Taiwan: Pharma at the Tipping Point

Pharmaceutical Executive, Pharmaceutical Executive-12-01-2010, Volume 0, Issue 0

After many years of building up an impressive resource base, the industry is finally ready to take advantage of the wave of enthusiasm and interest surounding pharma and biotech that is sweeping the nation

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The Taiwanese pharmaceutical industry has reached a crucial tipping point: After many years of building up an impressive resource base, from world-class research institutes, universities, and scientists to pharmaceutical entrepreneurs and internationally competitive companies, the industry is finally ready to take advantage of the wave of enthusiasm and interest surrounding pharma and biotech that is sweeping the nation. In March 2009, Taiwan's current president, Ying-jeou Ma, announced that healthcare and biotech would be two of six sectors selected by the government to bolster and diversify the Taiwanese economy. As the Taiwanese pharmaceutical sector develops and strengthens, the world holds its breath, waiting to see what is possible from this small island nation.

From the Rising Sun series, courtesy of Taiwanese artist Patrick Lee

Several factors have led to this exciting momentum in Taiwan. The first of these is the government's drive to develop what it calls the country's "biotech" sector. Perhaps a little confusingly, the term biotech is used by the Taiwanese government not only to describe biotechnology, but also traditional pharma and medical devices. This year the government announced its "Diamond Action Plan for Biotech Takeoff", an ambitious plan to fill the gaps that are currently visible in Taiwan's pharmaceutical sector.

The minister in charge of this plan, Jin-fu Chang, explains the government's hopes for its implementation: "Taiwan has been trying to get involved in the biotechnology industry for decades and we have been trying to figure out the missing links. We think that translational medicine is one thing we should work more on. We have also been trying to form an FDA-like organization, which we now finally have. It is responsible for effective regulatory review and regional harmonization because so many companies here are looking to do business on the other side of the strait. We also need to have biotech clusters. We plan to have one in Nangang and we already have one in the south of Taiwan. These will work together with a superincubator center, which provides intellectual property help to the industry. Finally, the last piece is the megafund or bio venture capital fund. The government will contribute 40 percent and the remaining 60 percent will come from the private sector. The total size of the total fund will be $60 billion NT (US$18.7 billion)."

A comprehensive review of the strengths and weaknesses of the Taiwanese biotech sector and the plan to aid its development is already well under way. Having realized that Taiwan's level of basic research was already very high, the government has put a lot of effort into building the country's translational capability, to move this basic research towards commercialization. One of the key institutes driving this activity is the Development Center for Biotechnology (DCB). Johnsee Lee is chairman of DCB, and recently came to this position after many successful years as president of ITRI (Industrial Technology Research Institute), one of Taiwan's most important basic research institutes. In this new role, he hopes to strengthen DCB as the second step in developing a productive pharmaceutical industry: "As DCB is playing the second leg in bridging basic research and commercialization, we need more international collaborations, good business teams, people who understand basic research, as well as the market and potential healthcare implications."

President Ma with Johnsee Lee, Chairman of the DCB, at the opening of Bio Taiwan 2010.

The need for an improvement in Taiwan's translational research capacity has not only been recognized by those institutions solely concerned with the pharmaceutical sector; rather, this is a train of thought present across the entire Taiwanese academic community. Dr. Chi-huey Wong, president of Academia Sinica, the cornerstone of Taiwan's basic research capacity, underlines the importance of creating this bridge between science and industry: "We need to build a capacity and capability to link basic research to industry. Many basic discoveries are not getting translated into commercial opportunities, so Taiwan needs to have a component there to identify the important early-stage discoveries and move them into industry. In order to do this, the country needs to have a good investment team to identify key projects, and good legislation in place to encourage the translation into industry. The government's Diamond Action Plan for Biotech Takeoff was designed for such a purpose. It shows that we have a good understanding of the problem, and are trying to move in the right direction." Wong believes that Taiwan's current strategy of focusing on drug discovery is playing to the strengths of the country, but that a successful biotech industry can only be created when academia works hand in hand with industry: "Taiwan is very focused on discovery, and Big Pharma has more experience in development; most Big Pharma companies have shifted their focus from early stage to development in recent years. Moving from discovery to development costs from US$300 million to US$1 billion—60 percent percent of which is spent on marketing. Taiwan cannot afford to focus on late-stage development in this moment of its industrial development; we lack the requisite experience and skill. Hence, collaboration is very important."

