BVFBiotechnology Venture Fund to Boost Malaysia as Biotechnology Hub: Opportunities for SMEs

BVF MOC Signed Nov 2011

Witnessed by:

YAB Dato’ Sri Mohd Najib bin Tun Abdul Razak

Prime Minister

� “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

…. Warren Buffett

� In biotech, there can be a lot of unusual circumstances -- and the science involved can be difficult for many investors to understand. It is this learning curve that makes multi-bagger opportunities available to biotech investors -- and why the sector will outperform the S&P 500 in the long run.

Why investors excited about the opportunities in biotech?

Biotechnology loses its appeal…

Then…

AVEO got public in Feb 2010 at $9.00 per share,

yet had an average private investor share price

of $8.97 over the past 10 years. Merrimack just

IPO’d in Mar 2012 at $7.00, essentially flat with

the last private round in 2011, and only a 1.8x

over the average price of the past 11 years. And

these are great biotech companies. For most of

the past decade, step-ups on total invested

capital have typically been only 1.5x or so…

Now…

IPO

� Venture capital funding has rebounded somewhat, growing by 20% during 2010 in the US alone. Across the US, Europe and Canada, biotech companies raised US$25 billion in 2010 — more or less on par with the average raised during the “easy money” era of the four years preceding the crisis.

� South Korean recognized that the next ‘big thing’ would be biotech and started investing in public funding…USD5 billion invested. Pharma market expected to reach around USD14.75 billion in 2012 (Bioprocess International, Vol. 10 February 2012)

� Singapore’s hefty SGD13.55 billion from 2006 through 2010 investment in scientific research ….. (The Straits Times, May 15, 2009)

Factors to be considered Trends

Factors to be considered? Trends

Singapore

A country with well-developed infrastructure and proven technology capabilities,

has invested billions to cultivate strength in biotech manufacturing and attract

multinationals. The effort includes a comprehensive Biomedical Sciences Initiative

seeking to employ 15,000 in the sector by 2015. The country scores very high on

important dimensions like government and intellectual property (IP) protection.

Thailand

Thailand boasted 165 biotech companies as of late 2009 and is also competitive as a provider of clinical trials. Outsourcing there is estimated to save 60 percent of US-based trial costs. Aside from a less expensive workforce, the nation offers faster patient enrollment and lower dropout rates, due partly to the large proportion of uninsured citizens.

Vietnam

Vietnam has potential to be a global biotech-manufacturing leader. For example, the

country leads its region in the production and export of genetically modified foods.

Its fast-growing and highly literate (92 percent of citizens 10 or older) population is

another key asset. The number of university students doubled from 975,000 to 1.9

million between 2001 and 2007.

Factors to be considered? Trends

� Malaysia through its major plantation companies contributes more than 40% of the world’s palm oil productions that generates an estimated 80 million dry tonnes of biomass. With an estimated value of USD11.14 billion in 2015, biomass is targeted to be a vital contributor to the agricultural and industrial biotechnology sectors.

� By the year 2020 – it is our target to achieve RM15 billion public and private sector investment in biotech, 5% contribution to GDP, 50 global biotech companies with revenue of RM170 billion

Factors to be considered? Trends

� Against these backdrops, Intrasys launched BVF:

� Target IRR: 25%

� Fund size : USD100 million

� Stage of investment: Growth capital and late stage

� Investment value: USD5 – 10 million equity ticket per transaction

� Sector focus : Biotechnology

The Birth of Biotechnology Venture Fund (BVF)

• Registered VCMC

• Private equity fund

manager

Combination of Strengths

BVF

• Exclusive technology

advisor to BVF

• Leverage international

network to recommend

opportunities

• Acts as primary public face

for BVF – Industry Promoter

� BVF has PM-level visibility

� Offers excellent return potential

� Fits into National Biotechnology Policy plan� GNI

� Innovation

� Prestige and PR image

� Attract other investments

� Leverage local research and science

Significance of BVF

� Fund focuses on biotech investments:-

� RM30b boost with bio-economy

Prime Minister Datuk Seri Najib Razak launched the new National Biomass Strategy (NBS) to enhance Malaysia’s competitiveness as a bio-economy and biotechnology hub.

-New Straits Times, November 22, 2011

1

Agricultural

Biotechnology

Transform and enhance the value creation of the agricultural sector through

biotechnology.

2

Healthcare

Biotechnology

Capitalise on the country’s biodiversity for commercialising the discoveries of

health related natural products and bio-generic drugs.

3

Industrial

Biotechnology

Leverage on the country’s strong manufacturing sector to increase opportunities

for bio-processing and bio-manufacturing.

What will be Malaysia’s Biotechnology Opportunities?

� Biotechnology is a ‘hard sell’…

� Very much harder for developing nation� R&D expenditure

� Infrastructure

� Skilled labour

� Intellectual property (IP) protection

� Why we still want to do this?

