated on a needle-free injector. Other devices followed. Hypospray, one brand, was also the name for a futuristic injector used in episodes of Star Trek.

The U.S. military developed needle-free injectors capable of vaccinating 600 soldiers an hour and used them widely from the 1950s through the 1980s. But these so-called multiuse-nozzle jet injectors, or munjis, could pick up a little blood from one arm, carry it on the nozzle, and inject it into the next arm. A hepatitis-B outbreak in California in the mid-1980s was tied to the use of a munji at a clinic. The devices were largely retired.

Needle-free injectors with disposable cartridges instead of a fixed nozzle, like the PharmaJet, were next. Following the emergence of AIDS, the need was urgent. The annual number of needle sticks of U.S. health care workers has been estimated at as many as 800,000. And in developing countries, PATH has estimated, half of all needle injections are unsafe. Some syringe designs, to be sure, improved following the AIDS crisis. Shields and retractable features were added to reduce sticks. Autodisable features were added to prevent reuse. However, these syringes are more expensive -- roughly 7 cents to 38 cents apiece -- and not all the safeguards are foolproof. Simple 6-cent (and even cheaper) needles are still widely used. And needle reuse remains a big problem, says Darin Zehrung, a PATH vaccine official.

Callender, with Umbaugh's design in hand, decided her cartridges had to be made of polypropylene, because its low cost would give PharmaJet a better chance of matching needle prices. It's hard stuff to work with, though, and in clinical trials in Cuba in the late 1990s, some of the cartridges leaked when under the 3,000-pounds-per-square-inch pressure needed to propel medicine into the skin. Word got around. "The device was not ready for prime time," says Royals, who joined PharmaJet a few years later. "That left a bad taste in some people's mouths."

The Food and Drug Administration approved the device's use in 2004. But it was too big, awkward, and ugly. "Nobody would buy it like that," Callender says. With nearly $1 million sunk into the business, Callender was still really at the beginning.

Some plastics experts told Callender she would never get a reliable cartridge from polypropylene. But without it, PharmaJet might as well have folded. Callender went looking for a design engineer who could make it work, and in 2004, she met John Bingham. He had run a tool-and-die shop and an injection-molding shop and had designed consumer and industrial products. A medical device? Never. Callender and Bingham were introduced over iced tea on the back deck of a mutual friend's house. It was supposed to be a get-to-know-you meeting. But Callender was anxious about her plastics problems, and she cut to the chase. "I handed him the injector and syringe [cartridge]," she says. Bingham studied it. Callender waited. "He said, 'Hmm, I can see some problems with this and how I would fix it.' " Callender decided on the spot: He's my guy.

Bingham dropped most of his other work. Getting the cartridge's opening right -- about three hairs wide, Bingham says -- was especially tricky. To prevent leaks, the molds had to be perfect. Finally, Bingham found the right plastics molder, and the cartridges came out consistently. "I met her and just had to help the lady," Bingham says. "She was going to rid the world of needles."

Bingham also began redesigning the injector, simplifying and shrinking it and the docking station used to cock its spring between injections. An FDA official suggested Callender also comply with a new international standard for needle-free injectors. She agreed to, learning only later precisely what that entailed: 60 injectors tested for durability to 30,000 cycles. In his workshop, Bingham rigged an elaborate, Rube Goldberg contraption that cocked and fired five injectors at a time, roughly every eight seconds. Bingham wore out a compressor powering the setup. It took 45 days. The injectors made it.

Around the time she found Bingham, Callender also went looking for scientific help -- someone to design and oversee animal studies, then human studies, to demonstrate the injector's efficacy. She met Royals, a veterinarian by training, at a biotech conference where he was exhibiting his consulting firm. They talked for an hour. Callender walked around for a while, then came back to Royals's booth and declared: "I think we're supposed to work together."

He asked for an injector and a week to evaluate it. "I injected my dog, first thing," Royals says. "The most impressive thing was he did not respond. I began to investigate it on friends-and-family dogs. Same reaction. We did horses that throw up a rodeo when they see a needle. No reaction." Royals signed on, too.

His access to an animal necropsy lab at Colorado State University's vet school was a big help. Dressed in old clothes, Callender and Royals would go in, pull out whatever roadkill or other carcasses had arrived, and inject them. "Horses, cows, dogs, cats, leftover mice," Callender says. "You come out smelling, but we gained a huge amount of valuable information at almost no cost." Later, Royals arranged to have much of PharmaJet's human testing done overseas. That saved the start-up millions of dollars.

But, as Sam says, "eventually you run out of money." Todd tried fundraising, without any luck. Was PharmaJet finished? Then the Callenders' daughter, Heather Potters, came to the rescue. Potters had been working in private equity in Eastern Europe for 15 years. She had money connections from Wall Street to Warsaw. She pulled together a prospectus, and she and Callender hit the road in December 2005. "She said, 'Put on your roller skates. It's going to change dramatically,' " Callender says.

Potters got a meeting at Lehman Brothers. Other needle-free makers had come and gone. "Why are you different?" an investment banker demanded. "Big boardroom," Callender remembers. "Dark wood. All men." She was intimidated.

