Malaysia has identified biotechnology as a key technology to drive and support its evolution into a knowledge-based economy. It is ready to learn from and emulate the best biotechnology R&D and industry practices and has set its sights on doubling the number of its biotechnology and biotechnology-related companies to 400 by 2010.

The National Biotechnology Policy

The National Biotechnology Policy was launched in 2005 to provide a comprehensive and coherent framework to guide the development of biotechnology in Malaysia. The Biotechnology Policy's main aims are to develop human resources to meet the industry's skills needs, and to nurture entrepreneurship and the development of niches in agriculture biotechnology, healthcare biotechnology, industrial biotechnology and bioinformatics.

The Biotechnology Policy provides a comprehensive framework for legal, regulatory and institutional changes. It also provides fiscal and financial incentives to foster innovation and investment in biotechnology in Malaysia.

The Malaysian Biotechnology Corporation

The Malaysian Biotechnology Corporation (BiotechCorp) was set up in 2005 as the lead agency for the implementation of the Biotechnology Policy and as the one-stop centre for advice, support and facilitation services to biotechnology companies. Its objectives include identifying value propositions in both R&D and commerce, and supporting these ventures through financial assistance and developmental services.

Uniqueness of Malaysia

With its rich and untapped natural resources such as the world's oldest rainforest, an estimated 15,000 flowering plant species and 185,000 animal species, and the practice of traditional and herbal medicines from the Malay, Chinese and Indian cultures, Malaysia aims to set itself apart from its Asian neighbours and rivals.

Malaysia is the 4th mega-diversity nation in Asia and 12th in the world, and has a multiracial population of about 27 million that is highly educated and proficient in English. Its official religion is Islam, a religion practised by an estimated 1.4 billion people worldwide. Biological products such as vaccines made in accordance with Islamic principles will have a ready and substantial market in countries with high Muslim populations.

Malaysia's biotechnology focus areas

Malaysia's niche areas are agricultural biotechnology, healthcare biotechnology and industrial biotechnology. They are illustrated in Diagram 1, which is reproduced from BiotechCorp's website.

Diagram 1: Malaysia's biotechnology focus areas

BioNexus status

Companies that have research capabilities in the focus areas may apply to BiotechCorp for BioNexus status, which qualifies them for certain privileges under the Bill of Guarantees. These privileges include the freedom of ownership of the companies, the freedom to source funds globally and the freedom to bring in knowledge workers.

BioNexus status companies may apply to BiotechCorp for a 100% income tax exemption for the first year of profitability, after which they would be taxed at a concessionary rate of 20% for another 10 years. Alternatively, they may apply for an investment tax allowance of 100% on the capital expenditure incurred within the first five years. Angel investors and venture capitalists are given tax deductions equivalent to the total investment made in seed capital and early stage financing. A company that invests in its 70% or more owned subsidiary will be entitled to a tax deduction equivalent to the amount of investment made.

There is no import duty and sales tax on raw materials/components for machinery/equipment. Double deduction on expenditures incurred for R&D and for the promotion of exports is allowed.

Dividends distributed by a BioNexus status company are exempt from tax. A BioNexus status company merging with or acquiring a biotechnology company is exempted from stamp duty and real property gains tax until December 31 2011.

Seven companies have been already granted BioNexus status to date and over a 100 more applications are being processed by BiotechCorp. An applicant for BioNexus status must provide a product or services based on life sciences, or substantially use biotechnology processes, in addition to having research capabilities in the focus areas. The applicant must also employ a large percentage of knowledge workers as part its total workforce.

Available funds

Under the government's economic five-year development plan, the 9th Malaysia Plan (2006-2010), Malaysian majority-owned BioNexus companies may apply for a slice of the RM210 million ($60 million) allocated for biotechnology. The three main programmes are the Biotechnology Acquisition Programme, with a matching grant of RM60 million, the Biotechnology Commercialization Fund of RM30 million and the R&D Fund of RM59 million.

