David Hale: How The Journey To Entrepreneurial Biotech Begins

By Wayne Koberstein, Executive Editor, Life Science Leader
Follow Me On Twitter @WayneKoberstein

Industry Explorers Blaze On: A series of stories of longtime leaders, still active in the industry, sharing their historical perspectives on life sciences industry innovation.

A consuming interest, plus a yearning for independence — that’s how the journey to entrepreneurial biotech begins. David Hale had been thoroughly ensconced in traditional pharma when a particular assignment awakened a new passion in him.

It was for a new technology already used in Becton Dickinson (BD), his company at the time, for laboratory experiments: monoclonal antibodies (mAbs). But neither BD nor any other company had taken the platform any further, and Hale saw a vast potential for it, starting with human diagnostics. Still, so far he had done quite well on the management track of J&J and BD. And in his position as head of a BD division, he had sworn off answering calls from recruiters.Then the phone rang. Hale’s assistant was out of the office, so he picked up the phone on impulse. In a confluence of chance and curiosity, Hale’s fate was thus sealed. The call set him on a path that would lead him from the comfortable executive suites of New Jersey to a trailer-office start-up in sunny San Diego.

Since that time, David Hale has become an icon of the entrepreneurial business known mainly as biotech, having helped create the industry’s start-up model. He not only made the transition from Big Pharma to little biotech decades before the current wave of converts, but also affected the very definition of the model he embraced. From his initial start-up experience at the first San Diego biotech company, Hybritech, to the some halfdozen companies he is now involved with as an executive or board member, Hale has been in the thick of the sunglazed industry with its roots on the coast of California. Like William Comer, featured last month in our initial Industry Explorers Blaze On, Hale sees risk-taking as an essential element in innovation, and luck as well — the kind of luck that led him to take that fateful phone call.

Changing Coasts
By the time Hale took the call, he had already seen the traditional pharma industry practically turn itself upside down searching for new blockbusters. The Orphan Drug Act was relatively new, and companies used it pretty much as it was intended — to develop drugs for well-identified orphan conditions that promised little in market return. Every company wanted the next Tagamet or Motrin, then prescription drugs that drove massive scrip-writing pushed along by direct-to-consumer advertising. If that meant a mad rush to buy and absorb whole companies — many of them historical bastions of then Big Pharma — so be it.

The survivors, the few companies left once the most vulnerable assets were gone, then struggled for many years with integrating what they had absorbed, pumping money into R&D and sales despite a steady decline in their return on investment. Meanwhile, the now mega-sized companies continued to act according to their previous tradition: slowly, carefully, and with a core aversion to risk. Shunning the wild-eyed experiments of the long-haired professors out West, the pharma establishment forfeited much of the new science and many of the new technologies that would prove most innovative in the decades to come. The golden example was monoclonal antibodies.

“I had a great career at Johnson & Johnson,” says Hale. “I had great opportunities to be involved in a number of aspects in commercialization and pharmaceutical products there. Then I went down to Becton Dickinson to run a division that was primarily microbiology diagnostic products, where I got very interested in monoclonal antibodies.” His interest was not purely academic, however. “I had a strong feeling monoclonal antibodies were going to revolutionize diagnostics.”

Immediately out of college with a degree in biology and chemistry and an enduring interest in science, Hale first pursued a detailing job in pharma, but his lack of sales experience, and his singlehood, stood in the way. This was the early 1970s, and pharma reps were expected to be solid family men, as well as professionals with established careers and advanced degrees, often in pharmacy. Hale found it easier to land a job selling industrial chemicals, where he developed a unique technique for persuading reluctant production managers to test and ultimately convert to his products.

"Developing any new technology is going to take a long time. It’s not for the faint of heart."

David Hale
CEO of Hale BioPharma Ventures, LLC

“I convinced some production managers to let me come in on a Friday evening, clean out their tanks, and do a production run on Saturday substituting the chemicals I wanted to sell them. Of course, the deal was, if my chemicals didn’t work better than the old ones, I would have to reclean the tanks before production restarted on Monday. But if they did work as I promised, I left the line as is, and production resumed with the new chemicals and an order for continuing supply. Although I spent many weekends inside empty chemical tanks, I ended up converting a lot of customers to our chemicals.”

