Pharmaceutical Pricing and Reimbursement

In late 1996, Taiwan's Bureau of National Health Insurance (BNHI) developed "Five Principles" for determining pharmaceutical reimbursement prices in Taiwan. PhRMA and its member companies believe that these "Principles" represent a serious discriminatory barrier against PhRMA member companies in Taiwan in favor of the local pharmaceutical industry. The "Five Principles" suggest, in essence, that the prices of brand-name products in Taiwan be tied specifically to the prices of generic products which have proven bioequivalency with the originator's product in that country. In 1997, while original manufacturers' reimbursement prices were reduced, local generic reimbursement prices were increased and were almost at the same levels as the original product prices.

The fifth "Principle" even goes so far to suggest that, "when health care providers apply for reimbursement of products with the same active ingredients, specification, dosage form and dosage, it shall not be higher than the lowest brand-listed price (i.e., the lowest local bioequivalent [BE] generic price for BE generics, and the lowest common generic price for common generics," which have not proven bioequivalency).

PhRMA believes that this pharmaceutical pricing policy implemented by the Taiwan Government inhibits pharmaceutical innovation both in Taiwan and the rest of the world, dilutes intellectual property rights in Taiwan and discourages price competition. The combination of these onerous pricing policies plus the inability of foreign companies to receive an adequate price adjustment to counter the negative effects of the major currency devaluations during the regional financial crisis, are having a devastating impact on the business operations of PhRMA member company affiliates in Taiwan. In fact, five major multinational companies closed down their Taiwan-based manufacturing operations in 1997.

In 1998, the U.S. Government and Taiwan renewed bilateral consultations on sector specific issues, including the pharmaceutical sector, under the Trade Investment Framework Agreement (TIFA). The TIFA provides a forum for regular consultations in which industry's concerns on pricing, regulatory and intellectual property protection can be raised. For most of 1998, the U.S. Government concentrated on addressing the pharmaceutical pricing and reimbursement issues; however, the Taiwanese Government remained resistant to any change in pricing policies or currency adjustments because of the country's economic constraints from the Asian financial crisis.

In efforts to continue the dialogue on this subject, yet respect the Taiwanese economic situation, the U.S. Government agreed to a one year moratorium with the Government of Taiwan on negotiations on pharmaceutical sector pricing and reimbursement issues. During the one year moratorium, all pricing and reimbursement issues will be addressed in separate working level consultations, but the pressures of achieving a final resolution in a short period of time under the TIFA have been somewhat alleviated. Negotiations on pricing and currency adjustments under the TIFA will resume in one year, but, in the meantime, side consultations will continue to address all factors affecting pricing and reimbursement including:

  1. adequate price adjustments for U.S. medicines in efforts to counter the effects of the severe currency devaluations resulting from the financial crisis,

  2. the elimination of a proposed third round of price cuts which has been extended to 600 medicines from the original list of 100 in 1996,

  3. recognition of the value of innovation through adequate price differentials between generics and original branded products,

  4. other systemic reform measures to facilitate efficiency and cost containment such as the elimination of differentials between purchase prices and reimbursement prices.

On an important note, PhRMA supports the adoption of a market-based system for pricing and reimbursement in Taiwan. Adoption of a market-based system will provide the engine to support Taiwan's interest in developing its capacity for pharmaceutical and biotech R&D, support stabilization of Taiwan's financial system, further support Taiwan's economic development, and provide Taiwanese people with access to world-class, innovative, lifesaving medicines.


Clinical Trials

The Taiwanese Government recently has mentioned its intention to eliminate requirements for local clinical trials on all pharmaceuticals. PhRMA supports this initiative by the Taiwanese Government, and recognizes steps already taken by the DOH to exempt trial requirements on cancer drugs, orphan drugs and AIDS medications. Still, it will be important to discuss under the TIFA the process for elimination of clinical trials and other regulatory measures that will facilitate Taiwan's harmonization with the international community. PhRMA is concerned that the proposed elimination of clinical trials refers only to those products where Taiwan was represented in multinational, multi-site clinical studies. For clinical trials where Taiwan was not represented, local clinical trials may still be required.