As well as improving the level of translational research, another key element of the Executive Yuan's Diamond Action Plan was the creation of a US-style Food and Drug Administration. In January 2010, four existing agencies were combined to create the Taiwan FDA (TFDA), a great achievement for the industry. However, because of Taiwan's unique political situation with China, creating an internationally recognized agency was made a little more difficult. Jaw-jou Kang, director general of the TFDA, explains that "Taiwan has a unique political situation that means it cannot join a lot of international organizations, which makes it very difficult to communicate with other countries. The way that the TFDA has approached this problem is through bilateral cooperation—in April 2010 we signed a memorandum of understanding with the TGA in Australia for example. We also have exchanged letters with US, Switzerland, and EU for information exchange of medical devices. Further to Exchange of Letter, we established the Technical Cooperation Program with 12 Europe-notified bodies to share GMP inspection reports as acceptable evidence for submitting Quality System Documentation applications to the TFDA." This will speed up the approval process for many companies in Taiwan.

Jin-fu Chang, Minister in Charge of Taiwan's Diamond Action Plan for Biotech Takeoff.

The cause of these issues in the international community is Taiwan's relationship with China, which is something of a double-edged sword: While it makes international collaboration and harmonization a delicate issue, it also allows for Taiwan to act as a stepping stone to the vast Chinese market. On Sept. 11, the Economic Cooperation Framework Agreement (ECFA) came into effect. ECFA aims to reduce commercial barriers between the two countries and help to grow bilateral trade, which currently stands at US$110 billion. Although the strengthening of bilateral relations is a contentious issue in Taiwan, the general feeling among the pharmaceutical community is that it makes Taiwan a more attractive investment destination. No longer will the country be confined to its market size of 23 million consumers; companies operating in Taiwan will now have increasingly easier access to the 1.3 billion Chinese consumers waiting just across the strait.

For Taiwanese companies like Chifu Trading, China offers huge potential for growth. A family-run company with a solid distribution business in Taiwan, Chifu is now looking to broaden its horizons to more challenging markets in Asia. As Wayne Hsu, managing director of Chifu, explains, "Chifu can introduce a lot of products from Taiwan to China. A lot of Indian companies are afraid of going to China. Chifu can help them, and is already doing this. But the company is also helping Chinese companies to come to Taiwan. Chinese companies see Taiwan as an interesting market. They can also use it as a test market: Taiwanese people are perhaps more open and willing to spend more than Chinese patients." For those with expertise in the Taiwanese market, the growing relationship with China offers a lot of opportunities—both countries speak the same language and the culture is remarkably similar, something very few can say when entering the Chinese market for the first time.

Chih-Liang Yaung, Minister of Health.

But it is not just domestic Taiwanese companies that see the potential for using Taiwan as a gateway to China. Warren Chen is country manager of Celgene Taiwan. Celgene arrived in Asia very recently, but is using its Taiwanese operations in order to create a model to be replicated across the continent. Chen explains that "Celgene is only now embarking on a China strategy but the market there still has many questions. Not everything is in place yet, and guidelines and policies are not so clear. So we have to have a business model to copy in those areas where Chinese is spoken. I would like to copy Taiwan's experience to China, especially in medical development. Many Taiwanese doctors have Western education and experiences compared to Chinese doctors. We have many good ideas here. This is a very good opportunity for Celgene's drug development."

The aspect of the Diamond Action plan that is arguably the most ambitious is the planned creation of a US$18.7 billion venture capital fund, a collaboration between the government and private investors. Jeff Wang, president of DCB, explains how this will help the industry to develop, and the role that DCB will take on once this capital has been injected into the industry: "Once the bio-venture capital fund (one of the strategies in the Diamond Action Plan) starts operating, I expect that there will be a lot of startup companies forming with several potential blockbusters in their product pipelines. DCB would like to work closely with the bio-venture capital management teams in terms of conducting due diligence studies and translational research for those startup companies." Wang believes that it will only take four to five years for this type of activity to flourish. This is an indication of the hopes that many in the industry are resting on the rapid development of the Diamond Action Plan.

Chi-huey Wong, President, Academia Sinica.

HEALTHCARE IN ACTION

One of the most remarkable aspects of the Taiwanese healthcare system is its universal insurance system. Paul Krugman, the 2008 Nobel Laureate in economics, described it as one of the best healthcare insurance systems in the world. Taiwan's innovative insurance system ensures almost universal access to a healthcare system that enjoys an 80 percent approval rating from Taiwan's citizens. However, this year will see the revision of the legislation surrounding the system by the Bureau of National Health Insurance (BNHI) and Legislative Yuan. Taiwan's Minister of Health, Chih-liang Yaung, described the reasons that the NHI will soon be entering its second generation: "In any program you need to have some compromise. Even 15 years after implementing the NHI we still have a lot of issues. For example, it is very difficult to increase the premium rate. There is one commission that decides the premium rate and another commission that decides the budget. So who is accountable? The Taiwanese healthcare system is one of the best in the world, but last year we had a $60 billion NT (US$1.88 billion) deficit. My predecessors were never able to adjust the premium rate—it is a very sensitive political issue. Because of Taiwan's aging population, new drugs, and technological advances, a premium increase is inevitable, yet raising the rate is political suicide. Taiwan only spends 6 percent of its GDP on healthcare, yet we have very modern hospitals and a low premium rate, so it is inevitable that the country builds up a deficit." By increasing healthcare expenditure from 6.2 percent to 7.5 percent of Taiwan's GDP, Yaung hopes that current imbalances in the system will be addressed. Both the Department of Health and the BNHI are working closely with all stakeholders in the industry to ensure that the best possible legislative reforms take place in this second generation of the NHI.

