VZCZCXRO9109
PP RUEHC
DE RUEHIN #0572/01 1152227
ZNR UUUUU ZZH
P 242227Z APR 08 ZDK
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 8756
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHHK/AMCONSUL HONG KONG 9433

UNCLAS SECTION 01 OF 05 TAIPEI 000572 
 
SIPDIS 
 
STATE PLEASE PASS TO AIT/W AND EAP/RSP/TC 
 
STATE PASS USTR/DKATZ AND USTR/JRAGLAND 
 
USDOC FOR 4430/ITA/MAC 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON TW
SUBJECT: Taiwan Pharma: Slower Approvals, Lower Prices 
 
REF: 2007 Taipei 2326 
 
TAIPEI 00000572  001.2 OF 005 
 
 
Summary 
------- 
 
1.(SBU) A slow and complex drug approval and pricing process in 
Taiwan limits drug choices for patients and reduces potential 
profits for U.S. pharmaceutical firms.  New drugs are often not 
available in Taiwan until more than two years after the drug has 
been available in the United States.  Taiwan reimbursement prices 
are falling so much that a number of U.S. and other foreign 
original-drug manufacturers have pulled drugs off the market.  To 
make matters worse, other countries are beginning to reference 
Taiwan's low reimbursement prices when setting drug-reimbursement 
prices in their own healthcare systems, magnifying the potential for 
increased losses for U.S. firms.  Representatives of foreign 
pharmaceutical firms point to inadequate funding for the national 
health insurance system as the fundamental problem with 
pharmaceutical prices, but are pessimistic that the authorities will 
raise healthcare budgets anytime soon. Taiwan's healthcare system 
has a cumulative USD 1.6-billion deficit. Taiwan's Department of 
Health estimates this deficit could reach USD four billion by 2015, 
while our pharmaceutical-industry contacts estimate it will increase 
to USD six billion by 2012.  End summary. 
 
Three-step Process Slows Time to Market 
--------------------------------------- 
 
¶2. (SBU) Introducing a new drug--or adding new medical use for an 
already-approved drug--to Taiwan's National Health Insurance (NHI) 
reimbursement list is a lengthy three-step process.  First, the 
Center for Drug Evaluations (CDE), a quasi-official committee that 
reports to the Department of Health (DOH) Bureau of Pharmaceutical 
Affairs (BOPA), must evaluate the safety and efficacy of the drug, 
and pass its recommendation to BOPA.  U.S. drug companies tell us 
that, even under the faster track for drugs already approved by the 
U.S. FDA, the CDE takes two to three months from the time of 
application to begin consideration of a new drug, after which the 
CDE will usually need several more meetings over another two to 
three months to review the new drug's clinical trial results and 
other data.  During this process, the CDE often asks drug companies 
for more information on some aspect of the drug's safety or 
efficacy, slowing the process further.  After the CDE passes its 
recommendation to BOPA's approval committee, BOPA reviews the CDE 
decision, and often asks companies for further information before 
finally granting approval for the drug's use in Taiwan.  Finally, 
the DOH Bureau of National Health Insurance (BNHI) then takes about 
six months to evaluate and assign a reimbursement price to the 
drug. 
 
¶3. (SBU) According to original-drug manufacturers, the problem is 
not only the sluggishness of the approval process, but also the 
process' unpredictability. Our contacts tell us that they cannot 
anticipate what sorts of data or other trial information the CDE or 
BOPA's committee will ask for, nor can drug-makers reliably predict 
how long it will take either to make a decision.  Peter Wang, 
President and Managing Director of Wyeth Taiwan, complained recently 
to econoff that "policy seems to change day by day." Wang said the 
CDE or BOPA will reject a drug for a myriad of often-unpredictable 
reasons, and each agency will often ask for further information or 
additional trials, slowing down the approval process by two to three 
months with each request. 
 
¶4. (SBU) Original-drug manufacturers in Taiwan also claim that the 
authorities have become less willing to accept drug-trial results 
and other documentation from outside Taiwan. For example, for drugs 
manufactured in Europe, Taiwan formerly accepted a certificate of 
approval from either E.U. or U.S. regulatory authorities in order to 
fast-track the drug for domestic use. Taiwan, however, now requires 
certification from both, which usually results in a delay while the 
company waits for the approval process to finish in the United 
States. Je Hwa Park, Managing Director for Janssen-Cilag (JC) 
Taiwan, recently told us that in the past, Taiwan's drug-approval 
authorities waived bridging studies--supplemental studies performed 
in Taiwan to provide clinical data on the efficacy, safety, and 
dosage specifically for the Taiwan market--for about 85 percent of 
all drugs, but that this has fallen to 45 percent since 2004. 
Sometimes, even a bridging study is not enough. According to Park, 
in one recent case, the CDE required JC to re-start the testing and 
trial process for a new anti-cancer drug, while the Korean 
regulatory authorities asked only for a bridging study for the same 
drug. 
 
