1

Biotechnology Business Plan THE COMMERCIALISATION OF BACOSOY: A FERMENTED HERBALISED SOYMILK-BASED FUNCTIONAL BEVERAGE Ismail Hamzah 1.0 INTRODUCTION

A beverage, as defined by Murano (2003)*, is a drinkable liquid consumed for a variety of reasons: thirst quenching, stimulant effect, alcoholic content, health value and enjoyment. And functional food (or beverage, sic mine) refers to conventional food consumed as part of a regular diet that has demonstrated physiological benefits and/or reduces the risk of chronic disease beyond basic nutritional functions. Therefore, juices, sports and energy drinks, soymilk and milk-based beverages, tea and herbal drinks all constitute functional beverages. The food industry develops functional foods by several methods: the addition or removal of particular component(s), changes in food processing methods, improvements in bioavailability etc. But, whatever means adopted, it is important to highlight that functional food (or beverage) must be a food and not a medicine. Beneficial effects should be obtained by consuming normal amounts of the functional food (or beverage) within a normal mixed diet. There is a proverbial saying: An ounce of prevention is worth a pound of cure or the old adage prevention is better than cure. Under the 9th Malaysia Plan, the Ministry of Healths (MOH) focus is to contain the rising nations healthcare spending which has exceeded RM6 billion (The Malay Mail, 15/5/04) by adopting preventive medicine. Through education and campaigns the government is emphasizing increased individual healthcare self-management. In other words, the individual has to take responsibility for his or her own health. Also included in the 9th Malaysia Plan is the MOH added emphasis to mental health. It is believed that more than 20% of the countrys population is suffering from hypochondria, insomnia, depression, anxiety, and obesity (NST, 18/8/04). The preventive medicine campaign will emphasize the following: *Peter USA. Enhancing public awareness on healthy life style Giving more attention to life style diseases, managing stress, anger and frustration Nutrition Exercise and weight control S. Murano (2003). Understanding Food Science and Technology,Wadsworth,

2 Since nutrition is considered as an important factor in preventive medicine, the simple step towards the prevention of diseases is the consumption of functional foods and beverages. Rather, as people are more responsible of their own health the trend in the US, Europe and Japan is that there is a growing awareness of the value of food and nutrition in preventing disease. Besides the categories of pharmaceutical/herbal remedies and flavour and fragrances, functional food and beverages is another category of herbal application. Functional beverages can be considered as a rapidly growing segment of the beverage market, especially in the Asia Pacific region where there is a strong consumer interest in food and beverages that are incorporated with traditional herbal products with demonstrable health benefits. Several products have evolved: ginseng-, green tea-, Tongkat Ali-, Pegaga-, and shitake- based products, for examples. In Malaysia, the use of herbs in health maintenance is already ubiquitous; products are sold in pharmacies, or via direct selling and multilevel marketing channels. BACOSOY is thus formulated to capture the goodness of soybean as food, and Brahmi as the herbal component in the formulation. Its traditional to eat cultured foods with supportive herbs. For example, in Japan millions of people daily drink green tea, eat ginger and wasabi along with their miso (fermented soybean), and in Indonesia they eat tempeh along with ginger and galanga. The market value for herbal products increased from RM1 billion in 1998 to RM4.6 billion in 2001 (NST, 21/7/2004), and still growing between 10 to 15% annually. Therefore, the manufacturing of functional food and beverages will be a good business opportunity within the ambit of the national health policy for the 9th Malaysia Plan. This proposal highlights the decision criteria and financial implications on the commercialization of BACOSOY, a blended functional beverage made up of full spectrum soymilk, Brahmi and other proprietary addenda that have undergone a fermentation process. In other words BACOSOY consists of metabolites that are produced by living organisms or biological processes- a product of biotechnology. In essence: Soymilk + Brahmi + Proprietary ingredients = BACOSOY The biotechnological process in the production of the beverage results in a fermented paste residue that can be utilized for the formulation of nutracosmetics such as hand or face cream or lotion. Therefore, this technical proposal is about revenues derived from: (i) (ii) functional beverage, and nutracosmetics.

There is also the prospect of the fermented soybean paste residue being utilized for the production of an additive for animal feeds, especially the poultry sector, as an alternative to the use of antibiotics that are often incorporated in animal feeds as growth promoters. The development of an innovative and natural animal growth promoter is significant

3 because the EU countries had passed legislation banning the use of antibiotics as animal growth promoters with effect from 31st December 2005. And such legislation most probably would be spreading globally in no time after the date. Since this is a novelty product, the invention is proprietary. And the bioferment waste materials is a by-product of BACOSOY that can be exploited for cosmetics formulation that eventually will bring additional revenue. And based on the financial analysis the cosmetics would bring a much greater revenue than the principal or core product- the functional beverage- because cosmetics being in the league of luxury consumer items have premium. 2.0 2.1 HIGHLIGHT OF THE PRINCIPAL RAW MATERIALS IN BACOSOY Bacopa monnieri

