Sweet Success... at Long Last
After eight years of fruitless endeavor, ScinoPharm Taiwan is turning a profit. But for CEO Jo Shen, these rewards are no fluke, but the result of meticulous planning.
Sweet Success... at Long LastBy Ming-Ling Hsieh
From CommonWealth Magazine (vol. 379 )
Of late, there are those who describe the biotechnology pharmaceutical industry as a sparrow that has transformed into a phoenix and captured the attention of the public.
After a decade of keeping its nose to the grindstone in the Southern Taiwan Science Park, ScinoPharm Taiwan is gradually beginning to shine, and many are speculating that it could perhaps be the guiding star for this industry.
After toughing it out through eight profitless years, the drug maker has begun to taste the sweetness of success, as it has at long last moved out of the red and into the black. It reported after-tax profits of NT$140 million last year, while its revenues grew 45 percent on the year to reach NT$1.5 billion.
The world’s third largest generic drug company, Watson Pharmaceuticals, further upped its investment in ScinoPharm Taiwan at the end of 2005, drawing even greater attention to this rising star. With a total investment nearly matching that of Uni-President Group, Watson now stands as one of the company’s largest shareholders.
For ScinoPharm Taiwan, however, there are no such things as sudden profits or accidental success in the pharmaceutical industry.
Its success in turning from losses to profits and in gaining the affirmation of the world’s leading pharmaceutical companies is simply the natural consequence of foresight and preparation.
Courage to Step onto the Global Stage
“If a tree is to grow to a certain height, it must have roots just as deep,” says ScinoPharm Taiwan president and CEO Jo Shen. “We’ve been putting down roots continuously for ten years. In 2007 a robust little green tree has at last grown on top of this.”
Shen believes that only those who are able to peer into the distance and possess the courage to take on challenges will find opportunities.
Her conviction becomes obvious when one realizes the sheer scale of ScinoPharm Taiwan’s investments.
The firm has amassed capital investments of NT$5.4 billion and plans to ultimately establish a 6.6-hectare plant complex. Its water purification equipment and network of pipelines alone are as expensive as they are essential. Not only does this industry require such massive investments and costly equipment, it also forces firms to wait an average of six to seven years from their initial outlays on the development of an active pharmaceutical ingredient before they can market a product and reclaim their investments. For the last nine years, the murmuring and negative criticism that the ScinoPharm Taiwan team “only knows how to spend money” never ceased.
Regardless, Shen and the team that helped her establish the firm insist on letting their imaginations fly.
“We position ourselves as an international company that is registered in Taiwan,” says Shen. She believes that Taiwan’s market for pharmaceutical products is not big enough. If a Taiwanese company wants to play in this industry, it must play on the global stage. It must achieve a sufficiently large scale, develop a diverse product line and provide quality of an international standard in order to attract orders from major global companies.
A dream of global proportions can only be fulfilled by overcoming challenges of an equally global scale.
In the beginning, ScinoPharm Taiwan and the generic drug company Impax Laboratories, which was established by two Taiwan-born businessmen, Charles Hsiao and Larry Hsu, agreed to develop a number of pharmaceutical products together. When Hsu’s product was registered with the United States Food and Drug Administration, ScinoPharm Taiwan, as the supplier of the drug’s active pharmaceutical ingredients, gained the opportunity to undergo an FDA review.
One must be fully prepared to take advantage of an opportunity when it arises. ScinoPharm Taiwan’s senior director of operations, Cheng Kuo-hsi, recalls that the company spent an entire three months running through simulation after simulation in order to prepare for the plant inspection, which ended up being completed in just three days. The FDA sent only two inspectors, one to check out the analysis laboratory and another to go over the plant. However, besides querying the firm’s high-level executives, they also conducted interviews with its rank and file to make sure everything was in order. This meant that while it was necessary that these employees possess a thorough understanding of every minute detail of their tasks, they needed to be able to respond fluently in English as well.
ScinoPharm Taiwan passed the FDA inspection successfully in 2001, becoming Taiwan’s first – and currently its only – active pharmaceutical ingredient manufacturer to have its entire plant meet FDA standards. Receiving FDA certification also gave it a reputation for meeting international quality standards. Nowadays, the world’s ten leading generic drug companies are all among ScinoPharm Taiwan’s clients, while seven of the ten largest brand-name drug companies are collaborating with it on the development of new medicines.
“Looking back now, ScinoPharm Taiwan used scale and quality to convince its international clients,” notes Tseng Nian-kuo, an analyst at the Industrial Technology Research Institute’s Industrial Economics and Knowledge Center. Moreover, Tseng says, it selected the right subjects for research and development so that it was unafraid to be challenged by China and India capitalizing on their low-cost advantages.