He was pleased with how things were going — management was noticing his sales performance and his commissions were growing. But after someone he knew, a production manager at a customer’s plant, fell into a filled chemical tank and suffered severe burns, Hale decided to make another run at pharma. An interview at J&J’s Ortho pharmaceutical division in 1971 led to training in New Orleans, followed by a sales job in Jackson, MS, with the entire state as his territory.

Soon, Hale brokered a deal with a large statewide clinic that resulted in the largest clinic order Ortho had ever experienced. As the news of his coup spread throughout the company, it reached the attention of management in the New Jersey headquarters, and a subsequent promotion returned him to New Orleans, where he had trained only a year before, for a new job as a sales trainer.

“I was about 24 at the time and now training people who were significantly older than me.” Nine months later, a marketing executive came to work with him in his territory and then offered Hale a product manager position back in the New Jersey office. Still single, Hale packed everything he owned into his car and drove there. He was the first single person in the company promoted from field management to such a position.

Hale immediately engaged the office politics of the time. On his first day, his to-be manager resigned. “It then became my objective to make sure the company would not feel the need to replace this person. I worked 12 to 16 hours a day, every weekend, and sometimes even more, and was able to cover all the bases and do things my way without a new direct manager over my head.”

Hale had also realized that no one ever rose very high in the Ortho organization without working for a time in sales management. That opportunity came along a few years later when he was promoted to head sales in the area around Pittsburgh, where, at the time, Ortho had the lowest market share of any division in the country. He put together and executed a plan that increased the share significantly and, a mere 10 months later, returned to New Jersey with a promotion to direct the marketing of Ortho’s main product line.

Two years later, Hale took over as director of marketing for Ortho’s dermatology division, where he was made certain promises if the unit hit certain profit and revenue goals. But, perhaps because the company never expected the goals to be met, he says, the promises were not kept when they were. He began to look around.

A recruiter led him to a contact at Becton Dickinson, who Hale also happened to encounter and meet with during an industry conference. Their conversation resulted in Hale’s decision to leave J&J and move to a BD division in Maryland to be VP of sales and marketing in the BBL Microbiology Systems division.

In 1981, Becton Dickinson asked all of its divisions to evaluate possible new applications for monoclonal antibodies. Hale’s unit submitted a report saying mAbs would be the key technology in future diagnostics and urging the company to make a major commitment to them. “We said we can be a real leader, because Becton Dickinson already had a position in monoclonal antibodies as research tools.” The plea was in vain, as it turned out. “BD determined there were characteristics of monoclonal antibodies that weren’t suited for diagnostics and decided not to pursue them in a significant product development,” Hale says. Soon thereafter, one afternoon, his phone rang. “I got a call from a headhunter about Hybritech, this tiny little company out in San Diego that was applying monoclonal antibodies in diagnostics. I told him I wasn’t interested, but he had a unique approach. He asked me, ‘How’s the weather there?’ And I said, ‘Well, it’s sleeting and snowing.’ He said, ‘I’m standing on the beach in San Diego, and it’s 75 degrees and sunny and beautiful. Wouldn’t you and your wife like to come out on a vacation, and you can just spend a couple of hours at Hybritech?’ I agreed to come out and visit with them, and I saw them doing things with monoclonal antibodies that BD had said couldn’t be done. There was proof right there on the laboratory bench that they worked in assays, and so that was what won me over.”By this time, Hale was not only married but the father of three children all under five. A move to California would be more than an adventure; it would be disruption, in all senses of the word. But the move it would be. His first visit to the company proved decisive. Telling his wife about the visit later, he avoided describing Hybritech’s temporary headquarters, a trailer in a parking lot, or its use of rented lab space while its new facilities were under construction, and simply shared his excitement about the opportunities he saw. In the end, he made a move that hinged on a somewhat random phone call and the simple urge to be where the action is. Hale joined Hybritech initially as vice president of marketing and business development and later became president and then CEO.

