To have the success it is seeking in this high-potential industry, Taiwan will need to improve its regulatory regime, find ways to spur more investment, and recruit the personnel – and develop the institutions – to handle a wider spectrum of the drug-development process. Accomplishing that will require remedying the lack of internationalization that is currently holding back the industry’s progress.

— By Andrea Yung

Taiwan has been trying to develop its own biotech industry for more than two decades, but the effort has so far brought few dramatic results. For all the media excitement the industry has generated, no Taiwanese company has yet achieved the epitome of biotech accomplishment by developing a new drug from scratch and bringing it all the way to approval. As competing Asian countries rise up and claim the title of “international biotech hub,” what should Taiwan be doing differently?

Despite its problems, the fledgling industry is still growing, with revenues rising 5% in 2008 from US$6 billion to around US$6.3 billion. But even so, Taiwan is already falling behind the rest of its Asia Pacific counterparts. Taiwan contributed a mere 2.3% to the region’s listed life-science companies’ total revenues last year. In a list of the top 270 life-sciences companies in Asia compiled by Biospectrum Asia, the first Taiwanese company appeared at number 86, while the top 20 spots were dominated by Chinese, Indian, and Australian companies. All those countries have seen extraordinary growth in biotech in recent years, especially China, whose market expanded by 25.7% in 2007 alone. “What’s Taiwan, compared to that?” asks David Silver, president of the Taipei-based marketing consulting company Biotech East. “Insignificant.”

Yet for all the challenges faced by biotech, or life sciences, the key players in Taiwan have already taken the biggest step toward overcoming the problems by acknowledging their existence and beginning to address them in recent policies. Now, it needs to solve the problems – always easier said than done – by learning to leverage Taiwan’s strengths and remedy its weaknesses.

Among the biggest of the challenges is the Taiwan biotech industry’s fragmented infrastructure. Of the four stages to drug development – basic research, translational research and early-stage clinical trials, late-stage clinical trials, and commercialization – Taiwan’s experience and strengths are limited to just two of them. “When you look at the entire value chain, what we have now is early stage discovery and late-stage clinical trials,” says Wong Chi-huey, president of Academia Sinica and a world-renowned biochemist. “We are missing something in the middle – translational research – and also something at the very end – large-scale manufacturing or marketing.”

By definition, translational research takes a scientific concept all the way to its emergence as a product; it bridges the gap between basic and applied research by transforming new technologies into commercially viable products. In a hypothetical example given by Liang Chi-min, director of Academia Sinica’s Office of Public Affairs and Technology Transfer, scientists discover a chemical that can kill cancer cells in tissue cultures. Its efficacy in vitro, however, does not guarantee a therapeutic effect in practice, so there is still a question of whether it can become a commercial drug. Pre-clinical tests, such as animal toxicity tests, are needed to confirm the efficacy and safety of the drug before humans can attempt to use it.

The simple presence of animals and humans in pre- and early-stage clinical trials requires a skill-set and type of expertise different from those applied in traditional research. Consequently, those who develop a new technology are typically unable to manage its subsequent commercialization. “Developing a product involves years of research, and the principal investigator needs to be more research-oriented versus patient-oriented,” says George Yeh, president of Taiwan Liposome Co. (TLC). That patient orientation takes years of training, he notes. To help bridge the gap, a few local drug discovery companies, including TLC and TaiMed Biologics, have set up testing sites in both Taiwan and the United States as a way of enabling their Taiwanese employees to gain the experience they need for this stage of development.

TLC and TaiMed Biologics are, however, exceptions to the rule. Academia Sinica has tried following the American model by licensing out new technology developed in its labs to biotech and pharmaceutical companies, allowing the licensees to take over in bringing the products to market. Unfortunately, Liang says, most of the companies buying such new technology have failed because they lack the capability to develop the products commercially.

With universities and research institutes like Academia Sinica focusing on basic research, a second entity is needed to emphasize translational studies. The Development Center for Biotechnology (DCB), a non-profit research institution, was founded with government support in 1984 with just this mid-stream purpose in mind. Rather than performing the function of closing the gap between Taiwan’s academia and industry, however, in recent years DCB has been concentrating more on basic research, and it has included many more basis researchers on its staff than it has professionals with translational experience.