Shen and her co-founder, Hardy W. Chan, ScinoPharm Taiwan’s executive vice president and chief scientific officer, and a former vice president of research and development at Syntex Pharmaceuticals, took the bold step of choosing cancer medicine as the direction of their production and R&D efforts.
Though demand for cancer medicines is on the rise, there are in fact very few manufacturers capable of supplying the active pharmaceutical ingredients needed to make them. Plants must be built with special isolation facilities for the protection and safety of R&D and production personnel, due to the high activity of cancer drugs. Furthermore, since cancer drugs are mostly administered by injection and therefore may not be contaminated by toxins or microbes, completely pure water is also a requirement. For these reasons, the equipment and technology required for the production of cancer drugs are different than for other pharmaceutical plants.
Before returning to Taiwan, Shen worked as vice president of production and technology transfers at Syntex Pharmaceuticals (Syntex was acquired by Roche Pharmaceuticals in 1994). Back in 1951, Syntex had developed the most effective oral contraceptive at the time. As with cancer drugs, contraceptives are highly active drugs. With their deep background in this technology, ScinoPharm Taiwan’s founders decided to take on the challenging task of developing cancer drugs.
ScinoPharm Taiwan has already completed the development of over 20 anticancer drugs. Nearly 90 percent of the drug companies around the world that manufacture generic anticancer medicine are ScinoPharm Taiwan’s clients.
Long-range Positioning for the Future
The products ScinoPharm Taiwan develops are active pharmaceutical ingredients needed to make generic drugs after brand-name drug patents expire, which can mean waiting an average of five to seven years, or even between seven and ten years. Only by getting this type of head start will they be able to become a first-line supplier when a client’s generic drug hits the market and avoid being pulled into a competition over price with second-tier suppliers.
These days, ScinoPharm Taiwan is setting even longer timetables by looking at the direction of drug development 10 to 20 years into the future. In addition to supplying generic drug companies with the ingredients they need, Hardy W. Chan is going a step farther by “looking ahead” together with companies that are developing new drugs, to be at the vanguard of investment in markets that have yet to develop.
“What we think about everyday is our competitiveness: where will we be in five to ten years?” says Shen.
It is actually no secret just when patents will expire and which drugs will have the greatest market potential in the future. Every manufacturer of active pharmaceutical ingredients has access to channels through which they can gain this information. In the end, it comes down to whether or not a company is willing to make investments far in advance and suffer through the profitless years that lie between development and mass production.
Success in Establishing a Business Team
Another reason for the success of ScinoPharm Taiwan is that Shen places a great deal of importance on friendship and is good at making new friends. In her own words, “I’m a person that really cherishes old friendships.” This has allowed her to bring on good people and establish a strong business team.
When ScinoPharm Taiwan was just getting started, Shen and Chan invited their former superiors and colleagues at Syntex to come on board. In the period that followed, 50 to 60 people returned from the United States to take up a wide range of management positions in the areas of sales and marketing, production, quality control and plant construction. This allowed ScinoPharm Taiwan, a company with no prior foundation, to be brought quickly up to capacity across the board and cultivate local personnel to take over three to four years down the line.
The accomplishment on which she prides herself most over the last ten years is her organization of a team of proactive, self-motivated personnel that is capable of taking on international companies with confidence. Even now, over half of the 165 employees that were with ScinoPharm Taiwan when the construction of its plant was completed in 1999 are still working there.
People in the pharmaceutical industry note that although ScinoPharm Taiwan is big in scale, there are pharmaceutical companies in India and China three to four times larger that enjoy the advantage of low labor costs. These people generally feel that ScinoPharm Taiwan will end up taking a beating if it chooses to focus only on the production of low volumes of products with high development thresholds. Moreover, although companies in India and China can only outdo ScinoPharm Taiwan in terms of volume for the time being, one day a company could come along that has a similar level of expertise. If this were to occur, ScinoPharm Taiwan would need to devise a new strategy to hold on to its orders and expand its product line. Dealing with this threat will become a continuing battle for ScinoPharm Taiwan.
Always one to keep her eyes on the future, Shen has already begun to position her firm for such future battles. She has set up a subsidiary in Kunshan in the Chinese province of Jiangsu in order to utilize the advantages of both Taiwan and China. On top of this, Shen is employing a new strategy of developing products in partnership with major drug makers as a way of maintaining strong relationships with her clients. “Any industry in any country must be concerned about competitors. It’s not surprising that there are people in China that are capable of catching up with us. We each rely on our own abilities,” says a confident Jo Shen with a little chuckle.
Translated from the Chinese by Stan Blewett
Chinese Version: 馬海怡 帶台灣神隆昂首製藥業