April 1, 2006 (Vol. 26, No. 7)
Robert Yuan, Ph.D.
Major Player in Computer and Chip Businesses Sets Sights on Biotechnology
There are those in the pharmaceutical industry who believe that the present business model of mergers/acquisitions, aggressive marketing to consumers, and focus on blockbuster lifestyle drugs is not sustainable. An emerging model is highly decentralized and involves strategic alliances with Asian research institutions and firms that take advantage of the financial and technological resources there.
Taiwan has been highly successful in becoming a major player in the computer and chip business. Its potential in biotechnology is based on a large workforce in the life sciences, a nimble industrial base that is composed of small and medium companies (SME), and business links to China (see GEN, December 2005, p. 56).
The Taiwan government’s commitment to the biotechnology industry started with its Promotion Plan for the Biotechnology Industry in 1995. It is estimated that the biological sciences industry in Taiwan has revenues of $4.6 billion per year, of which $1.4 bilion is exported. The work force is 35,476, of which about 20% are employed in the biotechnology industry.
Taiwan’s strategic thinking has been strongly influenced by its IT experience that began with original equipment manufacturing for major U.S. computer companies and evolved into the creation of Taiwanese IT companies linked to smaller local component suppliers. The question today is whether this model is applicable to the evolving global biotechnology industry.
Infrastructure and Support
A central reality of Taiwan is that its industry is composed of SME that lack the resources to carry out their own R&D. Hence, the government has committed to spending $4.48 billion on biotechnology by 2010 and has created an infrastructure consisting of three components:
1. Basic research: Academia Sinica is a complex of government-funded research institutes of which seven are in the biological sciences.
2. Applied research and technology transfer: three major technology development institutes (TDI) have been created to commercialize scientific discoveries and transfer technology to local companies; the Development Center for Biotechnology links basic research to the establishment of a modern biotechnology industry; the Pharmaceutical Industry Technology and Development Center provides technology to the domestic pharmaceutical industry; and the Industrial Technology Research Institute (ITRI) integrates electronics, IT, specialized manufacturing to biological sciences, and promotes Taiwan’s biotechnology industry.
3. Science Parks: Creation of biotech industrial parks, including the Hsinchu Biomedical Park and the Agricultural Biotech Park.
The number of initiatives and institutions in Taiwan has resulted in a diffused biotechnology effort. In recent years, there has been an increasing focus on contract manufacturing of APIs, modernization of traditional Chinese medicines (TCM), and promotion of clinical trials by contract research organizations (CROs). While there is a significant overlap between the three TDIs, the goal is to allocate specific functions to each TDI.
Multiple Models for a Biotech Industry
Taiwan’s biotech industry consists of a number of different business models and possible niches. These can be categorized into medium-sized companies, biotech startups, and CROs.
The medium-sized companies have identified generic pharmaceuticals as their key niche. In 1997, Everlight Chemical Industrial (www.ecic.com) diversified by creating a pharmaceutical division that manufactures active pharmaceutical ingredients (API) for generics mainly for developing countries.
ScinoPharm (www.scinopharm.com) has also targeted APIs for generics, investing $125 million in a manufacturing plant in Tainan. It recently expanded into China with an R&D facility in Shanghai and a drug development facility in Kungshan.
ScinoPharm’s business is directed toward the established markets of the U.S., Europe, and Japan. The firm recently opened a manufacturing plant for biologics at $35 million. This plant will manufacture recombinant proteins and Mabs.
Among the most visible of the new startup biotech companies in Taiwan are Taigen Biotechnology (www.taigenbiotech.com) and Vitagenomics (www.vitagenomics. com). Both companies had an initial financing of $75 million.
Research at Taigen is directed toward cancer, immune disorders, and infectious diseases. A subsidiary in China carries out clinical trials and regulatory work. Initially the company was focused on the in-licensing and co-development of new drugs with corporate partners mainly in the U.S. This business plan did not result in short-term profits and Taigen is now working to identify drugs that could be marginally profitable in the U.S. and Europe but could also be adapted for use in China and other Asian countries.
Vitagenomics has facilities in Taipei and Shanghai, and its founder, Ellson Cheng, directed the company’s efforts toward the analysis of patient profiles based on genomics. Vitagenomics has licensed microarray technology from Affymetrix to develop assays for hepatitis B and C, as well as allergic asthma. Such products have a major potential for Asia as long as the challenges of quality control and costs can be overcome.
Multinational pharmaceutical firms and CROs have been exploring Asian sites for clinical studies. The existence of a well-developed scientific and medical infrastructure has promoted the growth of a number of Taiwanese CROs, of which three have attracted significant attention.
Genovate Biotec (www.genovate-bio.com) is the most recent incarnation of Genelabs, a Californian biotech company. Genovate develops generic drugs for the global market and new drugs for the domestic one. Its three business sectors—drug development, manufacturing, and a CRO—are closely linked. China represents an important market for Genovate.
Protech Pharmaservice (PPC; www.i-bench.org) is more representative of the typical CRO. Its emergence in Taiwan paralleled the growth of the Taiwan drug market, as well as its pharmaceutical industry and tighter government regulation. Established in 1997, the initial business was based on laboratory work, mostly bioavailability and bioequivalence studies.
The growth of the business has allowed PPC to establish subsidiaries in Hong Kong, Singapore, Malaysia, and Australia, as well as form partnerships with firms in the Phillipines, India, and Thailand.
Much of the work is associated with local drug certification. There are two specific areas that represent opportunities for PPC—clinical trials in China (where there are 500 CROs, though most of them do not meet Western standards) and involvement in the modernization of TCM products.
Virginia CRO (VCRO; www.vcro.
com.tw) was founded in 1997, initially carrying out clinical trials in Taiwan as a way to create a more international business. The company developed a remote data-capturing system to save time and reduce errors. The clinical trial management business did not grow as rapidly as expected, so VCRO expanded into laboratory services and become a full-service CRO.
A Window of Opportunity
Taiwan is ideally situated to be a test bed for new business models. The companies profiled have tried to integrate various technologies and have taken advantage of the country’s strengths in smart manufacturing and IT. Many of the technologies and products have been obtained from the U.S. Where there is considerable divergence is the selection of market niches.
Traditionally, high-tech companies have largely looked toward the U.S. as the principal market but more of them now see opportunities in the Asian region. Whether the Western market or China represents the best opportunity for rapid growth is a matter of heated debate.
Every company has had to examine the role of China as a source of raw materials, skilled scientific labor, inexpensive manufacturing, and a rapidly expanding market. The actual formula for success will probably combine an integrated business strategy and the ability to take advantage of the financial and scientific resources provided by the Taiwan government. And yet the time is rapidly approaching when strategic alliances will be established directly with Chinese institutions and firms rather than through partners located in Taiwan and other countries in Asia.