Careers, Research, and Entrepreneurship : How To Start a Business

Chapter 12

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How To Start a Business and Thrive in the Global Market: A Story from U.S./Taiwan/China Jo Shen* ConCor Solutions, LLC, 10510 Wunderlich Drive, Cupertino, California 95014, United States *E-mail: [email protected].

In 1997, a group of executives from the U.S. who spent 3 years to raise $100 million landed in Taiwan and started an active pharmaceutical ingredient (API) company, ScinoPharm. Most of the >50 experienced expatriates had never been in Asia. With support from the local investors and staff members, they established a global business and successfully entered the highly regulated pharmaceutical markets. ScinoPharm faced extraordinary challenges particularly in the following aspects: 1) The size of the project required continuous fundraising, eventually reaching $250 million in the first 7 years, 2) Long lead time, a new business model, and lack of capital market for investment exit led to tremendous pressure from the investors, and 3) Cultural gap between the U.S. and local team created obstacles in project execution. Despite these challenges, ScinoPharm successfully built two world-class API facilities, one in Taiwan and one in China. It also successfully developed a sizable API business with sales reaching $150 million per year, specializing in anticancer APIs for global generic customers, as well as custom synthesis of new drugs for global new drug companies. ScinoPharm went public in 2011 with a market cap of >$1.3 billion and has won numerous awards from local and international organizations as the most successful new pharmaceutical business operation. The factors most essential for ScinoPharm’s success are: 1) Timely capture of local/regional resources for global

© 2016 American Chemical Society Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


market, 2) Experience and commitment of the founding team, 3) Market-driven business model and operating standards, 4) Project management standards and flexibility, and 5) Investment in people. ScinoPharm has been referenced as one of the best cases of “East meets West”, “Globalization of Business”, and “Futures take over from Past.” It is a good example that a new endeavor with innovative ideas could emerge from a senior team of corporate America. Startup excitements are not only opportunities for the young and fearless; old pros can also enjoy them.

Introduction ScinoPharm, an API company founded in 1997, was built in the wake of the 1994 Roche acquisition of Syntex (1). Designed to meet requirements in quality and product selections for both the global generic and new drug development markets, the company employs roughly a thousand staff with advanced education and has GMP facilities in Taiwan and China. When Syntex was acquired by Roche, the entire staff of Syntex was dismissed. This mass layoff of personnel provided an ideal opportunity to gather the best workers and build a new company. While at the time it was hard to envision, the result of the layoff actually created a lot of opportunities. Many companies in the San Francisco bay area today are composed of ex-Syntex employees, some becoming the founding members of companies such as Gilead. The story of ScinoPharm is no different. When ScinoPharm was formed, Taiwan was chosen as the corporate headquarters due to the government’s policy towards investment, with the government participating in the investment along with providing incentives for the investment. At the time of ScinoPharm’s inception, high potency APIs were most needed, particularly for oncology treatments, so the company was founded with this specialty in mind. Another impetus for the forming of the company at the time of ScioPharm’s construction was a law that had been passed in the European Union. The European patent office had just ratified a law called a Supplementary Protection Certificate, which prevented API manufacturers from producing ingredients for generic pharma companies prior to the expiration of a patented drug. This meant that if generic companies in the United States did not get APIs ahead of time to prepare to develop the formulations and file for approval, then several years later, even after the patent has expired, the originator would still enjoy the exclusivity of the market, and the victims of the process would be the consumers. Moreover, several years earlier in 1984, the United States had passed the Waxman & Hatch Law, allowing the production of generic products by the originators ahead of the patent expiration. The impact of this decision was not often recognized, but it effectively allowed generic companies to produce a cheaper version of a medication and launch immediately after the originator’s patent expired. Incidentally, under Obamacare there has been an increased emphasis placed on generic products. 110 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


