The Executive Yuan's Consultative Committee on Strategies for the Biotech Industry met in October 2008 and recommended that Taiwan's biotech industry put top priority on developing new pharmaceuticals. The recommendation was nothing new, since this has been the shared consensus within both government and academic circles ever since the Legislative Yuan passed the Act for the Development of Biotech and New Pharmaceuticals Industry in June 2007. The Committee's recommendation nevertheless did serve to signal the government's continued commitment to this course of action.

The government this March launched its Diamond Action Plan for Biotech Takeoff, which calls for the raising of a NT$60-billion megafund called Biotechnology Venture Capital, which is to invest primarily in biotech and new pharmaceuticals. The initial capital-raising goal is NT$10 billion, with 40% of the money to come from the National Development Fund and 60% from private-sector venture-capital firms. The aim is to develop biotech into Taiwan's next "trillion-NT-dollar industry" over the coming 10 years, following the path taken with semiconductors, liquid-crystal displays, and precision equipment.

The biotech industry first got started in Taiwan 24 years ago. The health foods we buy every day, the drugs that our doctors prescribe, and the fruits we pick up at the supermarket are all products of this industry. The failure of biotech to achieve stellar growth is generally attributed mainly to the lack of a good legal framework and an unfavorable environment, and to a lack of creativity and innovation, i.e. biotech firms have long been run in the same way that contract electronics manufacturers are run.

Will the Diamond Action Plan being pushed by the government bring about a fundamental shift in the thinking of people within the industry, and spur rapid growth after more than 20 years in low gear? Only time will tell.

Not ready for prime time

The Industrial Development Bureau (IDB) of the Ministry of Economic Affairs defines biotechnology products as "any product developed and manufactured using knowledge and technologies (e.g. genetic engineering, protein engineering, cell engineering, and tissue engineering) that fall within the scope of the life sciences (e.g. molecular biology, cell biology, immunology, genetics, and proteomics)."

A wide range of industrial pursuits fall within the field of biotechnology, and different countries use different statistical categories, so it is difficult to make accurate international comparisons of biotech development. The IDB breaks down the biotechnology industry into the three categories of "Emerging Biotechnology," "Traditional Pharmaceuticals," and "Traditional Medical Devices" (Table 1). Total sales in the biotechnology industry hit a five-year high of NT$201 billion in 2008 (Table 2), with the three aforementioned categories accounting for NT$53 billion (26%), NT$69 billion (34%), and NT$79 billion (39%), respectively.

The Diamond Action Plan is targeted primarily to biologics, which fall under the category of emerging biotechnology. Biologics of note in Taiwan include a vaccine produced by Adimmune Corporation, and the monoclonal antibody AIDS drug TMD-355 of TaiMed Biotech, which is now in the midst of phase II clinical testing. To date, however, the only biologic ever to be produced in Taiwan for the market is Adimmune's vaccine, which generated sales of NT$190 million last year.

Makers of biologics must be conscientious because their products have a profound impact on human health. Researchers must seek cGMP (current Good Manufacturing Practice) certification the minute they start work. The photo shows the interior of TTY Biopharm's Chungli facility.

"New" may not be biotech

According to IDB statistics, there were 1,140 companies in Taiwan in 2008 engaged in research, development, and production of biologics, or 44% of all companies in the category of Emerging Biotechnology. More companies are active in this field than in food biotechnology, agricultural biotechnology, environmental biotechnology, and biotechnology services. It is thus clear that the government policy of subsidizing the industry (Table 3) has spurred increased investment in the field.

However, not every maker of biologics meets the definition of a "new pharmaceuticals company." The Act for the Development of Biotech and New Pharmaceuticals Industry and related secondary legislation provide that, in order to qualify as a "biotech or new pharmaceuticals company," a firm must develop and manufacture new pharmaceuticals or high-risk (invasive) medical devices, and to qualify as a "new pharmaceutical" a drug must have been found by the Bureau of Pharmaceutical Affairs (BPA) of the Department of Health to include a new ingredient, provide a new therapeutic effect, or have a new application.

And there is another requirement that must be met to qualify as a biotech or new pharmaceuticals company-the amount spent for research and development work on biotech and new pharmaceuticals in the previous fiscal year must either be at least 5% of total operating revenues in that same year, or at least 10% of the company's paid-in capital. And, most importantly, a company must qualify as a biotech or new pharmaceuticals company if it is to receive certain tax credits for its investments.

