Overview: Malaysian Industrial Biotechnology

1

The Malaysian

Industrial

Biotechnology

Sector

A Frost & Sullivan Whitepaper2009

2

Contents

Please note; all data included in this paper is from published sources or Frost & Sullivan’s proprietary information, or from industry participants. Where currencies are mentioned, the conversion of Malaysian Ringgit to US Dollar uses the following exchange rate: RM 3.6 = US$1.0

DisclaimerInformation, opinions or recommendations provided by Frost & Sullivan are presented solely for informational purposes. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy of such statements. The information presented and the opinions expressed are subject to change without notice. Frost & Sullivan takes no responsibility for any incorrect information supplied to us by published sources or industry participants; however all care is taken to verify data. Quantitative market information is subject to fluctuation. In no event will Frost & Sullivan or employees thereof be liable for any decision made or action taken in reliance on the information in this report or for any consequential, special or similar damages, even if advised of the possibility of such damages.

About Frost & SullivanFrost & Sullivan, a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 45 years. The company's industry expertise integrates growth consulting, growth partnership services and corporate management training to identify and develop opportunities.Frost & Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community, by providing comprehensive industry coverage that reflects a unique global perspective and combines ongoing analysis of markets, technologies, econometrics and demographics.

For more information, visit www.frost.com

•Introduction

•Global Sector Overview

•Goals and Strategies for the Sector The Malaysian Biotechnology Policy The 9th Malaysia Plan

•Industrial Biotechnology Focus Areas Biofuels Bio-catalysts Fine and Specialty Chemicals

•Review of Key Research and Development Areas

•The Malaysian Industrial Biotechnology Sector The Malaysian Biofuels Sector The Malaysian Bio-catalysts Sector The Malaysian Fine and Specialty Chemicals Sector

•Progressive Development of the Industrial Biotechnology Sector Example of a Research & Development Centre

•Malaysia’s Key Offerings Designated Economic Corridors BioNexus Government Incentives Intellectual Property Right Protection Funding

•Conclusion

•References

04

05

06

08

12

13

16

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24

3

Contents

Please note; all data included in this paper is from published sources or Frost & Sullivan’s proprietary information, or from industry participants. Where currencies are mentioned, the conversion of Malaysian Ringgit to US Dollar uses the following exchange rate: RM 3.6 = US$1.0

DisclaimerInformation, opinions or recommendations provided by Frost & Sullivan are presented solely for informational purposes. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy of such statements. The information presented and the opinions expressed are subject to change without notice. Frost & Sullivan takes no responsibility for any incorrect information supplied to us by published sources or industry participants; however all care is taken to verify data. Quantitative market information is subject to fluctuation. In no event will Frost & Sullivan or employees thereof be liable for any decision made or action taken in reliance on the information in this report or for any consequential, special or similar damages, even if advised of the possibility of such damages.

About Frost & SullivanFrost & Sullivan, a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 45 years. The company's industry expertise integrates growth consulting, growth partnership services and corporate management training to identify and develop opportunities.Frost & Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community, by providing comprehensive industry coverage that reflects a unique global perspective and combines ongoing analysis of markets, technologies, econometrics and demographics.

For more information, visit www.frost.com

•Introduction

•Global Sector Overview

•Goals and Strategies for the Sector The Malaysian Biotechnology Policy The 9th Malaysia Plan

•Industrial Biotechnology Focus Areas Biofuels Bio-catalysts Fine and Specialty Chemicals

•Review of Key Research and Development Areas

•The Malaysian Industrial Biotechnology Sector The Malaysian Biofuels Sector The Malaysian Bio-catalysts Sector The Malaysian Fine and Specialty Chemicals Sector

•Progressive Development of the Industrial Biotechnology Sector Example of a Research & Development Centre

•Malaysia’s Key Offerings Designated Economic Corridors BioNexus Government Incentives Intellectual Property Right Protection Funding

•Conclusion

•References

04

05

06

08

12

13

16

18

23

24

4

IntroductionIndustrial biotechnology is the application of biological based systems and their components in the manufacture of industrial products or in the support of industrial processes. Industrial biotechnology (also referred to as “White Biotechnology”) is one of the three areas of the biotechnology sector, the others being Healthcare biotechnology (“Red biotechnology”) and Agricultural biotechnology (“Green biotechnology”).

Industrial biotechnology is mainly based on fermentation technology and bio-catalysis. Fermentation is a biological process in which an organism or its components anaerobically convert organic compounds into alternative organic compounds. In industrial biotechnology this typically involves the conversion of complex organic material into simpler products (e.g. the conversion of carbohydrates into alcohol). In Bio-catalysis processes enzymes, which are produced and isolated from micro-organisms, are applied to accelerate (catalyze) the conversion of one product into another product.

Industrial biotechnology covers a broad range of industrial applications and sectors, including polymer manufacturing, biofuels production, fine and specialty chemical manufacturing and bio-remediation. By 2010 it is estimated that sector will be worth US$15.3 billion – US$33.6 billion . In Asia, growth in the industrial biotechnology sector is being driven by the expansion of the biofuels industry in a number of Asian countries, particularly Malaysia, Indonesia, Thailand, India and the Philippines. The development of a national biofuels industry in these countries is strongly driven by the existence of significant quantities of feedstock in the countries and by dedicated government support designed to foster the development of the industries. Other areas of the industrial biotechnology across Asia are still in a nascent stage of development although some countries in the region are developing niche areas of specialization, for example China has developed significant expertise in the field of bio-remediation of waste water.

Malaysia is micro-cosmic representation of the region as a whole. The country has traditionally had strengths in the palm oil sector and is moving to leverage on this expertise to expand into the adjacent biofuels sector. The development of the sector is two tiered, with resource allocated to both establishing production facilities in Malaysia and to enhancing biofuels processing, production and yields. Malaysia’s foray into other segments of the industrial biotechnology sector are at are nascent stage of growth. However dedicated government support for the industry is driving the growth of a number of opportunities in the sector, particularly in the field of biocatalysts, fine chemical production, bioremediation and biopolymer production. In addition to the utilizing the support matrix created by the government, companies in the sector will build on Malaysia’s strengths including the significant biodiversity, established industrial manufacturing expertise and agriculture production strength.

A number of key growth drivers for the sector include the declining cost of feedstock prices, which will make the sector more cost competitive relative to other industrial processes, and the ability of the sector to reduce the environment footprint of pollution and / or carbon emitting industrial process. The significant growth opportunities and high value added nature of the sector have made it an attractive target for countries seeking to move their manufacturing activities up the value chain.

Global Sector OverviewBiotechnology is likely to emerge as a significant growth engine of the global economy. Its applicable product reach is high, and biotechnology applications are expected to alter the manufacturing and application of products in the healthcare, agriculture and industrial sectors. The sectors footprint is likely to diversify further in the future and will be driven by the continued emergence of new technology and a deeper interaction of the sector with IT technology (bioinformatics). As a nascent industry, the biotechnology sector has developed as a recognized industry only within the last twenty-five years. The creation and expansion of the industry was driven by scientific breakthroughs that allowed organisms and their constituent parts to be isolated and manipulated. The evolution of the biotechnology sector continues to be accelerated by on-going technology development across multiple fields of science, including cellular techniques, genetic engineering, structural molecular biology and recombinant DNA technology.

The global biotechnology sector has grown strongly in the Asia Pacific region. In 2007 the biotechnology market in Asia was estimated at US$ 41 billion, with Japan, China, and Australia being the three largest biotechnology markets in the region, representing a combined Asian market share of around 79%. Growth in the sector has, in part, been driven by companies leveraging on the regions low cost but trained human capital base and manufacturing expertise. Another strong growth driver in Asia has been the dedicated support directed to the sector by various regional governments. The national governments of Malaysia, Singapore, South Korea, China, India and Australia all actively support the development of their respective national biotechnology sectors.

The outlook for the industrial biotechnology sector remains positive despite the current economic downturn. One of the primary drivers for the sector will be its ability to create value across the production value chain by accelerating and streamlining production processes in a number of different industries. As an example, bio-catalysts will play a greater role in the pulp and paper industry by catalytically accelerating the separation of wood fibers and by the enzymatic degradation of residual lignin that is typically removed by bleaching. Currently the predominate application of industrial biotechnology is in specialized applications, however technology driven efficiencies (such as a reduction in the cost of producing bio-catalysts and proteins) will likely broaden the sectors applications into commodity products and eventually bulk products. Process feedstock prices will also impact on the development of this trend. Current price levels of renewable feedstock for the fermentation industry exceeds the price of feedstock used by bulk and petrochemical industries, reducing the financial incentives to apply biotechnology to these sectors.

Another key driver of industrial biotechnology will be its ability to impact on the ‘carbon footprint’ of production processes. Studies have demonstrated that industrial biotechnology has the potential to reduce air and water pollution, reduce process energy demands and generate bio-degradable waste that is more environmentally friendly. It is anticipated that a growing awareness of the environmental impact of industrial process by both consumers and governments will drive the wider use of clean industrial biotechnology processes. Government responses to the growing issue of global warming and environmental pollution will have a significant impact on the evolution of this trend. Applying biotechnology to clean up industrial processes comes at a financial cost; therefore government initiatives such as the EU Emission Trading Scheme. The scheme requires companies to pay for their greenhouse gas emissions by requiring them to hold emission credits equal to their surplus greenhouse gas emission levels. This type of scheme generates financial incentives for companies to reduce their environment footprint will drive the uptake of biotechnology into industrial processes. Malaysia is making a number of positive steps in this direction, for example in 2009 the Korea Development Bank agreed to finance a US$80 million energy project that what generate carbon credits that could potentially be traded in the EU carbon credit market. This project highlights the way investors can invest in the ‘Green Technology” sector to create additional revenue generating opportunities.

5

IntroductionIndustrial biotechnology is the application of biological based systems and their components in the manufacture of industrial products or in the support of industrial processes. Industrial biotechnology (also referred to as “White Biotechnology”) is one of the three areas of the biotechnology sector, the others being Healthcare biotechnology (“Red biotechnology”) and Agricultural biotechnology (“Green biotechnology”).

Industrial biotechnology is mainly based on fermentation technology and bio-catalysis. Fermentation is a biological process in which an organism or its components anaerobically convert organic compounds into alternative organic compounds. In industrial biotechnology this typically involves the conversion of complex organic material into simpler products (e.g. the conversion of carbohydrates into alcohol). In Bio-catalysis processes enzymes, which are produced and isolated from micro-organisms, are applied to accelerate (catalyze) the conversion of one product into another product.

Industrial biotechnology covers a broad range of industrial applications and sectors, including polymer manufacturing, biofuels production, fine and specialty chemical manufacturing and bio-remediation. By 2010 it is estimated that sector will be worth US$15.3 billion – US$33.6 billion . In Asia, growth in the industrial biotechnology sector is being driven by the expansion of the biofuels industry in a number of Asian countries, particularly Malaysia, Indonesia, Thailand, India and the Philippines. The development of a national biofuels industry in these countries is strongly driven by the existence of significant quantities of feedstock in the countries and by dedicated government support designed to foster the development of the industries. Other areas of the industrial biotechnology across Asia are still in a nascent stage of development although some countries in the region are developing niche areas of specialization, for example China has developed significant expertise in the field of bio-remediation of waste water.

Malaysia is micro-cosmic representation of the region as a whole. The country has traditionally had strengths in the palm oil sector and is moving to leverage on this expertise to expand into the adjacent biofuels sector. The development of the sector is two tiered, with resource allocated to both establishing production facilities in Malaysia and to enhancing biofuels processing, production and yields. Malaysia’s foray into other segments of the industrial biotechnology sector are at are nascent stage of growth. However dedicated government support for the industry is driving the growth of a number of opportunities in the sector, particularly in the field of biocatalysts, fine chemical production, bioremediation and biopolymer production. In addition to the utilizing the support matrix created by the government, companies in the sector will build on Malaysia’s strengths including the significant biodiversity, established industrial manufacturing expertise and agriculture production strength.

A number of key growth drivers for the sector include the declining cost of feedstock prices, which will make the sector more cost competitive relative to other industrial processes, and the ability of the sector to reduce the environment footprint of pollution and / or carbon emitting industrial process. The significant growth opportunities and high value added nature of the sector have made it an attractive target for countries seeking to move their manufacturing activities up the value chain.

Global Sector OverviewBiotechnology is likely to emerge as a significant growth engine of the global economy. Its applicable product reach is high, and biotechnology applications are expected to alter the manufacturing and application of products in the healthcare, agriculture and industrial sectors. The sectors footprint is likely to diversify further in the future and will be driven by the continued emergence of new technology and a deeper interaction of the sector with IT technology (bioinformatics). As a nascent industry, the biotechnology sector has developed as a recognized industry only within the last twenty-five years. The creation and expansion of the industry was driven by scientific breakthroughs that allowed organisms and their constituent parts to be isolated and manipulated. The evolution of the biotechnology sector continues to be accelerated by on-going technology development across multiple fields of science, including cellular techniques, genetic engineering, structural molecular biology and recombinant DNA technology.

The global biotechnology sector has grown strongly in the Asia Pacific region. In 2007 the biotechnology market in Asia was estimated at US$ 41 billion, with Japan, China, and Australia being the three largest biotechnology markets in the region, representing a combined Asian market share of around 79%. Growth in the sector has, in part, been driven by companies leveraging on the regions low cost but trained human capital base and manufacturing expertise. Another strong growth driver in Asia has been the dedicated support directed to the sector by various regional governments. The national governments of Malaysia, Singapore, South Korea, China, India and Australia all actively support the development of their respective national biotechnology sectors.

