Taiwan Medical Device Industry Analysis & Investment Opportunities

Department of Investment Services, Ministry of Economic Affairs

Table of Contents
I. Global Trends of the Medical Device Industry ............... 1 II. The Status Quo of Taiwans Medical Devices

Industry ................................................................................... 5
(I) (II) Supply & Demand of the Medical Devices Industry .................... 5 Gap in Industry Supply Chain, Investment Niche and Prospective Foreign Investors ........................................................................ 6 (III) Major Suppliers in Taiwan ........................................................... 7

III. IV.

Optimal Choices for Foreign Investors ................... 11 Successful Examples of Cross-national Strategic

Alliances and Foreign Investments in Taiwan.................... 13

(I) (II) Foreign Investors in Taiwan ...................................................... 13 SHL Healthcare and Medical, Taiwan ....................................... 16

V. VI.

Industry Investment Incentives................................ 18 Industry-Academia Collaborations in Taiwan ....... 25

I. Global Trends of the Medical Device Industry

The medical device industry is an industry that is closely linked to the diagnosis, relief and prevention of human diseases and illnesses. of illnesses and the progress of medical technology. Major medical device products in this industry may vary depending upon the types However, economic conditions have a very small impact on the demand for medical devices, and the cost of medical devices only contributes to a small portion of the cost of medical cares. Since medical devices are closely applied to human body, a permit has to be obtained before the product may be distributed in the market. In the United States and Europe, the laws require product related injuries to be reported to the relevant government agency. Because many types of medical devices exist, they generally involve various scientific and technical fields, including plastics, industrial chemistry, textiles, machinery, electronics, telecommunications, material science and biomedical technology. Moreover, since medical devices generally result from the combined efforts of different fields, and the medical device industry is technology-intensive rather than labor-intensive, companies in this industry must invest more of their revenue and efforts in R&D. In addition, since existing medical device products are being replaced by new products with better performance, pharmaceutical companies have to constantly pursue improvement in technological innovation in order to achieve success. The global medical device market is highly centralized. The market share of the top 10 medical devices was up to 82.8% of the global market in 2003, and is expected to grow up to 83.6% in 2008. The United States holds the largest market share of about 50.6%, with the compound annual growth rate at about 7%, which is higher than 5.56% of the global market. Since US citizens have much higher income and the medical system is also better, the medical device market is therefore more developed.
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Another fast emerging market is Mainland China, with a compound annual growth rate of 6.99%. People are now paying more attention to healthcare as the countrys economy develops and its citizens acquire more income. China has become a potential market for medical device due to the continuous development of its hygiene industry, the increase in clinics, the upgrade of products, and requirements from hospitals. Table 1 shows the market value of the top 10 countries and the percentage of market shares with respect to the global medical device market in 2003 and 2008 (forecast). The monetary value of the global medical device market in 2003 was around US$ 148.3 billion, and from 2003 to 2008, the global medical device market was estimated to grow at about 5.56%. The various segments of this industry are driven by various factors, most notably the aging population and increasing rates of illness, especially found in industrial countries with advanced medical technologies. Meanwhile, in newly emerging markets, the demand for medical devices which have high quality and advanced technologies with integration have also been increasing due to the rise of income per capita. The structure of the medical device industry varies across segments. For instance, the cardiovascular device sector has gone through significant consolidation, with the top five (5) companies taking up more than 80 % of the global market. Meanwhile, the market for disposable surgical supplies is highly fragmented, with the top five (5) companies representing less than one third of the global market. The top 10 companies in the medical device industry generate substantial revenues and therefore invest substantially in research and development. In fact, those companies accounted for more than 70.0 % of research and development expenditures in 2007, and invested as much as 10-15 % of the revenues in research and development.

Looking into the global markets for medical devices, the United States, which has the highest income per capita and advanced medical technologies and services, represents 50.6% of the global market. Japan ranks second, with a market share of 11% . third and represents 6.1% of the world market. On the other hand, Finally, Germany ranks Regarding the global

perspective, the market shares of the United States, Japan and Germany represent over 70% of the total global medical device market. Table 2 shows the growing trend of the global medical device market in various categories.

Table 1. Market values of the top 10 countries and the percentage of market shares with respect to the global medical device market in 2003 and 2008 (forecast) Country 2003 Market 75,120 16,258 9,091 4,052 3,825 3,808 3,204 3,126 2,547 1,865 122,896 Percentage 50.6% 11.0% 6.1% 2.7% 2.6% 2.6% 2.2% 2.1% 1.7% 1.3% 82.8% Market 105,359 18,847 10,540 5,171 4,434 4,415 4,090 3,989 3,250 2,615 162,710 2008f Percentage 54.2% 9.7% 5.4% 2.7% 2.3% 2.3% 2.1% 2.1% 1.7% 1.3% 83.6% 100.0% 2003-2008f AAGR 7.00% 3.00% 3.00% 3.98% 3.00% 3.00% 5.00% 5.00% 5.00% 6.99% 5.77% 5.56%

USA Japan Germany UK France Italy Canada Brazil Spain China Subtotal Global 148,378 100.0% 194,513 market Source: Espicom Business Intelligence, IEK/ITRI (2007.12)

Table 2. Growth trends of the global medical device market in various categories Categories Bandages & other medical supplies Contact lenses Dental instruments & appliances Electromedicals Medical furniture Medical X-ray films Ophthalmic instruments and appliances Orthopaedic/Prosthetic goods 2003 Market Percentage 11,539 3,999 3,100 14,711 1,736 3,814 2,671 25,971 7.8% 2.7% 2.1% 9.9% 1.2% 2.6% 1.8% 17.5% 2008 Market Percentage 13,377 5,608 3,594 17,504 2,012 4,868 3,746 36,426 6.9% 2.9% 1.8% 8.8% 1.0% 2.5% 1.9% 18.7% 2003-2008 AAGR 3.2% 8.0% 3.2% 3.2% 3.2% 5.5% 8.0% 8.1%