“My friends thought I was absolutely crazy, and probably in retrospect I was, but I was convinced of the potential for monoclonal antibodies, and monoclonal antibodies became exactly what I thought they would be — the cornerstone of diagnostics and eventually therapeutics.”

Hale says two people in particular had a “very significant influence” on his decision to join Hybritech — Howard Greene, president at the time and later chairman, and Thomas Adams, chief technical officer, head of R&D, who had come to the company from DuPont Laboratories. But a big turning point was a dinner with Thomas Perkins and Brook Byers, founders of the venture capital group Kleiner Perkins Caufield & Byers and the initial investors in Hybritech. “In all of my business career, that was the most intense business dinner I ever had. It was like being interrogated, and I thought at the end of the evening, ‘No way am I going to get this job, even if I want it!’ It turns out I did a little better than I expected.”

He was part of a management team that surprised the world and helped jumpstart an entirely new industry in new territories, geographic and business, where no one expected it to happen. Making history, Hybritech became a leader in the mAb space, a David challenging the diagnostics Goliath, Abbott, and was acquired by Eli Lilly in 1986.

TAKING IT BACK — OR FORTH?
The sale presented Hale with another hard choice: Should he now return to the once-familiar fold of Big Pharma or remain in the small-company world on the West Coast? The decision was all the harder because it was too easy; in other words, J&J wanted him back, and the big company had made an offer that was obviously too attractive to turn down. So of course he would take it.

“I went back east to talk with Bob Wilson, who would become J&J’s vice chairman, as well as Jim Burke, chairman, and Dave Claire, president, and they wanted me to come back and run Ortho’s diagnostics business,” Hale recalls. “They convinced me I should return to J&J, and I felt committed. But when I had returned to San Diego, enjoying the weather that evening, I told my wife, ‘I’m just not sure I’m cut out to be in a big company any more. I really like having the opportunity to work in a small-company environment. We essentially talked about it all night and the next morning, and I spent another day thinking it over, then I called J&J and said I’m not going to come.”

Hale took immediate action on his decision, getting involved in two small companies, Gensia, which was in preclinical development of its lead cardiovascular drug, and start-up Viagene, then setting out to develop a gene therapy for HIV. “I really liked being in an entrepreneurial start-up environment where decisions could be made quickly, where the decision process involved only a few people and not a small army, where you had to wear lots of hats, and you could make a difference pretty quickly. The start-up, entrepreneurial environment was the one I wanted to continue working in.”

Although small companies mirror large ones in many respects, starting with management structure, Hale still sees in them a relative lack of bureaucracy. But sometimes the “nearness” of everyone in a small corporation can bring pain that a much larger one would readily absorb. At Gensia, one of Hale’s toughest duties was laying off 300 people in one day following a failed Phase 3 trial. “It was just one of those things you hope you never have to do, but almost no one goes through their career without being involved in that at some point,” he says. “Our board was very supportive. They thought we had done the right study and done it well, and the company had to move forward, but in a different format.”

Gensia had encountered the fabled Valley of Death, where products in latestage development often perish. It is an area of risk all small-cap companies must traverse — though some evidence suggests the larger the cap, the higher the chances of clinical success — yet it is also the kind of risk Big Pharma prefers to avoid or at least hedge against with conditional licensing deals.

Hale agrees with Bill Comer’s maxim, “Without risk, there’s no innovation.” And he adds his own observation: “You can’t make a product work. Sometimes the risk is going to end up in a failure of the product. That doesn’t mean that the company has been a failure or that the people involved are failures. You may have conducted the absolute best and right clinical study, but you can’t make the product work. You can just design the environment to evaluate whether it works, and that’s where you have to focus your efforts, but you’re not always going to win.”

