ScinoPharm Taiwan Ltd.
From Sugar Cane Field to Biotech Star
ScinoPharm Taiwan Ltd. is Taiwan's biggest player in active pharmaceutical ingredients. By taking on the toughest challenges, it has turned itself into an indispensable force in the international pharmaceutical supply chain.
From Sugar Cane Field to Biotech StarBy Ming-Ling Hsieh
From CommonWealth Magazine (vol. 476 )
As the bullet train sped south toward Tainan Station, ScinoPharm Taiwan Ltd. president and CEO Jo Shen glued herself to the window, holding her breath in anticipation.
Suddenly, a white factory emblazoned with red letters appeared before her eyes. Shen got a peak at ScinoPharm's facility in the northeast corner of the Southern Taiwan Science Park in Tainan, and then it was gone in the blink of an eye.
"But being able to see it for those five seconds, I couldn't hold back the tears," Shen once wrote.
One quick impression, representing in reality 14 years of painstaking toil.
Fourteen years ago, this corner of the science park was a sugar cane field. Today it is home to Taiwan's largest producer of active pharmaceutical ingredients, a company that has emerged as an indispensable partner of the world's 10 biggest generic drug companies, with overseas sales of nearly NT$4 billion a year.
ScinoPharm, which plans to go public in Taiwan in the second half of the year, is the benchmark for biotech companies that the country is so eager to develop.
Active pharmaceutical ingredients (API) are the substances in drugs that are biologically active. New drugs, as well as generic drugs produced after patents on new drugs have expired, all rely on these raw materials.
The active ingredient sector is considered to be one Taiwan's potential economic stars in the coming years. According to Industry & Technology Information Services, a technology division of the Ministry of Economic Affairs, Taiwan's exports of active ingredients have grown at a double-digit clip annually for the past four years. Of the country's total API exports last year, ScinoPharm had a 65 percent share.
The company's strength in the field has helped it emerge as one of Taiwan's most profitable manufacturers over the last three years. Its 26.73 percent profit margin in 2010 ranked 20th among all companies in CommonWealth Magazine's annual survey of Taiwan's top 1,000 enterprises.
"Everybody says Taiwan's active ingredients have ‘moved into' the international market," says the fast-talking Shen, whose elegant appearance conceals a willingness to take chances, which often earned the disapproval of her mother. "That statement is completely wrong – we've always been in the international market."
The key to ScinoPharm's success has been the company's willingness to take on the toughest challenges since its inception.
ScinoPharm decided against developing high-volume bulk products with low margins – the common approach in China (13 percent global market share) and India (6 percent global market share) and among traditional low-cost active ingredient suppliers. Instead, it pursues high value-added ingredients with high entry thresholds and high degrees of difficulty.
The company started by taking aim at highly active ingredients used in anti-cancer drugs. Of the 300 active pharmaceutical ingredient factories approved by the U.S. FDA, only 20 are focused on this area, meaning the entry threshold is high but the competition limited.
High Value-added Drugs Only
"Choosing what kind of products to take on determined the kind of company we would become," says Yung-fa (Fred) Chen, ScinoPharm's vice president of R&D. "The key was whether we were competitive."
The 54-year-old, casually dressed Chen has been with the company since its very beginning and was a key figure in helping it develop the capabilities that have set it apart from its rivals. His job involves taking on what could be described as "high-threshold R&D," the likely trend of the future in Taiwan's biotechnology sector.
A native of Jiali District in Tainan, Chen worked for Taiwan's state-run oil giant CPC Corp., Taiwan in Jiayi for seven years after earning a Ph.D. in medicinal chemistry in the United States.
A man who embraces challenges and does not fear risk, Chen is always thinking about pushing the envelope. He was attracted to ScinoPharm when it opened in 1997 because of its banner of professionalism (Shen and co-founder Hardy W. Chan were both high-level executives at U.S. pharmaceutical company Syntex) and the NT$3.7 billion in capital it raised.
Chen and the 150-man R&D team he leads are responsible for taking on "high-threshold targets" and "scoring breakthroughs." The job, however, requires not just expertise in chemistry and pharmacology, but also knowledge of legal issues, marketing, raw materials, and the supply chain.
The team and the company's market research unit first track newly approved drugs and scour the databases of the world's top-selling drugs in search of potential targets, even considering drugs that have just begun clinical trials.
After that, the five or six patent engineers in the company's legal department support the process by thoroughly dissecting related drug patents.
When drugs first enter the market, they are usually protected by 20 to 30 patents, but the number tends to grow the longer the drug is on the market, complicating the engineers' task. The evaluation process alone can take up to three months.
Once the patents related to a product target have been fully evaluated, the next step is to consider technological breakthroughs, to think about ways to produce drugs or their active ingredients without stepping on patent land mines. That's because in the case of generic drugs, though the patent on the active ingredient itself may have expired, the drug's production process may still be legally protected.
Then there are issues related to a potential product's cost, the availability of related raw materials, and competitors' attempts to cut in on the action, as well as such considerations as the production process and after-sales customer service.
Time is also a factor. When it comes to difficult targets, breakthroughs can take five years to achieve.
"High-threshold R&D" represents the ultimate arena where researchers can put their skills to the test. They must stay on top of the latest news and medical journals, and cooperate with people in other fields to help inspire creativity. Uncertainty is an inherent part of the process. But Chen finds it a source of stimulation, not unbearable pressure, and he and his team have delivered the goods over time.
Founded in 1997, ScinoPharm did not turn a profit until 2006. But over those eight years, the company's team patiently conducted research on difficult projects, eventually developing over 30 medical products.
At present, ScinoPharm has put 14 products on the market, barely a fifth of the total it has developed, but its 14 international-standard production lines have been filled to capacity since the end of last year. The remaining 80 percent of its items represent the company's future growth potential.
After products go into mass production, ScinoPharm vice president of operations Kuo-Hsi Cheng must adjust the manufacturing process to ensure that costs remain competitive. This is one of the key factors in maintaining competitiveness in the active ingredient business, where rivals never stop coming.
Having used its strong R&D capabilities to master international production standards and customer service, ScinoPharm has achieved a niche in the global supply chain that sets it apart from the average downstream supplier, which is often vulnerable to being replaced. Portia Lin, who joined the company at a young age and now deals with major international clients as its vice president of marketing and sales, says proudly that ScinoPharm's customers have a return rate of nearly 100 percent.
The company's success is an indication that once the right objective is chosen, there is no reason to fear being shut out, but that does not mean ScinoPharm is resting on its laurels.
Constantly looking five to ten years ahead and pondering where the next wave of growth will come from, Shen has already begun planning the company's move into China, and Chan is mulling developing biosimilar drugs – essentially the generic form of biologic and recombinant drugs and something not many companies have yet begun making. Their strategy is the same as in the past – to be fully prepared when an opportunity comes knocking.
"From the very first day, I just knew that customers were out there waiting for us," says Shen confidently.
Translated from the Chinese by Luke Sabatier