Advertisement - Click to support our sponsors.

Aquasearch
loss grows to
$4.6 mil

The firm says it likely will need
outside financing but expects
profitability in a year

---

By Tim Ruel
Star-Bulletin

Year-end losses for Kona-based marine biotechnology firm Aquasearch Inc. widened to $4.6 million from the previous year's loss of $4.1 million, driven by heavy investment in research and development.

For the fiscal year ended Oct. 31, the per-share loss for Aquasearch remained at 5 cents, the same as last year, according to an annual report filed this week with the Securities & Exchange Commission. The company did not break out its financial information for its fiscal fourth quarter.

In the 105-page filing, Aquasearch said it has lost a total of $16.4 million since going public in January 1989.

Since Aquasearch only has about $500,000 in cash left, the company said it will likely have to tap outside sources, such as short-term debt financing or a $10 million line of credit it arranged with Alpha Venture Capital Inc. in June.

However, the firm has seen sales of its nutraceuticals double every quarter since putting the product on the market in March, said Mark Huntley, Aquasearch president and chief executive. If sales continue to increase at that rate, the company should become profitable in a year, he said.

In the filing, Aquasearch said it plans to incur another $4 million in operating expenses this year as it expands its product line.

Huntley said the losses are typical of a biotechnology firm. He notes Aquasearch has spent much of the loss -- $7.2 million -- on research and development. "Most biotech companies are looking at spending a few hundred million dollars" to develop new drugs, he said.

In the filing, Aquasearch also noted it may incur more expenses in its two-year legal battle over intellectual property with next-door biotech firm Cyanotech Corp. A jury trial has been set for September over Aquasearch's claims of copyright infringement by Cyanotech.

In another financial commitment, Aquasearch last month signed a contract with the University of Hawaii to maintain a professor's collection of 2,000 specimens of cyanobacteria, a deal that could lead to new clinical trials for Aquasearch.

Under the agreement, UH receives about $550,000 over two years as well as royalties from commercialization of products made from the specimens, according to the filing.

Aquasearch is also coping with the departure of executive vice president David Watumull, who stepped down in December after joining in July 1998. Watumull had been responsible for new business development and corporate capital needs.

Watumull said yesterday he left to become president of Aiea-based Hawaii Biotechnology Group Inc., a company founded in 1982 by UH scientists.

Watumull said he will lead Hawaii Biotech's efforts to sell its products, which include vaccines and cancer drugs. The company gets much of its funding from federal Small Business Innovation Research grants.

Previously, Watumull had helped Aquasearch secure $5 million in financing as a consultant. Watumull had joined Aquasearch from First Honolulu Securities Inc., a downtown broker-dealer where he also secured $1.3 million in private placement financing for Aquasearch.

"I still have high hopes for Aquasearch's future," said Watumull.

Aquasearch's stock, traded over the counter, closed down 3 cents to 32 cents on Wall Street today.

The price has fallen 48.4 percent in the past year and closed at a 52-week low of 19 cents on Dec. 27.

As of Oct. 31, Aquasearch had 42 employees, up from 26 in the year before.

About half its workers handle harvesting and production of microalgae.