By Mary Welch

"It was a hard decision, but an obvious decision," said Lisa Conte, president and CEO of Shaman Pharmaceuticals Inc., as the company ceased operations and directed its cash assets to Shaman Botanicals, a privately held, wholly owned subsidiary.

About 60 persons - or 65 percent of South San Francisco-based Shaman Pharmaceuticals - were let go, and the company is in active discussions for the licensing and sale of all of its pharmaceutical assets, particularly Provir for AIDS-related diarrhea, its lead compound, Conte said.

Shaman Pharmaceuticals' stock (NASDAQ:SHMN) tumbled 53 percent on the news, closing Monday at $0.406, down $0.468.

Provir is an oral compound derived from an extract of the Latin American croton plant. The company had positive data from a 400-patient Phase III trial of Provir, and was in discussions with the FDA over the filing of the new drug application.

But it was those surprising FDA discussions that forced Conte to essentially scrap the company and start over. (See BioWorld Today, Jan. 28, 1999, p. 1.)

The company "recognized the FDA was cutting us slack, because [the AIDS-related diarrhea indication for Provir] was an unmet medical need," Conte told BioWorld Today. At the meeting, however, the FDA called for a much more traditional approach. "We didn't see it coming," Conte said.

"Given this delay, our cash position and the hostile environment for financing new pharmaceutical products, we couldn't justify to our shareholders continuing and further diluting our assets," she said.

About three months earlier, Shaman had begun organizing a botanical branch and, with the pharmaceuticals side in trouble, was able to quickly launch the botanical sector.

"We've downsized to the proper size for Shaman Botanicals, and we are able to start up this company so quickly because off our unique experience in pharmaceuticals," Conte said. "We have the distinct quality of having the research and development capabilities of a pharmaceutical company that is now working on botanicals. Obviously, our long-term interest is in ultimately gaining liquidity for our Shaman Pharmaceuticals stockholders, whether through a spin-off of [Shaman] Botanicals or otherwise. We believe that Botanicals may itself become a publicly traded company."

Conte said the offshoot already has two near-term products, one for irritated bowel syndrome and the other for herpes-wound healing. Its pipeline includes botanicals for weight loss, energy boosting, sleep disorders, anxiety disorders, and aphrodisiacs.

Shaman believes it will market its products in alliances with major drug companies; through multi-level marketing; and over the Internet. Conte was named president and chief operating officer of Shaman Botanicals and will remain president and CEO of Shaman Pharmaceuticals.