131 NTU Management Review Vol. 31 No. 2 Aug. 2021 slow due to several reasons.2 First, most Taiwan biopharmaceutical firms cannot obtain substantial funding to engage in R&D activities because their firm sizes are relatively small. Second, Taiwan’s venture capitalists have less incentive to invest in domestic biopharmaceutical firms than in foreign ones because of less successful domestic cases in developing both new medicines and high risk medical devices.3 Third, owing to the restrictions of new drug prices under the national health insurance policy, the relatively low ratio of health expenditure to GDP, and the domestic market-oriented patent authorization and technology, biopharmaceutical firms in Taiwan tend to have less incentive to engage in high risk innovation activities.4 To address the R&D underinvestment problem and to provide a more favorable environment to the development of the industry, the Taiwan government adopts several public policies.5 Among these public polices, the Biotech and New Pharmaceuticals Development Act （生技新藥產業發展條例）, which was promulgated in 2007, is intended to promote innovation investment in the biopharmaceutical industry.6 The Biopharmaceutical Act primarily uses tax credits to spur R&D. Theoretically, the effectiveness of tax credits appears to be stronger in encouraging R&D than direct subsidies for several reasons. First, 2 The reasons are summarized from reports of Biopharmaceutical Industry White Paper of Industrial Development Bureau, Ministry of Economic Affairs. 3 According to Taiwan Venture Capital Association (2008)（2008 年臺灣創業投資年鑑）, capital invested in biopharmaceutical industry accounts for less than 10% of annual venture capital from 2001 to 2007. By contrast, capital invested in high-tech industry accounts for more than 25% of annual venture capital in the corresponding time period. 4 According to the “Development of the biotechnology and pharmaceutical industry in Taiwan (The report on the monthly meeting of the presidential palace)” of Wong (2007)（政策焦點：生技製藥產 業在台灣的發展（2007 年7 月總統府月會專題報告））the ratio of health expenditure to GDP in Taiwan, which is about 5.3-5.4%, is lower than the average 7.8%, of developed countries. In addition, Chen (2017) finds that the restrictions on new drug prices under the national health insurance policy tend to discourage companies from developing and selling new drugs in Taiwan. Further, Sun (2003) argues that the main sources for companies to obtain patent authorization and technology introduction are domestic, which shows that the development of Taiwan’s biotechnology industry is limited to the domestic market and local technology status. 5 These policies include “Action Plan for Strengthening the Biotechnology Industry”（加強生物技術產 業推動方案）in 1995, “Relaxing the Listing for Biopharmaceutical Industry”（放寬生技公司上市 （櫃）標準）in 2001, and “Act for the Development of Biotech and New Pharmaceuticals Industry” (Biopharmaceutical Act)（生技新藥產業發展條例）in 2007. 6 We focus on the Biopharmaceutical Act of 2007 rather than other related public policies or regulations of the Biopharmaceutical industry because data on listed firms from 1995 to 2001 are not available.
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