Jeff Wang, President, DCB

The current system has caused concern in the pharmaceutical industry. In this single-payer system, the government sets the reimbursement price for drugs, hospitals then choose pharmaceutical partners who can offer the biggest discounts. Based on these discounts, the BNHI conducts bi-annual price-volume surveys in order to make sure that their reimbursement levels accurately reflect market prices. These price surveys have become known in the industry as "price cuts;" every time one has been conducted, significant revenues have been taken away for companies trying to market their drugs in Taiwan. This is a problem that will be addressed in the upcoming second generation of reforms. Carol Cheng, COO of the International Research-based Pharmaceutical Manufacturers Association (IRPMA), says that "it is believed that change is crucial as the pharmaceutical industry has suffered considerably under current NHI policies. We are urging the government to amend the law, and shape a more reasonable environment. From the patient's perspective, this will improve the medication quality and increase the number of advanced drugs available to society."

ADDRESSING THE PRICING ISSUE

The 2009 price-volume survey took as much as 15 percent away from the price of some drugs, making it difficult for multinationals to plan a long-term strategy due to the unpredictability of the market. This has a knock-on effect in convincing global headquarters that Taiwan is a country worthy of long-term investment—many companies simply do not know whether the next price cut will mean that it is no longer cost-effective to maintain a presence in the country.

Wayne Hsu, Managing Director, Chifu Trading

"I am of the opinion that it is going to get worse before it gets better," says Alex Chang, CPO head and country president of Novartis Taiwan, when talking about the situation for multinationals in the country. "I believe that there will be more price cuts to come in the next few years because the deficit is definitely an issue and it has not yet been decided whether increasing patient premiums is a politically viable move." Although the current registration system means that it takes an average of two to three years for a product to take off in the market, after patent expiry MNCs are currently seeing a very slow dropoff in the sales of their drugs. The Taiwanese government wishes to see a quicker take-up of generic drugs in the market, but they are willing to compensate by increasing the speed of market access for innovators. Chang finds some comfort in the fact that these issues are likely to be addressed in the second generation of the NHI reform: "It's encouraging to see clinical trials will also help accelerate product registration and gain a higher reimbursement price." Novartis is the company with the most clinical trials currently ongoing in Taiwan, with over 55 studies ranging from Phase I to Phase III.

Uwe Dalichow, general manager of Bayer Schering Pharma Taiwan, believes that the second generation of healthcare reform is a "logical evolution" of the system. Despite the problems with the system faced by pharmaceutical players in the country, he is still extremely positive about the healthcare situation: "Taiwan was able to establish something extraordinary if you compare with not just Asian standards, but even worldwide standards. You can see that the country is truly committed to providing healthcare not just to the elite, but to the entire population."

Warren Chen, Country Manager, Celgene Taiwan

Lilly is another company that sees the value of the Taiwanese market despite the price cuts. Wei-li Shao, general manager of Lilly Taiwan, explains that "Lilly is in an interesting position right now—around 90 percent of our sales are for our patent products. Our strategy, discipline around negotiations, and portfolio has enabled high growth over the last four years." While other companies in the market have struggled with the situation in Taiwan, Lilly's product mix and business strategy have ensured that they grow a successful business in the country despite the unpredictable climate. Shao believes that his experiences in Taiwan have placed him well for international success in the future: "It used to be the belief that if you knew how to run the US business then you could run the global business. I don't believe that to be true any more because, if anything, the US represents the tail of the reform situation. Then it became the belief that if you ran the EU business then you could run the global business. However, today the EU is in decline and there is a trend of research investment being pulled out of the EU to different parts of the world. Now we're shifting to a paradigm, which states that if you can run the business in Asia, you can run the global business. The combination of Asian experience with the fierce Eastern method of negotiation and politics is a requisite experience for any president or general manager."

AN ASIAN ENIGMA—THE TAIWANESE ENTREPRENEURIAL SPIRIT

Taiwan's flagship national pharmaceutical companies have been quietly toiling away for the last few years, carving themselves an impressive niche in selected international markets. Yung Shin is Taiwan's No. 1 local pharmaceutical company, and has had a presence in the US since 1994 and in China and Malaysia since 1996. Currently around 50 percent of Yung Shin's business comes from international markets, and in the years to come the company will look to build up its relationships in markets with high entry barriers: Singapore, Malaysia, China, and Japan, capitalizing on the experiences and expertise it has acquired in its 60 years of existence in Taiwan.

