Malaysia Biotechnology Sector Sees Opportunity With Economic Turndown, Challenge With Competing Neighbors

SHANGHAI - Malaysia's plans for its biotechnology sector remain ambitious even with the recent global meltdown.

Frost & Sullivan has partnered with Malaysia's BiotechCorp to showcase the investment opportunities in the Malaysian biotechnology sector within the context of the global market.

According to Frost & Sullivan, the biotechnology industry in Malaysia is expected to grow by revenue at a compound annual growth rate of 15 percent. Healthcare revenue will experience the highest growth at 20 percent, followed by agriculture at 15 percent and industrial at 10 percent. By the year 2013 the industry is expected to generate RM 45 billion ($13.3 billion) in revenue.

The industry currently contributes about 1 percent to the country's GDP. By 2020 the government expects the biotech sector will employ up to 160,000 people and will contribute 5 percent of Malaysia's GDP.

"The Malaysian biotechnology sector has a number of niche strengths that can be exploited to create a world class competitive sector," Louis Payet, Frost & Sullivan Asia Pacific senior healthcare consultant told PharmAsia News.

According to Payet, Malaysia's natural biodiversity will support the development of novel drug, nutraceuticals and biocatalysts. Established strengths in the bio-agriculture space will allow it to rapidly commercialize any discoveries in this field.

"It also has exceptional government support for the biotechnology sector from organizations such as Malaysia BiotechCorp and the Ministry of Science, Technology and Innovation," Payet said.

The Malaysian government is making a concerted effort to promote the biotech industry in a bid to attract foreign investment and to boost the local economy. In the Ninth Malaysia Plan 2006 - 2010, a chapter is dedicated to the development of biotechnology in Malaysia.

Established by the Malaysian government in 2005, BiotechCorp supports the development of Malaysian companies in the biotech space by identifying value propositions in both R&D and commerce and to support ventures via financial assistance and developmental services.

In a previous interview with PharmAsia News, BiotechCorp's Senior Vice President for Healthcare Selvam Ramaraj said that a key focus for BiotechCorp is technology commercialization.

"We assist domestic entrepreneurs, local companies and institutes that keep looking for international partners that probably have good technologies which are available for commercialization," said Ramaraj. "We also acquire cutting-edge technologies by regional license or a global license and place them in suitable research institutes in Malaysia, and then provide access to this technology for companies or entrepreneurs for further research and commercialization" (Also see "Government-funded BiotechCorp Senior VP For Healthcare Selvam Ramaraj On Malaysia’s Biotech Expansion Plans: An Interview With PharmAsia News (Part 2 of 2)" - Scrip, 30 Mar, 2009.).

Frost & Sullivan said that the current economic crisis and its impact on the Malaysian economy has highlighted the need for Malaysia to focus on the development of a sector that is diverse and downturn-resilient such as the biotechnology sector to help support an economy during economic downturns.

Neighbors Draw Away Business

However, the country's biotech industry is facing uncertainty in these challenging economic times and competition from neighboring Singapore is fierce.

"Uncertainty on how to move the sector to the next level is one of the challenges," Payet said. "A number of companies have been established in the country, [but] the challenge now is how to support and sustain the development of these companies into larger and more profitable entities."

Other challenges include diversifying funding sources away from government sources, which account for a majority of the funding in the sector, as well as finding ways to internationalize the sector to encourage local companies to explore opportunities overseas and to attract foreign players into the Malaysian market.

"Attracting foreign players will be challenging due to the presence of a number of competing countries in the region," he said.

For example, Singapore has pushed heavily to build its biotech industry since 2000, including construction of its Biopolis research center and is drawing foreign researchers with offers to fund research (Also see "Singapore Offers Public Funds To Bridge Valley Of Death, But Can It Last?  – BioMedical Asia" - Scrip, 23 Mar, 2009.).

Separating Wheat From Chaff

To attract more companies to set up operations in Malaysia, BiotechCorp established "BioNexus status" which is granted only to qualified biotechnology companies in the country. BioNexus status offers special tax incentives, grants and other kinds of government support.

Ramaraj said there are 97 BioNexus companies so far. Thirty out of 97 companies have international equity. Of the 30 companies, six are wholly owned by international companies.

"The government may need to identify niche areas that it believes the biotechnology sector will develop into and then focus its resources, especially funding or supporting companies and projects in these areas," Payet said. "But it will be very difficult in the current climate. If the entire biotechnology sector value chain was better developed, then it would encourage investors to invest in the sector."

According to Frost & Sullivan, market capitalization of biotech and biotech-related healthcare companies listed on the Malaysian Stock Exchange has reached $857 million, with foreign direct investment close to $286 million in 2008.

Biotechnology is expected to generate revenue of $71 billion by 2020, and it is anticipated that 100 reputable biotech companies will be established in Malaysia.

BiotechCorp has several programs to attract foreign investment, according to Ramajar, including the Malaysian Life Science Capital fund and the Malaysian Debt Venture to support foreign companies.

"The investment opportunities in Malaysia are currently more concentrated in the venture capital space as a majority of the companies in the sector are still at an early stage of development," Payet said. "More developed, later-stage opportunities exist in the biofuels space although the financial crisis and subsequent drop in the price of crude oil has reduced activity in this sector."

The country is expecting to continuously expand collaboration and the network of support among universities, labs, companies, investors, entrepreneurs in Malaysia and internationally as an important step forward for human capital development in biotechnology.

With that, BiotechCorp has already embarked on a number of initiatives toward developing its working capital, such as its Biotechnology Entrepreneur Development Framework that provides a comprehensive approach in developing new entrepreneurs and facilitating the creation of new biotechnology business ventures.

- Ying Huang ([email protected])