Taiwan’s pharmaceutical companies are focused on taking pole position in the world drug market.
As the global pharmaceutical market steams ahead—worldwide spending on medicines is expected to exceed US$1 trillion this year, with the world market likely to top US$1.2 trillion by 2016—Taiwan’s life science companies have found themselves increasingly well placed to take advantage of that growth. “It’s a boom feeling,” says Jeff Wang (汪嘉林), president of Taiwan’s government-sponsored Development Center for Biotechnology (DCB). “ScinoPharm is already a global player, and PharmEngine and TLC [Taiwan Liposome Co.] will soon become global players, too,” he says, referring to Taiwan’s top active pharmaceutical ingredient (API) manufacturer and two ambitious local life science companies respectively. Life science is an umbrella term that includes fields ranging from traditional subjects like biology and pharmacology to interdisciplinary developments in bio-technology, bio-science and bio-medicine.
Factors behind the country’s newly found competitive advantage in pharmaceuticals range from an agreement with mainland China for mutual recognition of research and development (R&D) data to Japan’s need to finally open its doors to inexpensive generic drugs in order to supply its rapidly aging population. Considering that the local life science sector doubled its annual revenue in the previous 10 years to US$8.51 billion in 2011, as well as showed some strong gains in the local stock market, there is every reason to believe it could one day rival the island’s famed information technology industry in economic clout.
Taiwan’s favorable standing in the pharmaceutical industry, however, is often clouded by common misperceptions about the medicine-making business. To the layperson, the process is fairly straightforward: A company discovers health properties in a certain chemical compound, does some research to make the compound into a safe drug, obtains the required approval and then makes money. But the actual method of new drug development is long and complex, easily spanning a decade and involving years of toxicological screenings as well as animal tests and clinical trials involving thousands of participants. It is a process fraught with risks that can jeopardize the whole project at any given time, as, in addition to the extensive testing, firms must navigate other companies’ intellectual property (IP) rights and stay abreast of any regulatory changes, among other challenges. Needless to say, the development of new drugs can require significant investments to reach the third and final phase of clinical trials, which they must pass before gaining approval from regulators such as the Food and Drug Administration (FDA) in the United States or the European Medicines Agency in the European Union, for commercialization.
Unsurprisingly, companies large enough to take on such risk are found almost exclusively in the United States and Europe. Their perseverance often pays off because Western patient populations are comparatively wealthy, and thus able to afford new drugs. Moreover, new medicines are routinely protected by patents for a decade or more; hence investors can recover their outlay many times over.
Niche Markets and New Drugs
But in Taiwan, with a population of just 23 million and lacking membership in a number of trade blocs, local drug companies have shied from developing new drugs from scratch all the way to completion, and have instead turned their attention to identifying lucrative niches in the industry. There are signs that model is changing, however.
Most Taiwanese life science firms, such as Medigen Biotechnology Corp., GlycoNex Inc. and TaiGen Biotechnology Co. to name a few, typically step in, or “in-license,” at a certain stage of a drug’s development, apply research to add value to the treatment, and then “out-license” the resulting compound as early as possible to a multinational pharmaceutical player, hopefully for a handsome profit. The whole process of buying and selling intellectual property is based on assumed value, however, and at the end of the day no one can be sure whether a drug will ever reach its intended market.
Given this uncertainty, the government offers assistance to local firms by operating research institutes that aim to mitigate the development risks. One such institute is the DCB, which has some 400 staff members and laboratories and plants in Taipei’s Nangang District and Xizhi District in New Taipei City. The center defines itself as the “second-baton runner” in the “relay race” of biotech-drug development in Taiwan; the first-baton runner being academia, which usually discovers drug leads.
According to Wang, the preclinical stage of drug development is the riskiest, which is precisely why the institute focuses its efforts on that stage on behalf of Taiwan’s small and medium-sized life science companies. “From screenings to animal testings in mice and dogs, everything is done here at DCB’s facilities, so that the clients’ actual business deals with phase 1 or 2 clinical trials,” he says.
Wang explains that phase 1 clinical trials usually involve 20–100 healthy volunteers and aim to determine how the human body reacts to the drug in general, while phase 2 trials typically look at results from 100–500 disease sufferers and are mainly used to determine dosages and examine the drug’s efficacy.
On the back of research by the DCB, in 2009 GlycoNex out-licensed a cancer-directed antibody to Japan’s Otsuka Pharmaceutical Co. at a particularly early stage of development, an indication of the high value of the antibody. The center also provided crucial early research for a botanical wound-healing drug derived from an indigenous plant, which it out-licensed to local company Oneness Biotech Co. in 2008. The treatment is aimed at diabetics, who are often prone to poor blood circulation, a condition that can complicate wound healing.