Bacopa monnierii is also known by the common name Brahmi. In Malaysia it is found growing in very restricted locality where there is adequate moisture; it is also one of the lesser-known herbs compared to the herb like Pegaga. In Ayurvedic medicine, Brahmi is known as a rasayana or rejuvenator or in modern medical terms, an adaptogen- as it allows one to adapt to stress. It helps correct imbalances in the bodys immune system, restores its natural ability to respond to stress, and promotes overall vitality. In India Brahmi is one of the premier herbs grown commercially as memory and anti-stress herb. The herb has been known there for about 3000 years and since 1950s many scientific data had emerged from the various studies conducted there. Since then many clinical evidences and health claims had been reported in peer-reviewed medical and scientific publications. The primary chemicals in Brahmi include: alkaloids, and saponins, bacosides A and B; the bacosides are known to raise the protein synthesis in the brain related to memory, recall, alertness and tirelessness; whereas, the herbs secondary chemicals include phytosterols, mannitol and betulic acid. The high potential of this herb is because of its ease of cultivation, short cycle harvesting (2-3months) and very amenable for planting material production by tissue culture and subsequent hydroponics growing which provides high productivity per unit area, and coupled with the facts that the herb having been widely researched- its chemistry and health benefits are well documented through clinical studies. Based on clinical studies, B.monnieri had been proven to: Improve memory: mind sharpening Increase learning capacity Relieve stress and stress-related anxiety: Brahmi is an adaptogen Improve concentration and attention span Nourish and rejuvenate the mind: Brahmi has neuroprotective effects

4 2.2 Soybean

Nutritionally, all soy food and beverages are rich in high quality proteins, minerals and different types of phytochemicals, some of which are unique to soya, including: Isoflavones- a compound that may help prevent hormonedependent cancer Genistein- a compound that may help inhibit sign of early stage cancer Protease inhibitors- these compounds may block the action of cancer-causing enzymes Phytic acids- these compounds proven to inhibit the growth of tumours in laboratory animals Saponins- these compound are concerned in the absorbtion of cholesterol in the colon.

In fact soy products have been awarded the heart healthy packaging labels by the US Food and Drug Administration. Also, many countries have recognized the significance of soybean and as such several lines of soy- based beverages have been commercialized. 3.0 THE SAPONINS

The focus of BACOSOY as a functional beverage is the saponins derived from both soybean and Brahmi. In Japan, there is an intense level of interest on saponins as reflected by the numerous patents granted on the subject within the last 15 years. The number of research publications related to the benefits of saponins as nutraceuticals are now expanding worldwide. Those reports on the benefits of saponins fall into the following categories: cancer prevention and treatment- many research have indicated that saponins appear to have anticancer properties. reduction of blood serum cholesterol- saponins cause the depletion of body cholesterol by preventing its re-absorption, thus increasing its excretion, in much the same way as cholesterol lowering drugs, like the cholestrymine. However, there is a difference: saponins are non-systemic, meaning they do all their work within the intestinal tract and do not enter the rest of the body. They are carried within the digestive system and then excreted; thus they dont damage the liver and other organs. Whereas, drugs are absorbed into our organs and circulated in the blood immune system stimulant- clinical trials are on-going in the USA as to the effectiveness of saponins as adjuvants to viral vaccines for herpes, HIV and influenza. As an adjuvant the saponins act as a helper to make the vaccines more effective by their increased potency as an antioxidant- saponins are involved in lipid peroxidation and free radical scavenging other potentials of saponins - saponins have found use in cosmetics and also as the delivery system for lipophilic and hydrophilic vitamins by virtue of saponin

5 being able to form stable emulsions of liquids that do not mix - the so called immiscible liquids. Several saponin-based products with claim for reduction in cholesterol and prevention of colon-colorectal cancer are already in the market. But each company has its own proprietary formulation based on different sources of saponins that are derived from specific herbal plants and grains. With BACOSOY the maximum impact of the functionality of the soy saponins is enhanced by the bacosides- the saponins derived from Brahmi. 4.0 PRODUCT FUNCTION AND ARCHITECTURE

BACOSOY is a fermented drink that combines the nutritional strengths of soy protein, isoflavones, saponins and the phytochemicals contained within Brahmi, principally the saponins (bacosides A&B). The focus on BACOSOYs phytochemicals is the saponins derived from both Brahmi and soybeans. Saponins, as evidenced by the literature are already clinically proven to elicit the indications mentioned earlier (see 3.0). Brahmi has been used traditionally and also clinically proven as a memory tonic in India. And currently several Brahmi-based products are sold under various labels in the world herbal market. However, all these products are sold as standardized encapsulated alcoholic extract of the herb, either singly or in combination with other herbs. So far, there is no evidence of the use of Brahmi in soy-based beverage. The saponins available from Brahmi and soybean are architectured as the main constituents of BACOSOY. 5.0 WHY FERMENTATION?

Often fermentation increases the bio-availability and diversity of chemical compounds by freeing them from the food matrix to which they are typically bound. We have focussed on developing bio-ferments based upon the major native constituents such as the isoflavones (in soybean) and saponins (in both soybean and Brahmi), as well as, their secondary phytochemicals. BACOSOY as a fermented beverage contains the nonconjugated isoflavone- the aglycones, such as genistein, daidzein and glycetin; all of which have several health benefits. With the introduction of Brahmi in the soymilk BACOSOY is truly a herbalised fermented soy beverage rich in proteins, saponins and free isoflavones which are more bio-available to the bodys digestive system. The largemolecules genistin and daidzin have been converted to the more bio-available genistein and daidzein respectively These compounds are known to have anti-cancer and anticholesterol properties. The fermented broth also contains other beneficial constituents such as free fatty acids, free amino acids, sugar, phytosterols, and alkaloids, as well as, other complex molecules from the secondary ingredients present in BACOSOY. Today, fermentation is recognized as one of the key enabling technologies in the manufacture of sophisticated drug molecules. On the other-hand drugs derived through chemical processes or syntheses are sometimes toxic, costly, and can cause side effects.