The outlook for the industrial biotechnology sector remains positive despite the current economic downturn. One of the primary drivers for the sector will be its ability to create value across the production value chain by accelerating and streamlining production processes in a number of different industries. As an example, bio-catalysts will play a greater role in the pulp and paper industry by catalytically accelerating the separation of wood fibers and by the enzymatic degradation of residual lignin that is typically removed by bleaching. Currently the predominate application of industrial biotechnology is in specialized applications, however technology driven efficiencies (such as a reduction in the cost of producing bio-catalysts and proteins) will likely broaden the sectors applications into commodity products and eventually bulk products. Process feedstock prices will also impact on the development of this trend. Current price levels of renewable feedstock for the fermentation industry exceeds the price of feedstock used by bulk and petrochemical industries, reducing the financial incentives to apply biotechnology to these sectors.

Another key driver of industrial biotechnology will be its ability to impact on the ‘carbon footprint’ of production processes. Studies have demonstrated that industrial biotechnology has the potential to reduce air and water pollution, reduce process energy demands and generate bio-degradable waste that is more environmentally friendly. It is anticipated that a growing awareness of the environmental impact of industrial process by both consumers and governments will drive the wider use of clean industrial biotechnology processes. Government responses to the growing issue of global warming and environmental pollution will have a significant impact on the evolution of this trend. Applying biotechnology to clean up industrial processes comes at a financial cost; therefore government initiatives such as the EU Emission Trading Scheme. The scheme requires companies to pay for their greenhouse gas emissions by requiring them to hold emission credits equal to their surplus greenhouse gas emission levels. This type of scheme generates financial incentives for companies to reduce their environment footprint will drive the uptake of biotechnology into industrial processes. Malaysia is making a number of positive steps in this direction, for example in 2009 the Korea Development Bank agreed to finance a US$80 million energy project that what generate carbon credits that could potentially be traded in the EU carbon credit market. This project highlights the way investors can invest in the ‘Green Technology” sector to create additional revenue generating opportunities.

6

The policies describe an over-reaching series of goals, and the development plans for the Industrial biotechnology sector are embedded within these policies. The Malaysian Biotechnology policy proposed broad support for the industrial biotechnology sector and indicated that initiatives would focus on growing opportunities in the advanced bio-processing and bio-manufacturing sectors. The 9th Malaysia Plan was more specific and described specific sector niches that would be focused on, including bio-catalysts, bioprocessing (in particular biofuels production) and contract biomanufacturing.

9th Malaysia Plan Biotechnology Fund Allocation

R&D Development

Biotechnology Acquisition Programme

Biotechnology Business Development

Biotechnology Infrastructure

Total $567.3

Biotechnology R&D

Technology and IP Management

Entrepreneurship Development

Agro-Biotechnology Projects

Source: 9th Malaysia Plan, Economic Planning Unit

Institutional Support and Equity

Biotechnology Commercialization Fund

$129.9

$28.1

$148.7

$260.6

$101.9

$28.1

$14.0

$22.4$84.2

$28.1

$2,021.3

$463.0

$100.0

$529.8

$928.5

$363.0

$100.0

$50.0

$79.8$300.0

$100.0

Allocation(US$, M)

Allocation(RM)

Transform and enhance the value creation of the agricultural sector through biotechnology.

Leverage on the country's strong manufacturing sector to increase opportunities for bio-processing and bio-manufacturing.

Establish centres of biotechnology excellence, through research & development, as well as technology acquisition.

Build the nation's human capital through education, training and research activities, with the aim of producing knowledge generation capabilities.

Provide the right financial support via competitive lab to market funding and incentives to encourage committed participation from academia and the private sector, including Government-linked companies.

Agricultural Biotechnology

IndustrialBiotechnology

Capitalise on the country's biodiversity for commercialising the discoveries of health related natural products and bio-generic drugs.

HealthcareBiotechnology

Research &DevelopmentTechnologyAcquisition

Financial Infrastructure

Strengthen the legal and regulatory framework by reviewing ownership of intellectual properties and regulations relating to biotechnology processes and business.

Legal & RegulatoryFramework

Build international recognition for Malaysian biotechnology and find a niche in the global technology value chain.

StrategicDevelopment

Realise the execution of policy through the establishment of a dedicated and professional Government agency to spearhead the development of the biotechnology industry with the incorporation of Malaysian Biotechnology Corporation Sdn Bhd (BiotechCorp).

GovernmentSupport &

Commitment

Human CapitalDevelopment

The Nine Thrusts of the National Biotechnology Policy

Source: BiotechCorp, 2008

Goals and Strategiesfor the SectorMalaysia has identified biotechnology as one of the new engines of growth for the national economy and it is expected that the sector will generate US$75 billion (RM270 billion) in revenues by 2020. The country has a rich biodiversity and cost-competitive skilled labour markets, as well as good transportation networks, ICT infrastructure and strong capabilities in R&D. These combined characteristics make Malaysia an attractive potential destination for foreign biotechnology companies and investors interested in the biotechnology sector.

The Malaysian Biotechnology Policy

The Malaysian Government has identified the biotechnology sector as one of the key strategic sectors that will support the growth of the Malaysian economy. It is anticipated that growth in the sector will be supported by leveraging on the strength of the country’s diverse natural resources and cost effective human capital talent pool. The Government has identified the need to create a strong supporting framework to facilitate the long term growth of the sector. In 2005 the Malaysian government enacted the Malaysian Biotechnology Policy to achieve this goal. The policy detailed nine focus areas deemed critical to the creation of a sustained biotechnology sector, one of which is to support the growth of the industrial biotechnology sector.

The Malaysian Biotechnology Policy detailed a series of aggressive development goals. The biotechnology industry is expected to contribute approximately 2.5 % of national GDP by 2010, 4.0% by 2015 and 5.0% by 2020. Furthermore, it is estimated that the industry will create 280,000 new jobs – both directly and indirectly – by 2020.

Thrust three of the policy deals with Industrial biotechnology. The focus of the policy in the sector is to nurture and support growth opportunities in the application of advanced bio-processing and bio-manufacturing technologies. Specific areas within the Industrial Biotechnology sector were identified as potential growth areas in the policy. These include:1. Bio-catalysts: Development of biocatalysts such as enzymes for food and feed preparations, cleaning products, textile processing and other industrial processes.

2. Bioprocessing: A growth area which can be applied in the production of biomaterials such as bioplastics, biofuel, fine and specialty chemicals such as cosmetic ingredients and electronic chemicals.

3. Biomanufacturing: as applied to the development of bio-materials, enzymes (biocatalysis), biofuels, microbes technologies, biomass, bio-degradable plastics, oleochemicals and contract bio-process engineering.

The 9th Malaysia Plan

The 9th Malaysia Plan announced on the 31st March 2006 further defined and detailed the goals of the Malaysian government in relation to the biotechnology sector. Importantly the Plan reviewed the amount of funding support committed to developing the sector in Malaysia (as described below). It is anticipated that the industrial biotechnology sector will benefit from all of these investments, including the funding support directed to agro-biotechnology projects which, in part, will focus on the development of novel feedstock used in the manufacture of biofuels (such as improved high oil yielding oil palm varieties).

7

The policies describe an over-reaching series of goals, and the development plans for the Industrial biotechnology sector are embedded within these policies. The Malaysian Biotechnology policy proposed broad support for the industrial biotechnology sector and indicated that initiatives would focus on growing opportunities in the advanced bio-processing and bio-manufacturing sectors. The 9th Malaysia Plan was more specific and described specific sector niches that would be focused on, including bio-catalysts, bioprocessing (in particular biofuels production) and contract biomanufacturing.

9th Malaysia Plan Biotechnology Fund Allocation

R&D Development

Biotechnology Acquisition Programme

Biotechnology Business Development

Biotechnology Infrastructure

Total $567.3

Biotechnology R&D

Technology and IP Management

Entrepreneurship Development

Agro-Biotechnology Projects

Source: 9th Malaysia Plan, Economic Planning Unit

Institutional Support and Equity

Biotechnology Commercialization Fund

$129.9

$28.1

$148.7

$260.6

$101.9

$28.1

$14.0

$22.4$84.2

$28.1

$2,021.3

$463.0

$100.0

$529.8

$928.5

$363.0

$100.0

$50.0

$79.8$300.0

$100.0

Allocation(US$, M)

Allocation(RM)

Transform and enhance the value creation of the agricultural sector through biotechnology.

Leverage on the country's strong manufacturing sector to increase opportunities for bio-processing and bio-manufacturing.

Establish centres of biotechnology excellence, through research & development, as well as technology acquisition.

Build the nation's human capital through education, training and research activities, with the aim of producing knowledge generation capabilities.

Provide the right financial support via competitive lab to market funding and incentives to encourage committed participation from academia and the private sector, including Government-linked companies.

Agricultural Biotechnology

IndustrialBiotechnology

Capitalise on the country's biodiversity for commercialising the discoveries of health related natural products and bio-generic drugs.

HealthcareBiotechnology

Research &DevelopmentTechnologyAcquisition

Financial Infrastructure

Strengthen the legal and regulatory framework by reviewing ownership of intellectual properties and regulations relating to biotechnology processes and business.

Legal & RegulatoryFramework

Build international recognition for Malaysian biotechnology and find a niche in the global technology value chain.

StrategicDevelopment

Realise the execution of policy through the establishment of a dedicated and professional Government agency to spearhead the development of the biotechnology industry with the incorporation of Malaysian Biotechnology Corporation Sdn Bhd (BiotechCorp).

GovernmentSupport &

Commitment

Human CapitalDevelopment

The Nine Thrusts of the National Biotechnology Policy

Source: BiotechCorp, 2008

Goals and Strategiesfor the SectorMalaysia has identified biotechnology as one of the new engines of growth for the national economy and it is expected that the sector will generate US$75 billion (RM270 billion) in revenues by 2020. The country has a rich biodiversity and cost-competitive skilled labour markets, as well as good transportation networks, ICT infrastructure and strong capabilities in R&D. These combined characteristics make Malaysia an attractive potential destination for foreign biotechnology companies and investors interested in the biotechnology sector.

The Malaysian Biotechnology Policy

The Malaysian Government has identified the biotechnology sector as one of the key strategic sectors that will support the growth of the Malaysian economy. It is anticipated that growth in the sector will be supported by leveraging on the strength of the country’s diverse natural resources and cost effective human capital talent pool. The Government has identified the need to create a strong supporting framework to facilitate the long term growth of the sector. In 2005 the Malaysian government enacted the Malaysian Biotechnology Policy to achieve this goal. The policy detailed nine focus areas deemed critical to the creation of a sustained biotechnology sector, one of which is to support the growth of the industrial biotechnology sector.

The Malaysian Biotechnology Policy detailed a series of aggressive development goals. The biotechnology industry is expected to contribute approximately 2.5 % of national GDP by 2010, 4.0% by 2015 and 5.0% by 2020. Furthermore, it is estimated that the industry will create 280,000 new jobs – both directly and indirectly – by 2020.

Thrust three of the policy deals with Industrial biotechnology. The focus of the policy in the sector is to nurture and support growth opportunities in the application of advanced bio-processing and bio-manufacturing technologies. Specific areas within the Industrial Biotechnology sector were identified as potential growth areas in the policy. These include:1. Bio-catalysts: Development of biocatalysts such as enzymes for food and feed preparations, cleaning products, textile processing and other industrial processes.

2. Bioprocessing: A growth area which can be applied in the production of biomaterials such as bioplastics, biofuel, fine and specialty chemicals such as cosmetic ingredients and electronic chemicals.

3. Biomanufacturing: as applied to the development of bio-materials, enzymes (biocatalysis), biofuels, microbes technologies, biomass, bio-degradable plastics, oleochemicals and contract bio-process engineering.

The 9th Malaysia Plan

The 9th Malaysia Plan announced on the 31st March 2006 further defined and detailed the goals of the Malaysian government in relation to the biotechnology sector. Importantly the Plan reviewed the amount of funding support committed to developing the sector in Malaysia (as described below). It is anticipated that the industrial biotechnology sector will benefit from all of these investments, including the funding support directed to agro-biotechnology projects which, in part, will focus on the development of novel feedstock used in the manufacture of biofuels (such as improved high oil yielding oil palm varieties).

8

Industrial Biotechnology Focus AreasThe industrial biotechnology sector is broad and for the purposes of this white paper Frost and Sullivan will focus on 3 areas in which we believe Malaysia will be able to leverage on its natural strengths and capabilities to develop an internationally competitive position in the market. The 3 focus areas are the biofuels sector, the bio-catalyst sector and the fine & specialty chemicals sector:

It is forecasted that by 2011 global consumption will exceed 22 million tonnes. The EU will remain the largest market but Asia Pacific, USA and Latin America will also display strong growth. Potential additional demand from regions such as South Africa, Canada, Russia, etc has not been included in these forecasts:

We anticipate the development of biofuel sector in Malaysia will be particularly strong due to the multiple benefits that local producers and developers can leverage on. These include the ample supply of palm oil and other feedstock biomass and the strength of the commodity supply chain in Malaysia, which will reduce logistics costs.

Focus Sector Overview 1: Biofuels

Biofuels represent an alternative fuel source to non-renewable petroleum-based fuels. The different types of biofuels and their applications are described in the table below. The creation of the biofuels market was driven by the need to address declining stocks of petroleum reserves and to mitigate the generation of greenhouse gases caused by the consumption of fossil fuels. The transportation sector accounts for approximately two thirds of the global consumption of petroleum and one third of the carbon dioxide emitted. To reduce the transport sector consumption of fossil fuels numerous governments’ subsidize and encourage the use of bio-fuels. The US directly subsidizes both the generation of corn based bioethanol (in 2006 US$900 million of subsidies were paid) and also provides fuel suppliers with a 51¢ per gallon federal blenders credit. Due the low cost of diesel fuel it will be critical for the government to subsidies the supply of biofuels.