Yung Shin is one example of a Taiwanese company whose top management benefitted from long years studying abroad before coming back to Taiwan to establish or take over their own businesses. Albert Liou, corporate vice president and general manager of the Asia Pacific region for Parexel, explains that "Taiwan produces a lot of good professional talent. Many Taiwanese people have strong international educational credentials, especially from the United States. A lot of people choose to study overseas, and many of these people return to Taiwan once their studies are completed." Liou counts this business experience as one of the main factors for choosing to establish his company, Apex International, in Taiwan, which was eventually acquired by Parexel.

Carol Cheng, COO of IRPMA

Mark Yang, general manager of Hospira Taiwan, acknowledges that his experiences in the US certainly helped him to fit seamlessly into the corporate culture of a multinational company operating in Taiwan, posturing that his American MBA program "enabled me to work with my colleagues in the US and Australia in a much more rationalized manner. We don't have any difficulty communicating about new business models or business ideas or business language." He also believes that there is another factor to his success, namely that "being born in Taiwan helped me to fit into the local scene. I can work here without any barriers, unlike American-born Taiwanese or Chinese people. Sometimes these people have difficulty integrating back into the Eastern culture." Under Yang's supervision, Hospira has achieved incredible results since the company was spun off from Abbott in 2006—today the company has more than 90 percent market share in the fields of large volume infusion (LVI), devices and patient control and analgesia (PCA) devices. Yang explains how Hospira achieved such success in Taiwan: "We moved very aggressively. As part of Abbott we had around a 67 percent market share. When Hospira moved out under its own roof the company became more aggressive in this segment and fought for the accounts of our competitors. Hospira Taiwan's sales revenues have grown to the point that the company here now competes with Big Pharma."

Although many multinational companies in Taiwan employ local managers to run their business in the country, GSK is one company that has taken the decision to employ an expat as general manager. Thomas Willemsen, vice president for the company, suggests that GSK "really needed someone to accelerate the transformation of GSK in Taiwan. Of course, my experience in Asia was also a deciding factor. I've been in China for five years, and in Taiwan for five years, I speak Chinese and I have been working in the pharmaceutical industry for 12 years." With his experience of the Chinese-speaking world, perhaps Willemsen should be counted more as a local than a foreigner in Taiwan.

Wei-li Shao, General Manager, Eli Lilly Taiwan

One obvious advantage of employing a Taiwanese national in Taiwan is that it is far more likely that they will be committed to their country for the long term. A charge often leveled at the managers of smaller country affiliates is that they are only considering short-term strategies to propel them to the next market rather than being concerned with the long-term growth of the affiliate. Today, Eric Wang is general manager of Novo Nordisk Taiwan, but has been working at the affiliate since it was first established 16 years ago. Wang believes that having this experience and perspective has allowed him to grow the business in the way that Novo Nordisk aims for across the world: "We know that we should work better to help people with diabetes have better glycemic control. Once we meet we can work together on these problems, and because we are small company, we don't have a lot of bureaucracy. My door is always open." Although this long-term culture building is not for everyone, Wang is perfectly at home at Novo Nordisk: "Most expat general managers would be very unhappy to pursue a long-term market strategy that was not focused on short-term performance. I want to stay here for longer, and pass on this sense of responsibility to my staff."

Uwe Dalichow, General Manager, Bayer Schering Pharma Taiwan

ScinoPharm is one of Taiwan's most interesting and innovative companies. Since 1997, the company has worked tirelessly to become one of the world's leading players in the field of Active Pharmaceutical Ingredients (APIs), helping their customers be first to market with their generics. This was not an easy process for a Taiwanese company; finding investment at first proved difficult for Jo Shen, founder, president, and CEO of ScinoPharm. She explains: "ScinoPharm's business model is that before the train comes into the station we are ready to jump. Initially this business model was incredibly foreign to local investors. The first difficult concept for them was the role of GMP. They knew that GMP was important, but they did not fully understand that if an API manufacturing plant does not pass a GMP inspection from the US, then its APIs cannot be used for any customer who wants to sell their formulations in the US." The importance of adhering to intellectual property (IP) rights was also a key issue for the company: "Investors didn't realize how powerful a skill it was to have that capability, and to be able to enter a market wherever you have taken care of the patent issue, and conversely how a particular patent situation can eliminate your chance of competing." Despite agreeing to these two aspects of the business model, investors were still wary of ScinoPharm until the company started to break even, but now it is hailed as an unrivaled success in Taiwan. Shen explains that the company's international vision is what has driven the eventual growth and prosperity of the company: "For most local companies, their first market view is Southeast Asia or China, and yet there is a smaller group today trying to aspire above this and penetrate regulated markets. In those cases there is still a lot for these companies to do to fully understand the patent situation and GMP requirements. Both of those things require investment. Right from the beginning ScinoPharm's business model was that the world was our market—there is no reason why being registered in Taiwan means you can only look at Asian markets. Our major market has always been the top tier, the most regulated markets: the US and Western Europe."