Potters, accustomed to such settings, thought it was just fine. "We were able to get frank feedback," she says. "It was Kathy's first time to be in a meeting where investors were asking blunt questions." Potters helped her mother see investors' concerns. And Potters felt the strength of her mother's commitment.

PharmaJet's mission, to replace needles in the poorest countries, has led many in the medical-device world to dismiss Callender as a dreamy do-gooder. The industry is accustomed to investing hundreds of millions of dollars to develop elaborate gadgets that are then sold for top dollar in America's spendthrift health care system. Affordability in developing countries isn't so often a concern.

Stephen Farr is chief operating officer of Zogenix, a California start-up that has raised $170 million, in large part to develop its needle-free device. Since January, the device has been marketed as a prefilled, disposable injector of sumatriptan, a migraine medicine. A PharmaJet official guesses the Zogenix devices cost $10 each to make. Farr won't say. The device's cost is embedded in the price of the drug, $83 per shot wholesale and some multiple of that amount if you pay out of pocket at your local pharmacy. So the cost of the device is relatively insignificant. Still, it's a long way from 6 cents.

"How can you be price competitive with a needle?" Farr says. "They make gazillions of them." At Zogenix, Farr adds, "high-value therapeutics is what we're about."

Asked if he sees PharmaJet surviving, Farr replies without hesitation: "I do not."

Callender is used to such talk. "The pure investor, somebody who's only about money, says, 'Ugh, who cares about the developing world?' " she says. "They think I'm a Florence Nightingale."

Some VCs, Potters says, wanted a Zogenix-like business model of high-end uses only. "She protected me from that," Callender says. Others bought into the developing-country strategy but wanted to see U.S. sales and cash flow first. That was middle ground. "The investors have great patience, but there is an expectation that there will be a great return," Potters says. She has raised $14 million, and she and her partner have each invested more than $1 million of their own money.

The new device was approved by the FDA in 2009. That finally green-lighted PharmaJet for sales. It was time to hire a seasoned CEO. "I needed to get to a certain level to attract a good CEO," Callender says. "I know I'm not that person."

An early candidate was suggested by one of PharmaJet's investors. Callender and Potters met with the two men in New York. The candidate "was purely about licensing to pharmaceutical companies. He cared nothing about the developing world," Callender says. "I absolutely knew, 1,000 percent, that he was not the right guy."

Telling the investor wasn't easy. "We got pushback," Callender says. "We were making a huge mistake. Here are the girls telling him no, thank you. He thinks we're pathetic." Callender wouldn't budge, and Potters's structuring of the capital raising helped her stand fast. The Callender family still controls 29 percent of the stock. Two groups on whose boards Potters sits control another 38 percent.

The next CEO candidate was more to Callender's liking. Rajen Dalal had run a $300 million-a-year blood testing unit at the biotech company Chiron and then was CEO of two start-ups. A native of India, he buys into the developing-country strategy.

"They got my attention," Dalal says. "If you grow up in a poor country, you can't escape it. If these kinds of dreams can't be translated into wealth and social impact, then what can?"

PharmaJet's first sales -- 150,000 cartridges and a bunch of $100 injectors -- came last year, mostly to public vaccination programs in New Jersey. Sales in 2010's first quarter equaled sales for all of 2009, Dalal says. He won't discuss cartridge pricing or sales in dollar figures. Potters, at the Madison presentation, talked of $80 million in revenue by 2013. Dalal won't comment.

The plan is to build sales volume in the U.S. vaccination market through public-health departments and pharmacy chains; then among consumers who self-inject at home; then to take on doctor's offices here and abroad. That way, PharmaJet expects to approach production volume -- 50 million cartridges a year -- that would allow it to compete on price with needles in poor countries beginning in 2014.

Late this summer, though, Dalal quit as CEO. He lives in San Francisco, and Potters says PharmaJet, which is ramping up manufacturing, needs a CEO in Colorado, with the company's 22 employees. But there may be more to it. Dalal and Callender agreed philosophically on balancing domestic profits and helping the developing world. But in a fast-growing company, that balance is adjusted daily, and each decision can offend old hands or frustrate new managers. Potters says a new CEO will be sought.

PharmaJet needs one. Dalal brought calm, something a start-up with a long road ahead badly needs. Inexperienced entrepreneurs, he says, get too excited by every little victory.

Just don't say that to Kathy Callender. Last year, after more than a decade of pushing PharmaJet, she sat in the office of the health department of Burlington County, New Jersey, and was stunned when its coordinator, Robert Gogats, listened to her sales pitch and then replied, "We want to do this." In the weeks ahead, other New Jersey counties would buy PharmaJet equipment, too. And in the following months, PharmaJet would strike agreements with public entities in California and sign up one of the nation's biggest pharmacy chains and one of the biggest supermarket chains to try out the needle-free injector in the 2010 flu season.

But for that moment in Robert Gogats's office, Callender was looking at her first real customer. And she says it was all she could do to keep her composure.

"Somebody believed in it," she says. "I went out into the parking lot, and I had tears in my eyes. I yelled for joy."

IMAGE: Nigel Cox
Last updated: Oct 1, 2010




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