By learning from its earlier failures as well as from the transformation that took place in the U.S. pharmaceutical industry after the 1980s, the Taiwanese state modified its approach and strategies in promoting the development of biotechnology in 1995.
Between the launch of the Promotion Programme for Biotechnology (1995) and the very recent state project (The Biotechnology Take Off Package, 2009), the Taiwanese state gradually changed its policies and strategies so that they became based on the structure of the global value chain. In contrast with the former stage, the state’s role has now changed from being the leader to being the network builder as well as from being the main actor to becoming a supporter. In a very general sense, the state’s novel actions have been to seek to build the networks that can link scientists, firms and financiers together in order to generate the dynamic synergy needed to develop the biopharmaceutical industry. However, the route taken in this transition has been very rocky and many coordination problems still need to be solved. These are discussed further on.
The Taiwanese state’s transformation has had to do with two concurrent tendencies in Taiwan’s political economy. The first involved the democratization process, through which the state’s leading role in economic development has been in decline. This democratization process has led to a situation in which the state’s economic planning agencies, the CEPD in particular, almost lost their guiding and leadership function in the process of economic planning. The challenges have come about not only from the Legislative Yuan, where elected lawmakers voiced their own or their represented interests, but also from localities where local interests might resist the economic
planning of the CEPD or the policies implemented by the executive branches of the state. One of the best examples was the anti-Bayer environmental incident, when the central state invited and received a promise from Bayer, the German chemicals manufacturer, to invest in Taichung County (located in central Taiwan). This triggered strong reactions from local environmental organizations, which in turn led the county government to support the environmental groups and to resist adopting the central state’s decision. Bayer finally decided not to invest in Taiwan and moved the plant to China.
Second, along with the political democratization process, the Kuomintang (KMT) regime, which created the Taiwanese developmental state, lost the presidential election to the Democratic Progressive Party (DPP) in 2000. The DPP regime has been well known for its proneoliberal approach as opposed to a state-direct approach to the economy and for advocating Taiwan’s independence (Wang 2006). This had two major impacts on the development of the biotechnology industry. The first impact was that the KMT regime’s plan with regard to economic development was largely revised. The KMT regime’s decision to revise its policy on biotechnology had to do with its recruitment of prominent scientists overseas who would return to Taiwan to enhance and facilitate the development of science and technology. Among them, two were very significant. The first one was Dr Cheng-Wen Wu, a prominent specialist in virus oncology, who returned to Taiwan in 1988 to serve as the director of the Institute of Biomedical Sciences at Academia Sinica. Because of him, the KMT regime began to revise its biotechnology policies and planned to set up a new
National Health Research Institute (copied from the National Institutes of Health model for the United States) in 1996, which in turn would convince even more prominent scientists to come back (Wu 2006). The second was the return of the Nobel Laureate Yuan-Tseh Lee, who was then a professor at the University of California at Berkeley, to serve as the president of the prestigious Academia Sinica in 1994. Owing to his good academic connections with global and overseas Chinese in the United States, Lee convinced many internationally renowned scientists to return to Taiwan to work at Academia Sinica. These scientists had a great impact on the revision of biotechnology policies in the later years of the KMT regime. However, owing to the regime shift, the policies drawn up were either reevaluated or postponed. Second, the DDP regime’s proneoliberal approach to the economy also had a great impact on the development of biotechnology. The new director of CEPD in the new government (2000–2002) even cancelled the regular monthly meeting of the advisory board and downgraded the importance of cross-ministerial meetings in decision making. The successor to this position in the state hierarchy followed suit. As a result, the leading role exercised by the CEPD in the economy was greatly reduced. The result was that there was no leading state agency that could coordinate economic policies, which was a typical feature of the former KMT regime.
Nevertheless, it was clear that Taiwan’s economy had to be transformed into a knowledge-based economy and that the state still needed to facilitate this transformation. Indeed, the DPP regime put itself in a very awkward position by simultaneously holding onto its beliefs in the neoclassical economic doctrines while
also intending to move toward a knowledge-based economy. The state was in the process of finding a new model, but the state leaders had no clear ideas as to how to achieve the economic transformation. The chaotic coordination problems therefore continued in both policymaking and implementation. This feature was particularly apparent in the state’s plans to promote the biopharmaceutical industry. On the one hand, the state wanted to develop this industry and set up goals to achieve it; on the other, the state did very little to coordinate the activities of the various agencies or to promote the industry’s development in a more efficient way. As a result, the development of the biopharmaceutical industry was left in the hands of those returnees who had enough knowledge and enthusiasm to push the state to promote the industry.
As has already been mentioned, the return of prominent scientists such as Dr.