Key export markets for Taiwan (courtesy of IBMI)

CLINICAL TRIALS? ALL SMILES

A surprising fact about Taiwan is that it has become something of a hub in Asia for late-phase clinical trials. The NIH reports that in 2009, Taiwan conducted 1,574 clinical trials, more than China (1,427), India (1,143), Korea (1,510), and Japan (1,337). Alex Chang of Novartis Taiwan explains why so many MNCs are ready to conduct trials here: "Regulation has become very friendly—clinical trial approval takes a maximum of three months to get. This is still longer than South Korea, but much better than China. The government is ready, infrastructure is ready, 99 percent of hospitals are ready, CROs are ready, and patients are ready." However, by far the majority of these trials are Phase III: companies use late-phase trials as a way to gain speedier market access. As president of Academia Sinica Chi-huey Wong puts it: "We need to encourage these companies to look to Taiwan as a locale for conducting more early-phase trials. This is where Taiwan's real strengths lie."

In many respects the "father" of Taiwan's clinical trial success, Albert Liou, founder of Apex International (later acquired by Parexel, for whom Liou is corporate vice president and general manager of the Asia Pacific region), is keen to stress that moving to early-phase clinical trials will not be the only challenge that Taiwan will face in the years to come. "Although the clinical research environment has a good level of quality, Taiwan is still small in terms of size. Out of the 100 hospitals that are involved in clinical studies, only the top 20 are prominent enough to attract global clinical trials. The other 80 hospitals in the country are just beginning to become aware of or involved in clinical research, and so are less experienced."

Albert Liou, Parexel International

The room for growth may come as a surprise to those looking at the 2009 figures for clinical trials conducted in the country, but the Taiwanese government has recognized the potential for developing this sector into one of the country's key industrial strengths. By creating the title of "Centers of Excellence" for those hospitals and medical centers that excelled early and provided incentives for others to reach this position, the Taiwanese government is hoping that more institutes will look to clinical trials as a source of profit and a way to bring the latest medical innovations to their patients. The natural result of this will be more foreign investment coming into Taiwan from Big Pharma. Liou sums it up by saying, "A key factor in attracting clinical trials to Taiwan is that quality data can be collected in the market, coupled with other benefits such as fast recruitment and overall efficiency."

"For drug companies," says Chung Y Hsu, CEO of China Medical University Hospital (CMUH), one of Taiwan's Centers of Excellence for clinical trials, "the most important aspect of any clinical study comes down to one sentence: Time is money." Hsu holds to the philosophy that Taiwanese hospitals need to be as compliant as possible with pharmaceutical companies in order to attract both their customers and their trust. "These relationships are not built through sales and marketing departments, but rather through a hospital's track record. When we enroll the patients at very good speeds, then the company has a good experience with us. The next time we collaborate, we are able to streamline our procedures because of our working experience, which makes the experience of working with CMUH get better every time. We let our performance speak for itself."

Mark Yang, General Manager of Hospira Taiwan

CMU Hospital, or "healthcare system," is part of the China Medical University complex. Chairman of both China Medical University and CMU Healthcare System's Chang-hai Tsai explains the origins of the organization: "CMU, as China implies, was funded initially for traditional Chinese medicine (TCM). It has become a medical university with balanced advances on both TCM and Western medicine. With emerging emphasis on alternative and complementary medicine in Western countries and development of novel drugs from natural products, CMU is in a unique position in the new era of pharmaceutical R&D."

Mackay Memorial Hospital is a Christian hospital constructed 130 years ago in memory of Dr. Mackay, a Canadian who came to Taiwan to preach Christianity, and today is one of Taiwan's largest centers of excellence for clinical trials. Its superintendent, Cheng-ho Tsai, believes that Mackay Memorial needs to keep innovation high in order to compete with Taiwan's other centers of excellence and therefore win more business with pharmaceutical partners. "In the recent years, Mackay has not only spent a lot on research and development (about 3 percent of the total revenues, or US$10 million), but it also established the first hospital-based incubator center in Taiwan. By fostering collaboration with the industry, Mackay encourages the innovation results to be shared mutually in rapid ways. By providing a mature clinical trial environment, Mackay helps the big scale pharmaceutical industry to develop new drugs and also helps small-scale and new innovative enterprises to conduct clinical trials rapidly and safely." The hospital also provides eight laboratories to the industry in order to research cell therapy, and plans to establish 10 Good Tissue Practice (GTP) laboratories in accordance with American and European specifications, in which cancer vaccine and stem cell research can take place.

Alex Chang, CPO Head and Country President, Novartis Taiwan.