In 2009 it is estimated that the EU will import one million tonnes of palm oil (mainly from Malaysia and Indonesia) to use in biofuel production (550,000 tonnes for biodiesel and 450,000 tonnes for power generation). The EU alone will account for more than 50 per cent of total global demand for biodiesel. Forecasts for future demand are given below, based on two main assumptions: •Governments will maintain regulatory and fiscal support; and •Sufficient feedstock will be available to not only efficiently produce large quantities of biodiesel but will also

support research into technology focused on the efficient utilization of new and novel biofuels

Global Biodiesel Demand

-

5,000

10,000

15,000

20,000

25,000

'000

Ton

nes

Latin America 25 182 650 900 941 1,167 1,208

Asia Pacific 80 140 415 993 2,498 3,364 4,618 6,731

USA 7 17 50 65 85 250 833 1,390 2,500 3,300 3,850 4,125

EU 300 600 1,055 1,434 1,933 3,180 4,890 5,600 6,900 8,200 9,300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Frost & Sullivan, 2007

Principle Biotechnology Generated Biofuels

Name and Description Source Application

Bioethanol

Ethanol produced by breakdown of biomass, Brazil produces 50% of global production

Motor vehicle transport, no vehicle modifications are needed to use less than 10% bioethanol blends

- Corn (US)- Sugarcane Juice and Molasses (Brazil)- Wheat, barley

Biodiesel

Produced from vegetable oils via transesterification process

Can be used pure but can cause engine problems, also used as a blend with petroleum diesel

- Soybean oil (US)- Rapeseed oil (Europe)- Palm oil (Malaysia and Indonesia)

Biogas

Principally Methane, generated by biodegradation of feedstock Turbine based electricity generation

- Landfill biomass- Waste Water- Other biomass and feedstock

Sector Strengths Biofuels Bio- CatalystFine & Specialty

Chemicals

Vast natural resources

Strength in oleochemical and specialty chemical manufacturing

Cost competitive skilled labour

Abundant supply of biomass

Heavy concentration of oil palm plantations

Palm oil refineries and ready supply of feedstock

Absence of moratorium on genetically modified crops

Globally recognised halal certification

Advanced commodity sector

10,100

9

Industrial Biotechnology Focus AreasThe industrial biotechnology sector is broad and for the purposes of this white paper Frost and Sullivan will focus on 3 areas in which we believe Malaysia will be able to leverage on its natural strengths and capabilities to develop an internationally competitive position in the market. The 3 focus areas are the biofuels sector, the bio-catalyst sector and the fine & specialty chemicals sector:

It is forecasted that by 2011 global consumption will exceed 22 million tonnes. The EU will remain the largest market but Asia Pacific, USA and Latin America will also display strong growth. Potential additional demand from regions such as South Africa, Canada, Russia, etc has not been included in these forecasts:

We anticipate the development of biofuel sector in Malaysia will be particularly strong due to the multiple benefits that local producers and developers can leverage on. These include the ample supply of palm oil and other feedstock biomass and the strength of the commodity supply chain in Malaysia, which will reduce logistics costs.

Focus Sector Overview 1: Biofuels

Biofuels represent an alternative fuel source to non-renewable petroleum-based fuels. The different types of biofuels and their applications are described in the table below. The creation of the biofuels market was driven by the need to address declining stocks of petroleum reserves and to mitigate the generation of greenhouse gases caused by the consumption of fossil fuels. The transportation sector accounts for approximately two thirds of the global consumption of petroleum and one third of the carbon dioxide emitted. To reduce the transport sector consumption of fossil fuels numerous governments’ subsidize and encourage the use of bio-fuels. The US directly subsidizes both the generation of corn based bioethanol (in 2006 US$900 million of subsidies were paid) and also provides fuel suppliers with a 51¢ per gallon federal blenders credit. Due the low cost of diesel fuel it will be critical for the government to subsidies the supply of biofuels.

In 2009 it is estimated that the EU will import one million tonnes of palm oil (mainly from Malaysia and Indonesia) to use in biofuel production (550,000 tonnes for biodiesel and 450,000 tonnes for power generation). The EU alone will account for more than 50 per cent of total global demand for biodiesel. Forecasts for future demand are given below, based on two main assumptions: •Governments will maintain regulatory and fiscal support; and •Sufficient feedstock will be available to not only efficiently produce large quantities of biodiesel but will also

support research into technology focused on the efficient utilization of new and novel biofuels

Global Biodiesel Demand

-

5,000

10,000

15,000

20,000

25,000

'000

Ton

nes

Latin America 25 182 650 900 941 1,167 1,208

Asia Pacific 80 140 415 993 2,498 3,364 4,618 6,731

USA 7 17 50 65 85 250 833 1,390 2,500 3,300 3,850 4,125

EU 300 600 1,055 1,434 1,933 3,180 4,890 5,600 6,900 8,200 9,300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Frost & Sullivan, 2007

Principle Biotechnology Generated Biofuels

Name and Description Source Application

Bioethanol

Ethanol produced by breakdown of biomass, Brazil produces 50% of global production

Motor vehicle transport, no vehicle modifications are needed to use less than 10% bioethanol blends

- Corn (US)- Sugarcane Juice and Molasses (Brazil)- Wheat, barley

Biodiesel

Produced from vegetable oils via transesterification process

Can be used pure but can cause engine problems, also used as a blend with petroleum diesel

- Soybean oil (US)- Rapeseed oil (Europe)- Palm oil (Malaysia and Indonesia)

Biogas

Principally Methane, generated by biodegradation of feedstock Turbine based electricity generation

- Landfill biomass- Waste Water- Other biomass and feedstock

Sector Strengths Biofuels Bio- CatalystFine & Specialty

Chemicals

Vast natural resources

Strength in oleochemical and specialty chemical manufacturing

Cost competitive skilled labour

Abundant supply of biomass

Heavy concentration of oil palm plantations

Palm oil refineries and ready supply of feedstock

Absence of moratorium on genetically modified crops

Globally recognised halal certification

Advanced commodity sector

10,100

10

The challenges faced by the expanding market for both bioethanol and biodiesel include feedstock supply and cost competitiveness with petroleum-based fuels. Bioethanol and biodiesel feedstock has alternative uses as a food product. In 2007 soaring biofuel demand contributed to an escalation of feedstock prices, which significantly reduced the profitability of bio-fuel production. It is anticipated that as bio-fuel demand grows the demand for feedstock will need to be met by cellulosic materials or alternative feedstock to limit the impact on feedstock costs. Currently the production of biofuels from cellulosic materials is commercially not viable although it is believed future advances in process technology will change the current scenario. The price of crude oil, which competes with biofuels, also has a significant impact on the commercial viability of biofuels projects. The current low price of crude oil will reduce the commercial incentives for companies to produce biofuels, due to competition from crude oil. While the price of crude is sharply lower than its peak price reached in 2008 over the long term increasing demand and declining oil reserves are forecast to increase crude oil prices above their current levels. This forecast trend will benefit investors in the biofuels sector, particular those with a medium to long term investment horizon.

The Asia Pacific region is a nascent but growing market for biodiesel. Local demand for biodiesel is limited and is likely to remain muted unless concerted government efforts are made to stimulate local demand. The export market represents the dominant market opportunity for producers in Asia, in particular we expect strong opportunities to develop for exporters in the EU biodiesel market as the current production of rapeseed oil based biodiesel in the EU is insufficient to meet local demand. Producers operating in the Asia Pacific region will also benefit from cost efficiencies created by access to low-cost feedstocks. In addition the availability of feedstock will also support the cost- effective production of bio-based compounds such as bio-plastics and fine chemical compounds.

Focus Sector Overview 2: Bio-Catalysts

Bio-catalyst are proteins that act to accelerate chemical reactions by bringing chemical compounds involved in a reaction into close proximity to each other. Bio-catalysts must be produced by living organisms and are typically derived from plant, animal, or microbial sources.

The last few years have witnessed tremendous progress in the development of enzyme technology and enzyme production efficiencies. In industry process bio-catalysts compete with chemical catalyst. While production improvements have reduced the cost of producing bio-catalysts they continue to remain more expensive than chemical catalyst. In recent years bio-catalysts have become more competitive as advances in recombinant DNA and structural protein technology has resulted in creation of bio-catalysts with improved selectivity, energy efficiency and environmental safety.

Bio-catalyst are extensively used in food and beverage production and processing such as sugar and starch processing, dairy products, beer production, wine processing, juice processing and baking. Bio-catalysts employed by the food industry are also called food enzymes. Technical enzymes are defined as those used in more industrial process such as in the manufacture of detergents, textiles, leather, paper and pulp. A third class of bio-catalysts, called animal feed enzymes, is used in feed processing. It is anticipated that technology improvements and production efficiencies will drive the future use of bio-catalysts into other, non-traditional, industrial sector.

In 2007 revenues generated by the global enzymes market were estimated at $4.1 billion, of which $2.71 billion was generated by the sale of industrial enzymes. Technical enzymes and food enzymes are the strongest growing segment of the biocatalyst market. Industry participants need to continuously innovate to remain competitive; hence firms in the sector devote significant efforts in new product R&D and in the acquisition of new technology via merger and acquisition and in-licensing activity.

Focus Sector Overview 3: Fine and Specialty Chemicals

The field in which the application of biotechnology is most likely to make the greatest impact is anticipated to be the fine and specialty chemicals segment. The industrial biotechnology sector is a key contributor to the production of vitamins, amino acids and other biochemicals such as lactic acid and glycerol. However applications of biotechnology to chemical manufacturing are rapidly growing. Current predictions forecast that by 2010 up to 60 percent of fine and specialty chemical manufacturing may involve some use of biotechnology. Biotechnology will create value by reducing process costs and by enabling the creation of novel chemical products. It is estimated that the value that will be created by these developments will be worth between US$15.3 – 30.6 billion by 2010 in the chemical industry alone .

A key factor that will drive the use of biotechnology in the fine and specialty chemicals sector is the increasing process efficiencies the biotechnology can deliver. The use of biotechnology processes to produce fine and specialty chemicals competes with traditional production methods. Improvements in biotechnology process efficiencies will increase the cost benefits of these processes and drive their uptake by the fine and specialty chemicals industry. This again highlights the importance of R&D in the sector and the need for companies to allocate resources into the creation of new products in-order to tap into emerging opportunities within the sector. Another driver impacting on the growing use of biotechnology in this sector will be the price of crude oil. Petrochemical based processes are a key competitor to biotechnology processes, hence the price of oil will have a strong impact on overall process costs competitiveness.

An additional benefit to companies operating in the sector is the HALAL status awarded to products designed for human consumption. This will be a critical consideration for producers who intend to target the growing opportunity offered by Islamic markets.

Technology Drivers – Shaping the future use of Bio-Catalysts

1. Discovery: Genomic mapping, decoding and screening technology will accelerate the discovery novel and variant forms of bio-catalysts

2. Optimization: Protein Engineering will be used to manipulate protein structures to enhance the efficiency and stability of current enzymes and allow the customized development of unique bio-catalysts

3. Production: Fermentation process yield enhancements via improvements in upstream and downstream processing will strength the cost competitiveness of bio-catalysts

Brent Crude Oil vs. Ethanol

+25%

0%

-25%

-50%

-75%May 2008 Sep 2008 Jan 2008

11

The challenges faced by the expanding market for both bioethanol and biodiesel include feedstock supply and cost competitiveness with petroleum-based fuels. Bioethanol and biodiesel feedstock has alternative uses as a food product. In 2007 soaring biofuel demand contributed to an escalation of feedstock prices, which significantly reduced the profitability of bio-fuel production. It is anticipated that as bio-fuel demand grows the demand for feedstock will need to be met by cellulosic materials or alternative feedstock to limit the impact on feedstock costs. Currently the production of biofuels from cellulosic materials is commercially not viable although it is believed future advances in process technology will change the current scenario. The price of crude oil, which competes with biofuels, also has a significant impact on the commercial viability of biofuels projects. The current low price of crude oil will reduce the commercial incentives for companies to produce biofuels, due to competition from crude oil. While the price of crude is sharply lower than its peak price reached in 2008 over the long term increasing demand and declining oil reserves are forecast to increase crude oil prices above their current levels. This forecast trend will benefit investors in the biofuels sector, particular those with a medium to long term investment horizon.

The Asia Pacific region is a nascent but growing market for biodiesel. Local demand for biodiesel is limited and is likely to remain muted unless concerted government efforts are made to stimulate local demand. The export market represents the dominant market opportunity for producers in Asia, in particular we expect strong opportunities to develop for exporters in the EU biodiesel market as the current production of rapeseed oil based biodiesel in the EU is insufficient to meet local demand. Producers operating in the Asia Pacific region will also benefit from cost efficiencies created by access to low-cost feedstocks. In addition the availability of feedstock will also support the cost- effective production of bio-based compounds such as bio-plastics and fine chemical compounds.

Focus Sector Overview 2: Bio-Catalysts

Bio-catalyst are proteins that act to accelerate chemical reactions by bringing chemical compounds involved in a reaction into close proximity to each other. Bio-catalysts must be produced by living organisms and are typically derived from plant, animal, or microbial sources.

The last few years have witnessed tremendous progress in the development of enzyme technology and enzyme production efficiencies. In industry process bio-catalysts compete with chemical catalyst. While production improvements have reduced the cost of producing bio-catalysts they continue to remain more expensive than chemical catalyst. In recent years bio-catalysts have become more competitive as advances in recombinant DNA and structural protein technology has resulted in creation of bio-catalysts with improved selectivity, energy efficiency and environmental safety.

Bio-catalyst are extensively used in food and beverage production and processing such as sugar and starch processing, dairy products, beer production, wine processing, juice processing and baking. Bio-catalysts employed by the food industry are also called food enzymes. Technical enzymes are defined as those used in more industrial process such as in the manufacture of detergents, textiles, leather, paper and pulp. A third class of bio-catalysts, called animal feed enzymes, is used in feed processing. It is anticipated that technology improvements and production efficiencies will drive the future use of bio-catalysts into other, non-traditional, industrial sector.

In 2007 revenues generated by the global enzymes market were estimated at $4.1 billion, of which $2.71 billion was generated by the sale of industrial enzymes. Technical enzymes and food enzymes are the strongest growing segment of the biocatalyst market. Industry participants need to continuously innovate to remain competitive; hence firms in the sector devote significant efforts in new product R&D and in the acquisition of new technology via merger and acquisition and in-licensing activity.