Because of Taiwanese government’s role in incentivizing the initial investment, the preliminary fundraising for the company was $100 million - a much larger number than the $1-2 million that would have likely been secured had the company been founded in the United States. In 2011, fourteen years after the initial start-up, ScinoPharm went public. This timeline also contrasts with its silicon valley competitors, who typically try to go public within five years before the venture capital money runs out. Also of note, ScinoPharm has retained all of its original investors, none of whom have sold any of their shares. Currently, ScinoPharm has two plants—one in Taiwan and one in China. Both plants have received U.S. FDA and European Medicines Agency (EMA) approval and can produce oncology products as well as other products. The plants produce more than 70 APIs for generics, with 25-30 focusing specifically on oncology. Additionally, roughly 30% of the business is derived from new drug development companies, where products are still in phase I or phase II clinical trials. ScinoPharm also provides assistance with the process development of API, provides materials and support for drug submission all the way to product launch. To date, there are at least five ScinoPharm-produced products that have launched commercially in the United States as well as global markets. Since the time of its inception, ScinoPharm developed differently from other companies working in the pharma industry. In the initial years of pharma, big companies would develop products from start to finish in-house. However, the layout of the industry has changed over the past 20 years and moved into a fragmented model, with large companies farming out services to smaller ones specializing in specific niches within the market. API production differs from most production for several reasons. It is not analogous with standard chemical production because it must meet U.S. FDA requirements, and ingredient production is usually not via continuous operations, but more batch-based. Moreover, there is strong competition in the industry, the timeline for each development is unique, and the cost of investment is high relative to its return. Considering the limitations and potential pitfalls, ScinoPharm was still able to turn itself into a success story. In the globalized world, a company can be started anywhere and be successful so long as it overcomes all the challenges that the global market presents.

Success Factors for ScinoPharm There were at least five important factors that contributed to the success of ScinoPharm, as given below. Local Resources for the Global Market The local resources in Taiwan are immense and ScinoPharm was able to leverage them significantly (2). The Taiwanese government had identified API as a key area in which they were interested in investing and thus provided ScinoPharm with unmatched incentives to locate operations on the island. Out 111 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


of the initial $100 million dollars of start-up funds, over 40% was provided by the government. Moreover, other incentives such as tax reduction for investing in automation and environmentally friendly designs were offered by the government. None of the initial investors in ScinoPharm had a background in the pharmaceutical industry. There was a general belief held amongst the investors that a product could be launched regardless of whether the patent was still held by the originators. As a result of this (and other) misunderstandings, a large emphasis was placed on the need to educate everyone on the board about the rules of the industry. Even after 18 years of operations, some investors are still unsure what API is. However, the investors trust the management team and fully support the company. Speaking to this notion, it is important to reiterate that all of the original investors remain loyal to the company—something that is almost unheard of in Taiwan; in other business cases, most investors typically cash in at least part of their investments during the initial public offering (IPO). Many of the R&D programs were funded by the government with no strings attached. The size of the funding was often several million USD each time, and while the system for obtaining grants was bureaucratic, the payoff was enormous. Another unique aspect of locating a business in Taiwan is the investment structure. When a company is trying to raise money, they must provide a 10% quota for the employees to invest. This creates an environment in which the employees of the company are among the most enthused investors. Uniquely, when interviewing the first group of employees in Taiwan, the employees were less interested in when the company would go public and more focused on when they would be given an opportunity to invest in the company themselves. Despite the low income of beginning employees, when an investment opportunity presents itself, the employees’ entire family pool their money for the investment. As a result, employees recognize that their investment return may exceed their earnings and thus work incredibly hard to maintain and grow the company’s value. Strong Commitment from the Founding Team When the company was initially being set up, many of the initial investors questioned the wisdom of locating the business in Taiwan. However, after demonstrating the wisdom of the decision, more than 50 former Syntex employees from Boulder, CO and the Bahamas agreed to relocate and were nicely surprised by the natural beauty of the environment. Many of the initial team remained there, while others moved temporarily to hire locals and conduct training, and then returned home. Because of not having enough surplus money to pay the initial foreign consultants’ salaries, ScinoPharm foreign consultants were often compensated in company shares. Finally, after 14 years of development, these initial foreign consultants received a nice reward during the IPO. The locals still remain very closely in touch with the consultants even though they left over 10 years ago. This continuity emphasized by the founding team greatly served to strengthen the company. Moreover, the aggregate of experience and connections brought in by the founding team assisted the company in landing its initial business deals. 112 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