According to the superintendent of the National Taiwan University Hospital, (NTUH) Ming-fong Chen, remaining a center of excellence for clinical trials requires the optimal combination of various factors: proof of its competency, an infrastructure fit for purpose, having the best people and expertise, and, above all, access to the latest innovations. Chen believes that it is NTUH's "level of innovation that allows us today to stand up as a Center of Excellence for clinical trials". He believes that in the next 10 years, NTUH will outgrow the Taiwanese market and become one of the leading medical centres in the Asia Pacific region. His strategy in order to achieve this is to look to the potential of China.

Thomas Willemsen, General Manager, GSK Taiwan

Chen echoes many of the key decision-makers in Taiwan in his vision for future collaboration with China: "If innovation comes from Taiwan and is protected by patents, then it can be sold worldwide and China would become our closest and biggest market." Through partnerships with Chinese hospitals, Chen hopes that NTUH will be able to take advantage of this trend in the years to come. If harmonization of clinical trials between the two countries comes as a result of ECFA, the Taiwanese clinical trial market will be thrown wide open, and it is Taiwan's key healthcare personalities that are leading the way in preparing for this. As Johnsee Lee puts it, "If we can leverage China, this will allow us to expand into a larger market and bring more opportunities for biotechnology, pharmaceuticals, medical devices, and healthcare in general."

Eric Wang, General Manager, Novo Nordisk Taiwan

TAIWANESE INNOVATION: BOTH BUSINESS AND SCIENCE

When looking for answers as to why the Taiwanese biotech industry has yet to produce a single internationally approved drug, many in the industry point to the fact that the investment climate over the last three decades evolved in a significantly different way to that of the US, despite the best hopes and intentions of the Taiwanese government. Back in the early 1980s, when the Executive Yuan first selected biotech as a key industrial driver for diversifying Taiwan's economy, it looked to the US model and tried its best to emulate it, setting up biotech clusters and encouraging venture capitalists to invest in promising startups.

Jo Shen, Founder, President & CEO, ScinoPharm

However, after years of investing in the Taiwanese ICT sector with its fast rates of return and rapid climb to global hegemony, investors were put off by the slow cooking times and high dropoff rates they found in Taiwan's fledgling biotech industry. Taiwanese biotech companies were forced to innovate to survive, and as a result a very different model began to emerge in Taiwan. JM Chang, CEO of Pharma Power Biotec, explains his company's business model, and the way it has allowed his company to continue to focus on its primary goal: "Many biotech companies are founded on the idea of a novel and niche technology, but after burning through their initial capital they can often simply disappear. Pharma Power Biotec aimed to avoid this situation, and create a sustainable business model that would ensure the company's continued growth. Therefore, we focused on creating a revenue-driving business segment, using our drug delivery system to produce diabetic medicine. In this way, our company is able to gain revenues, while simultaneously developing our Radion PDT (photodynamic therapy) product for the treatment of early-stage oral cancer. By using this business model, we can work on treating this disease while continuing to improve our company." The company has introduced a line of health foods that will continue to bring in revenues while the Radion PDT product finishes development.

Another unique aspect of Taiwan's biotech industry is the number of companies focused on developing drugs for the Western market from compounds that have been used for centuries in traditional Chinese medicine. By bringing these compounds into a Westernized R&D process, biotech companies can drive revenues by distributing them in existing TCM markets like Taiwan and China, and simultaneously develop compounds for Western biotech drugs. NatureWise Biotech & Medicals Corp. is one company following just such a path. Working on an HDAC inhibitor to rival SAHA (the first of its kind to be approved by the US FDA), NatureWise is hoping to tackle the global problem of neurodegenerative diseases using traditional Chinese remedies. "Because our products come from nature, we have incorporated our products into dietary supplements in order to build the company's revenues while we wait for drug approval," explains Chung Yang Huang, president and CEO of NatureWise.

Scinopharm's facilities

However, he believes that in an ideal world, TCM and Western medicine should be separated by different regulations. "Many East Asian governments including Taiwan have tried to make TCM compatible with FDA regulations. This only serves to slow down the release of medicine and is not good for the industry. In order to make TCM a successful but regulated industry, the countries where it is strongest need to create their own regulations, and lead the world in creating a structure where Eastern methods can flourish and thrive."

"In 2002, I was invited by a group of scientists to build up a new company, the purpose of which would be to screen new candidates for cancer therapies—new leads and new drugs," explains Alex Liu, chairman of Golden Biotechnology. Liu decided to focus his attentions on antrodia camphorata, a fungus unique to Taiwan that was known in traditional herbal medicine for having anticancer properties. However, after several years of development, he was surprised to find that the international reaction to herbal extracts was not what he hoped it would be. "We presented our findings to BioTokyo that year. We were surprised to find out that the reaction to our research in Japan was very different from what we had experienced in Taiwan—biotechnologists in other countries were simply not excited by herbal medicinal extracts. I realized that without a compound, there was no point in continuing." So Liu turned his attentions to developing a drug from the fungus that was more in tune with traditional Western medicine. Golden Biotech's new cGMP facility allows for production of this new compound, but also allows the company to take advantage of the large market for the traditional herbal extract that exists not just in Taiwan and China, but increasingly in Western markets such as the US and Europe. "My strategy has always been to find a way as early as possible to make a profit from this discovery, while still pursuing high scientific goals. This facility design enables Golden Biotech to produce a semi-purified extract to be turned into a health food and also a purified compound for the clinical trial. Every product has its own market. We have put all our energy into this product, and it is beneficial to cancer patients."

