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From Farm Team to Big Pharma

Cardax hopes that its algae-based drug will someday make the big leagues

Cardax

Photo Sergio Goes

 

Inside the yellow-lit analysis room at Aiea-based start-up Cardax, young research chemists in white coats, thick, plastic eye protectors and purple surgical gloves work to find minute amounts of new chemical compounds.

­­Like alchemists of old, each knows that one of the many compounds they develop may be the one that brings enormous wealth to themselves and their new company or … nothing. All are aware that they are working on the cusp of the big leagues of the pharmaceutical industry.

This is why, when trying to encourage them, Cardax VP Thomas Goodin likes to talk baseball. “I tell them our No. 1 goal is to complete the IND [Investigational New Drug Application for the Food and Drug Administration]. Because when the FDA approves your application suddenly you move from test tubes and petri dishes and animals to humans and that’s like going from an AAA farm team to the big show.”

It’s an ambitious goal and the stakes are high. Cardax CEO David Watumull’s plan is to develop a new drug aimed at the $20 billion U.S. cardiac patient market based on astaxanthin, a green micro-algae with powerful antioxidant qualities. For more than 20 years, there have been many efforts to grow astaxanthin in Hawaii’s warm climate and develop it as a nutraceutical food supplement. Cardax will be the first biotech company to attempt to turn it into a high-value pharmaceutical, an important new heart drug.

“We hope to create an anti-inflammatory drug that will be complementary to drugs like Lipitor,” said Watumull. “You would take a cholesterol-lowering drug and you would take a drug like ours that would reduce the ability of LDL cholesterol to have a negative impact on your cardiovascular system.” 

Toward this end, Watumull has hired 15 employees, leased 7,500 square feet of chemistry labs and office space and projects a budget of $10 million to $12 million annually over the next three years. Since 2005, Watumull has raised $12 million in capital for the venture, $6 million of which has come from local investors.

“Our goal over these three years would be to complete Phase I and Phase II clinical trials. Licensing agreements for these types of drugs that successfully complete Phase 1 and Phase II trials typically can command upfront payment of between $25 million to $100 million from big pharmaceutical companies,” says Watumull. “In addition, there are milestone payments after Phase II trials are successfully completed and before FDA approval in the several hundred-million-dollar range. Upon FDA approval, royalty payments are made as well.”

A graduate of Punahou School and Clarement College, where he was a math major, Watumull began his career as a musician. But after 10 years of playing keyboard in rock bands and jazz groups in Honolulu his interests turned to finance and eventually biotech. Watumull joined Paine Webb­er in the 1980s as a stock broker and then moved up into money management. By 1992, he was a local investment banker and researcher at First Honolulu Securities and money manager for clients such as the Wisconsin Investment Board, one of the world’s largest biotech funds.

After working with several small local companies, including Aquasearch, which made nurtraceutical food supplements from green micro-algae grown in plastic tubes on the Big Island, Watumull became president of Hawaii Biotech, the state’s leading biotech firm in 2001. He brought with him the concept of chemically modifying astaxanthin and turning it into a drug. Hawaii Biotech spun off Cardax in 2006 and Watumull became its CEO.

Watumull knew that most anti-inflammatory drugs used by heart patients have significant negative side effects. He also knew that not only was astaxanthin a powerful, inflamation-fighting antioxidant, but it also has the ability to accumulate in the membranes of heart cells.
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Astaxanthin is difficult to produce and sell as a food supplement due to the high costs of manufacturing and shipping. So, Watumull decided to concentrate on the development of his drug and let a big pharma company (which he hopes will purchase Cardax’s intellectual property someday) worry about production and distribution.

A key part of Watumull’s strategy is to generate enough capital investment to have the company go through the first two phases of the FDA clinical trials process. The first phase looks at safety in a small number of patients. Phase II has to do with human efficacy (whether the drug works on the disease) and continues with a safety assessment. Phase III is a clinical-trial process that often involves more than 1,000 patients. Watumu­ll says if they can continue to raise money as expected, the company hopes to begin its first-phase human trials in mid-2009 and that the costs will be between $10 million to $15 million. The next phase will cost a similar amount.

Although the total development process can take 10 years or more, drugs that show potential can generate revenue by being commercialized by big drug companies before that. Drugs that show promise after Phase II chemical trials can be commercialized by licensing to a major pharmaceutical company. In the meantime, he is confident that he will continue to be able to raise money for the new venture

Watumull says he appreciates Goodin’s baseball analogy, but, at this point, he has humbler aims: “I am thinking less about the big show and more about fielding the ground ball and throwing to first base.” However, he thinks the success of Cardax could have huge implications for the future of Hawaii. “Think of tourism, we get 7 million tourists and they create revenues of $11 billion. A single successful drug can generate several billion dollars. A few biotech companies with handfuls of successful drugs could have a major impact on the state.”

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