If this is the case, the Taiwan Department of Health (DOH) announcement to eliminate the requirement for the trials on all products over an 18 month period through a quarterly review process will not be broadly interpreted to mean the acceptance of foreign clinical data as the basis for current international harmonization activities. Industry encourages Taiwan's involvement in the global regulatory harmonization initiative through the adoption of the guidelines on the acceptance of foreign clinical data developed through the International Conference on Harmonization (ICH). PhRMA also hopes that officials from Taiwan will attend the 2nd Asia-Pacific ICH Regulatory Affairs Conference, to be held in Singapore in February 1999, under the auspices of the International Federation of Pharmaceutical Manufacturers Associations (IFPMA) and the Association of British Pharmaceutical Industries (ABPI).

Under the ICH guidelines, the three regular members of ICH - the U.S., Europe, and Japan - came to a agreement (at Step 5 of the "E-5" or "Ethnic Factors" Topic) to accept clinical data from each other's country or region that had been certified to meet international standards on safety, quality, and efficacy. These standards include Good Manufacturing Practices (GMP); Good Laboratory Practices (GLP); and Good Clinical Practices (GCP). ICH members agreed to accept data collected in other countries that meet ICH standards of safety, quality, and efficacy, without requirements for additional testing.

To address questions regarding ethnic factors in varying populations, the ICH members agreed to allow for small scale bridging studies only when scientifically necessary and in rare cases. Guidelines for such studies should be developed with meaningful participation by the industry. This consultative process is exemplified by the efforts of Japan to implement the ICH guidelines and develop guidelines on bridging studies over the past three months. Japan is on the road to achieving its goal with the support and guidance of technical experts from industry. Industry's participation also ensures transparency in the policy making process, as indicated by ICH.

Industry has proposed the establishment of a bilateral working group of government and industry people to facilitate Taiwan's implementation of the ICH agenda, and for the development of implementing guidelines for bridging studies. Likewise, Taiwan's current requirements for clinical trials on older products are scientifically unnecessary and result in delays to market for these products. This requirement goes against the spirit of deregulation, and against Taiwan's commitments to eliminate redundant clinical trials on all products.


Requirement for Multiple FSC Certificates

PhRMA acknowledges Taiwan's recent move to decrease the number of Free Sales Certificates (FSCs) required from three to two in order for a company to register its product in Taiwan. Given the initiative to deregulate and simplify product registration requirements, the Taiwanese Government should further reduce the requirement to one FSC. With global efforts to harmonize, simplify and streamline regulatory requirements, we believe that one FSC from ICH members - either the U.S. or Europe - should be accepted as sufficient representation and verification of product quality and efficacy.


Hospital Trials

In addition to the current requirement for additional clinical trials, Taiwanese hospitals require further testing for foreign-sourced medicines to be listed on the hospital's formulary. Domestic products are not subject to this requirement. Hospital testing requirements on foreign products clearly violates the Article III national treatment principles of the WTO to which Taiwan aspires to accede. DOH support for the elimination of the hospital trials as a requirement for listing and reimbursement, and the adoption of international best practice would further harmonize Taiwanese testing requirements with that of the U.S., EU and Japan in which hospitals allow for product listing without this redundant (and unnecessary) testing.

PhRMA understands that DOH allows hospitals the opportunity to manage their formularies independently; however, the hospitals' policies to operate access to the formulary should complement the DOH and Ministry's of Trade commitments for regulatory harmonization and elimination of unnecessary redundant testing requirements.


Request for Plant Master Files

The Taiwanese Government continues to require submission of the complete dossier (including proprietary information) to achieve product registration. Master files are not scientifically necessary for registration when international standards have been met through manufacturing and clinical trial processes. There is a difference between a product registration dossier and the plant master file. The dossier contains all data and information pertinent to the verification of the products safety, quality and efficacy.

PhRMA seeks Taiwan's acceptance of GMP and PIC (Pharmaceutical Inspection Convention) certification as sufficient to guarantee manufacturing Quality Assurance Standards and the elimination of the request for plant master files, and we encourage Taiwan to eliminate this requirement as part of its commitment to eliminate redundant or scientifically unnecessary regulatory requirements. Note: the U.S. FDA no longer requires plant master files be submitted and will simply send an inspector to verify compliance with GMP standards if there are concerns.

PhRMA has been informed that the Taiwanese DOH is in the process of working out this issue with the U.S. FDA. Industry encourages the continuation of this collaborative relationship and a timely elimination of this requirement.


