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China beckons San Diego life sciences firms

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When the human genome was mapped and published, Dr. Chun Wu wanted to be at the forefront of the technology and research. So in 2001 he founded the company Abgent, which has an office in San Diego and develops tools for work with genes, specializing in antibodies.

Now Abgent, along with a group of other San Diego life sciences companies, is making its way into another developing frontier -- the Chinese market.

"If you cannot do (business) in the United States or Europe due to the price, a lot of companies are looking to places like China," said Herve Le Calvez, Abgent's director of business development.

In San Diego, Abgent is not alone -- not only in that it's moving into China, but that it's also using personal connections to get there.

The foreign lure

With its well-trained work force, low overhead costs and vast marketplace of more than a billion people, China has become an attractive option for American businesses, and especially biotechs. Some local companies have found they have an advantage in that key members of their management teams are from China. Still, experts warn there are risks involved in investing in a foreign country, and even those with a grasp on Chinese culture and business practices should not venture into the country lightly.

While Abgent has made early inroads in China, the company is different than most in the area since it started in China, operating with 50 people in Shanghai before the San Diego office was opened. But in drawing on the experience of a Chinese-born executive who was familiar with San Diego through the university community, it falls into the same mold as other local companies. Diazyme -- a subsidiary of General Atomics -- for example, was co-founded here by Managing Director Dr. Chong Yuan, who grew up in China. However, Yuan said his nationality has provided a means for the move, rather than a reason.

"I'm originally from China, but that has nothing to do with the business," Yuan said. Labor costs and the potential market for Diazyme's products -- mainly enzymes -- are the only reasons the company has set up manufacturing plants in Shanghai, the most popular city in China for U.S.-based life sciences companies.

For the most part, these are the same reasons for any businesses exploring the Chinese market. The Chinese government has invested the equivalent of about $1.2 billion in the life sciences industry in the past two years, and has 40,000 people trained in research and development, according to Dr. Peng Cheng, an attorney for Morrison and Foerster who has a background in life science. A native of China, Cheng said when he went to college about 20 years ago, he was one of only about 4 percent of high school graduates who had the education level to go on to the university level. Now, in most major cities, he personally estimates 70 percent to 80 percent of students are prepared academically for the next level.

This readiness, combined with China's lower material and labor costs, and largely untapped patient supply make it an ideal site for U.S. life sciences companies, which are hampered by high spending.

"In general, there are a lot of things going on that are favorable to the business environment," Morrison's Cheng said. Among his clients, which include Diazyme and Abgent, Cheng said Acon, Acea Biosciences and Aviva Antibody have all used connections of Chinese employees to help establish themselves in the world's most populous country.

Risky business

But, there are also challenges. Intellectual property is a major concern for most companies, according to Phil Baker, a San Diego entrepreneur (and Daily Transcript columnist) who has marketed his own products and those of other companies in East Asia since the early 1980s. While Peng said intellectual property laws are not terribly different in China than in the United States, there are differences business owners should know.

For example, in the United States the patent is supposed to go to the person who invented a product. In China, the patent goes to whomever registers the product first. This can lead to a loss of intellectual property. Baker said most large firms have the resources to prepare for this, but smaller companies often don't.

"If you're a larger company with a high volume of disposable (product), then it might make sense" for you to go to China, Baker said. "If you're a small company with small volumes, … I would think twice before going over there."

As with most business endeavors, Baker said picking the right partner is imperative, but even more so in a market like China, which has language and cultural barriers, as well as the unique disposition of being relatively new on the scene.

"Everyone there says they can do everything -- they have this 'can do' attitude," Baker said. "Unfortunately, some companies over-promise and underproduce. The key is picking the right company to work with."

Cultural relevance

This is an area where some of San Diego's life scientists, like Diazyme's Yuan, say their nationality becomes an advantage. While Yuan said the advent of technology like the Internet, e-mail, even package delivery companies are all equal in China to the U.S., there are always details that a native Chinese person has an advantage in understanding. He said that while most negotiations, even between himself and executives in China are conducted in English, often when it comes down to minute details, they will speak Chinese.

"A Chinese person who goes over there understands the culture, and that helps me make decisions," Yuan said. "It's useful for me to make a judgment on offers, conditions."

This doesn't mean companies with no links to China can't move manufacturing or research and development facilities over there, but they may need to take more caution, Peng of Morrison and Foerster said.

"It's always better if you have some connection there because the system is quite different," he said. "If you don't have it, you need to establish good connections. Identifying potential partners there is most critical."

Peng advised getting to know companies over there and establishing personal relationships before jumping into a business deal.

"In China, like many other places, good relationships carry a lot of weight," he said. "If you know each other personally, they might give you the benefit of the doubt when you're getting started."

A company also must be willing to have a strong on-site presence, Baker said.

