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Category Archives: Science
TMT: Big Glass and the Changing Focus of Astronomy
See my interview with Solar Impulse pilots Bertrand Piccard and Andre Borschberg in Smithsonian’s Air & Space Magazine.
Richard Ha and I climb into the cab of his big pickup and drive up the mountain.
I’ve come to Hamakua Springs, Ha’s 600-acre farm in Pepeekeo on the Big Island, to help see the future of Hawaii agriculture. Ha is a resourceful and outspoken farmer, and I want to hear his views on the increasingly fashionable notion that Hawaii could grow most of its own food. The issue, known variously as food security, food sustainability and food sovereignty, hinges on a few key questions: Can the land and water once devoted to the big sugar and pineapple plantations now support diversified agriculture? What investments and resources are necessary to make Hawaii agriculture more efficient? Finally, can the state’s growing welter of small farmers – most with much smaller operations than Hamakua Springs – ever compete with cheap imports from the mainland and the world? With a few important caveats, Ha says he’s optimistic about the future, and he wants to show me why.
We drive slowly uphill, traversing the length of the farm. The truck rumbles past packing sheds and outbuildings, past dozens of greenhouses bursting with tomatoes, past neat rows of banana trees and fields of taro, and, higher up, past fallow fields thick with weeds. Finally, in the topmost corner of the farm, we stop near a grove of trees that runs along the edge of a gulch.
Here, a finger of Ha’s farm reaches out and touches the Waiaama River. This land, he says, was thrown in almost as an afterthought when he bought the property. The idea was to ensure he would always have access to water. Today, this trickle of water represents the future of the farm – not just for irrigation, but as the centerpiece of Ha’s evolving ambitions: hydroelectric power.
Running along the high bank of the gulch is an old concrete irrigation flume, a relic of the defunct Pepeekeo Plantation. A shallow stream chuckles down the flume before spilling into a new concrete diverter.
“I think the general term for this is a headworks,” Ha says.
He shows me how, as the water is shunted to the right, it riffles briefly over a fine grate. The grate allows some water to pass over it and sluice back into the Waiaama; the rest, now filtered of debris, falls through the grate into a 22-inch pipe. This buried pipeline is called the millrace. It runs more than a kilometer down the hill to a 20-foot container that houses Ha’s new hydro plant. There, the surging water powers a turbine-driven, 115-kilowatt Lincoln generator before tumbling out the spillway into an irrigation ditch.
Ha says this system, which cost hundreds of thousands of dollars and will likely take years to amortize, can generate nearly twice the 50 kilowatts the farm currently consumes. Although HELCO, the local power company, won’t buy his excess power, Ha isn’t worried. He plans to use the surplus to transform the way Hamakua Springs does business.
Driving Down the Cost of Energy
Like most farmers, Richard Ha understands how the high cost of energy in Hawaii hampers agriculture. Energy runs your trucks and tractors and, in many cases, the pumps that irrigate your fields or water your cows. Electricity keeps your processing plant humming, cools your chiller and powers your milking barn. Energy runs a farm like it runs any business.
Hawaii farmers are at a particular disadvantage because of the state’s reliance on petroleum – a dependence that their farming competitors on the mainland and around the world rarely share.
“More than 70 percent of Hawaii’s electricity is generated from oil,” Ha says. “On the mainland, it’s only 1 percent. That’s why we can’t compete with anything manufactured on the mainland when it has electricity costs embedded in it.” That’s why he invested in hydro and why he supports geothermal and other renewable energy sources.
“If we were able to figure out a way to get cheaper electricity, over time, we could get an advantage, and then we could start doing other things.”
Ha is still trying to figure out what those “other things” are for his farm. He envisions Hamakua Springs as an agricultural hub that provides space and services to other farmers, such as a certified kitchen, fertilizer manufacturing and a packing plant. All those become possible when energy is cheap, and all affect the price of food.
“In the final analysis,” Ha says, “it’s all about costs. The customers will go to where it’s cheapest. So if our electricity was cheaper, the people would buy the stuff made here.”
Raising Cattle in Hawaii or Shipping ’Em Out?
Energy poses a special problem for ranchers. Although more and more people are turning to grass-fed beef – for both health and ethical reasons – most Americans still prefer the marbled meat that comes from grain-finished beef. For the most part, that means a Hawaii rancher who wanted to sell beef here would either have to ship in feed for finishing or grow his own. Shipping grain isn’t economical – it takes seven pounds of grain to produce a single pound of beef – but growing your own is also impractical. It would require you to ship in fertilizer and pesticide, and it might require irrigation, another energy hog.
So, for the most part, Hawaii ranchers quit finishing their cows here in 1990, after the last feedlot closed on Oahu. “Most ranchers here are cow/calf operators now,” says Jason Van Tassell, livestock manager for Parker Ranch. In other words, they keep just enough cows – “stockers” – to breed a herd of calves to sell. “Hawaii’s great for that, because we have good grass here. The model has been: You have a calf, and when you wean the calf, it goes to the mainland, where it’s grown out and marketed. Then, all that beef gets shipped back for local consumers.”
Ranchers were surprised to find they actually made more money this way than finishing the cows themselves. At least for a while.
“That model worked for a couple of years,” Van Tassell says, “because the shipping costs were low. But, later, the shipping costs got more expensive. And, remember, it’s shipping two ways. It’s shipping the calf there, and then shipping the food product back.” Those costs cut into ranchers’ margins.
Not surprisingly, many of them now are looking at the trend toward grass-fed beef as an option. In fact, many ranches have always retained a few stockers for local finishing. But now, well-known operations, such as Kualoa Ranch and Kuahiwi Ranch, are actively marketing a grass-fed product. And last March, Parker Ranch, the largest ranch in the state, launched the Paniolo Cattle Co., a joint venture with the Ulupono Initiative, Pierre Omidyar’s impact-investing arm in Hawaii, to develop a statewide grass-fed beef industry. This is precisely the sort of partnership that will be necessary for local ranchers to meet a significant percentage of the state’s protein demand. But it won’t be easy.
Van Tassell points out that managing a herd for grass-fed beef is a different operation. “With a cow/calf operation, you take a cow and she can survive on pretty marginal land. She can raise a calf pretty efficiently. But when we take the calf from the cow, it becomes our job to make sure it has the right nutrition in its diet. The quality of forage has to improve in the stocker stage, which is between 450 pounds and 800 pounds. That’s when it needs to be on its very best forage. The plan of nutrition for that animal needs to be on a steady upward incline. We have to be allocating our resources to put the right animal on the right acreage at the right time. That’s really what we’re striving to do with Paniolo Cattle Co.”