The government agency in charge of examining new pharmaceuticals before they are sold on the market is the BPA, while the agency in charge of ruling on applications for recognition as a new pharmaceuticals company is the IDB. As of the end of May, the IDB had approved the applications of 23 companies seeking this recognition, of which 18 work exclusively with pharmaceuticals for human use. Only three of these companies actually do business involving biologics: Adimmune Corporation, TaiMed, and United Biomedical, Inc. Asia (which makes recombinant human erythropoietin). It is thus apparent that in addition to the development of biologics and high-molecular-weight-protein pharmaceuticals, there are other directions in which the industry could also be heading.

In other words, not every company that makes a drug that qualifies as a new pharmaceutical as defined in the Act for the Development of Biotech and New Pharmaceuticals Industry will necessarily qualify as a biotech firm as defined by the IDB. One case in point is the low-molecular-weight (chemically synthesized) TG-0054, a new pharmaceutical manufactured by TaiGen Biotechnology.

Researchers take the plunge

TaiGen's TG-0054 mobilizes stem cells from bone marrow into peripheral circulation. Stem cells can be obtained by injecting TG-0054 into a healthy person and then drawing that person's blood. The drug has a wide range of different indications. For example, the stem cells can be injected into the body of a genetically compatible person who is suffering from multiple myeloma or lymphoma.

TG-0054 has been under development by TaiGen since the company's founding in 2001. It is currently enrolled in a phase I trial under the auspices of the US Food and Drug Administration (FDA), and is also undergoing phase II clinical testing in Taiwan. TaiGen is not a major producer of protein pharmaceuticals, but its R&D capabilities are not to be taken lightly.

About 15 researchers in the Division of Biotechnology and Pharmaceutical Research at the National Health Research Institutes (NHRI), fired with enthusiasm for the development of new pharmaceuticals, made the decision to found TaiGen in 2001. Taking the helm as CEO was Hsu Ming-chu, a veteran of the pharmaceuticals industry who had previously held the position of research director for oncology and virology at Hoffmann-La Roche, USA, for 11 years.

According to Hsueh Po-ren, special assistant to the CEO, all of TaiGen's founders had long experience in research and development of new pharmaceuticals, but the NHRI focuses on basic research, which is of limited use when it comes to turning technology into marketable products, so the researchers decided to enter the business world in hopes of "starting from scratch to set up a full-blown pharmaceuticals manufacturing operation in Taiwan."

When injected with tumor cells, a hairless nude mouse will become a "cancer mouse" used to test new drugs. The photo shows a TaiGen Biopharmaceuticals laboratory.

Cornering the market

"At the time we were thinking we might be able to spur the development of contracted research organizations (CROs) in Taiwan, but it appears that we unfortunately didn't achieve that," reports Hsueh. The pharmaceutical R&D process is extremely complex, and the value chain is very long, with opportunities for profit at every link in the chain. Clinical testing, for example, can be outsourced to a CRO. A recent research report out of the United Kingdom suggests that the global CRO market could grow by 14% over the coming three years.

"There aren't enough pharmaceutical firms in Taiwan," says Hsueh. "Mainland China has made off with all the international orders. Three or four mainland Chinese CROs are listed on the Nasdaq."

In addition to TG-0054, TaiGen is also developing enrofloxacin, a potent antibiotic that is effective against Staphylococcus aureus. The drug has just completed phase II clinical trials at multiple organizations in a number of different countries for its second indication-diabetic foot-and will soon be submitted to the US FDA for approval. TaiGen is licensing enrofloxacin from Procter & Gamble, and could sell its license in the future to raise cash for its next new pharmaceutical.

Most new pharmaceuticals are designed to treat new indications, and after a successful launch the maker invariably seeks to rely on its brand power and patent protection to establish a dominant position in markets throughout the world. If patent protection has been carefully arranged for, other makers will not be able to mimic the drug and grab a share of the market.

To be sure, this big-money, high-risk, winner-take-all approach is totally different from the way the business has been practiced for the past several decades in Taiwan, where makers have traditionally stuck to the generic drug market, which offers thinner but more dependable profits. Now that Taiwan's government has set its sights on spurring the rise of drug makers capable of developing new pharmaceuticals as a means of achieving rapid growth in the biotech industry, how are the country's traditional pharmaceutical firms to adapt?

Five bottles of drugs to a column, and six rows to a set. The cGMP certification doesn't tolerate errors in the production process. The photo shows low-molecular-weight drugs in the laboratory at TaiGen Biotechnology.