6 For example, the statin drugs usually prescribed by medical practitioners to lower cholesterol can cause muscular aches and pains. Based on the literatures the constituents in BACOSY, in particular, the saponins and isoflavones, butyric acid, vitamins and other constituents will prevent cardiovascular disease by their proven attribute in (i) lowering the cholesterol level in humans as proven in clinical studies, and (ii) cancer prevention and gastrointestinal health (meaning colon cancer prevention). And more importantly the saponins in BACOSOY are non-systemic which means they react with the cholesterol in the colon without going through the liver and the various organs in the body and discharged as the excretory waste. 5.1 Analytical Evidence of BACOSOY

A sample of BACOSOY each was sent to the Faculty of Food Science and Technology, UPM and Kulim High-Tech Park for analysis by LCMS-TOF (Liquid ChromatographyMass Spectrometer: Top of Flight) and GCMS TOF (Gas Chromatography-Mass Spectrometer Top Of Flight and charted- (see Figure 1,APPENDIX I and APPENDIX IA). The charts show that there are many goodness factors in BACOSOY as evidenced by the presence of the following wellness compounds: Butyric acid Butyric acid is normally produced in our colon when we consume high fibre foods. The friendly bacteria in the colon ferment the fibres or the non-digestable polysaccharides into the following acids: acetic, propionic, and butyric. Now, butyric acid is the most significant acid for our colon. It provides the cells of the colon with energy and more significantly, butyric acid has already been clinically proven to be anti colon cancer by inhibiting the growth and proliferation of tumour cells in the colon. Genistein (anti-cancer agent) Genistein is the more bio-available form of genistin. A higher amount of genistein is present in BACOSOY compared to genistin because the process of fermentation (by microbes) breaks down the initial genistin present in the unfermented soybean into the more bioavailable genestein. Daidzein (anti-cancer agent) Daidzein, produced as the result of biotransformation of daidzin by the microbes. Saponins (anti cholesterol). Saponin was detected by the copious foam produced when BACOSOY was blended as part of the manufacturing process; the presence of heavy foam in the beverage reflects the availability of saponins known to be present in soybean and Brahmi. Vitamin E and Phytosterol Good for cardiovascular health Hormone-like compounds-cortisone and aldosterone Good for metabolism

6.0

MARKET POTENTIAL

BACOSOY is already at a point of definable commercial value as a functional beverage and ready to enter the full fledge manufacturing stage after a few validation tests are carried out. The soymilk-based beverage as a delivery system for the herb Brahmi is a convenient and palatable way to lower cholesterol, and furthermore the trend in the consumption of functional beverages is more common than food especially in Japan, USA and Europe. In marketing BACOSOY, a direct-demand product, educating the public is the main concern. BACOSOY will have premium pricing or dollarised value compared to other herbal beverages that are mostly simply processed. It is believed that the consumers are willing to pay a premium price for a product of higher quality and has efficacy. Marketing functional food to consumers is a challenge and carries a price. Because of the difficulty of marketing a product developed just by putting a bunch of stuff together, the trend is emphasis on proprietary product and clinical support. Nowadays life style-related disorders linked to cardiovascular system are on the increase. The development of BACOSOY, a saponin-based product, is to meet the prevalent disorders related to malaise of the current lifestyle which is stressful and hectic. The saponins derived from Brahmi and soybean present in BACOSOY can address the large and not fully-tapped market of cholesterol-lowering functional beverages and stress reliever. BACOSOY, as a fermented beverage, is an appropriate delivery system to meet the compatibility with oral intake and the subsequent reaction of the goodness of BACOSOY within the digestive system which is the site of cholesterol absorption. A blend of soymilk, Brahmi, and proprietary addenda in BACOSOY gives the beverage its unique flavour. Besides, its superiority is in the potential of providing greater results because it may target a broader range of body system. There could be synergistic effects that are not present in a single ingredient product. For the purpose of marketing, the product is to be touted as follows: The reality of day-to-day life is that you become easily stressed out or otherwise out of balance. Relax and let BACOSOY soak your stress and sustain your colon health and bring yourself back to balance. 6.1 Market Segment

BACOSOY is a novelty product derived from the fermentation of soybean and Brahmi; both are well known, and have clinically proven properties in these indications: cancer, high cholesterol, and stress and difficulty with memory. Therefore BACOSOY is

8 segmented to cater for the following on the basis of demographic and professional filters that are specific and large enough to constitute profitable groups: Students and professionals who are mostly under stress- examinations and work deadlines and for maintenance of well-being. The elderly, and those with cardiovascular (such as high LD cholesterol and high blood pressure), intestinal problems and cognitive deficiency, such as failing memory.