¶5. (SBU) BOPA Director General Chi-chou Liao, however, recently told 
 
TAIPEI 00000572  002.2 OF 005 
 
 
econoff that the agency's licensing and approval process has not 
gotten any slower for most new drugs, nor did he think that BOPA has 
significantly increased requests for supplemental studies.  Liao did 
comment, however, that BOPA has become more aware in recent years 
that the effectiveness of some drugs changes due to ethnic 
differences between people in Taiwan and the test subjects of most 
clinical studies done outside of Taiwan. For example, Liao noted, 
BOPA has found that a lung cancer drug that was withdrawn from the 
U.S. market as ineffective is in fact very effective for Taiwanese 
lung cancer patients. Due to cases such as this, BOPA will sometimes 
ask for additional studies that include Taiwanese or Chinese 
patients. 
 
¶6. (SBU) After the CDE and BOPA approve a drug for use in Taiwan, 
BNHI begins the process of assigning a reimbursement price for the 
drug.  Although BNHI usually takes about six months to assign a 
price, original drug manufacturers say that the initial price is 
usually much lower than the median price in the group of 10 advanced 
economies (A10) that the pharmaceutical industry uses as a worldwide 
price benchmark, which comprises the United States, Canada, 
Australia, New Zealand, France, Germany, Italy, Sweden, Switzerland, 
and Belgium.  Since the initial price is usually lower than what the 
companies are willing to accept, in most cases they appeal the BNHI 
decision, setting the six-month process in motion again, and 
prolonging the pricing process to one year.  In a recent meeting 
with econoff, BNHI Vice President Cheng-hua put the blame for long 
price-assignation processes on drug companies for appealing "again 
and again" for higher prices after BNHI has set an initial price. 
Lee noted that tight BNHI budgets have forced the agency to set 
initial prices that are in many cases lower than what drug firms 
expect, but added that most new drugs introduced into Taiwan are not 
"breakthrough" drugs, and that drug companies should therefore not 
expect prices for such drugs to be close to the A10 average. 
 
¶7. (SBU) Chang Ly-yun, Chairwoman of Taiwan's only NGO focusing on 
overall healthcare reform, the Taiwan Health Reform Foundation 
(THRF), told econoff on April 17 that tight BNHI budgets have indeed 
prompted the Bureau to set low initial drug prices.  She blamed the 
budget woes on both inadequate funding for the Taiwan healthcare 
system, as well as BNHI's failure to remove older, less-effective 
pharmaceuticals from its 10,000-drug reimbursement list.  Continuing 
to reimburse hospitals for dispensing older drugs, she maintains, 
saps money that could be available to pay more for newer, more 
effective medicines.  Chang suggested hospitals may be prescribing 
these older medicines less for their medical effectiveness and more 
out of either habit, or in order to raise hospital revenues from the 
difference between the lower prices hospitals have negotiated with 
drug companies and the higher amounts that BNHI reimburses for the 
same drugs. 
 
¶8. (SBU) In any case, according to drug-industry figures, the 
average time for the approval plus pricing processes has increased 
to at least two years from an average of one year earlier this 
decade.  Wyeth's Wang said that, in his company's experience, 
getting a drug to market in Taiwan now takes from two to 2.5 years. 
Janssen-Cilag's Park recently told econoff that, due to slower 
approvals and pricing times, JC launches new products in Taiwan from 
one to two years behind South Korea, where he says approvals have 
sped up over the past two years.  Park blames both BNHI for what he 
characterizes as its slow and unsatisfactory pricing decisions, as 
well as the separate--and sometimes conflicting--review processes at 
BOPA and CDE.  He accused BOPA and CDE bureaucrats of creating new, 
ad-hoc approval hurdles to increase their agency's power and prove 
how "patriotic" they are by "linking approval to reducing the 
financial burden on the healthcare system instead of healthcare 
need."  This translates to a situation where, in many cases, Taiwan 
patients must wait two or more years after the drugs have been 
approved for the U.S. market. 
 
