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From IPO to the Pandemic: Leading a Biotech Startup with Frank Watanabe from Articus Biotherapeutics

BIO: Mr. Watanabe has been the President of Arcutis since 2016, and CEO since 2017. Arcutis is a pioneering medical dermatology company dedicated to revolutionizing the treatment of serious skin diseases. Prior to joining Arcutis, he was co-founder and Chief Operating Officer of Kanan Therapeutics, a cardiovascular drug development company, and before that, was VP of Strategy and Corporate Development at Kythera Biopharmaceuticals. Mr. Watanabe has also held executive roles at Amgen Inc. and Eli Lilly. He was a commissioned officer in the U.S. Navy Reserves for 25 years and an official in the U.S. Government. He currently serves on the board of Amunix Pharmaceuticals. Mr. Watanabe earned his M.A. in National Security Studies and his B.A. in International Relations, both at Georgetown University.


Shirley Ren (BT): Thank you so much Mr. Watanbe for speaking with me today. I want to start off with your educational background, which was in international relations and national security. I'm curious to hear what sparked your interest in the pharmaceutical industry and the tech startup world.

Frank Watanabe (FW): I largely stumbled into pharmaceuticals. After graduating, I spent a number of years working in the federal government, where I met my wife. We decided that we were going to leave the government and both wanted to explore different career opportunities. She got into law school in Indiana and I needed to find a job to support her. I sent my resume out to many big companies based in Indianapolis and I had the good fortune of Eli Lilly contacting me and looking for someone with my skill set. I joined Eli Lilly in 1996 originally to set up a competitive intelligence (CI) program for the company. I quickly decided that I liked pharmaceuticals, but I didn't want to do CI for the rest of my career, so I switched to sales and marketing. I spent the rest of my career in commercial and then general management roles at various firms.

BT: You worked for Eli Lilly and some other big companies, but you also worked on a couple smaller startups. I would love to hear your experiences in both and how you would describe their differences and similarities.

FW: I spent the first 15 years of my career in large pharmaceutical companies, eight years at Eli Lilly and nine years at Amgen, and then I moved into the startup world. I've been with three different startups. From a similarity standpoint, the pharmaceutical business is fundamentally the same whether you're a large or small company. You’ve got to discover a new drug that serves some needs that customers have, develop those products, manufacture them, get FDA approval, and then market them to customers. All of that is true whether you're Pfizer or Arcutis, regardless of your size. In terms of differences and the reason why I went from large pharma to small startups is that most big organizations tend to be a little bureaucratic and hidebound. Large successful organizations tend to breed risk aversion because there's not a lot of upside if things go right and there's a whole lot of downside if things go wrong. In a smaller company, you really have to embrace risk. Most small pharmaceutical companies don't survive, so you have to be prepared for that risk but there's a lot of upside if you're successful like Arcutis. The other big difference is the speed and nimbleness. You can make decisions very quickly - there's not a lot of bureaucracy as long as you choose not to create it, which is a conscious choice that one has to make. One of the other things that attracted me to move to the startup world is that being part of a smaller organization, you have much closer personal ties with your colleagues. I know everyone that works at Arcutis personally, and it makes work more enjoyable when you have those friendships and bonds in the organization.

BT: That’s interesting to hear. I also wanted to touch on your experience in the U.S. Navy Reserve. Specifically, did it have an impact on your leadership style and your thought process when you're approaching different situations?

FW: I definitely think that a lot of my leadership style comes from my experience in the military. There's this perception that the military is a very hierarchical organization. But, one of the things that makes the U.S. military particularly effective is that it has a culture that captures the creativity of every soldier, sailor, and airman. They set very clear goals, and then they give individuals a great deal of freedom to achieve those goals within the constraints of broad guidelines and guardrails. That is the management approach that I have tried to adopt. Being very clear about the goals and some guardrails but maximizing the flexibility and free space that folks have to operate in is how you get the best out of your people and tap their creative energy. No one person is as smart as a group of very smart people. This is why I think diversity of backgrounds, perspectives, and personality types is important. I wrote an article many years ago talking about analysis and one of my rules of thumb is “when everyone agrees, it's time to get worried”. I still believe that to this day - healthy debate tends to test one's thinking and it leads to better answers.

BT: Of course, thank you for sharing that. I want to pivot to your current role at Arcutis. Arcutis went public last January, I was wondering what the IPO process was like and the challenges  you faced during this strategic move.