Even in such operations, Hawaii is at a disadvantage with ranchers in temperate climates, Van Tassell says.
“On this island, we grow an abundance of grass. But we’re in a subtropical area, so the types of grasses that grow here are warm-season grasses. They have a high moisture content, and cattle aren’t as efficient on that type of grass.” The difference isn’t negligible. Range-fed beef in Hawaii gain about a pound a day. In temperate grasses on the mainland they would double that. At a mainland feedlot, they would gain nearly four pounds a day.
“One advantage we do have, though,” Van Tassell says, “is our grass grows 12 months out of the year. That makes it economical, from a business point of view, so we’re able to graze these cattle here.”
But Parker Ranch’s Paniolo Cattle Co. is still in its early stages. It has only about 1,400 stockers in the grass-fed beef program, out of the ranch’s herd of about 40,000 animals. If market demand materializes, the company plans to increase that to 4,000 head or so – still only 10 percent of the total operation.
To understand why ranchers are reluctant to go all in on grass finishing, look at the numbers. Jill Andrade-Mattos, president of Hawaii Big Island Beef, sketches those numbers out from the perspective of both a rancher and a processer.
“These weaners, they come in at 400 to 550 pounds,” she says. “Then, the rancher keeps them another six months and sends them off to the mainland. So, he makes $780 to $1000 per animal in just six months. But you’ve got to hold grass-finished animals for close to a year and a half before they’re ready to go to the processor.” When the rancher does the math, the numbers don’t add up.
Jason Moniz, a state veterinarian and owner of KK Ranch, tallies the figures for a hypothetical 700-pound steer at the current price of $1.65 a pound.
“They’re making $1,155 on a grass-finished animal, if they keep it another year and a half. But, in that time, you could have raised another calf and a half. So, you can take the $780 for a calf and multiply by two and a half. That’s $1,950.” In other words, the rancher loses almost $800 of potential income on one hypothetical 700-pound steer. It’s not hard to see why grass finishing remains a hard sell for most ranchers.
That’s not to say there isn’t some reason for optimism in the grass-fed beef industry. First, the demand, while still small as a percentage of the total market, is real. Whole Foods Market sometimes pays as much as $2.00 a pound, which is more than ranchers get for calves.
There are also promising developments for processors. For example, Hawaii Big Island Beef, which runs the Hawaii Beef Slaughterhouse, has worked with partners such as Ulupono and landlord Kamehameha Schools to improve the neighboring pastures using irrigation, fertilizer and new forms of forage. The idea is that ranchers can sell their weaners to the processor for finishing. All that is critical for the state’s limited number of processors, most of which, like Hawaii Beef Slaughterhouse, are underused.
“I have fixed costs in the plant,” says Andrade-Mattos. “My refrigeration, my pumping and my well – those are all fixed costs, so, no matter what I do, those costs are there. In order to lower the cost per animal, I have to increase throughput. If I have that throughput, I can pass along more money to the ranchers.”
Technology Is Crucial to Sustainability
Closely tied to the energy challenge is the issue of technology. Most of the increases in productivity (and reductions in cost) in agriculture over the last century have been because of advancements in technology. That’s just as true in Hawaii as anywhere else.
John Cross, the land manager for Olson Trust and, before that, for the Big Five company C. Brewer, likes to chart the role technology has played here. “There’s no farmer on this earth that’s smarter at growing tropical crops than the Hawaiian farmer,” he says. “We have an agricultural college. We’re affluent. We know what we’re doing. We’re smart. We can take a crop from the 19th century and turn it into a 21st century crop within a couple of years. With the university and the Department of Agriculture and the tenacity and willpower of the Hawaiian agriculturalist, we are world leaders. The problem is that the rest of the world comes over here and copies us and takes that knowledge back to Taiwan or the Philippines or Thailand, and now we’re battling against our own knowledge being used against us in a Third-World country.”
He gives examples, such as phaelianopsis orchids, sugar cane and even macadamia nuts, for which Hawaii farmers developed the varieties of crops and methods of growing, only to be out-competed by copycat farmers in Latin America, Africa and Southeast Asia. Nevertheless, he says, technology is still our edge.
The problem is that today’s technology is often too capital intensive for Hawaii’s small farmers. It’s also often not efficient on a small scale.
Dean Okimoto, owner of Nalo Farms in Waimanalo, gives an example. “About seven years ago, I went to see the Dole Fresh processing facility in Salinas, Calif. The facility is 6 acres under roof. It has 24 wash lines, with each line producing 55 bags of greens a minute. So, how can small guys compete?”
A local example is Larry Jefts, who came to Hawaii from the mainland 40 years ago and brought some mainland economies of scale with him. With thousands of acres in production on multiple islands, his Sugarland Farms is probably the largest farm in Hawaii. Because of that scale, he can use technology like GPS-guided combines that would make no sense on the average 5-acre farm. That way, he’s able to drive down his costs and, for some crops, even compete with mainland producers on price.
But agricultural technology is about more than machinery, Jefts says. “Here, we find academics working on things important to us and we partner with them. We provide the infrastructure for their research trials, and we get to use the technology they develop.” That allows Jefts to introduce new crops or improved processes.
Jefts points to the Big Island Dairy on the Hamakua Coast as another example of capitalizing on technology. It’s another mainland company that made a big investment because it saw opportunity in Hawaii. It reportedly spent $14 million to buy the old Island Dairy and then added more investments. According to Jefts, it also built a big, modern milking barn. Each cow there has a chip implanted in its ear so sensors can track its productivity. That technology made the Hamakua operation plausible: The company realized Hawaii’s dairy cows were under-producing and thought it could do better.
Maybe you see a trend here: big mainland farmers using the advantages of technology and scale to make farming in Hawaii work. Jimmy Nakatani, executive director of the state’s Agribusiness Development Corp., gives another example: Stephen Pianowski, a mainland farmer who set up a bean operation on Kauai.
“The other farmers were skeptical,” Nakatani says. “The first question they asked him was: ‘Who’s going to pick your beans?’ And he said, ‘Don’t worry, I have machines to do that.’ ”
If Hawaii is really going to grow its agricultural base, Jefts says, it’s going to be because of people like himself – people with the capital to invest in technology and large-scale operations. “We’re not going to build that kind of agriculture with 800 small farmers,” he says. “It’s going to be commercial operations with state-of-the-art agriculture. This is not a popular position, but we have to be efficient at what we’re going to do or we’re not going to be competitive.”