Other instruments and appliances Rubber surgical or laboratory sterilizers Syringes, needles & catheters Therapy apparatus Wheelchairs X-ray apparatus

32,766 3,748 19,178 6,842 1,250 16,681

22.1% 2.5% 12.9%

41,818 4,783 26,898

21.5% 2.5% 13.8% 4.9% 0.8% 12.0%

5.5% 5.5% 8.1% 8.1% 5.5% 8.1%

4.6% 9,597 0.8% 1,595 11.2% 23,397 Unit:US$million

Source: Espicom Business Intelligence, IEK/ITRI (2007.12)

II. The Status Quo of Taiwans Medical Devices Industry

(I) Supply & Demand of the Medical Devices Industry
In 2006, Taiwan's medical device industry had a total revenue of US$2.14 billion, generated by 500 companies, with an average revenue of US$4.2 million each. Taiwan has a workforce of about 16,350 involved in medical devices. The current status of the medical device industry in The medical device industry is a fast emerging Taiwan is shown in Table 3.

high tech industry, including diagnostic devices, disease treatment devices, general medical assistance equipment, and patient aid products. According to the statistical data, medical device has the highest growth rate in Taiwans biotech industry, and its annual revenue has a great increase from US$ 2.2 million in 1992 to US$2.14 billion in 2006. Electronic clinical thermometers, digital hemadynamometers, power wheelchairs and ventilators reach 30% of the global market share with an export value of US$914 million, import value of US $1.39 billion, and domestic demand value of US$2.65 billion.

Table 3. Current Status of the Medical Device Industry in Taiwan (2005/2006) Industry Year Revenue* Company (Number) Workforce (Number) Export value* Import value* Domestic sales vs.export Domestic market demand* 2005 1.84 484 15,000 0.84 1.24 54 : 46 2.24 Medical devices 2006 2.14 500 16,350 0.90 1.37 58 : 42 2.62 *Units: US$ billion Source: Biotechnology and Pharmaceutical Industries Program Office, MOEA, 2007

The Domestic Revenue, Domestic Demand, Import and Export Value of Taiwans Device industry are shown in Table 4.

Table 4.

2005-2006 Taiwan Medical Device Production, Import and Export Unit: % in Billion NTD

Growth Import Domestic Domestic Exports Self-sufficient Exports Imports Rate of Dependence FY Revenue Demand Percentage Ratio (B) (C) Domestic Ratio (A) (D) (B/A) (1-G) Demand (G=C/D) 2005 590 270 395 715 100.0% 45.8% 55.2% 44.8% 2006 697 293 447 851 119.0% 42.0% 52.5% 47.5% SourcePharmaceutical Industry Technology Development Center, 2007

(II) Gap in Industry Supply Chain, Investment Niche and Prospective Foreign Investors
At present, Taiwan has many advantages including a highly organized industry network and an excellent production and development of the medical device industry. Having a critical technology, successful marketing, and product certification are among some of the industrys challenges or bottlenecks, while how to work together between globally renowned companies and medical device manufacturers in developing countries, and how to create effective strategies in the highly competitive market are some of the important concerns and key issues for Taiwanese companies. In recent years, there is an emerging trend for large medical device manufactories doing OEMs to gradually give their non-core production activities to other companies and instead focus more on the development of their technology research and product design center. There is therefore OEM business opportunities in the medical device industry. In the past, Taiwan has accumulated rich experiences and resources in the high tech industry. Accompanying those advantages, it is expected that Taiwan will be able to

seize OEM opportunities from foreign medical device manufactories and form an OEM business. The current state of OEM development strategies in the medical device industry in Taiwan has found a prospect for the OEM development of medical devices. Instead of competitively lowering the production prices, medical device companies are advised to improve their product quality instead. Consolidating the upper and lower stream of supply chain and broadening the industrial scale to improve the overall competitiveness. Since the regulations of a country will affect the companys managerial strategies, it is essential for Taiwanese medical device companies to provide thorough services to seize or extend the cooperation opportunities with foreign medical device companies. As a result, the more resources and efforts spent on research and development, the more rewards are reaped. The technological transfer and interaction between two companies lead to some performance issues. Generally speaking, the problem usually begins when the company releasing or transfering the technology is less willing even when the recipient company has the ability to adopt quickly to the new technology. Taiwan is a leader in the manufacturing of medical devices, producing diagnostic test kits and equipment and mechanical products, such as portable electrocardiograms, motorized vehicles for the elderly, and digital thermometers, blood pressure and glucose monitors, and pulse oximeters. With the healthcare industry shifting its focus from treatments and therapies to disease prevention and wellness, Taiwan's medical device companies are well-positioned to capture those new global market opportunities.