Chung Y Hsu, CEO of China Medical University Hospital

Jen Chen, general manager of Genovate Biotechnology, wanted to get his strategy right from the very beginning. On coming back from the US and forming Genovate in 1995, he made sure that the initial investors in the company would have to be well chosen in order to make sure that the business model was a success. "Genovate has three types of shareholders," explains Chen. "Each is crucial for the successful development of the company. The first of these is the government, as we know that for a pharma company to be successful, regulatory synchronization is the key. You have to work with the government to make sure that regulatory issues can be managed.

Ming-fong Chen, superintendent of National Taiwan University Hospital

"I also thought it was necessary to have successful private Taiwanese business involved at a shareholder level. Taiwanese people are particularly business-oriented, and have had great successes with high-tech products over the years. I wanted to learn how to become a good OEM, and how to turn it into a profitable business. Biotech in a global sense is not a profitable business. Having these business minds on board was key to discovering the best way to run a biotech company that was also profitable while it was in its development stage.

"The third key shareholder is US biotech. No matter what happens in the Asian biotech sector, people will always look at the US as the golden standard. In Taiwan, 16 of the top 20 companies are multinationals. This is not because they make generics better than local companies, but because people still have the preference to buy imported generics from well-known brand companies rather than from local companies."

Chang-hai Tsai, Chairman of China Medical University

From these firm beginnings, Genovate has grown into a player for all segments of the market. As well as working on new drug discovery, the business also involves itself in OEM, sales and marketing, and clinical trials, truly taking the best of everything that Taiwan has to offer.

TAIWAN'S DISTRIBUTORS: STRIDING OVER BOUNDARIES

As a result of ECFA, the impending review of Taiwan's national health insurance system, and the country's growing importance as a clinical trial hub, the interest from multinational companies in the country is on the rise. However, with a market size of 23 million, it is inevitable that some pharmaceutical companies are willing to market their drugs in Taiwan, but not willing to establish their own operations in the country. Mark Lee, vice chairman of Morris Enterprise, one of Taiwan's leading distributors, explains the advantages of choosing a Taiwanese distributor over entering what can be a very challenging business landscape alone: "The price of pharmaceuticals had been cut by the government year on year and this has been constantly shifting the landscape for distributors and pharma companies in Taiwan. Here at Morris Enterprise, we have a very good relationship with the decision makers in a lot of hospitals. Due to compliance with the SOPs and our familiarity with all the procedures, we make the registration and bidding process run a lot more smoothly than our competitors."

Cheng-ho Tsai, Superintendent of Mackay Memorial Hospital

In order to further grow their business, Morris has chosen to diversify its product lines. Today their business is still 85 percent pharmaceuticals (as the management team within the company predominantly has expertise in this field), but Lee explains how Morris' nutraceutical and cosmoceutical business is complementary to this: "We work with a lot of hospitals already, and the same management groups in hospitals also deal with nutraceuticals and cosmoceuticals. We still work with the same group of people and capitalize on this expertise."

Orient Europharma (OEP) has turned the distribution model on its head, as Peter Tsai, the company's founder and president explains: "Distribution is a tricky job. If you are unsuccessful in marketing a particular product, the licensor is disappointed in the work you do; if you are successful, then the company starts to think that they should enter the market themselves. As a result, OEP also needs to develop its own products, and these will come through our expertise and capabilities in new formulation." To tackle this issue, Orient Europharma moved away from the traditional model of distribution and established Orient Pharma (OP), "the manufacturing arm of the company." A new plant was built, and today OP works to develop new formulations, delivery systems, and indications in collaboration with its partners "that do not have manufacturing facilities of their own. We manufacture for them as well as promote the products in our own territory. The current example is that we are working with DURECT in the US, who will market the drugs in their country but will rely on us for high-quality manufacturing." By investing more deeply into the value chain, OEP are actually strengthening their traditional business of distribution, as Tsai explains: "The new plant gives OEP the capability to create a synergistic effect as we begin to harmonize our company product portfolios throughout the Southeast Asian regions where we are present. This gives us an advantage when we want to license in new products, as we can show our partner the capabilities that OEP has."

JM Chang, CEO of Pharma Power Biotec

FIGHT FOR YOUR (INTELLECTUAL PROPERTY) RIGHTS

"There has been a marked improvement in intellectual property enforcement here over the last few years," says Mei-hua Wang, director general of Taiwan's Intellectual Property Office, which operates under the Ministry of Economic Affairs. "Last year the country was taken off the USTR Special 301 Report, which is a very positive response from the United States, and proves that they appreciate the efforts that have been made here to enhance IP protection."

