Taiwan Pharmaceuticals Industry: The Need for Expansion

Taiwan's pharmaceutical sector is divided into three sub-sectors: Active Pharmaceutical Ingredients (API), western medicine, and botanical drugs. Western medicine includes small molecule drugs that are made from chemical synthesis as well as biologics, or biopharmaceuticals, such as vaccines and antibodies. Botanical drugs are derived from Traditional Chinese Medicine (TCM), an area where the Taiwanese government is aggressively supporting its R&D and application.

The Asian pharmaceuticals industry is playing an increasingly important role in the world. Taiwan is located at the transportation hub of the Asia Pacific region, in close proximity to the market giant - mainland China. This article provides an overview of developments in Taiwan's pharmaceuticals industry, and discusses the influence of the National Health Insurance (NHI) payment reimbursement system on the pharmaceutical market.



Ensuring Quality
There are currently already 23 local API manufacturers that have passed Good Manufacturing Practice (GMP) inspections and most of them already have their Drug Master Files (DMF) approved by the US Food and Drug Administration (FDA).

The total turnover has reached NT$20.5 billion (US$0.63 billion) with 40 percent of products being sold overseas. The export value in 2008 demonstrated a leap from the previous year of about NT$4.9 billion (US$0.15 billion), with the US being the largest export destination, followed by Australia, Israel, Argentina, India, and Germany. Nevertheless, Taiwan is facing challenges from global free market, especially China and India, which are the main competitors in the API export market. It also faces challenges in international patent protection. Moreover, the NHI has been making adjustments on drug prices. Once the profits of downstream drug manufacturers shrink, the selling prices of API will also be affected.

To remain competitive, Taiwan's API manufacturers not only need to integrate R&D resources to develop more practical, simpler and faster processing techniques in order to keep costs down - they also need to acquire international patent approval to maintain sustainable growth.

There are currently about 200 manufacturers of western medicine in Taiwan, most of which are traditional pharmaceutical companies. They are mainly active in producing generics and serve as representatives for foreign companies. While the competition of generics is heating up globally, Taiwan's generics manufacturers are encountering bottlenecks that need to be resolved.

First of all, Taiwan's market size is too small. In 2008, the value of its pharmaceuticals market was about NT$129.5 billion (US$4.0 billion), accounting for only 0.5 percent of the global market. The country's local pharmaceutical companies mainly sell their products to the local market and the NHI system is the biggest and the only buyer in Taiwan.

Unfortunately, since the universal implementation of the Global Budget Payment System in 2002, the price of NHI paid drugs have been reduced six times in eight years, impacting both the local companies and their foreign counterparts. In addition, the big hospitals tend to use imported brand-name drugs and take up 78 percent of the country's pharmaceutical market share. Three out of four top pharmaceutical companies (by revenue), are foreign owned.



Avenues for Growth
As the market share of local companies decrease (market share in 2008: 22.3 percent), these companies need to find other ways to compete directly with foreign companies in the "big hospitals" sector. In terms of the scale of Taiwan's generics manufacturers, most are rather small, suggesting that these local companies must step into the global market to effectively increase revenue and size.

In addition, most generics manufacturers produce similar products, making it difficult for differentiation and often resulting in price wars; or they produce a wide variety of products with small quantities of each, making it challenging to achieve economies of scale in production.

At a global level, Taiwan's pharmaceutical companies lack international marketing experience and are unfamiliar with foreign regulations. This limits their expansion into overseas markets.

Apart from the traditional pharmaceuticals companies mentioned, there are about 100 newly established biologics manufacturers, most of which are only 5-6 years old. Among them, only a few companies are doing research in the development of new biologics, whilst most of them are devoted to low-risk and high success-rate biosimilars or follow-on biologics.

Since most biologics manufacturers in Taiwan are in the early R&D stage, newly self-developed biologics are yet to be seen on the market. In terms of products, there is firstly insufficient interaction between academia and industry in Taiwan, compared to other countries. Owing to the fact that upstream research institutes lack market-oriented mindset at the beginning of drug development, their academic research results cannot be easily transferred to the downstream manufacturers or to the industry.