A Market-Driven Business and Global Operation Standards From day one, ScinoPharm responds to needs in the market and maintains global standards set by the markets at U.S., Europe, and Japan. These standards have been upheld in all facets, from the production facilities all the way to finished products, maintaining compliance with global and local IFRS, GMP, Quality, EHS and IP standards. Moreover, ScinoPharm also ensures that all their suppliers are in compliance with the required standards; thus, compliance is strictly maintained and all of company’s customers’ needs are also fulfilled. ScinoPharm also works to anticipate customers’ needs, working closely with them in selecting and managing products, quality and cost, in addition to the timing of the development and commercial launch. As an industry rule, it is very common to spend time and money to develop products ten years in advance. The price is always on the decline; the cost is the highest on the first day of launch. As a result, it is essential to have a secondary technology ready and filed. In anticipation of diminishing returns, a new generation of the product can then be swiftly brought to market. This type of “corporate chemistry” is very important to maintain profitability and sustain the business. Strict corporate governance is also very important to ensure that investors’ interests remain well protected and that companies are practicing everything ethically. Interestingly, in Taiwan even if a company is not a public company, the government reserves the right to exercise control over ethics and good business practice. Project Management Standards and Flexibility In the United States, project management and timelines are a minimum requirement, but in Taiwan they are less popular and used differently. ScinoPharm introduced project management to their staff members, but in certain aspects, allowed them to devise their own ways to get things done. This created modern project management tools that adapted well to local practices, the main criteria being that standards of timing and quality had to be maintained. A large part of the negotiation process had to be conducted with the local government to ensure that there were no major obstacles hindering the achievement of business goals. However, the project proved to work well and the highest business ethics standards were upheld. Investment in People As mentioned earlier, the founding team stayed with the business for at least three years. By the time they finally departed, they had left the local team technically and functionally well prepared. Furthermore, a few founding team members stayed on even longer. Notably, the CEO (the author of this article) stayed for 17 years, leaving three years after the IPO. Oftentimes when employees leave a company, the reason for leaving has nothing to do with their salaries or what they do in their job; rather, it relates more to what they can look forward to in the future. If they do not feel like they are 113 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


learning anything in a company, sooner or later they will leave. To further increase the investment in people and counter this tendency, ScinoPharm organized professional management training and organization development programs within the first two years of employment in the company allowing employees to grow and expand their knowledge of the industry. As a result, the company, over the past 17 years, has trained 125 people from 6 separate tiers who now make up the company’s management structure. Moreover, when the company expanded into China, the team was able to set up all the operations without hiring outside consultants, an achievement they attributed to the accumulation of management talents from their management training programs.

More Personal Observations on ScinoPharm •

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There has been an increase in funding in Taiwan from angels and venture capitalists (VCs) as the result of new regulations allowing biotech companies to go public. Employees now work very hard as a direct result of being given opportunities to co-invest in the companies they work for. The company itself is directed by the board and managed by professional managers. The positions on the board are distributed based on ownership of shares. The chairman—being the number one shareholder—is responsible for all company issues. Most of the people involved have a very rich set of technical expertise in the operational area, but very few have global or business experiences. A common mistake when assessing the value of a team member is to assume that the ones who speak the best English are the most intelligent. Such an assumption has proven to be very misleading. The vast majority of the employees are very loyal and display good business and work ethics. Some of the work ethic in Taiwan is cultural and is a holdout from the times of Japanese occupation of Taiwan. However, the company has experienced very strong and positive work ethics from its Chinese facility as well. Employee ownership is incredibly important because everyone then has a stake in the company’s success; they own the company and want to see its value grow. The Micro Electronic Mechanical System (MEMS) is very famous in Taiwan and ideal for developing medical devices and for manufacturing. As a result of the success of this system, many medical device producers are beginning to ship their factories to Taiwan. There are many diseases that are endemic to Asia and are not being covered by Western pharma companies. This provides opportunities for companies in Taiwan as many research programs have been set up to study these diseases. It is possible to trade stocks prior to the IPO. Also, all shares become equal in value at the time of the IPO.

114 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.

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Any perceived superiority displayed by the founders becomes a weakness. Instead, weaknesses and shortages in the local environment are opportunities and the exact reason for the foreign founders’ existence. It is important to bring out the best from the cultures of the East and the West. Western and Eastern cultures are very different from each other. Your personal commitment to the company means certain sacrifices, be it financial, family time, compensation, or lifestyle. Your heart has to be in the project. If it is truly your passion, then it does not feel like a sacrifice. Starting a company is like getting married—you have to believe it will work.

References 1. 2.

ScinoPharm Taiwan, Ltd. http://www.scinopharm.com/ (accessed Aug 1, 2015). PWC. Doing Business in Taiwan; http://www.pwc.tw/en/publications/doingbusiness-in-taiwan.html (accessed Aug 1, 2015).

115 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.

Careers, Research, and Entrepreneurship : How To Start a Business

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