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Taiwan's pharmaceutical market, as it is preparing to join TPP in the second round

27 December 2015 Jing Zhang

Attracted by zero tariffs and opportunities to expand exports to major markets such as US and Japan, Taiwan is eager to join the Trans-Pacific Partnership (TPP) in the second round. In 2014, exports from Taiwan amounted to USD295 billion, according to IHS. Medical, technical equipment and organic chemicals are among Taiwan's top 10 exports (which account for 83.3% of the overall value of its global shipments), according to Daniel Workman based on Taiwan's Top 10 Exports.

Taiwan is the twentieth-largest pharmaceutical market in the world. It consists of three sectors, namely the biotech, pharmaceutical and medical device industries, with medical devices taking the lion's share of the pharmaceutical market. Taiwan's pharmaceutical market is based on its scientific expertise and biotech capabilities, with biotech becoming a pillar of the island's economic growth. Furthermore, low taxation makes Taiwan an enticing place for foreign investment. Already, Taipei has started assessing the gap between Taiwan's law and regulations and what might be expected of it by rules and regulations in the TPP and is using TPP entrance preparation to propel the local pharmaceutical industry onto a higher value chain.

Taiwan has one of the highest levels of pharmaceutical spending in the Asia-Pacific region, accounting for approximately 24% of total healthcare expenditure. According to Taiwan's Biotechnology Development Center, pharmaceutical sales fell 6.6% year on year in the third quarter in volume and 21.6% year on year in value to 16.6 billion in New Taiwan Dollar. Nonetheless, Taiwan's pharmaceutical market is estimated to reach USD5.5 billion by 2018, growing at a CAGR of 3.9%.

On the demand side, Taiwan will soon become a rapidly aging society, with 14% of its total population reaching 65 years of age or above by 2018. That plus rising prevalence of lifestyle diseases and diseases related to ageing is expected to drive market growth, boosting demand for oncology and cardiovascular drugs

On the supply side, growth in biotech industry is set to get a boost from the government with a National Development Fund worth USD1.8 billion in coming years. Today, the island's industry is targeting generics drugs as its niche product. Similarly, partnerships between academic institutions and public-private partnerships are underway to boost new drug R&D. Research alliances with academic institutions and public-private partnerships are expected to boost research in new drug development, with several projects already underway and products already in late-stage clinical trials.

All in all, Taiwan's pharmaceutical sector appears to be in a good position to join TPP to take advantage of zero tariffs and trade expansion, However, Taiwan has to show its commitment by making significant progress on a number of issues.

For starters, high out-of-pocket expenditure and the inefficient distribution of healthcare facilities are the foremost challenges facing the local pharmaceutical industry.

In addition, challenges in Intellectual Property Rights policies persist, deterring multinational companies from investing in the sector. One major issue is that many patent-infringing drugs are being approved and included in the reimbursement list.

Taiwan is also viewed as a challenging market for multinational pharmaceutical companies, given the difficult pricing and reimbursement environment. According to American Chamber of Commerce in Taipei, PHARMACEUCTICAL (2012), drug prices in Taiwan are low at about 28% of average US prices. Measures-including generic grouping, biennial market price revisions, and price-volume and risk-share agreements-have combined to drive down domestic reimbursement prices at only 51 percent of the A-10 basket average. Furthermore, new products are often reimbursed near the bottom end of the 10 countries' market price spectrum. That has put a damper on foreign drug investment.

Still, another issue in drug pricing remains: generic drugs prices are as high as originator drug prices due to a policy of grouping similar products. This discourages original R&D companies from the market. Predictably, data exclusivity that comes with TPP will most likely exact a toll on local generics sector.

Last but not least, Taiwan has to deal with the thorny issues of "patent linkage," "data exclusivity" and "biologics." Basically, the multinational pharmaceutical companies under TPP would be able to keep generics and biosimilars off the market longer as a result of extended data exclusivity. Central to these issues is the "Investor-State Dispute Settlement," or ISDS, which is deemed necessary to protect property rights where the rule of law and credible courts are lacking. However, critics including US Senator Elizabeth Warren and former World Bank chief economist and Nobel Prize laureate Prof. Joseph Stiglitz have argued that ISDS would favor large multinational corporations at the expense of national sovereignty.

To sum up, Taipei has to tackle these challenges in the coming two to three years to entice foreign investment and lock in TPP membership in the second round.

Jing Zhang is a life sciences economist for IHS
Posted 28 December 2015

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