Importation and Investment Barriers

Taiwan maintains restrictions on the ability of companies to import multi-site source products (bulk pharmaceuticals) for repackaging in Taiwan. The Taiwanese Government had indicated that elimination of this restriction would be "timed" to acceptance of Taiwan's WTO accession agreement. Taiwan should eliminate this requirement as a sign of good faith in its intention to eliminate barriers on the imported products, regardless of origin.

The Taiwanese Government also maintains restrictions on toll manufacturing for older products, but recently has stated that it will allow toll manufacturing for new products. Licensing through toll manufacturing, whether an older or new product, is a mechanism that can increase business for local manufacturers in Taiwan, provide those manufacturers with access to "turn-key" technologies, and increase investment by foreign companies. Such business and investment supports the development of Taiwan's pharmaceutical sector under its industrial policy objectives. Additionally, toll manufacturing is a mechanism that will immediately increase the availability of innovative medicines to Taiwanese patients.


Administrative Protection Agreement 1993

Taiwan implemented its Patent Law in 1992. Although the Law provided protection for pharmaceutical patents, the Law did not provide for juridical pipeline protection on products patented prior to 1992. Given the high level of piracy in Taiwan at that time, the U.S. Government sought to negotiate an agreement that would provide protection on pharmaceutical patents prior to 1992 through administrative means. Taiwan agreed to the Administrative Protection on condition that the industry would agree to engage in local clinical trials. Industry opposed this trade-off of intellectual property protection for increased regulation and redundant clinical testing. In the end, it was determined that pipeline protection was more important than the irritation of engaging in local trials, and so the agreement was drafted.

There appears to be a significant misinterpretation of this agreement by the Taiwanese Government. Industry comments indicate that the local trials are not required per se in the agreement. What the agreement does is allow for MHW to request ("require" them). Industry comments indicate that there is no notation specifically stating that local trials are required (for patented products that have received previous regulatory approval by the U.S. FDA or EU.) In fact, industry's position on this issue since 1993 has been that products patented in Taiwan should be exempt from this requirement.

On another note, industry comments support that the same level of testing be applied to local generic products prior to being given marketing approval. Since the DOH has undertaken an initiative to eliminate all redundant local clinical trial requirements in Taiwan, the Government's need to ensure (through the AP agreement) that trials will be undertaken in Taiwan is effectively nullified. Industry is still left with the need for pipeline protection, however, and believes that this could best be pursued independently from regulatory requirements. Additionally, Taiwan has made progress on establishing protection and enforcement against piracy and as such industry does not need to seek pipeline protection in a "trade-off" agreement.

Industry believes that this 1993 Agreement on pipeline protection should rise to the level of international best practice, and be re-negotiated in a new agreement more reflective of Administrative Protection in other industrialized countries, including China, or that new legislation to amend the current Patent Law be pursued to include the provision of pipeline protection.


Potential Exports/Foreign Sales

It should be mentioned that the Taiwan Government has made several commitments to improve the regulatory environment for the industry in Taiwan, but has yet to fully deliver on these commitments. There is still little or no movement towards improvement in the area of pharmaceutical pricing and reimbursement. PhRMA believes that USTR, supported by the American Institute in Taiwan (AIT), after citing Taiwan within its SUPER-301 Report on foreign trade barriers in 1997 and 1998, should continue to insist that the Government of Taiwan effect real improvements in its pricing regime governing the reimbursement prices of quality medicines from the research-based pharmaceutical industry in Taiwan.

The current U.S. - Taiwan Agreement for administrative protection of qualifying pharmaceutical patents grants seven years of protection for products introduced both before and after June 5, 1992. PhRMA member companies assume that the generic producers in Taiwan would "dislodge" the original products after the fifth year without this agreement (current post-marketing surveillance periods prevent the entry of generics within the first five years for locally manufactured products and within the first three years for imported products).

The benefits therefore that have accrued to PhRMA member companies under the terms of the agreement are estimated at US$224 million. Losses from implementation of the new BNHI reimbursement pricing policies, however, are now estimated to reach as high as US$88.2 million by 1999. Thus, if the administrative protection arrangement continues to be held from full implementation, and the BNHI drug reimbursement pricing principles are put into effect his year, lost income to the research-based pharmaceutical industry could total over US$400 million by the end of the current decade.

For all the aforementioned reasons, PhRMA believes that Taiwan should be listed as a Priority Watch Country under Special 301 in 1999.