VZCZCXRO1878
PP RUEHCN RUEHGH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHVC
DE RUEHIN #2551/01 3370953
ZNR UUUUU ZZH
P 030953Z DEC 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7491
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHUL/AMEMBASSY SEOUL 9076
RUEHGP/AMEMBASSY SINGAPORE 7068
RUEHKO/AMEMBASSY TOKYO 9289
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 04 TAIPEI 002551 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/TC, STATE PASS USTR FOR STRATFORD/KATZ, 
TREASURY FOR OASIA/TTYANG, COMMERCE FOR 
4431/ITA/MAC/AP/OPB/TAIWAN 
 
E.O. 12958: N/A 
TAGS: TBIO ETRD ECON EINV TW
SUBJECT: BIOTECH IN TAIWAN: THE ECONOMY'S NEXT GROWTH 
ENGINE? 
 
REF: TAIPEI 2545 
 
¶1. (SBU) SUMMARY. In the 1970s and 80s, official funding and 
support fostered a Taiwan high technology IT sector that now 
ranks among the world's most competitive.  With the mainland 
and other low-cost producers offering increased competition, 
Taiwan authorities have identified biotechnology as a 
priority field for future economic development. Although 
Taiwan hopes to develop a biotech industry as quickly as 
possible, the sector does not yet play a major economic role. 
 On the positive side, Taiwan has the human and technical 
resources to become a significant player, particularly given 
a large pool of scientists and researchers both in Taiwan and 
abroad.  Challenges remain, however, in such areas as 
marketing, intellectual property protection (IPR), corporate 
culture, and wages that are not always competitive with 
international standards.  In order for Taiwan to exploit its 
biotech potential, therefore, it needs to ensure that a new 
crop of IPR, legal, and international management experts are 
in place and ready to develop the industry.  If Taiwan is to 
nurture a successful biotech sector, new management and 
production techniques will be required in order to succeed in 
the rigorously competitive global arena of drug manufacturing 
and marketing. END SUMMARY. 
 
 
BACKGROUND 
---------- 
 
¶2. (SBU) Biotechnology, or biotech, refers to the use of 
technology based on biology to develop agriculture, food 
science and medicines.  Biotech accounts for up to U.S. $800 
billion in product value worldwide, of which Taiwan 
contributes only 0.6 percent, or about $4.7 billion, compared 
with $200 billion for Japan, $15.9 billion for Singapore, and 
$7.5 billion for South Korea.  Taiwan is trying hard to catch 
up with its regional competitors.  Although venture capital 
is arguably the main ingredient in the successful U.S. 
biotechnology sector, Asian economies have often pursued 
official policies designed to nurture biotech development. 
Taiwan's new incentive program, for example, gives biotech 
start-ups a five-year tax holiday on 35 percent of their 
profits, a benefit not enjoyed by any other industry.  Other 
incentives include low-cost housing for returning expatriate 
Taiwan scientists, to help counter the high cost of living in 
cities such as Taipei. Overall, Taiwan's National Development 
Fund (NDF) plans to pump NT $30 billion (about U.S. $907 
million) into the biotech sector over the coming year.  In 
addition, certain underlying conditions favor biotech 
development in Taiwan.  Taiwan's research and development 
(R&D) costs are 30 percent of those in the U.S., for example. 
Compared with Hong Kong and Singapore, Taiwan has a larger 
population base and potential research talent pool from which 
to draw. 
 
TAPPING THE TALENT POOL 
----------------------- 
 
¶3. (SBU) DDIR and Econoffs recently visited Academia Sinica 
(AS), a research institution funded primarily by the Taiwan 
authorities. Academia Sinica has 24 research institutes 
covering physical and life sciences and humanities, and is 
headed by Wong Chi-huey, an MIT graduate and genomics expert 
who worked at Scripps Research Institute before returning to 
Taiwan.  Wong's interest is in chemical biology and new 
drugs, and he is the prime mover behind Taiwan's efforts to 
attract biotech talent back from the U.S. and other foreign 
countries.  Wong noted that although Taiwan excels in the 
numbers of patents issued, at third in the world, most of its 
innovative ideas sit idle and un-marketed.  To encourage 
biotech investment, Wong has been instrumental in helping 
push Taiwan's biotechnology incentive program through the 
legislature.  In addition to financial incentives, he 
observed, researchers employed at official agencies can also 
transfer their knowledge to private companies to help develop 
new drugs.  Unlike the IT sector, said Wong, business 
partners can be added at different stages of drug 
development. To help compensate for Taiwan's comparatively 
 
TAIPEI 00002551  002 OF 004 
 
 
low wage levels when compared with the U.S. and other more 
developed economies, Wong said AS pays researchers returning 
from abroad 17.5 months of salary a year, and also provides 
low-cost housing. 
 