6.2

Marketing Strategy

Since BACOSOY is new in the market it is vital that pull marketing concept is to be adopted. This dwells on the question: what can we package the product with? The product that can be integrated with BACOSOY is customer education which is simply teaching customer how to buy your product. Education for customers involves the following scopes: Educating the customers what the product does Educating the customers how to buy from us, the manufacturer of BACOSOY Educating the customers about the applications of customers greatest need.

Therefore, any company involved in marketing BACOSOY has to disseminate information relevant to the customers personal needs or wants. Marketing strategy, thus, will involve seminars and lectures at locations with ambiance. Also, part of the educational strategy in marketing BACOSOY is promoting the differences between BACOSOY and the competition. How BACOSOY can be differentiated from similar soy-based products in the market should there be any identical product(s) available; but none has appeared in the market currently. The possible local markets for BACOSOY are direct selling or multilevel marketing companies. Additional revenue may also be earned by exporting fresh Brahmi to Japan and Hong Kong where Brahmi is known as Jin ma chi xian. It is widely known that Brahmi has similar properties as Zizyphus, one of the most commonly used herbs in Chinese herbalism. It is an excellent tranquilizing herbal substance. Further, there is also a report from China, though not clinically proven, of Brahmi being touted as an aphrodisiac under the label Rhinoceros herb. Brahmi can also be marketed as an aquatic plant to service the ornamental fish business under the scope of non-conventional agriculture activity. An aggregate of five to six stems of Brahmi is sold through the internet at RM3.80 by a company in Johore. The effort in marketing will also require the need to living the brand- BACOSOY is for digestive well-being, as well as, optimizing the neural function and control of stress and anxiety. The local market and customer basis will be defined through the planned test-

9 marketing period; this will involve community test for efficacy to be conducted by UPMs Faculty of Medicine and Health Sciences. BACOSOY can easily conform to the Ministry of Health ruling on food labeling. Under the ruling a companys product such as a food or beverage must have a label displaying its food contents- such as protein, fats, energy etc. But when a herb is made into tablets and capsules it is a legal requirement that an approval license issued by the National Pharmaceutical Bureau, Ministry of Health, Malaysia must be obtained before the product can be marketed. The pull market approach will be followed by push marketing strategy whereby BACOSOY will be pushed to prospective consumers once BACOSOY is recognized as a brand. 7.0 COMPETITION

Most of the functional beverages available in the market in Malaysia are milk-based probiotics: eg. Yakult, Nutrigen and Vitagen. The traditionally known herbs such as Tongkat Ali, Kacip Fatimah and Pegaga are manufactured as straight formulation of extract of the individual herbs or their combinations; flavours are added to suppress the bitternes and off-flavour, especially in the case of Mengkudu and Hempedu bumi, or even Tongkat Ali, for examples. Currently, none of the herbal beverage manufacturers is utilizing the benefits of fermented soymilk as the base material in their herbal formulations. The Tongkat Ali Platform is crowded with me too brands. Therefore, the combination of Brahmi and soymilk plus proprietary ingredients in a fermentation process constitutes the development of new use and not me too soymilk-based beverage. Soymilk is currently marketed as a straight beverage without any specific functional identity. Thus, the novelty of BACOSOY is being the first herb-incorporated fermented-soymilk with functional identity in the local market. The competition for BACOSOY would be possibly from over-seas, specifically China or Japan, where soybean has been consumed in the form of traditional fermented foods. The local competitor would be probably from My HealthDriver Sdn.Bhd, a company which is marketing Enerflex- a soy-based powder mixture. However, the company is not engaged in the manufacturing per se; rather, its activity is in the re-packaging of imported soybean extracts. (Note: Isolated soybean compounds or extracts do not have the natural properties of a whole spectrum compounds in soybean). And moreover, their soy-based products are non-fermented and non-herbalised. These features are the differentiation between BACOSOY and Enerflex. Therefore, there is no comparison with BACOSOY; the formulation in BACOSOY is its own proprietary entity.

10 8.0 8.1 PROCESSING The Selection and Evaluation of the Processing Options

Herbal growing, processing and marketing is basically an agro-industry, whereby materials (plants) are processed to give added value into products for domestic and foreign trade. Processing involves transformation and preservation through physical and chemical alterations, storage, packing and distribution. Figure 2: Process chain in the production of BACOSOY Proprietary addenda Soybean Brahmi Raw material preparation
Pre-cleaning, cutting, screw pressing + Soymilk preparation

Fermenter

Clarification or centrifugation Primary Primary raw raw materia materials supplyply Secondary raw materials for flavouring Pasteurization Market

Bottling and packaging

Storage under refrigeration

Figure 2 shows the process in the production of BACOSOY. Processing is an operation or a series of operations performed on raw material to change its form or composition. In the conventional or traditional herbal manufacturing, processing can be as simple as cleaning the herb prior to subsequent drying and grinding. Extraction by water or organic solvent(s) follows. From here the product is concentrated, analyzed and standardized. Such process description is the conventional method for the pharmaceutical or herbal

11 remedies preparation delivered as tablets and capsules. These products that are based on extracts constitute as nutraceuticals. Since BACOSOY is within the class of food and beverages, its production process flow is more friendly- no toxic solvent is used. BACOSOY is a whole-ingredients product derived via the natural process of fermentation- the oldest form of biotechnology. The proprietary knowledge embedded in BACOSOY is in the culture technique: the formulation and preparation of the fermentation broth. 8.1.1 Process Related Factors