Patentability of biotechnological inventions

Malaysia is committed to providing a strong intellectual property protection regime under the Biotechnology Policy. According to statistics given by the Malaysian Intellectual Property Office (MyIPO), of the over 87,000 patent applications filed in Malaysia, only about 1,600 are for biotechnological inventions. However, the number of patent applications is expected to increase once international PCT applications enter into the national phase in Malaysia, as Malaysia has become a member of the Patent Cooperation Treaty as of August 16 2006.

The criteria for patentability of an invention under the Malaysian Patents Act 1983 are that the invention is new, involves an inventive step and has industrial applicability, as per Article 27(1) of TRIPs. Excluded subject matter includes discoveries, plant or animal varieties or essentially biological processes for the production of plants and animals. However, man-made living microorganisms and microbiological processes, and genetically modified plants that do not amount to a plant variety are patentable.

Methods for the treatment of the human or animal body by surgery or therapy and diagnostic methods practised on the human or animal body are also not patentable in Malaysia.

The excluded subject matter mirrors that prohibited under Article 52 of the European Patent Convention. So it is not surprising that MyIPO has an expert from the European Patent Office advising on the guidelines for the examination of biotechnological patent applications filed in Malaysia. MyIPO's guidelines follow closely, if they are not identical to, the EU Directive 98/44/EC on the legal protection of biotechnological inventions.

Under Section 31(1) of the Patents Act, MyIPO may refuse to grant a patent and a patent may be invalidated on the ground that the performance of any act in respect of the claimed invention would be contrary to public order or morality. It could be argued the word "performance" under the Patents Act is not limited to just the "publication or exploitation" of the claimed invention as prohibited under Article 53 of the European Patent Convention and Article 6 of the EU Directive on Biotechnological Inventions. MyIPO has set up a joint committee to formulate a policy for patenting biotechnological inventions in Malaysia

The MyIPO's official guidelines for the examination of biotechnological patent applications will be finalized and published after Malaysia becomes a member of the Budapest Treaty for the deposit of microorganisms and other biological materials for the patent procedure, which is scheduled for this year

Protection for new plant varieties

On January 1 2007, the Protection of New Plant Varieties Act 2004 for the registration and protection of the rights of breeders of new plant varieties came into force. A plant variety is characterized by the expression of the characteristics resulting from a given genotype or a combination of genotypes and not just part of it. Generous exceptions to the breeder's rights are provided for small farmers, farm-saved seeds and research.

An application for the registration of a new plant variety and a grant of a breeder's rights requires:

• disclosure of the genetic material's source or the immediate parental lines of the plant variety;
• written consent of the authority representing the local community or the indigenous people if the plant variety is developed from traditional varieties; and
• evidence of compliance with any law relating to access to genetic or biological resources and any law regulating activities involving genetically modified organisms if the development of the plant variety involves genetic modification.

So the rights granted under the Plant Varieties Act are subject to more exceptions and the criteria for registration and grant are more onerous that that under the Patents Act.

Creating an enabling environment

The Malaysian government is making concerted efforts to create an environment that is conducive to innovation and investment in biotechnology in Malaysia. Towards this end, the government is undertaking various studies and is reviewing its institutional, legal and regulatory, and financial frameworks. Among the studies being undertaken are the introduction of legislation similar to the Bayh-Dole Act to facilitate the transfer and commercialization of technology from universities and research institutes to the industry, protection of test data or data exclusivity, the extension of pharmaceutical patents, setting up a specialized Intellectual Property Court and the securitization of IP in Malaysia.

By implementing its comprehensive Biotechnology Policy in a concerted and coherent manner, tapping into its rich natural resources and biodiversity, and building on its existing capabilities, Malaysia is hopeful of becoming a preferred destination for innovation and investment in biotechnology.

Timothy Siaw

Timothy Siaw is a partner in the intellectual property and technology department of Shearn Delamore & Co. He has a BSc majoring in biochemistry and an LLB from Monash University, Australia. Siaw is a registered patent agent and a lawyer and has practised in the areas of IP and technology law in Malaysia for over 15 years.