Biotech’s Place In The Sun

A cross-disciplinary background is a fruitful advantage for David Watumull.

David Watumull, whose career straddles science and investing, is as clear-cut as he can be when you quiz him about the seemingly contradictory bridges he must cross every day to achieve his goals. As president of Hawaii Biotechnology Group Inc. (and in December 2001, to be named CEO), and chairman of the Hawaii Technology Trade Association’s Biotechnology Council, he appreciates that his emerging industry requires frank, even unusual cooperation among academia, the private sector and government. In truth, as a former investment banker and biotech investment manager, including stints at PaineWebber and First Honolulu Securities, he recognizes more than the average investor that the risks in biotechnology are high and the rewards usually slow in coming. Thus, when we ask him if he considers himself a scientist or a businessman, he is quick to point out, first of all, how important it is for a biotechnology leader to have a cross-disciplinary background. “I think,” he says, “it would be very difficult for a strictly business-oriented person to run a bio company, and in fact you rarely see that. On the other hand, it’s difficult for a scientist to make the transition to the business world, unless they’ve had a lot of back- ground in business.”

David Watumull mulls the future at Hawaii Biotechnology Group Inc.

At first glance then, it would appear that Watumull, who in February this year joined Hawaii Biotech after several fruitful years as executive vice president of Aquasearch, the Hawaii-based marine biotechnology company, is eminently suited for the job. At Aquasearch, he had primary responsibility for the conception, implementation, funding and strategic direction for the firm’s dietary supplement, drug discovery and pharmaceutical programs. But as a veteran biotech investment broker, he had also played the lead role in securing more than $20 million in financing for Aquasearch since 1998.

Watumull claims that what he’s done in the biotech industry is to help “see the strategic direction” of the companies with which he’s worked. In order to do that, he says, it’s critical for a manager to be able to analyze the sciences. “You must have that cross-disciplinary background,” he says. “Besides directing strategic company goals, I’ve also helped design the clinical trials of the research. These let us know if the research is successful or not.”

Hawaii’s biotech industry was recently described as “diminutive.” Yet, doesn’t your recent experience at BIO 2000 in Boston and elsewhere indicate a tremendous interest in what’s happening here?

It’s a nascent industry, and it’s growing. There’s a lot of biotech research in Hawaii that could be commercialized. Also, there’s a growing momentum in biotechnology in Hawaii. But the biotech industry will take a longer time than other industries to develop, it will require more capital, but the rewards are commensurate with the time and the risk.

Aquasearch and Hawaii Biotechnology are very different companies with some similar goals. How are they different?

The fundamental strategies at Aquasearch and Hawaii Biotechnology are different. The former used a microalgae growth technology for the dietary supplement market. Hawaii Biotechnology is more of a traditional biotech company and is involved in developing pharmaceuticals. Since it was started in 1982, it has had some $30 million invested from a variety of sources, including the National Institutes of Health, Walter Reed Army Hospital and others. Our scientists have kept their heads down and focused on science and research. Their work is now ready to make the transition from the lab to the early stages of human clinical trials and commercialization. Our goal is an IPO in four years.

What are your main projects today?

The first is a dengue fever vaccine. Dengue fever, a mosquito-borne virus, afflicts between 50 and 100 million people a year in the tropical and subtropical regions, but as many as 1.5 billion people are at risk. People have worked on this vaccine throughout the world for 40 years without success, using very traditional methods. Our approach involves isolating the DNA that codes for specific structural proteins on the surface of the virus. A second key project is research in Natural Combi-Chem Libraries. Here we are combining the benefits of evolution with the powers of combinatorial chemistry. With its ability to rapidly germinate hundreds of thousands of compounds, traditional Combi-Chem was heralded as a way to accelerate drug discovery. Thus far, the results have not lived up to its promise. We believe that natural bioactive compounds from many sources, including many compounds from the bio-diversity of Hawaii, offer proven bioactivity, and should be more effective leads for drug discovery.

The ROS (for “reactive oxygen species”) Anti-inflammatory program is our third area of research. This work targets diseases that occur as a result of oxidation damage, particularly inflammatory diseases. Our first therapy is a proprietary astaxanthin analogue, which is a treatment for acute myocardial infraction, with few or no side effects.

Gov. Benjamin Cayetano has pledged to put together a strategy for Hawaii to compete in the global biotechnology marketplace. Are you satisfied with the support you’re getting right now from the state?

I think changes that have occurred in the attitudes of the entire state government have been nothing short of remarkable. Legislation passed in the last two years and signed by the governor, and legislation passed this year and awaiting his signature, provides strong incentive for the biotech industry in Hawaii. The successful development of the biotechnology industry around the world has been the result of a partnership between the private sector and academia, supported by the local government. The beginnings of that partnership are now occurring in Hawaii. And the state and city governments have been supportive in most cases, although not all.

Does the inherent complexity of the biotechnology industry — its broad scope, its varied programs, its time frame of achieving success — work against fund-raising and effective commercialization?

Investment in biotechnology is different than traditional investing. To be successful the investor must understand the time scale over which biotech commercialization occurs, as well as the milestones of programs along the way. If the investor understands these issues, as well as the potential risks and rewards in the industry, biotech investing can be very satisfying and rewarding. If the investor is looking for a short-term return on money, biotech is probably not the right place for that person.

In Hawaii, a typical biotech investor is a person who believes in the future of the industry in general, who understands the investment horizons required, and is committed to helping Hawaii companies become successful. Their interest in Hawaii is a strong and important part of their investment-making process.

The current dotcom problems have served to highlight the substance of the biotech industry. They will actually make financing for biotechnology somewhat easier. Recognition of the need for more seasoned management, and the awareness that cutting edge technologies have a valid path to profitability are our advantages today. We have a longer time horizon, which requires us to be frugal, and focus our resources on tasks that will accelerate commercialization.

What are the social and ethical implications of genetic engineering, and should the layman harbor any fears about what’s going on in the labs?

If the public understands how many years and how many dollars it takes to develop a biotech product, they’d feel more comfortable about the future direction of the industry. Virtually all biotech companies I know are focused on improving the human condition, with an emphasis on human health. The fears, such as they are, are more the province of the media than reality. Why would a company want to clone a human being when they could discover a cure for cancer? The main controversies have been in the agricultural area, with the exception, say, of the issue of human cloning. Agricultural biotechnology has the potential for solving issues of extreme importance, especially in Third World countries. Several million children a year, for example, who currently are at risk for blindness from lack of vitamin A in their diet, could be saved from blindness by a new biotech product called “Golden Rice,” which contains beta-carotene.

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