(a) Ingredient complementarity Besides Brahmi and soybean, the other primary ingredients that constitute BACOSOY are readily available and will be sourced locally. A separate handling procedure will be carried out to prepare good quality soymilk-base that is devoid of beany and rancid oil-like taste. Figure 3: Derivatives of BACOSOY fermentation: Innovative animal feed additive and cosmetics from fermented soy paste. Soybean + Brahmi Soy paste Residue = Blending Curds + Sediments Centrifugation Soy milk+Brahmi Fermentation

BACOSOY Product Derivatives !) Cosmetics 2) Animal feed additive (growth promoter) (b) Process complementarity To make maximum use of the assets, by-products of fermentation (see Figure 3) will be utilized. Thus, saving cost on industrial waste disposal. Two prospective business models that would emerge are as follows: (i) Nutracosmetics: cosmetics from foods- the emerging trend in Japan.

Nutracosmetics are a new class of products in the health and beauty aids category. They incorporate nutraceutical ingredients in the topical delivery systems with the elegance, skin feel and ancillary benefits of cosmetics. The available lecithin from soybean and saponins derived from both soybean and Brahmi are well known

12 materials that render the exfoliation (removal of dead skin cells) effect that will result in smooth skin. Besides, the isoflavone genistein and other highly soluble soy extracts are known to have important anti-oxidant activity and effective in protecting UVB-induced photo damage in human skin. Cosmetics from foods is already an emerging trend in Japan and making tremendous inroads because the products are made from natural ingredients. The up-market cosmetics brand SKII is in fact formulated based on bioferments derived from soybean. (ii) An additive for animal feed.

The fibre from the soymilk production machine, the curds from the fermentation tank and the centrifugal sediments constitute a fermented soybean paste residue. The fermented paste residue is a significant by-product for the formulation of an additive in animal feeds, especially poultry. It will then be an innovative alternative to the use of antibiotics as a growth promoter in animal feeds. Due to major community concern over anti-microbial resistance development in humans and food safety, the European authorities have decided that with effect from 31st December, 2005 antibacterial growth promoters will be banned from use in the European Union. If Malaysia does not conform to the trend in eliminating the use of antibiotics as animal feed additives, the regulatory standards imposed in the EU for example would present a regulatory hurdle to our poultry industry down-stream value-added products entering the EU markets. The analytical data shown in APPENDIX 1B have proven that BACOSOYs byproduct is a high-protein and high-energy substance which is very suitable as broiler feed additive. The fermenter will also be useful for the bioreactor culture of the local medicinal fungus like Cendawam kukur, scientifically named Schizophyllum commune from which polysaccharides is extracted and added to BACOSOY with the result being BACOSOY Plus. A product differentiation has been achieved then. In other words the proposed project has fermentation as its platform activity. Or, the Newco Sdn Bhdto be formed is a company with fermentation as its manufacturing platform. 9.0 SELECTING TECHNOLOGY

In herbal processing and product manufacturing, especially to meet the quality requirement, highly capital-intensive equipment and control system have to be used. In most processing operations the technical choices fall into two categories: (a) choice among different kinds of equipment and machinery that accomplish the same process, and (b) choices among processes that produce the same end product. Herbal processing does not consist of a single operation, but rather a series of stages together with support systems. In the production stages, various elements of physical components are part of the integral set up of the processing plant: raw material receiving and storage, pre-cleaning and washing, core processes.And and in this regard, with respect to BACOSOY, fermentation is the core process that determines the products

13 novelty, followed by blending and stabilization, packing, finished product storage and finally shipment or marketing.( see Figure 2). At the same time there is the requirement of the support systems: power and water supply, waste treatment and disposal, and maintenance and repair. Therefore, to define the best technology or best package of capital items to serve the requirement of the process stages, an understanding of the market of the product and the competitors is critical. The quality of the raw material supplies available to the processing plant is vital. Having determined these factors then we can determine other factors that have some bearing on the processing technology. It is understood that the product is to be marketed locally and globally, in particular in the initial stage to West and East Asia, such as China and Korea. 9.1 Choice of Technology

Because of the critical market of the product, a sophisticated processing technology will have to be in installed. Therefore, sophisticated processing equipment such as fermenters, chillers, soymilk making machine, and other attendant equipment are required. And this will have financial implications. But then the norm is that the requisite technology will increase in complexity and sophistication in direct proportion to the degree of product specifications with respect to purity, stability and degree of processing. Hazard Analysis and Critical Control Point (HACCP) is imperative especially if the product is categorized under food and beverages and ready to enter the global and more importantly the halal market. 10.0 THE RAW MATERIAL SUPPLY

The requisite of the raw material supply system is to deliver the right quantity and quality of inputs to the processing facility in a timely manner. Three options are available as to the supply of the raw material: (i) the company produces its own supply, (ii) buys under contract, and (iii) buys under open market. Each of these options has implications with respect to cost, control and flexibility. There is also the option of having combination of supply systems. Option (i) is the preferred choice although it has the following implications: full production cost including land (or facility like hydroponics farm) and management cost. But it has the maximum control over the production function to meet the standards and better integration with the processing plant. To minimize capital cost option (2) is attractive; option (3) is limited because Brahmi growers are in a confined niche market. 10.1The Raw Material: Brahmi The plant Bacopa monnieri or Brahmi is a herbaceous perennial herb and there is suppression of growth when the plant is continually harvested. Brahmi is chosen for commercialization because of the following reasons: The production technology on a mass scale through tissue culture and growing via hydroponics has been developed by the proposer of this business plan.

