Taiwan's pharmaceutical manufacturing industry - is the future rocky or rosy? :: BiotechEast - Taiwan and China biotechnology, medical devices, pharmaceuticals, ^¤å½s×, ^¤å×§ï ::

By David Silver

14 March, 2006

So what's the outlook for Taiwan's pharmaceutical sector?

It's a question we get asked all the time. When faced with the facts, the outlook may seem bleak; no big name research-based drug or drug maker has emerged to date, Taiwan's small market of only 23 million people, generic drug manufacturers too many and too small compared to their counterparts in India and China, and a national health insurance system which while doing immense good for improving the health of the general population, has budget provisions which discourage the use—and therefore the development—of newer, more costly drugs.

Looking in further, the view doesn't get any brighter. Exports make up only 3 percent of the total production value of the local drug manufacturing industry (2004 figures), which either means the industry has tremendous potential, or it's a brutal reflection of the realities of the international marketplace, depending on your degree of optimism.

For Big Pharma, Taiwan not only has challenging market entry requirements, it's proved tough on companies' PR departments as well. When in 1996 the German chem/pharm multinational, Bayer, tried to set up a US$1.8 billion plant in an industrial zone near Taichung, southern Taiwan, it was to have been the foundation of Bayer's expansion plans in the Asia-Pacific. But because of an intense "not-in-my-backyard" campaign, by 1998 the company was forced to scrap the idea, setting up their factory in Texas instead.

But that's not to say it's all doom and gloom. Let's look at a few sectors and see overall where the industry may be heading.

Active Pharmaceutical Ingredient (API) manufacturing
Located in Tainan County, Southern Taiwan, API manufacturer ScinoPharm is often touted as a shining example of the success of Taiwan's government-formulated biotech development policy. In fact, in producing pharmaceutical ingredients on contract for some of the international brand and non-brand drug companies, ScinoPharm's business model is closer to the OEM model that propelled Taiwan to become the world's greatest manufacturer of electronics, than to the knowledge-creation model seen in the modern biotech environment of gene identification and drug discovery. It's all because 'biotechnology' in Taiwan is defined as including the pharmaceutical, medical device and modern biotech sectors, and besides, the API manufacturing model fits well to Taiwan's seemingly natural propensity to excel in engineering and precision manufacturing.

There are a number of other quality API manufacturers in Taiwan, including Yung Zip Pharmaceuticals, subsidiary of generics manufacturer Yung Shin Pharmaceuticals; and China Chemical Synthesis Biotech Company, 45 percent owned by the locally-listed pharmaceutical manufacturer China Chemical and Pharmaceutical Corporation (CCPC), but none has the pedigree, the scale or the customer list of ScinoPharm. Its founders, including CEO Dr. Jo Shen and VP Dr. Hardy Chan, came from executive positions in US-based drugmaker Syntex. With accumulated revenues for the first 6 months of 2005 amounted to over US$15 million, the company now boasts clients from the world's top 10 biggest drug makers, as well as some of the largest generics companies, even some in India.

Although the company's success is seen as a model for others in Taiwan to follow, it may be a while before we see another ScinoPharm, as the investment amount required and ROI is still beyond the patience limits of most local investors. But API manufacturing is alive and well in Taiwan.

Generic pharmaceuticals
While the island doesn’t yet have any big-name research-based pharmaceutical companies, there are a very large number of generic drugmakers, many hundreds at last count. While most are too small to compete with giant overseas generics companies, these companies are being kept alive by their cozy relationships with hospitals, in turn supported by the policies of the Bureau of National Health Insurance (BNHI).

Representatives of overseas business groups in Taiwan such as the American Chamber of Commerce and the European Chamber of Commerce have long claimed that while more expensive drugs—particularly cancer drugs—produced by US, European and Japanese firms are not being paid for by the BNHI, hospital purchasing departments were buying cheaper drugs and being reimbursed by BNHI for more then what they paid. This is leading to over-prescribing; with drug prescribing becoming a profit center for a hospital. This may led to prescription decisions being based on profit instead of efficacy and value of the drug to the patient, according to the scheme's critics. It's been estimated that over US$600 million is lost annually in BNHI funds due to this payment reimbursement mechanism. Just where these funds get lost may explain how many small generics companies are still keeping their doors open, and why many of Taiwan's big hospitals are doing very well for themselves.

While very few local generics companies have obtained US FDA certification for their factories or products, and the number with export success in western markets counted with a closed thumb and forefinger, there are industry observers who say that with Taiwan's proven expertise in engineering and manufacturing, generics is where it should be able to compete, if not on price then on quality, flexibility or for where more precise or complicated processes are required to make the end product.

A lifeline thrown to the generics manufacturing sector has been the recent government emphasis on self sufficiency in certain supplies of drug, vaccine and medical consumables, policy put in place from lessons learnt during the SARS crisis of 2003 when vital medical supplies ran out, and the policy reinforced by the current H5N1 scare and worldwide shortage of the antiviral Tamiflu.

Research-based pharmaceutical companies
While not exactly in the same league as Pfizer or GSK, there are a small number of research-based pharmaceutical companies producing innovative drugs, or at least modified existing drugs for new uses. One such company is TTY Biopharm, a publicly-listed company making oncology drugs with improved disease-targeting behavior. TTY is unusual for the fact that it does its own research, its own manufacturing, and has its own network of distributors island-wide.

Other drug discovery companies are quietly working away in the wings, and have good prospects in therapeutics for Asian-prevalent diseases such as hepatitis. While some will look towards the traditional 'licensing-to-Big-Pharma' model for their big break, others will try to go it alone and research, manufacture and market their own products as TTY has done. Companies in this bracket may include TaiGen Biotechnology and PharmaEssentia. TaiGen is headed by Dr. Hsu Ming-chu, previously Research Director for Oncology and Virology for over 10 years at Hoffmann-La Roche, USA. Taipei-based TaiGen focuses on oncology, chronic inflammation and viral infection therapeutics and received early financing from MPM Capital to the extent of US$37 million. The company is also in research collaboration with TTY. PharmaEssentia, headed by ex-Biogen executive Dr. Lin Ko-chung, is a drug discovery company with promising liver disease drugs in the pipeline.

Perhaps the biggest problem is the oldest problem, funding for the inevitably long drug development process. Taiwanese life science companies have not yet opted for listings on overseas stock markets, thereby limiting their access to larger fund pools. This is in contrast to the growing numbers of pharmaceutical and biotech companies in mainland China, even Hong Kong, which have not only taken the plunge with listings on US, UK and other overseas stock markets, but have raised their international profiles with the inevitable press release flurry which accompanies—and follows—such a listing.

Whilst Taiwan has its own vibrant venture capital industry, local funds are not yet flowing into the life sciences on their own accord. Until this happens many local companies with great potential will remain small and under-funded.

However, with its continued efforts to fund and promote the industry's development, and to source and set up international collaboration opportunities, the government remains a force behind much of the continued growth of Taiwan's life sciences industries, including the pharmaceutical sector. When measured together with the prospects for the island's burgeoning drug discovery industry, and considering the boost the recent government emphasis on drug self sufficiency has had on Taiwan's bio-product manufacturing industry, it all adds up to a future rosier than we had all thought!

Print this Article