(III) Major Suppliers in Taiwan

(1) Medical Device Industry Supply Chain Medical device is one of the fast emerging and major industries promoted by the Taiwan govenment. Short-, mid-, and long-term plans focusing on developing potential medical device products have been mapped out. Short-term plans will focus on clinical trials/bio-equivalence, clinical

animal experiments, biotech-related contract manufacturing, bioinformatics, biochips, drug development. The mid- to long-term plans will focus on gene diagnostics and gene therapy, stem cell technologies, and artificial tissues and organs. It is hoped that the development of these key technologies and products will support the successful expansion of the island's medical device sectors and companies. (2) Investment Niche

A. Advantages The government has plans to bring together the R&D capabilities of the government, academic and research institutes to establish biotech industry clusters, promoting the industry by focusing all the essential elements in one place. In the northern part of Taiwan, the Taipei area, specifically the NangGang Biotech Plaza, has 2 incubation centers: the Biotech Incubation Center, Small and Medium Enterprise Administration, MOEA and the Incubation Center, Genomic Research Center, Academia Sinica. More than 50 biotech companies are located here, thereby making it a biotech cluster. In addition, Hsinchu county is the home to Taiwans first science-based industrial park, set up to help the development of high-tech industries. A new Biomedical Science Park is underway and will be managed by the Hsinchu Science Park Administration Office. Taiwan has many strengths that give it an edge over its competitors in Asia. Some of Taiwans advantages include: existing expertise in high technology; strategic location at the crossroads of three leading Asian economic regions Northeast Asia, China, and Southeast Asia; strong legal framework; highly educated workforce, particularly in IT and biology; world-class research facilities; abundant capital and Asia's most vibrant

venture capital industry; and knowledge and experience in IT and mold industry. The listed incentive industry among newly encouraged emerging strategic industries. The government has enthusiastically developed a conducive environment to continuously attract foreign investors. Taiwan has sufficient local capability for upstream medical devices research and development. Compared with other Asia Pacific nations, Taiwan has high-standard capabilities in conducting Chinese and western clinical trials, and is suitable for developing contract research organization (CRO) services. Taiwan has ensured conformity with international standards by implementing cGMP regulations; domestic pharmaceutical companies are experienced in developing generic drugs. Ample biotechnology and pharmaceutical professionals are based both locally and internationally. Taiwan has a conducive environment for the development of small and medium size enterprises. Also, the Taiwanese are recognized for their capitalist nature and entrepreneuial spirit. Advanced IT and mold technology supports the development of medical device.

B. Investment Opportunities (a) Rising demand for better living standards in the Asia-Pacific; (b) Growing economy and market for potential development; (c) Increasing number of strategic alliances and technology transfer cases with multinational biotech and pharmaceutical companies; (d) R&D and precision processing sectors are ready to take advantage of the growing global trend towards outsourcing in the biotech industry; (e) Right timing for endless business opportunities in post human gene decoding; (f) High value-added, long life cycle and value chain of biotech; many points of entry available,

from R&D to marketing; (g) Flourishing biotech R&D service industries (technical evaluation, R&D design, intellectual property services, and start-up incubation services); (h) Many large-sized and high-quality medical centers provide optimal conditions for undertaking clinical trials; (i) Clear market segmentation from temperate zone products of advanced countries with Taiwan's sub-tropical climate develops Asian sub-tropical agricultural biotech; (j) With the worlds rapidly aging population, the growth in demand for medical and health products is inevitable.

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III. Optimal Choices for Foreign Investors

(1) Complete development of advanced industries such as photovoltaic, communication, electronics, and semiconductor etc., mature development of traditional manufacturing industries such as plastics, material, and machinery, etc. (2) Advanced medical system and standards enable the industry to provide an ideal test environment and good chimical results. (3) Taiwan has endeavored to protect intellectual property rights and established suitable legal system. The protection of intellectual property rights ranks 4th in Asia. (4) Taiwan has abundant circuit board design, IC chip design capability and human resources, and safety regulations, verification and quality control personnel to integrate upstream electronic parts and components, which is beneficial for the development of medical electronic products. (5) Globally recognized for reliable manufacturing, product quality, vertical integration and complete supply chain, as well as industry cluster. (6) Strategic geographical location enables Taiwan to serve as the ideal gateway or springboard to other Asian markets. (7) Taiwans multicultural society enables its people to communicate in English and Japanese fluently. (8) Taiwans dynamic small and medium enterprises can serve as ideal partners due to their sufficient experience in international sales and merketing as well as global operations and logistics. (9) Taiwans venture capital sector is the largest in Asia, which can integrate technology, manpower, market opportunity and capital to develop new market and industries. (10) Strong government support and promotion. (11) Strong network with other industry professionals and experts, as well as

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close relations with various government agencies, academic institutions and research centers. (12) Advanced infrastructure, information and communication technology.

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IV. Successful Examples of Cross-national Strategic Alliances and Foreign Investments in Taiwan
(I) Foreign Investors in Taiwan
In Taiwan, there is still a shortage of manufacturers to produce advanced medical devices such as X-ray imaging, computed tomography (CT), magnetic resonance imaging (MRI), ultrasound imaging, etc. which are mostly supplied by foreign multinational corporations with subsidiaries that provide marketing and after sales services (e.g. education and training, technical services, maintenance) in Taiwan. In their early stages of development, Knowles Electronics, Home Diagnostics, and Top Corporation established production plants in Taiwan due to the countrys high tech industries and skilled workforce. Recently, the government has successfully attracted high-tech companies such as Inovise Medical, U-System, AcryMed, and Scandinavian Health Ltd. to invest in Taiwan. Although Medtecs International is successfully established abroad, it has returned to Taiwan to set up on operation center. A potential foreign company BD (Becton, Dickinson and Company) is a leading global medical technology company that is focused on new product research and development. BD established its subsidiary in Taiwan in 1987, providing omnibus research and diagnostic tools for the medical industry. BD has three main subsidiaries: BD Medical, BD Diagnostics, and BD Biosciences. It serves healthcare institutions, life science researchers, clinical laboratories, the industry, and the general public. Baxter International Inc. was founded in 1930, and its Taiwan branch was founded in 1981. Baxter manufactures and sells more than 120,000 medical products, and provides products and services for home healthcare. After developing the first hemodialysis machine in the 1950s, Baxter became one of

