Taiwan. Pharmaceutical market in Q12013

Headline Expenditure Projections

Pharmaceuticals: TWD135.10bn (US$4.59bn) in 2011 to TWD140.44bn (US$4.71bn) in 2012;+4.2% in local currency terms and +2.6% in US dollar terms. US dollar forecast back in thepositive territory, unlike in Q412, on account of exchange rate fluctuations.

Healthcare: TWD953.29bn (US$32.42bn) in 2011 to TWD1,018bn (US$34.15bn) in 2012;+6.5% in local currency terms and +5.3% in US dollar terms. Local currency forecast slightlyup since Q412, on account of macroeconomic factors.

Medical devices: TWD52.63bn (US$1.79bn) in 2011 to TWD55.09bn (US$1.85bn) in 2012;+4.7% in local currency terms and +4.3% in US dollar terms. Local currency forecast slightlyup since Q412, on account of macroeconomic factors.

Risk/Reward Rating: Taiwan's score in the current version of our proprietary Pharmaceuticals &Healthcare Risk/Reward Ratings (RRRs) remains unchanged in relation to the previous year. With acomposite figure of 60.2, Taiwan is again ranked sixth out of the 18 countries surveyed in the AsiaPacific region, above Hong Kong and below Singapore. Taiwan's risk component remains judged morefavourably for multinationals than its rewards, which are subdued by factors such as relatively lowpharmaceutical prices and opaque reimbursement.

Key Trends & Developments

In July 2012, Taiwan-based ScinoPharm announced that it will manufacture topiramate, one ofthe APIs for Vivus' Qsymia (phentermine + topiramate). Qsymia is a treatment for obesity thatwas approved by the US Food and Drug Administration (FDA) on July 17 2012. Signifying theimportance of the product to the US firm, Vivus' share price went up by 9.6% on the day theapproval was announced. The move is in line with our view that offshoring manufacturing tolow-cost bases will accelerate.

In the same month, the government of Taiwan was urged to work with internationalpharmaceutical companies to ensure the development of a vaccine against enterovirus 71(EV71). To date, Taiwan has registered 111 cases of EV71, according to the Centese for DiseaseControl. EV71 is a dangerous and potentially fatal form of foot and mouth disease that mightalso cause severe neurological disorders, the director of the infectious disease control departmentat Cheng Kung National University Hospital, Liu Ching-chuan, told the China Post.

BMI Economic View: We have continuously highlighted that new product launches towards the end of2012 posed upside risks to our call for a further slowing in Taiwan's economy. Indeed, the rebound inoutput over the past few months came on the back of strong demand for semiconductors and electricalcomponents, owing to a series of planned product launches such as Apple's iPhone 5. Taiwan is positionedat the start of the global tech supply chain and, as such, broadly benefits from the annual tech cycle asbusinesses constantly upgrade old products or launch new offerings. That said, a weakening externalenvironment will continue to weigh on Taiwan's export-oriented economy and an expected modestrecovery in Taiwan's manufacturing and exports is likely to be short-lived. Export orders remainunderwater, having contracted for a six consecutive month in August 2012. With orders from Taiwan'smajor export partners continuing to look weak, any possible recovery in the demand for Taiwanese goodsis unlikely to extend beyond 2012.

BMI Political View: Cross-strait ties continue to strengthen, with Taipei and Beijing having recently inkedan agreement to establish a direct clearing system for each parties' currency. While no timetable has beenset, such a mechanism means that parties on both sides of the strait will now be able to convert directlybetween the Taiwan dollar and the Chinese yuan, without having to first go through the US dollar. Thismove marks an important step in enhancing further cross-strait relations and is expected to foster closertrade and investment relations. Additionally, this enhances the possibility of Taiwan becoming a regionaloffshore yuan trading hub.