Wong and Liang both urge the DCB to return to its initial core mission by placing more emphasis on translational research – picking up technologies from Academia Sinica or other laboratories and then developing them a bit further before handing over the project to the private sector. “Different institutions have different roles,” Wong says. “But what you’re seeing is that institutions in different roles have hired people from the same background who end up doing the same things. I think there should be more coordination.”

Shift in direction

That appears to be happening. Among the positive developments this year were the government’s selection of biotech as one of six major emerging industries worthy of being intensively promoted, and the Executive Yuan’s announcement of a “Diamond Action Plan for Biotech Takeoff.” The plan focuses on strengthening the translational research role to be played by institutions such as the DCB and the Industrial Technology Research Institute (ITRI).

DCB has responded by seeking to transform itself into a “Preclinical Value-Adding R&D Center for Biopharmaceuticals” with the aim of successfully filing Investigational New Drug (IND) applications. “DCB is making a great effort to shift its research focuses from ‘basic’ to ‘translation’ in the sense that it will minimize drug-screening or discovery-type projects and look to basic research institutes such as Academia Sinica for selected drug leads,” says Jeff Wang, the organization’s president. “We are also keeping our eyes open for good leads from foreign sources.” Wang describes DCB’s objective as “optimized coordination and integration of resources in Taiwan” so as to facilitate the eventual “expansion of Taiwan’s biotech companies into global biotech-pharma markets.”

While there is wide agreement that strong government support is one of Taiwan’s biggest assets in the biotech field, those connected with the industry have mixed feelings about how much further government involvement would be beneficial. Considering the notoriously long time needed to produce results in the biotech sector, some fear that the government will give the companies they support too much pressure to perform. But others believe the government could do more to help the life sciences industry in general, especially in terms of resource distribution and creating a positive regulatory environment.

With respect to investment, for example, Wong and Liang at Academia Sinica urge that more public funding be dedicated to the biotech field, and not just for research. While the government hopes to raise NT$60 billion (US$1.8 billion) for a new biotech venture capital fund (with 60% of the funds coming from the private sector), Liang notes that each individual venture will require funding of at least NT$3 billion. “So from NT$60 billion, we can fund roughly 10-20 companies,” he calculates. “And we’ll have to pick them very well, because from these companies, only two will be successful, if we’re lucky.”

ITRI President Johnsee Lee, whose background is in biochemistry, further recommends that some of the funds be earmarked for early-stage companies, which are typically higher risk, as most of the late-stage investments, mainly in manufacturing, have moved to China.

Because it can be difficult to find private funding for biotech enterprises in Taiwan, government financial support takes on special importance. “The biotech industry is a long-horizon, big-investment undertaking,” says James Chang, CEO of TaiMed Biologics. “In Taiwan, people are not used to that. They’re looking for quick returns, something that can turn around and make a profit in maybe less than three years. In the biotech industry, you’ll probably have to invest 10 times more, with a time horizon that’s probably five times longer. The money is there. It’ll just take a few years for people to get comfortable with taking that higher risk.”

Liang agrees, adding that because of Taiwan’s success in IT, an industry in which money was easily earned back in three to five years, investors are not patient enough to undertake long-term investments. Indeed, Chang warns that the Taiwanese often focus too much on balance sheets when they evaluate biotech companies to invest in. That approach doesn’t work in biotech, he says, since a company may have negative income during the whole period of research and development.

Sources of capital

Also lacking in Taiwan, says Wong, is a strong group of venture capitalists “who are knowledgeable about the industry and actively looking for projects, and who license the projects to put them together for a business.” He regards most of the VCs in Taiwan, including the government’s own development fund, as too passive. “They just follow,” he observes. “If you just follow, you don’t have the analytical capability to look for very good projects. That needs to be improved.”