Monoclonals offered the same lesson when first introduced as therapeutics; Centocor, which later formed the core of Janssen Biologics, almost dissolved entirely after its drug Centoxin washed out a pivotal trial in septic shock. Hybritech chose the diagnostics path first and had earlier research under way in mAbs for oncology, but left the septic shock battle to Centocor and its rival Xoma, whose product in the same indication also failed.

“But we were developing technology — the first technology for humanizing antibodies, chimeric antibodies,” he explains. “When Hybritech was acquired by Lilly, some of that technology went to Idec and in a peripheral way helped Idec develop Rituxan, the first mAb therapeutic in cancer. And it became a huge draw for other oncology mAbs. We were working with monoclonal antibodies in the cancer area in the 1983-1984 time frame, and it took a long time to understand how they worked, that you had to use a humanized antibody or chimeric antibody, and then how to dose them. It was 1997 before Rituxan was introduced, and today mAbs are probably the largest segment, by dollar volume, in the pharmaceutical industry.” Indeed, a whole new use of monoclonals in oncology has emerged with the new checkpoint inhibitors and other immunotherapeutics.

“Developing any new technology is going to take a long time,” says Hale. “It’s not for the faint of heart. Some mistakes will be made along the way, and there will be some hard lessons you must build upon to meet with success.”

One lesson he learned: the more exotic the technology, the longer it will take to develop. Viagene is a case in point, he says. The company began with a gene therapy platform in 1987, and it was acquired by Chiron in 1994, but only recently has gene therapy produced a host of interesting new drugs in development. “I believe the same principle applies to technologies such as RNAi; eventually, some very exotic drugs will come from them, but it won’t happen as fast as we would like it to happen.”

MENTOR OF CHOICE
Hale continued to found, run, and often sell new companies in the decades that followed. Among the many he cofounded were SkinMedica, Evoke, CancerVax, and Somaxon. He was CEO of CancerVax and Women First HealthCare. He was chairman of the public companies Somaxon and Santarus until they were sold. He is now chairman of two public companies, Conatus and Biocept, and the private companies Ridge Diagnostics, MDRejuvena, Advantar Laboratories, Agility Clinical, Recros Medica, Colorescience, Skylit, and Dermata Therapeutics. And he serves on numerous boards, and he’s active in the nonprofit world, for example as cofounder and director of BIOCOM/San Diego. His own firm, Hale BioPharma Ventures, is dedicated to forming new biopharma, specialty pharma, diagnostic, and medical device companies. Whether in a business relationship, nonprofit educational setting, or plain old personal mentoring, Hale tries to pass on the valuable lessons of his experience. “One of the things I really enjoy is working with young, and in some cases, first-time CEOs. That is a very rewarding experience, helping them grow and develop and become better CEOs.”

Hale offers a useful contrast to the longheld stereotype of the scientist founder, wanting to see every product through to the market. His interest in science and ability to master scientific concepts was long established, but he also came into the start-up culture of biotech with a great deal of business acumen.

“I always try to involve myself with people who have a deep understanding of the science, and I provide the business input, the commercial side. Is there really a market opportunity for this product? What would we have to do to develop the product to address that clinical need? Otherwise, we leave basic research to the NIH and academic institutions that do basic research. In my opinion, basic research is not in the purview of the companies I am generally involved in. I’d rather establish a collaboration with an academic institution where it continues to do what its people are really good at, research, and I hire people who are good at development. A good marriage is when you can combine those efforts.”

Hale has other basic advice for new company founders. He emphasizes the importance of building a high-quality management team, board of directors, and scientific/clinical advisory board, including regulatory experts. Next, be prepared to operate virtually, at least until you have sufficient proof-of-concept to overcome the contemporary resistance by venture capitalists to fund early stage companies. “When I was first involved, and even through the early 2000s, venture capitalists were investing in Series A or even earlier in companies, but a lot of VCs have pulled back and there is just less overall money.”

Another change among VCs to which new companies must adjust: Formerly, a company presentation might consist of how management plans to build a company from its core technology. Today, says Hale, that is more the exception than the rule. “Most venture capitalists want to have a discussion about your exit strategy and at what point in the development process you will have created enough value to accomplish that exit.”