14 Its harvesting cycle is short. With the integrated tissue culture planting material production and hydroponics growing method harvesting may be done on a 6-8 weeks cycle. The Advantages of Tissue Culture

10.2

Overall, the integrated tissue culture-hydroponics commercial production of such herb as Brahmi will ensure the following advantages: Consistency and rapid supply of planting materials High quality raw material: cleaner raw material thus saving time in cleaning at the manufacturing plant Consistent chemical composition from every batch Weed problem can be avoided and also no insecticide application. Higher yield through the production of multiple shoots per clump, a phenomenon not feasible using the conventional cutting method. Not subject to vagaries of the soil and weather, thus all year round propagation

Note: The term tissue culture broadly refers to the cultivation of all plant parts under aseptic condition and in vitro (in glass) Various parts of the plants- meristem, leaves, young inflorescence, stem and roots- can been used. 10.3 Advantages of Hydroponics

Hydroponics cultivation means farming without soil: water carrying the plant nutrients is the medium. The advantages of hydroponics cultivation are as follows: Maintain consistent product quality- no dirt and soil contaminant like heavy metals and weeds. Harvesting at the right stage and time. Higher productivity per unit area: little land area required-one acre of hydroponics surface area can yield about 3.5 tonnes of fresh Brahmi Less labour requirements. Faster growth and multiple harvests per year. Can promote bio-transformation of plant chemicals, such as hyperaccumulation of selenium, which is a very important chemical which acts as a precursor of antioxidant enzymes in the body. Brahmi had been experimented (data available) and found to be a hyperaccumalator of selenium. This provides an opportunity for supply of organic selenium delivered in capsules or tablets. (Note: selenium is a microelement needed for the production of an antioxidant glutathione peroxidase in the body and relevant in cardiovascular health maintenance. Most of the selenium tablets available in the pharmacies are produced by yeast. Therefore, Brahmi can be considered as a work horse in the biotransformation of organic selenium, a vital microelement in the body.

15 10.4Potential Supply Area: Interim measure. In the interim before the company establishes its own supply system (proposed integrated hydroponics growing system and tissue culture production of planting materials) Brahmi can be out-sourced from a supplier in Melaka who has been supplying the herb to specific local markets in the state. In case of insufficiency from this single source, a system of integration of multi-sites planting has to be established by tie-up arrangements with farmers organizations or individuals with interest in planting the herb. 10.5Defining Raw Material Requirements The input specifications of the processing facility must take into account the following factors: quantity, quality and cost, and, as well as, timing of harvesting. Since the plant of interest has no seasonality, therefore processing can be continuous or scheduled. In order to secure the quality of BACOSOY delivered to the customers, the operation should include a quality control laboratory, where the quality of the raw materials and final product are checked continuously. 11.0 MANUFACTURING

To minimize the risk of new investment before the market potential has been really tested the first period of manufacture could be based upon hired or leased process equipment such as fermenters and bottling machine available at universities or other research institutions. This opportunity is available within the existing pilot plant at either UPM or UTM. Or, better still, have a tie-up with an existing beverage manufacturer with structured marketing system. In the initial stage of manufacturing, the maximum capacity of production is set at about 87,264 bottles (220ml capacity) per month based on one 2200L fermenter. The building site and facilities necessary for the production plant should be planned for the following activities and installations: delivery, weighing and intake of raw materials storage for dry materials and raw ingredients with proper construction to avoid pests entry. cleaning and washing area wet processing system, such as screw pressing of the herb cold room operation control center with monitoring of the whole plant quality control laboratory facilities for staff and management- wash rooms, rest area, kitchenette, surau etc. The total area of the building site for the monthly 100,000 bottles capacity is about 500sq meter about 5,500 sq-feet. However, this figure would be greatly influenced by the final layout as well as future expansion.

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The total need for the power is the range of about 3000 KVA The operation of the production line need only one highly skilled fermenter technologist as production manager and two unskilled production operators to look after processing steps in general, and to secure the supply and intake of raw materials and the discharged of bottled product into the refrigerated stock area before distribution, The wet area of the plant will be washed down once per day and the fermenter cleaned in place (CIP) on alternate day when the fermenter is not operating - as the production is on alternate day to be in cycle with the duration of fermentation period. However, most cleaning and maintenance work can be conducted during normal working hours. The software for the new plant should include the detailed operational manuals, including instructions and guidelines for correct installation, operation, optimization, maintenance, trouble shooting, and the list of recommended critical spare parts to be on the stock for the single key machine, the fermenter, and soymilk production machine to prevent unplanned shut down. Additionally the plant operators should have software and guidelines on production of the specific recipes and products including detailed knowhow specifically on the operation of the fermentation plant. Such software should be handled as Strictly Confidential Information and only be available to the selected trusted operators. 12.0 MANAGEMENT AND CONTROL OF THE BUSINESS