Secondly, Small and Medium Enterprises (SMEs) often face difficulties in fund-raising, tax filing, and recruitment, which is why the government has been offering R&D incentive programs for the industry to accelerate and strengthen SMEs' competitiveness.

Third, even though Taiwan's pharmaceuticals related regulations have caught up with global trends, the country's inspection system is not sufficiently transparent and there is a lack of precise rules.

Fourth, although local pharmaceutical companies provide more than 70 percent of the drugs in Taiwan's market, they only receive a quarter of the total drug payments made by NHI. On the contrary, foreign pharmaceutical companies get paid 75 percent of total payments but provide only 30 percent of the drugs.

This has not only resulted from the difference between the prices of brand-name drugs and generics, but also from the fact that the prices of locally produced generics are too low to create sufficient profits for local manufacturers.

With an aim to build up an industrial environment that is favorable to local pharmaceutical companies, the government needs to use the prices on the international market as a reference. It may need to set up a similarly priced baseline and revise the prices of local and foreign drugs and the procurement system, in order to stimulate R&D in the pharmaceuticals industry.

Potential Expansion
While botanical drugs represent the smallest sector in the industry, it is however a niche market with the greatest potential for growth. Government efforts have been made in setting up regulations for Chinese medicine. For example, the "Five-year-plan for the Technological Development of Botanical Drugs" that was promulgated from 2001 to 2005, received a funding of NT$5 billion (US$0.15 billion).

This plan contributed to patent protection, clinical trials, quality control, research environment, and education, and helped to modernize TCM in Taiwan. It has transformed TCM into an area of science, with its effects and efficacy supported by technical evidence.

Since September 2005, all Chinese medicine manufacturers have implemented GMP and have significantly improved their quality of production. The total output value (sales) of Chinese medicine in Taiwan was around NT$1.3 billion (US$0.04 billion), with the domestic market accounting for 80 percent, and 20 percent being exported. Export value is gradually increasing.

In line with the global trend for botanical drugs development, many basic research institutions in Taiwan have successfully transferred their technologies to the industry, and several are already undergoing clinical trials both domestically and internationally.

Although more countries are accepting the benefits of botanical drugs and market demand is expanding, the percentage of Big Pharma companies that is focusing on this area is still low.

In general, Taiwan's pharmaceuticals industry has been making steady progress. Yet with globalization, product life cycle has been shortened, resulting in reduced profit. The industry needs to focus on overseas markets and creating products.

In 2009, 55 domestic companies have sold their products to 37 countries overseas, suggesting that local pharmaceutical manufacturers have proactively responded to the unfavorable NHI environment in Taiwan by implementing international marketing strategies.

With strict regulations in the international market, Taiwanese companies have also started to comply with cGMP and even Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S) GMP, in hopes of gaining international recognition.

There are also plans for Taiwanese companies to merge and acquire foreign pharmaceutical companies, to obtain international marketing channels. In terms of drug R&D, the industry needs to look for alternatives such as focusing on developing solutions for prevalent Asian diseases and major domestic ailments, in order to position itself well in the niche market.

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Taiwan's API manufacturers started up in the 1940s, with only simple processes for organic chemical synthesis. At that time, all the technologies were transferred from more advanced nations such as Europe, the US, and Japan. In 1973, the Taiwanese government realized that API is essential for the development of pharmaceuticals industry.

Hence, the National Science Council - an institution for the promotion of scientific research, and the Department of Health - the governing organization facilitating healthcare policies, were assigned to promote the R&D and manufacture of APIs.

During early 1980s, several measures were implemented, including the temporary suspension of inspection and registration, the temporary inhibiting of imports, and tariff reduction and exemption - which resulted in the successful development, commercial-scale production, and exports of several APIs.

Since 1985, in order to prepare Taiwan to join the World Trade Organization (WTO) and to follow the global trend of Intellectual Property (IP) protection, the has government revised and amended the Patent Act several times, pushing the country's API industry forward.

As a result of the advancements in the chemical and biological industries, the technologies of organic chemical synthesis, biochemical fermentation, and process enlargement have all been improved. Highly educated and trained professionals have also been nurtured.

In the last decade, the global inclination to use low-cost yet good quality generics drugs has helped Taiwan's local API manufacturers to expand their international markets.

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