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the leading dialysis companies in the world. Baxter also introduced continuous ambulatory peritoneal dialysis (CAPD) as a practical alternative to hemodialysis in 1979. Over thousands of patients developed healthier life through Baxters hemodialysis service. Dada Behring is a global clinical diagnostic company that provides clinical products, health system and health care services, as well as improves patients quality of life. It provides chemical tests, immunity tests, blood tests, and diagnosis of microbial and infectious diseases. GE Health is GEs medical group, which is comprised of GE Healthcare Technology and GE Healthcare Bioscience. It has annual sales of US$14 billion. GE Health is a global leader in medical imaging and information technologies, medical diagnostics, patient monitoring systems, disease research, drug discovery and manufacturing. ARC Pharmaceuticals Inc. is a Canadian bio-company that focuses on the research & development of novel therapeutic devices and disease prevention methods after surgery, such as surgical adhesions. Cochlear, Ltd. was founded in 1982 as a major producer of nucleus products and accessories which convert surrounding sounds into digital signals to stimulate the hearing nerve within the cochlea. After many years of development and improvement, Cochlear, Ltd. has become a world leader in hearing solutions. Over thousands of Taiwanese patients regain their hearing by using Cochlears products. From the list of global top 10 medical device manufacturers in Table 3, majority comes from the US, with the exception of 3 large European companies, namely Siemens Medical Solutions and B. Braun from Germany, and Philips Medical Systems from Holland.

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Most of the big medical device companies use M&As as a strategy to expand their operation scale and market share. But there are different strategies for the deployment of production lines. Some companies aggressively merge with leading manufacturers in various fields to expand their production lines for diversifying operations. On the contrary, some companies reduce their product lines and seek for more efficient management and sales. The medical device industry ranks first among the top 10 high tech business opportunities in the 21st century. While the contunous increase of the Gross National Income (GNI) and the evident aging population, the demand for medical devices is growing annually. According to the data provided by the Department of Health, people aged 65 or older will outnumber children under the age of 5. Among developing countries, the population growth for people aged 65 and older is expected to rise up to 140 % by the year 2030. Those factors are placing an increasing burden on the global healthcare sector. However, the healthcare industry has identified a solution, that is, shifting its focus from post-disease therapy and treatment to wellness and disease prevention. This change is spurring on the global medical devices industry to further explore opportunities in this area. Therefore, the global medical device market will continue to maintain steady growth due to aging population; development of new products such as drug-eluting stent and pace synchronization systems being launched; and global economic growth with increasing purchasing power. Looking into the global medical device market, the US, Japan and Europe represent over 70% of the global markets, and their growth will ensure that the global medical device market continues to grow.

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(II) SHL Healthcare and Medical, Taiwan

The SHL Group is a global leader in OEM/ODM solutions for advanced drug delivery devices, home & institutional healthcare products, and medical & industrial manufacturing. SHL Healthcare delivers OEM/ODM solutions for complex hospital and home healthcare equipment with a focus on patient comfort. The products are found in major hospitals and clinics throughout the world. SHL Healthcare integrates the collaborative strength of the SHL group, offering design and development of new products to suit the demanding needs of global customers. Following a period of significant investment in manufacturing and testing equipment, personnel and logistical supply systems, SHL Healthcare is now a recognized leader in the manufacture and supply of home healthcare solutions. The companys products include slings, alternating pressure mattress systems, and beds. SHL Healthcare leverages the synergies of the SHL Group by offering the design and development of devices tailored to the demanding needs of global customers. Currently, SHL Healthcare is represented in Taiwan, in addition to Australia, Denmark, the UK, the USA and Germany. The international presence facilitates close support for local projects, with accurate follow-up and status reviews. SHL also provides significant cost benefits through increased production efficiencies and a global logistics system. With experienced engineers, intelligent logistics and a flexible support team, SHL Healthcare can deliver tailored solutions according to the exact requirements of the market. New Medical Tech Corp. (NMC) is a Taiwan medical device company. NMC develops Digital X-ray Retrofit systems for general radiography (DR) and digital mammography (DM) applications. NMC products feature state-of-the-art flat panel detectors combined with unique acquisition and post processing workstations to be integrated with existing traditional

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medical X-ray systems. In addition to the DR & DM products, NMC also teams up with strategic partners in developing HIFU (High Intensity Focused Ultrasound) systems for advanced image-guided therapy solutions. Backed by extensive know-how of medical diagnostic equipment design, image processing technologies, and optical electronics, NMC bridges the two worlds of healthcare industry and strong IT industry between Taiwan and Korea. By taking advantage of local world class industrial strengths in both TFT & CMOS semiconductor foundry capabilities, NMC is positioned to make a breakthrough in its technological innovation, improving cost barriers and employing a fast time-to-market strategy. NMC visions to dominate in the emerging digital X-ray conversion market by offering superior products at reasonable costs.

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V. Industry Investment Incentives

1. Preferential Taxes The ROC government enacted the Statute for Upgrading Industries in 1991 to develop a more favorable environment for foreign and overseas Chinese investors in Taiwan, and to further attract foreign investments for the purpose of upgrading the ROCs industrial base. On January 1, 2000, the statute was amended to extend preferential tax measures for another 10 years until December 31, 2009. These measures are detailed in the chart below:
Incentive Measures Nature of Incentives Equipment and facilities used exclusively for R&D, experimentation, and quality control purposes, and equipment, machinery, and facilities that are utilized for energy conservation or that use new and clean energy, are eligible for an accelerated depreciation period of two years. If there is any residual post-depreciation service life remaining following the accelerated depreciation period, depreciation may be continued for one or several years within the service life of the assets as specified in the Income Tax Law until the assets are fully depreciated. Companies may deduct 5% to 20% of the amount of investment in these areas from their profit-seeking-enterprise income tax over a five-year period beginning with the year in which the investment is incurred.