Focus Sector Overview 3: Fine and Specialty Chemicals

The field in which the application of biotechnology is most likely to make the greatest impact is anticipated to be the fine and specialty chemicals segment. The industrial biotechnology sector is a key contributor to the production of vitamins, amino acids and other biochemicals such as lactic acid and glycerol. However applications of biotechnology to chemical manufacturing are rapidly growing. Current predictions forecast that by 2010 up to 60 percent of fine and specialty chemical manufacturing may involve some use of biotechnology. Biotechnology will create value by reducing process costs and by enabling the creation of novel chemical products. It is estimated that the value that will be created by these developments will be worth between US$15.3 – 30.6 billion by 2010 in the chemical industry alone .

A key factor that will drive the use of biotechnology in the fine and specialty chemicals sector is the increasing process efficiencies the biotechnology can deliver. The use of biotechnology processes to produce fine and specialty chemicals competes with traditional production methods. Improvements in biotechnology process efficiencies will increase the cost benefits of these processes and drive their uptake by the fine and specialty chemicals industry. This again highlights the importance of R&D in the sector and the need for companies to allocate resources into the creation of new products in-order to tap into emerging opportunities within the sector. Another driver impacting on the growing use of biotechnology in this sector will be the price of crude oil. Petrochemical based processes are a key competitor to biotechnology processes, hence the price of oil will have a strong impact on overall process costs competitiveness.

An additional benefit to companies operating in the sector is the HALAL status awarded to products designed for human consumption. This will be a critical consideration for producers who intend to target the growing opportunity offered by Islamic markets.

Technology Drivers – Shaping the future use of Bio-Catalysts

1. Discovery: Genomic mapping, decoding and screening technology will accelerate the discovery novel and variant forms of bio-catalysts

2. Optimization: Protein Engineering will be used to manipulate protein structures to enhance the efficiency and stability of current enzymes and allow the customized development of unique bio-catalysts

3. Production: Fermentation process yield enhancements via improvements in upstream and downstream processing will strength the cost competitiveness of bio-catalysts

Brent Crude Oil vs. Ethanol

+25%

0%

-25%

-50%

-75%May 2008 Sep 2008 Jan 2008

12

Technology is one of the key growth drivers in the industrial biotechnology sector. The key technologies that will drive the growth of the sector over the next 3 – 5 years are described below.

The large-scale production of proteins such as bio-catalysts typically involves fermentation, scale-up and recovery steps (such as filtration, extraction, large-scale chromatography, and crystallization) and process engineering advances will drive greater efficiencies in this space. Advances in biotechnology and genomics are expected to have a critical impact on the identification, screening, and isolation of new enzymes and other proteins. The creation and application of high throughput functional genomic screening assays such as polymerase chain reaction (PCR) based screening and signal trapping screening will be another strong growth driver for the sector. Meta-genomics, transcript profiling, and bioinformatics are other new tools that are being used to discover and characterize novel enzymes and proteins. Protein engineering, which involves the rational modification of a protein to specifically alter its activity, will have a proportionally greater impact on the bio-catalyst and fine chemical production sectors due to its application at the molecular level. By comparison, the identification and commercial application of novel micro-organisms that can efficiently breakdown and convert novel biomass (particularly cellulosic based feedstock) will be a key driver of the biofuels and industrial biotechnology sectors.

Review of Key Research and Development Areas

2008 proved to be a challenging year for the global economy. However the biotechnology sector in Malaysia continued its rapid expansion. In 2008 annual revenue growth from Malaysia’s 13 listed companies grew by 9% to RM2.4 billion.

The Malaysian Biofuels Sector

The Malaysian government is an active supporter of the development of the Malaysian biofuels sector, as demonstrated by the introduction of the Malaysian biofuels policy. Strong support for biofuels sector in a number of countries in 2007 and 2008 contributed to a surge in demand for biofuels and their feedstocks.

Bioethanol is not currently produced in Malaysia. However initiatives are underway to develop ethanol and other biofuels from non food agricultural crop sources such as Jathropa curcas and oil-palm biomass (trunks, fronds, empty fruit bunches, shells, and fiber). The existence of quantities of different biomass in Malaysia will benefit developers seeking to develop new biofuel production processes utilizing more readily available cheaper feedstock. In addition to biofuel production biotechnology companies can leverage on the availability of large quantities of tropical biomass to cost effectively produce a range of bio-based chemicals. Biomass accounts for a significant proportion of the cost of producing bio-chemical, and the availability of a diverse range of biomass in Malaysia will benefit companies seeking to develop and establish new bio-based production processes.

Malaysia’s first commercial-scale biodiesel plant using palm oil commenced operations in August 2006. From August to December of that year, a total of 55,000 tonnes of biodiesel were produced, which grew to 130,000 tonnes in 2007. By the end of 2007, 92 biodiesel projects had been approved, with an estimated annual combined production capacity of 10.4 million tonnes (11.7 billion litres) per year.

The Malaysian biofuels market contains a number of vertically integrated producers. Integrated producers control assets across the biofuels production value chain including plantations, mills and refineries. Integrated producers benefit from being able to selectively direct the flow of palm oil produced by their facilities into either food based or non-food based applications (including biodiesel production). A number of large plantation groups are entering the biofuels space. The dominant market player in Malaysia was formed by the merger of three major plantations owners, Sime Darby, Kumpulan Guthrie and Golden Hope Plantations. Other major players in the market include FELDA, IOI Corporation, Kuala Lumpur Kepong, Asiatic Development and United Plantations Berhad.

The Malaysian Industrial Biotechnology Sector

Impact of Technology Enhancements on the Industrial Biotechnology Sector

Opportunity Sector and Impact Notes

Biofuels Bio-Catalysts

Fine &Specialty

Chemicals

Technology Driven Process Improvements

Genomic DNA Technology

Process improvements will be driven by a combination of both R&D improvements and engineering developments. All industrial biotechnology sectors will be impacted by this trend as process efficiency heavily impact on a processes commercial viability. At the engineering level process improvements will enhance process yields by reducing raw material consumption, energy consumption and waste generation. In addition process improvements in protein production will reduce the bio-catalyst costs and increase process cost efficiencies.

Protein Engineering

Advancements in the understanding of structural biology will enable protein engineering to be used to improve or modify current bio-catalysts and other proteins. These modifications can be targeted to improve the catalytic efficiency of a process, reduce the amount of non-specific by products produced or stabilise a bio-catalyst or protein so that it remains stable and active for longer periods under different process conditions.

Novel Bio-molecule

screening

Novel Micro-organism

Screening

Screening techniques (both DNA and non-DNA based) will accelerate the discovery of new bio-molecules that may have novel or improved applications in the bio-catalyst and fine & specialty chemicals production sectors.Screening techniques (including DNA and non-DNA based) will accelerate the discovery of new micro-organism that may have novel or improved applications in the bio-catalyst and fine chemicals production sectors. The biofuels sectors will benefit from the discovery of new organisms that can degrade and convert novel biomass into biofuels.

Enhanced genomic screening techniques will accelerate the identification of novel enzymes and other proteins used in industrial process. It is anticipated that novel products and micro-organisms will broaden the application of biotechnology into different industrial processes. Genomic manipulation can also be used to improve cell lines used in biofuels production by improving micro-organisms production efficiency or by expanding the carbon sources that a micro-organism can be use as a feedstock.

KEY: Strong Impact - ��� Moderate Impact - �� Modest Impact - �

Investment Highlights – The Malaysian Biofuels Sector

1. Abundant Feedstock: Ready availability of a diverse quantity of raw materials, particularly palm tree based biomass of which 70M tonnes produced annually (representing 85% of the biomass available)

2. Established Infrastructure: Production and supply infrastructure is established, reducing start up and operating costs

3. Strong Government Support: Government support targeted at supporting the development of the local biodiesel market and the export markets

13

Technology is one of the key growth drivers in the industrial biotechnology sector. The key technologies that will drive the growth of the sector over the next 3 – 5 years are described below.

The large-scale production of proteins such as bio-catalysts typically involves fermentation, scale-up and recovery steps (such as filtration, extraction, large-scale chromatography, and crystallization) and process engineering advances will drive greater efficiencies in this space. Advances in biotechnology and genomics are expected to have a critical impact on the identification, screening, and isolation of new enzymes and other proteins. The creation and application of high throughput functional genomic screening assays such as polymerase chain reaction (PCR) based screening and signal trapping screening will be another strong growth driver for the sector. Meta-genomics, transcript profiling, and bioinformatics are other new tools that are being used to discover and characterize novel enzymes and proteins. Protein engineering, which involves the rational modification of a protein to specifically alter its activity, will have a proportionally greater impact on the bio-catalyst and fine chemical production sectors due to its application at the molecular level. By comparison, the identification and commercial application of novel micro-organisms that can efficiently breakdown and convert novel biomass (particularly cellulosic based feedstock) will be a key driver of the biofuels and industrial biotechnology sectors.

Review of Key Research and Development Areas

2008 proved to be a challenging year for the global economy. However the biotechnology sector in Malaysia continued its rapid expansion. In 2008 annual revenue growth from Malaysia’s 13 listed companies grew by 9% to RM2.4 billion.

The Malaysian Biofuels Sector

The Malaysian government is an active supporter of the development of the Malaysian biofuels sector, as demonstrated by the introduction of the Malaysian biofuels policy. Strong support for biofuels sector in a number of countries in 2007 and 2008 contributed to a surge in demand for biofuels and their feedstocks.

Bioethanol is not currently produced in Malaysia. However initiatives are underway to develop ethanol and other biofuels from non food agricultural crop sources such as Jathropa curcas and oil-palm biomass (trunks, fronds, empty fruit bunches, shells, and fiber). The existence of quantities of different biomass in Malaysia will benefit developers seeking to develop new biofuel production processes utilizing more readily available cheaper feedstock. In addition to biofuel production biotechnology companies can leverage on the availability of large quantities of tropical biomass to cost effectively produce a range of bio-based chemicals. Biomass accounts for a significant proportion of the cost of producing bio-chemical, and the availability of a diverse range of biomass in Malaysia will benefit companies seeking to develop and establish new bio-based production processes.

Malaysia’s first commercial-scale biodiesel plant using palm oil commenced operations in August 2006. From August to December of that year, a total of 55,000 tonnes of biodiesel were produced, which grew to 130,000 tonnes in 2007. By the end of 2007, 92 biodiesel projects had been approved, with an estimated annual combined production capacity of 10.4 million tonnes (11.7 billion litres) per year.

The Malaysian biofuels market contains a number of vertically integrated producers. Integrated producers control assets across the biofuels production value chain including plantations, mills and refineries. Integrated producers benefit from being able to selectively direct the flow of palm oil produced by their facilities into either food based or non-food based applications (including biodiesel production). A number of large plantation groups are entering the biofuels space. The dominant market player in Malaysia was formed by the merger of three major plantations owners, Sime Darby, Kumpulan Guthrie and Golden Hope Plantations. Other major players in the market include FELDA, IOI Corporation, Kuala Lumpur Kepong, Asiatic Development and United Plantations Berhad.

The Malaysian Industrial Biotechnology Sector

Impact of Technology Enhancements on the Industrial Biotechnology Sector

Opportunity Sector and Impact Notes

Biofuels Bio-Catalysts

Fine &Specialty

Chemicals

Technology Driven Process Improvements

Genomic DNA Technology

Process improvements will be driven by a combination of both R&D improvements and engineering developments. All industrial biotechnology sectors will be impacted by this trend as process efficiency heavily impact on a processes commercial viability. At the engineering level process improvements will enhance process yields by reducing raw material consumption, energy consumption and waste generation. In addition process improvements in protein production will reduce the bio-catalyst costs and increase process cost efficiencies.

Protein Engineering

Advancements in the understanding of structural biology will enable protein engineering to be used to improve or modify current bio-catalysts and other proteins. These modifications can be targeted to improve the catalytic efficiency of a process, reduce the amount of non-specific by products produced or stabilise a bio-catalyst or protein so that it remains stable and active for longer periods under different process conditions.

Novel Bio-molecule

screening

Novel Micro-organism

Screening

Screening techniques (both DNA and non-DNA based) will accelerate the discovery of new bio-molecules that may have novel or improved applications in the bio-catalyst and fine & specialty chemicals production sectors.Screening techniques (including DNA and non-DNA based) will accelerate the discovery of new micro-organism that may have novel or improved applications in the bio-catalyst and fine chemicals production sectors. The biofuels sectors will benefit from the discovery of new organisms that can degrade and convert novel biomass into biofuels.

Enhanced genomic screening techniques will accelerate the identification of novel enzymes and other proteins used in industrial process. It is anticipated that novel products and micro-organisms will broaden the application of biotechnology into different industrial processes. Genomic manipulation can also be used to improve cell lines used in biofuels production by improving micro-organisms production efficiency or by expanding the carbon sources that a micro-organism can be use as a feedstock.

KEY: Strong Impact - ��� Moderate Impact - �� Modest Impact - �

Investment Highlights – The Malaysian Biofuels Sector

1. Abundant Feedstock: Ready availability of a diverse quantity of raw materials, particularly palm tree based biomass of which 70M tonnes produced annually (representing 85% of the biomass available)

2. Established Infrastructure: Production and supply infrastructure is established, reducing start up and operating costs

3. Strong Government Support: Government support targeted at supporting the development of the local biodiesel market and the export markets

14

The Malaysian Bio-Catalysts Sector

The bio-catalyst market is an emerging market in Malaysia. The industry in Malaysia caters to a variety of the industrial applications including the production of fine chemicals, oleochemicals modification, detergent formulation, enzymatic de-inking of waste papers, animal feed formulation and effluent treatment processes. Some enzymes are produced locally although imports account for a significant proportion of local consumption. The small number of local companies and the presence of an established market offer an opportunity for new entrants seeking to capture a share of the local market. Local producers have leveraged on Malaysia’s biodiversity, and protein production from indigenous microbial isolates is being performed using submerged or solid state fermentation processes. Malaysia plays a significant role in the region supply chain for bio-catalysts; in 2008 Malaysia exported around 633 tonnes of repackaged enzymes throughout the region. The local market is dominated by foreign players, with Novozymes and Dansico / Genecor accounting for 70% of the market.

