GenoMed Inc. (GMED)

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A lot has been said about the BioValley initiative in Malaysia, and the potential benefits that this has in relation to Phenomed. Here is an article from yesterday's New Straits Times which highlights some of the problems that have occured with the BioVelley initiative. Not unexpected developments for those familiar with Malaysia, and not something to worry about as such, but it will give you an idea of what is really involved with these sorts of projects.

http://www.emedia.com.my/Current_News/NST/Sunday/Features/20040411084255/Article/indexb_html

COVER STORY: Nurturing hopes for BioValley
Theresa Manvalan

Apr 11:

Business and science are talking, but they’re not holding hands yet to make a go of the BioValley Malaysia initiative.

THERESA MANAVALAN finds a long gestation period, as is the norm with biotechnology.

EXPECT a flurry of bio activity in the next three months. The BioSafety Bill is to be tabled in Parliament in May, the Ministry of Science, Technology and Environment has been restructured and has a new minister, plus the status of the proposed BioValley Malaysia site has been sorted out.

These three things will hopefully send out the right signals to investors to bring their bucks to BioValley, Malaysia's proposed biotechnology hub.

Already, top officials at the reconstituted Ministry of Science, Technology and Innovation are discussing earthworks for the 800-hectare site, on the fringe of the Multi-media Super Corridor near Dengkil, Selangor. This is the location of the Entertainment Village which never took off.

Still, it will be 2006 by the time the three world-class institutes for genomics and molecular biology, agrobiotech and pharmaceutical-nutraceuticals take shape.

Despite fairly good timing — BioValley Malaysia came in the wake of global excitement over the decoding of the human genome — it hasn't pulled its act together enough to earn serious investor confidence.

So far, three companies have signed up to put their plants there.

What biotech companies and hopefuls would like to see are masterplans of the whole site, the insides of the three institutes and infrastructure that would support the biotech industry. Clear timelines would help, too. The three institutes are going to cost RM100 million.

Since the first announcement in 2002 and a fanciful launch early last year, all's been quiet. So silent that the sniggering has started.

It doesn't help that a few biotech start-ups have turned turtle and some relationships with venture capitalists have gone completely sour. But such horror stories are universal.

Overseas, BioValley's blip on the radar screen is as good as gone. Detractors have been openly talking about "personal agendas" which have stalled the project and kept it shrouded in "secrecy".

For those serious about placing their commitment in BioValley — and there are biotech companies which are genuinely interested — it has been a frustrating wait. Some have already moved on.

But this long season of silence was not without some good.

The Eighth Malaysia Plan midterm review announced last October a RM75 million R&D fund under the National Biotechnology Directorate, the Science, Technology and Inno-vation Ministry agency which spearheaded the creation of BioValley. The fund is mainly for biotech research in plants, animals, food, molecular, biopharmacy and natural products.

Along the west coast of the peninsula, State Governments have been looking at biotech as well. With Federal encouragement, satellite hubs are already sprouting in Penang, Negri Sembilan, Malacca, Johor and in Selangor, projects not directly related to BioValley itself. The Sabah and Sarawak Governments are also pushing biotech.

Many feature indigenous knowledge, local raw materials and capitalise on local environments.

The other good thing that has transpired since 2002 is the debate. Malaysians, especially scientists and investors, have had a chance to talk about biotechnology, its issues, its potential and how to get a slice of the pie. They've flirted with local and foreign investors, met venture capitalists and heard the many horror stories of biotechnology.

The first criticism levelled at the whole BioValley project is the apparent over-emphasis on property development. The focus has been on developing the Dengkil site instead of working on legal, funding and talent issues.

"That's not entirely true," says a ministry source. "Developing the site is the Government's contribution to the biotech industry. It's a signal to investors of official commitment. The other issues are being looked at as well." The proposed site is owned by Kumpulan Darul Ehsan Bhd (KDEB), the Selangor Government's investment arm. Its subsidiary, Kumpulan Hartanah Selangor Bhd (KHSB), is the developer of BioValley.

It is understood that KHSB is planning to build residential and commercial properties in the vicinity. Hence, all the talk about property development.

One point of contention is plain old bureaucracy. "Right now, BioValley is sangkut in bureaucracy," says a local biotech executive.

"It's parked at the Ministry of Science, Technology and Innovation where it's never going to move on track. It should be at the Prime Minister's Department where it will get kick-butt motivation everyday just like the MSC. "Anyway, it should be managed by a CEO in pure business style, not government style." Many expect BioValley to play the role of consolidator.

"Biotech R&D has been going on for a long time here," says Kelvin Keh, head of the Malaysian Biotechnology Information Centre, an NGO which promotes understanding of biotech.

"BioValley could be the one that brings it all together and jump-starts the commerce. Certainly, would-be entrepreneurs would appreciate that." The absence of a single agency to promote BioValley is a sore point. Within the ministry, there are at least two departments to see, after which an investor will have to go to Mida. Not encouraging.

"Malaysia has almost everything except a one-stop-shop for biotech which can move permits, approvals and give good advice. Speed and convenience are important," says Paul Edwards, head of GMX Biotech which will build a human insulin plant in Penang. When up and running in 2006, it will produce 300kg annually of insulin.

Edwards cites Ireland and North Carolina as examples of biotech hubs whose success can be attributed to proactive one-stop agencies.

Halim Hamat, secretary-general of the Malaysian Biotehnology Ind-ustry Organisation (MBIO), says BioValley has to be international in every way.

"We need to create a vibrant scientific community to get acceptance worldwide," says Halim. "Its most attractive feature should be the inflow of quality professionals, including Malaysians now working abroad." MBIO, set up a year ago to represent the biotech industry, has about 25 corporate members in life sciences. Members include biopharmaceuticals, food manufacturers, Sirim, Malaysian Palm Oil Board and related professionals like legal firms and event managers.

The absence of a sizeable scientific community is a big issue. Companies have always had trouble recruiting experienced scientists locally. Often, advertisements are answered by Indian and Chinese nationals.

Singapore, which also doesn't have enough experienced scientists, creates a plan to hire scientists from abroad for each serious investor.

"Besides that, what we're really lacking is the commercialisation scientist," says Halim. "The one who takes the science to market." Which raises two major hurdles for BioValley: legal and money.

Licensing, patents and rights are all tied up with funding and investment. "This is where I'd put my energy," says Kim S. Tan, a Malaysianborn entrepreneur who listed three biotech companies on the London Stock Exchange.

"Legal issues easily turn into big problems. They've got to be addressed. There's got to be people to deal with it. Even the smallest biotech project must examine legal issues, have an IP strategy before starting work. Plus, you do need to understand how the investor or VC works or you risk losing everything." Here's one story: Phytes Biotek Sdn Bhd, which intended to manufacture, package and market tongkat ali products, signed a RM20 million deal with Malaysia Venture Capital (Mavcap) which took 30 per cent ownership.

The founders of the company — scientists from academia — have since lost control of the company. Mavcap exercised its rights to take up 75 per cent of stock when timelines went awry and deadlines were not met.

Now, Phytes Biotek wants to buy out Mavcap. But where does a startup which just burned RM20 million get another RM20 million to do that? Malaysian biotech start-ups and their scientific founders are sweating their way to get investors to understand them. Banks rarely touch biotech here mainly because they don't know the subject at all. Venture capitalists are always tough with money, usually asking for more shareholding than any innovator would dream of giving away.

All investors fear a dotcom-like crash, especially when strong evidence that ideas will pan out is hard to formulate. One option is to license early-stage discoveries to deep pocketed compe-titors.

"Licensing is a possibility," says Kim. "Also, biotechs are merging with other biotechs."