Low Prices Reducing Market's Appeal 
----------------------------------- 
 
¶9. (SBU) Original-drug manufacturers' difficulties don't end when 
they finally get a BNHI reimbursement rate for a new drug, since the 
initial price is, in most cases, continually reduced by BNHI's 
biannual price-volume surveys (PVSs). Since individual hospitals 
negotiate drug prices directly with drug companies, BNHI conducts 
PVSs to ascertain the average price that Taiwan's hospitals are 
paying for each drug, and then adjusts the reimbursement rate. After 
each PVS, hospitals typically re-negotiate contracts with drug 
companies in order to push the price down again, since hospitals 
rely heavily on revenues derived from the difference between the 
prices they have negotiated with drug companies and the higher 
amounts that BNHI reimburses for the same drugs--the source of the 
 
TAIPEI 00000572  003 OF 005 
 
 
so-called "Black Hole" in Taiwan's pharmaceuticals budget (reftel). 
 
 
¶10. (SBU) The result of this continual downward price pressure is 
that, according to estimates by original-pharmaceutical 
manufacturers, average prices for on-patent drugs in Taiwan are 40 
percent below the A10 median. According to Jordan Ter, Managing 
Director for Merck, Sharpe and Dohme Taiwan (MSD), low profits for 
original-drug manufacturers have reduced Taiwan from one of the 
region's most attractive markets to one of the least over the past 
five years.  MSD and other drug makers tell us that their 
projections show Taiwan will be the lowest-growth market for 
original drugs in East Asia over the next five years. 
 
¶11. (SBU) Ter is also pessimistic about the long-term market for 
original-drug makers in Taiwan.  He recently told econoff that 
Taiwan is less and less important to MSD headquarters, which focuses 
instead on other regional markets such as Japan, China, and, 
increasingly, South Korea, which he says offers both a larger market 
and a better business and R&D environment. He hopes that Taiwan will 
become an easier place for drug companies to do business after a new 
administration takes office in May, but for now he is worried that 
his headquarters' recent trend of reducing both sales and research 
funding in the Taiwan market will continue. 
 
¶12. (SBU) According to Janssen-Cilag's Park, Singapore, Korea, 
Thailand, and China are now competitive with Taiwan in drug trials, 
and since his company's funding for trials tends to correlate with 
sales, he believes that the company will continue a relative shift 
of spending on research and trials into other markets.  Park said 
although absolute investment in the Taiwan market has been steady 
over the past few years, the company's investment in Taiwan relative 
to other regional markets is less than it should be considering 
Taiwan's research capabilities. 
 
¶13. (SBU) David Lin, Country Manager for Pfizer Taiwan, told econoff 
recently that slowing sales have caused a two-year decline in the 
company's business in Taiwan.  However, Lin said Pfizer--unlike 
other foreign drug makers in Taiwan--separates its view of a 
market's sales potential from decisions on where to invest its 
research and testing dollars.  According to Lin, Pfizer continues to 
increase testing and research spending in Taiwan due to the high 
quality of Taiwan's research hospitals and universities. 
 
Low Prices Pushing Drugs Out of Market 
-------------------------------------- 
 
¶14. (SBU) Taiwan's low reimbursement rates are not just hurting 
companies' sales figures, but are also driving drugs out of the 
domestic market.  In some cases, successive price-volume surveys 
reduce the BNHI reimbursement price to such a low level that 
pharmaceutical companies stop selling the drug in Taiwan.  According 
to Ter, MSD has already pulled several drugs from the Taiwan market. 
 MSD has pulled drugs from other markets in the region as 
well--including New Zealand--and Ter said that the company will not 
hesitate to continue doing so in any market where the price drops 
below cost.  According to David Lin, in 2007 alone, Pfizer stopped 
selling 10 of its total Taiwan line of 90 drugs for this reason. 
Janssen-Cilag and Wyeth also both told us that they have dropped 
products from the Taiwan market for the same reason. 
 
¶15. (SBU) Sometimes the difference between Taiwan's reimbursement 
price and the international market price can put firms in an awkward 
position of considering pulling potentially life-saving drugs from 
the market.  In the case of the Pfizer product Solu-cortef, which is 
used in ambulances and emergency rooms for treating acute 
tuberculosis and severe allergic reactions, the company decided in 
early 2007 to remove the drug from the Taiwan market after the last 
PVS reduced the BNHI reimbursement price to 28 NT/vial, well below 
the international market price of 130 NT/vial.  The company decided 
to phase the drug out over 2007 in order to give customers time to 
adjust.  In December 2007, however, hospitals notified Pfizer that 
the drug is "essential" and cannot be supplied by local generic-drug 
manufacturers, and asked the company to continue selling the drug in 
Taiwan.  Pfizer then notified BNHI that the company will not be able 
to supply Solu-cortef to Taiwan unless BNHI moves quickly to 
re-adjust its reimbursement price to at least 75 NT/vial. 
BNHI, however, has not moved to expedite the price review, meaning 
that the Bureau will not start consideration of this price 
readjustment until late April, with a final decision unlikely until 
August. Pfizer has not decided what to do, but told econoff that if 
BNHI does take until summer to decide, Pfizer will stop selling the 
drug in Taiwan. 
 
