Comments at the ?The Rotary Club of Honolulu?
September 20, 2005

By
Dr. Patrick K. Sullivan
Chairman, Oceanit
CEO, Hoana Medical

Background
Today we stand at a crossroads, at the beginning of another turn-of-the-century.  One hundred years from now, what do we envision for Hawaii?  As the current generation of business leaders, you hold a huge responsibility for setting the course of Hawaii?s future ? its hopes and dreams for the next century.

A new economy may have seemed impossible 100 years ago ? just as impossible as it seems today.  Yet that is our task and the responsibility we hold for the future of Hawaii, for our kids and for the generations yet to come.  I am honored to be here today to talk about what I believe should and will be a new pillar in our economy ? the technology sector.

My own personal story has been ongoing for the last 20 years -- Oceanit was started in Hawaii over 20 years ago with little more than $100.  Today it employs well over 100 people who focus in four areas, including: aerospace, engineering, life sciences and information technology.  Oceanit is constantly generating ideas and solutions that address some very big problems, ranging from the security of outer space to increasing human life expectancy.  Funding is provided from nearly every federal agency, e.g., NIH, NSF, NASA, DOC, NWS, NOAA, DOD, as well as state, county and private institutions.  Many of these programs create ideas that have potential to become spin-out businesses, enabling Oceanit to operate like a self-funded incubator.   Several spin-out businesses you may be familiar with include: Toxitec ? producer of Cigua-Check; MOSAIC ? producer of unique electro-optic systems; nanoPOINT ? producer of optical technology that enables non-destructive intracellular imaging at nanoscale resolution for industries like the pharmaceuticals for drug development; or Hoana Medical ? producer of ?intelligent medical vigilance? technology that passively senses patient vital signs without any connection to the patient (no wires or cuffs), focusing on the hospital general care units.

Hoana was started with an idea developed at Oceanit and funded through the US military for a four year period before it was spun-out into Hoana.  With nearly $17M in private equity so far, Hoana has recruited a very seasoned medical technology team to deliver a FDA approved product for sale to hospitals, planned for release later this year.  Demand for its product LG1 (referred to as LifeGuard) is huge, particularly since hospitals suffer from a shortage of nurses and nearly 200,000 patients die from errors and accidents each year in the US alone ? that?s about equal to a loaded 747 crashing daily.  Hoana addresses the largest part of this problem, approximately 20% of these patients die from ?failure-to-rescue.?  Not only does Hoana provide a patient safety solution for the hospital, but it helps the hospital succeed economically.

Hawaii?s place in the global economy
Shifts toward globalization are visible everywhere, from the militarization of outer-space to the jobless recovery in California.  Changes set into motion by the internet and geo-politics are shifting wealth and power around the planet.  In the globalized economy of the future three characteristic sweet spots are expected to emerge where local economies thrive, including (1) low cost labor, (2) financial centers and (3) innovative centers.  Low cost labor is not just about factory jobs, but includes technical skills such as software development, accounting and medical treatment ? think China and India.  Financial centers are built on long-standing relationships and practices that accommodate financial transparency, reliability and accountability ? think Zurich, London and New York.  Innovative centers are exceptional environments that uniquely coalesce diversity, knowledge and quality-of-life ? think Boston and San Francisco.   When combining Hawaii?s cultural diversity, exceptional quality-of-life and the University of Hawaii system, we have all the necessary ingredients to develop an innovative center.

Ingredients for Hawaii?s technology sector
To grow business in the technology sector, you need basically three ingredients, including (1) people, (2) technology and (3) capital.  Hawaii does not suffer from lack of good people or great technology.  One need not look too far to find Hawaii?s fingerprints on the Internet, genetics, and other fields. However, capital formation is consistently brought-up as an issue for emerging technology companies.  What?s hard to understand is that there is no shortage of capital in Hawaii; however, there is a shortage of venture capital in Hawaii and in Hawaii deals.  This scarcity of venture capital is not singularly ?the issue,? rather it is a metaphor for a more fundamental issue ? the lack of confidence in Hawaii people.  This issue is complex; however, it?s based on concepts and perceptions that are no longer valid today.  Just as there is real no value-added from geographic proximity to Pacific/ Asia, since air travel and the internet have taken away any advantage that may have existed, the playing field has been further leveled for technology businesses in Hawaii.  This means that Hawaii?s ?ideas and people? can equally compete with ?ideas and people? from any part of the planet.

Change is slow, but on its way.  One ground breaking change in Hawaii is referred to as Act 221/215, which provides a 100% tax credit to investors of qualified technology companies in Hawaii.  This is perhaps the most generous tax credit around.  However, the most extraordinary thing about this tax credit is not the capital raised; rather it?s the change in business practices and behavior in Hawaii.  Whereas tax credits are used in a variety of ways to support an industry, rarely is there a behavioral change in business practice.  In Hawaii, for the first time in many years, existing businesses are investing in local companies, with the expectation that they will receive a handsome return for their investment.

What?s at stake ? so what?
Exclusive dependency on tourism and operational military support risks polarizing Hawaii into communities of ?haves? and ?have-nots.?  The social consequences of this are already apparent with Hawaii?s education system, housing costs, drug abuse, etc.  A technology sector in Hawaii?s economy won?t simply solve these issues.  It will, however, provide opportunities for Hawaii?s youth by providing choices where very have been available.  There is a unique Hawaiian flavor for our emerging technology sector; it?s a flavor that includes the cross section of technology businesses, but weighs heavily on Hawaii?s unique suitability as an ?innovative center.? 

In summary, the following Chinese proverb speaks to our issues in Hawaii: "If you want one year of prosperity, grow rice. If you want ten years of prosperity, grow timber.  If you want 100 years of prosperity, grow people."  Growing a technology industry in Hawaii is an investment in people that can create sustainability for years to come.  Believing in Hawaii?s people is critical to Hawaii?s future.  If, as a community, we don?t believe ourselves, who will?  If we don?t believe in our kids, why should they believe in themselves?

Please click here for pdf version.

Please click here for audio of Pat's speech at the Rotary Club.

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