VZCZCXRO1878
PP RUEHCN RUEHGH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHVC
DE RUEHIN #2551/01 3370953
ZNR UUUUU ZZH
P 030953Z DEC 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7491
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHUL/AMEMBASSY SEOUL 9076
RUEHGP/AMEMBASSY SINGAPORE 7068
RUEHKO/AMEMBASSY TOKYO 9289
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 04 TAIPEI 002551
SIPDIS
SENSITIVE
SIPDIS
DEPT FOR EAP/TC, STATE PASS USTR FOR STRATFORD/KATZ,
TREASURY FOR OASIA/TTYANG, COMMERCE FOR
4431/ITA/MAC/AP/OPB/TAIWAN
E.O. 12958: N/A
TAGS: TBIO ETRD ECON EINV TW
SUBJECT: BIOTECH IN TAIWAN: THE ECONOMY'S NEXT GROWTH
ENGINE?
REF: TAIPEI 2545
1. (SBU) SUMMARY. In the 1970s and 80s, official funding and
support fostered a Taiwan high technology IT sector that now
ranks among the world's most competitive. With the mainland
and other low-cost producers offering increased competition,
Taiwan authorities have identified biotechnology as a
priority field for future economic development. Although
Taiwan hopes to develop a biotech industry as quickly as
possible, the sector does not yet play a major economic role.
On the positive side, Taiwan has the human and technical
resources to become a significant player, particularly given
a large pool of scientists and researchers both in Taiwan and
abroad. Challenges remain, however, in such areas as
marketing, intellectual property protection (IPR), corporate
culture, and wages that are not always competitive with
international standards. In order for Taiwan to exploit its
biotech potential, therefore, it needs to ensure that a new
crop of IPR, legal, and international management experts are
in place and ready to develop the industry. If Taiwan is to
nurture a successful biotech sector, new management and
production techniques will be required in order to succeed in
the rigorously competitive global arena of drug manufacturing
and marketing. END SUMMARY.
BACKGROUND
----------
2. (SBU) Biotechnology, or biotech, refers to the use of
technology based on biology to develop agriculture, food
science and medicines. Biotech accounts for up to U.S. $800
billion in product value worldwide, of which Taiwan
contributes only 0.6 percent, or about $4.7 billion, compared
with $200 billion for Japan, $15.9 billion for Singapore, and
$7.5 billion for South Korea. Taiwan is trying hard to catch
up with its regional competitors. Although venture capital
is arguably the main ingredient in the successful U.S.
biotechnology sector, Asian economies have often pursued
official policies designed to nurture biotech development.
Taiwan's new incentive program, for example, gives biotech
start-ups a five-year tax holiday on 35 percent of their
profits, a benefit not enjoyed by any other industry. Other
incentives include low-cost housing for returning expatriate
Taiwan scientists, to help counter the high cost of living in
cities such as Taipei. Overall, Taiwan's National Development
Fund (NDF) plans to pump NT $30 billion (about U.S. $907
million) into the biotech sector over the coming year. In
addition, certain underlying conditions favor biotech
development in Taiwan. Taiwan's research and development
(R) costs are 30 percent of those in the U.S., for example.
Compared with Hong Kong and Singapore, Taiwan has a larger
population base and potential research talent pool from which
to draw.
TAPPING THE TALENT POOL
-----------------------
3. (SBU) DDIR and Econoffs recently visited Academia Sinica
(AS), a research institution funded primarily by the Taiwan
authorities. Academia Sinica has 24 research institutes
covering physical and life sciences and humanities, and is
headed by Wong Chi-huey, an MIT graduate and genomics expert
who worked at Scripps Research Institute before returning to
Taiwan. Wong's interest is in chemical biology and new
drugs, and he is the prime mover behind Taiwan's efforts to
attract biotech talent back from the U.S. and other foreign
countries. Wong noted that although Taiwan excels in the
numbers of patents issued, at third in the world, most of its
innovative ideas sit idle and un-marketed. To encourage
biotech investment, Wong has been instrumental in helping
push Taiwan's biotechnology incentive program through the
legislature. In addition to financial incentives, he
observed, researchers employed at official agencies can also
transfer their knowledge to private companies to help develop
new drugs. Unlike the IT sector, said Wong, business
partners can be added at different stages of drug
development. To help compensate for Taiwan's comparatively
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low wage levels when compared with the U.S. and other more
developed economies, Wong said AS pays researchers returning
from abroad 17.5 months of salary a year, and also provides
low-cost housing.