MOEA-FUNDED R&D AND INVESTMENT 
------------------------------ 
 
¶4. (SBU) Taiwan's biotech effort is being directly financed 
by the Ministry of Economic Affairs (MOEA).  The Development 
Center for Biotechnology (DCB) is an example of MOEA-funded 
research.  DCB is a non-profit agency with a staff of 400, 
including 300 researchers.  DCB President Wu Ming-chi told us 
that the agency has two major facilities which provide 
protein drug research and toxicology analysis to the private 
sector, generating funds for its own research.  Unlike its 
sibling, the Industrial and Technical Research Institute, DCB 
does not focus on medical device development.  Instead, its 
major focus is  drug development, including small molecular 
drugs and Chinese herbal medicine.  While DCB does research, 
its other arm, the Biotechnology and Pharmaceutical 
Industries Program Office (BPIPO), promotes investment by 
both local and foreign industry.  In order to avoid conflict 
of interest perceptions, MOEA does not get directly involved 
in the biotech industry. MOEA-funded biotech companies 
include Taimed, PharmEssentia, and about a dozen others. 
 
TAIMED LEADING THE WAY INTO THE NEW BIOTECH 
------------------------------------------- 
 
¶5. (SBU) Taimed is a newly-formed company specializing in 
anti-virus drug development.  It has a staff of experienced 
researchers from overseas, and former Vice Premier Tsai 
Ying-wen is its president.  Tsai, a graduate of Cornell and 
the London School of Economics, exemplifies the new blood 
that Taiwan is relying on to remain competitive in the world 
market.  In a recent meeting with DDIR and econoffs, Tsai was 
optimistic about Taiwan's ability to excel in biotech.  She 
cited the vast pool of middle-aged Taiwan scientists in the 
U.S., including world-renowned HIV/AIDS drug researcher David 
Ho who is on Taimed's board.   With their expertise and 
experience, they could provide the impetus for Taiwan to 
develop a sector with as much potential as high technology. 
Taimed recently concluded an agreement with U.S. drug giant 
Genentech to develop the anti-AIDS drug TNX355, which blocks 
the entry of the HIV virus into human cells.  The drug is now 
undergoing phase two of clinical trials.  Once the drug 
passes clinical trials in the U.S., and is reviewed and 
approved, it will be marketed in Japan, Europe and the U.S. 
In Taimed's case, MOEA provided 40 percent of initial costs 
to help the company begin recruiting and set up an office. 
Tsai said Taimed's first priority is new drug development, 
 
SIPDIS 
followed by medical devices and next-generation 
manufacturing.  Although the government share of the company 
now stands at 40 percent, Tsai said the level will eventually 
be reduced to 20 percent or less.  Tsai believes at least 20 
years is needed for Taiwan's biotech sector to mature. 
 
 
PHARMAESSENTIA AND INNOVATIVE NEW DRUGS 
--------------------------------------- 
 
¶6. (SBU)  Econoff visited two companies in the Nankang area 
to get their insights on biotech developments. 
PharmaEssentia, a company with 45 staff founded by a group of 
Taiwan-Americans, is marketing CoQ10, an energy pill claimed 
to have rejuvenating properties.  PharmaEssentia recently 
marketed its CoQ10 in Japan, and is the largest manufacturer 
of CoQ10 outside Japan.  PharmaEssentia's Jack Hwang and 
Jason Lin, both with extensive experience in the U.S., said 
they are developing a drug to combat hepatitis, which 
afflicts thirteen percent of the population of Taiwan.  The 
drug has already undergone successful clinical trials with 
monkeys.  They said their former U.S. academic mentors 
encouraged them to return and get in on the ground floor of 
an innovative new industry, although their salaries here are 
only 20 percent of what they earned in the U.S. 
Pharmaessentia is 32 percent funded by the National 
 
TAIPEI 00002551  003 OF 004 
 
 
Development Fund, and the rest is from private sources. 
 
TLC AND DRUG DELIVERY SYSTEMS 
----------------------------- 
 
¶7. (SBU)  Taiwan Liposome Corporation (TLC), like 
Pharmaessentia, is a newly established company which has 
benefited from official help in getting started.  TLC was 
founded in 1997 and currently has a staff of 50, 90 percent 
of whom are from Taiwan, with the remainder US citizens. 
TLC's manager, George Yeh, a UC Berkeley graduate, said the 
company has cooperated on drug research with the National 
Cancer Institute in the U.S., and is now negotiating with a 
Japanese drug company to develop a drug to cure diabetes. 
Yeh said Taiwan has the technical expertise to develop drug 
delivery systems that will maximize effectiveness while 
reducing inconvenience.  Taiwan's small drug production units 
also can custom-manufacture small batches of particular drugs 
without having to shut down an entire production line, 
allowing them to tailor production to the requirements of its 
clients, mostly small, R&D-heavy companies with innovative 
ideas and patents, but without the market access or assets to 
compete with the drug majors.  Yeh emphasized that the entry 
bar for the global drug market is high--a minimum of $500 
million USD in product value, which among East Asian 
companies Japanese firms are best positioned to attain, since 
they have the marketing structure and financial wherewithal. 
 
