March 4, 2008

Industrial Biotechnology: Third Wave in Biotech

By Faizal Ramli

RISING oil and natural gas prices have created tension globally, creating concern that their continued increase may disrupt economies and create political vulnerability. Furthermore, supply fluctuation, consumer activism, gas emission and greenhouse gas taxes have also resulted in many countries no longer wanting to be dependent on oil- based and chemical- based raw materials, and are now looking positively at Industrial Biotechnology as an alternative and important avenue for solving their problems. Not as established as the agriculture (the first wave) and healthcare (the second wave) sectors in the biotechnology industry, Industrial Biotechnology is often referred to as the third wave of biotechnology.

Industrial Biotechnology, also known as White Biotechnology, is the use of bio-products in industrial products which are usually made from petroleum-based products such as fuel, polymers and petrochemicals, bulk chemicals and specialty chemicals. It can also be defined as the application of biotechnology for the processing and production of chemicals, materials and fuels. The development of a whole new mindset based on Green chemistry, the utilisation of bio- based chemical processes, makes up the fundamental aspect and drive for Industrial Biotechnology. It takes into account the natural diversity of organisms available in soils, forests and oceans, and the discovery of new genes, metabolic pathways, and enzymes that can directly substitute non-biological chemical compounds.

Global Industrial Biotechnology scenario

Looking currently at the global chemical sector, the European Union (EU) holds the strongest position compared to other countries. According to a recently published report, 16 out of the top 30 chemical companies by sales worldwide in 2003 (without pharmaceuticals) were EU countries, where the manufacturing of chemicals and chemical products (including pharmaceuticals) accounted for 11% of the Gross Value Added (GVA) of the manufacturing sector in 2002, nearly 2% of overall EU GVA. Alternatively, five of the top 30 chemical companies in the world are located in the USA, where 1.7% of its total chemical companies use biotechnological processes (266 out of 16,000). Another leading nation is Japan as it has had a head start due to the nation's familiarity with microorganisms through the fermented food industry. In 2005, the sector accounted for 7% of sales, equivalent to US$77 billion. McKinsey & Company predicts that by 2010, Industrial Biotechnology will account for 10% of sales within the chemical industry, representing US$125 billion.

Energy security remains the main aspect in the global pursuit of Industrial Biotechnology advancements. Clean Edge reported in March 2007 that the amount of money spent on `clean' energy is set to quadruple in the next decade, translating clean technology into a US$226 billion market globally. The spending boom is caused by many factors, including broader recognition of global warming, worldwide government directives, growing interest in energy among corporations and politicians, and an influx of venture capital. These developments have pushed biofuel to be among the most important sub- sectors in Industrial Biotechnology. Biofuel represents the largest portion of the overall market for fossil fuel alternatives, with the worldwide spending in 2006 reaching US$20.5 billion. Led by the projected use of ethanol for transportation, Clean Edge estimates that biofuel is expected to grow to more than US$ 80 billion in 2016. The United States and EU remain the leaders in biofuel developments.

Enzyme is another important sub-sector of Industrial Biotechnology. This is especially true as many countries continue to seek superior substitutes to chemicals and chemical-based reactions. World demand for enzymes is expected to rise 6.6 % to nearly US$5 billion in 2009. Historically, enzyme demand has been concentrated in more developed economies due to the high value-added nature of enzymes, and the significant technical resources needed for their development, production and application. However, developing and emerging economies will experience the fastest gains, supported by strong economic growth and rising per capita GDP.

Industrial Biotechnology in Malaysia

The government continues to outline plans that stimulate and support innovation in biotechnology. The National Biotechnology Policy (NBP) details a framework that envisions biotechnology to become a new economic engine for Malaysia by ultimately enhancing the nation's prosperity and well-being. A main part of this strategy is the establishment of the Malaysian Biotechnology Corporation (BiotechCorp) as a dedicated and professional one-stop agency with the main objective of developing the country's biotechnology industry. Another equally important aspect of the NBP is the identification of three key biotechnology thrust areas, - Healthcare, Agriculture and Industrial Biotechnology.

Like most other countries, Industrial Biotechnology is in its infancy stage. As outlined in the NBP, BiotechCorp has various strategies to promote the overall development of Industrial Biotechnology. It has identified biofuel, enzyme, biopolymer, fine & specialty chemicals, and bioremediation as the sub-sectors that the country should be focusing on. With its well-established commodity market, Malaysia's current focus revolves around the production of palm oil and palm kernel oil products, as well as downstream processing of fine chemicals and enzymes.

Currently, Malaysia's biofuel efforts are concentrated on biodiesel, where it is used in most transport and non-transport applications. Malaysia is the second largest producer and the largest exporter of palm oil in the world, accounting for 30% of the world's traded edible oils & fats supply. Between 2003 and 2005, investment in biodiesel projects amounted to RM523.5 million. Foreign investments accounted for 55.9% of that number, while domestic investments made up 44.1% for projects in various stages of implementation.

Palm biomass and products from palm biomass are the focus of various R&D and commercial efforts. A palm oil plantation yields a staggering amount of harvestable biomass (some 50 to 70 tons per hectare per year), and only 10% results in the finished products. Until recently, the remaining 90% (empty fruit bunches, fibres, fronds, trunks, kernels, palm oil mill effluent) was discarded as waste, and either burned in the open air or left to settle in waste ponds, both contributed significantly to CO2 and methane emissions. Malaysia alone produces some 168 million tons of this waste annually. Palm biomass such as palm oil waste is now seen as a valuable energy resource and as a feedstock for bio-based products, especially biopolymers. This move also goes hand in hand with the Government's Biomass Energy Strategy to encourage more companies to adopt the Clean Development Mechanism (CDM) as a potential source of revenue. The CDM is an arrangement under the Kyoto Protocol allowing industrialised countries with a greenhouse gas reduction commitment to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries.

Malaysia's existing mega biodiversity also further advances the local Industrial Biotechnology sector, especially in the areas of enzyme and fine chemicals. Herbal extract and its bioactive compounds are estimated to be more than RM38 billion per year globally. Some 250,000 species of plants have been identified in Malaysia, with 1,230 species scientifically proven to contain medicinal qualities and have the potential for sourcing of active compounds.

As this third wave in biotechnology continues to gain prominence, the government is actively looking at it as a main contributor for the country to build a sustainable bio-based economy that combines eco-efficient bio- processes with renewable bio-resources. Industry experts believe that key growth areas for Industrial Biotechnology in the next 5 years are set to be concentrated in cost reduction across the value chain - in feedstock sourcing, bio-prospecting, biopolymers, synthetic biology, and functional enzymes and biocatalysts. With prices for oil and gas remaining high, fermentation technologies improving, and the ability to isolate and manipulate genes increases, the future continues to be an exciting one for Industrial Biotechnology.

Faizal Ramli

Lead Analyst

Malaysian Biotechnology Corporation