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THE CHALLENGE OF CHINA: A BIOTECH'S LESSONS IN CHINESE TRADE

It costs one company $100,000 to see how hard business can be there.

Ashipment of enzymes from Life Sciences Inc. here to Shanghai was held up by Chinese customs agents last year, throwing an expensive monkey wrench into the small biotech's business and serving as a painful reminder of the challenges of global commerce.

The two test tubes contained enzymes worth $100,000, used for research and diagnostic tests. Shipped on dry ice, they remain viable for 21 days. When the delay in China stretched beyond three weeks, the shipment - which was uninsured - was ruined. "It was a mess," said Alex Burns, the company's chief operating officer.

Life Sciences, which has about 30 employees, got its start in the 1960s, providing animals to research labs. It is now one of the world's largest producers of natural enzymes used in the research and diagnosis of certain viral diseases. Ninety percent of Life Science's enzymes are shipped overseas, where they become components in tests for everything from AIDS to West Nile virus. A growing portion of that export market is in China, where Life Sciences holds a potentially lucrative license to sell complete diagnostic tests.

But translating the license into revenue has proved challenging. Earlier this decade, Life Sciences' joint venture with a Chinese company collapsed when auditors were unable to review the Chinese partner's books. Unable to make required financial filings, Life Sciences, then publicly traded on the Nasdaq Stock Exchange, was delisted.

(Another Florida biotech recently experienced a similar downfall. In April, Dyadic International of Jupiter, a maker of industrial enzymes, disclosed financial improprieties at its Asian subsidiary. The once high-profile biotech has since ousted its founder and chief executive, been delisted and put itself up for sale.)

Burns called the failed Chinese partnership "a five-year whack." But it wasn't enough to scare the company away from the Chinese market.

"In the U.S., our space is dominated by companies with $1-billion to $5-billion in revenues,'' said Burns, who declined to disclose Life Sciences' revenues. "For a company like us, trying to get a toehold here is a joke. The cost of entry in China is substantially lower."

Despite its difficulties, Life Sciences is now shipping about $600,000 worth of enzymes a year to China, Burns said. One buyer is a major multinational company that makes diagnostic tests for sale in China only. The second Chinese customer, Hangzhou Bioer Technology, sells the enzymes to researchers. Life Sciences is, in turn, importing and distributing portable labs made by Hangzhou Bioer, creating an interdependence Burns hopes will lead to a closer relationship. The Chinese company, for example, has a facility where Life Sciences could make its enzymes and diagnostic tests.

But Burns, who has been with Life Sciences for about 20 years, is taking it slow. He is aware of the need to protect the company's intellectual property. Under the earlier Chinese partnership, key reagents used in the company's patented process were handled only by Life Sciences' employees and excess solution was destroyed.

"The next generation of Chinese business people have a lot more respect for IP (intellectual property) than the first,'' said Burns, who has been to China more than a dozen times.

But as the case of the melted enzymes shows, things still go wrong. Life Sciences now puts handling instructions - in Mandarin - on the outside of shipments to China. It also has better luck shipping its products into a smaller airport in the northern Chinese city of Dalian. But even there, customs agents are not allowed to take phone calls or answer questions about shipments.

"You get the goods when they say you're able to get the goods,'' said Burns, who said there have been hold-ups on raw materials imported from China as well. "More than the money, these delays are disruptive to our business operation."

Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

Life Sciences Inc., St. Petersburg

Employees: 30

Founded: In 1963 as a producer of germ-free animals for medical research.

What it does now: Major producer of natural enzymes used in the research and diagnosis of viral diseases.

Leadership: Alex Burns is the company's chief operating officer.

Market: 90 percent of its enzymes are shipped overseas, used as components in tests for AIDS, West Nile Virus and other diseases.

Florida's exports to China, 2006

Total value: $1-billion, up 46 percent from year prior

China's rank among Florida's export markets: 9

Top exports: chemicals, waste/scrap, computers/electronics, transportation equipment, machinery manufacturers

Source: U.S. Department of Commerce

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