On the regulatory side, Taiwan lacks dedicated reviewers whose presence would speed up the drug approval process. The U.S. Food and Drug Administration, for example, hires scientists whose sole responsibility is reviewing new drug applications. Chang notes that Taiwan’s Department of Health (DOH) lacks enough dedicated people to work on the approval process, and must rely on help from academics and other researchers who review drug applications as a sideline. “It takes a lot of time,” he says. “They don’t have the expertise to do reviews; they don’t know a lot about the regulations. If you want to get it done quickly, you get your new drug application approved in the U.S. first.”

In fact, Timm Pfannenschmidt, who recently completed his assignment as president and CEO of the Taiwan operation of Beohringer Ingelheim, the German pharmaceutical company, says that when a company tries to register products with the DOH, it must provide evidence that the product has already been approved and marketed in other countries. “As a country attempting to promote its own research and development, Taiwan shouldn’t rely on the approval of the product in another location,” he says.

To find the professional expertise it needs, including personnel to properly manage the biotech venture capital fund, Taiwan will presumably have to look outside its borders. “Most likely, some of the talent will have to come from the U.S. or other countries, because Taiwan hasn’t had that kind of industry here,” says ITRI’s Lee. Attracting those professionals will be difficult when Taiwan’s salary level is typically 30-40% below that of the United States, but Chang suggests that the government could provide subsidies and tax incentives to lure such talent, including overseas Taiwanese who might have personal reasons to consider returning.

Most of the major problems hindering the industry’s development – the regulatory obstacles, the insufficient investment experience, and the weakness in certain stages of the drug development process – can all be traced back to a single source: lack of internationalization. “It’s important for Taiwanese companies to operate with a global strategy from day one,” says TLC’s George Yeh. “Taiwan commands just 0.5% of the global biotech market, and that’s just not attractive enough from an investor perspective. You might have a very sexy product, but a sexy product needs to be transformed into a commercialized product. This will involve a lot of preclinical work and clinical work, and at each stage, you need to find a different type of partner.”

Frank Kung, managing partner for Vivo Ventures, a Palo Alto-based venture capital firm focused on the life sciences, similarly advises startups in Taiwan to focus on the world market. “Try to use alliances to leverage your strengths, and try to make sure the business is addressing a real market so you can get your product to market, not necessarily by yourself, but through your partners.”

Partnering is useful in biotech to cover the long value chain in drug development, again underscoring the importance of being an international player. With so many different disciplines and types of expertise required to create a drug, Lee says that even the major multinational pharmaceutical companies may not be able to do everything by themselves. “Running a marathon is difficult,” he says, “but if you run a relay, it’s much easier, since everyone only runs one leg. While many legs are in Taiwan, the next leg could be in the U.S., which is why international collaboration is so important.”

Many multinational companies have already established a strong presence in Taiwan, but their focus is largely on sales and marketing. Ideally, these “Big Pharma” companies would be working together with local businesses to develop the industry, says Lee, but instead disagreements over the reimbursement-price practices of the National Health Insurance program have divided multinational and Taiwanese pharmaceutical companies into two different camps.  Lee says he hopes that the distance between them will be narrowed as Taiwan moves into more innovative research, where there would be more room for collaboration.

Need for harmonization

Another way in which Taiwan could make it easier to access a larger market would be to harmonize its regulations with those of other nations, especially with those of the U.S. FDA. That kind of standardization could help open the way for products approved in Taiwan to be sold in the rest of the world as well. Currently, Taiwan’s guidelines are not recognized by the FDA, although Taiwan does recognize the American standards.

This discrepancy is not easily resolved, however, as testing to meet U.S. FDA standards can be rather costly, which would force many local companies out of business. “The government will be hard-pressed to force all Taiwanese companies to adopt U.S. standards just so some of them will be able to sell drugs in the United States – but when the majority of products will only be sold in Taiwan,” says Kung.

Hardy Chan, Executive Vice President and Chief Scientific Officer of ScinoPharm, a Taiwan-based company specializing in making pharmaceutical ingredients, argues that harmonization is unnecessary, as every country still maintains its own regulations. Even with harmonization, he says, it is doubtful that the U.S. government would simply allow a Taiwanese company to sell pharmaceuticals in America without further tests and inspections.