A flat management scheme is to be adopted- small and efficient with close relation between the four portfolios: technical, sales and marketing, production, and accounting. In general, the nature of the project is highly technical, and the selection and recruiting of the qualified Managing Director (MD) should be based upon technical as well as entrepreneurship. The Sales Manager/Executive is responsible for Marketing and the sales works in general, and he should be acquainted with the market for ingredients for food and nonfood industry. The Production Manager/Executive (food technologist or a person familiar running a fermenter) is head of the production team, and should operation stretches to night shift, the managers deputies will be responsible. These personnel have access to detailed technical know-how of the business and they should be employed under strict confidentiality concerning the secrecy of the operation details. The Accounting Manager/Executive is responsible for the financial performance of the business. The quality laboratory is working daytime only checking samples collected from the raw material supply and from production operation and products every two

17 hours during production time unless the fermenter system has automatic sampling and data logging. There should be a modern business software that include all necessary program for both the planning, the collection and registration of data, technical, financial, operational, trouble-shooting and maintenance etc. Daily production data reports from production shift managers/executives, and from laboratory should be prepared to check on the quality of the operation. The log report is informing the coming shift (if necessary) operators on any event during operation, no matter if such event has been taken care of or should be handled.

Board

MD. (Tech Director) Laboratory

Sales& Market

Production

Accounting

13.0

FINANCIAL ANALYSIS

The financial implication to the project depends on the capital equipment and machinery, and the mode of supply of Brahmi. Soybean on the other hand is available from importers and with definite pricing. But the herb Brahmi is perishable and has to be cultivated. The option available for immediate manufacturing operation is out-sourcing. The basic financial statements to determine financial soundness are as follows: (i) (ii) (iii) 13.1 Income Cash flow statement IRR NPV

The forecasted revenue is to be derived from the following sales:

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Primary product: sale of BACOSOY, the functional beverage. By-product as cosmetics: hand lotion or facial cream.

13.1.1 Beverage The derived income is based on the extrapolation of bench-scale test bed: a 10litre vessel. Assume that the commercial production is based on the geometric volume of 2200L and working volume of 2000 L and after centrifugation, the supernatant available for bottling is about 80% or 1600L or 1,600,000ml. If two fermenters are commissioned the total beverage volume available is 3,200,000ml. BACOSOY is to be bottled @ 220ml, Therefore the number of bottles available is 1,600,000/220 =7,272 bottles per run or 14,544 bottles from two fermenter vessels. The capacity of production is based on the fermentation cycle of 24h, and allowing for downtime with cleaning, the output from the fermenter is 3 times per week. Thus, on the basis of 12 production days per month, therefore, the monthly beverage output is 7,272X12 = 87,264 bottles per month or 1,047168 bottles per year. (or, 2,094,336 bottles per year based on two fermenters). 13.1.2 By-product: nutracosmetics Based on 10L fermentation the amount of curds available is 1300g. Therefore, a 2000L fermenter will produce 200x1300 = 260,000g of by-product (or 520,000g based on two fermenters). If the product line is a 50g net content tube, then the total tubes obtainable is 260,000/50 = 5200 tubes per fermentation run, or 5200x12 = 62,400 tubes per month or 768,000 tubes per year (or 1,536,000 tubes per year based on two fermenters). Material Costs (a) Beverage

The direct material costs (primary raw materials: soybean + Brahmi + proprietary addenda) per 2000litre run is RM 2744.00. Assume recovery is about 80%. Thus, available beverage is 1600litres or 1,600,000ml. Each bottle is 220ml, thus total bottles is 1,600,000/220= 7272 bottles per run Each blank bottle (yogurt type) is RM 0.45 Therefore cost of bottles is 7272x0.45= RM 3272. Therefore total material costs per fermentation run = RM 3272+2744=RM 6016. Or RM 6016x12= RM 72,192 (per month) x 12= RM 866,304 per year.

19 (b) Cosmetics

The base material is free the by-product. Only certain formulatory chemicals have to be purchased at small volumes. Assume that the cost of supplementary chemicals and packaging materials to be about RM1.50 per tube. Therefore, the cost of materials for the hand cream per fermentation run is RM 1.50x 5200 = RM 7,800 per day, or RM7800x12 = RM 93,600 per month , or RM 93,600x12=RM 1,123,200 per year. 14.0 CAPITAL INVESTMENTS

The total investment for the project is RM 2,438,000 (Table1-APPENDIX 11) and is assumed to incur in year 1. The capital investments cover the following: Processing facility/building renovation to meet HACCP standards Processing equipment and machinery Office furniture and fixtures.

All equipment and renovated factory are depreciated over 5 years using a straight line method as indicated in Table 1. As the primary raw material is to be outsourced, there is no incurrence of farm establishment. The required financing package will vary, depending on the locality and the site available for factory renting. An initial working capital of RM 500,000 and intellectual property and validation fee of RM 300,000 is also included. The operation kicks off with the maximum production of 7272 bottles per run per 2200L fermenter, or 87,264 per month. And the estimated period from the day of go ahead and to the day of commercial production is between 9-12 months, beginning with outsourcing effort for the herb and locating manufacturing site.