“Depending on how the phase 3 clinical trials work out, the diabetes wound-healing drug could be on the market in three years,” Wang says, adding that botanical drugs are a forte of local pharmaceutical makers mainly due to Taiwan’s ample expertise in traditional Chinese medicine. In addition to the wound-healing drug, the DCB was involved in the development of three other drugs that are currently in the clinical trial stage, he says, adding that altogether there are a staggering 83 new drugs undergoing clinical trials in Taiwan, four of which are likely to hit the market this year. “Not all 83 are in-licensed. About 40 percent have origins in Taiwan, including 23 botanical drugs,” the DCB president says.
Wang says local life science companies have been particularly enthusiastic about a 2010 agreement between Taiwan and mainland China that enables the two sides to accept each other’s R&D data for drug approval. “After data is mutually recognized, Taiwanese companies hoping to gain approval to enter the huge mainland Chinese market won’t have to waste time and resources by repeating those clinical trials in mainland China that they have already done in Taiwan,” he says of the Cross-strait Cooperation Agreement on Medicine and Public Health Affairs. The DCB president adds that the mainland Chinese market grew quickly from being the world’s ninth largest in 2005 to the third largest in 2010, and is set to move to second place in the near future.
Medigen, which focuses on liver disease and cancers, recently gained approval from mainland Chinese regulators to begin conducting a phase 3 clinical trial in that country after finishing phase 1 and phase 2 trials in Taiwan, making it the first time the agreement has been implemented, Wang says. To put this competitive advantage into perspective, foreign competitors to companies like Medigen would be unlikely to obtain faster approval for clinical trials unless they either set up a subsidiary in mainland China or formed a joint venture with a mainland Chinese counterpart, and then conducted all three trial phases there, neither of which is an attractive option for small and medium-sized enterprises.
Large Western pharmaceutical companies that export drugs to mainland China after they have been introduced to other markets are also at a disadvantage as their R&D programs might not be relevant to the mainland Chinese market. Unlike international competitors, who almost solely target their own, US and European patient populations, Taiwan’s research has put a significant focus on diseases that are prevalent in ethnic Chinese populations in mainland China and elsewhere, the most prominent of which are liver cancer and diabetes. “About 20 percent of the mainland Chinese population are hepatitis B carriers and thus at high risk of sooner or later developing cirrhosis of the liver and subsequently liver cancer, while 90 million mainland Chinese are diabetes sufferers,” Wang explains.
The DCB head also supports the government’s push to make Taiwan a gateway for international pharmaceutical companies to the mainland Chinese market, saying the goal is perfectly realistic. “Business gets a lot less risky for foreign companies if they enter mainland China via a Taiwanese subsidiary,” he says. “Then they no longer have to worry about IP infringement or cultural factors which may complicate things … Mainland Chinese companies have a poor reputation when it comes to IP protection, very much unlike the Taiwanese.” According to Wang, there are currently more than 20 Taiwanese life science companies with established subsidiaries across the Taiwan Strait.
Reflecting the rise of Taiwan’s drug manufacturers as major R&D players is the establishment of the Taiwan Research-based Biopharmaceuticals Manufacturers Association (TRPMA) by 25 local life science companies in November 2012. The group’s core mission is to function as a bridge between industry and the government, academia and research institutes, while promoting international cooperation on new drug research. “TRPMA feels an urgency to speed up resource integration, assist the government with setting up new regulations and harmonize the cross-strait environment for clinical trials and IP,” says Carol Cheng (程馨), TRPMA’s chief operating officer. “We have an important role to play in facilitating cross-strait biopharmaceutical and medical cooperation.”
Another business model followed by a number of Taiwanese firms is the manufacture of APIs for both companies that develop new drugs and those that specialize in generics. Simply put, most medicines consist of an API mixed with sugar, starch or other substances to produce tablets, liquids, injectables or into other delivery systems.
The local frontrunner in API manufacturing and contract research and manufacturing (CRAM) services is ScinoPharm Taiwan Ltd., which has plants in Tainan, southern Taiwan and Changshu in Jiangsu province, mainland China and specializes in high potency, cytotoxic APIs for cancer treatment. Of the some 8,000 suppliers of APIs worldwide, fewer than 300 independent factories have passed FDA inspections, with a mere 20 capable of handling the types of oncological injectable APIs the Taiwanese company focuses on. Roughly 80 percent of ScinoPharm’s APIs are sold to makers of generic drugs, for which patent protection has expired, while 20 percent of its APIs are used by global companies for clinical trials as well as laboratory testing in their effort to develop new drugs.