Despite the fragmented nature of Taiwan’s pharmaceuticals industry and other challenges, the outlook for Taiwan’s efforts to develop the biotech sector is not all negative. Currently 20 drugs developed in Taiwan are undergoing U.S. FDA early-stage clinical trials, leading Academia Sinica’s Wong to predict that “you’ll probably have new products coming out in the next few years.”

Taiwan possesses a number of strengths that should help its fledgling biotech industry grow. It can draw on a large talent pool, including experienced Taiwanese returning from overseas, and its research facilities are world-class. Further, its central geographical location in the Asia Pacific and its cultural and linguistic similarities with China could make it an ideal biotech hub for the region, as well as a springboard for companies hoping to enter the mainland market – giving them the chance to test products in Taiwan first to gauge the market response.

Other resources in Taiwan could also be a great advantage, if companies learn to capitalize on them. For example, the prevalence of hepatitis B and C and other liver diseases makes Taiwan a world leader in those areas of treatment; in fact, many companies and researchers specializing in this field have come to Taiwan for late-stage clinical trials. Wong believes Taiwan could leverage this factor by focusing its drug development on local diseases that also hold international significance.

The business potential is not limited to developing new drugs. Generics production, drug reformulation, and specialty pharmaceuticals are other aspects of the biotech sector in which Taiwan might succeed, especially as Big Pharma alters its business model. Over the next four years, patents for around 25 blockbuster drugs will expire, depriving the large multinational players of major income sources for funding R&D. Some multinationals have already begun diversifying into generics to make up for these losses – indeed, Novartis has pioneered this trend, with its Sandoz division becoming the world’s second largest generics company.

This shift could benefit Taiwan in several ways. While Taiwan has yet to churn out a new drug of its own and the generics market is renowned for its heated competition, several domestic pharmaceutical companies are highly competitive in producing generic drugs for the local population. “The new Pharma model is more in line with Taiwanese companies’ core competency,” says Kung. “It provides a more level playing field in which Taiwanese companies can compete.”

Taiwan can also afford to be more selective about which generics it wants to produce. Some of the blockbuster drugs, such as the cholesterol-reducing agent Lipitor, are not chemically difficult to make, and many generics companies will pursue that drug, causing the price to hit rock bottom.

“We can pick some of the ones that have higher technical difficulty or more stringent quality control,” says ITRI’s Lee. One segment of the generic drug business considered to be high potential is the manufacture of active pharmaceutical ingredients (API), a type of specialty pharmaceutical. “API pretty much determines your profit margin, since converting API to final dosage form – the pill or the vial, whatever the company sells – is not difficult,” says Kung. “If you’re strong enough to produce very difficult-to-make API, then you’re competitive. Usually Taiwanese companies are pretty strong in chemistry, so they can be very competitive in the API business. I think the case in point is ScinoPharm.”

ScinoPharm specializes in technically difficult API. “We choose a really difficult API that no one else can really compete in,” says Hardy Chan. “We go in, take it over, and dominate the market.” For example, years before the patent for Pfizer’s colon-cancer drug Camptosar expired, ScinoPharm was the first to offer the API irinotecan to generics companies for formulation studies and registration, and it has continued to be the major supplier of that API after patent expiration. With ScinoPharm’s sales ranked among the top three domestic companies in pharmaceutical sales, the domestic API industry appears to be headed in the right direction.

Another area of generics expected to become very active over the next three to five years is drug reformulation, such as increasing the potency of a medication or developing a new form of drug delivery to reduce the number of doses needed. As fewer new drugs gain approval and the patents on many blockbusters expire, Lee says this field presents an excellent opportunity for Taiwan.

Lastly, the development of drugs derived from traditional Chinese herbal remedies is a promising area for Taiwan. In an upcoming conference, Taiwan and China are expected to discuss the mutual recognition of trials conducted on either side for these products. Such cooperation would simplify the development process and make it less costly. But for all its potential, this sector also faces challenges, chiefly concerns about quality control for the raw materials, which come largely from China. 