Malaysia’s biological diversity offers developers of novel bio-catalysts a significant opportunity to isolate novel bio-catalysts. A variety of different bio-catalysts have been isolated from Malaysian isolated micro-organisms, highlighting the opportunity that remains to be extracted from the countries unique ecology.

The cost efficiency of production in Malaysia would benefit companies looking at establishing local manufacturing operations. Some players in the market are already moving to take advantage of this opportunity. In 2008 Enzyme Technology Sdn Bhd and Insect Biotech of Korea entered into a partnership to establish an industrial enzyme manufacturing facility in Malaysia. Bio-catalysts are proteins and their high cost of product has limited their application in industrial processes. Rationalizing production costs, such as by moving manufacturing to low cost locations, will reduce production costs and widen the application of bio-catalyst to greater variety of industrial processes.

The Malaysian Fine and Specialty Chemicals Sector

In Malaysia biotechnology is applied to production of a range of fine and specialty chemicals, the two most significant markets in the country are the nutraceuticals and oleochemicals markets.

The oleochemical market developed as an off shoot of the Malaysian palm oil sector. The abundant supply of raw materials and incentives provided by the Malaysian government has driven the growth of the sector in Malaysia. The sector in Malaysia is still growing although this is slowing as the market matures. Products manufactured by the sector include fatty acid, fatty alcohol, glycerine and methyl ester (biodiesel). The market is highly competitive, which constrains profit margins and removes inefficient players from the market. Biotechnology has the potential to shift the balance of power in the market by modifying production process to make them more cost efficient

A niche that Malaysia can target is also the HALAL accredited product market. This niche can include products related to the fine and specialty chemicals market that are made for human consumption such as nutraceuticals, vitamins, health supplements, cosmeceuticals and other biological based extracts. This certification also has potential applications in areas other than the production of fine and specialty chemicals such as in the field of food and beverage production. This certification will support exporters seeking to target emerging opportunities in the Islamic markets, and is a significant differentiating factor of the Malaysian biotechnology relative to its regional neighbors who also have strengths in the biotechnology market.

Bio-Catalysts Isolated From Malaysian Micro-Organisms

Type of Bio-Catalyst Micro-Organism

Lipase, lipoprotein lipase

Protease

Humicola lanuginosa, Aspergillus niger, Aspergillus flavus, Mucor miehei, Bacillus sp., B. megaterium, Cunninghamella echinulata, Corynebacterium sp., Pseudomonas sp., Geobacillus thermodenitrificans, Pseudomonas paucimobilis

Bacillus megaterium, Trichoderma sp., Cellulomicrobium sp., Aspergillus niger

Cellulase, β-glucosidase

Xylanase

Aspergillus niger, A. niger subsp. awamori Trichoderma reesei

Aspergillus niger

Lignin degrading enzymes Phanerochaete chrysosporium, Humicola grisea

Tannase Aspergilus niger

Mannanase Aspergilus niger

Phytase Aspergilus niger

Chitinase Fusarium sp.

Investment Highlights – The Malaysian Bio-Catalyst Sector

1. Strong Patents for Commercialization: A number of patents covering unique bio-catalysts extracted from local micro-organisms are available to support commercialization activity

2. Skilled Human Resource in R&D: Strong well trained human capital pool to assist in both R&D and production activity

3. Manufacturing and Supply Chain Infrastructure: New companies can leverage on established infrastructure to reduce start up and operating costs

4. Rich Bio-Diversity: Support the identification of commercially valuable novel bio-catalysts

Investment Highlights – The Malaysian Fine and Specialty Chemicals Sector

1. Rich Bio-Diversity: Malaysia’s world class ecological diversity harbors a broad range of medicinal plant products. This would particularly benefit companies with established screening capabilities

2. Health and Wellness Industries: The growth of the health and wellness industries, particularly in western countries will drive the demand for herbal products

3. Strong traditional knowledge base: Can be leveraged on to accelerate the discovery of new medicinal products

4. Availability of raw material: The presence of substantial quantities of raw materials improve cost efficiencies

5. Established Sector Expertise: Expertise in oleochemical manufacturing can be leveraged on to apply biotechnology to production processes

6. HALAL Certification: Support biotechnology enterprises seeking to develop and manufacture biotechnology products destined for predominately Muslim populated countries

15

The Malaysian Bio-Catalysts Sector

The bio-catalyst market is an emerging market in Malaysia. The industry in Malaysia caters to a variety of the industrial applications including the production of fine chemicals, oleochemicals modification, detergent formulation, enzymatic de-inking of waste papers, animal feed formulation and effluent treatment processes. Some enzymes are produced locally although imports account for a significant proportion of local consumption. The small number of local companies and the presence of an established market offer an opportunity for new entrants seeking to capture a share of the local market. Local producers have leveraged on Malaysia’s biodiversity, and protein production from indigenous microbial isolates is being performed using submerged or solid state fermentation processes. Malaysia plays a significant role in the region supply chain for bio-catalysts; in 2008 Malaysia exported around 633 tonnes of repackaged enzymes throughout the region. The local market is dominated by foreign players, with Novozymes and Dansico / Genecor accounting for 70% of the market.

Malaysia’s biological diversity offers developers of novel bio-catalysts a significant opportunity to isolate novel bio-catalysts. A variety of different bio-catalysts have been isolated from Malaysian isolated micro-organisms, highlighting the opportunity that remains to be extracted from the countries unique ecology.

The cost efficiency of production in Malaysia would benefit companies looking at establishing local manufacturing operations. Some players in the market are already moving to take advantage of this opportunity. In 2008 Enzyme Technology Sdn Bhd and Insect Biotech of Korea entered into a partnership to establish an industrial enzyme manufacturing facility in Malaysia. Bio-catalysts are proteins and their high cost of product has limited their application in industrial processes. Rationalizing production costs, such as by moving manufacturing to low cost locations, will reduce production costs and widen the application of bio-catalyst to greater variety of industrial processes.

The Malaysian Fine and Specialty Chemicals Sector

In Malaysia biotechnology is applied to production of a range of fine and specialty chemicals, the two most significant markets in the country are the nutraceuticals and oleochemicals markets.

The oleochemical market developed as an off shoot of the Malaysian palm oil sector. The abundant supply of raw materials and incentives provided by the Malaysian government has driven the growth of the sector in Malaysia. The sector in Malaysia is still growing although this is slowing as the market matures. Products manufactured by the sector include fatty acid, fatty alcohol, glycerine and methyl ester (biodiesel). The market is highly competitive, which constrains profit margins and removes inefficient players from the market. Biotechnology has the potential to shift the balance of power in the market by modifying production process to make them more cost efficient

A niche that Malaysia can target is also the HALAL accredited product market. This niche can include products related to the fine and specialty chemicals market that are made for human consumption such as nutraceuticals, vitamins, health supplements, cosmeceuticals and other biological based extracts. This certification also has potential applications in areas other than the production of fine and specialty chemicals such as in the field of food and beverage production. This certification will support exporters seeking to target emerging opportunities in the Islamic markets, and is a significant differentiating factor of the Malaysian biotechnology relative to its regional neighbors who also have strengths in the biotechnology market.

Bio-Catalysts Isolated From Malaysian Micro-Organisms

Type of Bio-Catalyst Micro-Organism

Lipase, lipoprotein lipase

Protease

Humicola lanuginosa, Aspergillus niger, Aspergillus flavus, Mucor miehei, Bacillus sp., B. megaterium, Cunninghamella echinulata, Corynebacterium sp., Pseudomonas sp., Geobacillus thermodenitrificans, Pseudomonas paucimobilis

Bacillus megaterium, Trichoderma sp., Cellulomicrobium sp., Aspergillus niger

Cellulase, β-glucosidase

Xylanase

Aspergillus niger, A. niger subsp. awamori Trichoderma reesei

Aspergillus niger

Lignin degrading enzymes Phanerochaete chrysosporium, Humicola grisea

Tannase Aspergilus niger

Mannanase Aspergilus niger

Phytase Aspergilus niger

Chitinase Fusarium sp.

Investment Highlights – The Malaysian Bio-Catalyst Sector

1. Strong Patents for Commercialization: A number of patents covering unique bio-catalysts extracted from local micro-organisms are available to support commercialization activity

2. Skilled Human Resource in R&D: Strong well trained human capital pool to assist in both R&D and production activity

3. Manufacturing and Supply Chain Infrastructure: New companies can leverage on established infrastructure to reduce start up and operating costs

4. Rich Bio-Diversity: Support the identification of commercially valuable novel bio-catalysts

Investment Highlights – The Malaysian Fine and Specialty Chemicals Sector

1. Rich Bio-Diversity: Malaysia’s world class ecological diversity harbors a broad range of medicinal plant products. This would particularly benefit companies with established screening capabilities

2. Health and Wellness Industries: The growth of the health and wellness industries, particularly in western countries will drive the demand for herbal products

3. Strong traditional knowledge base: Can be leveraged on to accelerate the discovery of new medicinal products

4. Availability of raw material: The presence of substantial quantities of raw materials improve cost efficiencies

5. Established Sector Expertise: Expertise in oleochemical manufacturing can be leveraged on to apply biotechnology to production processes

6. HALAL Certification: Support biotechnology enterprises seeking to develop and manufacture biotechnology products destined for predominately Muslim populated countries

16

The Malaysian Biotechnology Policy announced in 2005 signaled the start of a national drive to establish a globally competitive biotechnology sector. As of 2009 the sector was poised to complete a 5 year capacity building phase at the end of 2010. Some of the goals of this phase include the practical implementation of the government policies and plans, R&D capacity building and the establishment of industrial technology. Some of the major progressive developments that have occurred in the sector since the inception of the biotechnology policy are highlighted below.

Industrial biotechnology is one of the three sectors highlighted in the Malaysian Biotechnology Policy as a focus area. Six of the other policy thrusts were dedicated to the creation of a supporting environment that would foster the growth of biotechnology companies in Malaysia. In the last 4 years Malaysia has steadily progressed in development of all areas targeted by the national policy (as described in the BiotechCorp 2008 Annual Report). Broadly the developments have included:

•Strong government financial support for the sector, as of the end of 2008 US$0.9 billion of investment funds were available for investment in companies

•Nurturing the growth of human capital in Malaysia, including entrepreneurial talent, via workshops, conferences, mentoring and training programmes

•Initiation of specific programs to strength the development of IP and regulatory expertise in Malaysia

•Promoting the opportunities offered by the Malaysia biotechnology sector through various local and international forums

All of these initiatives have targeted and strengthened critical elements required by biotechnology companies to maximize their research and development activities and profitability.

Progressive Development of the Industrial Biotechnology Sector

Example of Research and Development Center: Industrial Biotechnology

The Standards and Industrial Research Institute of Malaysia (SIRIM) Berhad is Malaysia’s leading organization in industrial research. The institute is focused on fulfilling the industry needs by blending new innovations with quality and standards.

SIRIM Berhad is focused on building a role in industry development by becoming a strategic partner to the industry by delivering excellence in research, technology transfer, technology incubation and skill development. SIRIM’s focus is on discovering and developing new technologies to enable industries move up the value chain by developing tools and technology that will help industries to reinvent their products and business.

SIRIM carries out research in a number of different areas, including biotechnology, nanotechnology, green materials, embedded technology, computer-aided design, renewable energy, and biomaterials. In 2007 the center secured a total of US$4.2 million in 2007 under MOSTI’s Science Fund, Techno Fund and Biotech Fund to support 64 of its R&D projects.

The core of the institute’s biotechnology efforts is the Environment and Bioprocess Technology Centre (EBTC), which is mandated to spearhead the nation’s industrial biotechnology development by harnessing Malaysia’s biodiversity while safeguarding environmental and resource sustainability. The center has a number of on-going projects in various areas of biotechnology including bioprocessing of lignocellulosic biomass, production of phytase and coenzyme Q10 from indigenous microbes.

As a partner supporting the development of Malaysia’s industrial biotechnology sector SIRIM offers companies in Malaysia a range of service including contract research, technology transfer, material research, process optimization and testing & quality control. Companies in the sector can leverage on these service to accelerate their growth and development.

Examples of the diverse range of research projects being developed by the private and public sector are described below.

Progress Specific to the Industrial Biotechnology Sector

Event Description

Development of Biofuels Production Capacity

Implementation of the National Biofuels Policy

• First commercial-scale biodiesel plan operational in August 2006 • 91 biofuel production licenses issued• 14 Functional biodiesel plants built (as of Sept 08)• 8 Plants operational (as of Sept 08)

Support the growth of the domestic product and consumption market for biodiesel and encourage the development of export orientated producers

Development of Industrial Biotechnology Companies

As of 2008 22 Industrial biotechnology companies have been awarded BioNexus status

Technology Acquisition

Acquisition of a supercritical fluid platform technology with strategic applications in supercritical fluid extraction and particle formation. The technology is targeted at supporting the local natural products industry’s capability to produce standardized natural products extracts of high purity, quality and consistency

Malaysian Biotechnology Corporation (BiotechCorp)

Project Support

Industry Development Division has nurtured 44 companies and supported the development of 2 international and 4 local collaborative and commercial ventures

Research Projects in the Industrial Biotechnology Sector

Company Project

FRIM

•Bioethanol from Palm Tree Sap: Development of a sap-squeezing system for oil palm trunk for production of bioethanol, the objective of the project is to develop a sap collected system for conversion into liquid biofuel

•Palm Biomass Conversion: Convert oil palm biomass waste (empty fruit bunches) to biofuel generating pulp using caustic soda

Nuclear MalaysiaDevelopment of integrated EB Radiation - Ion exchange – Biological Treatment System for recycling of industrial waste water for industrial effluent

Universiti Teknologi MalaysiaEnzyme discovery projects, focus on discovering enzymes in tapioca and sago that can be utilised in the pharmaceutical and food industries.