FW: IPO is a challenging and grueling process. I am not a fan of the SPACs (special purpose acquisition companies) because one of the benefits of the IPO process is that law firms, accountants, and many investors do an excruciating amount of due diligence on your company. That way, everyone knows what they're investing in. I believe that's a beneficial and positive process, transparency is important and integrity is important when money is involved, even though it can be uncomfortable at times. A lot of public companies go through “crossover rounds”, which is a private round shortly before the IPO where you bring in “crossover investors” - people who will invest in both private and public companies like BlackRock or Fidelity. We started that crossover process in August of 2019 and were continuously on the road talking to investors until February of 2020. It became almost a full-time job. The very end of the process is called a “road show”, which was a two-week period where we travelled to 10 cities. We were in three cities in one day at one point, flying all over the country to meet with investors. It was a marathon, myself and the rest of the team were utterly exhausted by the time it was done. It was a little bit like climbing Mt. Everest, the satisfaction when you get to the top is exceptional and probably makes up for the pain and suffering along the way up.

BT: Wow, that’s inspiring to hear. As you know, the COVID-19 pandemic hit us soon after the IPO, which has significantly impacted the entire medical innovation industry and society. What are some challenges or changes that you've observed or experienced and how have you navigated through them?

FW: Arcutis has been quite fortunate and had a relatively good pandemic compared to a lot of our peers in the industry. One of the reasons is that we actually started out as a virtual company in 2016. In other words, we didn't have a physical office and everyone worked from home.

We used Zoom well before many people knew about it and we were used to how to operate in a remote setting. Shortly before COVID, we started to transition into a hybrid format. Switching to the hybrid work environment or going back to completely remote really wouldn’t affect us very much. In the broader business community, I think there is an ongoing transformation in what work looks like, especially in the knowledge-based economy. I think that companies are going to have to adapt and operate in a hybrid environment effectively, which actually allows employees to be more productive. I also think that going fully remote is a mistake because your corporate culture is really important, which is difficult to build entirely remotely. 

The other interesting phenomenon for us was that when COVID hit last year, the medical community shut down, but the dermatology community was surprisingly nimble. By late April or early May, dermatologists were seeing patients again. What was really important for us is that they were still enrolling patients in clinical studies - we were in the midst of running large phase-three studies at the time. A lot of companies in different therapeutic areas saw dramatic slowdowns in their clinical trial enrollments, whereas we didn't. Before the Delta variant emerged, the dermatology community was also starting to bounce back in terms of how they interacted with pharmaceutical companies. They were allowing reps in offices and going to medical meetings in-person again. I think dermatology has been much more adaptable than some of the other therapeutic areas like oncology, since the patients tend to be immunocompromised, so it has had a much lesser impact from COVID than most other fields.

BT: That’s really insightful. I’m glad to hear that dermatology hasn't been impacted as much, but I also hope things can get back to normal soon so people with chronic diseases can receive proper treatment and companies can continue to innovate. As the world hopefully will recover from the pandemic or learn to cope with it, what will be your priorities over the next year for Arcutis?

FW: We have two very important priorities for 2022. The first one is we're expecting to file our first application with the FDA for approval of our product later this year. If all goes well, we would expect to be launching our product for plaque psoriasis sometime around a year from now, which will be a very exciting time for us, for dermatologists, and for their patients. The other big priority is we're in the midst of running three very large phase-three programs with our products in other diseases - eczema, seborrheic dermatitis, and scalp psoriasis. All three of those programs will generate data in 2022. For a drug company, clinical data is the oxygen that keeps it going. We will have a very busy but hopefully fruitful 2022.

BT: That sounds very exciting, best of luck and congratulations on your application with the FDA. To end off, I would love to hear any advice you'd give to students and young professionals who are really interested in innovation, medical technology or business in general.

FW: The first piece is something that my father was always adamant about, which is “what you do in life matters”. My father's mantra was always that you should leave the world a better place than you found it, so choosing your path is really important. I've been fortunate to find jobs where I felt I was making a difference throughout my career, whether that was in the government, the military, or now in pharmaceuticals, where we're helping patients with diseases. That is very gratifying to me. It’s not just about the money, so try to make a difference in the world with our lives. The second piece I tell young people when I meet them is that I think people tend to focus on what they're good at, which is a logical thing when you're choosing a career, but you also need to think about what you like. You can like something and not be good at it or be good at something and not like it, neither is a very good choice. Ideally, you want to find something where you like it and you're good at it. As I was saying earlier, you would also want to make a difference and make a living through your career. If you find a job that meets all four criteria - you're good at it, you like it, the world needs it, and someone will pay you for it - then you found the perfect place to focus your life's work and energy on. Then, you're going to have a productive, satisfying, and rewarding career and life. I would just encourage everyone to think in terms of those filters when planning out what they are going to do once they graduate. The third thing is, the world is always changing. Nowadays, it's very normal for people to change their companies and careers. I'm a perfect example. I’ve had three completely different careers that are not terribly closely related, and I think it's important for folks to realize that not only is that okay, but it actually can be very positive. We talked earlier about the leadership lessons I learned in the military that I could apply to business. You will learn something from each experience that you can build on and you'll be that much better at whatever you end up deciding to do.

BT: Thank you so much again for the interview, it’s been a pleasure to hear your experiences and insights.