Taiwan's ageing population continues to be a key driver of pharmaceutical sales in the country. However, while the increase in premium collection resulted in a strong balance sheet for the National Health Insurance (NHI) scheme, it runs a risk of returning to deficit, as it is difficult to assess the actual medical demand for the ageing population. Moreover, as the population contracts over time not only will fewer people contribute to the fund but the actual increase in the number of users will place further downside pressure on BNHI to cut its coverage in order to contain costs - potentially affecting drug prices. The advent of health economics, coupled with increasing budget deficits, points to more caps on medicine expenditure - especially on essential drugs.
Headline Expenditure Projections:
- Pharmaceuticals: TWD161.33bn (US$5.51bn) in 2013 to TWD168.94bn (US$5.93bn) in 2014; +4.7% in local currency terms and +7.7% in US dollar terms. Forecast increased from previous quarter due to a change in the drug price adjustment policy.
- Healthcare: TWD1022.12bn (US$34.88bn) in 2013 to TWD1,075.30bn (US$37.73bn) in 2014; +5.2% in local currency terms and +8.2% in US dollar terms. Forecast in line with previous quarter's projections.
Risk/Reward Rating: Taiwan moved one down to overall fifth position in our latest Pharmaceutical Risk/ Reward Rating (RRR) assessment of the 18 key markets in the Asia Pacific region scoring 62.8 out of 100 behind Japan, Australia, South Korea, and China respectively. While it is a small pharmaceutical market, Taiwan boasts above-average Rewards and Risks, propped up by factors such as the high per capita consumption of medicines and an excellent chance to capitalize on the mainland China market. Taiwan has a very strong API industry and although it is small, which makes the domestic market competitive and particularly constraint, it provides specialty chemicals and high quality APIs for global needs. The now annual price adjustments will certainly fuel the need for local companies to outgrow the small domestic market.
Key Trends & Developments:
Since the implementation of the new NHI scheme in January 2013, drug prices are adjusted annually. Prior to the implementation of the second generation National Health Insurance scheme, Taiwan adjusted drug prices on a biennial basis, similar to Japan. Under the new NHI, the BNHI was to carry out a trial of the Drug Expenditure Target (DET) in 2013 and 2014, using previous annual spending as a base to calculate the following year's target, and set the growth rate. In this respect, we highlight that the new DET is unlikely to increase drug prices, and therefore may serve as a downside risk, further depressing the pharmaceutical market in Taiwan. Further, as the DET is implemented on a trial basis, there is a risk that the country may revert back to the old biennial price adjustment model, necessitating an amendment to our growth forecast.
In September 2013 ScinoPharm Taiwan announced that it will provide commercial manufacturing of topiramate active pharmaceutical ingredient (API) for Supernus Pharmaceuticals' antiepileptic drug Trokendi XR from its Tainan facility in Taiwan. Supernus had received approval for marketing the Trokendi XR from the US Food and Drug Administration only in August 2013.
In August 2013 ScinoPharm Taiwan announced a strategic alliance with Sundia MediTech Company. This will enable the company to seek more opportunities for collaboration on Contract Research and Manufacturing Services (CRAMS) in mainland China and to tap into this large and growing business potential.
BMI Economic View:
Overall, Taiwan's economy is highly dependent on mainland China, with Taiwanese companies having invested more than US$100bn there since the late 1980s, and around 1mn Taiwanese business people living in China. While Taiwan's export orders may have seen three successive months of expansion, we are unconvinced that the uptick is likely to last and it is certainly not reflective of a reversal in the subdued economic conditions that we expect to persist in the quarters ahead. The geographical breakdown of orders, which shows repeated weakness in demand from China, suggests to us that the renewed optimism towards the mainland economy (in light of its consensus-beating Q313 real GDP growth print) is likely to start to wane going forward. Consequently, despite the renewed optimism that has surfaced in light of China's consensus-beating Q313 real GDP growth print, we believe that any positive spillover effects for Taiwan is unlikely to last. We are therefore maintaining our below consensus (2.4%) 2013 real GDP growth estimate for Taiwan at 2.1%.
BMI Political View: We believe that President Ma Ying-jeou's administration continues to be undermined by the country's subpar economic growth and constant political infighting. At the root of the problem lies Ma's lack of political leadership and, at times, indecisiveness, particularly in regards to policymaking decisions. We caution that the widening political divide, if left unmended, will eventually hurt the progress of cross-strait relations, which will in turn impinge on Taiwan's structural growth prospects. Given the increasingly fractious political environment on the island, we do not expect to see much development in cross-strait economic and political relations in the coming years, at least until greater certainty about the country's political leadership can be established