The whole world knows by now that the biotech
industry is the coming thing. Anticipated profits
are rumored to be astronomical--but only after
cash has been poured into the bottomless
money-pit known as R&D. Is Taiwan ready
for a seat at the big table?
Elan Liaw is used to meeting challenges. She garnered a doctorate in physical organic chemistry in the United States, stayed on, and worked first for DuPont, then for the Food and Drug Administration, reviewing new-drug data packages submitted by US pharmaceutical manufacturers. Five years ago, she took a call from the ROC Ministry of Economic Affairs (MOEA). It was going to establish a Biotechnology and Pharmaceutical Investment Program Office (BPIPO); would she like to head it up? She would. Liaw came home, and ever since then has found herself having to deal with one major headache after another. In short, the island was--and is--still far from being an ideal place to invest in biotechnology. "Taiwan has to pick up the pace, or we're going to lag behind and become a backward society," she says pointedly.
According to Liaw, biotech is attracting much attention in both developed and developing countries, because it has such an important bearing on their futures. The government began to show solid support for the fledgling local industry as long ago as 1984, when it helped set up a nonprofit corporate body called the Development Center for Biotechnology (DCB). The 1991 Six-year National Development Plan, a blueprint for the direction of Taiwan's entire industrial future, added fuel to the debate by placing emphasis on the high-tech, high-value-added aspects of development. Three out of the ten industries that were declared entitled to financial assistance from the government at that time were in the biotech category: specialty chemicals and pharmaceuticals, medical care, and pollution prevention.
The Sixth National Conference on Technology, held earlier this year, highlighted Taiwan's ongoing awareness of the importance of encouraging this emerging industry. Participants from both the government and the private sector drew up a list of goals and mapped out plans for allocating resources over the next four years. Biotechnology was identified at the conference, along with the IT industry, as one of the two major fields with priority for future research and development programs.
"I give the government credit for its foresight on the direction the island should take," Liaw says in reference to the establishment of the government-sponsored DCB, which currently has a staff of about 300. But she goes on to note that this institution, which is meant to filter the fruits of academic research down to the private sector, is not really doing as much as it might.
Even Chang Tse-wen, the DCB's president, accepts that the center did not really come into its own until one or two years ago. Before that time, few academic contributions were worthy of commercialization, so naturally the DCB did not have a particularly impressive track record of transferring biotechnology to businesses. "Today, local scientists are changing their mindsets," he says. "They're more serious about developing valuable, market-oriented products." Why? According to Yu Hsiang-lin, the DCB's secretary-general, the completion of a draft blueprint of the human genome in June last year stimulated many local scientists' interest in this area. They have also been impressed by the government's overt enthusiasm for biotechnology projects.
Setting policy is one thing, but getting results is another. General Biologicals Corp., founded in 1984, specializes in the manufacture of diagnostic kits, and is one of the pioneering bio-enterprises in the Hsinchu Science-Based Industrial Park. Its president, Stan Lin, is another observer who feels that Taiwan's biotech industry did not really get going until recently. "So much of the government's financial support for private-sector R&D was diverted to the electronics industry," he says. "But now that field has reached a kind of saturation point and is running into developmental bottlenecks, so Taiwanese investors are beginning to think about which industry to get into next."
The obvious answer is biotech, which is especially suitable for Taiwan because it neither generates a lot of pollution nor takes up much land. The number of human beings on the planet is increasing steadily, and unless scientists can develop more advanced biotechnologies to cater for this burgeoning world population, everyone's quality of life is bound to suffer. No wonder, then, that biotechnology has become the rising star in the east. According to the MOEA, in 1997 the output value of Taiwan's biotech industry totaled NT$14.7 billion (US$459.4 million), of which the food industry accounted for 51 percent, followed by specialty chemicals and medicine (35 percent), and "other industries" (14 percent). It estimates that by 2005 the value will have grown to NT$80 billion (US$2.5 billion), with specialty chemicals and medicine accounting for 50 percent, followed by the food industry (25 percent).
"It's very difficult to enter this market, but once you do, you can make big money," says Yen Pin-ho, chief of the Industrial Development Bureau's (IDB) First Division. Maybe--but investors usually have to put a great deal of money into R&D and then wait for years before anything can be patented. So although the potential is great, investors can still end up with nothing to show for their money and patience if there is no patent at the end of the line. This is especially true of pharmaceuticals. "In nearly any other field, an enterprise would usually pull out if it hadn't got its money back after three years," Stan Lin notes. "But it takes much longer to develop a new drug. You can't expect quick money if you want to play in this game."
