By Heather L. Whitley
While a growing awareness of food allergies has led to safer options in the grocery aisles, much less attention has been paid to providing alternatives to those who are allergic to common medicines.
Max Spielberg (left) and David Johnson, co-founders of pharmaceutical startup Genexa, developed the company as a side hustle to their day jobs
GenexaDavid Johnson, CEO and co-founder of pharmaceutical startup Genexa, said most people would be shocked to discover what goes into making common pharmaceuticals.
“The majority of all over-the-counter drugs in the market have, at the very most, 10 percent active ingredients and at the very least, about 3 percent,” explained Johnson. “Everything else is binders, parabens, dyes, food coloring, etc. They're in there for shelf life and stability and longevity of the product, but they're completely pointless to the actual reason that anyone's taking the medicine.”
Johnson grew up in what he calls a “nuts and seeds” environment. Both of his parents were alternative care practitioners who didn’t allow sugary soft drinks or processed snacks in the house. Johnson credits his upbringing for instilling in him a passion for food chemistry and all things healthy.
His friend Max Spielberg came from a different camp. Any time he felt sick, he reached for an over-the-counter remedy, but found that he often suffered a reaction from medication.
Both were frustrated by the lack of medicines stripped of unnecessary chemicals and allergens available to them and their families. So, the they set out to create alternatives, and in 2015, they co-founded Beverly Hills-based Genexa.
THE PRICE OF PHARMA
Launching a new drug is no easy task — especially for a wealth management partner and a corporate lawyer with no pharmaceutical background.
“How do you actually bring this product to market with limited dollars and no awareness around the brand?” Johnson asked. “And you're competing with an industry that is controlled by four to five of the biggest companies in this country.”
But Johnson and Spielberg knew if they could develop organic binding formulas to replace the preservatives typically used in over-the-counter meds, they could make a huge impact on the industry. They started by building a team of chemists, pharmacists, formulators and medical professionals to help develop a kids chewable.
Johnson fronted the original capital to get the R&D ball rolling, but quickly learned it just wasn’t going to be enough to get their product to market.
"We were passionate about the mission and the vision of the company, so all we really needed was a little bit of capital in-house to take us to shelf."
They spent a year flying around the country pitching their new product to manufacturers before securing one in Anaheim, California. Without a manufacturer on board, Johnson said it would have been a prescription for failure.
“R&D on a project can start at $50,000 and get up to half a million dollars if you're not careful. That can kill you from even launching a company,” he said.
Packaging presented another financial hurdle — the first design quote was close to half a million dollars. Johnson said it was a long and financially challenging journey.
“We weren’t making any money for about two and a half years,” he recalled. “Max and I were working day jobs and doing this at night for a very long time.”
FRIENDS AND FAMILY PITCH IN
In order to keep the company afloat, Johnson and Spielberg turned to the experts.
“We decided to put some mentors and leaders around us that have done it before. I think that's something that a lot of founders stay away from,” Johnson said. “I think by doing that, it really helped us stay above water.
Following the advice of others, Johnson and Spielberg launched a family and friends round to raise the additional funds needed to sustain the company’s momentum.
“The mentors told us, ‘If you can get some friends and family money, and you can get them to understand the risks associated with it, then it's the best route because they're going to let you do what you have to do and let you run it how you want to run it,’” explained Johnson.
The strategy worked, and within a week, Genexa’s initial round of funding had raised a crucial cash infusion of half a million dollars that helped wrap up R&D and led to the launch of the company’s first line of over-the-counter medicines.
Johnson said the success of the first friends and family round helped shape the company’s investment strategies and allowed them to navigate future funding efforts that included a convertible note and, more recently, a multi-million dollar family-office investment.
“I think people recognized that this wasn't just another energy drink,” said Johnson. “I think they recognized that this was a major differentiator and if we could get it out, they wanted to be a part of it.”
MANY WAYS TO FINANCE GROWTH
While Johnson and Spielberg went the route of finding family and friends to gather the funding they needed, other options exist to acquire capital from outside sources.
Traditional business loans and credit cards are among the long- and short-term solutions companies often use. Still other solutions may be a better fit based on the situation.
For businesses that just need to shore up cash flow in the short term, some lenders offer invoice financing. This short-term funding, which often must be paid back in three months, pays vendor invoices to free up cash. Another short-term option is called factoring, where a business sells its receivables — the money owed by customers for goods or services already sold — for a discount in exchange for cash.
Long-term options trade a stake in the company for venture funding. Some of these involve partnering with angel investors and crowdfunding on sites like Crowdfunder, SeedInvest or Fundable.
LUCRATIVE LESSONS
The route Genexa took has paid off, providing Spielberg and Johnson the money they needed to get off the ground. The company now has 16 products on the market and an additional 29 in development.
They’re offering products like organic antacids, pain relief roll-ons and a nasal spray for infants.
The company also has four patents pending on organic preservative systems that can be used in liquid medications as well as tablets. Boasting multiple certifications — from USDA organic and non-GMO to sustainable sourcing and B-Corp status — Johnson said Genexa will not release a new product unless it meets at least four of the company’s certification requirements.
Johnson said through the years he has learned to lean on those who can provide the knowledge and insight for growing a business. No matter how famous or successful, Johnson said many leading executives are more than willing to share what they’ve learned.
And now he’s paying it forward.
“Put people around you that understand where you haven't been yet,” he advised. “Because they're not only going to help you with that advice, they're also going to save you a lot of mistakes and help you grow.”
