Summary of the Issues

Background: Taiwan is the 20th largest pharmaceuticals market with 1998 sales of approximately US $2.2 billion. Health spending accounts for 5.4% of GDP; (government spend is 3.5% and private is 1.9%) pharmaceuticals account for 25% of that amount. International pharmaceutical firms have about 70% market share. Prospects for growth in this government reimbursed market hinge on resolution of pricing, reimbursement and regulatory issues.

Over the past year, through close and constant communication and engagement with the government, substantial progress has been made in pharmaceutical price reimbursement and regulatory affairs but much remains to be resolved through mutual discussion and cooperation.

The key issues and industry's position are as follows.

Pricing: Generics, both high and low quality (i.e., not bioequivalent), are reimbursed at prices near the level of products made by R&D based firms. The ratio of originator brand: bioequivalent copy: non-bioequivalent is 100:90:80. Industry, though in favor of total competition, endorses for now a ratio of 100:80:50 to acknowledge the R&D investment of originator firms. Generics firms have no such overhead. Industry believes that the Bureau of National Health Insurance (BNHI) is reimbursing the overpricing of generics in general.

Reimbursement: Article 49 of the National Health Insurance law mandates reimbursement to healthcare providers (hospitals & GPs) at transaction costs. It is not enforced, thus allowing generics producers, with no R&D costs to recover the ability to offer significant discounts to the reimbursement rate. This skews the actual reimbursement payments by government and creates pressure for continuing price cuts. Industry supports strong enforcement of Article 49 by the government so that bonusing, discounts and other unrecorded promotions do not misrepresent true reimbursement practices and levels.

Clinical Trials: Local registration clinical trials are mandated prior to market approval. These delays reduce the exclusive marketing period. While some progress has occurred in eliminating trials for certain classes, industry supports Taiwan endorsement of ICH standards. The current DOH proposal is for ALL registration trials to be waived by July 2000, to be substituted by bridging studies for ethnically sensitive products. New products launched in countries with solid regulatory systems should be eligible for immediate patient access in Taiwan.

Plant Master Files: Government requirements to verify manufacturing standards in the country of origin are extremely cumbersome, especially where sources change due to global manufacturing rationalization. Industry favors Taiwan acceptance of GMP certification with inspection reports in lieu of PMFs. Taiwan has such an arrangement with Switzerland. Similar accords should be struck swiftly with other nations.

Taiwan Market Profile

Taiwan is the world's 20th largest market for prescription drugs with 1998 sales of approximately US$2.2 billion. Health expenditures as a percent of GDP approach 5.4% and per capita pharmaceutical consumption is near 25% of total health spend.

The pharmaceutical sales by corporate nationality break down roughly as follows:


Despite a weak 1998 for market growth, the historical trend foresees good growth into the future especially if new product introductions achieve faster launch. Taiwan, as explained below, is one of the last developed markets to allow entry of new products due to a variety of regulatory and commercial barriers.

Key Issues Affecting International Pharmaceutical Industry

Taiwanese policies affecting the interests of international pharmaceutical companies fall into three broad categories: pricing and reimbursement; regulatory affairs; and intellectual property rights enforcement. All these areas are candidates for discussion between US Government and Taiwan Government officials.

Pricing And Reimbursement Issues

Background: Over the past several years, Taiwan has moved from a half government and half private purchase market for medicines to a 96% government operated National Health Insurance scheme. With insurance introduction, through the Bureau of National Health Insurance (BNHI), a series of price and reimbursement controls have been introduced. The industry's chief objection to these controls is their discriminatory affect; that is, the favorable position local companies enjoy via the controls' application. The other leading concern is the negative impact these controls create for the introduction of new products, including novel compounds.

Pricing: Taiwan operates a price setting system based on international comparisons. New products without bioequivalent competition are set at the median price of the product as it is listed in ten developed markets. In practice, new products are often reimbursed at the bottom end of the ten market prices spectrum due to the current cost containment measures of the BNHI. For locally manufactured bioequivalent generic products, BNHI allows a price (i.e. reimbursement level - the de facto market price) at close to 100% of the originator's brand. For common (i.e. no proven bioequivalent generics), BHNI approves a price near 80% of the originator.

Industry Concerns Over Pricing Policies: International companies maintain the Taiwan Government's policies are unfair and discriminatory for the following reasons.

It is also worth noting that the BNHI reimbursement value of pharmaceuticals for local generics grew from 35% of the total budget in 1995 to 52% by the close of 1998. This growth is driven not by market competition but by government managed overpricing support for generics due to government fostering of the local biotechnology industry. This support achieves levels higher than would prevail were market forces in place to stimulate greater price variance between originator and non-originator off-patent products.