Universiti Putra Malaysia

International collaboration between the National Institute of Advanced Industrial Science and Technology, Japan and Kyushu Institute of Technology, Japan (KIT) and University Putra Malaysia to develop new methods to utilize different types of biomass.

MPOBProjects include growing better yielding oil palm trees through to formulation of medicine from palm oil vitamins. Strong interest in development of higher yielding trees to improve land utilisation

17

The Malaysian Biotechnology Policy announced in 2005 signaled the start of a national drive to establish a globally competitive biotechnology sector. As of 2009 the sector was poised to complete a 5 year capacity building phase at the end of 2010. Some of the goals of this phase include the practical implementation of the government policies and plans, R&D capacity building and the establishment of industrial technology. Some of the major progressive developments that have occurred in the sector since the inception of the biotechnology policy are highlighted below.

Industrial biotechnology is one of the three sectors highlighted in the Malaysian Biotechnology Policy as a focus area. Six of the other policy thrusts were dedicated to the creation of a supporting environment that would foster the growth of biotechnology companies in Malaysia. In the last 4 years Malaysia has steadily progressed in development of all areas targeted by the national policy (as described in the BiotechCorp 2008 Annual Report). Broadly the developments have included:

•Strong government financial support for the sector, as of the end of 2008 US$0.9 billion of investment funds were available for investment in companies

•Nurturing the growth of human capital in Malaysia, including entrepreneurial talent, via workshops, conferences, mentoring and training programmes

•Initiation of specific programs to strength the development of IP and regulatory expertise in Malaysia

•Promoting the opportunities offered by the Malaysia biotechnology sector through various local and international forums

All of these initiatives have targeted and strengthened critical elements required by biotechnology companies to maximize their research and development activities and profitability.

Progressive Development of the Industrial Biotechnology Sector

Example of Research and Development Center: Industrial Biotechnology

The Standards and Industrial Research Institute of Malaysia (SIRIM) Berhad is Malaysia’s leading organization in industrial research. The institute is focused on fulfilling the industry needs by blending new innovations with quality and standards.

SIRIM Berhad is focused on building a role in industry development by becoming a strategic partner to the industry by delivering excellence in research, technology transfer, technology incubation and skill development. SIRIM’s focus is on discovering and developing new technologies to enable industries move up the value chain by developing tools and technology that will help industries to reinvent their products and business.

SIRIM carries out research in a number of different areas, including biotechnology, nanotechnology, green materials, embedded technology, computer-aided design, renewable energy, and biomaterials. In 2007 the center secured a total of US$4.2 million in 2007 under MOSTI’s Science Fund, Techno Fund and Biotech Fund to support 64 of its R&D projects.

The core of the institute’s biotechnology efforts is the Environment and Bioprocess Technology Centre (EBTC), which is mandated to spearhead the nation’s industrial biotechnology development by harnessing Malaysia’s biodiversity while safeguarding environmental and resource sustainability. The center has a number of on-going projects in various areas of biotechnology including bioprocessing of lignocellulosic biomass, production of phytase and coenzyme Q10 from indigenous microbes.

As a partner supporting the development of Malaysia’s industrial biotechnology sector SIRIM offers companies in Malaysia a range of service including contract research, technology transfer, material research, process optimization and testing & quality control. Companies in the sector can leverage on these service to accelerate their growth and development.

Examples of the diverse range of research projects being developed by the private and public sector are described below.

Progress Specific to the Industrial Biotechnology Sector

Event Description

Development of Biofuels Production Capacity

Implementation of the National Biofuels Policy

• First commercial-scale biodiesel plan operational in August 2006 • 91 biofuel production licenses issued• 14 Functional biodiesel plants built (as of Sept 08)• 8 Plants operational (as of Sept 08)

Support the growth of the domestic product and consumption market for biodiesel and encourage the development of export orientated producers

Development of Industrial Biotechnology Companies

As of 2008 22 Industrial biotechnology companies have been awarded BioNexus status

Technology Acquisition

Acquisition of a supercritical fluid platform technology with strategic applications in supercritical fluid extraction and particle formation. The technology is targeted at supporting the local natural products industry’s capability to produce standardized natural products extracts of high purity, quality and consistency

Malaysian Biotechnology Corporation (BiotechCorp)

Project Support

Industry Development Division has nurtured 44 companies and supported the development of 2 international and 4 local collaborative and commercial ventures

Research Projects in the Industrial Biotechnology Sector

Company Project

FRIM

•Bioethanol from Palm Tree Sap: Development of a sap-squeezing system for oil palm trunk for production of bioethanol, the objective of the project is to develop a sap collected system for conversion into liquid biofuel

•Palm Biomass Conversion: Convert oil palm biomass waste (empty fruit bunches) to biofuel generating pulp using caustic soda

Nuclear MalaysiaDevelopment of integrated EB Radiation - Ion exchange – Biological Treatment System for recycling of industrial waste water for industrial effluent

Universiti Teknologi MalaysiaEnzyme discovery projects, focus on discovering enzymes in tapioca and sago that can be utilised in the pharmaceutical and food industries.

Universiti Putra Malaysia

International collaboration between the National Institute of Advanced Industrial Science and Technology, Japan and Kyushu Institute of Technology, Japan (KIT) and University Putra Malaysia to develop new methods to utilize different types of biomass.

MPOBProjects include growing better yielding oil palm trees through to formulation of medicine from palm oil vitamins. Strong interest in development of higher yielding trees to improve land utilisation

18

Supported by a market-oriented economy and pro-business Government policies, Malaysia offers investors a dynamic and vibrant business environment. A politically stable country with a well-developed infrastructure and productive workforce, Malaysia also provides attractive incentives for investors in the biotechnology sector.

Sources: Malaysia Industrial Development Authority (MIDA), Economic Report 2008/2009, Malaysia: Performance of the Manufacturing and Services Sectors 2008, Malaysia External Trade Statistic 2008

Malaysia’s Key Offerings

BioNexus

BioNexus Malaysia is essentially a network of centres of excellence throughout the country comprising companies and institutions that specialize in specific biotech subsectors. Three centres of excellence comprise BioNexus: • The Centre of Excellence for Agro-biotechnology; • The Centre of Excellence for Genomic & Molecular Biology; • The Centre of Excellence for Pharmaceuticals & Nutraceuticals.

These three institutes are part of the BioNexus initiative whose goal is to coordinate and strengthen existing universities, laboratories, and research institutes. Through BiotechCorp, the Malaysian Government grants the “BioNexus Status” to eligible international and local biotech companies that qualify for fiscal incentives, grants and guarantees administered by BiotechCorp. (www.biotechcorp.com.my)

Designated Economic Corridors

Biotechnology is expected to drive the economic corridors in further developing the healthcare sector. Malaysia has launched 5 Regional Economic Growth Corridors; i.e.: the Northern Corridor Economic Region (NCER), East Coast Economic Region (ECER), Sarawak Corridor of Renewable Energy (SCORE) and Sabah Development Corridor (SDC) and Iskandar Malaysia. The corridors aim to encourage companies seeking a new growth opportunities in the area of industrial biotechnology and its implementation.

Investing in Malaysia

Supportive Government Policies

in a Dynamic Business

Environment

• Pro-business policies • Responsive Government• Liberal investment policies• Attractive tax and other incentives• Liberal exchange control regime• Intellectual property protection

Supported by a market-oriented economy and pro-business Government policies, Malaysia offers investors a dynamic and vibrant business environment with the ideal prerequisites for growth and profits. A politically stable country with a well-developed legal system, Malaysia also provides attractive incentives for investors

Well Developed Infrastructure

• Network of well-maintained highways and railways

• Well-equipped seaports and airports• High quality telecommunications network

and services• Fully developed industrial parks, including

free industrial zones, technology parks and Multimedia Super Corridor (MSC)

• Advanced MSC Malaysia Cybercities and Cybercentres

Infrastructure in Malaysia is designed to serve the business community; it is one of the best in Asia. Telecommunications network served by digital and fibre optic technology, five international airports (all with air-cargo facilities), well-maintained highways and seven international seaports make Malaysia an ideal springboard to the Asia-Pacific market. There are also specialised parks that have been developed to cater to the needs of specific industries, as well as 5 economic corridors to stimulate economic growth

Vibrant Business Economy, Excellent

Quality of Life

• Market oriented economy, moving towards technological advancement

• Well-developed financial and banking sector, including the Labuan International Financial Exchange

• Wide use of English, especially in business Legal and accounting practice based on the British system

• Large local business community with a long history in international business links

• Large foreign business community in all business sectors & extensive trade links

Malaysia is steadfast in providing for the modern day requirements of investor companies based in the country, and is one of the most technologically developed countries amongst industrialising nations in the ASEAN region. It also offers and excellent quality of life, a safe and comfortable living environment. Other advantages are excellent and affordable housing, modern amenities, good healthcare and medical facilities, and excellent international schools.

Economic Strength

• Natural resources - oil, gas, tin, timber, palm oil, rubber

• GDP growth - 4.6%• Gross national savings - 37.9% of GNI• Debt service ratio - 2.7% • Unemployment rate - 3.7%• Inflation (CPI) - 5.4%• Export of manufactured goods 2008 - 70.0%

of total exports

Malaysia has used its natural resources to its advantage in developing high technology industries and creating jobs. Multinational corporations from more than 40 countries have invested in over 5,000 companies in Malaysia 's manufacturing & related services sectors. Malaysia today is one of the world's top locations for offshore manufacturing and service-based operations. Many foreign companies have also continued to show their confidence in the country's potential through expansions and diversifications, particularly in high technology projects.

Human Resources: An Educated Workforce

• Young, educated and productive workforce • Multilingual workforce, speaking two or

three languages, including English• Comprehensive system of vocational,

industrial and advanced skills training.• Harmonious industrial relations with

minimal trade disputes

One of Malaysia's greatest assets is her human resources. The workforce here is young, educated and productive, proving to be one of the best in the region. The Government's emphasis on human resource development ensures the continuous supply of manpower to meet the needs of the expanding biotechnology sector.

Source: BiotechCorp, RMK, Frost & Sullivan (2009)

Sabah

Sarawak

BruneiDarussalam

LabuanIsland

Johor

SelangorKuala Lumpur

Perak

Perlis

Kedah

KelantanTrengganu

TiomanIsland

Kuantan

Kuala Trengganu

Kotabharu

Ipoh

Alor Setar

Kuah

George Town

Pahang

PenangIsland

LangkawiIsland

NegeriSembilan

Melaka

MalaccaTown Johor Bharu

Kuching

Sri AmanlLubukantu

Bintulu

Victoria

Kota Kinabalu

Mount Kinabalu

Kudat

Sandakan

Lahat DatuTawau

Lawas

MarudiMiri

Singapore

Thailand

Mukah

Sabah Development Corridor (SDC)

Development period: 2008 – 2025Area: 73,997 sqmBiotechnology Areas: Biomass/biofuels, Livestock & aquaculture, bioremediationStrengths: Aquaculture base, biodiversity, oil palmExpected employment: 2.1 millionExpected investment: RM 113 billion

Sarawak Corridor of Renewable Energy (SCORE)

Development period: 2008 – 2030Area: 70,708 sqmBiotechnology Areas: Biomass/biofuels, livestock, bioremediationStrengths: Focus on livestock industry, biodiversity, oil palmExpected employment: 3.0 millionExpected investment: RM 334 billion

Iskandar Malaysia

Development period: 2006 – 2025Area: 2,216 sqmBiotechnology Areas: Agricultural Biotechnology, Human Capital, Infrastructure, ManufacturingStrengths: Location, Logistic infrastructure, oil palmExpected employment: 1.4 millionExpected investment: RM 382 billion

Northern Corridor Economic Region (NECR)

Development period: 2007 – 2025Area: 17,816 sqmBiotechnology Areas: GM Crops, Agricultural Biotechnology, Industrial Biotechnology, Manufacturing – Medical, APIsStrengths: Biodiversity & bioresources, manufacturing and logistics infrastructureExpected employment: 3.1 millionExpected investment: RM 178 billion

East Coast Economic Region (ECER)Development period: 2007 – 2020Area: 66,736 sqmBiotechnology Areas: Biomass/biofuels, GM crops, nutraceuticals, bioremediation, bioprocessingStrengths: Agriculture & aquaculture base, bio-resources (oil palm, tobacco)Expected employment: 1.9 million

19

Supported by a market-oriented economy and pro-business Government policies, Malaysia offers investors a dynamic and vibrant business environment. A politically stable country with a well-developed infrastructure and productive workforce, Malaysia also provides attractive incentives for investors in the biotechnology sector.

Sources: Malaysia Industrial Development Authority (MIDA), Economic Report 2008/2009, Malaysia: Performance of the Manufacturing and Services Sectors 2008, Malaysia External Trade Statistic 2008

Malaysia’s Key Offerings

BioNexus

BioNexus Malaysia is essentially a network of centres of excellence throughout the country comprising companies and institutions that specialize in specific biotech subsectors. Three centres of excellence comprise BioNexus: • The Centre of Excellence for Agro-biotechnology; • The Centre of Excellence for Genomic & Molecular Biology; • The Centre of Excellence for Pharmaceuticals & Nutraceuticals.

These three institutes are part of the BioNexus initiative whose goal is to coordinate and strengthen existing universities, laboratories, and research institutes. Through BiotechCorp, the Malaysian Government grants the “BioNexus Status” to eligible international and local biotech companies that qualify for fiscal incentives, grants and guarantees administered by BiotechCorp. (www.biotechcorp.com.my)

Designated Economic Corridors

Biotechnology is expected to drive the economic corridors in further developing the healthcare sector. Malaysia has launched 5 Regional Economic Growth Corridors; i.e.: the Northern Corridor Economic Region (NCER), East Coast Economic Region (ECER), Sarawak Corridor of Renewable Energy (SCORE) and Sabah Development Corridor (SDC) and Iskandar Malaysia. The corridors aim to encourage companies seeking a new growth opportunities in the area of industrial biotechnology and its implementation.

