When Syntex, an American pharmaceutical company with annual revenues in excess of a couple of billions, was acquired by Roche in 1995, massive layoffs followed. Among the 12,000 workers laid off was the deputy general manager, 47-year old Jo Shen. However, as many know, the Chinese word for “crisis” is comprised of two character, representing “danger” and “opportunity” and it is the latter that Dr. Shen focused on.
According to Global Views monthly, at that time, European Union regulations did not allow European pharmaceutical companies to develop generic drugs and Active Pharmaceutical Ingredients (API) until the patent rights of the brand name expired. This was bad news for European and American API manufacturers, but good news for those in Asia. API involves employing highly sophisticated technology in the manufacturing process, including the use of rigid temperature controls to create the correct reaction paths required to create chemical synthesis and crystal structures. Generic drug makers could not violate the patents of original brands and other manufacturers’ related patents, so there were not too many companies capable of manufacturing under these guidelines.
However, API was the specialty of Shen and she knew that this was a rare opportunity she could not pass up, so she founded ScinoPharm in Taiwan.
Steep start-up costs
After hearing Shen’s presentation, Kao Ching-yuen, founder of UNI-President Enterprises Corp., immediately agreed to be the largest investor in ScinoPharm, believing that as “everyone has to eat either food or medicine” this would be a profitable investment.
Meanwhile, Taiwan’s government was promoting the biotech industry and listed API as a priority for support. Several state-run companies and banks came on board as investors and the company was formally established in November 1997 as the first maker of API for the treatment of cancer.
Three quarters of the initial invested capital was used to build facilities and buy equipment in order to set up a top-notch production plant. However, Global Views reported that the construction costs at the Tainan Science Park in southern Taiwan were a quarter of the funds required to build an equivalent plant in the US.
Despite these savings, ScinoPharm’s revenues did not grow in the first couple of years and at the same time, its debt started to grow. The total investment reached NT$5.4 billion (US$183 million) in 2001 and Shen continued to take the bus to work to save money.
Becoming a leader in the biotech industry
After UNI-President Enterprises and Watson pharmaceutical (now known as Actavis) agreed to pump in more capital; ScinoPharm invested this in more R&D, and finally turned a profit in 2006. Now, the company is the leader in Taiwan’s biotech industry.
ScinoPharm accounted for 66 percent of Taiwan’s total exports of API in 2011, and has solidified its reputation in the international pharmaceutical arena as well. The company currently supplies 50 percent of global API for Galantamine, used for the treatment of mild to moderate Alzheimer’s disease. Additionally, it has 40 percent global market share for Docetaxel, used to treat breast, ovarian and non-small cell lung cancers, and that of Irinotecan for treating colon cancer. Among its competitors, ScinoPharm is also capable of making the widest range of API injectable products used in the treatment of highly active cancer.
Normally generic drugs can only be available for public sale after the patent rights of the original brand expires. But generics drug makers must look for reliable API suppliers well in advance in order to prepare for when this happens.
However, it takes 5 to 8 years for generic drug producers to develop the API and they can get revenues only after the generics are on the market. There are no short cuts. So it is an industry with high barriers for entry and intensive technology and capital investment required. Many industry insiders were initially skeptical about ScinoPharm’s survival, but Shen was very confident of its chances, reported Global Views.
ScinoPharm has now been turning a profit since 2006. Orders have poured in, so much in fact that the firm now has to outsource to other Taiwanese companies. In 2011, ScinoPharm had a turnover of NT$3.948 billion (US$132 million) with over 50 percent in gross profits.
Focusing on a niche market
According to the Global Views analysis, the reason for Scino’s success lies in its ability to select a profitable niche market in cancer treatment drugs, its international reputation and cooperation with its customers to select the right products to develop to lower their risks. Besides, ScinoPharm also has a wealth of R&D talent, with many employees holding PhDs and master’s degrees. Moreover, Scino has budgeted on average 7.5 percent of total revenues on R&D over the last five years, higher than the average 5 percent of other pharmaceutical companies in Taiwan.
Today, Scino leads others in the same market by 15 years in API development, with 17 items on the market, plus over 50 in the pipeline. For those just entering the market, they will need five years just to catch up. Their customers include the largest ten generic drug makers in the world, such as Teva of Israel, Sandoz of Switzerland, Hospira, Watson and Actavis of the US.
And from the global perspective, ScinoPharm has found another money making engine in China, where the government’s 12th five-year national plan clearly stipulated that all Chinese pharmaceuticals must be in compliance with the good manufacturing practice requirements, according to Global Views. This is a challenge for Chinese manufacturers, but a big opportunity for the company, which enjoys the advantage of international pharmaceutical capabilities.
With its second largest market for Scino’s cancer drugs in China, the company has since 2009 expanded its manufacturing facilities from it facility in Kunshan, Jiangsu Province. Currently there are 20 cancer treatment drugs popular in China, nine of them being made by Scino, and the market is only expected to grow for ScinoPharm.