Cablegate: Taiwan Pharma: Slower Approvals, Lower Prices

DE RUEHIN #0572/01 1152227
P 242227Z APR 08 ZDK








E.O. 12958: N/A
SUBJECT: Taiwan Pharma: Slower Approvals, Lower Prices

REF: 2007 Taipei 2326

TAIPEI 00000572 001.2 OF 005


1.(SBU) A slow and complex drug approval and pricing process in
Taiwan limits drug choices for patients and reduces potential
profits for U.S. pharmaceutical firms. New drugs are often not
available in Taiwan until more than two years after the drug has
been available in the United States. Taiwan reimbursement prices
are falling so much that a number of U.S. and other foreign
original-drug manufacturers have pulled drugs off the market. To
make matters worse, other countries are beginning to reference
Taiwan's low reimbursement prices when setting drug-reimbursement
prices in their own healthcare systems, magnifying the potential for
increased losses for U.S. firms. Representatives of foreign
pharmaceutical firms point to inadequate funding for the national
health insurance system as the fundamental problem with
pharmaceutical prices, but are pessimistic that the authorities will
raise healthcare budgets anytime soon. Taiwan's healthcare system
has a cumulative USD 1.6-billion deficit. Taiwan's Department of
Health estimates this deficit could reach USD four billion by 2015,
while our pharmaceutical-industry contacts estimate it will increase
to USD six billion by 2012. End summary.

Three-step Process Slows Time to Market

2. (SBU) Introducing a new drug--or adding new medical use for an
already-approved drug--to Taiwan's National Health Insurance (NHI)
reimbursement list is a lengthy three-step process. First, the
Center for Drug Evaluations (CDE), a quasi-official committee that
reports to the Department of Health (DOH) Bureau of Pharmaceutical
Affairs (BOPA), must evaluate the safety and efficacy of the drug,
and pass its recommendation to BOPA. U.S. drug companies tell us
that, even under the faster track for drugs already approved by the
U.S. FDA, the CDE takes two to three months from the time of
application to begin consideration of a new drug, after which the
CDE will usually need several more meetings over another two to
three months to review the new drug's clinical trial results and
other data. During this process, the CDE often asks drug companies
for more information on some aspect of the drug's safety or
efficacy, slowing the process further. After the CDE passes its
recommendation to BOPA's approval committee, BOPA reviews the CDE
decision, and often asks companies for further information before
finally granting approval for the drug's use in Taiwan. Finally,
the DOH Bureau of National Health Insurance (BNHI) then takes about
six months to evaluate and assign a reimbursement price to the

3. (SBU) According to original-drug manufacturers, the problem is
not only the sluggishness of the approval process, but also the
process' unpredictability. Our contacts tell us that they cannot
anticipate what sorts of data or other trial information the CDE or
BOPA's committee will ask for, nor can drug-makers reliably predict
how long it will take either to make a decision. Peter Wang,
President and Managing Director of Wyeth Taiwan, complained recently
to econoff that "policy seems to change day by day." Wang said the
CDE or BOPA will reject a drug for a myriad of often-unpredictable
reasons, and each agency will often ask for further information or
additional trials, slowing down the approval process by two to three
months with each request.

4. (SBU) Original-drug manufacturers in Taiwan also claim that the
authorities have become less willing to accept drug-trial results
and other documentation from outside Taiwan. For example, for drugs
manufactured in Europe, Taiwan formerly accepted a certificate of
approval from either E.U. or U.S. regulatory authorities in order to
fast-track the drug for domestic use. Taiwan, however, now requires
certification from both, which usually results in a delay while the
company waits for the approval process to finish in the United
States. Je Hwa Park, Managing Director for Janssen-Cilag (JC)
Taiwan, recently told us that in the past, Taiwan's drug-approval
authorities waived bridging studies--supplemental studies performed
in Taiwan to provide clinical data on the efficacy, safety, and
dosage specifically for the Taiwan market--for about 85 percent of
all drugs, but that this has fallen to 45 percent since 2004.
Sometimes, even a bridging study is not enough. According to Park,
in one recent case, the CDE required JC to re-start the testing and
trial process for a new anti-cancer drug, while the Korean
regulatory authorities asked only for a bridging study for the same