Cheng-Wen Wu and Dr. Yuan-Tseh Lee had a great impact on the development of biotechnology in the later years of the KMT regime. They continued to recruit and attract more prominent scientists to return. The current president (2006) of Academia Sinica, Dr. Chi-Huey Wong, who is an internationally renowned specialist in bioorganic and synthetic chemistry, was recruited by Lee to work at the Genomics Research Centre in 2000. Another scientist, Dr. Michael M. C. Lai, a prominent specialist in molecular biology, was recruited by Lee in 2003 to work at Academia Sinica. These people’s social networks had a snowball effect in that they attracted more and more biotech people working in the United States to return. This situation was very similar to that of the IT industry in its earlier stages, when the returnees
contributed extensively to the networking relationship between Taiwan and the United States (Amsden and Chu 2003; Mathews and Cho 2000; Saxenian and Hsu 2001).
As a result of the participation of these specialists in biotechnology in the policy networks, many unsuitable laws and bureaucratic regulations began to be modified.
For example, since 1997 the state has held the Strategic Conference on the Biotechnology Industry on an annual basis, bringing together not only local and overseas scientists but also firms and state bureaucrats to discuss issues related to the development of biotechnology. The status of the annual conference had been largely elevated since 2005, when it was singled out to become the Strategic Consular Committee for Biotechnology under the Science Advisory Group of the Executive Yuan, which stood alone as the most important committee in contrast with the Strategic Consular Committee of Science and Technology for the rest of the high technologies. Moreover, a biotechnology advisory group was formed afterwards to streamline the administrative work of a large number of state research agencies, such as Academia Sinica, the Ministry of Education, the National Science Council, the Ministry of Economic Affairs, the Council of Agriculture, the Ministry of Finance, the Environmental Protection Administration, the DCB, the ITRI and the Department of Health. Later, the National Health Research Institute and the Biomedical Engineering Centre of the ITRI (established in 1999 and renamed the Biomedical Engineering Research Laboratories in 2006) also joined this group, so that all related departments of the state would become part of the streamlining process. The latest
change was the legislation in the form of the Biopharmaceutical Act of 2007, which was the single most important law that had ever been designed for a specific industry.
This act recognizes the fact that developing a new drug is so different from the activities of an industrial manufacturing firm that many tax incentives have been extended to help defer the expenses of R&D activities, of recruiting university professors (they were also given a certain degree of freedom to collaborate with private firms), of allowing university professors to create their own venture capital firms and of purchasing expensive R&D equipment. This law was the Taiwanese version of the Bayh-Dole Act of the United States, which was passed in 1980.
Along with the streamlining of the state policies and coordination functions, there were two other state actions that were particularly important to the promotion of the biotech industry. The first was the construction of biotechnology parks around the island after 2000 in order to create a cluster effect. Although many of the parks were creations of political campaigns revolving around periodical elections, there were still successful cases that indeed generated positive effects. The most successful case was the Biotechnology Plaza in the Nankang district of Taipei city, which was founded in 2003. This state-of-the-art facility was located near R&D resources and institutes such as the Academia Sinica, the DCB and many major medical centres. Furthermore, the National Health Research Institute, the National Science Council and the Biotechnology and Pharmaceutical Industries Promotion Office also established a presence in the park. The Nankang site has been focusing on biopharmaceutical research and has now become the key biotechnology cluster in Taiwan.
The second state action that was important for the development of the biopharmaceutical industry was the state’s input of financial resources. Since the implementation of the Biotech Action Plan in 1995, the state has channelled more financial resources into the biotech industry than it did before. The state’s actions include channelling resources from the Development Fund into a few exemplar firms, inviting privately owned venture capital companies with funding from the Development Fund to form new venture capital firms (NDF 2007–2009) and using tax incentives to induce capital to invest in biotechnology, as well as enhancing the special projects that call for collaboration between firms and universities. The financial support has increased over the years, from NT$6.7 billion in 1997 to NT$21.5 billion (approximately US$660 million) in 2006, which was approximately a 3.2-fold increase (IDB 2007, 117). Moreover, about NT$9 billion was invested in 20 different new biotech firms by venture capital firms (TVCA 2007).
The state’s active role in promoting biotechnology has attracted much overseas and domestic investment to this industry. In 2006, there were 253 companies in Taiwan’s emerging biotech sector, with a total revenue of US$1.21 billion, of which many were created by overseas returnees from the United States; almost all of them were small and medium-sized companies. In addition, many of the newly established biotech firms were created after the late 1990s and were in the biopharmaceutical industry (cf.
Chen and Wang 2009).
The state’s active new role in building global-local networks has created an environment in which many new science firms have emerged to develop new drugs or to engage in some segments of the value chain, such as producing active drug ingredients or contracting manufacturing for global branded firms. Currently, there are many newly established science firms that have contracted out their research results to large foreign pharmaceutical firms, who have then proceeded to apply to the US FDA for approval (Tseng 2008). There are a few reasons for the global linkage and the local delinkage of these emerging science firms. The first is that even though the state has tried to use its administrative power to persuade venture capital firms to enter the industry, Taiwanese venture capital firms lack the patience capital to finance such long procedures in developing new drugs. To them, the biopharmaceutical industry is a high-risk and money-consuming industry that has little guarantee of success. In addition, the state’s Development Fund should be distributed to a large number of firms rather than being concentrated on one or two firms. As a result, the new science firms are all very small and do not have enough resources to follow all the procedures in developing new drugs.