Jason Van Tassell, from Parker Ranch, puts it another way: “When the general public thinks of sustainable farming, I think they see a guy out in a field hand-picking vegetables and hoeing weeds. But I think sustainability means using every bit of technology that’s out there, putting it to use to improve productivity. We’ve been around since 1845. That seems sustainable to me.”
Plenty of Land, But Not ENOUGH Farming Infrastructure
Of course, the issues of energy and technology are moot if we don’t have enough land and water to feed ourselves. But, first, what do we mean when we say “feed ourselves?” By some estimates, we import 90 percent of our food and export 80 percent of our agricultural production. How can we make a dent in those numbers?
“Step inside a Safeway and see what a supermarket really sells,” says Richard Ha. “Most of it is some sort of processed food. It’s dried or frozen, made or manufactured somewhere else. If you look at the produce department as a percentage of the entire store, it’s not very large.” Most of what’s in that supermarket will never be replaced by Hawaii products, even the basic food stuffs. No one expects that Hawaii farmers will ever produce the wheat, corn and rice that make up so much of our locally consumed calories. So, as Ha suggests, when we speak of “feeding ourselves,” what we really mean is fresh produce and a few value-added products. That’s a smaller nut to crack; we already produce relatively high percentages of the fruits and vegetables we consume here.
With that limitation, let’s ask the question again: Do we have enough land to feed ourselves? Most experts think so. Giorgio Caldarone, regional asset manager for Kamehameha Schools, the largest agricultural landholder in the state, says, “We’ve heard there’s more than enough land here to feed ourselves if we wanted to.”
Sydney Keliipuleole, operations director for the land assets division at Kamehameha, goes even further.
“I think we have enough acres just on Oahu,” he says. “People estimate it would take between 3,000 acres and 30,000 acres to do it. There’s all that state land in the central part of Oahu. If we were to replace all of that with commodity-level farms, we could get pretty close. Not including beef. Hawaii Island is the key to beef.”
The problem with much of the best land in the state, Caldarone says, isn’t quantity, it’s neglect.
“As the plantation era sort of came to a close, with the end of sugar and pineapple, large landscapes reverted back to the landowners in various states of disrepair. And, for those last 20 or 30 years, the writing was on the wall, so the plantations weren’t making investments in things like irrigation systems. By the time we got the properties back, a lot of the systems were in pretty bad shape,” says Caldarone.
Since then, Kamehameha has invested heavily in that infrastructure on Oahu. It has spent millions of dollars on the irrigation systems and roads for its properties on the North Shore and in Punaluu. It has also been investing in farmers, trying hard to identify and support people who can work all that land.
That’s not to say Kamehameha Schools is overconfident. Keliipuleole points out that a lot of the non-farm infrastructure necessary for food self-sufficiency is missing.
“That’s the processing, the value-added services, the delivery, the market connections.” All that infrastructure, he says, has to be in place before we can address the food-security question. On the whole, though, Kamehameha seems confident that its investment in agriculture will pay dividends.
Ulupono’s Kyle Datta is also confident. “Do we have enough land to feed ourselves? The answer is unequivocally ‘yes.’ Of the food we eat that is fresh food, outside of the grains and the oils that go with the grains, a significant portion can be locally grown at prices affordable to everybody.” But Datta adds a pair of provisos: “We have enough land and water to achieve that – if we use some best practices in terms of agricultural productivity, and if we honor and respect how land is zoned.”
Ulupono is focused on both those caveats. On the issue of best practices, for example, Ulupono plans to borrow grass-fed-dairy technology from New Zealand for its own dairy operation on Kauai. Similarly, it has worked with University of Texas researchers to study how to best use Hawaii’s water resources. And, as we’ve seen, it has done market studies to assess the demand for homegrown food in Hawaii, an issue important to any local farmer.
On the issue of zoning, the most famous controversies, of course, surround urban development of agricultural lands – places like Hoopili and Koa Ridge on Oahu. Advocacy groups, like the Sierra Club and the Hawaii Food Policy Council, view the loss of these important agricultural lands (a descriptive term that sometimes overlaps with the legal classification, Important Agricultural Lands) as catastrophic. Even if the agriculture system is able to weather the loss of agricultural hot spots, like Hoopili, the controversy highlights some of the inherent conflicts between agriculture and development. For example, if landowners believe they may one day be able to convert their inexpensive farmlands into valuable subdivisions, they’re unlikely to offer long-term leases to tenant farmers. Absent long-term leases, farmers are reluctant to invest in infrastructure and often unable to get loans. Many of Hawaii’s small farmers are on year-to-year, even month-to-month, leases – hardly encouraging for a young farmer.
The encroachment of development on agricultural lands creates other problems. When Ulupono tried to help revive the state’s moribund dairy industry with a startup, 583-acre, grass-fed dairy on Kauai, its Mahaulepu neighbors, including the Grand Hyatt Kauai Resort, balked at the idea. Even though the property was zoned agricultural, and most neighbors were required to get variances to build in the area, they objected to some of the nuisances of being next door to a working dairy. Ulupono relented, announcing it would reduce the initial size of the herd from 1,800 cows to fewer than 700.
The same kind of scenario has played itself out in the GMO debates and the pesticide fights. Whatever side you take in these arguments, it’s clear that farming and development don’t mix. As suburban sprawl moves people closer to agricultural areas, conflict is inevitable. So, while we may have plenty of farmland available, the people of Hawaii are less and less likely to want large-scale farming in their neighborhoods. That makes the question, “Do we have enough land?” something of a red herring.
Economics Suggests Hawaii Should Specialize
Maybe the question isn’t, “Can we feed ourselves?” but “Should we feed ourselves?”
According to modern, liberal economic theory, maybe not. As pointed out by Peter Garrod, an agricultural economist and the former vice chancellor for research at UH, individuals, companies and even countries reach their greatest efficiency when they specialize.
“Most of your readers, I suspect, are specialized. They do one thing quite well, and they use their earnings from that to buy lots of other goods. If they tried to produce everything they wanted, they probably couldn’t do everything very well.” The same is true for countries and states. The argument is quite simple: If we can buy cheaper food elsewhere, we should focus our efforts on more profitable activities.
It’s not that Garrod thinks we should give up on agriculture; we should just be realistic about our goals.
“Can we feed ourselves?” Garrod says. “If all we did was produce food for ourselves, we would be able to come close. But we would become an agrarian society. On the other hand, could we feed ourselves more than we do now? Absolutely. But even that probably involves a change in consumer values, which I think is already occurring. Buy local, fresh foods, farmers markets, grass-fed beef – these are all trends that allow us to produce more of our own food. But, what proportion of our food should we produce? Well, we’re going to have a hard time if we want wheat and rice and all those other things we enjoy eating. I don’t think we’re going to produce those here.”