5. (SBU) BOPA Director General Chi-chou Liao, however, recently told

TAIPEI 00000572 002.2 OF 005

econoff that the agency's licensing and approval process has not
gotten any slower for most new drugs, nor did he think that BOPA has
significantly increased requests for supplemental studies. Liao did
comment, however, that BOPA has become more aware in recent years
that the effectiveness of some drugs changes due to ethnic
differences between people in Taiwan and the test subjects of most
clinical studies done outside of Taiwan. For example, Liao noted,
BOPA has found that a lung cancer drug that was withdrawn from the
U.S. market as ineffective is in fact very effective for Taiwanese
lung cancer patients. Due to cases such as this, BOPA will sometimes
ask for additional studies that include Taiwanese or Chinese

6. (SBU) After the CDE and BOPA approve a drug for use in Taiwan,
BNHI begins the process of assigning a reimbursement price for the
drug. Although BNHI usually takes about six months to assign a
price, original drug manufacturers say that the initial price is
usually much lower than the median price in the group of 10 advanced
economies (A10) that the pharmaceutical industry uses as a worldwide
price benchmark, which comprises the United States, Canada,
Australia, New Zealand, France, Germany, Italy, Sweden, Switzerland,
and Belgium. Since the initial price is usually lower than what the
companies are willing to accept, in most cases they appeal the BNHI
decision, setting the six-month process in motion again, and
prolonging the pricing process to one year. In a recent meeting
with econoff, BNHI Vice President Cheng-hua put the blame for long
price-assignation processes on drug companies for appealing "again
and again" for higher prices after BNHI has set an initial price.
Lee noted that tight BNHI budgets have forced the agency to set
initial prices that are in many cases lower than what drug firms
expect, but added that most new drugs introduced into Taiwan are not
"breakthrough" drugs, and that drug companies should therefore not
expect prices for such drugs to be close to the A10 average.

7. (SBU) Chang Ly-yun, Chairwoman of Taiwan's only NGO focusing on
overall healthcare reform, the Taiwan Health Reform Foundation
(THRF), told econoff on April 17 that tight BNHI budgets have indeed
prompted the Bureau to set low initial drug prices. She blamed the
budget woes on both inadequate funding for the Taiwan healthcare
system, as well as BNHI's failure to remove older, less-effective
pharmaceuticals from its 10,000-drug reimbursement list. Continuing
to reimburse hospitals for dispensing older drugs, she maintains,
saps money that could be available to pay more for newer, more
effective medicines. Chang suggested hospitals may be prescribing
these older medicines less for their medical effectiveness and more
out of either habit, or in order to raise hospital revenues from the
difference between the lower prices hospitals have negotiated with
drug companies and the higher amounts that BNHI reimburses for the
same drugs.

8. (SBU) In any case, according to drug-industry figures, the
average time for the approval plus pricing processes has increased
to at least two years from an average of one year earlier this
decade. Wyeth's Wang said that, in his company's experience,
getting a drug to market in Taiwan now takes from two to 2.5 years.
Janssen-Cilag's Park recently told econoff that, due to slower
approvals and pricing times, JC launches new products in Taiwan from
one to two years behind South Korea, where he says approvals have
sped up over the past two years. Park blames both BNHI for what he
characterizes as its slow and unsatisfactory pricing decisions, as
well as the separate--and sometimes conflicting--review processes at
BOPA and CDE. He accused BOPA and CDE bureaucrats of creating new,
ad-hoc approval hurdles to increase their agency's power and prove
how "patriotic" they are by "linking approval to reducing the
financial burden on the healthcare system instead of healthcare
need." This translates to a situation where, in many cases, Taiwan
patients must wait two or more years after the drugs have been
approved for the U.S. market.

Low Prices Reducing Market's Appeal

9. (SBU) Original-drug manufacturers' difficulties don't end when
they finally get a BNHI reimbursement rate for a new drug, since the
initial price is, in most cases, continually reduced by BNHI's
biannual price-volume surveys (PVSs). Since individual hospitals
negotiate drug prices directly with drug companies, BNHI conducts
PVSs to ascertain the average price that Taiwan's hospitals are
paying for each drug, and then adjusts the reimbursement rate. After
each PVS, hospitals typically re-negotiate contracts with drug
companies in order to push the price down again, since hospitals
rely heavily on revenues derived from the difference between the
prices they have negotiated with drug companies and the higher
amounts that BNHI reimburses for the same drugs--the source of the

TAIPEI 00000572 003 OF 005

so-called "Black Hole" in Taiwan's pharmaceuticals budget (reftel).

