Taiwan's Biotech Outbreak
With a new law loosening restrictions on capital and personnel, and a focused infusion from the National Development Fund, Taiwan?s biotechnology industry stands on the threshold of fertile growth.
Taiwan's Biotech OutbreakBy Ming-Ling Hsieh
From CommonWealth Magazine (vol. 378 )
During the past three months Taiwan's publicly traded biotech companies, perennially on the sidelines like benched ballplayers, have suddenly skyrocketed to fame and a place in the spotlight.
Taiwanese biotech shares began to surge in April. At the end of July when Biotech Corp. listed Baby Banks on Taiwan's over-the-counter GreTai Securities Market, shares in the company closed the day at eight times their listing price and investors seeking to subscribe faced a razor thin lot-winning ratio of just one percent.
The previous month, on June 11, the Executive Yuan's economic task force had directed the Ministry of National Defense to dispose of the 25-hectare site of the former 202 Ordinance Factory. Academia Sinica and the National Science Council pledged a combined investment of NT$27 billion to turn the site into another landmark biomedical research facility to rival Jhubei Biomedical Research Park.
In the early morning hours of June 15 when Legislative Yuan Speaker Wang Jin-ping brought down the gavel, the Biotech and New Pharmaceutical Development Act had passed easily. Previously existing rules and regulations that had so vexed investors in the past were abolished wholesale in somewhat miraculous fashion.
In mid-July Wong Chi-huey, the ordinarily reticent Academia Sinica president, boldly predicted before the Office of the President's monthly meeting: “In 30 years, nearly all companies will be connected to biotechnology.”
As July drew to a close, the National Development Fund began taking steps for approval to invest another NT$30 billion in the biotech industry.
Amidst the continuing stream of such positive news and after more than 20 years of biotech industry chest-thumping through numerous bubbles and dead ends, many are beginning to see hopeful prospects: this time it really does seem like opportunity is knocking.
Biotech Act Sparks Fire of Research
The biggest difference between the current situation and the bluster leading up to past elections is that this time the Biotech and New Pharmaceutical Development Act has actually been passed in the Legislative Yuan. At just 30 articles in length, the new act, despite its brevity, brings with it some rather specific expectations.
Chief among its key provisions is the freeing of publicly funded researchers to participate directly in the development of the industry.
Subject to the restrictions of the Civil Servant Service Act, publicly funded researchers have long been barred from actively assisting private-sector industry or acting in a consultative capacity on behalf of private-sector companies in transferring technologies they have researched for development into products for the market.
These restrictions have had a particularly large impact on Taiwan's biotech industry. Fully one-third of Taiwan's biomedical patents derive from Academia Sinica research. With passage of the new act, regulations governing research personnel have been loosened and the resultant wealth of R&D expected to be transferred to the private sector will open up an even greater source of commercial applications.
Second among the key provisions is a tax deferral on biotechnology shares, with taxes levied only when such shares are sold at some point in the future, thus reducing the burden of risk associated with investment in the biotech industry.
Previously researchers who received technology shares in exchange for technology transfers to the private sector were subject to immediate taxation on those shares. In other words even if years of research failed to yield a commercially viable product, taxes on those shares would have to be paid during those years. This factor in particular had long dampened numerous researchers' enthusiasm for technology transfer. With the risk of biotech R&D somewhat akin to gambling, the legal standards were tantamount to increasing the burden of risk on anyone seeking to enter the biotech industry. The new rules meanwhile ease the burden on biotech enterprises' finances by allowing a portion of expenses to be offset against income tax for five years or until profitability. The change will provide a substantive boost for biotech companies, which typically burn through capital in the early stages of research and development.
Dream Team Makes It Look Easy
The seemingly simplistic new act at once loosens restrictions on technology, personnel and capital, dramatically reducing the private-sector burden of carrying the industry forward. In fact, from first draft to final passage, the Legislative Yuan issued the new law in just 14 days.
Once on the agenda and with key ministerial support, everything just fell into place for the act's passage.
Legislative Speaker Wang Jin-ping, who is also chairman of the Institute for Biotechnology and Medicine Industry, courted support among ruling and opposition lawmakers prior to the final reading of the draft bill. During the course of deliberations, then-vice premier Tsai Ying-wen enthusiastically coordinated support among various key ministries as well as backing of the director of the nation's most powerful research facility, Academia Sinica president Wong Chi-huey, himself a leading figure in the biotechnology field.
Smarter, More Strategic Use of Capital
Wong returned to Taiwan in 2003 to head up the Academia Sinica's Genomics Research Center. Having started his own business and been a frequent party to technology transfers during his time abroad, Wong found the legal restrictions on Taiwan's biotech sector stifling. Upon taking the reins as Academia Sinica president in October of last year, Wong became an active participant in meetings of the Executive Yuan's economic task force, chaired by Tsai Ying-wen, where he was able to exchange opinions with the heads of the various ministries.