Accelerated depreciation of equipment and facilities

Investment in automation equipment or technology

Investment in recycling and pollution control equipment or technology

Investment in equipment or technology for the use of new and clean energy, energy conservation, and industrial wastewater recycling Investment in equipment or technology for reducing greenhouse gas emissions and enhancing energy efficiency

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Incentive Measures Nature of Incentives Investment in the hardware, software and/or technology that can promote an enterprises digital information efficiency, such as the Internet and television functions, enterprise resource planning, communication and telecommunication products, electronics and/or audio visual equipment, and digital content production Companies may deduct 35% of the amount of their investment in R&D or personnel training from their profit-seeking-enterprise income tax over a five-year period beginning with the year in which the investment is incurred. Research and development Companies may deduct 50% of the amount of their investment in R&D or personnel training that exceed the average annual amount of their investment in R&D or personnel training for the previous two years from their profit-seeking-enterprise income tax. The total amount deducted from tax due per year under the previous two items may not exceed 50% of the company's Personnel training profit-seeking-enterprise income tax due for that year. The amount deducted during the final year, however, is not subject to this limitation. Companies that invest a specific amount or employ a specific additional number of persons in resource-poor or Investment in resource-poor or lesser-developed rural areas may deduct 20% of the invested lesser-developed rural areas amount from their profit-seeking-enterprise income tax over a five-year period beginning with the current year. The investor may choose one of the following: Investment tax credits for shareholders: A company or individual who subscribes to the registered stock issued by a company in an emerging, important, or strategic industry, and who holds the stock for at least three years, may claim a deduction from the profit-seeking-enterprise income tax or consolidated income tax due over a period of five years beginning with the current year: A profit-seeking enterprise may deduct up to 20% of the Investment in emerging, cost of such stock from its profit-seeking-enterprise income important, and strategic tax for the current year. industries An individual may deduct up to 10% of the cost of such stock from the consolidated income tax for the current year, provided that the deductible amount within each year is not more than 50% of the consolidated income tax payable for that year; this limitation will not apply, however, to the amount deducted in the final year. The rate of tax reduction provided above will be reduced by 1 percentage point every two years beginning on Jan. 1, 2000. Five-year tax holiday for companies: A company investing in an important, emerging, or

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Incentive Measures

Reinvestment

Investment by foreigners and overseas Chinese

Nature of Incentives strategic industry may, within two years from the date at which shareholders begin paying their stock price and with the approval of its shareholders meeting, select exemption from the profit-seeking-enterprise income tax and waive the right of shareholders to claim income tax deductions as set forth above. Once the selection is made, no change will be allowed. The following provisions must be met: A newly incorporated company that meets these conditions will be exempted from the profit-seeking-enterprise income tax for a period of five consecutive years from the date on which it begins to sell its products or render its services. A company that carries out an expansion project via a capital increase will be exempted from the profit-seeking-enterprise income tax on the increased income derived from the expansion for a period of five consecutive years from the date the newly added equipment begins to operate or the rendering of services begins. However, this provision is limited to the expanded construction of independent production or service units, or the expansion of primary production or service equipment, via capital increase. A company that is eligible for a tax exemption as described above may, within two years of the date on which it starts to sell its products or render its services, choose to defer the commencement of the tax-exemption period. The period of deferment may not be more than four years, and the date on which the exemption period begins following deferment must be the first day of a fiscal year. A company that carries out a capital increase using undistributed profits may apply the three items above. If for the purpose of adjusting its business operations, a company invests production or service equipment and the land on which such equipment is located in a another enterprise in which it holds at least a 40% share, the land value increment tax on the reinvested land may, with prior government approval, be deferred based on the ratio of shares held and upon receipt of a proper guarantee from the company. When a non-resident individual or profit-seeking enterprise without a fixed place of business in the Republic of China receives a dividend distributed by a company or profit distributed by a partnership located in the Republic of China in which that individual or enterprise has invested under the Statute for Investment by Overseas Chinese or Statute for Investment by Foreign Nationals, 20% of the amount of payment will be withheld as stipulated in the Income Tax Law and the provisions of the Income Tax Law regarding tax filing will not apply. When a non-resident director, supervisor, or manager of a company in the ROC who has invested in that companies under the Statute for Investment by Overseas Chinese or Statute for Investment by Foreign Nationals and who has resided in the ROC for more than 183 days within a tax year for the purpose of operating or managing the invested company receives a dividend from the invested company,