14.1

Possible Exit Points After test marketing and community trial- financial risk: RM 300,000. After negotiation with farmers on supply security no additional financial risk.

20 14.2 After finishing technical design and final calculation of the factorys renovationfinancial risk about RM 450,000. Production Cost: Beverage (Tables 2a: 1 fermenter & 2b: 2 fermenters)-see APPENDIX 11I and APPENDIX IV respectively.

At the processing plant, the following annual costs (1 fermenter) will be incurred: At the factory floor: RM 308,752 Outsourced raw materials cost: RM 837,734 Overheads- administration: RM 598,320 Total production costs: RM 2,072,406 (with depreciation) Output is 1,047,168 bottles. Therefore unit cost per bottle is RM 1.98 (with depreciation) or RM 1.67 without depreciation. 14.3 Production Cost: cosmetics (1 fermenter)

The production is under OEM. Assume the production cost is about RM0.70 per tube. Therefore, the annual cost is RM0.70x768,000 = RM 573,600 Annual production (748,800tubes) cost for cosmetics: Cost of formulation chemicals RM 1,123,200 Production costs RM 524,160 Total RM 1,647,360 Therefore, unit cost of production per tube is RM 1,647,360/768,000=RM 2.20 Recommended selling price is RM 5.00 per tube. 14.4 Project Cash Flow, NPV and IRR

The project cash flow is shown in Table 3a,APPENDIX V and Table 3b,APPENDIX VI for 1 and 2 fermenters respectively. The price of RM 1.60 and RM 5.00 were used respectively for the beverage and cosmetic cream to generate the cash flow figures. Table 4a and Table 4b-APPENDIX VII show net profit, IRR and NPV at the various selling price levels of BACOSOY beverage for I fermenter and 2 fermenter respectively. The average price of herbal beverages in the market is between RM 2.20 to RM 2.80 for a 220ml can or bottle. And the price of synthetically formulated hand cream or lotions (50ml or 50g) is between RM 5.00 to RM 10.00; the price could be even higher for highly branded imported creams or lotions. The hand cream priced at RM 5.00 per tube generates a constant profit of RM 4,193,280 for the various price levels of between RM 1.00 to RM 2.60 per bottle of the beverage. If the beverage is sold at the competitive price of RM1.60, the net profit is RM 3,796,343 for 1 fermenter. The IRR is 63.8%. However, when the beverage is sold at RM2.60 the net profit gained is RM 4,843,511 with 109.9% IRR. But with 2 fermenters in operation the net profit are RM4,594,078 and

21 RM6,688,414 at the beverage price of RM 1.60 and RM 2.60 respectively. The IRR is also increased from 236% to 315.7% for the two respective price of the beverage. With one fermenter, to get the positive cash flow during the second year the selling price for the beverage should be at RM2.40. However, with two fermenters, the positive cash flow can be realized immediately in the second year even at the lowest selling price of RM1.00 per bottle (see Tables 5a & 5b-APPENDIX VIII). . 14.5 Discounted Payback Period Although the NPV and IRR indicators are widely used to determine whether a project is economically viable or not, it does not provide an indication of how long it should take an investor to recover all of his investment. The payback period for a project is the time taken to fully recover all the initial capital invested in the business venture. The payback period for the various selling prices is shown in Figure 2a (1 fermenter) and Figure 2b (2 fermenters)- APPENDIX IX and APPENDIX X respectively. As shown in the graph, with one fermenter the payback period is realized within slightly less than 2 to 2.5 years when the selling price is the range RM 1.60 to RM 2.60. But with two fermenters in operation the payback period is realized within the first year of manufacturing (see Table 2b) for all levels of beverage price. But at RM 1.00 per bottle the price is below the production cost of manufacturing; the net profit accrued is attributable to the hand cream sold at the competitive price of RM 5.00 per tube. In general, the payback period of between 3 years is a reasonable time frame. Now, with this criterion in mind, this technical proposal should be more than acceptable if two fermenters are in operation with the payback within the first year of manufacturing when the beverage being sold at the competitive price of RM 2.20- a margin of RM 0.22 above the production cost of RM 1.98 per bottle (with depreciation). 15.0 CONCLUSION

The establishment of a manufacturing plant based on fermentation platform is viable for the following reasons: The ease of cultivation and available scientific and medical data on good attributes on soybean and Brahmi. The early return on investment- after one year of manufacturing using two fermenters with a capital input of RM 2,438,000 if the pricing is right. At the moment BACOSOY is a novelty proprietary product. There is no such product identity- a fermented herbalised (Bacopa monnieri or Brahmi) soymilk functional beverage available in Malaysia, and possibly in the world based on internet search so far.

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The availability of fermented soybean paste, a by-product of Bacosoy manufacturing process, provides an opportunity for creating two higher value-added product lines such as: nutricosmetics- food-derived cosmetics and also thenon-antibacterial animal feed additive which can be sold as a premium animal health product which contains high protein and peptides and other more bioavailable nutrients.

The production of fermentation-derived cosmetics could possibly even be more profitable than the beverage because nutricosmetics are the in-thing: typical example SKII- a fermentation-based cosmetics from Japan- an expensive brand. For the cosmetics, a pilot scale production can be effected initially in collaboration with SIRIM or MPOB.

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