Economics does suggest what kinds of agriculture, other than the obvious export crops, make the most sense in Hawaii.
“Transportation costs do make the transaction costs higher for importers,” Garrod says. “This aids local producers. If we had essentially free trade with the mainland, a lot of our local producers would have a hard time competing. We have expensive land, expensive water, expensive labor. But we don’t have free trade; we have a pretty substantial transportation cost. That gives local producers a sort of tariff protection. Goods come here with the cost of transportation added on. We don’t have to pay the transportation cost, so we can compete with that. Our products can be fresher.”
For Larry Jefts, that calculus is an explicit part of his decision on what crops to grow: If the shipping costs for mainland producers exceed the added cost of growing that product in Hawaii, it’s a potentially profitable crop. For instance, that’s why Jefts grows a lot of watermelons.
Anthony Aalto, secretary of the Sierra Club’s Oahu Group, points out there are other economic advantages to the grow local movement. For example, it allows us to capitalize on the Hawaii brand for export or for sale to tourists.
“We have the ability,” Aalto says, “to grow things that can then be processed to generate added value. If we grow cacao then we could then turn it into chocolate. And because Hawaii in and of itself is such a unique brand and has such an image attached to it, organic chocolate grown in Hawaii is instantly going to have a cachet and a brand and a value attached to it that can generate huge amount of income to bring back to the state.”
Even the food grown for local consumption has important economic impacts at home, Aalto says. “When you talk about import replacement, you’re talking about dollars that are going out to the mainland, or to Asia or somewhere, that could stay here. Every dollar spent on a food item that’s grown in Hawaii is a dollar that doesn’t go to California and it stays to boost the local economy.”
Yet, most economists believe the benefits from specialization and trade outweigh the costs.
“The basic issue,” Garrod says, “is that we could become more sustainable if we were willing to decrease our lifestyle. ‘Decrease’ is probably the wrong word, but it helps to remember that trade increases total social wealth. The more sustainable we became, the less time we would have to make money doing something else.”
Government’s Role, Though Diminished, Remains Crucial
If the idea is to increase Hawaii’s production of food, what role does government play in that process? Well, for one thing, it’s shrinking.
“Do you know what the percentage of the state budget the Department of Agriculture gets?” says Dean Okimoto. “It’s 0.7 percent – not even 1 percent. Somebody recently told me that, in the 1960s and 1970s, it was about 15 percent.” To Okimoto, this decline reflects similar changes in the Legislature.
“Did you know, in the 1960s, the majority of our legislators were farmers. So they understood agriculture and could help agriculture.” Today, Okimoto says, only one or two legislators are true farmers. “So, it’s difficult for these guys to understand the issues. And even if they do understand, if there’s a vocal minority out there, they will kowtow to the vocal minority.”
Others are more upbeat about the role of government. On the Hamakua Coast, ranchers such as Jason Moniz praise the state government for allowing ranchers to buy discounted water from the Hamakua Ditch. Starting in January, they’ll pay 25 cents per thousand gallons. That’s still higher than the 10 cents they were seeking, but it’s low enough to start using pasture irrigation in a few key areas.
John Cross, at Olsen Trust, highlights another important point about government’s role. “We have a department that’s run by one of us,” he says. “Who gets appointed to head the Department of Agriculture? It’s not a politician; it’s a farmer. The current guy, Scott Enright, used to grow guava and, before that, sugar.”
Similarly, Jimmy Nakatani, the director of the Agribusiness Development Corp., the other key agency promoting diversified agriculture in the state, is a former farmer and former chair of the state Department of Agriculture. At least, the bureaucrats are technically savvy.
That’s especially important at the ADC, which was created in 1994 to help Hawaii agriculture find its way after the demise of sugar and pineapple. Its primary mission is to acquire and manage key agricultural infrastructure – irrigation systems and high-grade lands – that were once the purview of the big plantations. Nakatani, who took over as executive director in 2011, gives a few examples of how the agency works.
“One of the first projects ADC started with was the Waiahole Ditch,” he says. This was the controversial case over the diversion of water from Windward Oahu to the big sugar plantations on the Leeward side. With the demise of Big Sugar, communities like Waiahole and Waikane wanted that water to remain on the Windward Side and flow through their valleys. Although cultural and environmental advocates prevailed in getting more water for loi and higher stream flow, Waiahole Ditch still delivers water to some of the largest farms in the state in Leeward Oahu.
“I think that went very well,” Nakatani says, “if you look at the number of jobs that are there because the ditch is there. I always look at it as 1,500 to 2,000 jobs, or $150 million worth of business for the state. It doesn’t seem like that because it’s kind of an innocent-looking ditch – plus an amazing tunnel – running from one side of the island to another. But it services the prison. It services Mililani mortuary. It services Mililani Golf Course. And, of course, it services a lot of farms. I’m not sure how many farms, but it includes Larry Jefts and Aloun Farms, of course Monsanto and Syngenta, and then there are a lot of small farms at Mililani Agricultural Park. It’s quite an amazing system.”
ADC also oversees a large and somewhat controversial project on Kauai. “In Kekaha,” Nakatani says, “in the Mana plains, we’ve got approximately 4,000 to 5,000 acres of good land. Most of the land is currently occupied by the seed corn companies, who came in and took care of the infrastructure. We got criticism for that, but you have to have transition. You have to have resources to help you.”
Now, a couple of large vegetable farms have subleased land from the seed-corn companies. It’s a symbiotic relationship, Nakatani says. Because of the way seed corn is grown, with extensive buffer zones and long fallow periods, as much as 80 percent of the Kekaha land is unused at any given time. Nakatani hopes to eventually see 500 or 1,000 acres of diversified agriculture there on the Mana plains.
A Model for the Future
The jewel in the ADC crown is probably the Whitmore Project in Central Oahu. Like many plantation towns, Wahiawa went through a precipitous economic decline when the Dole Plantation closed in 1991. The Whitmore Project, the dream child of state Sen. Donovan Dela Cruz, is an ambitious attempt to take the old, derelict pieces of the pineapple era and use them to create a thriving diversified-agricultural hub. It’s had a promising start.
At the core of the Whitmore Project is the 1,700-acre Galbraith Estate, which was purchased in 2012 with funds from the state, the City and County of Honolulu, the U.S. Army, the Office of Hawaiian Affairs and D.R. Horton Schuler Division. This acquisition gave the ADC 1,200 acres of long-fallow land (OHA received the other 500), which it has already begun to clear and lease to farmers. ADC is also planning and developing the necessary irrigation systems.
