Biotech startups in the bioeconomy
The bioeconomy has the potential to enhance food security, provide affordable healthcare, create a greener economy and increase a country’s income and competitiveness. It also creates a vast array of new markets for startups and SMEs looking to use bio-based technology to address the societal, environmental and economic challenges faced in the world today.
Driving the knowledge economy
Bioeconomy, defined as economic activities based on processes using biological sources, is a key component of the knowledge economy. It is envisioned to generate sustainable, economic, social and environmental development for a country. ‘Worldwide, we are seeing changing trends in the sources of economic competitiveness,’ said Datuk Dr Mohd Nazlee Kamal, who is chief executive officer of the Malaysian Biotechnology Corporation.
‘There is a global move away from an industrial economy to a knowledge economy, where innovative technologies and creative solutions drive higher productivity and sustained economic growth,’ Dr Kamal said.
Frederic Viala, founder and president of Entofood Sdn Bhd, Malaysia, described the bioeconomy as an emerging economy that was still evolving. In Malaysia, the bioeconomy was positioned as an implementation strategy of the national Economic Transformation Programme. Dr Kamal said that the bioeconomy could contribute to closing the urban-rural divide, as there was a strong focus on modernising agriculture. He provided an example of the wellness industry, which required the use of herbal materials. ‘The rural community could use the technology developed by SMEs as the starting material for the production of herbal supplements,’ he said.
‘It’s not just about money, it’s also about the ability to capture the value of your innovation,’
The application of innovative technologies to produce value-added bio-based products could transform conventional agricultural processes and, in fact, the agricultural industry itself.
Small companies to unlock the bioeconomy
With the bioeconomy emerging as a global trend, many countries have developed their own strategies to push the bioeconomy agenda. According to Dr Kamal, Malaysia’s bioeconomy transformation programme was aimed at making biotechnology a significant contributor to the nation’s economy by 2020, guided by the National Biotechnology Policy developed in 2005.
The National Biotechnology Policy states that by 2020, Malaysia will be a global player in biotechnology and will generate at least 20 global Malaysian companies. To achieve this target, Malaysia champions bio-based SMEs through the BioNext programme, which provides incentives to spur the growth of BioNexus SMEs, especially those looking to widen their market presence to other countries and regions.
‘We have about 260 BioNexus companies and the majority of them are SMEs. The development of SMEs is a very important component of the bioeconomy, intended as an important domestic source for growth and to promote a private sector-led bio-based sector,’ said Dr Kamal. ‘SMEs contribute one-third of Malaysia’s GDP, close to 60 per cent of employment in the industry and 20 per cent of the export market. They contribute to economic dynamism, spurring innovation in novel sectors,’ he added.
SME-related initiatives in Malaysia’s National Biotechnology Policy and Bioeconomy Transformation Programme include focusing on niche areas in the bioeconomy, nurturing market access, upgrading entrepreneurial skills, improving local bio-based products to international standards, branding and marketing, and creating an environment conducive to innovation.
Mark Beards, who is director of Corporate Development, Cell Therapy Ltd, UK, noted that several other countries also invested resources in promoting bio-based companies. The UK, for example, had an incentive programme called “the patent box”, and the US provided research grants. ‘There are also incentive programmes outside of corporation tax. A number of different countries around the world try to incentivise investments in innovation and provide a lot of very strong tax incentives for investors,’ Beards said.
He said that several countries incentivised innovation, particularly in regenerative medicine. Japan was notable for subjecting its regenerative medicine industry to a different regulatory process and products were able to get into market much faster.
Challenges – capital, commercialisation and climate change
One of the defining characteristics of the knowledge economy is that there are fewer conglomerates playing leading roles—the majority opt for strategic collaborations with SMEs instead.
‘The things that SMEs look for at the start of our innovation journey are access to capital, expertise and markets as well as strong intellectual property protection, which is very important from an innovation perspective,’ said Beards.
However, many SMEs face hurdles at this starting point, especially in terms of getting bankers and venture capitalists to understand the biotechnology industry: ‘Capital and expertise are quite fluid and will go to where the opportunities arise—but you have to educate finance providers as to what the opportunities and risks are. Risk in biotechnology is binary, we could either be very successful or we could fail,’ he said.
To moderator Dr Ilyas’s observation that many startups were eventually taken over by established companies or died natural deaths, Beards explained that the problem stemmed from the fact that inventors were terrible salespeople, while large companies were terrible inventors.
‘Large companies look for startups to provide innovation, while founders of small companies do not have the expertise to commercialise their innovations globally,’ Beards said. ‘You need to find a way to transition a smaller company into a larger company or have startups feed the innovation of larger companies,’ he explained.
Beards said that small companies faced the additional challenge of gaining access to broad markets, such as the Muslim market. ‘If you are an SME looking to launch your products in the Muslim world, you are dealing with a large number of countries and have to go through 10 or 20 different processes to allow access to your life-changing medicine,’ he said.
According to Viala, climate change was also an issue for bio-based SMEs. ‘Climate change affects the bio-diversity of our lands, including the survival of insects and plants that are used in the bio-medical, bio-industrial and agri-biotech industries. How will we conduct research in the future if we destroy our bio-diversity?’ he asked.
Paving the ways for small companies
Beards pointed out that Islamic finance could play an important role in the bioeconomy since Islamic finance and biotech innovation were very closely aligned in sharing risk. Dr Ilyas added that Islamic finance could contribute to a fair mechanism for valuation when startups were taken over by large companies.
Beards also hoped that Muslim nations, as well as the ASEAN region, would work together to harmonise their regulatory processes so that small companies could get their innovations to populations that needed them.
Addressing the issue of climate change, Viala urged for greater climate action, such as through the resolutions of the COP21 Paris Climate Conference in 2015, where developed countries can do more to halt global warming as well as advance the bioeconomy in developing countries.
The challenges facing bio-based SMEs are not insurmountable if they have an ecosystem that supports their growth and access to markets. Initiatives such as incubators, mentoring programmes, investments in biotechnology education and public-private partnerships all play a role in strengthening innovation and entrepreneurship among bio-based SMEs.
‘It’s not just about money, it’s also about the ability to capture the value of your innovation,’ said Beards.
‘It is intended by 2020, that Malaysia will be a global player in Biotechnology and will generate at least 20 global Malaysian companies’ – National Biotechnology Policy.
This is based on a session from the 11th WIEF in 2015.