Despite the various opportunities, Taiwan’s success in the biopharma sector will depend heavily on whether proper incentives are offered for investment and growth. Multinational drug companies active in this market point out the severe inconsistency between Taiwan’s aspirations for being a center of biotech research and the way the low reimbursement prices set by the Bureau of National Health Insurance discourage the use of innovative drugs in this market. “On the one hand, you’re promoting the idea of investment in R&D here in Taiwan, but on the other hand, when the products that come out of research and development come to market, the government isn’t prepared to reward the innovation,” says Pfannenschmidt. “They don’t want to pay adequate prices for these innovative products.”

Wei-li Shao, general manager of Eli Lilly (Taiwan) and co-chair of the AmCham Pharmaceutical Committee, notes that new and innovative medicines in Taiwan on average receive only 56% of the median price in 10 benchmark nations, discouraging companies from launching some products in this market. The low profitability in Taiwan is also a disincentive for research-based multinationals to put more resources into R&D in this market.

Given estimates that it will take a minimum of 10 years before a new drug developed in Taiwan appears on the market and for the island’s biotech industry to become fully established, there is still time for Taiwan to amend its policies to provide a better environment for this key industry of the future. At the same time, observers caution that Taiwan cannot afford to wait too long before getting its act together, as other countries such as India and China are preparing to move actively into biotech as well.

Those who remain confident about Taiwan’s long-term chances for biotech success advise investors and government officials not to lose heart about the slow start. The industry has yet to bear fruit in Taiwan, says Academia Sinica’s Liang, “but at least you can begin to see the leaves and flowers.”

Broader than Pharmaceuticals

While biotech is most closely associated with new drugs, the field of life sciences is not limited to the development of pharmaceuticals. Agricultural biotech (agri-biotech) and medical devices make up the rest of the life sciences pie, and despite their differences from drugs, they share many of the same problems, including the translational gap and a shortage of private VC funding.

In the medical devices sector, Taiwan’s strong background in the IT industry provides some advantages. But shortcomings on the regulatory front make it difficult for Taiwanese companies to enter the market for high-caliber medical devices whose safety and quality must be guaranteed for use. In 2008, Taiwan’s medical devices output was worth US$2.4 billion, but most of the revenue was derived from the sale of home-use consumer products. “These low-end devices have no regulation and no IP,” says Wong Chi-hey, president of Academia Sinica. “Everything depends on marketing, and we’re not so good at international marketing. You end up depending on the domestic market, and that’s too small.” Indeed, Taiwan’s market for medical devices, like pharmaceuticals, is only about 1% of the global market total.

“Taiwan’s strengths have been mostly in the speed of re-engineering a process and rapid prototype turnaround,” says David Silver, president of consulting company BiotechEast. “That might make a difference in the electronics industry, but at the devices end, you need to spend time in making things compliant [with regulations] to be able to put them in our bodies without fear.”

“It’s quite difficult,” he adds. “Taiwan can do it, but it will take a bit of a change in mindset.”

Along those lines, institutional adjustment is in the offing at the Industrial Technology Research Institute (ITRI), where President Johnsee Lee says that his organization plans to establish a rapid-prototyping center for biomedical products within the year. By serving as an interdisciplinary platform for doctors, engineers, and scientists to interface and create new prototypes under a regulated environment, the new center is part of ITRI’s goal of focusing on higher-end devices and expediting the commercialization process.

Another ITRI project involves developing a new type of pressure-release valve mechanism to improve the accuracy of Taiwan-made blood-pressure meters. The upgrade is designed to enable them to compete with high-end meters made in Japan.

In the bio-agricultural sphere, in addition, Taiwan will also need to find ways to overcome regulatory barriers if it hopes to enter the international market. As with pharmaceuticals, approval processes and regulations vary widely from country to country, but the interaction among experts in the agri-biotech field – both domestically and internationally – is much less frequent than in the pharmaceuticals sector. As a result, says Wu Jen-leih, director of the inter-ministry Agricultural Biotechnology Industrialization Development Program, “we need to start working together with international companies.”

Before it can do that effectively, however, Taiwan must first remedy some of its domestic problems, such as what critics regard as the Council of Agriculture’s slow, rigid, and overly cautious approval process. “There’s still a lot of room for improvement,” Wu says.

— By Andrea Yung