10. (SBU) The result of this continual downward price pressure is
that, according to estimates by original-pharmaceutical
manufacturers, average prices for on-patent drugs in Taiwan are 40
percent below the A10 median. According to Jordan Ter, Managing
Director for Merck, Sharpe and Dohme Taiwan (MSD), low profits for
original-drug manufacturers have reduced Taiwan from one of the
region's most attractive markets to one of the least over the past
five years. MSD and other drug makers tell us that their
projections show Taiwan will be the lowest-growth market for
original drugs in East Asia over the next five years.

11. (SBU) Ter is also pessimistic about the long-term market for
original-drug makers in Taiwan. He recently told econoff that
Taiwan is less and less important to MSD headquarters, which focuses
instead on other regional markets such as Japan, China, and,
increasingly, South Korea, which he says offers both a larger market
and a better business and R&D environment. He hopes that Taiwan will
become an easier place for drug companies to do business after a new
administration takes office in May, but for now he is worried that
his headquarters' recent trend of reducing both sales and research
funding in the Taiwan market will continue.

12. (SBU) According to Janssen-Cilag's Park, Singapore, Korea,
Thailand, and China are now competitive with Taiwan in drug trials,
and since his company's funding for trials tends to correlate with
sales, he believes that the company will continue a relative shift
of spending on research and trials into other markets. Park said
although absolute investment in the Taiwan market has been steady
over the past few years, the company's investment in Taiwan relative
to other regional markets is less than it should be considering
Taiwan's research capabilities.

13. (SBU) David Lin, Country Manager for Pfizer Taiwan, told econoff
recently that slowing sales have caused a two-year decline in the
company's business in Taiwan. However, Lin said Pfizer--unlike
other foreign drug makers in Taiwan--separates its view of a
market's sales potential from decisions on where to invest its
research and testing dollars. According to Lin, Pfizer continues to
increase testing and research spending in Taiwan due to the high
quality of Taiwan's research hospitals and universities.

Low Prices Pushing Drugs Out of Market

14. (SBU) Taiwan's low reimbursement rates are not just hurting
companies' sales figures, but are also driving drugs out of the
domestic market. In some cases, successive price-volume surveys
reduce the BNHI reimbursement price to such a low level that
pharmaceutical companies stop selling the drug in Taiwan. According
to Ter, MSD has already pulled several drugs from the Taiwan market.
MSD has pulled drugs from other markets in the region as
well--including New Zealand--and Ter said that the company will not
hesitate to continue doing so in any market where the price drops
below cost. According to David Lin, in 2007 alone, Pfizer stopped
selling 10 of its total Taiwan line of 90 drugs for this reason.
Janssen-Cilag and Wyeth also both told us that they have dropped
products from the Taiwan market for the same reason.

15. (SBU) Sometimes the difference between Taiwan's reimbursement
price and the international market price can put firms in an awkward
position of considering pulling potentially life-saving drugs from
the market. In the case of the Pfizer product Solu-cortef, which is
used in ambulances and emergency rooms for treating acute
tuberculosis and severe allergic reactions, the company decided in
early 2007 to remove the drug from the Taiwan market after the last
PVS reduced the BNHI reimbursement price to 28 NT/vial, well below
the international market price of 130 NT/vial. The company decided
to phase the drug out over 2007 in order to give customers time to
adjust. In December 2007, however, hospitals notified Pfizer that
the drug is "essential" and cannot be supplied by local generic-drug
manufacturers, and asked the company to continue selling the drug in
Taiwan. Pfizer then notified BNHI that the company will not be able
to supply Solu-cortef to Taiwan unless BNHI moves quickly to
re-adjust its reimbursement price to at least 75 NT/vial.
BNHI, however, has not moved to expedite the price review, meaning
that the Bureau will not start consideration of this price
readjustment until late April, with a final decision unlikely until
August. Pfizer has not decided what to do, but told econoff that if
BNHI does take until summer to decide, Pfizer will stop selling the
drug in Taiwan.