National Health Insurance

According to statistics from the Medical and Pharmaceutical Industry Technology and Development Center, Taiwan's 148 cGMP traditional pharmaceutical makers (i.e. makers that meet the standards for "current good manufacturing practices") posted combined sales of NT$41.7 billion in 2008, for an average of NT$300 million per firm-much too small when compared against biotech and new pharmaceuticals firms, which have capital of NT$1 billion and up.

With so many firms locked in fierce competition, even a long-established maker like Yung Shin Pharmaceutical, founded in 1965 and the largest pharmaceuticals firm in Taiwan, relied on generic drugs for NT$2.7 billion, or 90%, of its revenues in 2008, and its share of the domestic drug market is only a modest 6.5%. In the eyes of economic policymakers and biotech experts, the generic market is a dependable but plodding source of income that offers no prospects for truly eye-popping profits.

To make matters worse, since 1999 the National Health Insurance system has adjusted drug prices once every two years, and with the system chronically underfunded, "price adjustments" in practice have meant "price reductions." If the price cuts are just a bit steep, domestic pharmaceuticals firms get hit hard.

According to Song Zhiren, a manager at Yung Shin Pharmaceutical, "Over 90% of all domestic drug makers are vitally dependent on National Health Insurance."

Generic drugs currently account for 70% of all prescriptions handed out through National Health Insurance but only 25% of all pharmaceutical billings, while the other 75% goes to international pharmaceuticals giants that make expensive patent-protected or brand-name pharmaceuticals (the latter of which, even after patents expire, continue to command a higher price than generic drugs due to trust in the brand). Local manufacturers have no choice but to squeak by selling at low prices. While the profits are low, something is better than nothing, so they stay in the market.

"On the positive side," says Song, "the more financially squeezed the National Health Insurance system is, the greater the opportunity for generic drugs, since hospitals struggling to meet budgetary constraints will have to turn to generic drugs, which are much cheaper than the brand-name products."

In recent years the government has sought through policy to get small, uncompetitive firms to exit the market. Beginning in 2012, for example, generic drugs that meet the provisions of the PIC/S GMP Guide, which is issued by the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S), will enjoy a price guaranteed to be no lower than 80% of that charged for brand-name drugs.

It took Yung Shin five years and NT$800 million to win GMP recognition from PIC/S.

According to Song, the carrot-and-stick pressure of PIC/S GMP will inevitably shake up the pharmaceuticals industry, enabling bigger makers to break free of the price competition of smaller competitors and build up the necessary resources to reposition themselves higher up in the food chain, so that they can eventually capitalize on quality certifications from international bodies to expand export sales. Until that comes about, however, companies in the industry must look elsewhere for revenues. Yong Shin, for example, derived 10% of its operating revenues last year (NT$300 million) from health foods and over-the-counter drugs.

The ancients sampled hundreds of herbs seeking those of medicinal value. Today, we use laboratory animals. Taiwan sacrifices an estimated one million mice per year to the quest for new drugs. The photo shows TTY Biopharm's Neihu facility.

Another go at biotech

Because generic drugs offer no growth potential, the Diamond Action Plan for Biotech Takeoff has been designed to target biotech and new pharmaceuticals as the way forward. The first step toward implementation of the action plan has already been taken-in late August, the National Development Fund resolved to set aside NT$24 billion for establishment of the Biotechnology Venture Capital megafund, which will carefully select biotech undertakings to fund in phased outlays designed to diversify risks.

The National Development Fund has invested some NT$4.7 billion in 13 biotech firms since 1984, and losses have been staggering. Industry insiders reveal that Tain-jy Chen, who recently stepped down as head of the Council for Economic Planning and Development (CEPD), on numerous occasions during his stint at the CEPD lamented that "the books are nothing but red ink."

Given the great risk of biotech and the long time required to recoup investments, how is the venture capital fund to select its investment targets? At what point does it cut its losses and run? Is there a timetable for plans by the National Development Fund to raise NT$36 billion in private capital? The biotech and new pharmaceuticals industries should be an integral part of the larger economy, so what sort of links should be established between these new industries and existing industries such as traditional pharmaceuticals, agricultural biotechnology, and biotech services? And how should academic and research institutions work with the pharmaceuticals industry so that people involved in upstream work (research) can smoothly pass the baton to those working downstream (in industry)?

Many different parties are going to have to work in concert to find answers to such questions. Hopefully the government will act with careful forethought so that this time around Taiwan will be able to grab a bigger share of the biotech pie.

Note: Figures within parentheses are 2008 revenues (NT$).
Source: Industrial Development Bureau

Units: NT$100 million
Source: Industrial Development Bureau