This week, lawyer and biotech CEO Alex Thian offers some valuable insights on how to keep Singapore's next engine for growth--the life science industry--in high gear.
Having operated in the life science business for the past 9 years or so, I have viewed the progress of this new industry worldwide--and particularly in Singapore--from the perspective of a businessman and a private investor. Many of principals in the biotech equipment and consumables business grew from what were basically garage operations to multibillion dollar corporations within a short period of time. But in that same short period of time, many biotech ventures have gone up in smoke!
Almost every one in Singapore, those in the establishment as well as the public, has affirmed their belief that biotechnology or the life sciences will be the next engine of growth for Singapore. "The 4th pillar," they say. Is such a belief realistic? If so, what are the chances that Singapore will become a powerhouse in this new area?
I personally believe that Singapore has a realistic chance of achieving its stated goal. However, if it is to do so, the full engagement of the private sector--foreign as well as local biotech companies--will be crucial.
It is possible to draw comparisons with several new but much larger biotech markets, such as Germany, the UK, and Denmark. In the case of Germany, hundreds of biotech companies have been launched in the past 5 years or so and many are still being started now, largely with private funding. A similar scenario is unfolding in Denmark, where dozens of new biotech start-ups are formed each month. These biotech companies are now driving the biotech industry, hand in hand with research institutions.
Singapore needs such biotech companies--and a large number of them--if it is to succeed.
Present State of the Life Sciences Industry in Singapore
The life science industry in Singapore has, to date, been driven largely by the public sector. Most biotech research is conducted at the various research institutes. Due to increasing governmental expenditure on R&D, the business of supplying equipment and consumables to the institutes has grown as well, benefiting local distributors and service providers.
In the past several months, government agencies have helped a number of U.S. biotech companies to set up operations in Singapore. In contrast, very few local biotech start-ups have been launched in the past few years. There are now, at most, a dozen homegrown biotech companies, most of which are still struggling to get funding either to launch or to grow.
There are, however, several life science venture capital funds set up by local corporations, including banks and industrial corporations. But the level of investment by these funds in local biotech is still extremely small as compared to the information technology sector. And the dollar amounts of committed investments are negligible when compared to other sectors of the economy.
Singapore also suffers from a current shortage in its biotech workforce, but various agencies such as the universities and polytechnics have started programs to train more and more life science professionals at various levels. While grooming a whole new generation of entrepreneurial professionals, the question arises as to how we can encourage these professionals to start up their own companies and, at the same time, persuade private investors to put their bets on them. This is a very difficult question facing not only this new industry but other industries in Singapore as well. Here's how I see the fundamental issues:
1. The Asset Syndrome
I once told an audience during a technology seminar that the root of the problem lies with Singapore's housing policy. Each Singaporean is given the right to apply for an apartment of his or her choice at a significant discount under market rate from the government. He or she will be able to sell that flat after 5 years and make a handsome profit. This purchase is generally the first major commitment of most young working adults in Singapore, and as a consequence, a large proportion of young Singaporeans have owned HDB flats. This is an extremely good policy to encourage savings and asset building. Asset ownership, however, comes with an obligation: The asset holders (young Singaporeans, in this case) have to realize a monthly income for many years in order to pay for the asset. They can't afford to miss a payment for fear that the apartment will be taken away. So, they can't quit employment to start a new company without taking on significant personal risk. Most biotech professionals in other markets are not saddled with such obligations.
A change of mind-set is needed in order to break out of this traditional asset trap. A good first step would be to consider starting a business as a form of asset building! Once a business becomes successful, it gives the owner a return of many times the original investment. Of course the risk of failure is very high as well. If a potential entrepreneur has fixed assets, they should consider leveraging those assets to secure finances needed for the new business. This, of course, would require regulatory changes, as presently this is not allowed for apartments bought from the government.
2. The Risk-Averse Investor Mind-set
Local investors, like most Asian venture capitalists, tend to be extremely risk averse, and they typically take a short-term view as well. These are the consequences of a preference for traditional investments in fixed assets and public equities. Lack of knowledge about the biotech industry is another major contributing factor, and the burst of the dot-com bubble earlier this year didn't help at all.
It was only in the early 1990s, after the much-publicized success of some new local technology firms--in particular, Creative Technology--that local investors become more inclined to invest in technology start-ups. So, Singapore definitely needs more high-profile success stories. But changing the investors' mind-set will also require a good deal more investor education, such as seminars and courses.
To this end, the relevant state agency has implemented a policy of seed funding or co-investing with private investors in promising biotech start-ups. This reduces the risks to the private investor considerably. I strongly believe that this policy will help to jump-start investments in biotech start-ups in Singapore.
3. Commercialization Policies of the Research Institutes
The policies of research institutes and universities must support risk-taking and reward-sharing because the majority of Singapore's biotech and life science professionals work in them. I believe that the key institutes have yet to implement aggressive commercialization policies that truly encourage researchers to take more risks. These institutes still harbor the traditional mind-set of holding on to ownership of valuable intellectual property rights created by their researchers without realizing that such rights will only be of value if they are successfully commercialized. It is time for Singapore's research institutes to adopt a more liberal approach. For starters, they should consider transferring intellectual property rights to individual researchers (at least, those who have attained a certain level of seniority and credibility) for free, irrespective of the dollar amount of the grant the government provided for the creation of the invention, so long as those researchers are prepared to take the risks of starting a new business on their own.
4. The Need for Knowledgeable Service Providers
There must be a service support industry, comprising fund managers, lawyers, consultants, and accountants who understand and can provide professional services to the nascent biotech investment community. There is currently no industry expertise to help researchers start new ventures. For example, a particular researcher may not be aware that a project that he or she is working on has great commercial potential. And even if that researcher does realize their project or product is patentable, they may not know how to find knowledgeable local lawyers or business consultants who can help them figure out how to proceed. Engaging international consultants is just too expensive.
The government is beginning to address these needs by setting up a technology-transfer center and establishing a financial grant scheme that allows professionals to get overseas training in this new area. But we must proceed with a greater sense of urgency. The burden lies ultimately with private industry, where workers must see the opportunity and take their own initiative to actively upgrade or retrain themselves with the new skill sets.
5. The Market in Biotechnology Equity
To a large extent, the sentiments of biotech investment in start-ups is linked closely to the equity market. If the market sentiment is bad--as it is now--it will be very difficult for brick-and-mortar companies, let alone biotech companies with no track records, to be listed.
Stock exchanges in many countries have taken a liberal approach to listing of biotech companies without any revenues and profits. For example, even in the current adverse conditions the NASDAQ continues to list quite a number of new biotech companies that have no track record of making a profit.
The local bourse seems to have adopted a more stringent approach. Profit records and viability must be ensured before companies are listed. Under such policy it will be very difficult for local biotech companies to be listed. Without the prospect of becoming listed, private equities are unlikely to place a significant role in this new industry.
These are but some of the issues faced by biotech start-ups here in Singapore. If we could address these problems and provide some resolutions, we would certainly make it easier for potential entrepreneurs-to-be.