Shanghai's HealthDigit's cancer diagnostic chip works wonders

FinanceAsia: How did you come to invent this biochip? Was it in the US?

Gengxi Hu: No, although the question is a common one, as is the implication that China cannot come up with a truly new product. When I came back from the US, the Chinese Academy of Social Sciences and the Max Planck Society had set up a project to fund some research groups. I was appointed as professor at the Institute of Cell Biology and carried out research. By the end of 1998 I got interested in biotechnology, for which I got funding from the CASS, and we made a lot of progress. However, because DNA-based chips take an extremely long time to pass though clinical trials, we switched to protein chips, which are likely to pass though the clinical trials faster. Based on this research, and after raising capital, we set up a company in mid-2000.

How does your wonder product work?

We take a drop of the patient's blood and place it on the biochip, which is then read by a machine, and a diagnosis is made. Quick, painless and cheap - around $40. The reader costs $80,000.

Isn't that a lot for China?

Hospitals are making money hand over fist in China. Don't forget that all the major cities in China have compulsory health insurance for both state sector employees and private sector. The insurance companies pick up the tab. In fact, hospitals are among the richest business segments in modern China.

Has you product been approved by the State Drug Administration of China and the Federal Drugs Administration?

The cancer diagnostic product has been approved by the SDA and has completed all the clinical trials. We can sell in China. We don't have FDA approval. Once we hook up with strategic collaborators abroad we hope to make good progress in this area.

You mentioned that you want to hook up with a MNC to sell your product. But how important is the diagnostics business to these giants?

Most of the pharma giants have a diagnostics department. As to how big they are, that varies. Clearly, the drugs industry as such is far bigger, say four to five times as large as the diagnostics. Diagnostics is not as sexy or glamorous as inventing a new wonder drug, but it's obviously an important step in treating diseases.

Tell me a bit about how you obtained the funding to set up your company. Does your bank play an important role?

We bank with Bank of China and have no problems getting loans from them. They see us as a promising company with decent cashflow. We initially got $10 million from a Chinese investment company. We stunned them by announcing our breakthrough in six months, although they had granted us a three year grace period. We then had to switch our focus from R&D to actually marketing and selling this product, which we started doing in March this year.

With your US connections, why didn't you go for a US venture capital firm, many of which are quite active in China?

That's a bit of a sore point. We spoke to scores of VC, and frankly they were unconvinced that we could produce a unique product ahead of the Americans or the Europeans. In the end, we lost patience and went with the Chinese investment partner, and so far we've been very happy.

How many units have you sold?

So far about 70, mainly to hospitals in China. Demand is growing fast and we are planning on increasing our production of both the biochips and the machines which read them.

Where is your manufacturing facility and is it credited with Good Manufacturing Practice?

It's in Zhejiang province, a satellite city about 120km away from Shanghai. It's based on GMP standards and we are in the process of being assessed by the SDA for the GMP certificate. We have a capacity of making half a million disposable chips per year, but we expect to triple by the end of the year.

Are you concerned about patent infringement?

No. The patent system in China is quite well established and getting better, although problems can still arise through ignorance. Also, we have a full time group of lawyers working on potential problems. Anyway, we don't just rely on patents to stay ahead. For example, we have a combination of difficult-to-imitate, high-tech machinery, proprietary technology and low profit margins, which we use to make the sector unattractive to future competitors!

That's an unusual strategy.

It's unusual, but it works. It's realistic and part of our strategy. Remember, China isn't that developed right now, it can't afford high prices. Big pharma companies won't be interested in competing against us, if our products are low-priced. But of course we are always aware that an alternative technology could be invented - high tech is highly dependent on human resources. That keep our nose to the grindstone.

Many people complain about the distribution in China. What's been your experience?

It hasn't been a problem for us. We appoint a single distributor per province, and if he doesn't meet our sales targets we replace him.