By Randall Osborne

The first-ever "reverse service contract" awarded by China has gone to a joint venture involving Sequana Therapeutics Inc., and the potential amount to be paid is five or six times the highest amount granted by the government to medical institutions in China.

"Even by U.S. standards, it's large," said Ming-Wei Wang, chairman and general manager of the Shanghai joint venture, named Shanghai GeneCore BioTechnologies Co. Ltd.

Collaborating with Sequana on the venture are SiniWest Holdings Inc., of San Diego, a consulting company of which Wang is the president and CEO; and the Perkin-Elmer Corp., of Norwalk, Conn., a developer of analytical instruments.

Under terms of the government contract, Shanghai GeneCore will receive an up-front payment and milestones.

The company will use its high-throughput genomic technology to sequence the genes involved in liver cancer, which is a national health problem in China that kills 130,000 people each year. The total makes up 40 percent of the world's liver-cancer deaths. Most often stricken are men between 35 and 50 years old, who live an average of only three months after they are diagnosed, Wang said.

Early diagnosis is critical, but the disease moves so fast that annual screening often is too late. The typical test currently used measures alpha fetoprotein in the blood, and is not always reliable, Wang added. Each year, 430,000 new patients are diagnosed.

"If you find the gene [linked to liver cancer], you can do a mass genetic screening, so people from a very young age know they have the gene," he said. Then, the patient could undergo checkups every three or six months.

"When there's no metastasis, and [the tumor] is within 2 cm in diameter, the five-year prognosis is very good," Wang said.

The contract with China's government, which is the country's largest single project investment in genomics research, is part of a collaborative agreement that includes the China National Center for Biotechnology Development, the National Laboratory for Oncogenes and Related Genes, and the Shanghai Cancer Institute.

People in the U.S. often fail to understand why China pays for biotechnological research, Wang said.

"The shadow of a planned economy is still there," he said. "[The government] provides the initiating money, with tax-incentive schemes. On the one hand, it's good. On the other hand, if one company makes money, everybody tries to jump in."

That state of affairs is somewhat controlled, since the government issues no more than one license per product. "Otherwise, you don't have any incentive," Wang said. "You may make money for two years, but eventually, everybody loses."

Sequana, which uses gene-finding technologies and functional genomics to develop products aimed at diagnosing and treating diseases, has ongoing discovery collaborations with pharmaceutical companies and organizations in asthma, diabetes, obesity, osteoporosis, schizophrenia and manic depression.

Bob Giargiari, spokesman for Sequana, said terms of the contract with China will not be revealed, but GeneCore will function independently anyway. "We're not looking to pull revenues out of the operation," Giargiari said. "You're not going to see it on Sequana's bottom line, so [the terms] really become a moot point."

As of June 30, Sequana had $45.05 million in cash, with a net loss of $8.49 million for the first six months of 1997.

Gene Search Nearing Completion

Wang said he is confident that GeneCore will get its first job done in short order. A clear link between specific genes and liver cancer already has been established, and a region of chromosomes has been identified. "We have narrowed it down even smaller," Wang said. "We're going to get a map shortly, and I envision within a year or two we will have the total sequence."

Later, GeneCore's technologies may be expanded to other applications.

The contract with GeneCore is a meaningful reversal of the usual way foreign business is done, Wang said. Typically, foreign companies set up in China and buy the cheaper labor or resources.

"This time, rather than waiting passively to receive money, [China] says, 'OK, we're providing money,'" Wang said. "It's a major departure. You always hear a lot of things about China in the news, but this will give you another aspect. It's moving in the right direction."

Sequana's stock (NASDAQ:SQNA) closed Wednesday at $11, unchanged. Perkin-Elmer's stock (NYSE:PKN) closed Wednesday at $63, down $0.44. *

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