 
TAIPEI 00000572  004.2 OF 005 
 
 
Defensive Moves to Drop Drugs from Market 
----------------------------------------- 
 
¶16. (SBU) Foreign drug companies in Taiwan also express concern that 
countries in the region are starting to reference BNHI's 
reimbursement prices when setting drug-reimbursement prices in their 
own healthcare systems. According to several companies' 
representatives, in 2007, Korea started to set Taiwan reimbursement 
prices as target prices for original-drug manufacturers' products in 
Korea.  Wyeth's Wang said that China and Thailand were also starting 
to reference Taiwan's prices--which are both attractively low and 
also clearly posted on the BNHI website--when determining their own 
domestic drug prices.  Wang warned that if this continues, Wyeth 
would consider removing drugs from the Taiwan market--even 
profitable ones--as a defensive measure to avoid losing money in 
other markets. JC's Park said that the company has already pulled 
products out of Taiwan for this reason, and echoed Wyeth's concerns 
about other countries using Taiwan's reimbursement prices to set 
prices in their own markets. 
 
Low Healthcare Budget Is Root of Problem 
---------------------------------------- 
 
¶17. (SBU) Representatives of foreign pharmaceutical firms all point 
to inadequate funding for national healthcare as the fundamental 
problem with BNHI pharmaceutical pricing. According to healthcare 
experts in Taiwan, per-capita monthly premiums and visit co-pays are 
roughly half of those in South Korea, which has a national 
health-insurance system of similar scope and age as Taiwan's 
(reftel). As a result, Taiwan's National Healthcare Insurance (NHI) 
system has a cumulative deficit of USD 1.6-billion.  Our 
pharmaceutical-industry contacts estimate this figure will increase 
to USD six billion by 2012, and BNHI itself estimated in 2005 that 
the NHI deficit would reach USD four billion by 2015 if premiums are 
not raised.   Because of the healthcare system's budget woes, both 
public and private hospitals are severely underfunded, and therefore 
make up shortfalls in the difference between the lower prices they 
have negotiated with drug companies and the higher amounts that BNHI 
reimburses them for the same drugs.  According to BOPA Director 
General Chi-chou Liao, hospitals derive up to half of their 
operating profits from this difference.  To ensure that this price 
gap remains as high as possible, hospitals--which are by far the 
drug companies' largest customers in Taiwan--constantly negotiate 
with drug companies to push prices down. 
 
¶18. (SBU) Wyeth's Wang believes that, due to Taiwan's relatively low 
healthcare spending, delaying the next PVS or implementing standard 
contracts for all hospitals would provide only temporary relief to 
original-drug manufacturers.  JC's Park agrees that implementing 
mandatory standard contracts will not make a difference as long as 
the budget does not grow, and told econoff that the only long-term 
solution is either to cut back on healthcare services or persuade 
the Taiwan public that it will need to pay more to enjoy the current 
level of health care. 
 
¶19. (SBU) Most of our private-sector interlocutors, however, are 
pessimistic that Taiwan's leaders have the political will to make 
such efforts.  Instead, they project that in the short and medium 
terms, BNHI will continue to try to control costs by reducing 
reimbursement prices for original drugs, and hospitals will continue 
to re-negotiate drug prices whenever this happens.  Although 
Pfizer's Lin thinks policymakers and voters in Taiwan are smart 
enough to fix the budget problem before a true crisis arrives, he 
worries electoral pressures will continue to put the fear of rate 
hikes into the average politician and bureaucrat. JC's Park sounded 
the only note of optimism among the U.S. firms, recently telling 
econoff he believes that 2008 in Taiwan could be the year voters 
decide that without an increase in funding and a decrease in some 
coverage, the healthcare system will begin to falter. 
 
Comment 
------- 
 
¶20. (SBU) Taiwan's National Health Insurance system is hugely 
popular and provides a relatively high level of care at low prices 
to virtually everyone in Taiwan.  Unfortunately the system is not 
sustainable at current funding levels, it delays access to the 
newest medicines, and greatly reduces potential profits for U.S. 
firms. The United States may want to widen the topics discussed 
under TIFA pharma working groups to include ways to speed up 
pharmaceutical approvals in Taiwan.  We will be engaging with the 
CDE, BOPA, and BNHI over the near future to express our concerns 
about the drug approval and pricing process. As for increasing BNHI 
spending on drugs, foreign pharmaceutical firms may have domestic 
 
TAIPEI 00000572  005.2 OF 005 
 
 
allies in doctors and the hospitals that they work for, which form 
the most powerful domestic medical interest group (see reftel for 
more information).  End comment.