Biotech Across Borders

Biotech Across Borders

By Sean Roth

Real Estate Editor

For Charles Scimeca, it sounded like a scam. The president of the investment and public-company consulting firm Coast To Coast Equity Group Inc. had heard promises similar to those of the business broker who had just called. The truism iif it sounds too good to be true, it isi stuck in his mind.

One of Scimecais concerns was the location. For all of its emerging potential, China also is plentiful in attempts to swindle foreign investors. Scimeca had worked on more than a few deals in China. None had closed.

Even so, he picked up the phone and called a friend and past business associate, George Frudakis. That, it turns out, was a good decision.

The results of that call were published Dec. 23 in an 8-K to the U.S. Securities and Exchange Commission. Sun City Industries Inc., a Delaware over-the-counter public company, agreed to acquire all outstanding stock of YangLing Dai Ying Biological Engineering Co. Ltd. of China in exchange for an 87.2% stake in Sun City Industries.

Six months earlier, Sarasota-based Coast To Coast Equity Group had acquired majority ownership of Sun City Industries, a dairy farm company that had emerged from Chapter 11 bankruptcy and was now being used as a shell public company.

Sun City Industries, since realigned and renamed Worldwide Biotech and Pharmaceutical Co., is based at Sarasota Quay. Later this year, the companyis headquarters will relocate to 930 Cocoanut Ave., Sarasota, when the 4,000-square-foot building is renovated.

For YangLing Dai Ying Biological Engineering, the move gives the 4-year-old biopharmaceutical company better access to U.S. capital markets. The deal gives Scimeca, Frudakis and his son, Tony, a stake in the growing world of drug/vaccine virus research.

Sarasotais upside in the deal could be high as well.

YangLing Dai Ying Biological Engineering, a biotech company in the Shaanxi Province of China, develops and produces vaccines and medicines for viruses. Founded by 35-year-old Wenxia Gou in 2000, the company employs 86. So far, the companyis big success has been in the field of hepatitis C research. It was awarded a patent in China for its method of culturing the hepatitis C virus (HCV) in its most pure form, known in scientific circles as in vitro.

iThat was a tremendous breakthrough,i Tony Frudakis says. iYou need to understand your enemy before you can plot against it. It is really hard to engineer prophylactics or therapies if you canet culture the virus. I donit know their method; itis proprietary, but I know theyive done it. I have seen the cultured particle.i

The company has received a patent protecting the discovery in many countries, including the United States, Japan, Korea and Russia, as well as the European Union. In December 2003, the company was awarded Chinais Patent Gold Medal, making it the only biomedical Gold recipient in the past decade, according to company documents.

At the same time, the in vitro method has already yielded a new diagnostic test for HCV, which is said to be more sensitive to the disease. About 10,000 samples of the HCV test have undergone clinical trials by Chinais State Food and Drug Administration. The company is awaiting approval to market the test kit.

Worldwide Biotech and Pharmaceutical is researching and developing vaccines and medicines to treat HCV. As part of the reverse merger, Tony Frudakis says, Yangling Dai Ying has abandoned plans to sell the in vitro HCV to pharmaceutical companies.

iThey wanted to do that to generate near-term revenues,i he says. iBut we told them it was not the wisest thing to do. Giving companies with a greater ability to product drugs and vaccines access to your proprietary culture system would be a horrible mistake.i

Although Coast to Coast Equity Group was the vehicle for the acquisition of the public company shell, George and Tony Frudakis were the main behind-the-scene players.

George Frudakis loaned Coast To Coast Equity Group $375,000 to acquire a million shares of common stock from Sun City Industriesi former president, Michael Manion. Shortly after Manionis resignation, Tony Frudakis was appointed president and director of the Sun City Industries

The Frudakises o founders of Sarasotais first biotech company, DNAPrint genomics, which focuses on developing genetic testing products and services o had been anxious to invest in a new biotech company.

George Frudakis made most of his money in real estate through two construction companies in the Anaheim region of California: the Gaff Group Inc. and Dakis Group Inc.; as well as three local companies: a Sarasota construction company Florida West Construction Development Inc.; a Sarasota development company Pacific/Atlantic Development Inc.; and the electrical contracting firm Bradenton Electrical Service Inc.

On the other side, it was Dr. Tony Frudakisi scientific expertise that his father needed to back up the business plan. Frudakis has a doctorate degree in molecular and cell biology from the University of California, Berkeley and he was a research scientist for the Corixa Corp., a Seattle-based biopharmaceutical company that develops vaccine adjuvants and immunology-based products for diseases. Prior to DNAPrint, Frudakis founded GAFF biologic, which was eventually rolled into DNAPrint. Frudakis served as president and chief executive officer until new management was put in place. He is currently chief scientific officer and a director for DNAPrint.

iThey were going to buy the public company even before I brought them the deal with Dai Ying,i Scimeca says.