 
CONTRACT MANUFACTURING -- NOT FOR BIOTECH 
----------------------------------------- 
 
¶8. (SBU)  Taiwan's IT sector has been able to keep ahead of 
the competition due to its innovation, contract production 
and outsourcing.  Today, as labor markets become increasingly 
competitive, biotech entrepreneurs are considering 
duplicating the strategies that proved successful in the IT 
sector. According to Academia Sinica's Wong, however, when it 
comes to drug production, finding cheaper labor is not the 
answer.  He also asserted that given the long developmental 
phase of drugs,  tax policy needs be relaxed on capital gains 
until biotech innovations have been marketed.  Our 
interlocutors in the biotech sector agreed that contracting 
out to the lowest-cost manufacturer will not work in the 
biotech sector, where long R&D times, stringent requirements 
at every phase of development,  and the high cost of drug 
testing require a different approach.  Next Generation 
Manufacturing (NGM), a new manufacturing strategy designed to 
quickly reconfigure factories for changing production 
demands, must be operated by highly-skilled workers which can 
quickly respond to customer needs.  Taiwan's biotech industry 
will need NGM to fully exploit smaller-scale production, as 
well as closely monitor and fine-tune manufacturing processes 
in order to meet the high requirements of drug production. 
According to TLC's Yeh, mainland drug testing facilities 
suffer from lax data collection and analysis practices.  As a 
result, biotech firms in Taiwan are reluctant to use them for 
drug testing and evaluation.  However, even after all the 
tests are done and the drug is ready to be marketed overseas, 
obtaining foreign regulatory approval is an art that Taiwan 
has not yet fully mastered, given the lack of IPR and legal 
experts. 
 
EDUCATING BIOTECH LEADERS -A CHALLENGE 
-------------------------------------- 
 
¶9. (SBU)  Taiwan's educational system is another potential 
impediment to biotech development because it has not fully 
adapted to the rapidly changing business environment and 
cannot always staff even the needs of its IT sector. 
Taiwan's students and academics focused mostly on the 
sciences and engineering when they went overseas to study in 
large numbers from the late 1960s through the 1980s. 
However, in their zeal to pursue the sciences, they typically 
did not focus on business and legal studies, resulting in a 
shortage of managerial and legal experts.  As a result, many 
of Taiwan's good inventions and patents do not make it into 
the island's economy, much less onto the world market.  Both 
 
TAIPEI 00002551  004 OF 004 
 
 
Academia Sinica's Wong and Taimed's Tsai acknowledge that 
Taiwan needs IPR experts and marketing strategies, and its 
researchers and businessmen need to develop a world view and 
think beyond their local market.  In negotiating with foreign 
entities, Taiwan's lack of expertise with global business 
culture often comes to the fore.  George Yeh of TLC told 
econoff that he underwent excruciating negotiations with a 
Japanese drug company over a diabetes drug his company had 
developed, mainly due to lack of understanding of Japanese 
business practices.  After considerable effort, he was 
finally able to conclude an agreement allowing the drug to be 
marketed in Japan. 
 
 
CONCLUSION 
---------- 
 
¶10. (SBU)  Biotech may be touted as Taiwan's future, but as 
our interlocutors in the biotech industry asserted, it will 
neither supplant the information technology (IT) sector nor 
dominate Taiwan's future industrial development.  As biotech 
expands, Taiwan could combine its IT strength with biotech in 
such areas as bioinformatics or computational biology. 
Serious deficiencies remain in Taiwan's biotech aspirations, 
however, including the inability to bridge the divide between 
patents and marketing, and the lack of legal experts to help 
certify products for use overseas.  This problem goes to the 
fundamental issue of Taiwan's corporate structure, which has 
traditionally been composed of small family-run businesses. 
In order to see their product reach global markets, the 
small, highly-specialized firms which dominate Taiwan's 
biotech sector have to seek partners with the drug majors. 
This strategy recently led Swiss drug giant Novartis to sign 
an agreement with Taiwan authorities to develop biotech 
through cooperative efforts on clinical trials, drug 
research, and training.  Taiwan needs to attract biotech 
talent, provide sufficient incentives to retain that talent, 
convince researchers of the sector's potential and, most 
importantly,  develop and train legal and IPR experts to 
complement and support research talent by ensuring 
innovations are protected and marketed.  As Taimed's Tsai 
indicated, it may take at least 20 years for Taiwan's biotech 
industry to reach maturity. 
YOUNG