A sobering experience
The Malaysian government’s focus on Biotechnology and Agricultural technology (better known as AgBio – agricultural biotechnology in the USA and Europe) has made me naturally more curious about the industry and how developments in America and Europe will affect our national aspirations. Hence, over the last month I attended two conferences, one in San Francisco and another one in London to discover the latest in the industry. It was a very sobering experience indeed.
While research in Biotech and AgBio is very advanced in both countries the funding and exit strategies for these sectors are extremely difficult, so difficult in fact that American companies are looking for funds in Europe and vice versa with minimal success.
In R&D, both American and European companies are at the forefront of many potentially lucrative discoveries in pharmaceuticals, diagnostics and medical devices; from the discovery of antibodies that can penetrate cancer cells and then cause their apoptosis (cell death) to the use of thermal imaging technology for the early detection of lung and thyroid cancers. These are all technologies that may become commercially viable in the next 5 to 10 years and change the course of medical science.
There are even trials being conducted by an American company and the US Ministry of Defence to prevent and even cure deafness. The US military apparently spends up to US$ 2 billion a year on deaf related problems due to wars and artillery training. This company has even managed to regenerate the tiny hair-like organs whose death caused permanent deafness, raising the possibility of reversing deafness caused by old age. Incidentally they won the business plan competition held at the London conference.
Despite these potentially lucrative discoveries VC appetite for Biotech investments has declined rapidly over the last few years. There are only about 15 pure Biotech funds in the European Union versus about 88 in America, however the amount of funds available for investments is 20 times more in America, which makes it very difficult to source VC funding in Europe.
This shortage of funds is due to the lack of an exit opportunity. The only viable markets for a Biotech exit in Europe are the Alternative Investment Market (AIM) in London, Euronext (mainly Brussels and Amsterdam) and possibly the Deutsche Bourse in Germany. However, over the last 5 years there haven’t been any notable Biotech listings in Europe, nothing comparable to the US giants Genentech or Amgen.
Poor exits are not limited to Europe as even in the US exits over the last few years have been tough. Due to the poor performance of many earlier listings investor appetite for Biotech IPOs (Initial Public Offerings) have decreased. As examples three US IPOs in February 2005, Favrille Inc, Icagen and Threshold Pharmaceuticals only managed to price their shares at half the expected price and Favrille Inc, which has a drug for the treatment of non-Hodgkin's lymphoma in Phase III clinical trials (advanced trials), was able to raise only US$ 42 million, a measly sum for a Biotech company.
Compounding the poor IPOs is a poor mergers and acquisitions scenario because the larger pharmaceutical companies have curbed their acquisitions and are instead just licensing drugs or acquiring the patents instead of entire companies. Many pharma companies had to take huge goodwill and asset write-downs when their investments went bust and this had led to a change in strategy.
There is no lack of R&D and interesting research being conducted in both America and Europe but because of the poor environment for exits, funding is a major issue for Biotech companies.
It gets worse for AgBio companies. Interest in AgBio companies is virtually nil because there have been very few successes in AgBio exits. This is compounded by the fact that the major AgBio companies like Monsanto are no longer acquiring companies, so there is no opportunity for VCs to successfully exit such investments. This will be a problem for Malaysia especially because of our focus on AgBio initiatives.
Even G. Steven Burrill of Burrill & Company, one of the advisors to the Malaysian government, admitted that the poor outlook for Biotech and AgBio will last for a while. I also had the opportunity to speak to a Canadian who currently advises the Singaporean and Korean governments on their Biotech initiatives and she was very clear that government investment in the Biotech industry will not bring any financial returns for the next 15 years and anything beyond that is unpredictable.
While all this makes for a very depressing outlook for these industries, the question we must ask is whether there are opportunities within these industries other than drug discovery and pure biotechnology R&D. Fortunately opportunities do exist for Malaysia.
One potentially lucrative opportunity is the outsourcing of clinical trials to what they call “Contract Research Organisations” (CROs). One costly aspect of drug discovery is the numerous clinical trials that have to be performed, not just human clinical trials but also animal and cell trials. Such trials are extremely expensive in America and Europe and it is estimated that it will cost only one tenth of that in Asia, including Malaysia. Our Institute of Medical Research is already well known in Asia so developing this industry in Malaysia is a possibility. India is already moving in this direction.
In AgBio we should focus on increasing yields of agricultural crops including oil palm, cocoa and padi. Such R&D do not always fall within the gambit of genetically modified crops and will help our own agricultural industries to grow further. Another area is Bio Fuel. Oil prices are expected to remain high over the next few years, making it lucrative to develop alternative fuels. While it may not be feasible currently to use palm oil in vehicles, they can be made commercially viable for high volume use in power plants, steel and other heavy industries. Tenaga Nasional has used palm oil before although its efficiency is not equal to gas but with adequate research this can be improved. The high oil price factor and the move to renewable fuels in Western nations bode well for palm oil as a bio fuel.