Reimbursement: Virtually all pharmaceuticals are reimbursed by BNHI to hospitals and clinics that dispense them. Pharmacy dispensing is not yet fully developed in Taiwan despite government intentions to promote it. There are three issues at play here.

First, Article 49 of the NHI Law states that "drugs, priced medical devices and materials shall be reimbursed at cost". This law is not enforced, as it should be. Nor should it be deleted by the legislature as has been proposed. Hospitals are able to claim full reimbursement for purchases from companies that offer discounts and/or free goods with orders. This practice gives an unfair advantage to generic producers that do not have the same (higher) cost structure of producers of original brands (i.e., multinational companies). It is important that the government equally monitor hospitals and general practitioners, as pharmaceutical suppliers will undergo periodic "price-volume" surveys to determine actual discount levels and bonusing in the NHI system.

Second, hospitals (through government acknowledgement but not government mandate) in most cases require a formulary-listing trial to be conducted prior to admission to the hospital's reimbursement list. These trials are not usually required for products of generic manufacturers. While it is important that hospital pharmaceutical committees have the authority to review product use, delays to patient access to new and innovative therapies should be minimized.

Third, there is increasing use restriction placed on new drug reimbursement. Over 50% of new drugs now have reimbursement limitations. In many cases, this means the product is effectively prevented from achieving a reasonable return on investment, thus removing the innovation reward.

Industry Concerns Over Reimbursement Policies: Current estimates of the amount between invoices and claimed reimbursements by hospitals are approximately US$620 million, according to the IRPMA, the international pharmaceutical industry group based in Taiwan. The main reason for this difference is that the current reimbursement system allows healthcare providers to profit from the government's non-enforcement of Article 49 of the National Health Insurance Law.

While the government has tried to more accurately assess this gap by conducting a price/volume survey, the data are inconclusive because not all hospitals agree to release full information. Implementation of Article 49 is imperative as a pre-requisite for a BNHI price/volume survey. Otherwise, once reimbursement is cut private hospitals will be inclined to demand more free goods from manufacturers to maintain their profit margins derived from drug dispensing.

Without Article 49, the public hospitals that abide by the spirit of Article 49 will follow suit and also demand free goods. The net result is a vicious circle with each price cut resulting from the price/volume survey leading to loss of manufacturer profits as hospitals seek to maintain their previous profit levels. The bottom line is that hospitals will not survive long-term if they must rely on margins from drug dispensing achieved by circumventing the spirit of Article 49.

PhRMA recommends that, to correct these reimbursement discrepancies:

Regulatory Affairs Issues

Background: While some progress has been made in achieving rapid registration for certain classes of drugs to treat life-threatening diseases (e.g., AIDS, cancer), Taiwan remains a late registration market for international companies. This fact is driven heavily by a series of technical and regulatory hurdles that continue to prevent fast market entry for new drugs that have been approved in other industrialized countries.

Industry Concerns with Regulatory Issues: The main issue, its impact and the industry's position on each issue are summarized below.

Intellectual Property Issues

Background: Taiwan implemented its patent law in 1986. In January 1999, it opened its Intellectual Property Office signaling a resolve to clamp down on commercial piracy and encourage industrial invention. Taiwan has prepared itself for admission to the WTO via adoption of amendments to its patent law that will enter into force upon WTO membership. The amended law will make Taiwan compliant with the TRIPs provisions.

Industry Concerns with Intellectual Property Issues: Under the current IPR a major concern is: data security- the Center for Drug Evaluation (CDE) is a non-government organization which reviews registration dossier submission for product license approval by the DOH, but is staffed by non-government officials which means that confidential data submitted by pharmaceutical companies will not be protected under the government employees confidentiality regulations.

There also remains a linkage between local clinical trial requirement and products that have received a Taiwan patent. Industry has been pressing the Department of Health to eliminate clinical trials for new original drugs that already have undergone such trials prior to registration in Taiwan. To date, Taiwan still requires clinical trials for products granted Administrative Protection under an U.S. - Taiwan bilateral accord. The main difficulty is not with these products, rather it is with newer products that face delayed market entry as long as two years given the local trial requirement. The market exclusivity and commercial potential of new products are reduced during this period of local trials. The solution is for Taiwan to recognize ICH guidelines and abolish the requirement for local testing.

Other Issues

Two other issues are worth noting.

Potential Exports/Foreign Sales

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).

PhRMA estimates that the total losses or lost income to the industry, due to the aforementioned problems and barriers, could total over US$400 million by the beginning of next year.