Most experts foresee more and more companies trying to get into the Chinese market because it is the most viable option for an expensive industry. While the Food and Drug Administration does not generally accept clinical trials from China, those trials are a less costly way for a company to determine if a drug or technology is going to work, Peng said. And in a business where time is money, perhaps more than any other, the fact that development can move faster is a plus, according to Baker. Le Calvez, the business development director for Abgent, said ultimately the bottom line will bring more businesses to the other side of the globe.

"You don't do something in China because it's fun and sexy. You do it because it cannot be done otherwise," he said.

Snapshot: Abgent

6310 Nancy Ridge Drive, Ste 106

San Diego, CA 92121, USA.

Phone: 858-622-0099

Web: http://www.abgent.com/

In Their Own Words

Abgent develops powerful tools to profile posttranslational modifications related to cellular function and disease. Abgent antibodies offer the most extensive coverage targeting protein kinases, phosphatases, methyl and acetyl transferases, ubiquitin and SUMO, glycosylases and other protein modification enzymes. Our mission is to accelerate research and discovery by targeting post-translational modifications that dynamically regulate protein function, and to thereby accelerate understanding of the complex path leading from cell signaling to pathology.

Executive, Position(s)

Dr. Chun Wu: Founder, CEO

Herve Le Calvez: Director, Business Development

Company Type

Privately held.

Snapshot: Diazyme Laboratories

P.O. Box 85608

San Diego, California 92186-5608

Phone: 858-455-4768

Fax: 858-455-3701

Web: http://www.diazyme.com/

In Their Own Words

Diazyme Laboratories is a Division of General Atomics headquartered in La Jolla, California. Diazyme Laboratories applies its proprietary Substrate-Trapping-Enzyme (STE) Technology and Protein Engineering Techniques to develop low cost and uniform diagnostic products for clinical and research uses.

Executive, Position(s)

Chong Yuan, Ph.D.: Managing Director

Company Type

Diazyme is a subsidiary of privately held General Atomics.

Snapshot: Morrison & Foerster San Diego

12531 High Bluff Drive, Suite 100

San Diego, California 92130

Phone: (858) 720-5100

Fax: (858) 720-5125

Managing Partner: Craig A. Schloss

San Diego Attorneys: Over 70

Founded: 1883

Attorneys: 1063

Offices: 19; Beijing • Brussels • Century City • Denver • Hong Kong • London • Los Angeles • New York • Northern Virginia • Orange County • Palo Alto • Sacramento • San Diego • San Francisco • Shanghai • Singapore • Tokyo • Walnut Creek • Washington D.C.

Executive, Position(s)

Keith C. Wetmore: Chair of the Firm

Mark W. Danis: Managing Partner-Operations

Larren M. Nashelsky: Managing Partner-Operations

Pamela J. Reed: Managing Partner-Operations

Nicholas J. Spiliotes: Chair, Business Department

Lori A. Schechter: Chair, Litigation Department

Paul H. Frankel; Thomas A. Humphreys: Co-Chairs, Tax Department

Raymond L. Wheeler: Chair, Labor Department

Company Type

Privately held.

Snapshot: ACON Laboratories Inc.

4108 Sorrento Valley Boulevard

San Diego, CA 92121

Phone: 858-535-2030

Fax: 858-535-2037

Web: http://www.aconlabs.com

In Their Own Words

ACON Laboratories Inc. markets rapid diagnostic healthcare products based on a philosophy of high quality , low price , and superior flexibility . Our ability to provide quality , simple-to-use products with a choice of formats , while simultaneously providing consistent product performance , translates into the best value for our partners and customers.

Company Type

Privately held.

Snapshot: ACEA

11585 Sorrento Valley Rd., Suite 103

San Diego, CA 92121

Phone: 858-724-0928

Fax: 858-724-0927

Web: http://www.aceabio.com/

In Their Own Words

ACEA is developing a broad biosensor platform based on proprietary microelectronic technologies for reporterless, real time, high throughput analysis of living cells and biomolecules.

Executive, Position(s)

James O'Connell, Ph.D.: CEO

Xiao Xu, Ph.D.: COO/President

Xiaobo Wang, Ph.D.: CTO/VP of R&D

Company Type

Privately held.

Snapshot: Aviva Systems Biology

11180 Roselle Street, Suite 300

San Diego, CA 92121

Phone: 858-552-6979

Fax: 858-552-6975

Web: http://www.avivasysbio.com/

In Their Own Words

Aviva Systems Biology (ASB) develops, manufactures and markets reagent tools for gene transcription regulation research.

Executive, Position(s)

Charles Sie, Ph.D.: Chairman

Julian Yuan: CEO

Lingxun Duan, M.D.: Executive Vice President

Cynthia Lane, PhD, MBA: Director of Marketing

Yanning Xue, Ph.D.: General Manager of Beijing Aviva Antibody Corporation (BAAC)

Company Type

Privately held.

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