Since 2005, the Malaysian government has boosted its support towards the biotechnology sector in terms of a strong policy framework, financial mechanisms and by setting up several implementation agencies to drive this sector forward. This chapter evaluates the current development of the health biotech sector by identifying the main challenges faced by private health biotechnology firms in Malaysia. The case study analysis is based on comprehensive information obtained from semi-structured interviews, a survey and a focus group discussion with key informants from the private biotech sector combined with secondary data using the triangulation method. The chapter identifies several main challenges related to regulatory systems, niche areas, human capital and access to financing. These challenges stem from an underdeveloped health innovation system in Malaysia. Additionally, we propose several specific strategies and recommendations to build an effective national healthcare innovation system, which can strengthen private sector capabilities and increase interactivity and knowledge flows between various actors within the health biotech sector. The effective exploitation of the role of biotechnology firms and industry would be the key to sustaining successful development of this knowledge-intensive sector.