Turning a Profit
This strategy, which balances the relatively high risks involved in the drug-development business with the low-risk nature of generics, has obviously worked well, as ScinoPharm began to turn a profit just eight years after its founding in 1997, an impressive result given the industry’s notoriously long timeframe for returns on investment. In January this year, the company announced estimated pre-tax earnings for 2012 at NT$1.37 billion (US$47.2 million), representing year-on-year growth of 16.8 percent. It is ranked by authoritative local media outlets among Taiwan’s top-20 manufacturing companies and is the only biotech/pharmaceutical company included in the country’s Morgan Stanley Capital Index.
An example of ScinoPharm’s CRAM services for a new drug is the company’s API for ViibrydTM, an antidepressant approved by the FDA in early 2011. “Companies like [US-based Clinical Data, Inc., the developer of ViibrydTM] need the API to complete development work, but once they have gained FDA approval, they source the API exclusively from us for the drug’s commercialization,” says Jo Shen (馬海怡), ScinoPharm co-founder, president and CEO. She says there are four new drugs on the market that use ScinoPharm’s APIs. “[Clients] can be assured that our company delivers world-class services and meets the regulatory requirements of the world’s most stringent markets.”
ScinoPharm is currently building a plant for high-potency cytotoxic medicines, where APIs that can be injected will be mixed to specific dosages. Most of the company’s API customers in the generics business do not have in-house injectable manufacturing capacity, so the plant will create a “one-stop service” when operations begin in 2014, Shen says.
The ScinoPharm executive says the outlook is positive for manufacturing APIs for generic drugs. “Generics quickly become more important as the dire financial situation of governments around the world forces them to open their doors to cheaper drugs of equal quality in order to cover the medical needs of their populations,” she says. That is particularly true for the European Union, Japan and mainland China, all of which are directing more patients to generics. Mainland China’s relatively poor population of 1.3 billion, for example, represents a huge market for affordable drugs. Future demand for generics in Japan could also well be staggering given that country’s current position as the world’s second-largest pharmaceutical market, grave worries over an aging population and massive public debt.
The Japanese government did not open the doors for generic substitutions until 2005, but in 2012 alone regulators allowed generic-drug penetration in the Japanese market to grow from 19 percent to 30 percent. The current generic penetration rate of around 78 percent in the United States suggests that there is still significant room for growth in Japan, according to Shen.
Winning Over Physicians
The pharmaceutical business is not only about winning approval from regulators, however. At the end of the day, Shen says, Japanese physicians must be willing to prescribe generic drugs, which means that sales teams play a significant role and ScinoPharm will have to move quickly in that respect if it is to gain a foothold in the country. For this reason, ScinoPharm’s Taipei office has employed a number of Japanese personnel to smooth relations between Taiwanese staff, who are typically used to Western-style communication, and partner organizations in Japan, where the business culture is notoriously conservative.
New Zealand-born David Silver, president of BiotechEast Co. Ltd, a Taipei-based consultancy for local and overseas biotech firms, sees major competitive advantages for Taiwan, particularly as clinical trials can be done quickly and relatively inexpensively. “It is easy to recruit patients because hospitals are generally close to patient populations in densely populated Taiwan,” he says, adding that local efficiency compared with the way businesses and other organizations are run in mainland China “matters greatly.”
Silver explains that it might take several years to recruit 500 patients for clinical trials in mainland China, whereas in Taiwan, this could be done within six months. A further advantage is the “highly educated work force, a strong network of research institutes, an excellent health care system, as well as the all-important government support that comes in the shape of generous tax incentives and grants, among other measures,” he says.
Such attractions have begun boosting cross-border cooperation. In December 2012, Academia Sinica, Taiwan’s foremost research institution, and Switzerland-based pharmaceutical giant Novartis AG signed a five-year agreement to further research exchanges. A venture between Taiwan’s Orient EuroPharma Co. Ltd. and Japan-based NanoCarrier Co. Ltd. has resulted in the development of Nanoplatin, a new treatment for pancreatic cancer. Instead of out-licensing the drug after development, Orient EuroPharma will retain distribution rights for Australia, Hong Kong, Singapore and South Korea, with the deal also including inward investment by NanoCarrier.
“So on the one hand, there are foreign pharmaceutical companies interested in Taiwan as a clinical-trials location for their own drugs in global trials, and on the other out-licensing deals such as the one with Orient EuroPharma,” Silver says. “Both cases are examples of Taiwan biotech becoming more visible and viable internationally.”
TRPMA’s Cheng is even more enthusiastic. “Taiwan’s biopharmaceutical industry has entered a rapid-growth phase,” she says. “We foresee that there will be … new drugs [developed in Taiwan] launched in the market in the next few years.”
_____Copyright © 2013 by Jens Kastner