How a local biotech industry will change the face of Hawaii
AS the Star-Bulletin recently reported, Gov. Linda Lingle budgeted $30.7 million for the next two years to jump-start innovation and thereby "drive economic development to meet the new challenges of the global economy." In doing so, she acknowledged that Hawaii must transcend its land-based economy and seek to exploit human capital instead of natural resources. (Many Democrats in the Legislature and U.S. Sen. Daniel Inouye have been supporting much of the same agenda for some time.)
Does the road to economic diversification make sense? Let's begin by looking at the current economic state of the state.
Although our economy is in high gear at the moment, Hawaii relies heavily on tourism, the military and real estate. And while each of these industries is important and worthwhile, there's an inherent fragility with this economic model. This model:
» is almost totally dependent on cyclical, "sunset" industries;
» is vulnerable to the fickle tastes of visitors;
» is highly dependent on the longevity of our senior congressional team; and
» provides living-wage jobs for far too few of us.
MANY OF US aren't willing to acknowledge these weaknesses and blissfully assume our current economic good fortune will continue indefinitely.
How soon we forget.
It has been less than 10 years since Hawaii went through its deepest recession since statehood. The real estate market had crashed, the Japanese tourism juggernaut had stopped in its tracks and there was even talk of closing military facilities such as the Pearl Harbor shipyard.
In short, 10 years ago we looked a lot like San Diego back in the 1980s.
San Diego as a model
At the time, this sleepy, southern California Navy town was gripped in recession. It depended largely on military funding and with the end of the Cold War, defense contracts were drying up and its future looked bleak. It desperately needed to reinvent itself and it did so brilliantly by morphing from a military/tourism-based economy to a life sciences hub in a matter of two decades.
In short, San Diego can serve as a great role model for Hawaii, and while the Aloha State is nowhere close to San Diego in our evolution as a biotech center, we are on the road.
There are life-sciences companies in this state with potential blockbuster products in the pipeline. Hawaii Biotech, for example, is working on cutting-edge recombinant vaccines for West Nile virus, pandemic flu and dengue fever. Any of these could generate hundreds of millions of dollars or more in sales, and the company is considering a manufacturing facility on Oahu. Our own company, Cardax Pharmaceuticals, is developing a cardiovascular drug that, if approved, could be a major factor in the $30 billion cardiovascular drug market. Other local companies such as Tissue Genesis, Hoana Medical and Cellular Bioengineering are ramping up with leading-edge technologies that also could help put Hawaii on the life sciences map.
What kind of economic impact on Hawaii could a successful biotech industry have? A successful drug today often has annual revenues exceeding $1 billion. Thus just a handful of successful life science companies in Hawaii could begin to rival the revenues of the $10 billion tourist industry.
Professional life-science venture capitalists, such as Roger Quy, a partner of the Silicon Valley-based venture capital firm Technology Partners, believe that Hawaii is positioned to grow a biotech industry. As a leading mainland investor in life-science companies in the Aloha State, he sees Hawaii as an underserved area that has natural advantages as a pan-Pacific center. Moreover, Quy, who also serves on the advisory board of the John A. Burns School of Medicine, argues that Hawaii has a unique opportunity now to become a leader in the developing convergence of biotech and cleantech, such as the next generation of biofuels and biomaterials.
Building biotech success
Clean energy products such as biofuels have great potential, but what further needs to happen to make Hawaii a biotech success story like San Diego?
"The short answer," says Quy, "is that we'll need to build a critical mass of companies. That takes 10 to 15 years. And we'll need one or two Hawaii biotech firms to be a bellwether success story to attract other successful entrepreneurs and companies to Hawaii."
A successful public offering or highly publicized acquisition of a Hawaii company would focus national attention on the Aloha State as a place to do life sciences. The local startups I mentioned earlier could potentially go public or be acquired in the not too distant future.
San Diego provides a perfect example of how one successful company could create a virtuous cycle that leads to jobs and wealth creation in a community.
Here's what happened in San Diego: In 1978 Ivor Royston and Howard Birndorf, both scientists at the University of California-San Dieg, founded Hybritech, the first company to commercialize the use of monoclonal antibody diagnostics. Hybritech was acquired by Eli Lilly & Co. in 1986 and from that one company dozens of start- ups were spun off. Of those, roughly 30 percent have gone public or were acquired for an average of $150 million each.
The formation of startup companies in turn generates good paying jobs that our state sorely needs. The average biotech job salary, according to San Diego industry trade group Biocom, is $67,000. Compare that to the hospitality industry, which, according to recent Federal Bureau of Labor statistics, pays Hawaii hotel workers anywhere from $22,500 a year for maids to around $30,000 for desk clerks.
Bringing kamaaina back
The good news is that local startup biotech firms are already luring skilled Hawaii professionals, who moved to the mainland long ago, back home. Our own company, Cardax Pharmaceuticals, has two returnees -- Fred Pashkow, former head of the Queen's Hospital Heart Institute, who returned from a stint on the mainland at corporate giant Sanofi-Aventis to become our new chief medical officer, and Teresa Wong, a product of Sacred Hearts Academy in Kaimuki, who came back from California to become our new vice president of operations.
Other returning kamaaina include Jaime Horton, a Punahou School and Yale graduate hired by Honolulu-based Tissue Genesis, and physician Hank Wuh, who returned from a position as an orthopedic surgeon at Stanford University to found Cellular Bioengineering in Moilili. There are many others.
Of course, the road to becoming another life-sciences hub like San Diego is far from complete. We need to quickly implement the new state programs that the governor and Legislature have proposed. In particular, we need to expand financing for life science and other high-tech companies in Hawaii. We need to make sure we don't hurt the successful programs that are already working, such as Act 221/215.
We must improve public education so that our students can learn the kinds of math, science and engineering skills that will prepare them for the jobs of the future.
We also need to understand that the University of Hawaii and the John A. Burns School of Medicine are key components of our evolution as a new economy hub. They will produce the knowledge workers to grow our industry.
In addition to providing sheer intellectual firepower, UH researchers can help generate the intellectual property that can become the leading-edge technologies, life-saving drugs and other products of the future. However, to do this we must provide UH scientists with an environment that successfully incubates their ideas and fosters an entrepreneurial mindset.
All these will be essential elements if Hawaii, like San Diego, is to reinvent itself as a player in the global economy. Let's hope it doesn't take another recession to remind us that we need to move quickly.
David G. Watumull is the chief executive officer of Cardax Pharmaceuticals, an Aiea-based startup that targets inflammatory diseases, including cardiovascular disease, hepatitis C and macular degeneration. He is a former CEO of Hawaii Biotech Inc. and was one of the Star-Bulletin's "Ten Who Made a Difference" for 2004