Time for Taiwan to Seize the Medical Supply Chain Moment

The island’s manufacturing and technological strengths and trove of medical data make it well positioned to assume a significant role in biotech development and healthcare supply chains, but to do so, it must first surmount some longstanding obstacles.   

In the last year, the world has become painfully aware of the importance of supply chains in the global economy. COVID-related manufacturing disruptions, logistical backlogs at major ports, and geopolitical conflicts have made it clear that supply chains are much more vulnerable than previously thought and that boosting their resilience must become a top priority.

One supply chain of particular concern is that of the global medical industry. Delayed furniture orders and iPhone releases are an annoyance, but disruptions in medical supply chains can have life-threatening consequences for those who rely on them.

Shortages of certain medicines and supplies caused by COVID-19 triggered a closer examination of the world’s medical supply chains, revealing a worrisome lack of diversification and an overreliance on China for key materials. According to a report by the U.S.-based Council on Foreign Relations, Chinese manufacturers account for a staggering 80% of the active pharmaceutical ingredients used to make drugs consumed in the U.S.

The overrepresentation of Chinese firms in the medical supply chain has been identified as a major strategic weakness by U.S. officials, who fear it could be weaponized by China in the event of a conflict. Additionally, trust in China has been severely weakened in the wake of the pandemic. The U.S. Food and Drug Administration (FDA) recently voiced concerns about the quality of drugs developed in China and asked suppliers to evaluate their supply chains and diversify if possible. A bipartisan Congressional letter also called on drugmakers to reduce their reliance on China.

Observers have quickly recognized that these events have created broad opportunities for Taiwan to play a larger role in the world’s medical supply chains. Taiwan is already a well-known high-tech manufacturer, and foreign companies that design high-tech semiconductors already trust Taiwanese manufacturing firms to produce their chips with a high degree of precision and guaranteed protection of their intellectual property. Could Taiwan do the same for foreign drugmakers?

According to Herb Wu, chief executive officer at the Development Center for Biotechnology (DCB), a government-established research organization, the Ministry of Economic Affairs’ new Act for the Development of Biotech and Pharmaceutical Industry, promulgated in December last year, is a sign that Taiwan’s government believes in seeking to fulfill that potential.

The new law gives generous tax exemptions to encourage the establishment of more contract development and manufacturing companies (CDMOs) to provide services to large pharmaceutical firms. A recent example of such possible collaboration is Taiwan’s effort to arrange for a national biotech firm to sign a CDMO agreement with COVID-19 vaccine manufacturer Moderna. If successful, these kinds of partnerships could foster the creation of new biotech manufacturing giants that could occupy a role similar to TSMC’s in the semiconductor industry.

In addition to securing more CDMO contracts and building out its pharmaceutical manufacturing capabilities, Taiwan may also be able to leverage its expertise in collecting and managing data to become a hub for clinical trials. Clinical trials often rely on very large datasets, which has put Taiwan at a disadvantage due to its relatively small population size. However, new developments in digital medicine and AI mean that data quality is becoming almost as important as data quantity. New AI-based diagnostic technologies require access to high-quality, accurate, and clean patient data, an area in which China is increasingly seen as deficient. Given the ultra-sensitivity of patient data China’s sullied cybersecurity reputation makes it a less attractive option for such critical data-based work.

On the other hand, Taiwan not only has access to high-quality patient data via its single-payer National Health Insurance (NHI) system, but also has a solid reputation when it comes to data security. Taiwan is thus well-placed to become a hub for developing digital medicine and conducting vital clinical trials.

Although these opportunities seem ripe for Taiwan’s picking, taking advantage of them will first require overcoming several obstacles. To start, despite the massive resources Taiwan has been investing in development of its biotech industry, it has still failed to capture a significant share of the world market. A recent Carnegie Endowment for International Peace report notes that Taiwan’s market share of the global biotech industry was just 2% in 2021, and the proportion of international biotech investment Taiwan received that year was below 1%.