Investing in Malaysia

Supportive Government Policies

in a Dynamic Business

Environment

• Pro-business policies • Responsive Government• Liberal investment policies• Attractive tax and other incentives• Liberal exchange control regime• Intellectual property protection

Supported by a market-oriented economy and pro-business Government policies, Malaysia offers investors a dynamic and vibrant business environment with the ideal prerequisites for growth and profits. A politically stable country with a well-developed legal system, Malaysia also provides attractive incentives for investors

Well Developed Infrastructure

• Network of well-maintained highways and railways

• Well-equipped seaports and airports• High quality telecommunications network

and services• Fully developed industrial parks, including

free industrial zones, technology parks and Multimedia Super Corridor (MSC)

• Advanced MSC Malaysia Cybercities and Cybercentres

Infrastructure in Malaysia is designed to serve the business community; it is one of the best in Asia. Telecommunications network served by digital and fibre optic technology, five international airports (all with air-cargo facilities), well-maintained highways and seven international seaports make Malaysia an ideal springboard to the Asia-Pacific market. There are also specialised parks that have been developed to cater to the needs of specific industries, as well as 5 economic corridors to stimulate economic growth

Vibrant Business Economy, Excellent

Quality of Life

• Market oriented economy, moving towards technological advancement

• Well-developed financial and banking sector, including the Labuan International Financial Exchange

• Wide use of English, especially in business Legal and accounting practice based on the British system

• Large local business community with a long history in international business links

• Large foreign business community in all business sectors & extensive trade links

Malaysia is steadfast in providing for the modern day requirements of investor companies based in the country, and is one of the most technologically developed countries amongst industrialising nations in the ASEAN region. It also offers and excellent quality of life, a safe and comfortable living environment. Other advantages are excellent and affordable housing, modern amenities, good healthcare and medical facilities, and excellent international schools.

Economic Strength

• Natural resources - oil, gas, tin, timber, palm oil, rubber

• GDP growth - 4.6%• Gross national savings - 37.9% of GNI• Debt service ratio - 2.7% • Unemployment rate - 3.7%• Inflation (CPI) - 5.4%• Export of manufactured goods 2008 - 70.0%

of total exports

Malaysia has used its natural resources to its advantage in developing high technology industries and creating jobs. Multinational corporations from more than 40 countries have invested in over 5,000 companies in Malaysia 's manufacturing & related services sectors. Malaysia today is one of the world's top locations for offshore manufacturing and service-based operations. Many foreign companies have also continued to show their confidence in the country's potential through expansions and diversifications, particularly in high technology projects.

Human Resources: An Educated Workforce

• Young, educated and productive workforce • Multilingual workforce, speaking two or

three languages, including English• Comprehensive system of vocational,

industrial and advanced skills training.• Harmonious industrial relations with

minimal trade disputes

One of Malaysia's greatest assets is her human resources. The workforce here is young, educated and productive, proving to be one of the best in the region. The Government's emphasis on human resource development ensures the continuous supply of manpower to meet the needs of the expanding biotechnology sector.

Source: BiotechCorp, RMK, Frost & Sullivan (2009)

Sabah

Sarawak

BruneiDarussalam

LabuanIsland

Johor

SelangorKuala Lumpur

Perak

Perlis

Kedah

KelantanTrengganu

TiomanIsland

Kuantan

Kuala Trengganu

Kotabharu

Ipoh

Alor Setar

Kuah

George Town

Pahang

PenangIsland

LangkawiIsland

NegeriSembilan

Melaka

MalaccaTown Johor Bharu

Kuching

Sri AmanlLubukantu

Bintulu

Victoria

Kota Kinabalu

Mount Kinabalu

Kudat

Sandakan

Lahat DatuTawau

Lawas

MarudiMiri

Singapore

Thailand

Mukah

Sabah Development Corridor (SDC)

Development period: 2008 – 2025Area: 73,997 sqmBiotechnology Areas: Biomass/biofuels, Livestock & aquaculture, bioremediationStrengths: Aquaculture base, biodiversity, oil palmExpected employment: 2.1 millionExpected investment: RM 113 billion

Sarawak Corridor of Renewable Energy (SCORE)

Development period: 2008 – 2030Area: 70,708 sqmBiotechnology Areas: Biomass/biofuels, livestock, bioremediationStrengths: Focus on livestock industry, biodiversity, oil palmExpected employment: 3.0 millionExpected investment: RM 334 billion

Iskandar Malaysia

Development period: 2006 – 2025Area: 2,216 sqmBiotechnology Areas: Agricultural Biotechnology, Human Capital, Infrastructure, ManufacturingStrengths: Location, Logistic infrastructure, oil palmExpected employment: 1.4 millionExpected investment: RM 382 billion

Northern Corridor Economic Region (NECR)

Development period: 2007 – 2025Area: 17,816 sqmBiotechnology Areas: GM Crops, Agricultural Biotechnology, Industrial Biotechnology, Manufacturing – Medical, APIsStrengths: Biodiversity & bioresources, manufacturing and logistics infrastructureExpected employment: 3.1 millionExpected investment: RM 178 billion

East Coast Economic Region (ECER)Development period: 2007 – 2020Area: 66,736 sqmBiotechnology Areas: Biomass/biofuels, GM crops, nutraceuticals, bioremediation, bioprocessingStrengths: Agriculture & aquaculture base, bio-resources (oil palm, tobacco)Expected employment: 1.9 million

20

In order to achieve BioNexus status, the companies must be able to meet the following criteria:

• Establish a separate legal entity for the BioNexus qualifying business and activities • Be a provider of a product or services based on life sciences, or substantially using life sciences processes

in production or agriculture (mere blending, repacking, mixing, distributing or trading of biotechnology products shall not qualify)

• Possesses research capability and conducts research in thrust areas • Employs a significant percentage of knowledge workers in its total workforce • Complies with environmental and ethical laws and guidelines

A total investment in 42 companies with BioNexus status during 2005 - 2007 amounted to US$ 246 million. The Malaysia Government had allocated US$ 3 billion to enhance and strengthen the biotechnology sector. The number of BioNexus companies increased to 97 by end of 2008 with approved investment of US$ 360 million, and revenue growth by BioNexus companies grew at an annual rate of 187%. 22 out of the 97 companies are highly focused on industrial biotechnology, and in terms of revenues generated the industrial biotechnology sector was the dominant sector in the emerging company biotechnology space. It generated 70.4% of all revenues earned by BioNexus companies in 2008.

Government Incentives

Malaysia provides competitive financial incentives under existing packages that are applicable to companies in the biotechnology sector. In line with its goal to build a biotechnology sector across the entire value chain the incentives offered support biotechnology ventures at all stages of development. These include:

1. Incentive for the holding company: Tax deductions for holding companies that fulfils certain conditions and investment in approved subsidiary biotechnology entities;

2. Tax exemption: Approved biotechnology companies will be eligible for Pioneer Status, which entitles them to a 100% income tax exemption for a period of up to 10 years. Specific biotechnology product are import duty and sales tax exempt;

3. Investment Tax Allowance: 100% of qualifying investments over a period of 5 years can be set off against profits;

4. Tax Exempt Dividends: Dividends issued by biotechnology companies to shareholders will be treated as tax exempt income;

5. 200% deduction on qualifying expenditure on R&D: which may expenses related to pre-clinical and clinical testing, except for companies carrying out these activities for revenue generation.

More specific to the industrial biotechnology sector, companies operating in the biofuels sector enjoy additional benefits. The Government has initiated the B5 programme at the government agencies level since the beginning of February 2009, which will mandate agency vehicles to use B5 biodiesel. Subsequent phases will involve the industrial sector, followed by the mass transport sector. This represents a first step in establishing a local market for biodiesel.

The Oil Palm Replanting Incentive Scheme will affect the availability of feedstock for the biodiesel sector. Launched in 2008, the scheme aimed to destroy 200,000 hectares of oil palm trees aged 25 years and above and was designed to promote palm oil price stability by removing 200,000 hectares of palm trees (equivalent to 700,000 tonnes of palm oil supply).

The two policies highlight the governments’ commitment to the sector, and will bolster investors of the governments long term support for the local biofuels market. In particular the implementation of the B5 mandate will guarantee a minimum amount of local biofuel demand, which will reduce producer risk by diversifying their customer base.

Intellectual Property Right Protection

Malaysia has a strong intellectual property right (IPR) regime and ranks high among East Asian countries in IPR protection. Malaysia is a member of World Intellectual Property Organisation (WIPO) and signatory to the Paris Convention, the Berne Convention and the Agreement on Trade Related Aspects on Intellectual Property Rights (TRIPS) under the World Trade Organisation (WTO). Malaysia provides adequate protection to both local and foreign investors. Malaysia's intellectual property laws are in conformance with international standards and have been reviewed by the TRIPs Council periodically. Malaysia also has acceded to the Patent Cooperation Treaty (PCT) with effect from 16 August 2006. Prior to that, in 2002, Malaysia has been accepted as the member of Pharmaceutical Inspection Co-operation Scheme (PICS). Being a member of PICS, Malaysia has greatly improved its facilities to meet the international standard requirements, and tremendously drive local pharmaceutical industry.

Thrust seven of the National Policy highlighted the need to improve the country’s innovation system by reviewing the legal and regulatory framework. Part of this effort involves making regulatory changes to give researchers a share in the ownership of the intellectual property and in the monetary rewards derived from their work.

To date, the total number of patent and utility applications from 1989 up to May 2008 is 536,566. Out of this figure, 322,709 had been granted. The number of foreign applications encountered for 93% of the total applications (Intellectual Property Corporation of Malaysia).

Funding

The commitment and the importance of the role of the Malaysian government in financing the biotechnology sector can be seen by the factor that the public sector remains the largest source of funding for biotechnology projects and companies in Malaysia. Currently a total of US$1.3 billion, allocated across 17 different funds, is available to be invested in biotechnology companies. As of Dec 2008 only US$0.5 billion of this amount has been allocated to existing investments. The amount of funding available strongly contrasts to the limited funding available to biotechnology companies in other parts of the world, where investments in the sector have dropped sharply in line with the deterioration in the global credit markets.

Venture capital funds are active in Malaysia, however the total capital offered by these investors is minor compared to government sources. By the end of 2008, it was estimated that US$97.7 of private venture funding was available to biotechnology companies. The Malaysian capital markets represent an alternative funding source available to companies developed enough to be listed on the Malaysian Bursa. The global financial turmoil has delayed Malaysian biotechnology companies from seeking funding from this source, and in 2008 only two Initial Public Offerings (Sunzen Biotech Berhad and Asia Bioenergy Technologies Berhad) were conducted. The biotechnology segment of the Malaysian capital markets remains underdeveloped although recent regulatory changes by the securities commission will make it easier for biotechnology companies to access the market for development funding.

21

In order to achieve BioNexus status, the companies must be able to meet the following criteria:

• Establish a separate legal entity for the BioNexus qualifying business and activities • Be a provider of a product or services based on life sciences, or substantially using life sciences processes

in production or agriculture (mere blending, repacking, mixing, distributing or trading of biotechnology products shall not qualify)

• Possesses research capability and conducts research in thrust areas • Employs a significant percentage of knowledge workers in its total workforce • Complies with environmental and ethical laws and guidelines

A total investment in 42 companies with BioNexus status during 2005 - 2007 amounted to US$ 246 million. The Malaysia Government had allocated US$ 3 billion to enhance and strengthen the biotechnology sector. The number of BioNexus companies increased to 97 by end of 2008 with approved investment of US$ 360 million, and revenue growth by BioNexus companies grew at an annual rate of 187%. 22 out of the 97 companies are highly focused on industrial biotechnology, and in terms of revenues generated the industrial biotechnology sector was the dominant sector in the emerging company biotechnology space. It generated 70.4% of all revenues earned by BioNexus companies in 2008.

Government Incentives

Malaysia provides competitive financial incentives under existing packages that are applicable to companies in the biotechnology sector. In line with its goal to build a biotechnology sector across the entire value chain the incentives offered support biotechnology ventures at all stages of development. These include:

1. Incentive for the holding company: Tax deductions for holding companies that fulfils certain conditions and investment in approved subsidiary biotechnology entities;

2. Tax exemption: Approved biotechnology companies will be eligible for Pioneer Status, which entitles them to a 100% income tax exemption for a period of up to 10 years. Specific biotechnology product are import duty and sales tax exempt;

3. Investment Tax Allowance: 100% of qualifying investments over a period of 5 years can be set off against profits;

4. Tax Exempt Dividends: Dividends issued by biotechnology companies to shareholders will be treated as tax exempt income;

5. 200% deduction on qualifying expenditure on R&D: which may expenses related to pre-clinical and clinical testing, except for companies carrying out these activities for revenue generation.

More specific to the industrial biotechnology sector, companies operating in the biofuels sector enjoy additional benefits. The Government has initiated the B5 programme at the government agencies level since the beginning of February 2009, which will mandate agency vehicles to use B5 biodiesel. Subsequent phases will involve the industrial sector, followed by the mass transport sector. This represents a first step in establishing a local market for biodiesel.

The Oil Palm Replanting Incentive Scheme will affect the availability of feedstock for the biodiesel sector. Launched in 2008, the scheme aimed to destroy 200,000 hectares of oil palm trees aged 25 years and above and was designed to promote palm oil price stability by removing 200,000 hectares of palm trees (equivalent to 700,000 tonnes of palm oil supply).

The two policies highlight the governments’ commitment to the sector, and will bolster investors of the governments long term support for the local biofuels market. In particular the implementation of the B5 mandate will guarantee a minimum amount of local biofuel demand, which will reduce producer risk by diversifying their customer base.