Challenges! Make Life Interesting

� Biotechnology is the only way to solve major 21st century demands and needs

Who? What? Why? How? Summary

WasteWaste HealthHealthFoodFoodEnergyEnergy

� Key weakness of previous funds has been poor technical due diligence� BVF will conduct detailed technical and commercial due D

� Leveraging international commercial and technical biotech experts –Stanford, Oxford, Cambridge, MIT

� Businesses must be scalable AND have global marketability

� Valuable IP and companies are currently under-leveraged in US and EU� Represents massive opportunity for lower-cost, high-value

investments

Who? What? Why? How? Summary

� Jasmani Abbas - More than 25 years experience, Asia� Pioneering member of Malaysian private equity� Founding CEO of Mayban Ventures Sdn Bhd � Founder of Intrasys Sdn Bhd

� Asrul Nahar Razak – 17yrs experience, Asia� Seasoned investment professional� Ex-Mayban Ventures/International Banking background

� Dr. Arif Anwar – 19yrs experience, UK, California and Asia� B.Sc. & Ph.D. Genetics, University of London and Oxford� 5 start-ups – 4 IPOs & Acquisitions� Advisor to BiotechCorp IAP under PMO

� Johan Poole-Johnson – 15yrs experience, Asia and Australia� Life-science commercialisation� EXCO member Malaysian Association for Bioinformatics

� Matthias Gelber – 15 years in environmental management and CSR, 38 countries worldwide� International trainer, speaker and businessman� Greenest Person on the Planet award in 2008 by 3rdwhale.com and he was

named one of the Men of the Year in Malaysia

Who? What? Why? How? Summary

Who? How?Why?What? Summary

� Prioritise high-return, low-risk opportunities with strong IPs� IPO within 24-36 months target

� Clear off-takes deal

� Presence of Cornerstone Investors

� Primary strategy to invest in Asian / European / North American entities� Attractive valuation in North America and Europe for

acquisition

� Asian provides the vast market

� Tether in Malaysia to benefit the country

� Evaluation

Who? What? Why? How? Summary

3 Permanent Members3 Permanent Members 2 Temporary2 Temporary

� Portfolio management

� Implement diverse investment allocations

� Corporate management

� Leverage international mentoring panel to maximise success

� Investment optimisation

� Deal experience:

� Exit strategies based upon IPO or acquisition

Who? What? Why? How? Summary

� Financial risk diversification strategy

� Operating assets that generate cash and profit…Late stage

� USD5-10 million per transaction

� Use leverage to augment fund required to grow

� Milestone driven

“It has become increasingly clear from interactions with investors and companies that more and more venture funding is tranched —particularly in early rounds. In the past, a company raising US$20 million in a venture round may have received that money up front; today, it may receive only a small fraction” …Do for less

Who? What? Why? SummaryHow?

Who? How?Why?What? Summary

� Value creation is founded on 3 core principles:-� Build scope – enhancement of product/solution offerings

� Build skill – acquiring complementing technologies and skillsets

� Build scale – building sizeable market to achieve efficiency and economies of scale, cut back operational cost enroute to higher profitability� Aims to acquire and control of smaller units that are scalable enough

to allow geographic expansion and development of products.

� Should be among the visible leaders in their respective sector and have reached a level of maturity to turn these companies into leaders

� MY� 7 companies through Malaysian Biotech Corp

� International – EU, US, Asia and Australia� Systemic innate pesticide plant technology

� Genetic pest control

� Non-invasive injectible

� Non-invasive electrocute

� Non-invasive blood monitoring

� Bio-energy

� Bio-remediation waste management

Who? What? Why? How? Summary

Lessons from How the Leaders Build in

� Started Biocon in the garage of her rented house in Bangalore with a seed capital of Rs. 10,000.

� Funding had been a problem as no bank wanted to lend to her, but she also found it difficult to recruit people for her start-up.

� Overcame these challenges only to be confronted with the technological challenges associated with trying to build a biotech business in a country facing infrastructural woes

� Within a year of its inception, Biocon became the first Indian company to manufacture and export enzymes to USA and Europe. In 1989, Biocon became the first Indian biotech company to receive US funding for proprietary technologies

� Upgraded Biocon’s in-house research program, based on a proprietary solid substrate fermentation technology.

� Manufacture and market a select range of biotherapeutics in a joint venture with the Cuban Centre of Molecular Immunology.

� 2004, she decided to access the capital markets to develop Biocon’s pipeline of research programs. Biocon’s IPO was oversubscribed 32 times and its first day at the bourses closed with a market value of $1.11 billion, making Biocon only the second Indian company to cross the $1-billion mark on the first day

� 2007-08, a leading US trade publication, Med Ad News, ranked Biocon as the 20th leading biotechnology companies in the world and the 7th largest biotech employer in the world.

Kiran Mazumdar-Shaw: Net worth of US$900 million (2010)

Who? What? Why? How? Lesson 1

� Owner of soy sauce producer and convenience store

� Was offered as products reseller for Scinko, Korea

� Partnering a friend who specialises in renewable energy/efficiency (REE) and came out with improved solutions for Scinko

� Begun as reseller, they turned out to be the original equipment design and Scinko instead became their OEM

� Realising the market was crowded with energy saving companies (resellers, inverters and consultants), they decided to push through their solutions to the underserved industrial market

� Without track record, their attempts proven to be hard sell especially to the locals.

� Until Toyota, Thailand became their 1st customer…the rest is history

� Innovated creative business model – Pay As You Save (PAYS ) business model

Book orders stand around RM0.5 billion TODAY

Who? What? Why? How? Lesson 2

� A former Supreme Judge of Malaya

� Started palm oil waste derivatives processing plant at a very late age

� Spent huge sum of RM12 million on R&D for 8 years just to prove to the world that he can produce indigenous raw materials from oil palm biomass for various industries -mattress, automotive, horticulture, bio-fuel and bio-chemicals and cosmetics… without any funding from grants or soft loans

Pave the way for others to continue with his efforts…a RM30 billion bio-economy.

Who? What? Why? How? Lesson 3

� Multiple competencies

� Partner early and partner often

� Flexibility and resilience

� Business — not just cool science

SummaryPlease Consider These!