BMI View: While high volume consumption of pharmaceuticals per capita will continue to draw multinationals to Taiwan, the country remains committed to cost-containment in the public healthcare spending sphere. The latest round of price cuts was implemented in December 2011, despite industry dissatisfaction. In the meantime, Taiwanese drug manufacturers will increasingly aim to target foreign markets with higher value-added products, with biotechnology actively encouraged by the government.
Headline Expenditure Projections
- Pharmaceuticals: TWD135.10bn (US$4.59bn) in 2011 to TWD140.78bn (US$4.47bn) in 2012; +4.2% in local currency terms and -2.7% in US dollar terms. US forecast markedly lower than in Q112 due to exchange rate considerations.
- Healthcare: TWD783.54bn (US$26.65bn) in 2011 to TWD809.12bn (US$25.69bn) in 2012; +3.3% in local currency terms and -3.6% in US dollar terms. US forecast markedly lower than in Q112 due to exchange rate considerations.
- Medical devices: TWD49.23bn (US$1.67bn) in 2011 to TWD51.14bn (US$1.62bn) in 2012; +3.9% in local currency terms and -3.0% in US dollar terms. US forecast markedly lower than in Q112 due to exchange rate considerations.
Business Environment Rating: Taiwan's score in the current version of our proprietary Pharmaceuticals & Healthcare Risk/Reward Ratings (RRRs) remains unchanged from Q112. With a composite figure of 60.2, Taiwan is still ranked sixth out of the 18 countries surveyed in the Asia Pacific region. Its risk component is still judged to be more favourable for multinationals than its rewards, which receives an unchanged 55 out of the maximum 100 points for this quarter, again achieving a score that is above the regional average of 51.
Key Trends & Developments
- In a bid to strengthen cross-strait relations, Taiwan is allowing mainland Chinese tourists to visit the country explicitly for healthcare purposes. Previously, these tourists were allowed to enter Taiwan for medical treatment, but were required to obtain a tourist or business entry permit from the authorities. We expect the easing of restrictions to boost Taiwan's healthcare sector and bring opportunities for investors looking to provide premium healthcare services for affluent patients. According to Taiwan's statistical yearbook, there are 1.91 doctors per 1,000 inhabitants, which is more than the per capita number of doctors in China (1.47 per 1,000 inhabitants).
- Drug prices in Taiwan are adjusted every two years, despite industry protests, with the seventh adjustment taking place in December 2011. Pharmaceutical companies which requested it be postponed saw their pleas ignored by the Bureau of National Health Insurance (BNHI), though the body agreed to establish an ad hoc group to re-evaluate the price fixed for some irreplaceable, exceptionally expensive drugs.
- In December 2011, a group of breast cancer patients and their supporters submitted an appeal to Taiwan's Control Yuan asking it to look into the NHI system. They said the BNHI fails to ensure fairness and transparency in the reimbursement system. Roche's Herceptin (trastuzumab) is on the coverage list but the patients also want GlaxoSmithKline's Tykerb (lapatinib) to be covered. Without the NHI in Taiwan, the cost of using Herceptin would be approximately TWD78,000 (US$2,575) a month, with the drug potentially prolonging survival by 3.7 months. The patients said Tykerb costs a patient approximately TWD76,000 (US$2500) a month and can extend life by four months.
BMI Economic View: Unsurprisingly, the Central Bank of the Republic of China (CBC) kept the policy rate unchanged in its last monetary policy meeting of 2011. The continuing pause in the monetary normalisation process comes amid increasing concern that weakening external demand is clearly starting to impair Taiwan's economic growth prospects. Domestic inflation is presently at very benign levels and this is likely to continue through 2012. With this in mind, we expect future policy direction to revolve around supporting a rapidly deteriorating Taiwanese economy. With inflationary pressures under control, we expect future monetary policy decisions to support the expected deterioration in economic activity. Indeed, the weakness in China's economy, as well as in the eurozone, is clearly taking its toll. Taiwan's economy contracted in Q311 and this weakness looks set to continue in the coming months, with export growth virtually grinding to a halt.
BMI Political View: Incumbent president Ma Ying-jeou heads into the election with a considerable lead over main opposition Tsai Ing-wen in the final opinion polls. Despite this, we still believe the presidential elections are too close to call as a considerable number of swing voters could turn the tide against Ma. Regardless of who wins, over the longer-term we do not envisage a material change in Taiwan's cross-strait relations or its business environment.