In June, Institute for Biotechnology and Medicine Industry executive director Wu Ming-fa arranged a meeting between Wong and legislative speaker Wang Jin-ping. Wang agreed to move review of a draft Biotech and New Pharmaceutical Development Act to the top of the legislative agenda, and Council for Economic Planning and Development chairwoman Ho Mei-yueh set about burning the midnight oil for the next several nights helping to polish the final draft, which became law by the middle of the month.
The new regulations will alter the business environment for biotech companies with the government serving as a bellwether on the financial front with a pledge of NT$30 billion from the National Development Fund (including the original Executive Yuan Development Fund).
This is by no means the first foray into the biotech sector for the National Development Fund. It's just that previous investment efficiency has been lackluster. Of NT$20 billion previously earmarked for investment, just NT$8.2 billion has been actually invested, and 70 percent of that has gone toward venture capital for overseas biotech start-ups.
The lethargy of the Taiwanese biotechnology market and the lack of potential investment targets are traceable to internal structural issues. But in the view of Silver Biotech Management managing director Howard Lee, former managing director of China Development Industrial Bank, investment of national funds could really be done more wisely.
During the past three years, smarter, more strategic use of funds has become a key reform goal of the National Development Fund.
The key lies in the ability to use capital to make international connections and insert Taiwan's biotechnology industry into the international chain of value. And right now is the crucial moment.
Following the turn of the millennium the rules of the game in the global biotechnology market changed: fully independent development of new pharmaceuticals became passé, as a trend toward division of labor took shape; major pharmaceutical makers began buying up the research achievements of smaller companies and then taking them to the next level of fine tuning and development.
This process has quickly grown and matured internationally. “The point is to be plugged in to the international community,” says Rongjin Lin, general manager of TTY Biopharm Co., Ltd., so that you have access to the developments of others or access to those who may be interested in your own research and development.
National Development Fund Links Five Markets
Government funding can play a key role in such passing or receiving of the baton.
The National Development Fund is changing its ways and has begun looking to different markets for an outlet.
The National Development Fund now has venture capital invested in top-flight biotech ventures in five countries, including Japan's BHP, Canada's MDS, Germany's TVM and Israel's Giza. “We stick to a general pattern of one venture capital investment per country,” says National Development Fund deputy executive secretary James Ho, contingent upon whether international venture capital investments can advance Taiwan's domestic industry and complies with Taiwan's development goals. “If only one major project takes shape in Taiwan, it will to become a magnetic catalyst,” generating the free movement of capital, technology and labor in Taiwan.
More critically, the venture capital brought aboard through the National Development Fund is “all experienced money,” according to Ho Mei-yueh. International venture capital firms review an average of 1,000 potential projects per year, and by following in their footsteps Taiwan could stand to learn much about determining which areas have the greatest potential and appraisal and trial processes, Ho says.
International venture capital investment can also bring international management expertise and vision to local enterprises.
Ming-chu Hsu cited the example of TaiGen Biotechnology's biggest shareholder, the American venture capital firm MPM Capital. MPM assigned key partner Michael Steinmetz to the TaiGen board, and Steinmetz flies to Taiwan from Boston monthly for board meetings and to discuss operations.
“When they invest a dollar, the value is not just a dollar,” Hsu says. The greatest significance of investment by overseas investors does not lie with the money but in the international experience they bring to bear, she asserts.
"People" the Ultimate Key
“People are the most important part of the next step,” says Wong Chi-huey. “A major regulatory door has opened and the money is in place. Now the key lies in utilizing human resources.”
For years the global biotech industry has been reliant on the massive top-down support of the power of the state, particularly in Asia. If Taiwan wishes to keep pace, it must get a handle on talented personnel. In addition to R&D personnel, even more important is to have personnel experienced in multinational operations.
Wong Chi-huey emphasizes that right now is the best time to be bringing in talent. According to Wong, during the 1970s a large number of biotech and pharmaceutical experts left Taiwan to pursue overseas study. Many of these people, now in their 50s, hold key positions with overseas multinational pharmaceutical companies, Wong says. Consequently, the key is now to reach out to these pioneers, creating an intriguing industrial vehicle to attract them back to Taiwan. This would be the greatest locomotive for the development of Taiwan's biotech industry.
Can a biotechnology firm become the next Taiwan Semiconductor? What sort of standing will Taiwan enjoy among the next wave of superstar industries? The crucial time for taking flight is now.
Translated from the Chinese by Brian Kennedy
Chinese Version: 台灣生技業 關鍵發展看今年