Second, many of the scientists who have come back from the United States, where they had worked for a long time, are very accustomed to the buy-and-sell model in the biopharmaceutical industry. The Taiwanese state’s policies to encourage the building of the biotech industry, plus the state’s active recruitment, have provided them with the incentive to come back. These scientists tend to think that creating the biopharmaceutical industry at the current stage is more important than building the
domestic industry, which may require a long time to become viable (Wong 2007).
Therefore a link with the domestic firms, which is now missing, may have to be forged in order to develop the biopharmaceutical industry.
Third, Taiwanese firms have lacked the experience to do the research that is necessary to develop new drugs and, as a result, most of the new firms have concentrated on basic scientific research and left the applied research to the global firms. Moreover, the Taiwanese pharmaceutical firms are currently too small to handle the whole value chain process and they can produce only generic drugs. Although the DCB was designed to engage in translation research, it has not yet accumulated enough experience in this regard. The DCB has turned out to be just another R&D institute that has not developed the ability to engage in translation research (Yung 2009, 17).
As a result, the new science firms can develop only new candidate drugs and sell them to big global firms in exchange for handsome royalties (DCB 2006).
To sum up, compared to the former stage, the state in this period has given up the role of top-down leadership and instead has become an enabler that has tried to encourage firms to enter the industry and has sought to link them up with R&D institutes and the global knowledge community. However, this transformation has not proceeded in a smooth manner and the political democratization process as well as the DPP regime’s neoliberal economic strategies have hampered the biotechnology industry’s smooth development owing to the lack of policy consistency and effective coordination. It has mainly been because of the scientists’ networks and their efforts in persuading and
pushing the state to implement effective policies that the formation of an environment conducive to the biotechnology industry has finally resulted.
Conclusion
This chapter compares the different approaches that the Taiwanese state adopted in developing the biopharmaceutical industry in the 1980s and in the period after the mid-1990s. It argues that the state’s failure in developing this science-based industry in the former period has to do with the top-down state-leadership approach, the lack of leadership and effective coordination, as well as the unfavourable international industrial structure that was dominated by a few giant global firms. In addition, the state during that period had invested limited resources in the biotechnology industry, with the consequence that the biopharmaceutical industry had achieved very little up to the mid-1990s.
From the mid-1990s on, owing to the democratization process and the lessons learned from the former failures, the Taiwanese state began to adopt a different approach.
However, the regime shift hampered the new industry’s smooth development. In addition, the DPP regime’s administration in its initial stages further hampered the biotechnology industry’s smooth development as a result of the lack of an effective policy and coordination. It was, however, mainly the scientists’ networks and their efforts in persuading and pushing the state to implement effective policies that finally resulted in the formation of an environment conducive to the development of the biotechnology industry. The state finally became a platform builder, which has helped
to nurture the emergence of new science firms; these have been integrated into the global value chain controlled by a few branded pharmaceutical firms.
Therefore the transformation of the state in fostering the development of the biopharmaceutical industry has largely benefited from the involvement of those prominent scientists and their push for the modification of laws and policies. The DPP regime lacked key politicians who could coordinate different state bureaucracies to promote the biotech industry and it also did not have the vision or capability to plan the economy owing to its proneoliberal approach to the economy. These shortcomings caused the biopharmaceutical industry to develop in a less efficient manner. The passing of the Biopharmaceutical Act of 2007 indicated that the Taiwanese state’s support for biotechnology had moved to a new stage at which much more flexible approaches were designed specifically for this industry.
Nevertheless, owing to the existing industrial structure and the lack of capital, Taiwan’s development of the biopharmaceutical industry has resulted in its becoming only a segment of the global value chain controlled by giant foreign firms. The small Taiwanese science firms do not have the financial ability to proceed through all the stages in the process of the development of new drugs and they therefore tend to sell their candidate drugs to large global pharmaceutical firms. The irony has been that the state thus actually subsidizes the R&D activities of the global giants and the small science firms have neither the intention to work with the existing local pharmaceutical firms nor the capability to integrate with them. The state’s efforts in developing
this innovation-based industry have essentially resulted in it being the R&D segment of the giant global firms.
Note
1 This chapter is a partial result of a project supported by the National Science Council of Taiwan (97-2410-H-004-077-MY3). It is also an expanded version of a comparative study of Taiwan, Korea, and China on the development of the
biopharmaceutical industry (see Wang, Cheng, and Tsai 2012).
2
de-coupling
1980 B
1995
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168.3 14.2 10.7
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1,187.2 100.0 8.2
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971.3 78.2 4.3
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2 1998-2009
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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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2010 p.356
original ……
17
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2009 2010 2009
14 9 Recormon Roche 8.61 -4.2
15 15 Tazocin Pfizer 8.27 7.2
16 80 Humira Abbott 7.77 146.7
17 27 Forteo Lilly 7.74 34.7
18 21 Tarceva Roche 7.64 15.1
19 16 Iressa AstraZeneca 7.61 2.5
20 7 Amaryl Sanofi-Aventis 7.56 -19.9
2011 25
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