Editor’s note – The following is an interview with our Executive Editor, Greg Scott, conducted by Interfax China and reprinted here with their permission. Interfax China pharma news is located at www.interfax.cn/news/pharma.

Interview with Greg B. Scott, Chairman and CEO of ChinaBio Therapeutics Inc

Shanghai. December 24. INTERFAX-CHINA - Greg B. Scott is Chairman and CEO of ChinaBio Therapeutics Inc. (ChinaBio), a U.S.-based drug development company with headquarters in California and R & D operations in China.

In a telephone interview, Interfax talked with Scott about China's medical device and biotechnology sector as well as investment issues.

Scott is an active investor, advisor and consultant who has helped launch over 20 biotechnology and medical device companies. He is also co-founder and president of Life Science Angels, a private equity investment group that has funded 19 biomedical companies since January 2005.

Interfax: Some investors believe that medical devices have been a hot area for investors in recent years, while investment in biotechnology will become more prominent in the next ten years. Do you agree with such sentiments?

Scott: The medical device industry is an easier industry to invest in. The technology generally is more easily understood, the regulatory hurdles are less difficult than they are for biotechnology and the liquidity of enter/exits tends to happen more quickly in the medical device industry, often in three, four or five years, whereas on the biotechnology side it can be 10 years before you have an exit. So that's obviously one reason that the medical device industry is more interesting.

Also, on the venture capital side, if you look at the numbers for 2007, investment in healthcare and biotechnology has gone up, but it still only represents about 12 percent of the total investment made by venture capital in China. In the U.S. it's closer to around 30 percent that goes into biotechnology and life science. So with the much smaller amount of dollars available, and with venture capital moving from IT to life science, I think they feel more comfortable in the medical device area because there is the opportunity for a quicker exit in the industry.

Interfax: You mentioned that the medical device industry is the most interesting for investors. What led to the fact that your primary investment is still in bioscience? What kind of problems do you see in investing China's MD industry?

Scott: We do look at the medical device area, but our primary interest is in biotech. I think medical device in China is a bit of a learning process for western investors, because technology in general, both in medical device and in biotechnology, is not as far along in China as it is in the West. So the medical devices I've looked at in China have included some somewhat evolutionary technology, or in one case even de-evolutionary technology, where they are going back to older technology but making it available more cheaply in the Chinese market.

Our investors are primarily interested in new and novel technologies based on new science. So we haven't yet seen much in China, in the device area in particular, that we consider to be new and novel technology. A lot of it is evolutionary at this point.

Interfax: What are the most common difficulties or problems holding back the development of biotech companies in China?

Scott: For our investments to work, we need to be sure that there are scientists who understand the science, and can help commercialize it. But they don't necessary have to have the experience of running a major operation or even generating revenues. Our expectation is that our money will move the technology forward to commercializing, whether it's a medical device company or a biotechnology company. Other money will come in behind us, probably venture capital money, which will enable the company to hire more management, which we would definitely want to see as the company matures, but in the stage where we're putting money in, it's less of a critical issue for us.

There are some problems that we have run into. One of them is in the intellectual property (IP) area. Very often, the patents filed in China, or even outside of China, made by these companies, are not very strong patents. They can't really block other companies from entering the same technology space. And if you don't have blocking in IP, then essentially you're completely open to having competitors enter your market. IP issues in two opportunities that we were going to invest in actually caused us to end up not making those investments.

The other problem with patents is that sometimes they're simply not filed properly, which really just makes them invalid patents.

Interfax: Do you see investment opportunities in China's biotech industry, even though it is still in its infancy?

Scott: We see a lot of potential for biotechnology in China. There are about 150 companies in China developing new and novel drugs, so for us that's very interesting and exciting. I think China has a very strong group of scientists. The education system is very supportive of science, so a lot of very bright scientists are coming out of China's universities, as well as the returnees who are educated in the U.S., who have done some research in the U.S. and are bringing it back to China. So that gives China a very strong foundation for doing some novel development work. We've seen some very interesting things in the areas of cancer, obesity and diabetes, for example, which is very interesting and is absolutely world-class science.

Interfax: What are the major attractions and barriers to foreign money invested in biotechnology industries in China?

Scott: The major attraction for me personally in China is that it's an incredibly dynamic and fast-paced environment.
I think China has further to go in the medical device area, especially implants, but I think China will be a major force in biotechnology in a relatively short period of time, probably the next 10 to 15 years. So if you want to get involved, now's the time to do that.

As for general attraction to investors, obviously the cost structure is very attractive. You can develop a new drug in China for roughly one fifth of what it costs in the U.S. But I think what's changed in the last two or three years is that the quality of work in China has risen significantly in the drug development space. Now you've got the low cost coupled with high quality. The quality of the studies done is much better.

It all really comes down to data. For the Chinese SFDA or the American FDA to approve a drug, there has to be data proving that it works and that it's safe. Until very recently, even in the past 12 months, the United States didn't really accept data produced in China. But this year there have been a couple of cases of drugs approved based on Chinese data [in the U.S.]. So now Chinese data is becoming accepted around the world as valid data, and that's a major attraction. Now you can do the work in China and have it accepted as valid data worldwide.

Unfortunately, there is a general belief now that Chinese quality worldwide is not well accepted, so while the data is accepted, the product quality is not as well accepted. With all the contaminated toys and that sort of thing, there is a general perception that Chinese products are of lower quality. And I think it will take some time to overcome that. I think China's taking very aggressive and the correct steps to fix that, but it will take some years before that is completely overcome.

Whether [products are of bad quality] is true or not isn't really the issue, the issue is whether it will slow down foreign investment in China in medical technology. I think it may, particularly in the device area. Probably less so with drugs, because if the drug data is valid and accepted, then it's less important [that it is manufactured in China]. But if people just think about a device being manufactured and then put inside their bodies, they're probably less trustful of that.

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Disclosure: none.