TAIPEI 00000572 004.2 OF 005

Defensive Moves to Drop Drugs from Market

16. (SBU) Foreign drug companies in Taiwan also express concern that
countries in the region are starting to reference BNHI's
reimbursement prices when setting drug-reimbursement prices in their
own healthcare systems. According to several companies'
representatives, in 2007, Korea started to set Taiwan reimbursement
prices as target prices for original-drug manufacturers' products in
Korea. Wyeth's Wang said that China and Thailand were also starting
to reference Taiwan's prices--which are both attractively low and
also clearly posted on the BNHI website--when determining their own
domestic drug prices. Wang warned that if this continues, Wyeth
would consider removing drugs from the Taiwan market--even
profitable ones--as a defensive measure to avoid losing money in
other markets. JC's Park said that the company has already pulled
products out of Taiwan for this reason, and echoed Wyeth's concerns
about other countries using Taiwan's reimbursement prices to set
prices in their own markets.

Low Healthcare Budget Is Root of Problem

17. (SBU) Representatives of foreign pharmaceutical firms all point
to inadequate funding for national healthcare as the fundamental
problem with BNHI pharmaceutical pricing. According to healthcare
experts in Taiwan, per-capita monthly premiums and visit co-pays are
roughly half of those in South Korea, which has a national
health-insurance system of similar scope and age as Taiwan's
(reftel). As a result, Taiwan's National Healthcare Insurance (NHI)
system has a cumulative deficit of USD 1.6-billion. Our
pharmaceutical-industry contacts estimate this figure will increase
to USD six billion by 2012, and BNHI itself estimated in 2005 that
the NHI deficit would reach USD four billion by 2015 if premiums are
not raised. Because of the healthcare system's budget woes, both
public and private hospitals are severely underfunded, and therefore
make up shortfalls in the difference between the lower prices they
have negotiated with drug companies and the higher amounts that BNHI
reimburses them for the same drugs. According to BOPA Director
General Chi-chou Liao, hospitals derive up to half of their
operating profits from this difference. To ensure that this price
gap remains as high as possible, hospitals--which are by far the
drug companies' largest customers in Taiwan--constantly negotiate
with drug companies to push prices down.

18. (SBU) Wyeth's Wang believes that, due to Taiwan's relatively low
healthcare spending, delaying the next PVS or implementing standard
contracts for all hospitals would provide only temporary relief to
original-drug manufacturers. JC's Park agrees that implementing
mandatory standard contracts will not make a difference as long as
the budget does not grow, and told econoff that the only long-term
solution is either to cut back on healthcare services or persuade
the Taiwan public that it will need to pay more to enjoy the current
level of health care.

19. (SBU) Most of our private-sector interlocutors, however, are
pessimistic that Taiwan's leaders have the political will to make
such efforts. Instead, they project that in the short and medium
terms, BNHI will continue to try to control costs by reducing
reimbursement prices for original drugs, and hospitals will continue
to re-negotiate drug prices whenever this happens. Although
Pfizer's Lin thinks policymakers and voters in Taiwan are smart
enough to fix the budget problem before a true crisis arrives, he
worries electoral pressures will continue to put the fear of rate
hikes into the average politician and bureaucrat. JC's Park sounded
the only note of optimism among the U.S. firms, recently telling
econoff he believes that 2008 in Taiwan could be the year voters
decide that without an increase in funding and a decrease in some
coverage, the healthcare system will begin to falter.


20. (SBU) Taiwan's National Health Insurance system is hugely
popular and provides a relatively high level of care at low prices
to virtually everyone in Taiwan. Unfortunately the system is not
sustainable at current funding levels, it delays access to the
newest medicines, and greatly reduces potential profits for U.S.
firms. The United States may want to widen the topics discussed
under TIFA pharma working groups to include ways to speed up
pharmaceutical approvals in Taiwan. We will be engaging with the
CDE, BOPA, and BNHI over the near future to express our concerns
about the drug approval and pricing process. As for increasing BNHI
spending on drugs, foreign pharmaceutical firms may have domestic

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allies in doctors and the hospitals that they work for, which form
the most powerful domestic medical interest group (see reftel for
more information). End comment.

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