The Edge, October 22, 2007

Biotech and the Valley of Death

BY RAJENM

The Death Valley in the Californian desert finished off many early pioneers heading for the West Coast in their horse drawn wagons during the great gold rush. Today, the “Valley of Death” is “tech speak” for the gap between an idea and commercial reality.

Entrepreneurs and researchers (and sometimes students) often find themselves in this gap in funding as they work to commercialise their ideas. This gap could be a “death trap” for many would-be businesses due to the high-cost in making a new technology a reality in the brutal marketplace. At the start up stage, there is a poor chance of attracting financial support.

All new technologies (and hence businesses springing from them) carry risk. This uncertainty means a dangerous trek through the valley of death. However the biotech industry is truly an extreme case for the following reasons:

• Time to market
  Oh! How I envy those software guys. They develop the product, test it, and better still, get some geeks on the web community to challenge and suggest improvements. They enhance the beta version, load it on the Internet, and pres to…..you have a global brand. It is much more complicated in life sciences and biotechnology.
  The time to market is long and convoluted.
• Complexity of biology
  Unlike “bits and bytes” of the digital world, the molecules of biology are more complicated. They also take a long time to research and understand. A human pregnancy takes nine months. There are no short cuts. Life is like that. Tests in mice take time. Tests in other mammals take longer.
• Regulatory hurdles
  The complexity of biology means that there is great variability. Differences in how the systems interact mean the possibility of things going wrong. This means there are “side-effects”. Thus, forces of regulation come into play. It becomes more complicated when it involves human health. Indeed, the costs of getting drugs approved by the regulatory authorities are so prohibitive that only the largest companies in the league of the Big Pharma can take them on, normally at great expense to the original promoter of the idea.
• Ethics
  Biotech is fraught with ethical landmines. Clinical trials hog headlines all the time. Animal testing is another issue. Biodiversity and intellectual properties of traditional people make the biotech journey slower.
• Cost of validation
  Biology by its very nature is variable. Bits and bytes are far more predictable and reproducible. Different systems interact and produce different results in different times. So, you need to bring in “order amidst disorder” by putting in systems of validation in place. These can be very costly and time-consuming.
• Slow diffusion
  Making a global impact is difficult. Trials take a long time and there is a need for post-marketing surveillance. Each country has its own laws and requirements for registration. This adds to cost and time.
• Intense competition
  Getting into the game is tough and staying there is tougher as many start ups are finding out.
• Obsolescence
  It is probably far less rapid than in the case of information technology as exemplified by Moore’s Law. Nevertheless, technology still shifts and start-ups can get caught out and this means death as funding will be sucked away to new technologies. Despite all this, this century will be the century of biology, with biotechnology being the engine for it. Countries the world over are working to crack the code that would make their companies a success. As Harvard’s Juan Enriquez wrote in his richly stimulating book. As The Future Catches You - How Genomics And Other Forces Are Changing Your Life, Work, Health And Wealth, technology is cruel and it will simply punish countries companies, organisations and individuals which cannot cope.

A key requirement is to get the funding right. Here is where Malaysia is probably at its weakest. Funding biotech start-ups in Malaysia means trekking a wider and deeper Valley of Death. This is because our funding infrastructure is weak. Corruption is endemic and growing. Venture capital is still mostly “vulture capital”.

Industry development funds are poorly structured to serve the emerging nascent industry and grants are not transparent or streamlined. As for the loads of money available via private equity, at least in biotech, they seem to be missing.

Let s look at the funding issues one by one:

• Venture capital
  We lack venture capitalists who really under stand biotech. They somehow see biotech as largely agricultural biotech and assume that it would suffer the risks of health biotech. A lot of our venture capitalists also dabble in information technology and this too is a wholly different scenario. Except for the recently launched Malaysian Life Sciences Capital Fund, there is no real venture capitalist in Malaysia specialising in biotechnology. Thus, biotech start-ups have a very difficult time making their pitch for capital injection.
• Private equity
  This form of financing is still in its infancy and needs to develop a life science approach as opposed to an IT approach. Malaysia has a long way to go in this method of financing.
• Grants
  This is a sad story. The various grants are sitting in too many ministries and agencies. There is no proper rationale for this state of affairs. Some grants are with agencies under the Ministry of International Trade and Industry. Others sit with the Ministry of Science Technology and Innovation (Mosti). As I have pointed in my last article there is little reason for a grant for commercialisation to sit with Mosti. It happens nowhere else in the world. The other thing about these grants is lack of transparency. No clear criteria are spelt out. It is the decision of committees. This leaves lots of grey areas which could lead to corruption and “leakage”. I should mention that I have received an offer for a grant of under RM1 million but this is conditional on me getting a commercial loan! Go figure.
• Industrial development funds
  The idea to nurture start ups with soft loans is good and is practised the world over However it is again open to abuse.
• Commercial loans
  When we talk about corruption, we think of the poor enforcement official who takes RM50 instead of writing off a speeding ticket. Actually, corruption in banking is much worse. The talk is that it could involve about 3% to 5% of loans that run into millions of ringgit. Worse still, the whole thing is systemic and endemic while the percentage payout is slowly creeping upwards.
  This is dangerous and will choke the life out of entrepreneurs because these loans need to be paid back and require personal and corporate guarantees. Besides, commercial banks would never touch a start up much less a biotech start-up, I know banks are commercial enterprises but we need to take some risks. After all, when a bank gives you a loan and you decide not to use it or want to settle an earlier loan, you have to pay a penalty. Similarly, shouldn’t Bank Negara Malaysia make banks that do not give out loans pay some penalty as well?
• Coordination
  The main coordinator was supposed to be the Malaysian Biotechnology Corp (MBC). Unfortunately, it seems to be paralysed as it sits under Mosti, which has little to do with spurring commercial activity and growth. I have argued in previous articles that given the importance of the biotech policy, MBC should function under the Prime Minster s Department. This would remove all the friction and, at the same time, give MBC a much-needed boost.
  After I made that comment in my column last month, many called to thank me. A more effective way is for the industry to voice out its concerns collectively instead of keeping quiet.
• Other possible funders
  Although both Khazanah (National Bhd) and Felda have funds, their plans and initiatives in biotech have so far not been articulated. Some industry players see them as competitors rather than collaborators. The feeling is that these two, with huge resources and muscle, will not be effective in playing the roles of integrators or aggregators.

Without the vital input of money, biotechnology in Malaysia will fail despite all the talk. As the saying goes, “no money, no talk”.
Take my company’s case: we have not received loans or grants for the last three years and this should provide a powerful indication of what is missing on the ground. Despite that, we have soldiered on and filed for three patents and are likely to file seven more by year –end.
It is only because we have two companies in the group cross funding us that we can carry on. Even then, I had to mortgage my house last year. Otherwise, we would have gone under and become another unmarked grave in the valley of death.

So, we come to the key question: will biotech in Malaysia fail or succeed? If something is not done and quickly, I believe it will be the former.

Of course, 10 years from now, we may call it a qualified success. But deep inside, we all know that we could have done better. Much better.
We owe it to future generations We need to act fast.

Datuk Dr Rajen M is CEO of Holista Biotech