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Patent linkage system crucial for knowledge economy

Patent linkage system crucial for knowledge economy

April 2019

This article first appeared in the Taipei Times on 31st March 2019

Taiwan’s downward revision of its growth and export forecasts last month confirms the need to diversify from its main business of exporting manufactured commodities.

The government’s “five plus two” innovative industries plan aims to do just that by restructuring the economy toward higher-value, knowledge-based industries, such as biotech, green energy and defense. It includes upgrades to Taiwan’s system for the protection of intellectual property, including the introduction of a patent linkage system.

“The five plus two industries plan focuses on the transformation of Taiwan’s industrial development,” according to Minister Without Portfolio Kung Ming-hsin (龔明鑫), who is a former deputy minister for the National Development Council.

As an established provider of manufactured goods to the world’s supply chains, Taiwan’s industries have been forced to compete on cost rather than value, Kung says.

That diverts companies away from research and development (R&D) and prevents them from moving up the value chain.

The government’s remedy is to support the building of stronger innovative industries in Taiwan. One main area of focus is the biomedical industry.

The pharmaceutical industry is heavily slanted toward generic manufacturing, which means narrow margins and little economic value domestically.

Transforming it into a sector built on innovation rather than copying requires partnership and collaboration with foreign companies. However, investment remains elusive.

Intellectual property is a major roadblock. In its latest research report on Taiwan, IHS Markit said that “challenges in intellectual property rights policies persist, deterring multinational companies from investing in the sector… One major issue is that many patent-infringing drugs are being approved and included in the reimbursement list” of the public health system.

Encouragingly, the administration of President Tsai Ing-wen (蔡英文) recognizes that a system where the national drug regulator approves and the public health system reimburses patent-infringing drugs is incompatible with Taiwan’s ambition to become an innovation-driven economy.

So, Taiwan is one of several countries preparing to introduce a “patent linkage” system to reduce the numbers of generic drugs gaining market approval before the originator patent has expired.

The plan, an amendment to the Pharmaceutical Affairs Act (藥事法) would require the Food and Drug Administration to notify originators when competitors request market approval for a generic version of a patented drug.

Patent linkage is a mechanism for the early resolution of patent disputes, which injects certainty and transparency into the intellectual property (IP) framework.

Generic drug manufacturers would also benefit by receiving the necessary information to contest the validity of questionable originator patents. They would be able to more rapidly launch generic drugs that do not carry a litigation risk.

Greater certainty over IP rights through the proposed patent-linkage system would embolden potential investors in Taiwan, particularly in the innovative life science industry. Greater investment and partnership by these companies would drive innovation. Economic growth and value-added jobs would follow.

Despite the government’s ambitious plans, problems are emerging. Original plans for the patent-linkage scheme covered normal “chemical” pharmaceuticals and newer high-technology “biologic” drugs. Local pharmaceutical companies want biologic drugs excluded from the final law.

That would be a mistake. Biologic drugs — medicines produced from or containing living organisms — are an increasingly important component of the clinical toolkit. They are responsible for startling advances in the treatment of cancer, arthritis and many other diseases.

However, biologics are expensive to produce, with a large-scale biotech facility costing up to five times more than a standard medicine factory. R&D is costlier still. Why risk such a sizeable investment in Taiwan if a company’s IP is not fully protected?

There are fears that the inclusion of biologics in the patent-linkage law would disadvantage the burgeoning Taiwanese biosimilar industry, which manufactures similar versions of original biologic drugs. It is also a strategic sector the government hopes to develop.

The South Korean experience suggests such fears are unfounded. It has a patent-linkage system covering biologics, yet manufactures two in three biosimilars sold worldwide, according to Business Korea.

South Korea’s exports of biosimilars grew by 29 percent in 2017 to US$1.37 billion, accounting for 34 percent of its total pharmaceutical exports.

This suggests a thriving biosimilars industry could emerge within a strong IP framework, and patent linkage is no threat.

A robust IP rights framework is essential for achieving the government’s ambition of moving to a high-value, knowledge-based economy. Within that, a broad patent-linkage system would put Taiwan’s IP system in line with the world’s most competitive knowledge economies, including the US, South Korea and Singapore. The new reform should be welcomed.

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