Intellectual Property Right Protection

Malaysia has a strong intellectual property right (IPR) regime and ranks high among East Asian countries in IPR protection. Malaysia is a member of World Intellectual Property Organisation (WIPO) and signatory to the Paris Convention, the Berne Convention and the Agreement on Trade Related Aspects on Intellectual Property Rights (TRIPS) under the World Trade Organisation (WTO). Malaysia provides adequate protection to both local and foreign investors. Malaysia's intellectual property laws are in conformance with international standards and have been reviewed by the TRIPs Council periodically. Malaysia also has acceded to the Patent Cooperation Treaty (PCT) with effect from 16 August 2006. Prior to that, in 2002, Malaysia has been accepted as the member of Pharmaceutical Inspection Co-operation Scheme (PICS). Being a member of PICS, Malaysia has greatly improved its facilities to meet the international standard requirements, and tremendously drive local pharmaceutical industry.

Thrust seven of the National Policy highlighted the need to improve the country’s innovation system by reviewing the legal and regulatory framework. Part of this effort involves making regulatory changes to give researchers a share in the ownership of the intellectual property and in the monetary rewards derived from their work.

To date, the total number of patent and utility applications from 1989 up to May 2008 is 536,566. Out of this figure, 322,709 had been granted. The number of foreign applications encountered for 93% of the total applications (Intellectual Property Corporation of Malaysia).

Funding

The commitment and the importance of the role of the Malaysian government in financing the biotechnology sector can be seen by the factor that the public sector remains the largest source of funding for biotechnology projects and companies in Malaysia. Currently a total of US$1.3 billion, allocated across 17 different funds, is available to be invested in biotechnology companies. As of Dec 2008 only US$0.5 billion of this amount has been allocated to existing investments. The amount of funding available strongly contrasts to the limited funding available to biotechnology companies in other parts of the world, where investments in the sector have dropped sharply in line with the deterioration in the global credit markets.

Venture capital funds are active in Malaysia, however the total capital offered by these investors is minor compared to government sources. By the end of 2008, it was estimated that US$97.7 of private venture funding was available to biotechnology companies. The Malaysian capital markets represent an alternative funding source available to companies developed enough to be listed on the Malaysian Bursa. The global financial turmoil has delayed Malaysian biotechnology companies from seeking funding from this source, and in 2008 only two Initial Public Offerings (Sunzen Biotech Berhad and Asia Bioenergy Technologies Berhad) were conducted. The biotechnology segment of the Malaysian capital markets remains underdeveloped although recent regulatory changes by the securities commission will make it easier for biotechnology companies to access the market for development funding.

22

A list of funds and sources of funding is given below: The Malaysian industrial biotechnology sector is diverse and rapidly growing sector. Investment opportunities vary depending on the sector targeted, with the biofuels sector providing investors with more mature investments while the other sectors reviewed in this paper offer more early stage investment opportunities.

Clearly the government is the key driver of growth in the Malaysian biotechnology sector. The 9 thrusts of the Malaysian biotechnology policy highlight the strength of framework that is being put into place to support the growth of the Malaysian biotechnology sector. Some of these initiatives, such as strengthening human capital development and strengthening IP regulations are passive factors that will attract biotechnology companies to set up operations in Malaysia. In addition the Malaysian government and the public bodies that represent it (such as BiotechCorp) are also actively working to build up the sector by supporting the direct development of projects. Examples of direct projects include the acquisition and integration of the supercritical fluid platform technology into the biotechnology community and the governments support for the establishing of the Agni biomass energy plant in Pahang, Malaysia.

The bio-catalyst sectors and the fine & specialty chemical production sector are sectors that may interest pure investors; however the early stage of the sector would benefit investors that can not only bring funding to investment opportunities but also supply technical and commercial know-how. The broad biodiversity and established manufacturing industry in Malaysia are strengths than can be expanded on by companies to create novel industrial biotechnology projects and companies in Malaysia. In particular the natural Malaysian ecological diversity creates opportunities that are not yet fully addressed by current players and there are significant opportunities for new players to enter these markets.

The biofuels sector is not strictly limited to late stage opportunities, as significant on-going research and development is being performed in the secondary biomass space. Here, bioethanol is produced from the lignocellulosic parts of biomass, grass, and other non-edible parts of plant. While the successful commercial use of cellulosic biomass has remained elusive the opportunites in the sector are huge as cellulosic biomass is readily available and renewable in large quantities. In addition the production of biofuels from this material does not have a secondary use as food, thus limiting the impact on food prices if used in large quantities for the production of biofuels.

However it should be pointed out that the main drivers underpinning the industry remain intact, and in fact their importance has probably intensified over the past year: namely increasing concern over greenhouse gas emissions, a significant proportion of which is generated from transport fuels; increasing concerns over the long-term security of global mineral oil supplies; and the increase in mineral oil prices globally. To address these issues, as well as to stimulate their agricultural sectors (where appropriate) governments globally have taken an increasing range of measures to stimulate biofuels consumption and production.

Conclusion

Malaysian Technology Development Corporation (MTDC): Malaysian Technology Development Corporation (MTDC) was set up to spearhead the development of technology businesses in Malaysia. MTDC his a venture capital outfit and has been the leading venture capitalist in the country long before the concept became familiar and accepted in Malaysia. Apart from venture capital funding MTDC disburses grants on behalf of the Malaysian government (Commercialisation of Research & Development Fund and Technology Acquisition Fund)

Malaysian Life Sciences Capital Fund (MLSCF) :The Malaysian Life Sciences Capital Fund (MLSCF) was founded in late 2006 and is a life sciences venture fund specializing in early stage investments in the biotechnology sector. The fund is co-managed by MTDC and Burrill & Co. and has USD150 million in committed capital.

Malaysian Debt Ventures (MDV): Malaysia Debt Ventures Berhad (MDV) is an innovative financier and development facilitator for Biotechnology, ICT and other high-growth sectors in Malaysia. Incorporated on 23rd April 2002 as a wholly owned subsidiary of the Minister of Finance, Inc., MDV has been entrusted to manage funds of RM2.5 billion for the financing of projects in these industry sectors.

SME Bank: The SME Bank (Bank Perusahaan Kecil & Sederhana Malaysia Berhad) - Is a development financial institution to nurture small and medium enterprises (SMEs). The bank complements existing products and services by providing an integrated financial and business advisory services to companies. The bank offers a dedicated biotechnology programme named" Program Usahawan Bioteknologi"

Ministry of Science, Technology and Innovation (MOSTI), In supporting the development of biotechnology industry in Malaysia, MOSTI provides the funds for biotechnology such as Science Fund, Inno Fund, Techno Fund, Agro - Biotechnology R & D initiatives, Genomic & Molecular Biology R & D Initiatives and Pharmaceutical & Nutraceuticals R & D Initiatives.

MalaysianTechnology

DevelopmentCorporation (MTDC)

Malaysian LifeSciences CapitalFund (MLSCF)

Malaysian DebtVentures (MDV)

Ministry of Science,Technology and

Innovation (MOSTI)

SME Bank

Available Funding Sources for Industrial Biotechnology

Fund for research organisations and institutions of higher education in the public sector, private sector entities can participate in the programme in association with the above mentioned organisations through matching grants to fund research. All R&D projects that are in line with the national Priority Areas and which have been approved by the IRPA Panels are eligible to receive grants under the IRPAProgramme.

Provides low interest loans to biofuel production facility developers. It has already provided loans totalling approximately RM 60 million (US$ 17 million) to three corporations to build three biodiesel plants

Intensification ofResearch in Priority

Areas (IRPA) program

Malaysian Palm OilAssociation Loans

23

A list of funds and sources of funding is given below: The Malaysian industrial biotechnology sector is diverse and rapidly growing sector. Investment opportunities vary depending on the sector targeted, with the biofuels sector providing investors with more mature investments while the other sectors reviewed in this paper offer more early stage investment opportunities.

Clearly the government is the key driver of growth in the Malaysian biotechnology sector. The 9 thrusts of the Malaysian biotechnology policy highlight the strength of framework that is being put into place to support the growth of the Malaysian biotechnology sector. Some of these initiatives, such as strengthening human capital development and strengthening IP regulations are passive factors that will attract biotechnology companies to set up operations in Malaysia. In addition the Malaysian government and the public bodies that represent it (such as BiotechCorp) are also actively working to build up the sector by supporting the direct development of projects. Examples of direct projects include the acquisition and integration of the supercritical fluid platform technology into the biotechnology community and the governments support for the establishing of the Agni biomass energy plant in Pahang, Malaysia.

The bio-catalyst sectors and the fine & specialty chemical production sector are sectors that may interest pure investors; however the early stage of the sector would benefit investors that can not only bring funding to investment opportunities but also supply technical and commercial know-how. The broad biodiversity and established manufacturing industry in Malaysia are strengths than can be expanded on by companies to create novel industrial biotechnology projects and companies in Malaysia. In particular the natural Malaysian ecological diversity creates opportunities that are not yet fully addressed by current players and there are significant opportunities for new players to enter these markets.

The biofuels sector is not strictly limited to late stage opportunities, as significant on-going research and development is being performed in the secondary biomass space. Here, bioethanol is produced from the lignocellulosic parts of biomass, grass, and other non-edible parts of plant. While the successful commercial use of cellulosic biomass has remained elusive the opportunites in the sector are huge as cellulosic biomass is readily available and renewable in large quantities. In addition the production of biofuels from this material does not have a secondary use as food, thus limiting the impact on food prices if used in large quantities for the production of biofuels.

However it should be pointed out that the main drivers underpinning the industry remain intact, and in fact their importance has probably intensified over the past year: namely increasing concern over greenhouse gas emissions, a significant proportion of which is generated from transport fuels; increasing concerns over the long-term security of global mineral oil supplies; and the increase in mineral oil prices globally. To address these issues, as well as to stimulate their agricultural sectors (where appropriate) governments globally have taken an increasing range of measures to stimulate biofuels consumption and production.

Conclusion

Malaysian Technology Development Corporation (MTDC): Malaysian Technology Development Corporation (MTDC) was set up to spearhead the development of technology businesses in Malaysia. MTDC his a venture capital outfit and has been the leading venture capitalist in the country long before the concept became familiar and accepted in Malaysia. Apart from venture capital funding MTDC disburses grants on behalf of the Malaysian government (Commercialisation of Research & Development Fund and Technology Acquisition Fund)

Malaysian Life Sciences Capital Fund (MLSCF) :The Malaysian Life Sciences Capital Fund (MLSCF) was founded in late 2006 and is a life sciences venture fund specializing in early stage investments in the biotechnology sector. The fund is co-managed by MTDC and Burrill & Co. and has USD150 million in committed capital.

Malaysian Debt Ventures (MDV): Malaysia Debt Ventures Berhad (MDV) is an innovative financier and development facilitator for Biotechnology, ICT and other high-growth sectors in Malaysia. Incorporated on 23rd April 2002 as a wholly owned subsidiary of the Minister of Finance, Inc., MDV has been entrusted to manage funds of RM2.5 billion for the financing of projects in these industry sectors.

SME Bank: The SME Bank (Bank Perusahaan Kecil & Sederhana Malaysia Berhad) - Is a development financial institution to nurture small and medium enterprises (SMEs). The bank complements existing products and services by providing an integrated financial and business advisory services to companies. The bank offers a dedicated biotechnology programme named" Program Usahawan Bioteknologi"

Ministry of Science, Technology and Innovation (MOSTI), In supporting the development of biotechnology industry in Malaysia, MOSTI provides the funds for biotechnology such as Science Fund, Inno Fund, Techno Fund, Agro - Biotechnology R & D initiatives, Genomic & Molecular Biology R & D Initiatives and Pharmaceutical & Nutraceuticals R & D Initiatives.

MalaysianTechnology

DevelopmentCorporation (MTDC)

Malaysian LifeSciences CapitalFund (MLSCF)

Malaysian DebtVentures (MDV)

Ministry of Science,Technology and

Innovation (MOSTI)

SME Bank

Available Funding Sources for Industrial Biotechnology

Fund for research organisations and institutions of higher education in the public sector, private sector entities can participate in the programme in association with the above mentioned organisations through matching grants to fund research. All R&D projects that are in line with the national Priority Areas and which have been approved by the IRPA Panels are eligible to receive grants under the IRPAProgramme.

Provides low interest loans to biofuel production facility developers. It has already provided loans totalling approximately RM 60 million (US$ 17 million) to three corporations to build three biodiesel plants

Intensification ofResearch in Priority

Areas (IRPA) program

Malaysian Palm OilAssociation Loans

24

1. Industrial and Environmental Biotechnology Achievements, Prospects, and Perceptions (2005) – Report Prepared by the UNU-IAS

2. An overview of the Malaysian Biotechnology Industry (2007) - ICE Kuala Lumpur

3. Asian Biofuels Roundtable (2009), Kuala Lumpur. Speech by the Hon. Datuk Peter Chin Fah Kui, Minister of plantation industries and commodities

4. BiotechCorp Annual Report 2008. The Malaysian Biotechnology Corporation

5. Malaysian White Biotechnology Initiative: Technology Foresights and Roadmap for Future (2009) – Frost and Sullivan

6. BIOFUEL DEVELOPMENT IN MALAYSIA (2008) – Presentation for the International Symposium On Agricultural and Biofuel Policy, Thailand

7. The Malaysian Biotechnology Policy (2005) – Ministry of Science Technology and Innovation

8. ENZYMES-GLOBAL DEVELOPMENTS AND TRENDS (2008) – Frost and Sullivan

9. BIOFUELS - AT WHAT COST ? Government support for biodiesel in Malaysia (2008) – The Global Studies Initiative

10. Growth and Global Opportunities in Biofuels for Malaysian Palm Oil (2008) - Au Leck Chai, Ministry of Plantation Industries and Commodities Malaysia.

11. 9th Malaysia Plan (2006) – Malaysian Biotechnology Corporation

References