The Whitmore Project isn’t just another way for the state to lease agricultural lands. The state also authorized the purchase of an additional 24-acre parcel to serve as an “Ag-Tech” hub, as well as an old industrial warehouse in downtown Wahiawa to be used for packing and processing. In addition, ADC has partnered with the Hawaii Housing Finance Development Corp. to acquire a small parcel of urban land near Schofield Barracks. Dela Cruz envisions this property, adjacent to the area’s only high-rise, as the site of high-density workforce housing. There’s more in the works, including the imminent purchase of 20,000 acres from Dole Food for $175 million.
All these acquisitions surround downtown Wahiawa and Whitmore Village, the former plantation town across the gulch. Dela Cruz believes that, by clustering all these agricultural services, ADC can create the right environment for diversified agriculture to thrive. It certainly seems to solve many of the most persistent problems for farmers: short-term leases, distance from market, access to processing and packing, even capital.
Dela Cruz cites the example of Ho Farms. “They have 50 acres, more or less, in Kahuku, and they were selling their produce to Costco. But, when Costco started to implement new food-safety rules, almost overnight 80 percent of their production was lost. But, because they’re on a short-term lease at Kahuku, they cannot get a loan to build a food safety facility. As part of the Whitmore Project, though, they can get a long-term lease from ADC.” That gives them land, access to capital and proximity to their major markets.
Shin Ho of Ho Farms and state Sen. Donovan Dela Cruz stand in an old warehouse outside Wahiawa that Ho Farms plans to renovate into a food-safety facility. Dela Cruz hopes the Whitmore Project can convert the remains of Wahiawa’s pineapple plantations into the infrastructure for a diversified agriculture center.
The Ho family is also leasing an old warehouse in the Ag-Tech Hub and refurbishing it as a modern food-safety facility. This project will likely cost more than $1 million, which the Hos will fund using rent credits from ADC. In other words, their rent is reduced for a certain time to help defray the cost of the build-out.
The beauty of this approach, Dela Cruz says, is there are no out-of-pocket costs to ADC. “By using rent/lease credits, ADC doesn’t have to subsidize anything.” In fact, ADC has a comparatively small operating budget, generating most of its own income from rents and fees. (Acquisitions, though, are usually paid for with state capital spending or general-purpose bonds.)
The most remarkable feature of the Whitmore Project is that so much of it has either already happened, or the funds have already been appropriated. That’s largely due to Dela Cruz’s work, both as a state senator and, before that, as a city councilman.
Aware of the politics involved, Dela Cruz has scrupulously cultivated partnerships with the agencies and people that can impact the project’s success. He has conducted over 70 site visits and tours for the board members and key leaders of these organizations – not to mention press tours and community outreach. Now, each of these organizations has a role to play in the Whitmore Project: The Hawaii Public Housing Authority and HHFDC will help with workforce housing; the Department of Education will help with workforce readiness; the UH College of Tropical Agriculture and Human Resources will help with research and development and extension services; the High Technology Development Corp. will help with food-safety applications. At least 12 agencies have a stake in the project’s success.
In short, building a diversified agriculture hub takes a lot of footwork and coordination.
Not everyone is happy, of course. ADC director Jimmy Nakatani says some people have complained that the ADC favors larger farms, which don’t need the help as much as the small ones.
“When somebody asks, ‘What about the new farmers?’ I say, ‘New farmers are the responsibility of the Department of Agriculture.’ That’s just the way it goes. ADC is about development. I don’t want anybody who doesn’t have any experience, because the likelihood of them succeeding is not very good.”
Some farmers have also complained the project is too focused on one area. But Dela Cruz views the Whitmore Project as a template for other regions to apply according to their own circumstances. Nakatani agrees. “If you look at Wailua (on Oahu’s North Shore), there’s an industrial area; there’s agricultural land surrounding it. And it’s probably better off than Whitmore because Wailua was sugar, so it had better irrigation.”
“I can also see it in Pahala, on the Big Island,” he says. “It’s far away from anything. In fact, that’s even a better template. There is infrastructure over there. There’s development with agricultural land surrounding it. There’s a hub for marshaling, so if you have to go sell your produce to Hilo, you just load up in one central area and one guy makes the run, not 20 of them.”
Of course, what these communities need might not be more agricultural resources, but a resourceful and energetic politician like Dela Cruz.
If all of these elements – energy, technology, coordination and more – come together, they probably won’t be enough to make Hawaii completely self-sufficient in food – something we haven’t seen since the days of the Hawaiian kingdom. But that doesn’t mean we can’t rejigger the system to make local farming more productive and enable it to grab a bigger share of locally eaten fruit, vegetables and other foods. Sometimes, that may mean building a Whitmore Project or farmers coming together in a cooperative. It could be an organization like Ulupono or Kamehameha Schools absorbing some of the costs of research or infrastructure. Ultimately, whatever it is, it has to make farming more profitable if we’re going to grow significantly more food in Hawaii.
“That’s something I learned a long time ago,” Richard Ha likes to say. “Food security has to do with farming. If the farmers can make money, farmers will farm.”
For centuries, people around the world knew that chewing on the bark of certain willow trees could ease the pain of a toothache or a migraine. By the mid-19th century, scientists in France and Germany had isolated the chemical, salicylic acid, responsible for willow bark’s analgesic and anti-inflammatory qualities, but it proved too harsh on the stomach to be of real medicinal value. Then, in 1897, a German chemist named Felix Hoffmann synthesized a purer, less irritating form of the natural compound. This new chemical, acetylsalicylic acid – better known as aspirin – became the best-selling drug of all time and is still the foundation of the multibillion-dollar corporation we now know as BayerAG. In a modest way, a similar story may be under way in Hawaii.
Twelve years ago, scientists at Cardax, a small biotech company nestled in the Manoa Innovation Center, synthesized a form of astaxanthin, a naturally occurring chemical found in shellfish and micro-algae and, like aspirin, a powerful anti-inflammatory. The natural form of astaxanthin is already a well-known dietary supplement – sometimes called a nutraceutical – believed by many to reduce the threat of heart disease. Kona-based Cyanotech, for instance, is a major manufacturer. But CDX085 – the latest in a suite of similar Cardax-patented compounds – is so much purer and more potent than natural astaxanthin, and the number of potential uses so much larger, that Cardax’s team believes it may become the next billion-dollar drug. They could be right.