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Incentive Measures

Establishment of international logistics and distribution centers

Company mergers

Establishment of operation headquarters

Science-based industries

Nature of Incentives 20% of the amount received will be withheld as stipulated in the Income Tax Law and the dividend income will not be included in the individuals tax return for that year. Salaries paid abroad to directors, managers, or technicians who are sent to the ROC temporarily by foreign profit-seeking enterprises that invest in the ROC under the Statute for Investment by Overseas Chinese or the Statute for Investment by Foreign Nationals to carry out investment, plant construction, or market surveys, and who do not stay in the ROC more than 183 days within a tax year, are not treated as income derived in the ROC and are thus exempt from the income tax. When foreign profit-seeking enterprises or branch companies which they have established within the Republic of China set up themselves, or commission domestic profit-seeking enterprises to set up logistics and distribution centers in Taiwan to engage in the warehousing and simple processing of goods from the said foreign profit-seeking enterprise which are then delivered to domestic customers, the income so derived is exempt from the profit-seeking-enterprise income tax. Merged companies are exempt from profit-seeking-enterprise income taxes and securities transaction taxes resulting from their merger, and may apply the provisions for the deduction of losses. In addition, the land increment tax due on land that is owned by a company and is transferred along with the merger of that company may be charged to the account of the surviving enterprise. For companies that establish operations headquarters in Taiwan that reach a certain scale and that have a major economic effect, the income that they derive from the provision of management services or research and development to the related companies which they acquire in Taiwan, as well as royalty income, profit from investment, and gain from the disposition of properties, are exempt from the profit-seeking-enterprise income tax; in addition, such companies may procure publicly owned land at preferential prices. Effective Jan. 1, 2002, machinery and equipment that is imported for a company's own use and that is not yet manufactured domestically may, with the approval of the Ministry of Economic Affairs, be exempted from import tariffs and business taxes. Import tariffs and business taxes will be levied on imported machinery or equipment that, within five years of its importation, is sold or its use is changed so that it no longer meets the conditions for tax exemption or conforms to its original use. Machinery or equipment that is sold to companies that operate within science-based industrial parks, economic processing zones, or other science-based industrial companies is not subject to this limitation. Raw materials that are imported by bonded factories are exempt from import tariffs and business taxes. Import tariffs and business taxes will be levied on such raw materials, however, if they are shipped outside the bonded area.

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In 2007, the Taiwan government announced the Statute for the Development of Biotechnology New Drug Industry in order to break through the barriers.
Incentive Measure Nature of Incentive Companies may deduct 35% of the amount of their investment in R&D or personnel training from their profit-seeking-enterprise income tax over a Investment in five-year period beginning with the year in which the investment is personnel training, incurred. research and Companies may deduct 50% of the amount of their investment in R&D or development personnel training that exceed the average annual amount of their investment in R&D or personnel training for the previous two years from their profit-seeking-enterprise income tax. A profit-making business, through the original share subscription or subscription of shares issued by the said company, became a registered shareholder for more than three years, and the said biotechnology new drug company did not file for, based on the amount of the subscribed shares or the subscription of shares, the exemption of business income tax or the deduction entitled from shareholders investment according to other regulations, then this business is entitled to deduct each years business income tax payable for a period of five years starting from the Encouraging the year that the business income tax payable is incurred. The deductible investment of amount is limited to 20% of the acquisition price of the shares. biotechnology new In the event that the aforementioned profit making business is a venture drug company capital business, its shareholders, in accordance with the original deductible amount of the said venture capital business specified in item 1, take the shareholding ratio of the venture capital business to calculate the deductible amount from the investment, and deduct each years business income tax payable for the period of five years starting from the fourth year after the venture capital business becomes a registered shareholder of the biotechnology new drug company.

Attracting high ranking professionals and technology providers to participate

High ranking professionals and technology investors of biotechnology new drug company as the technology shares are permitted not to be included in the personal taxable income or business taxable income of the year. Whereas, when the ownerships of such shares are transferred, gifted, or distributed as heritage, the total transfer prices, or the market value at the time of gifting or distributing as heritage shall be included in the income of the year when filing income tax report, the cost can be deducted. When the issuing company processes the title transfer of the aforementioned shares, it shall file to the district taxation authority within 30days starting from the next day after the title is transferred. In the event that technology investors, while calculating the aforementioned income, are not able to submit the certificate document of the acquisition cost, they can deduct 30% of the transfer price as the cost.

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Attracting talents and technology by stock warrant

Encouraging researchers in public institutes to transfer technologies Enhancing the collaboration between industrial, governmental, academic and research sectors

After the resolution is reached by the consent of more than half of the board director attendees in a board meeting attended by more than two third of the board directors, and after the approval of the governing authority, the biotechnology new drug company may issue stock warrants to high ranking professionals or technology investors. The holders of the aforementioned stock warrants may subscribe specific number of shares according to agreed prices, the subscribed price is not constrained by Article 140 of the Company Law which stipulate that the price shall not be lower than the face value. The aforementioned regulation applies to the payable income tax of the acquired stocks. Article 267 of the Company Law is not applicable when biotechnology new drug company issues new shares according to Article 7 In the case that the major technology provider of a newly established biotechnology new drug company is a researcher employed by a state-run research institute, then this researcher, subject to the consent of the employer, may have the ownership of more than ten percent of the total shares at the time the company is founded. The researcher may take the role of a founder, a board director, or a technology advising commissioner, he/she is not constrained by Article 13 of Public Servant Service Law. Researchers in the academic and research institutes, subject to the consent of the employer, may take the position of research and development advising commissioners or advisers.

2. R&D Subsidies:
Below are some government measures for boosting the development of new products:

(1) Contents
In order to encourage new product development by manufacturers with R&D potential, and to relieve some of the burdens of risk, the government may provide a subsidy of up to 40% of the cost of development.

(2) Scope of Eligible Products

(a) Products of emerging key industries.

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(b) Products employing key technologies that surpass current standards of industrial technology in Taiwan. (c) Products that have a strong connection with good market potential, and which can stimulate the development of related industries.

3. Intellectual property rights revert to developing companies

4. Low-interest Loans
To accelerate the industrial development and economic growth of the country, a special fund has been allocated by the Development Fund of the Executive Yuan for cooperation with banks in providing various kinds of special low-interest loans. These include preferential loans for small and medium-sized enterprises (SMEs) to upgrade and purchase automation equipment, and loans to private enterprises for purchasing pollution control and pollution treatment equipment. In addition, the government has allocated NT$100 billion from new postal deposit funds for the Medium-and Long-term Capital Loan Plan. Private investors whose projects have a value of NT$ 100 billion or more may apply for loans under this plan.

