Dec 24, 2003

Malaysia's new dream: Biovalley

By Chee Yoke Heong

KUALA LUMPUR - Malaysia has prided itself as the home to many grandiose creations and also humbly declared the failure of a few others. But that doesn't stop it from continuing to pursue its relentless ambition to hop on to the next big project. And its latest pet project, which has been championed by the former prime minister Mahathir Mohamad and is now warmly embraced by his new successor, Abdullah Badawi, aims to put Malaysia on to the world's biotechnology map: Biovalley.
In the heart of the country's other grand project, the Multimedia Supercorridor (MSC), to the south of Kuala Lumpur, Biovalley was officially launched this year after three years in gestation. The government is pouring in RM100 million (US$26.3 million) initially to build the infrastructure and facilities by 2006 that will house 150-200 new biotech companies that will support biotechnology activities as well as coordinate and promote the commercialization of research findings.
According to a study by the Massachusetts Institute of Technology (MIT), the project is to generate returns of more than $10 billion over the next decade. Malaysia hopes to tap into the biotech industry, which Ernst and Young estimated was valued at $41 billion last year and is expected to grow much larger in the coming years. Biotechnology is seen as one of the components that will bring Malaysia to industrialized-nation status, and for some analysts, a way for the country to step up the value-added ladder as the importance of manufacturing begins to fade with the emergence of competition from China.
With this potential in mind, Biovalley aims to capitalize on Malaysia's natural resources to harness its rich biodiversity, crucial in the development of biotechnology with the hope of producing commercially lucrative products. For a start, it will create three institutes for research and development in the areas of pharmaceuticals and nutraceuticals, genomics and agricultural biotechnology, representing the R&D core of Malaysia's biotechnology initiatives. To help it leapfrog into the industry, it has entered a strategic partnership with MIT to improve the country's know-how in biotechnology and to enhance its international linkages.
When fully operational in 2009, Biovalley will comprise research, commercial, education, recreation and residential on an 800-hectare site that was once earmarked to house the Entertainment Village, a now failed project to build Malaysia's version of high-tech Hollywood-style studios.
But the issues facing the project are numerous, with many challenges promising to confront this Malaysian dream. As the Brookings Institution has found in its study of biotechnology centers in the United States, which currently leads the world in this technology, the industry is very risky and volatile. Half of the biotech companies in the US formed in the 1970s have folded or merged with other companies. The process of setting up a successful company is protracted, requiring substantial funding, time and uncertainties in product development, resulting in most small biotech companies failing during the past two decades.
The study adds that most biotech firms operate at a loss, spending large amounts of money on research and development for several years in advance of earning any sales revenue. Those that do succeed are found in metropolitan areas that combine a strong research capacity with the ability to convert research into substantial commercial activity. These are also places where there is a high concentration of capital flow, a critical ingredient in the development process. Proximity to universities and research institutes is also needed as sources of intellectual and human capital.
Government financing, a criterion that would be taxing especially to developing countries such as Malaysia, is also required to boost growth. The study notes that biotech centers in the US receive heavy support and subsidies from the government; for example, the National Institutes of Health provide substantial research funding, totaling $229 million in 2000, to biotech centers.
The study also concludes that it would be a mistake to believe that biotech centers will take off like computer-technology centers. Unlike the boom created by the personal computer and Internet, biotechnologies are often quite expensive and most biotech products are applicable to only a narrow fraction of the population.
Another shortcoming of the biotechnology industry is that it often takes years or decades to develop biotech-based products and for them to reach commercial status, and some might never see the light of day. This low rate of success and long period of time associated with developing and securing regulatory approval for commercial biotechnology products mean that a biotechnology industry would need to invest significant amount of time and resources.
Aside from the economics, there remain many scientific disputes and issues that are being hotly debated at the global level. These issues include genetic engineering, cloning, genomics mapping and intellectual property rights, which are highly contentious from the scientific, ethical, social and economic points of view.
Can Malaysia rise to the occasion? Does Malaysia have all these ingredients, and can it afford to pump in the substantial financial resources, energy and time to create a thriving biotech center? Or does this scheme risk turning into a white elephant, following the path of several other grandiose projects?