CY Huang, President & CEO, NatureWise

For those that only know of China's poor record for the protection of intellectual property rights (IPR), it might be easy to assume that Taiwan is equally lax about IP regulations. However, this is far from the case. Wang explains that "for the Taiwanese government, intellectual property rights are very important, as they are one of the key factors to attracting foreign investment. As a result, for a number of years they have been focused on improving the overall IP environment in Taiwan. The Taiwan Intellectual Property Office (TIPO) was established in 1999 in order to centralize the government's efforts to improve IP regulation and enforcement." The achievement of being taken off the USTR Special 301 Report is recognition of the work that has been done to improve the IP situation in Taiwan.

Wang is keen to stress that "Taiwan's President and ministers fully understand that high IP protection is very important for attracting foreign investment, so they asked TIPO to strengthen IP protection. Also, for the last 10 years, Taiwan has faced pressure from both the US and Japan to take this action. Because Taiwan's main industries are focused on innovation and R&D, it knows that if you want to internationalize your business, you must have a high-quality patent and promote your trademark, so Taiwan also saw the need to change as a result of its industry. The country also sincerely wants to take care of this issue. Coordination and collaboration between agencies is very difficult, but by assuming this role TIPO understands that these things have to be done well."

Alex Liu, Chairman, Golden Biotechnology

Pressure from both national and international businesses to bring Taiwan towards a culture of respect for intellectual property has combined with the government's ambition to make Taiwan a reputable place for investment in a way that has so far proved to be a success. TIPO's creation was the first vital step in this process, but that does not mean that their work is finished.

TIPO is working to make sure that those industries that rely on IP rights, such as the pharmaceutical industry, are fully satisfied with Taiwan's legislative stance. Earlier in 2010, TIPO submitted a revised draft of the Patent Law to the country's Legislative Yuan that contained several articles relating to the pharmaceutical industry, addressing the issues of both local and multinational companies. Through a series of consultations with stakeholders within the pharmaceutical industry, TIPO worked to create a list of topics that needed to be addressed in the new patent law, such as patent expiry, linkage, and extension. In order to draft the law, the IP office examined existing legislation from across the world—Europe, the US, Japan, and China—and believe they came up with a solution that was fair for all. As Wang says, "We took care of this article by taking a very neutral stance. Now that we are competing with many countries, especially with Mainland China, Taiwan needs to have a good IP protection environment, which will give us the power and the advantage to compete with other countries. This is happening today, and we have already achieved a great deal."

"The establishment of the Intellectual Property Office was a milestone in Taiwan's history of Intellectual Property protection, especially in the field of patents," says Fred Yen, managing partner of Tai E International Patent and Law Office. "Before the establishment of TIPO, patents and trademarks were the responsibility of a small governmental department. But after its creation, IP matters like patents and trademarks have become a major business for our government, and contribute significantly to state revenues every year."

Peter Tsai, President of Orient Europharma

Yen explains that until recently, the pharmaceutical and biotech industries did not account for a particularly large portion of his business. However, he believes the situation has recently begun to change. "We have observed a definite improvement in the state of the industry over the last 30 years. Originally, Taiwan looked to the successes of the US biotech sector, and tried to use it as a model for development of the industry in Taiwan, by establishing clusters of biotech companies. But it was not very successful, because the companies here did not manage to survive alone. A supporting structure was needed, which included aspects such as IP, a supportive banking system, legislation, and governmental measures."

Mackay Memorial Hospital in Taipei

However, in the pharmaceutical sector, nine out of every 10 companies working with Tai E are multinational companies. "Multinational pharmaceutical companies work with Tai E because they need to file patents in Taiwan, for instance, in order to secure their drug prices with the one major buyer here in Taiwan—the administration." By working with local companies such as Tai E, international clients guarantee that they have a company that will fully understand the local patent specifications, making their registration processes smoother and easier.

Mark Lee, Vice Chairman of Morris Enterprise

On first inspection, the fact that a drug has not yet been successfully developed in Taiwan might lead those viewing the market to the conclusion that the country's pharmaceutical market is not particularly dynamic. This is far from the case. Those with a more intimate knowledge of the pharmaceutical and biopharmaceutical industry in the country understand that this is the moment where Taiwan can succeed in distinguishing itself from its Southeast Asian neighbors. A number of factors support this conclusion—the growing relationship with China is top of this list—but the fact that the Taiwanese biotech sector has developed in such an idiosyncratic way that it seems to support the argument that whether or not the government's plans for the development of the biotech sector bear fruit, it will not be long before Taiwan makes a name for itself in new drug development and become a key agent in the rising importance of Asia in the modern pharmaceutical landscape.