This lack of investment can be partially attributed to a lack of strong university-based research programs that enhance Taiwan’s R&D capacities. Taiwan’s premier research university, National Taiwan University, ranks below many of its Asian counterparts, putting it at a disadvantage when foreign firms look to outsource R&D. Investing more resources into Taiwan’s research institutions may bolster its ability to compete with Japan and Australia as they each vie to become a regional biotech R&D hub. Increasing partnerships between American and Taiwanese universities has been proposed as a way to resolve this issue, as it would allow researchers from Taiwan to develop relationships with those in the U.S. in important fields such as big data, machine learning, and AI.

Regulatory constraints

Another impediment to strengthening Taiwan’s role in global medical supply chains is related to its regulatory system. All pharmaceuticals and medical devices must be approved by Taiwan’s Food and Drug Administration (TFDA), whose regulatory approval process has been described as onerous and lengthy compared with other countries. One study found that TFDA approval usually comes about 30.5 months after the drug was first approved in another market. This approval lag has made Taiwan a less attractive option for firms developing new therapeutics and conducting clinical trials.

Beginning in 2015 with Taiwan’s implementation of a Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S), and more recently with passage of a new Medical Devices Act in May 2021, Taiwan has begun bringing its regulatory environment in line with global standards and has helped to accelerate the regulatory approval process. Still, gaps remain, and some, including Evan A. Feigenbaum and Michael R. Nelson at the Carnegie Endowment,  have suggested that creating working groups between U.S. and Taiwan regulatory bodies could help shorten Taiwan’s approval lag.

Regulations are also hindering Taiwan from fully leveraging its high-quality NHI patient data, which cannot currently be used by private industry due to Taiwan’s personal data protection laws. Making full use of its data, observers say, will require that Taiwan implement regulatory reforms that allow data sharing while ensuring the protection of individuals’ sensitive health information. Regulatory reforms should also allow for cross-border data sharing, enabling multinational firms to more easily use the data and combine it with data from other countries.

Among the other regulatory issues for biotech firms looking to do business in Taiwan is the time-consuming process for the National Health Insurance Administration (NHIA) to approve reimbursement prices for new drugs. A 2020 study found that it typically takes more than one year for a drug company’s application for inclusion in the reimbursement system to be acted upon, longer than all but two of the other countries studied. The study found that changes to the NHIA’s drug reimbursement policies in 2002 contributed to a longer time span and recommended that policymakers reform the reimbursement system to speed up the time to market for innovative new drugs.  

Heather Lin, chief operating officer at the International Research-based Pharmaceutical Manufacturers Association, says that one reason for such a long delay could be the low reimbursement price offered by Taiwan’s health authorities for new drugs. She says that in order to keep this low price from becoming the benchmark for other countries like China and South Korea, “manufacturers cannot accept or are not allowed by their HQ to agree to pay the price.” She notes that this often leads to a lengthy negotiation process between the government and manufacturers.

Another issue for the biotech sector has been a brain drain among R&D talent. Taiwan has an excellent pool of STEM (science, technology, engineering, and medical) talent, with more than 70% of Taiwan’s biotech personnel having received education in the U.S. However, they are often poached by overseas employers offering much higher compensation than can be found in Taiwan. The exodus of this top talent is another obstacle keeping Taiwan from becoming an R&D hub, and finding ways to attract and retain STEM expertise is critical if Taiwan wants to become a world leader in biotech.

Further frustrating Taiwan’s biotech ambitions is the difficulty of predicting where the industry is headed. The Taiwanese government’s goals for developing the biotech industry are laid out in several different government initiatives such as 2016’s 5+2 Innovative Industries Plan and the 2020 Six Core Strategic Industries Plan. These programs seek to identify key biotech-industry areas that are expected to grow in the future and to concentrate investment in those areas.

The problem with making such predictions, however, is that the biotech field is constantly evolving. Biotech is currently spreading to many different industries, including food and energy, making it difficult to pinpoint exactly which areas will yield the greatest returns. Instead of attempting to identify the most lucrative investments, many experts say that the government should focus on how it can address the regulatory and reimbursement issues that hinder the industry from growing organically.

No matter what action Taiwan’s government takes, most observers emphasize that time is of the essence, as Taiwan is not alone in recognizing recent opportunities in global medical supply chains. Wu of the DCB compared the current situation to the U.S. land rush in the 1800s, pointing to the vast opportunity in the biotech market and medical supply chains and the many countries now moving in to stake their claim. Those who get there first will reap the rewards, while those who wait will be left in the dust.

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