On the financial viability of the project, Science, Technology and Environment Minister Law Hieng Ding has been quoted as saying that the government hopes to attract $10.5 billion of investments in the next decade by providing policies and incentives such as unrestricted employment of local and foreign workers, pioneer status, and zero duties on import of biotechnology equipment. In addition, it will dish out attractive business initiatives, efficient marketing strategies for new technology, and manpower transfers.
The minister said funding will be secured through the Malaysian Technology Development Corp and other financial institutions and venture-capital firms, but he gave no details as to the amount.
Meanwhile, three companies have pledged to invest in Biovalley. Malaysia's INS Holdings and China-based Dalian Zhen-Ao Bioengineering Co will jointly produce bio-fertilizer, wheat-grass tea, bio-dynamic oil and mineral water. And Dutch-based Inproser Technologies is embarking on the third phase of its enzymatic treatment of palm-kernel waste products.
Although past performance is not encouraging, there are a few indications that Biovalley may fare well in certain areas, and perhaps better than the MSC. Malaysia has scored successes in bioengineering higher-yielding oil-palm crops and pharmaceutical and protein-producing rubber plants. Other genetically modified plants and crops that contain traits of value that have been produced at the experimental stage are genetically modified rice, papaya, pineapple and chilli. With the exception of pineapple, which is engineered for tolerance to "black heart" (a physiological condition resulting from long periods of refrigeration), all three other food crops are engineered for resistance to viral infection. But resistance and opposition to genetically modified foods and products, especially in Japan and some European countries, threaten to close export markets for Malaysian goods, say analysts.
Malaysia's rain forests are a potentially rich source of research and for production of pharmaceuticals, an asset that analysts say gives Malaysia the upper hand against its neighbor Singapore, which has also spawned its own biotechnology ambitions through Biopolis. If Malaysia were to leverage on its advantages, including lower operation costs, it would be in a strong position to attract investors away from Singapore, which in recent times has seen a slow departure of investors because of funding difficulties.
"It is a very feasible project provided that it is packaged well," said Saifuddin Morat, chief economist at Mayban Securities, adding that success hinges on the project being executed and planned well. He cited the experience of Port Pelepas, which successfully drew away major shipping companies from Singapore to the Malaysian port due largely to cost advantages and had emerged a strong contender against the city-state's dominance.
Whether foreign investment will come into Malaysia in droves depends on whether the Biovalley project can attract a major investor here, he said. "It's equivalent to the flying-geese theory. What is needed is a big name to come and the rest will follow."
So far Biovalley has managed to entice a Malaysian to uproot himself from a successful career in Britain to return home to join the project. He is Kim Tan, one of Britain's leading biotech entrepreneurs. Tan has three listed biotech companies: London-listed KS Biomedix, which is developing cancer-fighting antibodies; TranXenoGen, which is using genetic engineering in chickens to make them produce eggs containing therapeutic proteins that can then be extracted for use in drugs; and Genemedix, listed both in London and Singapore, which makes generic drugs.
Tan has teamed up with the Malaysian government investment arm, Khazanah Nasional, to manage Malaysia's first biotech venture-capital fund - Springhill Biotech Ventures - which will manage a $30 million venture-capital fund. As manager of the fund, Tan will provide key expertise and commercial know-how to the Biovalley initiative. The other backers of the fund are the Malaysian unit of Singaporean life insurer Great Eastern Holdings, insurance firm Pacificmas and palm-oil conglomerate TH Group. Springhill will license new technologies developed abroad that are almost ready to hit the market and can be used, in turn, as a platform for further research in Malaysia. It will also invest in start-ups in the United States and Europe, and set up joint ventures with research and manufacturing companies that agree to operate in Malaysia.
But the hope that other "geese" will follow Tan's path could be dampened by the problems that plague the project. The lack of skilled professionals in the biotechnology arena, the lack of regulations and intellectual-property protection and the lateness at which Malaysia has joined the biotechnology game in the region could be a deterrent to foreign scientists and investments and could put back the country's ambitious plan, said Daphne Chung, a senior analyst with IDC Asia/Pacific, an independent technology consultancy and market research firm based in Singapore.
A sobering note, but one that is needed to reflect reality as Malaysia charges forward in its new big project.

Parent site: "Focus on Malaysia"