Despite all this promise, Cardax’s path to success has been long and complicated and is far from over. Like so many startups in the life sciences in recent years, Cardax has been in a life-or-death struggle to find enough money to continue to operate. For the company to follow the traditional developmental route for startup drug companies, investors may have to pony up more than $100 million to conduct the expensive Phase-2 and Phase-3 clinical trials necessary for FDA approval of a pharmaceutical drug. So there are still many hurdles for Cardax.
But, last April, the German pharmaceutical giant BASF finally exercised a longstanding option to become the exclusive licensee of Cardax’s nutraceutical. Then, in October, Cardax announced it would use an arcane device called a reverse merger to go public. That succeeded in attracting millions of dollars in new investment for the company, setting in motion a plan to have a still unnamed nutraceutical product on the market by the end of 2014. So the company may finally have turned the corner.
All of which makes the ongoing saga of Cardax and its promising family of anti-inflammatory compounds a good introduction to the current state of biotechnology, venture capital and the evolving world of drug discovery.
To make sense of the Cardax story, you have to understand a little about inflammation. Almost all chronic diseases are inflammatory, including heart disease, osteoarthritis, diabetes and even some cancers. But inflammation itself isn’t a disease. It’s the body’s natural response to heal damaged tissue and defend against unknown pathogens. The redness and swelling associated with an infected cut or a case of strep throat is just the body’s attempt to isolate that infection and promote healing. In a tip of the hat to Celsus, the Roman encyclopedist, medical science still characterizes inflammation by the four cardinal signs: tumor, rubor, calor and dolor –swelling, redness, heat and pain. (The Greek physician Galen, no poet, added a fifth characteristic: “functio laesa” or loss of function.)
Inflammation may cause discomfort, but it’s an essential function of our immune system. There are two kinds of inflammation, though. Acute inflammation, despite the name, is the normal swelling and pain associated with minor infections. Physiologically, though, it’s astonishingly complex. When tissue cells are damaged, they release histamines and other chemical signals that mediate the body’s inflammatory response. This causes cytokines, small proteins in the bloodstream, to induce a dilation of the veins, bringing more blood to the injury. That makes an infected cut turn red. The dilated veins also become more porous, which allows plasma to leak through the vascular walls into the surrounding tissue. That causes swelling. Along with the plasma comes a flood of cells from the immune system called leukocytes, including bacteriophages that directly ingest bacteria, and enzymes that attack the structure of the pathogen. As the infection or injury abates, the body returns to normal. This type of acute inflammation is typically brief and effective.
But the inflammation associated with chronic disease is a different story. Rather than stem from a specific event, like a wound, chronic inflammation appears to be the result of the low-grade irritation of whole bodily systems, such as the cardiovascular system in the case of heart disease or the respiratory system in the case of asthma. Similarly, chronic inflammation isn’t a reaction to a specific pathogen; rather, it seems to arise from more or less permanent stimuli, such as smoking or chemicals in the environment. That may be why diseases associated with chronic inflammation are so much more prevalent today than in the past.
Modern medicine has done a good job dealing with the infections and communicable diseases that used to be the primary causes of death. In 1850, the life expectancy of an American at birth was only 38 years – largely because of the high level of infant mortality associated with childhood diseases. But, because of the advent of antibiotics and vaccinations in the 20th century, the average life expectancy today is over 74 years. As we’ve begun to live longer, though, chronic diseases have overtaken infections as the leading causes of death.
It’s unclear though, whether inflammation is a cause or an effect of chronic disease. “That depends,” says Deepak Bhatt, executive director of cardiovascular programs at Brigham and Women’s Hospital in Boston and a member of Cardax’s scientific advisory board. “For arthritis, I think it’s largely the cause of disease, because inflammation in the joints can cause pain, damage or even disfigurement in the joint space. In that case, an anti-inflammatory drug would be expected to directly influence the disease process. In cardiovascular disease, it’s a little less clear, but I think the majority of cardiovascular experts think there’s a causal relationship between inflammation and the disease, as opposed to inflammation being some kind of ‘innocent by-stander’ effect.
“My own feeling is it’s probably a little of both. There are cases where smoking or high cholesterol, for example, can damage the inner lining of the arteries – what we call the endothelium. That can certainly lead to inflammation in the arteries and the accumulation of plaque, which can cause heart attacks. But there are also people who are exposed to all those risk factors but exhibit no signs of inflammation or cardiovascular disease. So, sometimes inflammation may be the result of cardiovascular disease, and there are cases where inflammation is the primary bad actor.”
At the cellular level, chronic inflammation is the result of something called “oxidative stress,” the buildup of an excess of molecules called “reactive oxygen species.” These so- called “free radicals” are a normal product of the metabolism of cells. “Under healthy conditions, the body has ways to deal with free radicals,” says Cardax CEO David Watumull. “Some reactive oxygen species are even used by the immune system to attack and kill pathogens. But with chronic disease, an excess of free radicals begins to cause inflammation and, ultimately, cellular damage.”
This is what’s now thought to happen in athereosclerosis, a common form of cardiovascular disease. Oxidative stress causes inflammation of the cells lining the arteries, which induces the buildup of plaque. It’s plaque that causes heart attacks and strokes. Antioxidants like astaxanthin appear to provide a vehicle to remove free radicals from the cell, although the use of antioxidants to prevent disease is still controversial.
What makes Cardax’s compounds differ from other antioxidants is how efficiently they work. In highly magnified X-ray diffraction images of cell membranes, it’s possible to compare the antioxidant activity of Cardax’s compound with other antioxidants. In a 2007 paper in the journal Biochimica et Biophysica Acta, scientists reported that they found that, while other antioxidants damage the integrity of the membrane, or provide only a partial membrane spanning, CDX085 bridges the cell membrane completely, dramatically reducing the number of free radicals inside the cell. Just as important, CDX085 appears to be incorporated in the mitochondrial membrane, the most important site for free-radical production in the cell.
This might explain the unusual effectiveness of the Cardax compounds in animal studies. Although there are plenty of anti-inflammatory drugs available today, including some of the most profitable pharmaceuticals on the market, most of these compounds can be surprisingly toxic, especially when taken in high doses or for long periods of time, as is usual for chronic disease. That’s why the TV ads for pharmaceuticals, even blockbuster drugs like Lipitor or Viagra, can be so scary. On the other hand, in pre-clinical tests, the Cardax compounds appear to have had no side effects. In the industry lingo, they’ve shown “no known dose toxicity.” If that holds true in clinical trials on humans – and, given the long history of astaxanthin as a nutraceutical, there’s no reason to think it won’t – this new class of anti-inflammatory drugs could treat a wide range of diseases. That’s part of whyCardax looks so promising.