Hale also acknowledges the possible alternative to exit — full integration. More companies are avoiding deals that prevent them from growing independently all the way into the market. “If you can reach the market with a small, specialized sales force, and the clinical development program is feasible, you might consider integration,” he says. “Many such companies are looking in the orphan disease area, where the clinical trials are fairly small in the required number of patients, and it could take a reasonable amount of money to get to commercialization, as well as a reasonable amount to call on the doctors needed for commercial success. Some of those situations still exist out there.”

THE CURRENCY OF CHANCE
Virtuality and orphan drugs coincide in a need Hale identified for one of his latest ventures, the CRO Agility Medical, formed with Ellen Morgan, among those whom Hale once had to lay off at Gensia. A Pfizer alum, Morgan recovered from Gensia by starting her own CRO, Synteract, which she ran for many years. But a few years ago, she called Hale wanting to start a consulting and clinical trials management group specifically for orphan drug candidates.

“Some of the things I do now are with people I’ve worked with in the past, and Agility is one of those,” he says. “Ellen Morgan was head of our data management at Gensia and founded and had good success with Synteract. I told her she had a great idea. So she and I started Agility.”

Hale is not one to stay in one place for very long. He is on board with each company for a certain tenure, but he always seems to have a lot of irons in the fire — a sign, he says, of how his career has evolved, but also of where he wanted it to go. “I do like being involved in a variety of companies focused on different products, in different therapeutic categories, in different market segments, and with different market opportunities. Most of the companies I’ve run were eventually sold to big companies such as Allergan or Amgen, even those I may have been with for more than a decade. The challenges, opportunities, and business are all different in each company, so it keeps things very exciting and challenging.”

He says another currently exciting project for him is Conatus Pharmaceuticals, working in the liver disease area, primarily cirrhosis. After a validating trial for its lead compound, the drug must now go through further clinical studies and the regulatory process. He is also involved with a molecular diagnostic company in cancer, Biocept. “Many studies now have shown that, as the tumor progresses, it does not remain the same tumor as when it was first biopsied. So I am convinced that eventually, as patients progress, physicians will use ‘liquid biopsies,’ or blood samples, rather than the original tissue samples, to diagnose and monitor patients and select appropriate therapy.”

Hale is also targeting a new business niche: “patient-pay” healthcare opportunities. As the reimbursement environment keeps getting tougher, some businesses will deliver nonreimbursed medical products to patients who can afford to pay for them. Particular areas include dermatology and plastic surgery, where many patients already pay full measure, and the commercial suppliers never worry about CMS (Centers for Medicare and Medicaid Services) reimbursement.

Meanwhile, Hale remains centered on the implications and implementation of the virtual model by start-up life sciences companies. Beyond general principles, he offers some practical counsel: “It is very critical in the virtual model to have a network of people you can call on to help you with formulation development, toxicology planning or implementation, and clinical development — people who are not employees but are part of a team, whom you pay based on the hours they work. The problem with the virtual model is you never have enough resources to do everything you want to do. Sometimes you have to sprint ahead and wait awhile. If you had appropriate funding, you could move development programs ahead much quicker.”

Could Hale do it all over again — start where he did 40-some years ago and build so many companies — given current conditions for the industry? His reply gives more weight to chance than conditions. “I kind of stumbled into the experience with Hybritech,” he says. “If I had been out to lunch when that call came, I would’ve probably stayed in Big Pharma. At least, I’m not sure if I would have made the move to a small company. Looking back, it was pure luck that I happened to be there when that call came in and I took it. But if I were young again, if the idea were right, and the plan were right, I could still go out again and find an opportunity to start a company.”

So is it chance and luck, or is it desire and opportunity that makes an entrepreneur the likes of David Hale? I would place my bet largely on luck, because it never gets the credit it deserves. But I would count on the will to win as the one irreplaceable ingredient for the explorer’s success.