Why is R&D so important to the biotech industry? Taiwan has long been used to manufacturing items on an OEM basis. "But manufacture should be a thing of the past. We should be marketing knowledge, or other 'invisible' products," says Elan Liaw, who is painfully well aware that in the biotech industry, most profits derive from hard-won patents that take years to secure. For this reason, the government now offers tax and other incentives to enterprises seeking patents. For example, in the past, any intellectual property created by government-sponsored projects belonged to the government, but in 1999 the Fundamental Science and Technology Act was passed, empowering the individuals or institutions that actually carried out the research to own the resulting intellectual property in whole or in part.
In Taiwan, major institutions devoted to basic research on biotech include Academia Sinica, the National Science Council, and various departments in universities dotted around the island. The fruits of their labors then go to institutions in the midstream of the R&D process. Most of these are nonprofit research institutions such as the DCB, which further develop and promote techniques before transferring them to the private sector via a transparent process involving widespread advertising and discussion.
There is also a growing evaluation industry. The government established the Center for Drug Evaluation in 1998, and since 1999 has been subsidizing a project to set up clinical-trial centers in four of the island's major hospitals. "In the past, even if Taiwan had the ability to develop new drugs it didn't know how to evaluate them," says Yen of the IDB. "Now the situation's changed." The island's plan for becoming a regional biotech center is starting to take shape. "But Taiwan will only be accepted as a collaborating partner with other countries if it gets a complete biotech infrastructure."
This ties in with the government's eagerness to see Taiwan become a major center for the conduct of clinical trials. It is holding talks with neighboring governments with a view to establishing a regional network for exchanging data and analysis and drawing up a common code of practice. If the plan succeeds, and a set of regional standards emerges, Taiwan's biomedical products should be able to penetrate other participating markets more easily, and vice versa, because a drug would only have to pass muster in one country to become available in others.
International collaboration is also significant because it leads to the import of valuable know-how. "If local biotech companies wait for whatever government-sponsored R&D institutions offer them, it'll be too late," Elan Liaw says. "You have to cooperate with big international enterprises through joint ventures. That way you can get a lot of benefits, including technological transfers."
That is the major reason why Stan Lin's company has invested US$200,000 in Stem Cyte, an American biotech company. "You must go abroad to cooperate with the top foreign players," he says. "You have to know about the most advanced techniques in the world today." But that is just one of the benefits he hopes to reap from his investment. Under the agreement with Stem Cyte, the latter must use General Biologicals' diagnostic kits to screen its bioproducts, leaving Lin's company free to sell them on the open market at the same time.
The government is also trying to attract overseas investment, and the BPIPO under Elan Liaw is a major player in this area. Today, investors often make the official "window on Taiwan's biotech industry" their first stop, and only then meet with local businesspeople. Responsibility for boosting investment in the island's biotech industry originally fell on the IDB's Chemical Indus trial Division, but that has plenty of other fish to fry, and the government soon found that it was impossible to upgrade the biotech sector with the human resources of one division alone. This is the reason why, in 1996, the MOEA established the BPIPO. This flexible institution largely falls outside the scope of the legal framework generally applicable to government agencies. For example, it may hire staff, negotiate salaries, and apply budgeted expenditure at its discretion.
Another international DCB initiative is BioFronts, set up in 2000. This project is designed to help local businesses acquire biotechnologies from abroad by building cooperative relationships with overseas enterprises. "Many local companies want to invest in the sector, but they don't know where to put their money," Chang Tse-wen says. At home, BioFronts employs ten advisors who guide novices into the marketplace. Five other professionals have been assigned to locations that have the densest concentrations of biotech enterprises in the world: Four in the United States (Boston, San Diego, Silicon Valley, and a region covering Washington DC and Philadelphia), and one in the United Kingdom (Cambridge, England).
Their mission is to act as marriage brokers, contacting as many small and medium-sized companies as they can with a view to putting them in touch with likely Taiwan partners. This is an essential role, because it is difficult for Taiwanese to enter the American market by themselves, according to Otto Hsu, manager of General Biologicals' production department. "America's the biggest market for biotech products in the world, but it's already very competitive," he says.
Successful "marriages" also have the potential to help with another problem. The US Food and Drug Administration sets very high standards for products coming onto the American market, and meeting them is a costly, time-consuming process. For this reason, even General Biologicals, which exports to more than forty countries, including members of the European Union, has yet to penetrate US markets to any degree.
Can the human software keep pace with scientific developments? Someone has to assess the risks associated with investment in such a high-risk industry, an area where Taiwan is still comparatively weak. Mindful of this, last year the MOEA commissioned National Chengchi University to provide annual courses in investment evaluation and related legal issues, such as intellectual property rights. Fifty candidates chosen from the private sector, each with a background in the natural sciences, took part in the first session, which lasted three months. About half of them already had some biotechnology experience, and the number of participants is expected to double this year. Some students are sent overseas to broaden their global vision, spending another three months in the United States where they continue their specialty studies.