Then, of course, there’s the size of the potential market for Cardax compounds. CDX085 was patented as a treatment of cardiovascular disease – specifically, it reduces the level of triglycerides in the bloodstream, a precursor to heart disease – but CDX085’s sister compounds have been tweaked to treat osteoarthritis, diabetes, cognitive decline and other inflammatory diseases. These are all enormous markets. For example, in 2013, the pharmaceutical giant AbbVie (formerly Abbott Laboratories) sold more than $10 billion of Humira, a popular anti-inflammatory that originally targeted rheumatoid arthritis.
There’s also the nutraceutical market, which includes unregulated products like vitamins, enzymes and herbal remedies that are mostly sold over the counter. Nutraceuticals have some restrictions. Because they lack FDA approval, only limited claims can be made about their uses and efficacy. This makes them less lucrative than pharmaceuticals, which can make specific therapeutic claims. As Watumull points out, “If the FDA allows you to put ‘for pain associated with osteoarthritis,’ your market penetration will go way up.”
Nutraceuticals don’t have that option. But that doesn’t mean nutraceuticals are small potatoes, especially if they have a history of safe usage. “As a dietary supplement,” Watumull says, “we think the best comparison for Cardax is chondroitin/glucosamine, a nutraceutical commonly used to treat osteoarthritis. It’s marginally efficacious at best, but it still sells about $2 billion a year, because it’s safe. So, you have these enormous markets out there for safe anti-inflammatory drugs.”
As a pharmaceutical, he says, the numbers for the Cardax compounds are even more eye-opening. “We asked the members of our scientific advisory board, a panel of unpaid medical experts who serve as independent third-party advisors, ‘What percentage of your patients do you estimate would take this drug?’ We thought that something like 10 percent would be great; the smallest number anyone gave us was 90 percent. They told us, ‘You don’t understand how desperate we are for a safe, effective treatment.’ So, if you’re asking, ‘Who is the market for our compound?’ the answer is: Anybody who has an inflammatory problem.”
The question is: If Cardax is such a good bet, why aren’t they already a big success? The answer, as always, is money.
It’s expensive to be a biotech company. If you’re developing a new drug, those costs can stop a company in its track. For example, the natural next step for Cardax would be to subject its compounds to human clinical trials. But Phase-2 clinical trials, usually conducted on just a couple of hundred individuals, can cost as much as $20 million. Phase-3 trials, which can involve thousands of individuals, can bring those costs to more than $100 million.
“Big Pharma,” the giant pharmaceutical companies that have dominated drug development for the last hundred years, will often buy or invest in companies with promising Phase-3 drugs. The Phase-2 part of drug development, though, has traditionally been funded by venture capital, and the VC world is in flux.
“They just aren’t funding life sciences anymore,” Watumull says. “They used to fund pre-clinical trial companies and take them through clinical trials, but they stopped doing that about five years ago to any meaningful extent.” In part, he says, it’s because of the risk. But it’s also because of changes in their own incentives as VC funds have grown.
“Back in the 1980s and 1990s,” Watumull says, “the largest funds raised like $200 million. If you’re a VC, you collect 2 percent of that as your annual fee. That’s just $4 million a year for expenses.” Divvied up among all the fund partners, that’s not a lot of profit for such a risky investment. Thus, to get the high rate of return that investors and the VCs themselves expected, they had to gamble on early-stage companies. That used to be the essence of the VC model: If you invested in 10 startups, five would fail, three would break even or make a modest profit, but one or two would be home runs and generate the 15X or 20X yields that made venture-capital investment viable. It was a numbers game.
“But, if you have $4 billion under management,” Watumull says, “that 2 percent management fee is now $80 million a year. That’s without doing anything. So now, VCs are less interested in investing in small, early-stage companies like Cardax. Why take the risk? Most of the companies they invest in today are Phase-3 deals.”
Watumull doesn’t think this is sustainable. The VC model depends on the high returns provided by those high-risk startups. If you remove the riskiest investments, you also remove most of the reward, and the returns on the less risky investments just don’t justify the risk. He explains it this way: “A 7 percent upside for a successful company, against a 100 percent downside for a company that fails – that doesn’t work. The amount of risk the VCs perceived was just wrong. If you wait until a company’s in Phase-3 trials to invest, you have to put up at least $100 million, so there’s no way you can make 10 times or 20 times on that Phase-3 company. But you can still lose 100 percent of your investment.”
Watumull says this miscalculation is reflected in the recent financial performance of the major venture-capital funds. “Their returns have been mediocre at best over the past five years. That means VCs also haven’t been able to raise as much money. Now, it’s all going to private equity capital.”
Nevertheless, Cardax tried to get VC funding. Like executives at most promising startups, Watumull and his team traveled around the country, making pitches to dozens of VC firms. Cardax even had some success, attracting interest from Ivor Royce, an icon in the VC world whose own life science companies, Hybritech (bought by Eli Lilly and Co.) and especially IDEC (merged with Biogen), more or less created the San Diego biotech community, one of the largest in the country. But the VC model had already begun its decline.
“He really wanted to do a deal with us,” Watumull says. “He even gave us a term sheet, but he was unable to raise money for another VC fund. Here’s a guy who’d made literally hundreds and hundreds of millions of dollars in biotech, but he was unable to do it. That was two years of our time that we spent going in the direction that he wanted to go, but it didn’t lead to anything. That was very discouraging.”
Cardax is far from alone in its VC woes. In fact, it’s become a kind of parlor game among biotech company executives to try to explain the flaws and failures of the VC model. And, although there are signs of improvement, VC money remains tight.
Watumull cites Bill Hambrecht, the billionaire founder of Hambrecht & Quist, the investment bank that underwrote the IPOs of Apple Computer, Genentech, Adobe and Amazon: “I was at a meeting in New York where he gave the keynote speech, and he said, ‘If you’re a biotech company today and you are not already VC funded, the probability of you getting VC funding now is probably almost zero.’ ” That means biotech companies like Cardax aregoing to have to come up with a new mechanism to bring their drugs to market.
Historically, the exit strategy for most biotechs has been Big Pharma. A company like Cardax will come up with a good product, VCs will fund its early development, then a giant pharmaceutical company like Merck, Pfizer or GlaxoSmithKline will either buy the company outright or license its technology. Even when biotech companies go public, as more than 30 did last year, they tend to partner with one of the Big Pharma companies to market their product. So, Big Pharma has always been the ultimate cash cow for emerging biotechs.