5. Government Participation in Investments (1) Investors can ask the government to participate in their investment
projects to a maximum of 49% of the total capitalization. The following government agencies represent the government in providing capital:

(a) The Sci-Tech Development Fund and other development funds (b) Mega Bank (c) Management Committee of the Executive Yuan Development Fund

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(2) Investment Focus (a) In the past, the focus was on major productive industries included in the
governments economic construction plans, such as petrochemicals and semiconductors.

(b) In recent years, the focus has been on Ten (10) Emerging Industries,
including information, communications, aerospace, and biotechnology.

VI. Industry-Academia Collaborations in Taiwan

1. Biotechnology and Pharmaceutical Industries Program Office, MOEA (The Executive Yuan's One-Stop-Service Office for the Biotechnology Industry) Responsible for promoting and implementing the government's biotech-related plan and strategies; serves as the contact for international communications for the industry; provides relevant information on investment incentives, laws & regulations, provides consultation for business startups. Rm. A, 17F, 3 Yuan Qu St., Nangang District, Taipei, Taiwan (http://www.biopharm.org.tw)

2. Council of Agriculture, Executive Yuan Monitors matters or issues relating to local and national agricultural affairs, forestry, fisheries, livestock herding, and other food-related administrative affairs. 37 Nanhai Road, Taipei, Taiwan (http://www.coa.gov.tw)

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3. Overseas Chinese Affairs Commission Coordinates with overseas Chinese and facilitates them in all matters relating to business and investment processing, advertising, and promotion; assists overseas Chinese businesses; provides visa services, news

broadcasting, and overseas promotional materials.

16F, 5 Hsu-Chou St., Taipei, Taiwan (http://www.ocac.gov.tw/) 4. Department of Health (DOH), Executive Yuan Taiwan's highest-level health administrative body, the DOH is responsible for health administration affairs of the whole nation. The DOH is also responsible for instructing, monitoring, and coordinating regional health bodies.

11F, 100 Aikuo East Road, Taipei, Taiwan (http://www.doh.gov.tw) 5. Industrial Development Bureau, MOEA Responsible for industrial development strategies and policies, the execution of industrial upgrades, industrial development and management, planning of related financial and tax measures, industrial pollution prevention, industrial security guidance and factory management, and general industrial administrative management.

41-3 Hsinyi Road, Sec. 3, Taipei, Taiwan (http://www.moeaidb.gov.tw)

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6. Intellectual Property Office, MOEA Offers service in patent examination; trademark registration; copyright protection; trade secrets protection; intellectual property rights and related information; prevention of counterfeits. 3F, No. 185, Hsinhai Road, Sec. 2, Taipei City, Taiwan, R.O.C. http://www.moeaipo.gov.tw

7. Board of Foreign Trade, MOEA Provides economic and trade information; import-export services; international and regional economic and trade promotion. 1 Hukou St., Taipei, Taiwan (http://www.trade.gov.tw)

8. Department Of Investment Services (DOIS) Actively promotes Taiwan as an ideal investment destination to overseas investors; provides guidance to local companies to invest in other countries, and recruits skilled and expert personnel from overseas. 8F, 71 Kuanchien Road, Taipei, Taiwan (http://www.idic.gov.tw/spring.html)

9. Department of Industrial Technology (DOIT), MOEA Responsible for researching and planning industrial technology development strategies, technology project budgets, combining related institutes to promote and develop industrial technology in these categories; pioneering technologies, key technologies, and adaptive use technologies, DOIT's overall aim is to promote the development emerging high-tech industries, and accelerate the upgrading of local industries.

6F, D-Building, 15 Foo-Chow St., Taipei, Taiwan (http://doit.moea.gov.tw)

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10. Economic Processing Zone Administration, MOEA Responsible for investments in the zone; engages in foreign trade & sales; company registration; labor; construction & land administration affairs.

600 Cha-Chang Rd., Nantze, Kaoshiung City, Taiwan (http://www.epza.gov.tw)

11. Department of Commerce, MOEA Responsible for the drawing up of business policies & laws; business planning, managing, guiding, monitoring, and orchestrating; researching business contracts, business taxes, and business registration management & monitoring.

15 Foo-Chow St., Taipei, Taiwan (http://www.moea.gov.tw/~meco/doc/ndoc/default.htm)

12. Investment Commission, MOEA Responsible for overseas investments, technological collaborations, and examination of foreign investments.

8F, 7 Roosevelt Road, Sec. 1, Taipei, Taiwan (http://www.moeaic.gov.tw)

13. Hsinchu Science-based Industrial Park Administration Responsible for investments; locating land/factories; granting research developments; personnel training, etc.

2 Hsin-an Road, Hsinchu City, Taiwan (http://www.sipa.gov.tw/index_apis.php)

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14. Taiwan External Trade Development Council (TAITRA) Provides customized trade and investment services to domestic and overseas enterprises.

5-7 Floors, International Trade Building, 333 Keelung Road, Sec. 1, Taipei, Taiwan (http://www.taiwantrade.com.tw/cgi-bin/bv60/TWTRADE/index_tc.jsp)

15. Overseas Chinese Enterprises Commission Promoting joint ventures between overseas Chinese firms and local companies. 11F, No. 63 Hangchou South Road, Sec. 1, Taipei, Taiwan

16. Taiwan Venture Capital Association Conducts surveys to local and overseas venture capital industries; lobbying on behalf of the industry; serves as a bridge between members and high-tech companies, providing investment-related industrial information to members; improving international collaboration between overseas and local VC companies.

Rm. 301, 3F, 142 Minchuan East Road, Sec. 3, Taipei, Taiwan (http://www.tvca.org.tw)

17. Taiwan Pharmaceutical Development Association Improving the production technology R&D, business management, and encouraging international exchanges to enhance the development of Taiwan's pharmaceutical industry.

