Developing World Healthcare Blog

Taiwan Healthcare: Starting to Punch Above Its Weight

Taiwan is host to a thriving and promising healthcare industry, particularly in the life sciences segments. The country’s stock markets include roughly 140 listed healthcare companies with an aggregate market cap of US$29 billion. The vast majority are life sciences companies operating in the biotechnology, and pharmaceutical (both brand and generic) sectors. The typical company is small with an average market cap of just over US$200 million. Approximately one-half are in the development stage (no marketed products, no profits).

Biotechnology has become increasingly prominent in Taiwan. Newly-installed President Tsai Ing-wen, co-founder and former chairwoman of HIV drug developer TaiMed Biologics, has named biotech as one of the five industries her administration will prioritize for development. Her rise in the polls and victory in January’s presidential election sparked a brief rally in the sector that ran through mid-February. Since then, the MSCI Taiwan Healthcare Index has declined by 39%. Politically, a thriving life sciences sector has the potential to increase per-capita incomes and burnish the country’s reputation globally.

Many Companies Pursuing Global Opportunities

Taiwan’s domestic biopharma market is small (~US$9 billion) by global standards, so many companies aspire to serve the global market. The typical business model features outsourced research using contract research organizations and contract manufacturers for clinical studies; and licensing agreements with foreign companies for marketing outside Taiwan. This model has started to yield some successes with novel drugs for HIV, pancreatic cancer, and schizophrenia either on the market or in late-stage clinical trials.

Based on data gathered from clinicaltrials.gov, we estimate that Taiwanese companies are sponsoring at least 40 active Phase 2 and Phase 3 clinical trials. Several products developed by Taiwanese companies have received Breakthrough Therapy or Fast Track designations from the USFDA, highlighting the country’s rising quality of R&D. In addition, reporting data to clinicaltrials.gov in itself communicates an intent to operate according to global standards.

Taiwan-US Links Are a Common Theme

One intriguing aspect of the healthcare sector is numerous instances of US-Taiwan connections. Several companies were founded by US-based, Taiwanese entrepreneurs (some are academics). A particularly interesting example is Tanvex BioPharma, which is developing affordable biologics and biosimilars. The company’s Founder and CEO is Dr. Allen Chao, former Chairman and CEO of generic drug manufacturer Watson Pharmaceuticals. We suspect that a major driver of this phenomenon (though we haven’t studied enough data) is that IPO valuations are higher in Taiwan relative to the US.

There Are Risks to Consider

The space also has its negative features. There is an ongoing scandal around OBI Pharma, Taiwan’s largest healthcare company by market cap. OBI is developing immune oncology drugs using technology and compounds licensed from Taiwan’s Academia Sinica and the US’ Memorial Sloan-Kettering Cancer Center, respectively. The company’s lead compound for breast cancer failed to reach its primary endpoint in a Phase 2/3 trial earlier this year. Shortly thereafter, there were reports in the press that the daughter of Academia Sinica’s President sold some of her stock in advance of the announcement. The very fact that she owned 3 million shares (US$45 million) was itself an issue. Prosecutors have questioned 11 people, including OBI’s Chairman, and Academia Sinica’s President resigned his post in May.

One other concern is that there has been very little M&A activity that would establish valuation benchmarks. The point is valid given the binary risks of the business, and lack of revenue and earnings for many companies. We attribute this phenomenon to the industry’s relative immaturity compared to the developed world. In addition, a robust IPO market has provided an alternative to M&A. The President of TWi Pharmaceuticals had noted that the market caps of some Taiwanese companies had at times exceeded those of their much larger U.S. partners.

Taiwanese Companies Poised to Get More Attention

Despite its small size relative to its peers (mainland China, in particular), Taiwan’s life sciences industry is poised to punch above its weight globally over the next few years. There is a critical mass of interesting late-stage R&D activity that should lead to some successes.