But the view is different from Big Pharma’s perspective. The centerpiece of drug development for these big companies used to be their enormous research and development departments. Some of the larger companies employed tens of thousands of chemists, doctors and engineers in R&D, and for decades, these departments churned out incredibly successful drugs. Right up through the 1990s, Big Pharma was one of the most profitable industries in the country.
In the last decade or so, though, all that began to change. The R&D departments became increasingly bureaucratic and slow to develop new ideas; promising drugs that the companies invested hundreds of millions of dollars in failed in clinical trials; and, while the pipeline for new products became weaker and weaker, the patents on some of their most profitable drugs began to expire. Something had to change.
Many people, including Cardax’s David Watumull, blame Big Pharma’s woes on something called “targeted drug development.” Instead of developing drugs from promising compounds that already exist in nature – salicylic acid, astaxanthin, curare, etc. – targeted drug development looks at the molecular pathway of a disease or a medical condition, and uses sophisticated technology to invent artificial compounds that interfere with or enhance that pathway. For example, cholesterol is produced through the regular metabolic activity of certain cells in the liver. An enzyme called HMG-CoA reductase regulates the rate of cholesterol production by binding to specific receptors on the membranes of these liver cells. Lipitor, a popular statin used to reduce blood cholesterol, works by binding to that same cellular receptor, preventing the HMG-CoA enzyme from binding there and stimulating more cholesterol production.
In other words, instead of looking at the whole animal, targeted drug development focuses on the structures of single enzymes or proteins. The idea is to create small organic molecules that either stimulate or inhibit the function of the large biological molecules in some metabolic pathway. It’s all about understanding the architecture of these molecules.
Targeted drug development has been wildly successful in helping us understand how disease works at the cellular and molecular level. And, because it relies on sophisticated tools, like computer modeling and high-throughput screening techniques, this approach has also industrialized the drug-discovery process, making it faster and more efficient. But critics say targeted drug development has a fatal flaw: Because it’s focused so narrowly on a single gene or a single target on a specific protein, it fails to account for how a new drug will interact with the whole body or with other systems in the body.
The result, Watumull says, is an inevitable rash of side effects. “For chronic diseases, like osteoarthritis, you need systemic answers, systemic solutions.” That used to be a controversial opinion, but it’s increasingly common in the biotech world.
“Scientifically, targeted drug discovery is very elegant,” says Deepak Bhatt. “And it makes sense in an intuitive way. But ultimately, it may not be highest yielding approach to drug development anymore.”
Like Watumull, Bhatt thinks we don’t know enough about how drugs work in the body. “We do have a fairly refined understanding of the role some receptors play in the development of certain diseases. What we don’t have is a refined view of what targeting that particular receptor will do to the whole system. The problem is, by antagonizing one system, there might be counter-balancing effects in another system or a couple of other systems.” While Bhatt acknowledges that targeted drug design has produced important advances in the treatment and diagnosis of some diseases – notably for rare and genetic disorders – he basically agrees with Watumull: targeted drug design has hit a wall.
“The pattern of drug discovery that’s evolved over the past 10 to 15 years or so,” he says, “may no longer be that productive. There aren’t as many blockbuster discoveries as there once were. So, maybe the approach that Cardax is espousing is a good one. If compounds like astaxanthin already exist in nature, if they’re durable and there’s an evolutionary reason to conserve them, that could be an appealing way to screen for different drug therapies. Certainly, that type of compound might have real appeal to patients. Patients love the idea of natural treatments.”
Nevertheless, targeted development is still the dominant paradigm of drug discovery for Big Pharma. And that spills over into the VC world, where investors want to make sure the product they’re selling is attractive to the pharmaceutical companies that must ultimately buy it.
“These guys do tend to all run after the same stuff,” said former Cardax chief medical officer Fred Pashkow, not long before he died. “VCs get enamored with the same kinds of sexy science that Big Pharma does – things like RNA interference, which affects genomic translation, or personalized medicine. They’ve poured a ton of money into the genomics thing that really didn’t turn into any new drugs. There’s been a lot of chasing after big science projects in the VC world. In my judgment, the VC model has not been working for years.”
At Big Pharma companies, the response to the laggard pace of drug development has been to slash their own R&D departments. In the last five years, the industry has laid off more than 100,000 of the chemists, bio-engineers and medical doctors that it takes to run a modern drug-research program. Instead, Big Pharma is betting it can do better by buying companies that already have promising drugs in the pipeline. But, like the VC community, Big Pharma is mostly interested in products far down the development road. In effect, they’ve decided to pay more for their new drugs, but shift the risk of R&D to the small biotech companies.
Deepak Bhatt points out that this has major implications for how drugs are developed. “I think, in some respects, this is good for small companies like Cardax,” he says, “because it creates an opportunity that really wasn’t there before. That’s a plus. But these small companies now also have to take things a lot further than they had to in the past. In the past, many times they would just do very basic work on a compound, and Big Pharma would take over the R&D. Now, those larger companies really want data from further along in the research continuum before they decide to invest in a compound. For small companies, that requires you to have a different set of skills. You have to be able to build things.”
That’s the convoluted Catch-22 Cardax is in. It needs investors to pay for clinical trials, but it needs clinical trials to attract Big Pharma investment. It has what it feels is a low-risk product, but it still doesn’t match Big Pharma’s risk profile.
One Big Pharma executive, speaking on background, tried to explain why a company like Cardax still looks risky to Big Pharma: “You can’t always tell if a product is going to take off or not. It’s not simply a matter of being ‘first to market.’ Being first sometimes just means that your R&D costs are tremendous. While you’re blazing a trail through the regulatory and approval process, the FDA may get worried and say, ‘Increase the size of your study.’ If it’s a new target, they don’t know what the risks are, so they may make you the guinea pig. But a company that’s second or third or fourth to the market already knows the approval path. They can say, ‘We don’t have to do it the way Pfizer did it or the way Merck did. If the FDA made them start over and use a bigger study group, we can just start out that way.’ Similarly, if the bigger study group turned out not to be necessary, the FDA may not require it for the new company. That means their costs can be lower. For example, if you look at the statin market, Lipitor wasn’t first to the market; it was like fifth or sixth.”
But Watumull sees the risk/reward equation differently. “We’ve done a significant amount of animal studies that give us confidence that the clinical studies will be successful,” he says. “With target-based drug study, the risk is much higher. But the active drug in our compound is the same as in astaxanthin, so the probability of success is much higher than if the drug was coming in de novo. Certainly, using one or another of our compounds with animals, the efficacy has been very strong. That’s what gives everybody here confidence. But you don’t go from theory to human clinical trials without money, and the last few years it’s certainly been challenging finding enough capital coming in. That’s the main thing.”