But the deal with the Chinese company was especially intriguing.

iI knew with (the HCV in vitro method) they had a valuable technology,i Tony Frudakis says. iBut it was really their strategy for examining traditional Chinese medicines and extracting the active agent for drugs that made me most interested.i

Like Scimeca, George Frudakis was skeptical.

iWe read the business plans, checked out the patents and the science and still we were not totally convinced,i George Frudakis says. iSo we went to China to see it first hand. I didnit even want to go. Itis a communist country. I thought it was like slave labor the way they treat their people. But some part of me kept saying, eThis is a really good deal.i i

The trio spent a week examining the business, its 57,000-square-foot building and eventually negotiating terms. Tony and George Frudakis and Scimeca discovered Chinais business climate and labor laws are changing to reflect Western and international standards.

Philip Guo, no relation to Wenxia Guo and an attorney with the international practice group of Becker & Poliakoff, a law firm with offices in both Sarasota and Beijing, has seen the changes.

iMy main job is to act as a liaison between our clients and Asia,i Guo says. iI have represented many Chinese companies doing business in the U.S. and the reverse. The Chinese commercial code started out very loosely drafted, but over the past 15 years there have been several amendments along with Chinais entry in the WTO (World Trade Organization) making it much more similar to international business standards. Most barriers have been removed for wholesalers and manufacturers.i

Chinais labor laws are more similar to U.S. rules than most Westerners might expect, Guo says. Its law requires workers to work no more than eight hours daily and five days a week without additional compensation, Guo says. However, the rules are not necessarily followed throughout the country.

Asked about the wage disparity between the United States and China, Guo says wages are significantly lower in the Asian country, but workers have similar purchasing power.

iIn the manufacturing industry what I have heard is itis 20 times lower,i he says. iBut you have to look at their cost of living and what they can purchase with their money. Thatis why you are seeing the emergence of a Chinese middle class.i

A growing trend for Chinese firms has been to turn to the much-freer capital in U.S. financial markets typically through reverse mergers, Guo says. There has also been an expansion in the biotech market.

iEspecially with last yearsi epidemic of SARS (Severe Acute Respiratory Syndrome) in China,i Guo says. iIt served as a wake-up call on the national level for the magnitude of such an epidemic. It has the ability to create chaos and shake the social stability of an entire country.i

On top of all the other advantages of the Chinese workforce, Gou says the Chinese government tends to offer financial incentives, including tax-exempt status. For Worldwide Biotech and Pharmaceutical, the Chinese government offered to cover interest on loans the company may acquire, Scimeca says.

In the end, the principals didnit want to pass up the deal.

Under the terms of the transaction, the primary officers of Yangling Dai Ying will assume the same positions in Worldwide Biotech and Pharmaceutical. The Chinese officers will remain principally in their homeland, while Scimeca will act as the corporate spokesperson and regulatory compliance officer.

Dr. Hengli Tang, chairman of the scientific advisory board of Yangling Dai Ying, plans to relocate a lab he maintains in Tallahassee at Florida State University to the Sarasota office.

Including the loan for the shell company purchase, attorney fees and construction provided by Florida West Construction Development Inc., the initial setup obligation for George Frudakis was about $2 million.

iThen I have to raise another $4 million to $5 million,i he says. iBut this is a company that could have gone public on its own. I think the reason they wanted to work with us instead was because they knew that (going public) would make them more vulnerable, and they wanted someone that they could have a long-term relationship with. Someone they could trust.i

With the obvious comparisons to DNAPrint, which is adjacent to the new companyis Cocoanut Avenue office, George Frudakis says the new company is already in a much more established position.

iDNAPrint is going as expected,i he says. iItis got great science. One of its products even found the serial killer in Baton Rouge (La.) It just needs to get its stock price up. I know this stock is going to go a lot higher. It's just got so much more going for it.i

Worldwide Biotech and Pharmaceuticalis business plan calls for it to buy other pharmaceutical companies from the Chinese government, George Frudakis says, adding: iThat is going to put those early drugs in the pipeline to establish our reputation.i

Worldwide Biotech and Pharmaceuticalis early proposal calls for $10 million in first round financing to fund new equipment, manufacturing, sales, acquisitions and mergers, drug screening and vaccine research.

The company projects a net profit this year of $16.9 million, which should grow to $59.5 million by 2009.

And what does that mean for Sarasota? iObviously this gives us more of a reputation as a capital market,i Scimeca says.

iAnd having a little (biotech) community on Cocoanut and 10th would be nice,i Tony Frudakis says. iBut I donit know how long DNAPrint is going to be here. We are starting to burst at the seams. We need a larger facility. But for a short period of time it will be nice.i