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.
By fixing originators' prices near the level of domestically produced generics, Taiwan fails to recognize the greater degree of investment in research and development undertaken by the originators (i.e., international R&D-based industry)
The granting of prices to generic producers near the level of originators gives generic makers considerable commercial freedom in dealing with purchasers, thus skewing competition within many therapeutic classes.
In 1997, for example, while original manufacturers' reimbursement prices were reduced, local generic reimbursement prices were increased to levels almost identical to the levels of original product prices.
The pricing policy fails to recognize the intellectual property rights of innovators and discourages price competition.
The time taken to approve new compounds is unnecessarily long, lasting as long as 30 months in some cases, which further reduces the exclusivity period provided by patent protection. This can be due to regulatory delays because of registration clinical trials or PMF approval and/or BNHI new price reimbursement.
In sum, while the industry advocates a competition-based approach to pricing, for the time being the industry can support a ratio between originator: bioequivalent generic: common (i.e., no bioequivalence proven) generic that approximates 100:80:50. The current BNHI practice approximates a ratio of 100:90:80. Competition in such a structure cannot be stimulated in the market. A greater spread is needed to reduce the cost burden of generics to public reimbursement.
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:
Hospitals should be reimbursed at net acquisition cost for pharmaceutical purchases plus a reasonable management (i.e., dispensing/service) fee that would be a fixed percentage of the purchase price.
The aim is to separate the price of the products from the fee for the transaction of storage, dispensing and record keeping; such a system would eliminate the non-transparent impact of discounts and free goods.
Regarding the BNHI prescribing restriction guidelines, they limit the doctor's freedom of choice to prescribe what is best for the individual patient. This is compounded by a BNHI system of excessive penalties for mis-prescribing (10-100 times the prescription value) that have stimulated a trend to prescribe the cheapest product rather than the one with the best cost-benefit profile.
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.
Registration Clinical Trials: Registration clinical trials must be carried out prior to marketing approval. The government justifies the trials on the basis that Taiwan's population is ethnically different from other populations. The industry has argued that these trials are too small to be scientifically valid and that the ongoing ICH (International Conference on Harmonization) process will address Taiwan's concerns. The impact of this requirement for local trials is a 3-4 year delay for launch if measured from first major market registration.
Some progress has been made via allowance for parallel submissions of registration dossier and clinical trial protocol along with the elimination of clinical trials for high-risk categories. Industry is seeking elimination of trials for all new products with a Taiwan patent (patented as of December 1996) as well as vaccines and fast track U.S. and EU drugs. Taiwan has said repeatedly it will phase out local clinical trials. Faster elimination would enable Taiwanese patients to receive new medicines closer to the time they are available to people in traditional early launch markets in Europe and the U.S.
In June 1998, the Department of Health (DoH) indicated registration trials would be waived in two years. It started a review each three months to waive groups of drugs based on medical indications. This process has been proceeding. DoH then announced in July 1999 that a new requirement for bridging studies would be effective in June 2000 and would be determined case by case.
Industry's position is that any guidelines on bridging studies should be congruent with ICH E5 and have a transparent means for evaluating such studies.
Free Sales Certificates: Taiwan recently has decreased from three to two the number of FSCs it requires for registration so long as one of them is from the country of origin within a list of 10 advanced countries (otherwise three are required). However, due to company mergers, not every product is sold in the country of origin. In such cases, FSCs from the country of origin may not exist thus proving impossible for the Taiwan affiliate to launch the product. It is unreasonable therefore to link the country of manufacture with the country of clinical reference. The only solution is to abolish the country of origin FSC requirement and allow an FSC from any ICH member to suffice.
Plant Master Files: Taiwan continues to require submission of the complete dossier (including proprietary information) to achieve product registration and importation. The requirement to verify the manufacturing standards is justified by the government on public health grounds. The frequent demand for more information stretches out the Health Department review period well beyond the targeted three months. For companies, the rationalization of manufacturing worldwide often requires changes in manufacturing site. The requirement to register each new site using the PMF adds time, cost and unnecessary delay to product launch and line extensions.
Industry's position is that PMFs are not scientifically necessary when international standards have been met through manufacturing and clinical trial processes. Taiwan has indicated it would replace the PMF with the GMP (Good Manufacturing Practices) Inspection Report once it becomes a member of the Pharmaceutical Inspection Co-operation Scheme (PIC/S). Taiwan has concluded an accord with Switzerland, Germany, Spain, Italy, Belgium, France to use Site Master Files and PIC inspection reports instead of PMFs. The right signals are being sent. Firm action to eliminate PMFs is needed. For US companies, since the US is not a member of PIC/S, negotiations are underway between the US FDA and Taiwan DOH for Letters of Exchange on pharmaceuticals to replace the PMF requirement.
Re-packaging: Taiwan maintains restrictions on the ability of companies to import multi-site source products (bulk medicines) for re-packaging in Taiwan pursuant to regulations adopted in April 1998. Draft guidelines are circulating for industry comment. Taiwan has said it will separate this issue from its accession to the WTO. Taiwan should eliminate this requirement as a good faith sign to eliminate import barriers.
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.
Two other issues are worth noting.
Zero Tariffs: Taiwan committed to achieve zero tariffs for pharmaceuticals by 2002. Industry currently faces a 12.5% import duty on finished products. This level of tariff barrier is hard to justify in a country as internationally competitive as Taiwan. Faster implementation of the zero tariff accord would be a welcome sign of cooperation. Moreover, Taiwan should abolish tariffs on all categories of pharmaceuticals recognized by other nations that have implemented this exercise.
Relief Fund for Victims of Side Effects: The Department of Health in 1998 created a relief fund to compensate patients and their families harmed through use of approved medicines. The Fund will initially cover damage caused by Western drugs. Over 70 manufacturers have joined the Fund through a voluntary contribution of 0.1% sales revenue of pharmaceuticals and companies will be represented on the management committee of the Fund. Industry's main concern is that traditional Chinese medicines and health foods likewise be included in the Fund in order to eliminate any discriminatory treatment.
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.