So, even though the Biotech and AgBio industries are going through a difficult time globally, if Malaysia does want to invest in these industries opportunities do exist, albeit in very niche sectors. A more focused approach is therefore necessary for us to be successful in this area of technology.
While research in Biotech and AgBio is very advanced in both countries the funding and exit strategies for these sectors are extremely difficult, so difficult in fact that American companies are looking for funds in Europe and vice versa with minimal success.
In R&D, both American and European companies are at the forefront of many potentially lucrative discoveries in pharmaceuticals, diagnostics and medical devices; from the discovery of antibodies that can penetrate cancer cells and then cause their apoptosis (cell death) to the use of thermal imaging technology for the early detection of lung and thyroid cancers. These are all technologies that may become commercially viable in the next 5 to 10 years and change the course of medical science.
There are even trials being conducted by an American company and the US Ministry of Defence to prevent and even cure deafness. The US military apparently spends up to US$ 2 billion a year on deaf related problems due to wars and artillery training. This company has even managed to regenerate the tiny hair-like organs whose death caused permanent deafness, raising the possibility of reversing deafness caused by old age. Incidentally they won the business plan competition held at the London conference.
Despite these potentially lucrative discoveries VC appetite for Biotech investments has declined rapidly over the last few years. There are only about 15 pure Biotech funds in the European Union versus about 88 in America, however the amount of funds available for investments is 20 times more in America, which makes it very difficult to source VC funding in Europe.
This shortage of funds is due to the lack of an exit opportunity. The only viable markets for a Biotech exit in Europe are the Alternative Investment Market (AIM) in London, Euronext (mainly Brussels and Amsterdam) and possibly the Deutsche Bourse in Germany. However, over the last 5 years there haven’t been any notable Biotech listings in Europe, nothing comparable to the US giants Genentech or Amgen.
Poor exits are not limited to Europe as even in the US exits over the last few years have been tough. Due to the poor performance of many earlier listings investor appetite for Biotech IPOs (Initial Public Offerings) have decreased. As examples three US IPOs in February 2005, Favrille Inc, Icagen and Threshold Pharmaceuticals only managed to price their shares at half the expected price and Favrille Inc, which has a drug for the treatment of non-Hodgkin's lymphoma in Phase III clinical trials (advanced trials), was able to raise only US$ 42 million, a measly sum for a Biotech company.
Compounding the poor IPOs is a poor mergers and acquisitions scenario because the larger pharmaceutical companies have curbed their acquisitions and are instead just licensing drugs or acquiring the patents instead of entire companies. Many pharma companies had to take huge goodwill and asset write-downs when their investments went bust and this had led to a change in strategy.
There is no lack of R&D and interesting research being conducted in both America and Europe but because of the poor environment for exits, funding is a major issue for Biotech companies.
It gets worse for AgBio companies. Interest in AgBio companies is virtually nil because there have been very few successes in AgBio exits. This is compounded by the fact that the major AgBio companies like Monsanto are no longer acquiring companies, so there is no opportunity for VCs to successfully exit such investments. This will be a problem for Malaysia especially because of our focus on AgBio initiatives.
Even G. Steven Burrill of Burrill & Company, one of the advisors to the Malaysian government, admitted that the poor outlook for Biotech and AgBio will last for a while. I also had the opportunity to speak to a Canadian who currently advises the Singaporean and Korean governments on their Biotech initiatives and she was very clear that government investment in the Biotech industry will not bring any financial returns for the next 15 years and anything beyond that is unpredictable.
While all this makes for a very depressing outlook for these industries, the question we must ask is whether there are opportunities within these industries other than drug discovery and pure biotechnology R&D. Fortunately opportunities do exist for Malaysia.
One potentially lucrative opportunity is the outsourcing of clinical trials to what they call “Contract Research Organisations” (CROs). One costly aspect of drug discovery is the numerous clinical trials that have to be performed, not just human clinical trials but also animal and cell trials. Such trials are extremely expensive in America and Europe and it is estimated that it will cost only one tenth of that in Asia, including Malaysia. Our Institute of Medical Research is already well known in Asia so developing this industry in Malaysia is a possibility. India is already moving in this direction.
In AgBio we should focus on increasing yields of agricultural crops including oil palm, cocoa and padi. Such R&D do not always fall within the gambit of genetically modified crops and will help our own agricultural industries to grow further. Another area is Bio Fuel. Oil prices are expected to remain high over the next few years, making it lucrative to develop alternative fuels. While it may not be feasible currently to use palm oil in vehicles, they can be made commercially viable for high volume use in power plants, steel and other heavy industries. Tenaga Nasional has used palm oil before although its efficiency is not equal to gas but with adequate research this can be improved. The high oil price factor and the move to renewable fuels in Western nations bode well for palm oil as a bio fuel.
So, even though the Biotech and AgBio industries are going through a difficult time globally, if Malaysia does want to invest in these industries opportunities do exist, albeit in very niche sectors. A more focused approach is therefore necessary for us to be successful in this area of technology.
4 April 2005
posted by Dr. Siva at 10:55 PM
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