These efforts to stimulate research and investment have started to show positive results. According to the BPIPO, over the four years from 1997 to 2000, Taiwanese investment in the biotech industry amounted to at least NT$39.2 billion, (US$1.2 billion), of which 40 percent derived from companies focusing on products like biochips and diagnostic aids, 29 percent came from venture -capital companies, 24.5 percent from biopharmaceuticals companies, and 1.6 percent from those focusing on Chinese herbal medicine. (The balance is accounted for by enterprises dealing in things like fodder and food additives.) This represents a huge increase on the NT$4.9 billion (US$153.1 million) spent in the four-year period spanning 1993 and 1996.
The bandwagon, it seems, is starting to roll. DCB figures show that some seventy biotech companies started up between August 1997 and August 2000. The Cabinet's Science and Technology Advisory Group estimates that there will probably be another two hundred small and medium-sized biotech start-ups on the island within the next five or six years.
Taiwan's biotech industry is far from mature, however. "Even the United States is at an early stage in this field," Chang Tse-wen says. "There are thousands of biotech companies in the USA, but less than 5 percent of them are showing a profit. Most of them are still doing R&D." Taiwan has a way to go before it can hope to compete with its ambitious neighbors such as Singapore and mainland China, which has already built a life-science-based industrial park in Shanghai, let alone catch up with advanced countries like America and Japan. Chou Chen-kung, a professor of biology at National Yang Ming University's Department of Life Science, thinks that the task is beyond the island's budding biotechnicians. "It's hopeless, at least in the near term," he says bluntly. "I can't see any evidence of the government's determination to boost the sector."
Chou's major concern is money. Not enough is being spent on promoting local biotech. Chang Tse-wen of the DCB, while not criticizing the ROC government for its limited spend, does point out the sharp contrast between the United States and Taiwan in this area. According to him, the US National Institutes of Health alone spends about US$15 billion a year on basic research work, while a typical big American bio-enterprise invests between US$2 and $3 billion in R&D over the same period. Taiwan's central government, on the other hand, has allocated no more than NT$6 billion (US$187.5 million) to developing biotechnology this year, with no guarantee that the amount will increase in the future.
Chou Chen-kung accepts that there is a big gap between Taiwan and the United States in terms of economic clout and size of population. Even so, he concludes that Taiwan is putting far too little money into its biotech industry. And if budgets are tight? "What are the priorities when it comes to framing policies on future industrial development?" Chou asks. "I don't think the government is signposting the way forward clearly enough, and I don't think it's showing enough resolution in following the right road."
Even if the financial problems could be overcome, many observers are uncomfortably aware of another issue that threatens the future success of Taiwan's biotech industry. The island needs to get serious about protecting the patents that lie at the heart of this industry. The MOEA's Intellectual Property Office is revising relevant laws in an attempt to bring them into line with internationally acceptable standards. But it is doubtful whether much good will come of this exercise, given the well-known inefficiency of Taiwan's lawmakers, who have not as yet shown much interest in the future of the biotech industry anyway.
Obviously, there are still unresolved questions basic to the development of the local biotech industry. But it does not follow that it has no future. One encouraging sign is that governments at all levels are solid in their support for this low-pollution sector. "Many local administrations have come to the MOEA of their own accord, offering land for biotech businesses," says the IDB's Yen Pin-ho. "It's not like other industries, such as petrochemicals, that aren't welcome anywhere on the island."
Assuming the provision of adequate capital, once the patents start flowing the island's well-known marketing skills are likely to come in handy. Taiwan's overseas human resources constitute another valuable asset. "The companies with the most talented people can make it," the IDB's Yen insists, with particular emphasis on likely future contributions from Taiwanese students currently pursuing graduate courses abroad. Elan Liaw, herself a returnee from the United States, agrees it is important to woo professionals with experience of working overseas. "Most successful American bio-enterprises hire at least some Chinese," she remarks, although she remembers to add the rueful qualification that not all of them necessarily want to return home.
Perhaps they will in the future, once Taiwan becomes a better place to live and work. But it is a classic race against time--one where the players who move the fastest to hire talented people, stimulate investment, and create profitable patents will be the eventual winners. Elan Liaw, undaunted by her experiences over the past five years, looks forward to facing even greater challenges in the future. Sooner or later, she believes, Taiwan will boast a pool of gifted people and successful enterprises determined to follow the trail she is determined to blaze. The potential is there, but perhaps the emphasis should be on "later," rather than "sooner."