MOEA-FUNDED R AND INVESTMENT
------------------------------
4. (SBU) Taiwan's biotech effort is being directly financed
by the Ministry of Economic Affairs (MOEA). The Development
Center for Biotechnology (DCB) is an example of MOEA-funded
research. DCB is a non-profit agency with a staff of 400,
including 300 researchers. DCB President Wu Ming-chi told us
that the agency has two major facilities which provide
protein drug research and toxicology analysis to the private
sector, generating funds for its own research. Unlike its
sibling, the Industrial and Technical Research Institute, DCB
does not focus on medical device development. Instead, its
major focus is drug development, including small molecular
drugs and Chinese herbal medicine. While DCB does research,
its other arm, the Biotechnology and Pharmaceutical
Industries Program Office (BPIPO), promotes investment by
both local and foreign industry. In order to avoid conflict
of interest perceptions, MOEA does not get directly involved
in the biotech industry. MOEA-funded biotech companies
include Taimed, PharmEssentia, and about a dozen others.
TAIMED LEADING THE WAY INTO THE NEW BIOTECH
-------------------------------------------
5. (SBU) Taimed is a newly-formed company specializing in
anti-virus drug development. It has a staff of experienced
researchers from overseas, and former Vice Premier Tsai
Ying-wen is its president. Tsai, a graduate of Cornell and
the London School of Economics, exemplifies the new blood
that Taiwan is relying on to remain competitive in the world
market. In a recent meeting with DDIR and econoffs, Tsai was
optimistic about Taiwan's ability to excel in biotech. She
cited the vast pool of middle-aged Taiwan scientists in the
U.S., including world-renowned HIV/AIDS drug researcher David
Ho who is on Taimed's board. With their expertise and
experience, they could provide the impetus for Taiwan to
develop a sector with as much potential as high technology.
Taimed recently concluded an agreement with U.S. drug giant
Genentech to develop the anti-AIDS drug TNX355, which blocks
the entry of the HIV virus into human cells. The drug is now
undergoing phase two of clinical trials. Once the drug
passes clinical trials in the U.S., and is reviewed and
approved, it will be marketed in Japan, Europe and the U.S.
In Taimed's case, MOEA provided 40 percent of initial costs
to help the company begin recruiting and set up an office.
Tsai said Taimed's first priority is new drug development,
SIPDIS
followed by medical devices and next-generation
manufacturing. Although the government share of the company
now stands at 40 percent, Tsai said the level will eventually
be reduced to 20 percent or less. Tsai believes at least 20
years is needed for Taiwan's biotech sector to mature.
PHARMAESSENTIA AND INNOVATIVE NEW DRUGS
---------------------------------------
6. (SBU) Econoff visited two companies in the Nankang area
to get their insights on biotech developments.
PharmaEssentia, a company with 45 staff founded by a group of
Taiwan-Americans, is marketing CoQ10, an energy pill claimed
to have rejuvenating properties. PharmaEssentia recently
marketed its CoQ10 in Japan, and is the largest manufacturer
of CoQ10 outside Japan. PharmaEssentia's Jack Hwang and
Jason Lin, both with extensive experience in the U.S., said
they are developing a drug to combat hepatitis, which
afflicts thirteen percent of the population of Taiwan. The
drug has already undergone successful clinical trials with
monkeys. They said their former U.S. academic mentors
encouraged them to return and get in on the ground floor of
an innovative new industry, although their salaries here are
only 20 percent of what they earned in the U.S.
Pharmaessentia is 32 percent funded by the National
TAIPEI 00002551 003 OF 004
Development Fund, and the rest is from private sources.
TLC AND DRUG DELIVERY SYSTEMS
-----------------------------
7. (SBU) Taiwan Liposome Corporation (TLC), like
Pharmaessentia, is a newly established company which has
benefited from official help in getting started. TLC was
founded in 1997 and currently has a staff of 50, 90 percent
of whom are from Taiwan, with the remainder US citizens.
TLC's manager, George Yeh, a UC Berkeley graduate, said the
company has cooperated on drug research with the National
Cancer Institute in the U.S., and is now negotiating with a
Japanese drug company to develop a drug to cure diabetes.