3F, 12-1 Tunhwa North Road, Alley 145, Taipei, Taiwan

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18. Taiwan Pharmaceutical Manufacturer's Association Increasing the quality and stability of locally-produced pharmaceutical products; working on R&D of new medicines; promoting and upgrading the industry; strengthening overseas collaboration and attracting investments; expansion of overseas markets; providing efficient communication between the pharmaceutical industries of Taiwan and China; providing information resources to the local industry; personnel training.

3F, 267 Tunhwa South Road, Sec. 2, Taipei, Taiwan (http://www.tpma.org.tw)

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Appendix 1:

Related Laws and Regulations Regarding Taiwan's Biotechnology Industry

I. Biotechnology and Pharmaceuticals 1. Statute of the Development of Biotechnology New Drug Industry (Enacted on 2007/06/15) (http://lis.ly.gov.tw/npl/fast/02814/960614.htm) 2. Pharmaceutical Affairs Law (http://www.doh.gov.tw/EN/Webpage/ ) 3. Nutritional Product Management Law (http://www.doh.gov.tw/EN/Webpage/ ) 4. Pharmaceutical Affairs Law: Details (http://www.doh.gov.tw/EN/Webpage/ ) 5. Statutes on Blood Derivatives (http://www.doh.gov.tw/EN/Webpage/ ) 6. Rare Disease Prevention and Drug Law (http://www.doh.gov.tw/EN/Webpage/ ) 7. Guidelines for Good Clinical Practice (http://www.doh.gov.tw/EN/Webpage/ ) 8. Standards for Establishing Pharmaceutical Manufacturing Factories (http://www.doh.gov.tw/EN/Webpage/ ) 9. Ethical Guidelines of Placental Dry Cell Research (http://www.doh.gov.tw/EN/Webpage/ ) 10. GMP for Medical Devices (http://www.doh.gov.tw/EN/Webpage/ ) 11. cGMP for Pharmaceutical Drugs (http://www.doh.gov.tw/EN/Webpage/ ) 12. Good Manufacturing Practice for Pharmaceuticals (http://www.doh.gov.tw/EN/Webpage/ )

II. Agriculture 1. Environmental Drug Management Law (http://law.epa.gov.tw/en/laws/288564189.html )

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2. The Plant Variety and Plant Seed Act (http://eng.coa.gov.tw ) 3. Regulations Governing Management Practices for Transgenic Plant Field Tests (http://www.afa.gov.tw ) 4. The Plant Variety and Plant Seed Law (http://eng.coa.gov.tw ) 5. Enforcement Rules of Veterinary Drugs Control Act (http://eng.coa.gov.tw ) 6. Veterinary Drugs Control Act (http://eng.coa.gov.tw ) 7. Regulation for the Field Trial of Transgenic Breeding Livestock (Fowl) and the Bio-Safety Assessment (http://eng.coa.gov.tw ) 8. Plant Health Inspection and Quarantine (http://eng.coa.gov.tw )

III. Intellectual Property Rights 1. Copyright Law (http://www.tipo.gov.tw/eng ) 2. Guidelines for Ownership and Use of the Scientific Technological R&D Results of the Government (http://www.nsc.gov.tw/ls/LS0000S.ASP ) 3. Guidelines for Ownership and Use of Results from Research Subsidized or Commissioned by the Ministry of Economic Affairs (http://doit.moea.gov.tw/newenglish/00_whatsnew/whatsnew.asp ) 4. The Foundation Law for Technological Development (http://web.nsc.gov.tw ) 5. The Plant Variety and Plant Seed Act (http://eng.coa.gov.tw ) 6. Measures for Safekeeping of Microbiology-Related Patent Applications (http://www.tipo.gov.tw/eng ) 7. Trademark Law (http://www.tipo.gov.tw/eng ) 8. Patent Law (http://www.tipo.gov.tw/eng ) 9. Guidelines for Rights to R&D Results of the National Science Council (http://web.nsc.gov.tw ) 10. Trade Secrets Act (http://www.tipo.gov.tw/eng )

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IV. Tax Benefits and Incentives 1. Agricultural Development Regulations 2. Tax Deduction Measures for Company R&D and Personnel Training Expenditures 3. Incentive Measures for R&D and Manufacture of Drugs for Rare Diseases 4. Incentive Measures for Emergent Important Industries Belonging to Agriculture 5. Statutes for Upgrading Industries 6. Scope of Venture Capital Business and Consulting Guidelines 7. IDB of MOEA Contracted Proposal for Points Regarding Industry Technology and Production to be Developed Successfully and Having Marketability to relax the listing requirement of local biotechnology companies to apply for listing on the Taiwan Stock Exchange and the OTC Exchange. 8. Regulations Governing Tax Incentives for Operations Headquarters and Bylaws 9. Rules for Encouraging Pharmaceutical Technology Research and Development 10. Guidelines for Considering Expenditures Incurred by Companies Involved in R&D Commissioned by Local Biotech and Pharmaceutical Companies as Investment. 11. Incentive Measures for Emergent Important Strategic Industries Belonging to Manufacturing and Technology Service

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References [1]Taiwan Biotech and Pharmaceutical Industries, Asia Pacific Biotech, Vol. 11, No. 12, 2007. [2]Spot on Taiwan, Advertisement Feature, Nature, 5 April (2007). [3]Taiwan, A Key Link in the Bioscience Global Supply Chain, p.40, BioSpectrum, Asia Edition, Vol. 1. Issue 1, March-April 2006. [4]2007, Introduction to Biotechnology & Pharmaceutical Industries in Taiwan, BPIPO, MOEA, Taiwan.

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