Yeh said Taiwan has the technical expertise to develop drug
delivery systems that will maximize effectiveness while
reducing inconvenience. Taiwan's small drug production units
also can custom-manufacture small batches of particular drugs
without having to shut down an entire production line,
allowing them to tailor production to the requirements of its
clients, mostly small, R companies with innovative
ideas and patents, but without the market access or assets to
compete with the drug majors. Yeh emphasized that the entry
bar for the global drug market is high--a minimum of $500
million USD in product value, which among East Asian
companies Japanese firms are best positioned to attain, since
they have the marketing structure and financial wherewithal.
CONTRACT MANUFACTURING -- NOT FOR BIOTECH
-----------------------------------------
8. (SBU) Taiwan's IT sector has been able to keep ahead of
the competition due to its innovation, contract production
and outsourcing. Today, as labor markets become increasingly
competitive, biotech entrepreneurs are considering
duplicating the strategies that proved successful in the IT
sector. According to Academia Sinica's Wong, however, when it
comes to drug production, finding cheaper labor is not the
answer. He also asserted that given the long developmental
phase of drugs, tax policy needs be relaxed on capital gains
until biotech innovations have been marketed. Our
interlocutors in the biotech sector agreed that contracting
out to the lowest-cost manufacturer will not work in the
biotech sector, where long R times, stringent requirements
at every phase of development, and the high cost of drug
testing require a different approach. Next Generation
Manufacturing (NGM), a new manufacturing strategy designed to
quickly reconfigure factories for changing production
demands, must be operated by highly-skilled workers which can
quickly respond to customer needs. Taiwan's biotech industry
will need NGM to fully exploit smaller-scale production, as
well as closely monitor and fine-tune manufacturing processes
in order to meet the high requirements of drug production.
According to TLC's Yeh, mainland drug testing facilities
suffer from lax data collection and analysis practices. As a
result, biotech firms in Taiwan are reluctant to use them for
drug testing and evaluation. However, even after all the
tests are done and the drug is ready to be marketed overseas,
obtaining foreign regulatory approval is an art that Taiwan
has not yet fully mastered, given the lack of IPR and legal
experts.
EDUCATING BIOTECH LEADERS -A CHALLENGE
--------------------------------------
9. (SBU) Taiwan's educational system is another potential
impediment to biotech development because it has not fully
adapted to the rapidly changing business environment and
cannot always staff even the needs of its IT sector.
Taiwan's students and academics focused mostly on the
sciences and engineering when they went overseas to study in
large numbers from the late 1960s through the 1980s.
However, in their zeal to pursue the sciences, they typically
did not focus on business and legal studies, resulting in a
shortage of managerial and legal experts. As a result, many
of Taiwan's good inventions and patents do not make it into
the island's economy, much less onto the world market. Both
TAIPEI 00002551 004 OF 004
Academia Sinica's Wong and Taimed's Tsai acknowledge that
Taiwan needs IPR experts and marketing strategies, and its
researchers and businessmen need to develop a world view and
think beyond their local market. In negotiating with foreign
entities, Taiwan's lack of expertise with global business
culture often comes to the fore. George Yeh of TLC told
econoff that he underwent excruciating negotiations with a
Japanese drug company over a diabetes drug his company had
developed, mainly due to lack of understanding of Japanese
business practices. After considerable effort, he was
finally able to conclude an agreement allowing the drug to be
marketed in Japan.
CONCLUSION
----------
10. (SBU) Biotech may be touted as Taiwan's future, but as
our interlocutors in the biotech industry asserted, it will
neither supplant the information technology (IT) sector nor
dominate Taiwan's future industrial development. As biotech
expands, Taiwan could combine its IT strength with biotech in
such areas as bioinformatics or computational biology.
Serious deficiencies remain in Taiwan's biotech aspirations,
however, including the inability to bridge the divide between
patents and marketing, and the lack of legal experts to help
certify products for use overseas. This problem goes to the
fundamental issue of Taiwan's corporate structure, which has
traditionally been composed of small family-run businesses.
In order to see their product reach global markets, the
small, highly-specialized firms which dominate Taiwan's
biotech sector have to seek partners with the drug majors.
This strategy recently led Swiss drug giant Novartis to sign
an agreement with Taiwan authorities to develop biotech
through cooperative efforts on clinical trials, drug
research, and training. Taiwan needs to attract biotech
talent, provide sufficient incentives to retain that talent,
convince researchers of the sector's potential and, most
importantly, develop and train legal and IPR experts to
complement and support research talent by ensuring
innovations are protected and marketed. As Taimed's Tsai
indicated, it may take at least 20 years for Taiwan's biotech
industry to reach maturity.
YOUNG